IT’S ALIVE
On the critical list eight years ago, ERP has survived, adapted, and grown. Asia’s CFOs are finding new reasons to embrace it.
By Simon Littlewood

It works. It adapts. It grows. ERP looks pretty lively for a corpse.

Eight years ago, Tom Siebel, founder of Siebel Systems, a maker of sales-force automation and customer-relationship management (CRM) software that was eventually bought by Oracle, told The Economist, “Enterprise resource planning is kind of a wasteland. The back-office market is just horrible. It’s saturated. Everybody has it and the store is closed.” Like most absolute statements, this one has been substantially diluted by time and circumstance.

The ERP of yore, designed for companies organized for a world before the Internet gained general currency and global accounting standards took hold, is disappearing. But the causes that drove the development of ERP in the first place—the need to capture, via company-wide software, critical information for accounting and sales—have become essential to success in Asia’s expanding markets. Therefore, a newer, more adaptable type of ERP has emerged, championed by a new generation of CFOs who cast a jaundiced eye on easy claims made by ERP vendors and “solutions providers.”

“When I talk to colleagues in other industries who have worked with major vendors like SAP or Oracle, I hear similar stories—great expectations, frequent disappointments,” says Arun Kumar, the CFO of Carrier International’s US$1 billion Asia-Pacific residential and commercial division. But, he adds, “I think no one disputes the essential value of what ERP can give you.”

Growth figures by Gartner, the technology research firm, suggest that Asia’s CFOs continue to embrace ERP, despite its disappointments. Yanna Dharmasthira, a Jakarta-based Gartner analyst, estimates that ERP vendor revenues—from sales of licenses and maintenance—will grow by 15.7 percent in 2008 in Asia-Pacific (outside Japan), despite a slowing global economy. She expects the total ERP software market in the region to reach US$1.6 billion this year. The five-year annual growth rate for Asia is 13.7 percent—higher than any other part of the globe over the same period.

These figures suggest that new conditions in Asia may be pushing CFOs towards a reconciliation and new-found approval of ERP. “When I look at what is going on in Asia, right now,” says Kumar, “I see cost volatility everywhere, in the price of oil and other commodities. I also see growing pressure on MNCs to find growth to plug the gaps appearing in the U.S. and Europe.”

“If you want to be flexible, responsive, and drive growth based on empirical data rather than gut-feel, you need an ERP capability. Full stop,” he adds.

The Incredible Journey

Like many CFOs who have struggled with ERP, Kumar casts his experience with the software as a personal journey. “I can remember when Baan (an early ERP application developed in the Netherlands) was a revelation,” he recalls, “because for the first time we could get integrated data on operating costs and derive meaningful margin and profit numbers—quickly and without having to combine data from multiple sources, which took time and affected our ability to make critical decisions.”

Kumar is by any account an ERP-savant: he led his company’s Baan-implementation team in Europe in 1995-96, an SAP implementation in Egypt in 2000 and in France in 2001, and in India from 2003-2004. He continues to drive SAP activity in Southeast Asia.

“It’s been a voyage of discovery, starting with Baan in the mid-‘90s and continuing even now,” says Kumar. “The benefits of having an integrated view of financial performance, and the planning capability that that gives you, are clear to most CFOs. But in my experience there is often a big gap between aspiration and reality—and where ERP has failed has as much to do with the dysfunctional state of ERP suppliers as with the capabilities of their customers.”

Kumar remembers the 1990s, when, with double-digit demand growth, ERP vendors were growing at a fast clip—too fast, as it turned out in some cases. “Baan had a great product and a great process for figuring out customer needs and configuring to them,” he says. “But after an initially good experience, we saw their capabilities diminish—they could not get, train, or retain the capabilities they needed to meet demand. Rather than manage growth, they sacrificed quality to profit.”

Kumar’s story is a healthy reminder that ERP arrives with caveats attached. A vendor may get in over its head and get purchased, as Baan eventually did. Another risk lies in execution. An ERP implementation involves multiple functions and affects the way nearly everyone in the organization works. Kumar warns that it is easy to underestimate the challenge and resources needed. “Get the people and skills you need, including full-time skills,” he says. “Don’t just take the bodies that happen to be available.”

Consultants often advocate a move to ERP as an opportunity to optimize business processes. This is fine in principle, Kumar says, but without the right analysis—or if the time pressure is too great—businesses often end up mapping the system to existing processes, with their inherent weaknesses. Worse still, they may end up mapping to an ERP analyst’s view of what the process should look like. “This could be based on a very limited knowledge of your business or a hodge-podge of previous templates used for other clients,” Kumar says.

Seeking a New ERP

Enrico Nora, the CFO of interTouch, a provider of telecommunications services to hotels globally, is also looking to ERP to support Asian growth. Singapore-based interTouch has operations in 53 countries. But the lion’s share of the company’s US$170 million in sales—some 90 percent—comes from Asia.

Nora has a favorable view of ERP stemming from his using SAP in 2003 as a finance director for an HP business unit in Asia. At the time, HP extended its SAP adoption to include a new project profitability module that helped capture costs associated with complex projects involving hardware, direct labor, and third-party participation (See “Change Agent” in CFO Asia, May 2008). “It quickly proved its worth,” Nora recalls, “and became an invaluable tool.”

Now, he says, “our challenge is slightly different. Like many businesses, we are under cost pressure.” The company’s management is in agreement about what benefits they seek from ERP—like transparency, consistency, and the ability to make informed decisions quickly. “But we do not want to make massive investments,” he says. “Plus, given our size we are concerned about devoting too much time and resources.”

Nora admits he is in the market for a solution: “We are busy integrating businesses—from an entity and process perspective. The right IT solution could really enable this—but should we be thinking ERP or an application service provider?” Like many a CFO before him, Nora is balancing the scalability and cost benefits of an application service provider (ASP) solution, which allows access on a per-seat or per-use basis to an application that runs on someone else’s server, versus an in-house solution.

Cost makes the ASP solution attractive. “As usual in these cases we like the cost benefits,” Nora says. But he wonders, when dealing with sensitive information like customer data and costs, whether it’s too risky to house this information on someone else’s server.

Other types of growth businesses in Asia are casting around for alternatives to the traditional “big-box” solution of opting for SAP or Oracle. Frank Leong is CFO of Trinity Ltd., a new retail unit of Li & Fung, the Hong Kong supply-chain and trading company. Leong, for many years the CFO of the Li & Fung parent company, has been put in place to launch Trinity. He is now mulling what type of ERP capability is best suited to the new company—and most compatible with its Li & Fung parent.

“The question,” Leong says, “is whether to build your own proprietary system or go the established route, with a traditional package and very expensive consultants.” There are advantages to both options. A proprietary system demands hiring a specialist to build ERP software from the basics, taking into account the data-capturing requirements of the company. The key advantage to a proprietary system is greater security. A disadvantage is compatibility with business partners. For example, financial institutions are developing interfaces to ERP systems to align banking services with internal information. Proprietary systems are harder—read costly—to connect to the banks. Leong also says that fixing a proprietary system can lead to having an “ERP package that’s covered with band-aids.” Too many repairs can make the system so complex that it’s hard to upgrade basic ERP functions. “You don’t dare touch it,” Leong says.

On the other hand, says Leong, blue chip systems are overly rigid. “Businesses change and programs have to be flexible enough to modify for that change,” he says. The last thing a company needs is slower data flow as a result of venturing into new territory or new businesses.

Ramping Up

Mulling how best to use ERP in new markets is a daily preoccupation for Giri Giridhar. Giridhar is the CFO of Aditya Birla Retail, a company launched last year by India’s Aditya Birla Group to make an aggressive jump into the nation’s competitive retail market. Giridhar has opted for a blend of proprietary and packaged solutions based on an Oracle platform. He sees the right package as essential to survival in an arena that features powerful entrants battling over a relatively small—but fast-growing—domestic market.

“Getting the right architecture is crucial. As we expand, we expect to have as many as 500 stores, with between 60,000 and 70,000 SKUs (stock-keeping units),” Giridhar says. The configuration he has opted for includes financial- and retail-management systems by Oracle, a space-management system for warehousing by Infor, and a system to incorporate point-of-sale information called TP.Net. “What we’re eventually seeking is real-time information to allow us to make decisions on pricing and inventory,” says Giridhar. Margins in the retail business are tight and incremental advantages in pricing and savings may help a new player like Aditya Birla Retail stay on its feet in the scramble for market share.

Although he has hopes for this Oracle-based solution, he still wishes it were easier. One source of friction is the relative lack of localization by the big ERP vendors. “The available ERP packages are geared to a very Western tax regime—nothing reflects the reality in India.” Another complaint: despite the growing demand for sophisticated ERP in Asia, few local consultants have emerged with the knowledge and capability to offer the kind of customized solutions required by Aditya Birla. “When it comes to complex ERP, the local vendors are just not available,” he says.

Giridhar even sees an opening for the traditional players here. “SAP and Oracle really have an opportunity here,” he says. “They should invest against the curve.”

Simon Littlewood is a frequent contributor to CFO Asia.