On CFOs and the implementation of ERP Solutions

Beyond the CFO: A Broader Perspective on ERP Selection

It is a common practice within many organisations for the Chief Financial Officer (CFO) to be the sole decision-maker when it comes to selecting or implementing an Enterprise Resource Planning (ERP) or financial management system.

The CFO’s expertise is invaluable but this approach can have significant implications for the entire company. While it may seem counterintuitive to entrust a single individual with such a critical decision, there are several reasons why CFOs often take the lead on ERP selections. They possess the financial expertise, they own financial processes and they have a final say on the company’s finances – including capital expenditures.

While CFOs bring valuable expertise to the table, a sole decision-making approach can lead to several drawbacks. A single individual, no matter how experienced, may not have a comprehensive understanding of the organisation’s diverse needs. The decision may be influenced by their own preferences or past experiences, which may not align with the company’s long-term goals. A poorly implemented ERP system can have significant negative consequences, including operational disruptions, financial losses, and reputational damage. In 2004, HP attempted to implement multiple enterprise systems across their offices. The project was plagued by poor planning, unrealistic timelines, and lack of employee training. The project was eventually abandoned after billions of dollars in losses.

The Risks of Solo Decision-Making

When a CFO drives an ERP implementation in isolation, the system often reflects their specific needs and preferences, rather than the broader company requirements. This can lead to a host of commonly found issues in this order:

Unfortunately, the above issues are picked up too late, often by external business analysts, engaged to ‘spec’ a change of system. The cost of failure at this point would have way outweighed the engagement of a wider team. In 2021 the US Airforce cancelled a $5 billion, 8-year Oracle ERP implementation, known as Expeditionary Combat Support System. In 2020, Accenture was tasked with a $90 million reboot, but fundamental organisational changes were necessary to turn the project around.

The US Airforce is not alone. Numerous companies suffer in silence the significant consequences of a poorly implemented ERP. Failures lead to slow and painful operational disruptions, inefficient processes, delayed production, and supply chain bottlenecks – all of which can cripple a company’s ability to deliver products and services. The resultant effects are financial losses emerging from increased costs, decreased revenue, and damaged customer relationships, eroding profitability and shareholder value. A good example here is Hershey’s 1999 attempted ERP implementation that went disastrously wrong. The new system failed to integrate with existing systems, leading to severe distribution problems. Hershey’s was unable to fulfil $100 million worth of orders, resulting in lost sales and a 19% drop in quarterly profits.

To mitigate these risks, it is essential to involve a broader range of stakeholders in the ERP selection and implementation process, including representatives from operations, sales, marketing, and human resources. A collaborative approach can ensure that the ERP meets the needs of the entire organisation and is adopted by all users.

An ERP system is more than just an accounting tool. It is the backbone of a company’s operations, influencing all the order to cash process. The Board of Directors, as the ultimate decision-making body, should watch this space carefully and play an active role in assessing the organisation’s current financial infrastructure and determining whether it aligns with long-term goals. Equally so they would be wise to engage external consultants who can provide a fresh perspective and challenge the status quo.