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ERP and Shared Services: What You Need to Know About Standardization and Centralization

On one hand, standardization presents an opportunity to achieve potentially significant economies. Through the creation of a shared or global IT services department – for example – companies can eliminate or downsize redundant IT departments at the business unit level. Standardization will probably also present other opportunities. For example, it may provide corporate headquarters with enhanced visibility into all of its operations. It may also provide opportunities to improve competitive positioning. To that end, by centralizing and consolidating purchasing functions (for example), companies might be able to exert stronger buyer power over its suppliers.

On the other hand, the costs of ERP standardization or consolidated IT support services could outweigh the potential benefits. We work with companies that have mandated a particular ERP system on their respective subsidiaries. In some cases, there’s no issue. In other cases, the ERP system simply wasn’t designed for the subsidiary’s operations. In almost all of these latter types of cases, corporate headquarters effectively knocked the knees out of its own operating subsidiaries for the sake of a corporate policy that favored centralized control. They never asked whether their corporate policies made sense in those particular circumstances. Had they done so, they probably would have realized that the intended policy benefits simply weren’t going to materialize.

Developing an appropriate standardization and services delivery model is challenging. An organization needs to find its position on the spectrum between the two following extreme bookends: full centralization through shared or global services and full decentralization (i.e. where each business unit has full autonomy over its ERP-related decisions and services delivery).

Rarely does any company operate at either extreme of the spectrum. A company’s ideal positioning on the spectrum is determined by a whole host of factors that extend beyond mere corporate policy.

When advising companies on strategies for ERP standardization and consolidated IT services administration, we rely on the following model:

  • Corporate Business Model. The key here is to determine the organization’s tolerance for centralized control. The higher the tolerance, the greater the likelihood that an ERP standardization and services consolidation project will succeed. It’s important to note that this assessment should be undertaken from from the perspective of both the parent company and its various operating business units. Often, there’s a degree of conflict between a corporate desire for centralization and a business unit desire for autonomy. Other considerations should include growth models and expansion opportunities. For example, plans for acquisitions or to operate non-overlapping businesses may weaken the case for standardization and centralization.
  • Operating Business Unit Models. In this part of the analysis, we want to assess client-side issues that support or weaken the case for ERP standardization and/or services centralization. A situation where business units operate fundamentally different businesses that serve different markets would, for example, weaken the case. For one, the different units might each benefit from a different ERP system. Further, it might be too much to ask of a shared/global services department to support different business models and systems. Conversely, an overlap in the business models of the underlying business units might strengthen the case for ERP standardization and services centralization.
  • Geographic and Cultural Complexities. The ability to serve geographically dispersed operations needs to be considered, including travel requirements and the need to accommodate multiple time zones. Although organizational culture isn’t determined by national culture, it’s certainly influenced by it. Companies need to assess both the extent to which and the manner in which a business unit would be prepared to adopt corporate initiated changes.
  • Global/Shared Services Model. The extent of centralized responsibilities needs to reflect resource capabilities. If headquarters intends to replace all business unit level support with centralized support, it should make sure that its services department has the requisite level of business savvy relating to business unit operations. Remember, ERP is as much about business process as it is about technology. What many companies find – particularly with lean shared/global services groups – is that it makes sense to split responsibilities between the centralized services department and the business unit.

In the final analysis, there is an almost infinite array of possibilities when it comes to ERP standardization and related services delivery. Each company should look to develop an ERP and services strategy that fits with its existing business models, as well as its visions for the future.

At Pemeco Consulting, we’ve been helping multi-site, multinational companies achieve ERP success for decades. Whether your company is large or small, you can leverage our extensive experience. We can help you develop an ERP strategy and services delivery model that’s right for your business.

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