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Don't just factor TCO into ERP consolidation, Forrester says

As application landscapes increase in complexity, organizations are looking to consolidation to cut TCO. But tools like capability maps should be employed to ensure the best ERP consolidation strategies.

With the cost of integration a chief concern, many organizations are looking to  ERP consolidation to drive down TCO. But consolidating applications with a primary ERP vendor isn't always the best solution, according to a recent Forrester Research report.

ERP consolidation best practices call for IT professionals to think more abstractly -- in terms of function, not feature. They need to first put more attention into developing a capability map, then fill in features with a strong knowledge of vendors' product roadmaps and governance policies.

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"There's a big drive from IT to make it simple, make life easy, TCO and so on. But you need to do some analysis before you decide, 'Shall I consolidate everything or not?'" said George Lawrie, principal analyst at Forrester Research. "It's not just a TCO argument."

ERP customers' application portfolios are becoming increasingly complex, with many organizations spending more than 10% of their IT budgets on ERP integration in an attempt to harmonize hundreds of custom and point products, according to the report.

A total of 28% of the 90 organizations surveyed ran more than 100 custom applications, and 27% ran 100 or more packaged point products to address ERP shortcomings. About half of the organizations surveyed ran SAP ERP.

Achieving a balance between the diversity and the differentiation to keep costs down and keep things simple is the challenge.

To get started, put more work into capability maps – which provide a picture of the business-to-IT architecture. They should relate business capabilities and their outcomes to business processes and functions, IT services, and hardware and software, according to Forrester.

Determine what the key factors are for the organization's success – what capabilities support the competitive position and what capabilities could improve that position, Lawrie said. Factor in data from line-of-business colleagues about how the firm's customers make their buying decisions, then get intelligence about competitors' capabilities.

IT professionals should draw up a list of four or five success factors and then form an assessment of how it will support those capabilities relative to how competitors support them, according to the report.

"This way, [IT] can begin to prioritize the capabilities they need to drive an improved competitive position quite independently of the means of delivering the capability," the report reads. "The smartest IT professionals will create a framework for sustainable competitive advantage by ensuring that maximum IT effort is focused on continuously delivering superior capabilities supporting key factors for success."

In turn, IT pros should maintain an application catalogue that identifies software titles and releases, licenses and entitlements, and usage history. When local solutions and requirements are documented in native languages, use tools from vendors like Troux Technologies, the report suggests.

In filling in what software will be used to deliver on this functionality, it's important to pay close attention to vendor roadmaps. Gain more influence by participating in customer advisory boards like those offered through  ASUG, Lawrie recommends.

Finally, work with the CIO and CFO to establish and enforce rules that govern commitment of the IT budget, the report advises.

Establish a forum for capability map endorsement. Capability maps should be frequently reviewed with line-of-business colleagues. Senior architects should be in charge of each business unit in order to understand the plans and interpret how they fit into the overall IT strategy, according to the report.

In turn, make the use case library public in order to get greater buy-in and to prioritize projects.

"The touchstone for agreeing to or disallowing any expenditure should be the extent to which it improves the portfolio's support for the agreed-upon key success factors," the report reads.

As always, pay attention to change management, and know that it won't be easy. Start with financial processes, Lawrie said. There won't be as much resistance to consolidating report-to-report and purchase-to-pay – which show more uniformity than operational or manufacturing processes.

"Most consolidation initiatives are treated with skepticism, if not downright hostility," the report reads.

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