Enterprise resource planning (ERP) systems form the backbone of many organizations’ IT infrastructure. They integrate financial and customer information, standardize and expedite business processes, manage inventory, and catalogue human resources information. These systems reach nearly every department within an organization, yet few employees truly understand their scope — ask five departments why they use ERP and you’ll get five different answers.
While ERP systems are innately fused into crucial business processes in an organization, there are some tradeoffs. Simply put, any ERP system is a jack of all trades, yet master of few. And although the systems excel at managing basic financial transactions and customer information, they struggle with higher-order tasks — such as managing complex incentives, rebates and accruals.
The inability to manage anything beyond basic incentives is significant, since many organizations rely on rebates and promotions to drive sales through channel partners. However, ERP systems aren’t always up to the task: They’re unequipped to manage complex rebate programs, offer no visibility into incentive performance, and lack flexibility. These three gaps make implementing and managing effective incentives nearly impossible when solely relying on ERP. Let’s look at each shortfall and a potential solution for squeezing more value out of an ERP system.
1. Vanilla rebate management. When it comes to incentive programs, sales and marketing teams follow the mantra “bigger is better.” Often, marketing teams strive to develop complex incentive programs that will excite partners and encourage them to move more products. These programs are lucrative to organizations and partners alike, but ERP systems simply can’t handle complex transactions and therefore limit the success of channel partners, negatively impact margins, and ultimately hurt the bottom line. According to a commissioned Forrester study titled “The Power of Three,” the largest frustrations that manufacturing and technology firms have with their current solutions are the limited type and volume of incentives they can offer partners, and the inability to respond to partners’ incentive questions in a timely fashion. In essence, ERP functionalities dictate the types of incentives organizations can run, placing IT in charge of marketing and sales promotions. And the resulting limitations can hold back revenue growth.
2. Limited visibility. At a time when companies must dance around thin margins while answering the continuous cry from upper management to grow income, rebate programs need to be top-notch and immediately effective. It’s hard to ensure the success of promotions without real-time visibility into program performance as a way to assess program strengths and replicate profitable programs in the future. As ERP systems stand, most lack the visibility needed to analyze promotion and rebate performance. Standard transactional reporting in ERP systems is cumbersome at best, and often doesn’t provide the level of detail or speed required to make critical decisions in the desired timeframe. “The Power of Three” found that 35 percent of respondents were concerned about answering a partner’s incentives questions in a timely fashion, suggesting that “it’s hard for firms to easily access the information to answer those concerns because the data either is held in several different systems (so it is difficult to aggregate) or hasn’t been fully captured by the current solution.” In addition, 25 percent of organizations struggle with lack of insight into performance. Without immediate insight into promotions, organizations can’t respond to customer needs or make critical business decisions as they arise. The lag time often frustrates partners and can damage relationships, channel performance, and ultimately revenue streams.
3. Minimal flexibility. Organizational needs can change at the drop of a hat, but ERP systems can’t. These systems traditionally take months or even years to implement. System loyalty and long-standing ERP relationships, coupled with the depth and breadth of ERP systems, make them hard to change on a whim. Updates are infrequent or rarely implemented, and new product models often require significant customization or extended periods of downtime. ERP manufacturers tend to only shift their programs when a critical mass of clients expresses a need for change, but even that can take years to maneuver through the ERP development cycle.
While ERP systems lie at the core of many organizational processes, they also suffer from obvious gaps in rebate management capabilities. Since organizations invest millions of dollars in their systems’ infrastructure and experience significant hurdles when attempting to change current settings, they need to seek solutions that will leverage the value of their existing ERP systems, while also providing answers to current pain points.
When searching for an ERP solution, companies need to implement a solution that satisfies the majority of their needs, and then supplement that system with third-party bolt-on applications. These applications are typically faster, more targeted, and more flexible than traditional ERP systems, but work with existing infrastructure. Targeted bolt-on solutions provide the advanced functionality required to address complex rebate structures while minimizing disruption to existing systems. Adding complementary solutions to current ERP processes is the best and fastest way for organizations to gain much needed functionalities and differentiate themselves through creative incentives while also accelerating return on both investments.
ERP systems weave themselves into the IT infrastructure of top organizations. While they excel at managing fundamental financial transactions and organizing customer information, they all but run and hide when faced with complex incentives. Traditional ERP systems are filled with gaps, including limited visibility into incentive performance, minimal flexibility, and inept complex incentive management capabilities, exposing organizations to revenue leakage.
But by building on an ERP foundation through bolt-on applications, organizations can better leverage their existing investment while pursuing incentive strategies that please partners, drive new revenue, and bolster their bottom line.
About the Author
Joe Alphonse is Product Marketing Manager at Revitas and blogs on The Revitas Blog. He has experience in innovative technology solutions and services in multiple industries, including enterprise software and business information. At Revitas, Joe focuses on solutions that unite core processes for contracts, pricing, and compliance in the manufacturing and technology industry verticals.