The Significance of an Objective ERP Selection Process for PE Firms
Why should PE firms care about proper, non-biased, objective, and vendor-neutral ERP partner and ERP selection process? In the dynamic landscape of Private Equity (PE) transactions, the importance of a proper, non-biased, and vendor-neutral Enterprise Resource Planning (ERP) partner cannot be overstated.
CFO Selection Parallels to ERP Selection
Consider the process of hiring a Chief Financial Officer (CFO) – a meticulous approach involving thorough resume reviews, in-person interviews, and often external recruiting firms. Why? Who would hire a chief financial officer (CFO) that doesn’t understand the business model, doesn’t have appropriate industry experience, doesn’t have the needed functional skill-sets, doesn’t understand finance and accounting best practice, doesn’t have the ability to accurately and timely present financial reports, is someone you can’t trust, is someone that lacks growth capability, or is limited in their ability to provide effective and efficient business intelligence? No one. You take the time to review resumes, hold in-person interviews, and usually have multiple feedback as to CFO selection. You sometimes hire outside recruiting firms to assist in the selection of CFO and financial team selection. Hiring someone to manage your money is a serious business and responsibility. Executive recruiting firms know this well. You take the time to find the right fit for the business. ERP solutions are also essentially money managers. And, the fact is, ERP vendors and ERP solutions are not created equal.
ERP as an Organizational Financial Hub
Why should PE firms care about an objective ERP selection process? Because ERP transactions are dollars. ERP transactions represent organizational time, money, and effort. And ultimately, they represent and drive your GL, Balance Sheet, and P&L. There are significant demands (especially for PE M&A activity) for assembling the right people, processes, and systems in an effort to improve business operations, improve EBITDA, improve sales, improve profits, and/or increase market share. These are all critical to the health of any organization. ERP systems in a way act as an organization’s internal bank, financial advisor, accountant, and auditor: they manage and direct your money by providing a tool in which to manage and direct your business and operational transactions.
The Critical Role of ERP Transactions
Although a digital tool, ERP systems also provide crucial financial functions: to effectively guide, control, audit, and manage dollars. Accurate and timely visibility to your dollars is critical, and therefore, accurate and timely ERP transactions are also critical. ERP transactions (for the most part) represents either the transfer of a dollar or the transformation of a dollar. Just like T-accounts are a visual representation of individual financial accounts, the ERP system is an operational representation of the business transactions that ultimately drive your T-accounts and balance sheet.
Would you trust just anyone with managing your money in the most effective and efficient way possible? A knowledgeable and an objective ERP selection process is a competitive organizational advantage.
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