One of the most vexing IT issues facing large companies is deciding when and how to integrate the disparate “instances” of ERP software scattered throughout the organization. AMR Research suggests that companies begin by asking why. In studying more than 60 companies in various stages of ERP consolidation, AMR found that such projects cost about $10 million for every $1 billion of company revenue, and that the typical 25 percent reduction in IT costs that results is not enough to justify the expense. Instead, the potential benefits vary greatly from one company to another, and depend on corporate goals and strategy, particularly a company’s appetite for growth through acquisition.
The nature of the supply chain also factors in. Companies that have multiple manufacturing and distribution sites for the same products and want a global view of materials available, finished goods, and global coordination of sourcing and suppliers are wise to consolidate. Conversely, companies that lack and do not want to achieve common business processes, customers, and supply-chain management across divisions have found that consolidation does not ultimately pay off. Even when there is a solid business case for consolidation, AMR warns that the change-management issues are significant and that the project should not be viewed as an IT issue, but as a broad transformation of corporate practices.
HP Splits The Difference
One year after its merger with Compaq, Hewlett-Packard is positioning itself to corporate customers as the sensible third option to IBM and Dell. “IBM is high-tech, high-cost, and Dell is low-tech, low-cost,” claims Jeff Clarke, formerly CFO at Compaq and now executive vice president of global operations. “We’re high-tech, low-cost.”
Clarke points to HP’s $4 billion R&D budget as proof of the high-tech part of the equation. The company is spending heavily on tablet and multimedia PCs and wireless technologies, among other areas. As for low-cost, he cites HP’s commitment to standards, and its impressive postmerger cost-cutting, which racked up $3.1 billion in savings in the first nine months, far outpacing the company’s original pledge of $2.5 billion over two-plus years.
Analysts have grumbled that with cost-cutting taken about as far as it can go, HP has yet to demonstrate any real growth. The company did score a major victory when it landed a massive outsourcing contract with Procter & Gamble earlier this year, a deal that Clarke says a premerger HP never would have been able to handle.
While that was clearly a shot across the bow of IBM’s Global Services division, HP seems more intent on fending off Dell than on trumping Big Blue. Company executives are quick to catalog Dell’s alleged shortcomings as the PC giant readies a broader assault on the corporate IT market. “Dell aspires to be us,” says Clarke, “but 80 percent of their revenue comes from PCs. They don’t innovate. We created the server market. We roll out 50 new printers every six months.”
HP contends that Dell is weak in services and averse to creating its own intellectual property, two points hotly disputed by Dell CEO Michael Dell. Last fall he pointed to the company’s 750 patents as proof that it is “more than just a sales channel.” Will the new HP face a challenge from an even newer Dell? Quite possibly, which will make the year ahead even more interesting than the one just ended.