Your ERP Can't be Your Financial Operations System. Here’s Why!

ERPs have supported finance operations for long. But a modern internet business needs much more efficiency in operations. Can ERPs suffice?

Enterprise Resource Planning (ERP) tools first broke into the world of finance in the 1990s and promised organizations a new era of connectivity and control over their financial data. They provided organizations with the ability to collect, centralize and display crucial information from a variety of systems. The ERP system became an accounting tool, a payment processing tool, an expense system, and more, rolled into one package.

However, given the growth of the convenience economy, multiple digital payments, and an explosion of financial data, are ERP systems enough for your business? Will an ERP be able to support the finance initiatives at your fast-growing business?

The Rise and Fall of ERPs

ERPs were created to support a business’s financial and operational processes by collecting, managing, and interpreting data from different business activities. Their original intent was to provide unification to organizations, at a time when the number of business tools was growing. Organizations required data sharing and instant access into the holistic view of their operations and started leveraging ERPs.

ERPs were able to serve the purpose of unification. They were also able to automate the process to a certain extent so that finance teams didn’t have to maintain separate spreadsheets and databases or cross-examine them frequently. For a while, ERPs were a big hit with businesses.

Over time, though, the cracks began to form and shortcomings of ERPs started to surface. For one, ERPs were only able to ‘collect’ data. Which meant that data still needed to be put in manually or uploaded through a spreadsheet. If the amount of data starts increasing, the manual work will begin.

Additionally, with the onset of digital transformation in finance, organizations began to have higher expectations from their system. Maybe a particular ERP had a CRM tool, but was it the best on the market? Perhaps the ERP offered a great expense management system, but their accounting tool was not up to the mark. As different tools began to surface, organizations started to invest in systems offering better pricing and quality and setting them up along with their ERPs, which resulted in the very challenge ERP was meant to counter: disparate systems.

And the growth of such systems一 some comprehensive, some specific to a business一 is not going to cease.

Amit Dani, Head of Finance and Accounting at 6thStreet.com, an omnichannel online marketplace for footwear, clothing and accessories in the Middle East, says, “With increasing complexity, volumes and available information, IT architecture is not limited to traditional ERP. On a daily basis, we deal with a number of systems for transactions, accounting, inventory management and planning, purchasing, CRM and many more. Traditional finance systems are not equipped to handle big data and rapidly evolving business needs.”

Do ERPs belong in your fintech stack?

Yes. Yes, they do. As a centralized accounting system of record-keeping, it still serves a purpose in the finance team’s tech stack.

But should your entire financial operations be centered around ERP? Probably not.

The idea with ERPs was that if everything was centralized, each tool would be able to connect with the other. Business leaders would be able to have a unified look throughout each category of the business. Although ERPs can provide a high-level understanding of different parts of your business, how usable is that data for your team on a daily basis? Can you drill down to find the root cause of an issue? If your ERP is not able to provide actionable insights that help you strategize for the future, you probably need to supplement it with some other tool.

Amit says, “In our organization, we are using a mix of various tools for reporting and reconciliations, an ERP being one of them. However, this system works well to gain a consolidated understanding. Right now, ERP lacks the capability to do a granular analysis and provide us with actionable insights. As the volume of financial data grows, your processes and systems get old, and you would need to switch to better technology.”

Additionally, with so much more data being produced than ever before, it is taking harder and longer to process. ERPs still rely on manual inputs, which means if some operational data is not manually entered into an ERP system, your ERP may not even know it exists. Not only lack of data can hamper your understanding of your business, the manual processing also means that data can become obsolete very quickly- in a matter of minutes if you’re a vast internet business such as Dunzo.

Neelam Purohit, Finance Manager of Dunzo, describes this challenge:

“Analyzing your financial data can give you deep insight into crucial metrics, such as gross margin, revenue, and so on. But financial data keeps changing, due to which analyzing it and planning the next steps is almost impossible to do manually. Information is required in real-time, but complex systems and ever-changing databases make it difficult to form a real-time picture of the organization’s operations.”

Moreover, most ERPs still lack the mobile capabilities that now many organizations need. With working from home options becoming more and more popular and with team members on the move, it is hard to access required information in your current ERP system without being present at the desk.

Your finance teams deserve a better financial operations platform

Your data needs to be centralized, but it should also have the capability to pass freely and unite with datasets from a variety of tools to paint a more holistic picture of your business. Neelam remarks, “The world of finance is changing rapidly. Consider how ‘buy now, pay later’ has changed our online experience. People don’t even need a credit card anymore. The trends of payments, accounting, reconciliation are changing, and finance teams will need to move with this change.”

A backwards-looking system of record that is consistently days, weeks, or even months behind is just not good enough. While ERPs do their best to join together data on what’s already happened, forward-facing finance teams require a modern fintech platform that can reveal information in real-time so that they can steer the business in the right direction. And the unification of data is not enough; your platform also needs to unify the insights received from multiple sources, ranging from purchasing, accounts, inventory management systems, and more.

Your financial operations platform should be at the nucleus of your transformation and it should empower your team to work strategically, rather than increasing manual efforts. Organizations need to invest in a platform that isn’t simply a collection of multiple tools, which only end up increasing manual hours, and consequently, errors. A number of data systems today are cloud-based, which means these systems are capable of reflecting changes in your business in real-time, which implies that your platform should be able to deliver access to that data in real-time. Not in lengthy codes, not in time-taking manual entries but invest in simple API-based plug-n-play connectors to extract all the information you need and have them on your fingertips.

As a finance team in today’s world, you deal with mountains of data from every corner of your business. That data, unconnected, is chaotic. Your ERP may be able to bring some order to that chaos—but it certainly doesn’t help you understand that data better than you did before it was centralized. To achieve streamlined financial management to ensure a company stays on top of all its operations, you need a more comprehensive system on the frontline of your operations to help you make the smartest decisions possible.

To know more about empowering your finance teams with best financial operations practices, get a demo.

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