There is continued growth in the worldwide enterprise resource planning (ERP) market, as companies strive to consolidate and simplify their accounting and tax handling on a global scale. Along with record merger and acquisition (M&A) activity during 2021, high levels of international expansion, the shift to tax administration 3.0, and ever-changing tax, accounting and other local requirements, this is driving the need to localise ERP systems.
However, according to Gartner research, between 55% and 75% of such ERP localisation projects fail to meet their objectives – a figure backed up by our own client discussions and surveys.
How do companies ensure their ERP localisation efforts are a success – and deliver the desired benefits in every jurisdiction?
Preparation is key
Global ERP systems are, by nature, large and complex, with a lot of moving parts - and many potential challenges when it comes to accounting and tax localisation. However, by devoting enough time to preparation ahead of implementation, ERP localisation projects can run smoothly and efficiently, and deliver the desired outcome.
There are essentially four preparation phases: information gathering, gap analysis, solution identification and decision-making.
- Collect the right information – it is vital to gather sufficient information around the requirements for data handling, specific tools/APIs, local accounting, tax, invoicing and other reporting requirements. For example, storage rules vary around the world, and it may not be possible for companies to store whichever documents they want, wherever they want – eg storing documents in ERP systems is not allowed in Turkey and China. There may be a need for specific approvals from tax authorities, and different policies and processes will need to be implemented for storage in different jurisdictions.
- Identify the gaps – once the different local requirements have been identified, it's important to identify any gaps in the system for meeting them. This means knowing the desired and future shape of the ERP system, including what will be performed within it and what can be handled outside. This will help identify any technology gaps. For example, is there a need for new tools, interfaces, or functionalities? It will also help identify any knowledge gaps. How much of the required knowledge and expertise – and capacity – exists in house to conduct the ERP localisation project?
- Identify solutions – this involves identifying how the ERP system should be configured from an IT and accounting & tax perspective. It really pays to decide on the ideal configurations, and potential simplifications (for example, if there will be a need for workarounds). What should processes look like, both now and in the future? What are the required roles and responsibilities? Companies have to be sure that their ERP system is properly aligned with local accounting and tax policy and data requirements, and can adapt to any changes. When integrating, consolidating and upgrading ERP systems, companies should look for opportunities to reshape and improve processes, rather than just maintain the old ones. Everything should be scrutinised for potential improvement.
- Make decisions – it is important to make mindful decisions about when the ERP localisation project will be delivered and can go live; all too often these dates are soft, and there is the temptation to keep extending them. In addition, before the project gets under way, companies should decide how the project will be led, who handles the documentation, what training will be needed, where external ERP localisation consultants will be needed, and how costs should be measured and controlled.
With this detailed preparation completed, companies will be in good shape to move on to implementing their ERP localisation project.
TMF Group's framework for success
Having worked with many clients on ERP localisation over the years, TMF Group understands the most common challenges and pitfalls, and how to avoid them. To help ensure the success of multi-country ERP localisation projects, we have developed a project framework that covers five key pillars: requirements, data, processes, people and testing.
Requirements – right at the very beginning of the ERP localisation project, it is vital to determine its desired outcomes and objectives. Companies need to be clear what they want to achieve from the system and the information required for the ERP localisation project to achieve this. These requirements need to be captured and communicated to the internal team, the IT implementation partner and the localisation consultants – especially when ERP localisation is being carried out on a global scale, with wide variations in local requirements and obligations.
Data – there are two main forms of data which need to be considered in any ERP localisation project: the local rules-related information around accounting, tax and invoicing; and the existing financial data residing in legacy systems.
Local rules around accounting, tax and invoicing vary widely, and must increasingly be reflected properly in the ERP system. For example, in the UK rules have been relaxed around the needs for a specific format of chart of accounts and secondary ledger set-up in the ERP system. However, the UK tax authority (HMRC) has implemented Making Tax Digital (MTD), which requires VAT-registered businesses to submit their VAT returns digitally, without manual interventions.
Companies often need to transfer a lot of data from their legacy system to the new ERP system (especially in the case of M&A). This is the time to assess what data is already held, carry out cleansing and verification, and ensure only the required data is brought into the new or updated ERP system. The data mapping and transfer process needs to be as smooth and efficient as possible. This might involve the automated migration of old data, or building the new database from scratch, by transferring data manually or through a separate external process. Companies often don't leave enough time for this important step.
Processes – as with data, it is important to evaluate processes fully before the new ERP system is implemented and goes live. Companies should carry out a process review to ensure all current processes are captured, and understand how these will change in the new ERP system as part of localisation, and to meet future user needs. Considerations include which processes should be manual and which should be automated, as well as how the processes will be affected by the practical application of local rules. In the UK example mentioned above, VAT returns must be submitted using MTD-compliant software. Third-party software may also be used for this, but ERP processes still need to be change, determined and documented accordingly.
It is vital to document and map out business process flows (who does what, where, how and when), as well as roles and responsibilities (who is responsible and what their access rights are). This requires a lot of up-front energy and effort, but having everything clearly documented and agreed upon will pay off in the long run.
Different ERP systems have different functionalities for accounting and tax reporting, and it's important to understand the impact of processes on these functionalities. This needs enough time dedicated to it, with buffers built in for delays if internal resources are not available for any reason.
People – it is important to identify the key stakeholders in the project: internal accounting and tax experts, external ERP localisation experts, the IT deployment partners and end users of the system. All parties should be involved in the ERP localisation project.
ERP localisation experts play a vital role. Not only do they bring essential knowledge of both domestic and international rules, and best-in-class solutions in terms of processes, but they can also find workaround solutions. They are able to translate tax and accounting rules into instructions to IT vendors and they act as end-to-end project managers for ERP localisation projects.
Testing – this is a key element, and is often a point of failure because companies underestimate the need for testing. Before going live, it is essential to test the system for all functionality, configurations and reporting (including transactional level testing). Companies need to set aside enough time for testing and validation scenarios, security testing, and access rights testing, as if in a real-life system. This allows any configuration or security access issues to be identified and corrected before the actual go-live date.
ERP localisation is becoming vital to ensure accounting and tax compliance in any multi-country business. Putting in the effort up front, to prepare and work through a well-defined framework, will not only help ensure the smooth, efficient progress of the localisation project itself, but will also help ensure the system's long-term ability to adapt to ever-changing rules and regulations.
Talk to us
Want to know more? Watch the recording of our recent webinar, Common challenges and practical tips in ERP localisation projects, and discover how our global Accounting and Tax Consultancy team guides organisations through ERP localisation projects.
If you need support with any aspects of ERP localisation, make an enquiry today.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
