Managing ERP localisation projects: a practical guide
The global enterprise resource planning (ERP) market continues to grow as companies strive to consolidate and simplify their accounting and tax (A&T) handling across multiple jurisdictions. Along with global business ambitions, ERP localisation is driven by increasing international expansion, the shift to tax administration 3.0 and continuously changing A&T requirements.
Despite these driving factors, research by Gartner shows that 55% to 75% of ERP localisation projects fail to meet their objectives – figures confirmed by client discussions and surveys at TMF Group.
So how do companies ensure their ERP localisation efforts are successful and will deliver the desired benefits in every jurisdiction?
Preparation is key
Global ERP systems are by nature large and complex with many moving parts. Accounting and tax localisation further complicates matters. To overcome these challenges, companies must invest time and preparation ahead of implementation so that ERP localisation projects can run smoothly and efficiently and deliver the desired outcome.
There are four phases of preparation: information gathering, gap analysis, solution identification and decision-making.
1. Gather the correct information
It is essential to collect accurate and up-to-date information about the requirements for data handling, specific tools/APIs and local accounting, tax, invoicing and other reporting processes, as they vary from one jurisdiction to the next. An example of this is document storage rules. Countries such as China and Turkey do not allow the storing of documents in ERP systems which requires companies to review local policies and make alternative arrangements. Companies should also consider which jurisdictions require specific approvals from local tax authorities.
2. Identify the gaps
Once the local requirements have been ascertained, it’s important to identify any gaps in the system that could prevent you from meeting them. Companies should know what they want their ERP system to look like. If there are specific functions not managed by the system, what is the process for handling them? A thorough analysis of the ERP system will help identify any technology and knowledge gaps. For example, is there a need for new tools, interfaces or functionalities? How much of the required knowledge, expertise and capacity to manage the ERP localisation project exists in-house?
3. Identify solutions
Companies should know how to configure their ERP system from an IT and accounting & tax perspective. Identifying opportunities to simplify the system will reduce the administration burden. What should processes look like, both now and in the future? What are the roles and responsibilities? ERP systems must be properly aligned with local A&T policy and data requirements and be adaptable to policy changes and updates. When integrating, consolidating and upgrading ERP systems, companies should look for opportunities to reshape and improve processes instead of simply maintaining old ones. Everything should be scrutinised for potential improvement.
4. Make clear 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 deadlines are soft and there is the temptation to keep extending them. Before the project gets underway, companies should decide how it will be led, who handles the documentation, what training will be needed, whether external ERP localisation consultants are needed and how costs will be measured and controlled.
Once this detailed preparation is complete, companies will be ready to implement their ERP localisation project.
TMF Group’s framework for success
At TMF Group, we have worked with many clients on ERP localisation over the years, so we understand the most common 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.
1. Requirements
At the very beginning of the ERP localisation project, it is vital to determine the desired outcomes and objectives. Companies must be clear on what they want the system to do and understand what information is required to achieve their goal. These requirements must 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.
2. Data
There are two main forms of data which must be considered in any ERP localisation project: local regulations around accounting, tax and invoicing and the existing financial data residing in legacy systems.
Local regulations vary widely and must be reflected properly in the ERP system. For example, in the UK, rules around specific formats for charts of accounts and secondary ledger set-ups in the ERP system have been relaxed. However, the UK tax authority (HMRC) has also implemented Making Tax Digital (MTD), which requires VAT-registered businesses to submit their VAT returns digitally without manual interventions.
Companies often need to transfer large amounts 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 currently being held and perform a data cleanse and verification process to ensure that only required data is brought into the new or updated ERP system. The data mapping and transfer process must be as smooth and efficient as possible. This might involve the automated migration of old data or building a new database from scratch by transferring data manually. It could even involve a separate external process. Companies must leave enough time for this important step.
3. Processes
As with data, it is important to evaluate processes fully before the new ERP system is implemented. Companies should carry out a process review to ensure all current processes are captured correctly. They should also consider how these will change in the new ERP system as part of localisation. Other concerns 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 be used for this, but ERP processes still need to be changed, determined and documented accordingly.
It is important 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 effort, but it pays off in the long run.
Different ERP systems have different functionalities for accounting and tax reporting, so it’s important to understand the impact of processes on these functionalities. Companies must dedicate enough time to this discovery and add buffers in case of potential delays.
4. People
It is important to identify the key stakeholders in the project: internal accounting and tax experts, external ERP localisation experts, IT deployment partners and end users of the system. All parties should be involved in the ERP localisation project.
ERP localisation experts play a key role. They bring essential knowledge of both local and international rules and best-in-class solutions in terms of processes. Additionally, they can find workaround solutions where necessary. 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.
5. Testing
Testing is a key element that is often a point of failure because companies underestimate the need for it. Before going live, it is essential to test the system for all functionality, configurations and reporting (including transactional level testing). Companies must set aside enough time for validation scenarios, security testing and access rights testing. This allows any configuration or security access issues to be identified and corrected before the go-live date.
ERP localisation is becoming an integral part of accounting and tax compliance for multi-jurisdictional companies. Early preparation and process analysis will not only help to ensure the efficient progress of the ERP localisation project but also 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 can guide your company through ERP localisation projects.
For support with any aspects of ERP localisation, make an enquiry today.
