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ERP Technology Migration: Strategies for Value Creation

How tech investments can enhance value for CP&R

The Challenge

Given the rising cost of capital, growing shareholder scrutiny, and economic volatility, organizations across industries need to prioritize productive investment in new technologies. Below are three key actions for CP&R industry leaders who seek to accelerate their ERP-related investments or leverage SAP cloud transformation to drive meaningful value creation.

How EY can help

By selecting tech investments based on their tangible business impact, executives can drive process and organizational efficiencies, fuel incremental revenues, and support competitive advantages.

 

For consumer packaged goods and retail (CP\&R) companies, there is a significant opportunity to advance capabilities—such as end-to-end customer profitability and revenue management, as well as demand planning and revenue forecasting—through the use of an enterprise resource planning (ERP) system and complementary data tools. With the right KPIs and an appropriate investment timeline, CP\&R companies can unlock enterprise-wide results, delivering value for the business. Companies that don’t take this approach often see underwhelming performance and an inefficient transformation journey.

 

For retailers and brands that have already begun transitioning to the cloud in anticipation of looming SAP transformation deadlines, these improved capabilities are especially relevant. A value-led approach enables more transparent pricing, speedy shipping, and other key components of robust customer and consumer service, all of which are tangible value levers that CP&R leaders need to highlight in making the investment case for ERP. In this repositioned investment context, companies need to understand and articulate the full scope of ERP-driven value levers and complementary solutions while also explaining how they can drive future cash flows and enterprise value. But because the tech transformation agenda often competes for investment with other capital allocation initiatives, CP&R executives need to take a fresh look at technology investment cases that treat enterprise value as their north star.

Tech and value creation

ERP-related investments present CP&R companies with unique opportunities to transform their value creation engine, and it’s important to communicate this value proposition widely across the organization. The impact of not investing in ERP-driven technology—and, more importantly, of missing the opportunity to structure tech investments with value creation at the center—can be considerable. As such, company leaders need to elevate ERP transformation on the C-suite agenda as a strategic investment rather than merely a compulsory IT capital expenditure.

In light of the size, scope, and management efforts required around ERP transformation, CP&R leaders need to map out their desired future-state capabilities and the value levers connected to them along a now, next, and beyond timeline. In both the front and back offices, CP\&R companies are embracing new capabilities, including direct-to-consumer sales and marketing, marketplace features, fintech methods, dynamic pricing, and real-time supply chain management.

The new wave of ERP investments will need to embrace these capabilities of the future as key business requirements and design the technology requirements from there. In parallel, all of these capabilities connect back to a new map of value levers, such as working capital, pricing, cost to serve, and trade and promotion optimization, which should serve as the foundation of the ERP investment case.

  • Approach technology investment decisions with a cash flow statement logic, targeting maximizing total shareholder return and return on invested capital.
  • Develop a tailored map of desired future capabilities to be enabled by tech investment with an eye toward competing and winning in the market in the next three to five years.
  • Create a sound investment case for your tech roadmap (e.g., where and how much to invest) based on potential impacts on cash flows and enterprise value.
  • Beyond value identification and KPI tracking, focus on value realization by developing governance frameworks to support technology use by executives, deploy new skills, and embrace new processes that can drive actual KPIs and financial statement impact.
  • Reimagine potential value levers related to tech transformation and consider the full range of value leakages that can be eliminated through tech investments.
  • Build these value levers into the technology investment case and calculate the potential tangible benefits around closing gaps with the help of internal and external benchmarks.
  • Take a bottom-up approach to estimate benefits by evaluating actual figures and metrics, and identify the baseline and the potential leakages with the necessary level of granularity. 
  • Establish the connection between specific value levers and their objective impact on the company’s cash flow, and use these insights to inform tech deployment time frames.
  • Mobilize executives to support and commit to advancing the identified value levers by making the value realization part of executives’ goals/targets and potentially a component of their compensation.

  • Create visibility into tech investment KPIs, the potential size of cost savings or revenue growth, and the executive commitments that will enable value realization during the tech transformation journey.
  • Define use cases around KPIs and expected tangible benefits, with key value realization components at the center: process optimization, employee skill sets, data, and technology activation.
  • Mobilize cross-functional teams to implement use cases for proposed tech investments while committing to value realization.
  • Identify C-suite executives to work cross-functionally, and own and oversee the company’s tech transformation efforts, as they are responsible for specific value levers and value realization along the journey.

In Practice

As competition grows and technology advances ever more rapidly, CP&R leaders must apply a strategic lens to their ERP investments and SAP cloud transformation efforts.

Retail Industry

From retail strategy to operational execution, we help retailers fortify their businesses, strengthening the readiness, resilience and relevance needed for whatever disruptions that lie ahead.

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Consumer products industry

We believe the consumer products industry must find the right balance in managing the business of today and pursuing growth for tomorrow.

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