Specialist Expense Vendors vs. ERP Suite Modules: Pros and Cons

A few months ago, we talked about the benefits and drawbacks of whether to choose a best-of-breed travel and expense solution provider, versus an all-in-one system. For mid-size and large companies, this isn’t the only decision to be made when it comes to expense software, as many ERP providers also offer expense management capabilities as part of their broader suite of financial and HR tools.

ERP Module Benefits

There are two key selling points that ERP providers push to encourage their customers to adopt their expense solutions: tighter, easier integration, and lower cost. On the surface, these both offer compelling benefits.

A closer integration between the different elements of the suite should reduce IT headaches both during implementation and on an ongoing basis. At first glance, this makes perfect sense, compared to integrating unrelated vendors’ products. Similarly, bundling multiple solutions from a single vendor enables economies of scale, and can allow add-on functionality to be included within the ERP suite at an incremental fee (as opposed to paying full price to standalone vendors). This can nominally provide a cost benefit over choosing point solutions.

However, when organizations dig deeper into the ERP expense offerings, these benefits become less clear. Let’s take a look at three areas why opting for an all-in-one solution may not be in the customer’s best long-term interest: innovation (both on the back end and for end users), integration and cost.

Related: One-Stop-Shop vs. Best-of-Breed: What’s Best for Travel and Expense?

Innovation

ERP vendors’ primary focus is understandably on their core financial products, as these are the cash cow for the organization and the hub of all other solutions. As a result, development dollars and innovation resources are concentrated in this area. This leads to two issues: first, the level of both innovation and functionality may be significantly lower than for a best-of-breed solution. This may not pose an insurmountable challenge for organizations with very straightforward expense reporting requirements. However, organizations with more sophisticated needs – such as international VAT compliance, advanced compliance rules, allocation splits, cash advances and/or pre-approvals – may find that ERP expense modules simply can’t support their level of complexity. They may need to consider expense management solutions with global and mobile capabilities beyond standard expense reports.

This lack of innovation also impacts the end-user experience. Unlike many function-specific ERP solutions which focus on the back office and have a small number of users who are specially trained on the solution, expense management software is used organization-wide, sometimes just a few times a year. As end users have become accustomed to easy-to-use, high-quality, fully-mobile, consumer-like apps even for business applications, they expect expense solutions to offer a similarly seamless and user-friendly experience. A lag in rolling out functionality such as automatic optical character recognition of receipt transaction data or app-free mobile access could lead to considerable friction with business travelers. Given that frequent travelers are often some of the most valuable employees that an organization has (such as sales leaders, billable consultants, and executives), removing unnecessary friction in the travel and expense process is paramount.

Second is the availability – and pace – of innovation. The large scale and mission critical aspects of ERP solutions naturally slow down the release cycle, so instead of incremental updates and enhancements every few weeks, releases are concentrated into major six-monthly or even annual releases. For customers, this means slower time-to-market for new features, while the rest of the solution is developed, integrated and tested. Organizations could find themselves frustrated by slow development cycles and a lag in their solution’s innovative features, putting themselves significantly behind their peers (and competitors) in terms of expense automation, reporting and analytics capabilities. In addition, although an ERP vendor may have a version released with a new range of features, an organization’s IT department may control the installation of the release, further delaying the features getting into the users’ hands.

This capability gap is highlighted by Gartner’s Chris Pang in the recent Market Guide for Travel Expense Management Software, which discusses how ERP providers have lost their dominant position to cloud-based expense vendors, who have greatly enhanced innovation both at an end-user level and across the back office. Pang also suggests that this situation will remain the case, as ERP vendors' research priorities are focused on the core suite.

Integration

In previous generations of enterprise software, integrating disparate vendors' applications could often be a complex and costly process, requiring cumbersome middleware applications to connect the various platforms.

However, with the advent of cloud solutions in particular, software vendors have recognized that straightforward interoperability with other vendors’ solutions is critical. In fact, offering a closed ecosystem is more likely to lead to reduced revenues, not increased revenues, as customers don’t want to be locked into a single vendor that may not best suit their requirements across the board. As such, ERP vendors will integrate with competing solutions, often through the use of APIs and off-the-shelf connectors, such as Dell Boomi, Informatica, Mulesoft and others.

To demonstrate this new way of thinking, Concur’s founder and former member of the SAP executive board, Steve Singh, explicitly highlighted SAP’s open ecosystem in his speech at the 2016 SAPPHIRE conference:

“We recognize that our customers live in a heterogeneous world with solutions from a wide variety of different vendors. As much as we’d like you to buy nothing but SAP products, we understand that sometimes you buy other products. So, we need to allow others to deliver and add value on top of our solutions, and we need to integrate into the other applications and services that you use, so you can leverage the investments you already made. That’s where the value and the power of an open ecosystem comes into play.”
(Source: SAP)

As a result of these integrations, data can be passed just as seamlessly by different vendors’ solutions, as with those from a single vendor. Information is transmitted in near-real-time with no errors, and integrated with a whole host of complementary systems. There is also little requirement for the internal IT team’s involvement with either solution, and thus there are no longer any tangible integration benefits for an all-in-one solution. 

Cost

Cost is another area where the ability for providers to offer bundle discounts has been an attractive selling point for suite solution providers. As with other areas, these claims also need to be scrutinized more carefully, and organizations should ask themselves several questions before committing to a major implementation.

Many of these questions revolve around the concept of purchase cost versus return on investment and total cost of ownership. As previously stated, many ERP-bundled expense management software solutions lack the capabilities and deep functionality of standalone solutions. This can lead to several challenges: first, they may be unable to automate as much of the functionality that can be done with a specialist solution, and this could have a knock-on impact on the amount of time (and therefore labor cost) to process expenses.

A potentially larger financial challenge could come through a less-robust ERP expense solution’s lack of analytics capabilities. Expense solutions’ impact on cost control is far greater from the insight that they provide into spend (and how this can be used to reduce unnecessary spend) than the actual automation of manual processes. CFOs, controllers and procurement heads should carefully weigh the lower subscription cost benefits versus the impact of long-term lost cost-saving opportunities.

Summary

All of this is not to say that an ERP’s expense management solution is not suitable for any organization’s requirement. However, before embarking on a long-term relationship with a single vendor, companies should ensure that the offering is sufficient for their needs both now and for years into the future. Since expense report software is used by nearly every employee, it's essential to get this choice right.