Communicating the benefits of ERP implementation to analysts does little to boost a company’s ratings or stock short-term.
Treasurers and others within a company may appreciate the reporting promise of an enterprise resource planning system, but to Wall Street, it’s just ho-hum.
A new Deloitte study shows that being forthcoming about a company’s ERP implementation does little to the company’s ratings or its stock price. Deloitte analyzed eight companies that made “transformation announcements” and reported that five saw no impact, one company’s ratings fluctuated, one was downgraded and one upgraded.
Deloitte said the results showed that analysts were perhaps a bit more appreciative of the complexity of implementing projects like ERP. They also showed that companies should manage the long-term communications aspect of the project and only give the basic information about costs, timelines and long-term goals.
Still it’s an important mention to analysts, particularly if previous quarters included a earnings miss. Then the chief financial officer can tout that those previously-missed weaknesses will not be missed again due to the planned ERP implementation. Take for instance International Rectifier (not a company mentioned in the Deloitte study). In a transcript from the company’s August 2010 earnings conference call, CFO Ilan Daskal reported that the company had completed a remediation of all the company’s material weaknesses and that going forward “we now have the policies and procedures in place to maintain effective internal controls over our period-end reporting and other internal financial and IT processes.” This process included the design and implementation of a new ERP system it plans to complete in the next year, “which we believe will further enhance our controls and reporting capabilities.” It should be noted that both International Rectifier’s ratings and stock has risen since August – ratings to BB- from B+ and stock up about 30 percent.
Also, savvy analysts may begin delving deeper into the ERP process at some point. After all, as treasury knows, implementing an ERP can be an expensive and long drawn-out process; expensive not only in actual dollars spent but also the time of all the players involved. Analysts may begin to ask whether the implementation has the full support of upper management and the Board – key drivers of the success of many enterprise-wide projects – and the prospects for success on time and on budget. Again, Deloitte suggests the basics. “Instead of trying to make an impression on analysts in the short term…work instead to manage expectations for the long term,” Deloitte said. This included brief mentions of costs and benefits, timing and successes so far.
The general idea is to not overpromise in the event you end up underdelivering.