You only hear about them when something goes wrong in the installation process—and a glitch or two is almost inevitable—but publishers have invested hundreds of millions of dollars to install enterprise application software systems with the expectation that these ERPs (Enterprise Resource Planning) will save money in the long run by making a company's operation more efficient. These systems automate a variety of critical business functions such as customer service, human resources, inventory and supply chain management.

Random House started its implementation in 1995 and is currently using an ERP package to run its financial, production planning, purchasing, inventory management, customer service and credit operations. In addition, RH has custom-developed a module to handle rights management/royalties. The original implementation, using software from the German company SAP, took about two years.

Because it is so deeply embedded in a company's business, ERP software is extremely complicated to install and use. "The place was riddled with dead bodies and potholes," observes senior v-p and chief information officer Jeff Sparr, referring to the first year of the now successful three-year ERP implementation at Reader's Digest. "At first, nobody wanted it." Or as Glenn D'Agnes, executive v-p and chief operating officer at HarperCollins, explains: "These systems are the most difficult things to put in place. They are expensive and painful to implement. They really challenge a company."

The holy grail is to run an entire multicountry, multidivisional, multidimensional organization all off a single system of integrated back-office, production, distribution and supplier applications with accurate data flowing seamlessly among them, and with a high degree of automation and minimal human intervention. Accuracy and speed skyrocket, head count drops and the company functions with enviable ease, efficiency and profit.

It's an ambitious goal. Few publishers are close to reaching it. Costs for partial implementation at the larger companies have run over $100 million, including the price of the software itself (which is relatively small), followed by the more expensive consulting services for installation , training, maintenance, upgrading, etc. One large company, for one division in one location, has reportedly spent something under $100 million in the past couple of years in an attempt to implement a major ERP system that is still not operational. Heads rolled. "When these things go sideways," explains Rick Schwartz, CIO at HarperCollins, "it is a debacle of the highest order."

Given how large, expensive, difficult to implement and pervasive ERPs are, everyone in publishing needs to understand at least the basics of them.

One size definitely does not fit all. A number of publishers have elected not to go the big software, big consultants, "big bang" route. The Time Warner Book Group has steadfastly worked to improve its own "homegrown" systems along with implementing Artesia for asset management and PeopleSoft for human resources functions.

"The real driving force," notes Phil Madans, TWBG's director of publishing information, "is the desire to have one good repository of clean title information. As long we were using the data internally, it didn't matter as much. But once we started feeding information externally to Amazon, B&N and others, we really needed consistency and clarity."

After Pearson acquired Simon & Schuster's educational and professional groups, S&S's remaining trade operations needed to take a step-by-step approach to regain its own footing. "Now that things are stable, we are deciding exactly what to do," notes S&S CIO, Anne Mander. "We briefly looked at moving to SAP last year, but the cost was too high. Still it's a trade-off between flexibility and structure. ERPs force a good discipline on IT as well as the business groups."

Similarly, HarperCollins, one of the first companies to implement an ERP system in the late 1980s, going with a publishing-centric package from Vista Computer Services, has over the past 15 years truly made the system its own through in-house software engineering. "At this point, what don't we have?" D'Agnes said about the expanding functionalities of newer and larger ERP packages. "Some things for sure. And not all of our systems 'talk' to each other. But on the whole, it works well for us."

"It's been a journey," Reader's Digest's Sparr notes. "We are now an Oracle shop, globally, 30 companies worldwide. SAP was just too big. It would have killed us. We had no skills and no staff. Oracle was just the right size. It had the right depth and breadth for us."

When it comes to the big packages, the major player is the German company SAP (shortened from Systems, Applications, Products for Data-Processing). Among publishers, Pearson has also implemented elements of a SAP package. But there are other players, including PeopleSoft (used by Houghton Mifflin), JD Edwards (Thomson) and Oracle (McGraw-Hill), not to mention smaller players like BookMaster, Vista and Lawson, a financial software package that McGraw-Hill implemented across the entire corporation in 1999.

Given the publishing industry's now chronic "flat to declining" unit sales, why do publishers continue to spend tens of millions of dollars on business systems, representing close to $1 billion across the industry? There are several reasons: some pain avoidance, others more positive.

At the top of the positive list is the importance of good information. As Hugh Barton of Oracle puts it, "The better the information you have, the better decisions you can make." Andrew Weber, senior v-p, operations and technology, Random House, notes, "The quality and consistency of information available to us is as good as it has ever been. It's been extremely valuable to have one place where people go to maintain the official record of title information."

In some cases, a company's existing mainframe systems that don't communicate, or multiple systems inherited through acquisition, become painfully inefficient. As Weber says, "The original decision to implement SAP was driven by two primary concerns: the cost and availability of staff to maintain a mix of old stand-alone mainframe systems and a desire for greater flexibility in our systems to meet changing business requirements."

Sparr explains Reader's Digest's rationale for going with Oracle. "Being so diversified geographically at Reader's Digest, we had essentially mom and pop financial operations in each country. They were just too slow. This has allowed us to re-engineer and consolidate our financial operations into a single, efficient system."

The emerging reality is that powerful, flexible, comprehensive and fast software systems allow even a large company to recognize changing circumstances and give it tremendous power to respond quickly as markets shift and customer demand changes.

For some, the choice of using some flavor of ERP is just a next step in the evolution of the publishing business that has been going on for nearly five centuries. Complex and painful as the adoption of large software systems has been throughout publishing, it is possible to make sense of the process and to make choices that allow the company to flourish, despite the expense and travail involved. Three axioms bear consideration.

  1. Implementing an ERP is a business, not a technology, decision.

  2. %—% of revenue is an appropriate amount to spend on a new system.

  3. If you go with a large generic package, such as SAP or Oracle, don't customize, especially at first.

It's the Business

As is clear from the very different paths publishers have taken, the key to making the right ERP decision is understanding a company's unique business needs and issues. Technological bells and whistles, or so called "vision synergy" between vendor and publisher, don't cut it. It's essential for top company officers to be clear about what systems are needed and what functions will be covered.Lack of leadership and clarity is, as HC's Schwartz notes, "a recipe for multimillion-dollar disaster." About the management of the HC system, D'Agnes says, "I check in with Jane [Friedman, CEO] only if there are major issues. But the smooth functioning of the system is important to her, since it touches all our customers, and how we relate to customers is a major part of our strategy."

"At the beginning, I'm not certain our CEO, Tom Ryder, would have been able to explain why we needed the ERP," says Sparr, "but we have benefited from strong leadership from our CFOs, who understood the importance of this new infrastructure."

"We're fortunate that the senior leadership at Random House is as committed to systems and operations as they are to publishing programs," Weber says. "That philosophy has ensured that we've had the resources and support we've needed to get things done." Even when the purchase of an ERP isn't at stake, as at TWBG, Madans says, "Larry [Kirshbaum, CEO] has told us that the new effort to have 'clean data' is clearly important for the company."

Key to the selection, purchase and implementation process is the team involved in preliminary analysis and then the eventual implementation, notes Vista's John Wicker. At Random House, says Weber, "The project team was made up of functional team members [employees from different business areas such as production, customer service, etc.], information technology staff and consultants. The functional team members had primary responsibility for the project."

Whether it's a small, midsize or very large publisher, spending 1%—4% of annual revenue on ERP is reasonable, asserts Wicker, who observes, "It's not rocket science. I can tell from the parking lot whether a company should be doing this in the manner they have in mind."

While not every company is willing to say how deeply they have dug into their pockets, Weber says, "Random House has invested over $100 million combined in operations, systems and infrastructure, including our original SAP implementation." Thomson spent a similar amount for its JD Edward system. Reader's Digest spent "less than $30 million," according to Sparr, although he adds, "it depends a little on how you calculate what goes into it. We used KPMG [now Bearing Point] for implementation in the first couple of countries, then rolled it out slowly and steadily."

McGraw-Hill did not provide figures, but industry insiders estimate something less than $100 million for an ERP implementation now underway. Deciding whether it is worth the "pain," however, is not an easy process. A return on investment analysis is complicated with systems this large and central to the operation. Kurt Smith of Bearing Point points out that companies will calculate cost savings through head count reduction and process simplification, but will not necessarily commit to top-line growth that also should come as a result of more efficient operations.

It's the Discipline

Customization is expensive, and worse than that, when you come to your first upgrade, it can be tragically expensive. Random House has made three upgrades since 1995. Pearson just made the decision not to upgrade to a newer version of SAP for reasons of cost. McGraw-Hill Higher Education is, according to April Hattori, v-p, communications, "in the early stages of a major transformation, upgrading to one system of standardized processes based on Oracle 11i."

The lure of customization is very seductive, not least because it suggests a perfect fit with a company's needs. This is another point where leadership is critical. All the large packages were designed to be generic, in order to serve many different industries, and they certainly do not reflect publishing's unique processes. But even the very largest is still nothing but computer code. Consultants and vendors can (although it can be quite expensive) write new code to add to what "natively exists" in their off-the-shelf package, in order to tailor a system exactly to each organization's unique way of doing business. But as Bearing Point's Smith puts it: "It's critical for companies to do a serious cost/benefits analysis before asking vendors to write any non-native code. Not only can it be costly the first time, it adds costs with each update of the package."

So customization can lead to major cost overruns, long implementation delays and interrupted service for customers.

The lesson: if, after clear-eyed analysis, business needs point toward implementing an ERP, a publisher of whatever size should choose a system whose off-the-shelf-software comes as close as possible to its own way of working. Then, either adapt the company's workflow to the system it has selected, or build "exits," points at which users leave the ERP in order to perform processes using a different application. Eventually, different systems can be made to talk to each other. HarperCollins, for example, uses Digital Assets Repository from North Plains and a financial system from Computron, but both now talk to the core back-office Vista System.

D'Agnes acknowledges, however, that this has made it more difficult to upgrade. McGraw-Hill's new Oracle software will, according to Hattori, be able to talk to the corporation's existing Lawson financial package. Last year, both Siebel Systems and IBM announced products that would help systems a company already has in place to work together more easily. Even SAP is now offering "integration" of non-SAP applications with its ERP package, although an executive of a consumer products company in the throes of an SAP implementation observes, "What they say it can do and what it actually can do are not always the same thing."

Test drive a system before you buy. Pick a small element of your process and try out the system first. Vendors will work with you on this, and the cost is worth it. According to Wicker, "There is no better way for you to learn how a package really works and for vendors to understand what your needs really are."

It's the Results

Approximately 10 years after the original impulse to adopt ERPs first hit publishing, one can ask whether companies are happy with what they've done. Carl Urbania, CIO at Thomson, speaks of the JD Edwards implementation at his company as a "poster child" for the benefits of a well-integrated system. "We have a common suite of business systems supporting a $2.6 billion business," he explains. "It has delivered $35 million of measurable impact to the bottom line." Notes Sparr, "[ERP] has delivered cost reduction, centralization and harmonization at Reader's Digest, allowing each country to skinny-down its operations. Now it's like electric power generation. Everything plugs into it. It's our tool kit of choice." Observes Weber about Random House, "We are very happy with the capabilities the system has given us, and believe it's been a significant contributor to our business improvements over the last several years."

"I judge the whole system by asking, 'Are our partners happy?' Answer: It works! And we continue to tweak it so that the fit gets better and better," says D'Agnes.

What are publishers' basic needs for these "critical" systems at the very heart of the company, systems that may help companies succeed in uncertain times. "Over the next two years at Simon & Schuster," says Anne Mander, "we will be working to take out infrastructure costs and to rationalize the systems we have, moving from a mainframe to a server environment. And we will look at new things. One day we may choose a package to replace what we now have." Notes Sparr, "We want to continue transforming Reader's Digest's financial functionalities, making them more world-class, providing more EDI [electronic data interchange], making them more automatic." At Random House, Weber says, "We will likely do an upgrade later this year to version 4.7 of SAP. Beyond that, we'll continue to tweak the system as the functional users identify process changes which would allow us to improve customer service or our cost structure or to provide more valuable information in support of the publishing process."

"There will always come a point at which you have to consider a new system," says D'Agnes, "and then you have to weigh the pain of implementation and cost of the system against the value, or the problems that come from not upgrading. Still, if you think about $100 million and how many authors that would buy and the value of those authors to the company, why would you want to spend $100 million on software?"

There may not be much choice. "You have to do it," says Bill Strachan, who recently moved from being the head of Columbia University Press to executive editor at Hyperion. "So much has changed over the last decade that you need new systems and software just to get books efficiently to the bookstore." Which benefits authors and readers as well as booksellers and publishers.