Practical considerations for evaluating an Oracle R12 upgrade

June 2011

Table of contents

The heart of the matter

An in-depth discussion Financial reforms pay off in business value in a big way Comparing paths to migration Key lessons for an efficient migration Case study: A fast-food restaurant on the fast track to R12

4 7 8 10 12

What this means for your business

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The heart of the matter

Migration to Oracle E-Business Suite Release 12 (R12) presents an opportunity to create a flexible, global business platform forfuturegrowth.

A powerful Enterprise Resource Planning (ERP) system is indispensable for pace-setting organizations that seek a continuous competitive edge. Yet in many ways an ERPs features and functionality are only as good as its last upgrade. Upgrading ERP is a business decision thats top of mind among top executives at companies that rely on Oracle E-Business Suite. As Oracle Premium Support for E-Business Suite R11i comes to a close, stakeholders must determine whether to perform a technical upgrade, a technical upgrade with business process improvements, or a re-implementation of R12. A technical upgrade to E-Business Suite R12 is a fast and comparatively inexpensive approach. Yet it doesnt enable the enterprise to customize and fully correct existing flaws in processes and implementation. In the middle ground, a technical upgrade with specific process improvements or addition of new modules fuses the advantages of a technical upgrade with re-implementationwith some compromises, of course.

A re-implementation of R12 holds a powerful appeal for organizations that, for instance, plan international expansion and standardization of business processes. This ground-up approach enables enterprises to leverage efficient new modules and to streamline and reduce existing customizations, but it requires a sizable investment in resources andfunding. Among PwC clients, we have found that E-Business Suite R12 has demonstrated great potential for business transformation. Accordingly, we believe organizations with Oracle Financials should consider planning a migration to R12. The first step an organization must take in planning the migration is to determine the right approach:1 A technical upgrade A technical upgrade with targeted improvements A business transformation/ re-implementation What follows are key considerations in navigating the transition path toR12.

1 Because an organization cannot migrate directly from R11i to Fusion, we omit a migration to Fusion in this discussion.

The heart of the matter

An in-depth discussion

Determining the right migration path demands a disciplined assessment of current and future objectives. Are you preparing for business expansion or merely business as usual?

For organizations that must keep pace with constantly evolving business strategies and processes, migration to Oracle E-Business Suite Release 12 is not a matter of ifbut when. And for many leading companies, whenis now. The call to action is growing increasingly insistent as the economy shows signs of improvement and CEOs renew their focus on sustainable revenue growth. For those planning to revise business models and processes to achieve growth, E-Business Suite R12 will provide a flexible, powerful platform for thefuture.

R12 represents the most powerful and appropriate choice among Oracles existing E-Business Suite products, which ranges from Release 11i to the best-in-class Fusion Applications.(See Figure 1). Release 11i, which debuted in the mid-1990s, has been adopted across a wide variety of industries and global locations. Release 12 was introduced in January 2007; the platform demonstrated real maturity with the launch of E-Business Suite Release 12.1 in May 2009. Since then, an uptick in companies launching or planning a migration has demonstrated an unambiguous confidence in E-Business Suite Release 12.

Figure 1: Evolution of Oracle applications Evolution of Oracle applications: From 11i to Fusion How Oracles E-Business Suite has evolved from Release 11i to the best-in-class business architecture of Fusion.

Release 11i

Release 12

Fusion

Release 11i became available in the mid-1990s and has been implemented across industries It is very stable Release 11i supports multi-GAAP and shared service requirements It uses a limited adoption of Oracle Fusion Middleware Regular maintenance expired October 31, 2011 A premium for support took effect November 2011 No support after 2013

Release 12 was introduced in January 2007 It has been very stable since Release 12.1 R12 offers enhanced features and support for shared service and multi-GAAP requirements and Global Tax rules It is based on Oracle Fusion Middleware to provide best-in-class integration R12 provides an upgrade path to Fusion

Fusion has been redesigned from the ground up to deliver best-in-class architecture It incorporates intelligence and analytics into Applications Fusion offers seamless integration of functionalities from PeopleSoft and Siebel It is now available for early adopters in business processes like financials, procurement, and CRM

An in-depth discussion

Fusion represents the next generation of Oracles E-Business Suite, combining best-in-class business applications with standards-based technology. While not all modules are currently available, Fusion will become a truly viable migration option over the coming months as both Oracle and its partner community develop new applications. However, it is not possible to migrate to Fusion directly from R11i; you must migrate to R12first.

A migration to E-Business Suite R12 can drive efficiencies for many facets of the business, including product design and delivery, financial functions, internal and external communications, and management of global supply chains, among others. With more than 300 enhancements to its financial moduleincluding support for sub-ledger accounting and a new global tax engineR12 will hold particular appeal to CFOs andcontrollers.

For many organizations, the move to R12 will be driven by strategic or tactical factors like reducing customizations, leveraging new functionality, or creating a launch pad to Fusion. A decision in the transition path will come down to three choices (See Figure 2): 1. Perform a technical upgrade to E-Business Suite R12 with select process changes in certain pre-determined areas. 2. Perform a technical upgrade with targeted improvements of select processes or the addition of newmodules. 3. Treat the migration as a new implementation of E-Business Suite R12a business transformation/ re-implementation, in other wordswith a ground-up design for every process.

Figure 2: No single template for migrating to R12 No single template for migrating to R12 Selecting the right approach to move to Oracle Release 12 depends on your business objectives and evolving needs. Industries with changing business models and processes use the migration as an opportunity to transform the organization.
Transformational scale

Low

Low to medium

Heavy

Technical upgrade Description Straight migration of current applications and existing customization to new target release

Technical upgrade with Re-implementation/ targeted improvements business transformation Upgrade applications and refine targeted process improvement areas, e.g., upgrade with P2P centralization or addition of new modules Support compliance and added functionality Medium Moderate Medium High Re-implement and redesign processes andsystem Ground-up, e.g., restructure every process to align with organizational structure Business value Business model changes Transform processes Longest Highest Highest Moderate

Goal

Vendor support compliance Fastest Lowest Lowest Lowest

Time Cost Business value Risk

Practical considerations for evaluating an Oracle R12 upgrade

In determining the approach and scope of the migration, stakeholders must assess how evolving business requirements have impacted the efficiency of E-Business Suite. For instance, mergers and acquisitions (M&As) add (or subtract) business units from the corporate ecosystem, and over the course of years that typically results in a patchwork of fractured business processes. Changes in operating processes often generate haphazard customizations to E-Business Suite. A migration particularly a re-implementation presents an ideal opportunity to clean up processes and retire unnecessarycustomizations. A migration also encourages stakeholders to review and revise strategies for future business development. It is critical that stakeholders approach the migration from a business perspective because the evolution of business processes, strategies, and user needs will drive technology requirements. Technology enables business needs; it does not define them. And lets not ignore the white elephant in the boardroom: funding. Given the fitful economic recovery, the discussion will inevitably turn to costs. It is imperative that stakeholders judiciously consider short- and long-term value to the business and champion a revenueexpanding strategy that emphasizes growth and competitive advantage.

Financial reforms that pay off in business value in abig way

Oracle E-Business Suite R12 delivers overarching advances in centralized and standardized business processes that can greatly improve efficiencies. For example, PwC believes the
Figure 3: A global financial architecture A global financial architecture

redefined architecture of the financial module, which comprises more than 300 enhancements, represents a move toward a truly global financial architecture and will strengthen financial systems across the enterprise. (See Figure 3.)

Ledger & ledger sets

DrCr E-Biz Tax

Subledger accounting (SLA) Inter company Bank model

Multi-org access control Work in process

Inventory

Purchasing

Receivables

Payables

Projects

R12 includes a significant redesign of financial features with enhancements that include:
Ledger and ledger sets Multi-org access control Sub-ledger accounting Unified bank model Oracle payments BI publisher Oracle payments E-business tax engine

An in-depth discussion

Support for International Financial Reporting Standards (IFRS) is a powerful enhancement to the financial module in R12. Although the US will not adopt IFRS until 2015 (at the earliest), more than 100 countries around the world already adhere to the standard. In additions, support of IFRS is a key capability for US companies with global operations or those that plan to acquire international firms, as well as for non-US organizations that acquire US firms. Support for sub-ledger accounting (SLA), in R12 will provide consistent accounting rules to all transactions and will enable parallel reporting between IFRS and Generally Accepted Accounting Principles (GAAP) systems. SLA support also empowers an organization to streamline its access, processing, and reporting across operating units using a common data model. The new Multi-Org Access Control (MOAC) feature enables seamless role-based access to multiple operating units from the same responsibility. This capability allows organizations to define and manage all business units from a single location without logging onto individual responsibilities.

The new E-Business Tax module provides a single repository of global tax transactions and enables the organization to centrally manage all tax transactionsacross the enterprise and across the globe. The module can be configured for country-specific taxation and offers a consistent tax repository that can help an organization reduce compliancerisks. Other improvements to R12 include: Strategic sourcing Support for reporting and analysis in its Corporate Performance Management applications A powerful tool for analysis and reporting of profitability New ways to manage and assess aglobal supply chain Innovative global inventorymanagement features Enhanced global talentmanagement capabilities

Comparing the pathstomigration

Each path to migration to E-Business Suite R12 holds certain advantages, and deciding which approach is right for you requires that you assess the organizations future business state as well as more in-depth examination of existing processes and technologies. Furthermore, it is crucial to gain agreement among all key stakeholders before deciding on the path forward. In general, companies that aim to transform their business will opt for a re-implementation, while those seeking less sweeping business expansion will opt for a technical upgrade or a technical upgrade with targeted improvements. Technical upgrade: A technical upgrade to E-Business Suite R12 can be a viable choice for firms that are satisfied with current applications and do not anticipate major organizational or business process changes, or require revisions to customizations and processes.

Practical considerations for evaluating an Oracle R12 upgrade

A technical upgrade holds two key advantages over a re-implementation (and, to a lesser extent, a technical upgrade with process improvements): Faster deployment and a significantly lower cost. Deployment is accelerated because an upgrade requires fewer resources to configure the applications and migrate data. Whats more, data conversion is limited and data migration is often a smooth process. The technical upgrade assumes that a minimal number of customizations will be necessary, which also hastens the migration. Despite these advantages, PwC has found that an upgrade may require significant database modifications and may be more likely to generate technical challenges. To avoid compatibility issues, organizations considering a technical upgrade should reconcile and clean up data before it is converted. Conversion of data to the new financial module, particularly sub-level architecture and tax, tends to create technical problems in an upgrade. All things considered, a technical upgrade may be too limiting for companies that plan business expansion and transformation. A technical upgrade will not enable the organization to take full advantage of the capabilities of Release 12 because it does not allow for simplifications of processes and clean up of customizations. PwC believes a technical upgrade is suitable primarily for businesses whose operations are not likely to change.

Technical upgrade with targeted improvements: This approach is similar to a standard technical upgrade, yet it enables an organization to prepare for future expansion by adding certain modules or process improvements that are critical to its operations. For instance, a company can greatly benefit by modernizing and centralizing its overall procurementto-payment processes. As discussed earlier, the financials module of R12 includes a number of key upgrades that are key to supporting compliance and adding functionality for the future. We have found that the financial and, to a lesser degree, technology modules present the greatest opportunities for process improvements. Not surprisingly, these complex modules often require considerable attention and care when they are implemented. In some cases, such as AP/PO accruals, Oracle has fundamentally updated the functionality of R12. Another consideration to the technical upgrade with targeted improvements approach is that while the cost will typically be midway between a technical upgrade and a re-implementation, organizations must consider the impact of key configuration changes.

Business transformation/ re-implementation: This approach will deliver the maximum potential of R12, yet it is a larger endeavorand a more substantial investmentthan either type of technical upgrade. Top executives must perform a disciplined review of current processes and future business objectives and work closely with IT to determine IT needs to support the future state of theorganization. Re-implementation is also a more complex technical initiative. The IT department must begin with an empty database and implement E-Business Suite R12 as if upgrading from a legacy system, necessitating more resources and a longer implementation timeframe. For organizations planning enterprise-wide transformational change to business models or processes, a re-implementation of E-Business Suite R12 will deliver the most long-term value. A re-implementation provides a blank slate for redesigning the technology configuration and business strategies for the future state of the company. This can be particularly advantageous for firms that foresee major shifts in the operating environment, such as adopting new partners, channels, or reporting structures. Whats more, organizations that intend to grow through international M&As will require an adaptable global business platform that supports IFRS and other advanced financial capabilities.

An in-depth discussion

A re-implementation also opens a window of opportunity to revise business processes that have been incorporated in E-Business Suite over its life cycle. Efficient automation of processes hinges upon a set of processes that are logical, effective, and up to date. At the same time, a re-implementation allows organizations to review and retire technical customizations that have become obsolete or inefficient. Similarly, a re-implementation enables the review and optimization of module-level business documents and transaction interfaces that have become outdated over time. The long-term advantages of re-implementation are indisputable, yet it would be foolhardy to discount the inherent challenges. Chief among them: Re-implementation will require an upfront investment at a cost that may rival that of the original deployment. The lingering effects of the global recession have left many CFOs loath to approve capital investments, even as the recession begins to lift and businesses face pressure to grow.

Additionally, significant efforts in applications configuration and data migration will be necessary. In particular, the new financial and accounting architecture of E-Business Suite R12 may demand timeconsuming data conversion. Companies that have re-implemented E-Business Suite R12 have found that changes in the technical architecturealong with new functionality of E-Business Tax, sub-level accounting and Trading Community Architecturedemand as much as 70% more storage space. Finally, the broad scope of a re-implementation requires considerably more time to plan and complete. Development, testing, troubleshooting, and staff training will call for substantial resources andexpertise.

Key lessons for an efficientmigration

Regardless of the migration path chosen, our experience shows that businesses that have implemented R12 successfully make a thorough and earlyassessment of the impact on three critical components: people, processes, and technology. Overall, we have seen that many companies underestimate the time required for a migration to R12. As a rule, stakeholders should plan activities and deliverables on the same timeframe as a new implementation of E-Business Suite. PwC has found that generally a migration to R12 requires a minimum of six months for planning and deployment. Organizations with complex global installations of E-Business Suite should allow significant time for planningand know that a complete implementation could stretch multiple years. We have successfully helped clients perform and understand pre-upgrade assessments in workshops designed for key stakeholders, leveraging our experience from a large number of R12 implementations.

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Practical considerations for evaluating an Oracle R12 upgrade

Tips for an efficient migration

Allow significant time for planning. Commit to early and frequent communications with end users. Revisit and revise all business processes and customizations beforemigration. Clean up interfaces and data to obtain the greatest value. A smooth and efficient transition to R12 should not be treated as a technical upgrade; rather, it is a critical business initiative that can significantly contribute to the companys future success. It essential that top executives understand the future state of the organization and plan accordingly to ensure flexibility for future growth. The people component of a transition to R12 is a critical step that should be addressed early. Business and IT leaders should ensure that employees receive initial and frequent communications and training. As with any substantial organizational change, you must prepare your people for a successful transition. Specifically, we have seen implementations falter when organizations dont have the full support and participation from the company leaders, as well as meaningful input from stakeholders and end users. Also key is adequate time for testing, training, and gathering feedback from users and business units. Organizations should allow time to test all normal and exception scenarios, focusing on end-to-end testing. It is essential that all technical and process issues, as well as glitches in non-core capabilities, are resolved before go-live. To help ensure efficient and timely testing, we recommend that organizations provide workshops for the migration staff on new features and functions. Allow for a 50% increase in database size. Provide product workshops for the migration team.

Take time to clean interfaces and data before the migration begins. Interfaces and errors must be corrected to help maximize the efficiency and deliver the greatest value to the upgrade. We also have found that reconciliation of data between the pre- and post-upgrade instances may require additional time because reports are presented differently in the two versions of E-Business Suite. One of the notable challenges we have seen around technology is a substantial increase in database size during the upgrade, primarily due to data model differences with sub-ledger accounting. Oracles guidance calls for a 20% increase in storage capacity, but in our experience a 40% to 50% increase is more likely. We recommend that you calculate disk-space requirements for all instances during the project, and be prepared for approximately 50% growth in database size. PwC has helped a range of companies across the spectrum of industries successfully migrate to R12, and based on our experience, we believe that R12 is stable and robust. But careful planningand taking the precautions noted abovewill ease the migration.

An in-depth discussion

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Case study: A fast-food restaurant on the fast track to R12

A fast-growing fast-food restaurant chain, which had mushroomed from one location to more than 1,000 sites in 15 years, found that its Oracle Applications Release 11.5.9 was no longer meeting its needs. The companys R11i implementation required too many manual processes, lacked adequate interoperability with other systems, and needed updated financial capabilities for globaloperations. The company decided that the most effective way to resolve these issues and to prepare for future growth and financial regulatory requirements was an upgrade to Oracle E-Business Suite R12. A key factor in the decision to migrate was the new releases ability to improve and automate its business processes. The company also wanted to explore the new functionalities available in R12 and, at the same time, streamline the size and usability of the application by rationalizing its existing customizations. Looking

forward, the restaurant chain wanted to ensure that its application architecture could support growth and new standards such as IFRS compliance and Extensible Business Reporting Language (XBRL)reporting. The restaurant company engaged PwC to help it efficiently plan, migrate, and benefit from an R12 migration that could be implemented without interruption of current business operations. Our team of Oracle E-Business Suite experts helped the company assess its business requirements and prepare for an R12 migration that accounted for its entire operations chain, from procurement to financial closereporting. Our approach included detailed design reviews and rigorous testing to ensure the accuracy and efficiency of the architecture. Our team of Oracle experts carefully planned the implementation to clean up all customizations and to help ensure that all system interfaces were correctly configured. Throughout the implementation, we worked

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Practical considerations for evaluating an Oracle R12 upgrade

with the companys managers to facilitate user acceptance testing and help ensure training and seamless knowledge transfer to business users. To back that up, we delivered thorough documentation for all phases of the project following PwCs Oracle Applications Implementationmethodology. PwCs assistance in planning and implementing the migration enabled the fast-food restaurant company to realize a wide variety of automated process improvements in the course of a year. The company achieved significant gains in internal and external financial reporting. Monthly close processing and reporting is being accomplished 25% faster. Whats more, the fast-food restaurant company is now prepared to support IFRS and XBRL reporting, and the addition of a secondary ledger has streamlined the companys reporting for its UK operations. Business users can now create new reports and modify existing reports, a capability that has reduced the time required to deliver new reports by 65%.

The restaurant chain also gained significant efficiencies in key business processes such as approval of purchasing documents, validation of invoices, and accounting tasks like depreciation calculation of fixed assets. Implementation of the Procurement suite has streamlined processes and yielded multi-million dollar savings in indirect spending. Shared services centers that leverage MOAC functionality have seen productivity enhancements of upto15%. Using our business-led technology approach, we helped the restaurant company carefully plan and manage its migration to Oracle E-Business Suite R12. PwCs integration of process and technology solutions helped put the fast-food company on the fast track for future functionality and growth.

An in-depth discussion

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What this means for your business

A carefully planned transition to E-Business Suite R12 requires a results-focused assessment of business processes and futureneeds.

Migration to Oracle E-Business Suite R12 can set the course toward a competitive advantage and a readiness for the business needs oftomorrow. We believe organizations that seek growth, global expansion, and transformation of business models and processes will achieve the greatest results from a re-implementation of E-Business Suite R12. A technical upgrade, while less costly, will update the organizations ERP platform and will in some cases improve processes, but will not deliver truly transformational results. Whether upgrading or re-implementing, the transition is no easy task. Top executives must assess the organizations current and future business needs and oversee a sweeping variety of decisions that encompass changes to people, processes, and technology. Thats where PwC can help. We have proven expertise in assisting organizations with the design and

implementation of Oracle E-Business Suite migrations. We fuse our disciplined business-process expertise with deep technical knowledge of Oracle E-Business Suite to build a framework for strategic, sustainable business success. We dont believe in implementing technology for technologys sake, however. Our approach is built around solving a business issue and delivering measurable results. We take the time to understand your business needs and align the E-Business Suite implementation with your unique requirements and objectives. We help you identify, manage, and achieve specific benefits of upgrading to E-Business Suite R12, then monitor and measure the benefits after the transition to help ensure that it drives future performance improvements. A successful migration to E-Business Suite R12 is a critical step in preparing for the business environment of tomorrow. PwC can help you make the move withconfidence.

What this means for your business

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For a deeper conversation about migrating to Oracle E-Business Suite R12 and what it means for your business, please contact: Gerard Verweij PwC Oracle Global Practice Leader 617-530-7015 gerard.verweij@us.pwc.com Eric Schillig Director, PwC Oracle Practice 408-817-8114 eric.schillig@us.pwc.com Sanjeev Dutta Director, PwC Oracle Practice 925-457-5042 sanjeev.dutta@us.pwc.com Susanna Pippen Director, PwC Oracle Practice 703-203-6029 susanna.pippen@us.pwc.com

2011 PwC. All rights reserved. PwC refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional. PM-11-0262