To ERP or not to ERP?
No one, nowadays questions the fact that our civilization has entered the information age. This has become very visible in our everyday life where technology has literally transformed the way we interact with others and with our direct environment.
From an economical point of view, one talks about the “information revolution” as of the industrial revolution, an unstoppable phenomenon that is structurally transforming the economy as well as the society.
Similarly to the industrial revolution were all businesses didn’t become steel factories, the “information age” certainly doesn’t mean that all companies should become technology centric or transform themselves into IT powerhouses.
Information is strategic
The new paradigm, simply put, is that information has become, more than ever, a strategic matter. And this is not going decrease any time soon.
Control and adequate use of information has become a key strategic differentiator giving companies a competitive edge, or not....
Indeed, in practice, experience has showed that mastering information flows and exchange within organizations is an absolute driver of the ability to respond to clients expectations, of innovation and, certainly, of profitability.
Virtually no company nowadays, from very small to very large, can still develop, remain competitive and profitable, without the support of an adequate IT.
This said, the key question is to determine what is an adequate IT for each and every business, today, and in the future.
Where is the value of IT
Let’s be a little provocative, talking about ROI, and argue that the best return is going to be delivered with… no investment…
That obviously is fake and doesn’t hold against the millions of examples where sometimes substantial investments have largely paid off.
One may thus ask why we cannot simply analyse all these cases and draw conclusions about where to invest. And, indeed, there exist tons of studies. The only problem is that these studies draw conclusions that are sometimes in exact opposite directions but always plead towards the interests of their sponsors.
The real point is elsewhere. Do you believe companies need be “like the average”, to behave as “mee-too’s”, to truly succeed?
“Be unique… like the others.”
Put that way, one can observe the emergence of an absolute reality, that, by the way, all the aforementioned studies do confirm (amazingly enough, although they draw sometimes truly opposite conclusions, they all agree with this fact.): Companies do need to be unique, and to be like the others!
They need to foster their differentiation and bolster what makes them better than competition. And they need to benefit from the evolutionary efficiency levers that are available out there, they need to benefit from good practices and economies of scale by not reinventing the wheel for everything they do.
“Make vs. buy?” this question is obsolete
Coming back to our “what is an adequate IT” question, that would mean that companies should benefit from the economies of scale that off-the-shelves solutions deliver for the “must have” foundational processes. The ones that are not going to put you in the first place if you master them very well, but that would definitely disqualify you if you don’t. Typical examples of these are, often but not always (remember, each company is like the others, unique), finance and accounting, where, for instance timely cash collection, or PO vs. invoice matching, are nowadays clear must-have’s.
The answer is thus: they should “buy” then?
Well… not quite, as, today, information technology certainly can, and should, be used in order to strengthen the key processes, know-hows and strategic differentiators that make each and every business unique, and better.
For these, the option of buying pre-developed packages simply does not exists. The way forward is to establish the proper systems architecture, both technically and functionally. That will enable effective development of the IT solutions supporting these processes, bearing in mind that these are the most likely to have to evolve rapidly as the business context is constantly changing and companies do need to respond to these evolutions swiftly, and at a decent costs. Honestly, on may even understand that strategically companies should also be capable of anticipating these evolutions, at a decent cost.
“Make vs. buy” is thus a non-question. Companies need both!
So, ERP or not ERP?
There is also, nowadays, no doubt that the integration of all key processes of a company and of the information they are bound to is an absolute driver of efficiency and effectiveness. Providing real-time, transparent where needed, reliable data and information is definitely reducing effort, improving quality and eliminating waste and mistakes. An obvious example of this is the automated reconciliation of goods receipt with purchase orders, shipment details and invoices that, alone, often pays for the complete implementation of integrated GL and Inventory Management solutions.
When buying, one tumbles upon the next question, which is to decide between buying specialized packages, while investing heavily into integration technology (remember? Value comes from integration), and deploying a wide scope ERP solution, that will possibly require a lengthy and costly, sometimes painful, implementation programme.
Then there will still remain the need to develop ad hoc solutions for the differentiating capabilities….
Sounds like a catch twenty-two, isn’t it?
Well… not really.
The good news is that the IT offer out there has come of age and, today, there is no doubt that for the vast majority of businesses if to deploy an ERP as the foundation of its functional, but also technical architecture.
Indeed, today, a few ERP vendors and developers have done an excellent job at architecting them as a true integration foundation, while providing the benefits of supporting the “must-have” process with best practice approaches and solutions.
ERP is no longer for large Corps only
“Ok”, will you argue, ”ERP is the desirable way to go, but isn’t it so costly and complex that it is reserved to mega-corporations?”
It may well have been so, but, on the one hand most large companies have implemented some form of ERP and, although they sometimes suffered their implementation, they almost all confirm that they IT investments pays back. And on the other hand, the ERP market has recently matured in a very rapid and effective manner, mainly under the influence of the “opensource” model.
This is even good news for mid-size companies, who can smartly benefit from the experiences that the large corporations, and the IT industry, have made and can today choose solutions at a total cost of ownership that is a fraction of what it was with the mainstream ERP vendors.
Agility: a key lever to reduce risk…
… and costs!
“Agility”…. Is not (only) the new buzzword that is making any IT topic fashionable. It definitely is a reality that can help deliver substantial value along two dimensions:
- Functional agility and fit:
On the functional axis, the right ERP will allow for a very rapid and effective deployment of the “must have” processes, removing much of the costs of lengthy implementation projects and avoiding the uncertainty linked to the typical “tunnel effect” induced by old-style approaches and solutions.
They (the right ERPs) will also provide for the technical foundation enabling a truly efficient and solid integration of external processes and business partners as well as the development of strategically differentiating capabilities.
It is nowadays possible to reverse the ratio between the share of budget “eaten” by the implementation of core (“must have”) ERP functions and the part that is left to support customization and development of company specific processes and practices. Indeed, the traditional share for the core ERP (includes license cost, hardware investments, etc…) was typically above 80% of the available budget (when not 120%....), while it is today possible, carefully choosing the right approach and ERP, to spend 4-5 times less on core, leaving thus more than 80% of the budget to adapt the IT solution to the practices that will truly drive competitiveness and unicity.
Knowing the value of strategic differentiators and capabilities, it goes without saying that a smart ERP selection and implementation approach is delivering a far better ROI than the ones traditional approaches and solutions have delivered.
However, true functional agility is only delivered by the few ERP solutions that allow for an upwards compatibility of the custom developments and customizations (ability to benefit from upgrade of the standard ERP without losing the benefits of custom developed modules and/or customizations). Few solutions allow for that to date but yes it is possible today.
On the technical front, cloud technologies and SaaS (Software as a Service) solutions have matured to a point where they truly can help resolve one of the key challenges of companies when it comes to investing in IT infrastructure, software components and application licenses. This challenge is (was) even greater for the mid-size and dynamic companies where the size did not allow for neglecting these elements, while not allowing for much room for approximation in fitting the offered infrastructure with the business demand. All, in a context of low certainty as business need fluctuate (hopefully grow, but now always, not constantly).
OnDemand (and SaaS) allow today for a very agile, almost risk free, evolution of the IT supporting the business needs. The costs for these services are also so low that they often are overcompensated by the value of eliminating the risk and adapt almost instantly to growing demand or reducing needs.
The important element though, is to select an OnDemand solution that will allow for a total control of the hosted environment (“clouded but if it was at hand”) as well as the full ability to customize and access the ERP solution.
So, yes ERP, smartly approached, is certainly an option way to truly consider
From these, given the tremendous progress the ERP solutions, it is very clear that basing a company’s IT backbone and strategy on the right ERP solution and approach is likely to be the best ROI one can achieve.
Nevertheless, it remains essential to keep a few simple hints when evaluating the best strategy for your business.
- Bear in mind that “must have” functions are a must and do not make you different.
- Evaluate honestly the economic value of strategically differentiating capabilities.
- Consider the choice between 80% of budget for the core functions and 80% of budget for differentiating functions
- Go for a solution that will be capable of being the backbone of your IT strategy, both technically (integration of information) and functionally (integration of processes)
- Assess the need of considering OnDemand (or SaaS) to cope with the dynamics of IT support demand fluctuations
- Avoid “locked-in” (dependency) situations from the vendors, the integrators or the OnDemand/Saas providers.
- Prevent “tunnel effects” (long, everlasting implementation projects) by selecting a solution that allows for a truly agile approach (technically and functionally)
- Last but not least. Remember information is strategic. We are in the information age
Should all these be met, the possibility to implement and use a smart ERP solution is today achievable at a very (very) reasonable cost. So reasonable that, in fact, it is not considering it that could very well be unreasonable!