To ERP or Not to ERP? That is the [growing organisation’s] Question
As many small to medium organisations grow, they soon discover that some of the foundational technology capabilities they need to support their business functions start to run out of steam. One of the places this shows up first is at the core foundational functions that support the business, such as Finance, HR, Customer Relationship Management, Sales, Project Management, Inventory Management, Order Management etc.
At this point, companies face a crucial investment decision. Do we upgrade our existing individual technology solutions that underpin each function or invest in an Enterprise Resource Planning (ERP) solution?
In this short article, I will explore some of the technology architectural thinking we use to help our customers quantify and assess in order to make this important business decision.
When we talk about ERP solutions, many people think of SAP. ERPs used to be a consideration only for large multinational enterprises with implementations costing in the millions. However, the ERP ecosystem is vast these days and the mid-market has grown exponentially over the last 5 years. Based on the capabilities needed, there are cost effective ERP solutions for small to medium sized organisations to leverage the benefits of an ERP.
What are the benefits of having an ERP?
The primary benefit of the ERP is having one platform that provides your core business foundations in one seamless solution. The key benefits of this are:
1. Cost – Can be more cost effective than managing a collection of individual solutions that supports individual business functions.
2. Eliminates Core Integration Needs – Core business functions never operate on its own and will need data and information from various solutions. Not having all the core functions in one platform introduces the need for integration points between solutions. This has added costs, complexities and introduces another point of failure in the IT ecosystem. The single ERP eliminates this solution-to-solution integration points.
3. Easier Vendor Management – Only dealing with one vendor as opposed to multiple products and vendors can reduce vendor management overheads.
4. Built in End-to-End Processes and Automation – Some ERPs bring in tried and tested end-to-end processes that can be implemented right out of the box to support your business easily. In many cases, some of the automation capabilities come right out of the box to drive process efficiencies.
So, are there any disadvantages of an ERP?
As with anything, there are drawbacks with using an ERP solution. The key disadvantages are:
1. All eggs in one basket – As all core business functions are on one platform, if the solution has an outage then the entire business is impacted. This risk is lower if a collection of solutions, as opposed to an ERP, are underpinning the business functions as the outage is more localised to a function.
2. Little control over vendor ERP roadmap – Once an ERP has been selected, due to the business impacts, organisations do not change ERPs easily or frequently. Therefore, you are limited to the capabilities the vendor delivers and decides to invest in.
3. May not get the best of breed solution at a component level – The downside of using one platform is that at the individual capability level, you may not get the best solution. For example, if you are an organisation who needs the best market leading CRM or sales capabilities to be competitive, then leveraging an ERP platform to support these may not be the best architecture.
4. Integration outside the ERP may not be as easy – Most platforms have seamless integrations between its core capabilities. However, when external solutions are needed, integrating these will create additional complexities as you start to go outside the ERP’s ecosystem.
Now, how do we decide what is right for our organisation?
The decision around selecting or not selecting the ERP solution for your business is crucial and can position your business for rapid growth. Making the right decision will put you on the front foot of this growth curve rather than using a reactive approach. Not adequately addressing this upfront means dealing with spot fires when the systems start to fail, reach their capacity or the business is crying out for more capabilities.
Taking an architecture-centric approach, these are the key steps we recommend to evaluate if an ERP is the right fit:
- Start at the business strategy to identify the areas of growth and most susceptible to change in the organisation.
- Develop or use existing business capability models to underpin the thinking and map the current and future business capabilities. Understand which capabilities can be commodity or a market differentiator.
- Establish the Total Cost of Ownership (TCO) for an ERP vs individual solution stack.
- Understand the risks and benefits of each option with a business focus view. Come to an understanding of how the business will be impacted operationally and strategically, and if risks eventuate, how you will respond as a business.
- Understand how the ERP or non-ERP approach work along the wider organisational technology architecture.
In summary, the ERP decision is heavily determined by the strategy and core drivers of the organisation. Getting this decision correct and selecting the appropriate supporting architecture will help growing organisations to position their technology in the right direction, and maximise the investment.
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