At what point in a fledgling company's existence does purchasing an ERP system make financial, operational and technological sense? It's a perplexing question that many small and midsize executives who dream of growing their companies face. It often occurs to them when they experience unprecedented growth or a regulatory disaster, and they soon realize that Excel spreadsheets and QuickBooks simply don't cut it for their businesses anymore.
That's the typical thought process SMBs follow when considering an ERP rollout, writes Cindy Jutras, research fellow and group director of enterprise applications at Aberdeen Group, in a recent report. ERP systems, she contends, enable companies to standardize business processes and gain greater visibility into corporate financial, HR and supply chain functions.
"ERP is more than a necessary infrastructure that forms the transactional system of record upon which a business is based," Jutras writes. "ERP is the potential source of cost savings and operational improvements." (Some larger companies that have been through a tumultuous ERP rollout might disagree, but that is another story.)
Not every SMB is sold on ERP, nor do they look forward to having to pay the considerable implementation, maintenance and upgrade costs that ERP systems often require.
An Aberdeen survey of 579 SMBs in summer 2010 found that nearly 70 percent had yet to invest in an ERP system. The survey unearthed six reasons why those companies said no to ERP (multiple responses were accepted):
- 39 percent We are too small.
- 34 percent We have been able to function effectively without it in past.
- 33 percent We have an internal effort to implement.
- 28 percent Cost of software and services.
- 21 percent We can function effectively without it in the foreseeable future.
- 10 percent Systems are too complicated.
So what has to happen for these respondents to justify an ERP endeavour? According to the survey, the "compelling events" that necessitate an ERP rollout include:
- 44 percent Availability of low-cost ERP options that minimize risk
- 40 percent Explosive growth
- 29 percent Growth beyond a pre-defined threshold
- 27 percent Regulatory compliance requirements
- 19 percent A disastrous event that proves we can't operate effectively
Notice what's missing from those responses? Any mention of core ERP product functionalities or specific software features that would offer a better user experience than what the SMB is currently using (i.e. spreadsheets or a desktop application).
That software "unease of use" has dogged traditional ERP suites for years - and, combined with the aforementioned reasons, explains SMBs' reluctance to take the ERP systems plunge.
Jutras notes that there are alternatives to traditional ERP deployments specifically aimed at SMBs: SaaS and cloud-based software with subscription-based pricing models (such as NetSuite or Workday.
However, Jutras cautions SMBs "against ignoring the cost and effort of not implementing ERP."
She asks: "Is efficiency and productivity leaking out of your organisation by not providing adequate tools to run, monitor and manage the business?"
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