What Are Your Risks of Choosing a Financially Unstable ERP Publisher?
Gordon B. Hinckley once said, “You can’t build a great building on a weak foundation.” Similarly, for ERP systems, the “foundation” would be the financial stability of your ERP publisher while the “building” being the business continuity for your company. This concept seems intuitive. Still, a lot of businesses choose a tier 3 ERP publisher and don’t fully understand the implications of implementing such ERP systems. Through this article, you will understand why the financial stability of your ERP publisher is critical for you, and what could be the consequences of not choosing a financially sound ERP publisher.
We have listed down the categories of publishers that would fall under these categories:
- A small publisher that doesn’t have enough market share to support the costs of ongoing development and maintenance.
- A famous publisher such as NetSuite that is losing money to gain market share
- A product that is not profitable but backed by a large corporation that may be financially sound
When you implement an ERP system, you use an algorithm built and maintained by the ERP publisher on an ongoing basis, even if you own the code in case of an on-prem installation, and their customers share these maintenance costs. Suppose the publisher doesn’t have enough market share, and the existing customers are not willing to pay more. In that case, they are likely to run into financial challenges, which might result in the following consequences for you.
ERP product no longer supported
Since we have already covered the importance of support from ERP publishers in this article, we will keep it brief here. Similar to cars or heavy machinery, ERP products are like a black box, and only their publishers should fix serious product issues, to avoid any unintended consequences.
If you have chosen a publisher that can’t provide official support any longer due to financial challenges, your choice would be to take help from unauthorized consultants, which might result in unexpected behavior of your ERP system, or go through the implementation process again.
To avoid getting this situation, try to stay away from the financially unstable ERP publishers mentioned above.
How often do ERP publishers run into cash challenges?
ERP development is costly. It’s a cash-draining business. The answer to this question would be how much ever cash they may have in their bank accounts. As a guide stick, we recommend at least 5K installations on the product for the SME market. For markets with larger customers, this number could be lower.
Unable to provide regulatory upgrades
The ERP publishers need to develop new features or modify existing functionality to make it compliant with new regulations.
If the ERP publisher doesn’t have the financial backing to fund this development, you might not be compliant with regulatory requirements. There could be monetary penalties for this non-compliance.
When Everest ERP system ran into financial difficulties, their customers had to find a new home who could help them stay compliant with regulations. You can avoid being in this situation by staying with financially stable ERP publishers.
Incompatible with underlying software or hardware
The ERP products are dependent upon several other software packages and hardware products. For example, Acumatica ERP uses .Net platform to build its features, which is owned and maintained by Microsoft. Each .Net version is also compatible with a specific version of Windows software. The Windows software may be compatible with specific Intel processors.
Each time an underlying component changes, the component that uses it needs to be updated as well.
Suppose an ERP publisher is not financially stable to fund the ongoing compatibility fixes with hardware and software. In that case, you might have to go through the implementation process with another ERP publisher again. Or the software may stop working abruptly due to incompatibility issues, disrupting your business operations.
Chances of getting acquired
If an ERP publisher runs into cash challenges, they might need to find an investor who is willing to fund the development and maintenance. The investor could be a larger ERP publisher such as Infor or Oracle.
The acquiring companies employ various strategies when they acquire smaller ERP publishers: 1) increase the price in order the recoup the continuing losses 2) shut down the product and ask you to move to one of their products 3) cut down on the support and other benefits you might have with the smaller ERP publisher 4)impose a limit on the storage or bandwidth and ask you to upgrade.
In all of these cases, you will be either be paying higher or going through another ERP implementation.
Inability to find consultants to get support on the product
The consultants like to work on products that are backed by financially stable companies. Otherwise, it might be risky for their career.
If an ERP publisher is running into financial difficulties, you might likely struggle to find consultants who could support the product.
Each of these risks has the following financial implications for your company.
- Pay more than what was agreed initially with the ERP publisher.
- Lose investments on the original upgrade and might need to plan for switch prematurely
- Get switched to an unwanted and expensive product in case of an acquisition.
- Forced out of the platform if the product gets shut down by the acquiring company
Conclusion
ERP Publishers provide the foundation upon which you build your business. Choosing a weak foundation in the form of tier 3 publishers is not wise.
While you might be able to save a fraction of money with a tier 3 publisher, it may have severe financial implications due to risks associated that can’t be justified.