As with any buzzword, you might find varying opinions around what an ERP system truly is.
Some people call it an accounting/financial system as you can’t implement an ERP without a finance module. Some refer to it as an order management system as it is used primarily in product-centric industries. Finally, if you ask an ERP vendor, they might go to lengths in claiming that you probably would not need a second software once you install an ERP.
While it is true that an ERP system can run the majority of business processes for several industries, ERP is not always the best choice in every scenario.
Based on the experience of our management team of implementing ERP software for various industries for the past 20 years, this is how we define it:
It is a Management Information System
A modern ERP enables managers and executives with appropriate real-time information and data they need to make key decisions on the devices of their convenience.
An average small business employee wears more than five hats while founders or owners carry the rest of the responsibilities on their shoulders. Since owners are typically the longest-serving employees, they know most about the business. As they grow and as more managers are hired, the owners and managers will have limited information available to them due to added responsibilities and limited bandwidth. This would limit their ability to make key decisions and often their decisions will have high failure rates. Because of this experience, owners and managers become highly risk-averse and don’t want to consider any ideas that may be outside of their comfort zone.
A modern ERP system provides an integrated view of the organization on managers’ fingertips that will help them tap into opportunities with confidence.
It is a “Buy-vs-Build” decision
An ERP is a product that you buy so you don’t have to build it yourself.
Unless you plan to run your business manually, you would require business software to host your processes such as Finance/Accounting, Sales/Marketing, HR, and Operations (Sales Order Fulfillment, Purchase Order Processing, Production processes). Most small businesses might start with a basic accounting system such as Quickbooks or Xero, or a small CRM such as Zoho or Hubspot.
The other technical-savvy businesses may have in-house developers who might write a system on their own. Like playing sports, which may appear easy on the surface and we all know that only a few gifted people can play professionally and competitively, writing software is equally hard. While developers may have differing opinions here, if you ask a sponsor who has prior experience funding a software development project, they would define it in three terms: difficult, expensive, and risky. Your least risky option would be to find off-the-shelf, already-built software that is most commonly used in your industry or micro-industry. This may not always be possible as each business has some uniqueness to them. This is where you may want to assess the closest option that may be available for your micro-industry and how much customization will be required on top of it.
From the perspective of manufacturing or operations management, this is also the same-old “buy-vs-build” concept that management schools have been coaching for decades and operations leaders are intimately familiar with.
When you are buying an ERP, you are making a conscious choice to buy an already-built product as opposed to building it on your own so make sure you understand the product deep enough or hire a consulting firm such as ElevatIQ who can assist with implementation before you take the path of customizing it heavily.
To illustrate it further, making a decision to implement an ERP is like buying an iPhone, you buy it because you appreciate the way iPhone works. Customizing it to make it look like your old Nokia would not be a smart choice. In fact, it may be turn out to be difficult, expensive, and risky.
It is a single source of truth for the entire organization
An ERP eliminates departmental and functional silos and provides unifying access to information across the enterprise without conflicts or duplication.
While the concept of a single source of truth has been prevalent in various contexts, the true essence is rarely understood, let alone implemented–in an enterprise.
If you are not familiar with this concept, the best way to compare this would be with our human brains. Imagine if each of our body parts had their own tiny “brains” that were known and available only to that body part–and the kind of problems it would create.
An average business uses more than 10 systems (or “brains”) such as a payroll system, an accounting system, a reporting system, ignoring all other “brains” such as millions of spreadsheets sitting on each employee’s desktop or the brains of your key employees. This problem of multiple “brains” causes several issues: 1) duplication of efforts 2) slowed processing 3) slowed on-boarding of new resources 4) added costs of maintaining each system 5) lack of control.
An ERP system provides the very same glue that our human brains do and helps us organize information in such a way that there is no second or conflicting source of truth.
It is the most strategic investment without fail
An ERP turns to be a strategic investment for the majority of the businesses as it is a key enabler for most other forms of investments such as human resources or IP.
If you asked a successful business owner or an executive, they will all have differing views on what they consider a strategic investment. Some will argue that it’s the key employees that make or break the company. Some will say that it’s the product, idea, opportunity, or brand.
However, in our view, it is the culture that attracts key employees to the company who execute and deliver on great ideas, create captivating customer experiences, and help strengthen the brand.
The key ingredients of culture typically consist of how clearly the roles and responsibilities are defined for employees, how easy their life is, and how fairly they are measured and rewarded for their work.
To enable this culture, everyone in an organization needs to have access to the right amount of information and traceability so that they can see a clear path of success for them and help you create the culture that will be your differentiator.
This is why an ERP typically is a more strategic investment than most of your other investments.
It is a journey
While there are industry-specific ERP options out there that could provide an immediate ROI to a business, an ERP journey is never finished with the implementation.
In fact, managers who have experience implementing several ERPs to their organizations suggest that ERP journey typically starts with a successful installation. To understand this, think of an ERP as modular components available to construct different buildings that may be relevant in various situations, for instance, a house.
Pre-built modular components are likely to provide an immediate ROI as you don’t have to invest your time and resources in reinventing the wheel. Also, once the basic structure is erected, you would be able to assess your needs better in what else you could do with this house. Finally, once you own a house, you will have a better understanding of your needs, and appreciation will grow as well.
With time, as with houses or cars, ERPs are always getting updated with superior capabilities and technologies so once you install an ERP, you are setting yourself up for a very exciting and rewarding journey that enriches as time passes and as your experience grows using it.
Be open-minded with an ERP project and treat it like a journey as opposed to a trip.