Enterprise Resource Planning (ERP) has become a core system for businesses. It helps companies achieve a competitive advantage by employing all the tools needed. ERP market statistics show a move towards increased usage and global demand. The global ERP software market is expected to reach $78.4 billion by 2026. This is driven by widespread digital adoption, increased market competition, and huge amounts of data that need to be tracked, maintained, and analyzed. ERP can effectively reduce process time and improve collaboration, with a centralized system providing more accurate and real-time visibility of business leading informed decisions.
The selection and implementation of an ERP are some of the most crucial decisions a company must make. One reason for this is that the adoption of an ERP system involves some level of disruption. Therefore, if the move is not planned and executed properly, it can result in the loss of resources, time wastage, and a missed innovation opportunity.
Hence, the ERP selection process can determine the fate of the ERP implementation. This blog post will focus on some important factors that must be considered while selecting an ERP for your business.
1. Business Case for ERP Decision
Preparing a business case is an efficient way of evaluating the cost and benefits of an ERP system. It allows you to consider your business's needs, your organization’s budget, and the projected savings. This ensures that the ERP system will benefit your business and that it is financially viable. It is essential to do a thorough cost-benefit analysis before approaching the decision-makers and asking for the green light. A thorough analysis helps decision-makers comprehend how investing in technology will help them achieve the organization’s goals.
A business case should answer the following questions:
- Will a new ERP system enable real-time data with maximum accuracy, allowing for better decision making?
- Will a new ERP system help employees perform their tasks in a more efficient and organized way?
- Will a new ERP system result in operational efficiency?
- Will a new ERP system result in the integration of disparate enterprise systems?
- Will a new ERP system improve business partners’ experience?
- Will a new ERP system conform to regulatory compliance & reporting requirements?
- Will a new ERP system help to achieve long term organizational goals?
All expected benefits should be listed down as they will help decision-makers achieve employee buy-in for the ERP selection process and beyond. Soliciting buy-in and making managers and employees part of the solution is essential to involve them in the ERP vendor selection process.
2. Importance of Data Management Strategy on ERP Decision
You cannot get quality output from an ERP system without the input of quality data. Having a data management strategy in place can help ensure better decision making based on more reliable information. It allows businesses to organize and clean their data spread across multiple systems. It also enables them to resolve duplicate data and other data quality issues. Poorly organized and inaccurate data is likely to result in project delays. Therefore, having a data management strategy helps avoid delays and budget overruns. This will be handy during the selection process to evaluate the proposed ERP's data handling capability.
3. Business Readiness Assessment
The selection of an ERP system is a change-driven process, so evaluating business readiness for change plays a vital role during this exercise. It will involve Business Process Reengineering (BRP), which will have a varying effect on business functions. Business readiness assessment will provide the company with an estimate of time and resources your managerial staff will be investing in change management. It will help you gauge the proposed ERP solution's capability to introduce innovation in processes while dedicating minimum time and resources toward coping resistance to change from process owners. While you are waiting for vendors to review your RFPs and prepare demos, you may have a month of downtime. This is an excellent time to conduct a business readiness assessment. It will help you avoid the current system's bias, which often results in people picking a familiar system rather than a good one.
4. People Factor in ERP Selection Process
The people factor is detrimental throughout the ERP selection process. From selecting an ERP system to the implementation, the sponsors, managers, and process owners should be involved. Additionally, involving people outside the organization with relevant knowledge and skills (e.g., consultants, advisors, auditors, etc.) for technical validation can add great value to the process. Managers and Process owners will be custodians of the ERP; hence creating a buy-in, which will add significant value and relief.
Additionally, companies need to invest in people, along with the implementation. This is because employees are likely to be burdened with additional tasks during this whole process. It is important to properly budget at the early stages for talent and human resources involved in the process. Underestimating the expenses involved with performance, including maintenance and the level of skill needed to get the project off the ground successfully, leads to problems later.
5. ERP Tiers
Businesses can save considerable time during an ERP selection process by defining their basic requirements beforehand.
By keeping future business expansion plans in mind, companies can easily select an appropriate ERP solution. This also allows companies to avoid ‘over-kill,’ i.e., selecting an ERP that is more complex than required to handle your current and future business requirements.
Generally, the ERPs are categorized in the following tiers:
- Tier I- ERPs falling in this category are designed to address the needs of large, global enterprises dealing with complex operations and internationalization issues, including multi-currency, multi-language, regulatory and management reporting compliance, accounting rules, etc.
- Tier II- ERPs falling in this category are designed to address the needs of large enterprises that may operate in multiple countries but lack global reach and have less robust operations. The target audience can be standalone entities or strategic business units of large global enterprises. Most Tier II ERPs have some features to cater to internationalization issues but lack Tier II's breadth.
- Tier III- ERPs falling in this category are designed to address the needs of small to medium enterprises (SMEs). Most provide limited support for multi-language and multi-currency.
- Tier IV- ERPs falling in this category are designed for small enterprises and often are accounting systems.
6. Long-Term Investment & Commitment for ERP
Implementation of ERP for your business is a long-term commitment. It is not a one-off venture. Even after successful implementation, there is an ongoing need for optimization to keep the system and processes up to date. Similarly, it should be taken at the very start of it as a long-term investment rather than an expense or a short-term investment. This will provide a better criterion to evaluate ERP benefits based on ROI, operational efficiency, cost-cutting, etc.
7. Painful Business Areas to Focus
Before starting the selection process, customers need to know their business areas, which are more important yet vulnerable. These could be leaking profits, poor customer experience, inefficient operations, high employee turnover, poor inventory management, recurring product quality issues, and/or no real-time decision making based on hard data, to name some. Once these problematic areas are identified, you can evaluate the proposed ERP in a much better way against your business requirements.
While determining which requirements are worth time and resource investment, team members must distinguish between needs and wants. This will help in rating the requirements based on their contribution to the business and reporting needs. Requirements can be categorized into three groups:
- Mandatory – These are must-have requirements. These are tasks required to perform a job function crucial to business operations or reporting requirements such as management or regulatory reporting requirement. These are high priority and non-negotiable. They tend to have the lion’s share in the overall time and resources allocated to the project.
- Value-added – These are essential requirements but not required to perform a task as there might be a less costly alternative (s) available. These are mostly related to the efficiency of the process by eliminating or streamlining a manual function (i.e., automatically sending emails to customers regarding the processing status of orders). These are no deal-breakers.
- Nice to have – These do not relate to any task's performance but just convenience requirements, like the ‘look and feel’ of an entry form. Not having them will not impact the performance of a job and its efficiency.
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8. ERP Evaluation to Get Best Fit for Business
While making a final selection, ERP should be evaluated on the following:
- Scalability- ERP’s ability to meet future business and regulatory requirements due to business expansions and changes affecting the business and environment in which it operates.
- ROI- Return on investment can be used as a quotative method to analyze investment proposition against ERP under consideration. Estimate a reasonable time to calculate ROI.
- Long-term organizational goals- How it will help business to achieve long-term organizational goals.
- Availability- How easily accessible it is to decision-makers and users and how much effort it takes to keep it up and running.
- Customization- Level of customization required vs. offered by proposed ERP.
- On-premises vs. Cloud-based ERP- We have witnessed an increasing trend towards the adoption of cloud technology. Software as a Service (SaaS) has pushed the boundaries for the cloud-technology market by making systems more efficient, elastic, and easily accessible. While the market share of cloud technologies shows increasing trends, there might be a few instances where organizations with unique functional or industry-specific requirements might want to consider on-premises ERP. Cost and IT infrastructure are also a good consideration in this regard.
9. Features Trap
Sometimes features make it trickier for an organization to choose; although important, features are not everything. Organizations tend to select ERPs with a long list of catchy features that can divert focus from basic requirements. Trading basic requirements with a feature is never a good idea. Still, it is useful to have maximum features while also ensuring basic business requirements are fully covered.
In conclusion, we have tried to list some crucial factors to enable you to make informed decisions. This article will help you get a holistic view of the situation and formulate a better approach to strategize the selection process.
If you have any queries or suggestions, please leave a comment.