When you’re buying software, it’s important to keep in mind the various costs associated with implementing an ERP solution, in addition to the price of the license. Due to factors such as cost and scale, it is especially important to develop a specific ERP strategy for your business before you make the move to implement your solution. After all, you wouldn’t buy a house before having an inspection done or getting your financial affairs in order. It’s the same premise with ERP software.
In this article, we will examine some of the guidelines and strategies that can increase your chances of a successful ERP implementation. Some data even suggests that 60 percent of ERP implementations fail in some way, so let’s explore how your company can become part of the 40 percent that see nothing but smooth sailing.
What Is ERP?
Before you begin thinking about the logistics of your implementation strategy, you need to be secure in your knowledge of what exactly ERP is. After all, you wouldn’t want to purchase software that is too complex or too simple for your business needs, as this would increase the likelihood of failed implementation.
Enterprise resource planning software is a database of analytic insights and a suite of automation tools that can span across all aspects of your business. What makes ERP software attractive to many companies is the fact that real-time data is centralized, which makes it easier to measure insights across departments. With other software systems, data is siloed so that it takes effort to pull reports and send information to employees in different parts of the company.
Additionally, ERP can automate functions and communications across business verticals. For example, an automated accounting function could use ecommerce sales information to balance the budget. This information could then be used to forecast future budgetary requirements and inform stakeholders as to which products are popular and which ones should be retired from the product line.
What Exactly Is ERP Strategy?
ERP strategy is a guideline containing steps that you should take before, during and after obtaining ERP software. These steps are recommended in order to ensure functionality and ultimately profitability of a new ERP suite.
Think of it this way: Before you take a long road trip you might do some planning in advance as to which cities might be good places to stop for gas, which hotels you might be interested in staying at and how much money you expect to spend on fast food during the arduous journey. The more you plan in advance, the better your chances are for success and for making it in time to see the world’s largest rocking chair before the gift shop closes.
ERP strategy is much the same in that the more detailed your strategy and expectations are, the better your chances for success will be. The more specific you are about aspects such as planning how you will get employees acquainted to the new system and how much you want to allocate towards ERP installation vs. actual software cost, the more likely you will be to succeed.
What Are the Components of ERP Strategy?
An ERP strategy should contain the following components at a minimum:
List of Implementation Goals
Before you select your ERP software, you’ll want to develop some implementation goals that you wish to achieve upon deployment. For example, you may wish to increase ROI by 50 percent or determine who the lowest performing employees are in your company. In addition to these business-centric goals, you should also create a list of needs and wants that your software solution should have. These more specific process-oriented functions should tie in to your implementation goals. For example, you may wish to implement a centralized HR system so that you can better track employee performance. A list of integration goals and potential software features will be an effective tool to show vendors when you are determining if a specific solution is right for you.
The integration of new software often succeeds or fails based on financial planning or a lack thereof. It’s important to develop your budget early on in the buying process so that you don’t end up over your head. You don’t want to get a solution with all of the bells and whistles included if you can’t afford it. You should be upfront with vendors about these financial requirements and, if there aren’t any solutions that are affordable given your current budget, you should either wait to implement ERP or speak with your financial team to see if there is any possibility for the budget to be increased.
List of Business Processes and Input from Stakeholders
This component will require interviewing and sitting with your employees who work across various departments. Because you likely haven’t worked in all of the departments at your company, you will need to speak with applicable employees to learn more about their day-to-day tasks along with any pain points that they encounter regularly. Additionally, if there are any complicated or manual workarounds that they currently perform, you should take note of those as well. This step is key in making sure that your ERP platform helps your employees and makes them happy. This is essential, because according to an ERP Experts Online Forum from 2012, “ERP is 90 percent about people, process, culture and politics.”
Desired Deployment Method
Depending on your business, you may prefer to purchase cloud ERP software or an on-premise solution. There are pros and cons to each of these methods, which you should consider before making a decision. Once you decide which installation method you would prefer, you need to communicate that to potential vendors. Many ERP vendors are migrating to a cloud-based solution, so if you want on-site installation, this is something that you will need to confirm is available from your preferred vendor.
Training Allocation and Planning
Purchasing an ERP product without conducting proper employee training is a recipe for disaster. Training improves the likelihood of productive use of software while also improving the odds of employee satisfaction. The last thing your business needs is employees discussing the issues with a new software system and becoming disgruntled with the decisions of the executive team. You will also want to make sure that your IT team has resources available so that they can train on the new ERP software. Internal employees will likely ask for assistance from your IT team, so it’s important that they be knowledgeable in this area.
Now that you’ve done all of that brainstorming and preparing, it’s time to take a look at ERP vendors. Make sure that you keep all of the applicable documents and information nearby when you’re looking at providers so that you can ask relevant questions. ERP selection is one of the most difficult parts of implementing a new solution, which is why we’ve created this ERP in-depth comparison report to help streamline the process. This report compares different ERP vendors based on how they rank on certain business requirements such as distribution management and human resources.
Why is an ERP Strategy Important?
Depending on how much research you’ve conducted about ERP systems, you likely know that ERP software isn’t cheap. A common figure that gets thrown around is that it can cost anywhere from $75,000 to $750,000 over a system’s lifetime for a small to mid-sized company. Enterprise resource planning systems can be extremely worthwhile if the solution aligns with your company needs, but if not, purchasing an ineffective system can be a huge waste of money.
By developing an ERP strategy, you can reduce your chances of wasting time and money on a solution that doesn’t meet your needs. These strategic methods can help you plan the before, during and after implementation goals that you hope to meet with the adoption of your ERP model.
What Are the Benefits of a Good ERP Strategy?
A good strategy can help you save money on your solution and implementation. Data suggests that 54 percent of ERP systems exceed projected budget targets. Your detailed strategy, along with vendor transparency, should reduce the odds of your project going over budget. That way, you don’t break the bank simply ensuring you have a fully implemented and integrated ERP.
You can spend less time speaking with vendors whose products don’t align with your company needs by creating an effective strategy. Even though creating the strategy takes some time up front, as you deal with more complex negotiations and requirement discussions you’ll see that by developing a strategy you’ve saved yourself a great deal of time in the long run.
Gain a Competitive Edge
A key benefit of ERP strategization is that it drastically increases the chances that your business chooses the best solution for its operations. This allows the system to have the most positive impact on the bottom line of your business, therefore giving your business a competitive advantage. There are multiple processes that ERP software can simplify, but some of the main benefits are listed below:
- Increase revenue
- Reduce manual workflows
- Reduce margin of error
- Improve customer relations
- Streamline supply chain and manufacturing efforts
What Could Happen if I Don’t Implement an Effective ERP Strategy?
If you don’t create an ERP strategy, your implementation is more likely to be ineffective. Therefore, you are more likely to lose money by forgoing an ERP strategy because your solution will either fail, or you’ll be spending more money trying to get back on track.
Shopping for and obtaining an ERP system is a time-consuming process. If you don’t create a list of requirements as part of your strategy, you are more likely to hop from vendor to vendor looking for someone who can help you meet your business goals. If you have a detailed list of your needs, budget, etc., you will likely be able to find a suitable vendor more quickly.
If your ERP system fails, your employees who have taken the time and effort to learn a new workflow will likely be upset. A failed ERP solution doesn’t just waste your time, it wastes your employees’ time as well.
Implement Difficult Workarounds for Day-to-Day Processes
If your implemented solution doesn’t function properly and/or doesn’t contain all of the features that you need for day-to-day business, your employees will be forced to develop workarounds to complete their work. This can be incredibly frustrating and time-consuming, so it is best to be sure that the system that you implement meets all of your needs before you proceed with installation.
If your ERP solution fails and you decide to try implementing ERP software again, there will likely be reduced confidence from executives and employees alike. Furthermore, it’s probable that your budget for another attempt at implementation would be minuscule and therefore restrict your ability to purchase a worthwhile solution. It’s basically a snowball effect where your implementation issues get bigger and bigger as time goes on.
Developing an effective ERP strategy is essential when you are looking to deploy software. Because there are so many moving parts associated with ERP, it’s important to consider factors such as price, installation method and specific business needs before pulling out your wallet. By creating a detailed implementation plan, you can reduce the headache of trudging through the product pages of solutions that will never work for your company. Ultimately, you can save a large amount of time and money by being specific and figuring out your company needs before searching for a solution.
Which component of the ERP strategy do you think is the most important? Let us know in the comments below!