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. (The report “ERP in SME” is available with registration at Aberdeen.com.)
“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.)
[ Think ERP on mobile devices is a good idea? Think again. ]
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% We are too small.
- 34% We have been able to function effectively without it in past.
- 33% We have an internal effort to implement.
- 28% Cost of software and services.
- 21% We can function effectively without it in the foreseeable future.
- 10% Systems are too complicated.
So what has to happen for these respondents to justify an ERP endeavor? According to the survey, the “compelling events” that necessitate an ERP rollout include:
- 44% Availability of low-cost ERP options that minimize risk
- 40% Explosive growth
- 29% Growth beyond a pre-defined threshold
- 27 % Regulatory compliance requirements
- 19% 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. For more on this, see: Have You Got Software Hairball Syndrome?).
However, Jutras cautions SMBs “against ignoring the cost and effort of not implementing ERP.”
She asks: “Is efficiency and productivity leaking out of your organization by not providing adequate tools to run, monitor and manage the business?”
Thomas Wailgum covers Enterprise Software, Data Management and Personal Productivity Apps for CIO.com. Follow him on Twitter @twailgum. Follow everything from CIO.com on Twitter @CIOonline. E-mail Thomas at firstname.lastname@example.org.