We often encounter clients that don’t have a true enterprise resource planning system (ERP). That doesn’t mean they don’t have processes.
This isn’t limited to just small companies. We also work with pretty big midsize companies following similar patterns of relying on QuickBooks and spreadsheets. Thus, there must be very real practical reasons why these companies aren’t converting to new technology?
There’s also a psychological component; strangely and almost akin to how the American Cancer Society describes colonoscopy resistance:
- Concerned about cost and down time
- Difficulty, uncomfortableness, or even pain
- If everything is running ok – no symptoms, why change?
So, let’s dig a little deeper into why companies live with subpar processes and delay investing in ERP:
Costs vs. benefits of a new ERP system
Let’s start with the elephant in the room. Most companies don’t know how to quantify the benefits vs. the costs (or accurately estimate total cost) in their ERP business case, which often leads to inaction. While many generally understand the more obvious costs – like software and licensing costs, most companies fear it doesn’t end there. What about business disruption, re-engineering processes, customization, extensive testing, etc. With so many variables and perspectives how does a company begin to calculate what a new ERP system will cost and equal in ROI?
As consultants with expertise in all aspects of digital transformation, we help companies plan for and answer these questions. We also make them aware that not everything is predicable, but it is identifiable. What’s the cost of employee resistance to the initiative and are you willing to fund a comprehensive organizational change management (OCM) effort? Okay, so you were expecting to train employees, but do you have to get into the psychology of employees – reluctant, disengaged or those that might be deliberately obstructive? Yes, you do, or your costs will skyrocket or even worse you might be looking at possible ERP implementation failure. User acceptance is more important than the software you choose.
Call it what is; modern ERP is an investment of not only money but time. Perceptions about this type of tech investment vary widely. Many companies have at least explored the idea at one time or another, and something turned them off. Perhaps an over-zealous software salesperson throwing out dollar figures without a lot of quantifying explanations and a timeline too good to be true. Or was it hearing or reading about how other companies have tried to implement new software but failed (perhaps even your own company)?
Your IT team is as concerned about keeping their jobs as they are about keeping your systems running – that’s their priority. Until a C-level executive is willing to champion and demand technology advancement, business will continue as usual. People gravitate to routines and what they are comfortable with. The hidden (or not so hidden) costs of running a less than efficient operation will continue uninterrupted – at least for a while.
Implementing one of the market’s top ERP systems increases the value of your business. You will be able to measure things that were ambiguous in the past and adjust accordingly. You’ll now be working from a single source of truth where systems are integrated, and processes synthesized. If you believe in “what gets measured gets done” you’ll be transforming your company’s productivity. An observation: companies with modern ERP systems sell for a premium (at least the investment world thinks so) since they can more transparently depict their true value, technology readiness and scalability.
Difficulty of implementing a new ERP system
ERP projects or digital transformations are long and hard, and change is uncomfortable. In a true digital transformation, you are challenging and changing the way your company operates. If your plan is to simply automate your current manual processes and spreadsheets, save your money. Your vision must be bigger, and the good news is the right technology can grow with you. Picture growing market share, increasing profitability, avoiding system collapse, better customer satisfaction, etc.
This will be a big undertaking for your company and the effort, resources, and time considerable. It needs to begin with a comprehensive and well-thought-out overarching digital strategy. The business should drive the technology. Your business is unlike any other, so with out a plan (and reality check) you’re not ready to begin looking at software options – a common mistake.
So, this elaborated initiative has multiple parts and stage gates which are complex and will change along the way. Staffing your project team is a critical consideration, as is attrition. The “entire initiative” can be expected to run for a significant amount of time (think months to years). Ask yourself a few important questions when tasked with the challenge of building your internal team:
- Am I staffing the team with my “A players” and can I afford to take them out of their current jobs?Asking them to do double-duty never ends well, so you must have resources to backfill their positions
- Going from no true ERP system to implementing one requires individuals who can create a vision of what centralized control looks like.
Done right, your silos will disappear to be replaced with an integrated management system. Would an independent outside perspective add value? - Do my employees have experience in spearheading ERP initiatives and is it recent?
A sea of new technologies – the cloud, machine learning, IoT, AI, etc. are changing how successful implementations are designed are managed
Also recognize that there is no “good time” to embark on a complex ERP initiative (and they are always challenging in one way or another). However, it could be the impetus for transforming your company’s performance – or getting ahead of a possible sticky situation.
Running on Empty
It’s not uncommon for some companies to be successful without using advanced technology. The question becomes how successful could they be with modern technology? This perhaps is one of the more common deterrents to implementing ERP – companies making money and thinking it will always stay that way.
Connected with this, we see more companies struggling to compensate for changes within their own industries, while lacking the technology to do so. Add to that the threat of global competition that’s becoming more and more prevalent. For those companies with older ERP software – their challenge is threat of legacy software no longer being supported. For example, SAP’s 2025 support deadline is an attempt to move all of its customers to the newer S/4HANA platform.
Often when businesses start out small everything seems manageable, even if throwing more bodies at it is the only viable solution. Therefore, spreadsheets have existed and continue to exist. As a business grows you may start to see cracks in customer service or sales – think missing orders or deadlines. At some point each business will realize that technology is part of the answer.
Customer relationship management (CRM) software is the largest type of software sold. Over 90 percent of businesses use some version of CRM software which is proven to drive efficiency (which includes small businesses). This is an important point because it illustrates that ERP can be introduced in an affordable fashion, and anyone “selling” you that it’s all or nothing is wrong. At Third Stage Consulting we have many partnerships with clients with priorities as well as budgets – something we are good at balancing.
It’s not just the small companies trying not to confuse it, with what you do to survive. Consider the competitive grocery arena. While Kroger has the most brick and motor stores, Walmart by aggressively introducing technology sooner has more grocery sales. Most of its customer facing technologies are using Microsoft’s Azure cloud. They now consider themselves an e-commerce company – using their substantial footprint for online order pickup. (Also see the article: Digital Transformation in the Retail Industry).
Machine learning is bolstering inventory management via shelf scanning robots. E-commerce forced Walmart to enhance their inventory management capabilities since online customers expect nothing less than to have the item available when they pick up. This makes perfect sense when you consider online food purchases have been growing at a 40 percent clip annually while in-store grocery sales remain basically flat.
In Conclusion
While timing is important, businesses are encouraged to actively think about and act on their technology goals. These are essential efforts to prioritize high – and reprioritize often. I could easily argue the benefits of beginning your digital excellence journey as a small-to-midsize business as a competitive advantage. However, Third Stage Consulting helps businesses of all sizes – each with a different goals, budgets and timelines. As digital transformation strategists, our experience and independent stance enables us to match performance to automation.
