The Top ERP Questions That Midsize Businesses Must Ask
by Lenley Hensarling, February 2009
Over the past four decades, enterprise resource planning (ERP) systems have evolved from isolated back-office accounting systems to enterprisewide solutions that touch not only every employee, process, and asset in a company but also reach outside the firewall to customers, prospects, suppliers, and partners. With the right ERP system as the backbone for a midsize company, operational, manufacturing, distribution, and engineering systems can be integrated into one cohesive and productive environment across the value chain.
When businesses are first formed, they often start with simple financial and process systems, which typically utilize a combination of paper documents and electronic spreadsheets. At the next phase of business growth, these firms usually incorporate off-the-shelf software with features to handle accounting, payroll, and some asset management. Growing companies rapidly exceed the capabilities of these simple packages and find themselves with a haphazard mixture of data and processes managed with paper-filled file cabinets, spreadsheets, and a central but disconnected general ledger solution. The only point of integration is e-mail used to pass around spreadsheets and seemingly random orders, inquiries, and reports.
When companies realize that this type of infrastructure is inhibiting growth and causing costs to spiral out of control, they consider implementing an ERP system. The transition to ERP for midsize companies is often the catalyst for faster growth and improved profits. The key to making this transition successful is careful evaluation of ERP options. There are hundreds of ERP systems available today, and midsize companies often have only one chance to make a good decision. The wrong decision can potentially sink a company. During the selection process, midsize companies should carefully consider the following factors, in addition to checking functionality and reference lists:
Vendor strength. ERP software providers need the financial and human assets not only to support current releases but to invest in new technologies and capabilities through research and development, craft new releases, and develop next-generation products.
Vendor growth. When companies gain new ERP customers, they also increase their annual maintenance revenues. This generates an annuity for product development and support. ERP companies with little or no customer growth are risky for long-term viability. Besides the vendor’s stated commitment to the product, continued marketplace success for a product provides insurance for midsize companies investing in ERP.
Partner strength. Even though many ERP solutions are robust, with extensive features and capabilities, no ERP vendor can do everything. Take a close look at a vendor’s partner ecosystem—from resellers and system implementers to independent software/solution vendors and process/business consultants. The strength of this ecosystem is a good indicator of the independent commitment to a particular ERP solution, since partners have to make their own judgments about the value and viability of a software package.
Globalization capability. Even if a midsize business is not competing globally today, it is important to know that an ERP system has language and country localization capabilities and that the vendor has dedicated resources working to keep the software current. If a business expands beyond its borders, having an ERP system in place with globalization features simplifies that expansion.
Technology pace. Even when economies struggle, technology moves forward. Since ERP systems were first rolled out, computing has evolved from mainframes to client/server to the Web. Midsize businesses need an ERP vendor with a track record of aggressively embracing new technologies with pathways for moving customers forward.
Technology choice. Midsize businesses need flexibility not only in their daily operations but also in meeting their technology needs. ERP vendors should support a broad range of platforms, so any midsize firm can optimize their infrastructure selection.
Technology standards. Open standards lower long-term ownership costs. ERP vendors should embrace open standards wherever possible.
Product investment. The ERP vendor should document the investment it has made in its product since the first release. Vendors should provide documents that list added and improved features and functions between a product’s first and current releases. Stagnant products and incomplete functionality point out vendor weakness.
Industry capability. Some industries need specific functionality to supplement core ERP capabilities. Awareness of how an ERP vendor addresses a particular industry’s specific needs is crucial.
Integration approach. Other software can complement ERP solutions. Understanding how an ERP solution integrates with a range of products not only helps midsize firms with current infrastructure needs; it also provides insight into how a vendor is looking forward to address new application directions. ERP vendors that provide some of these complementary solutions along with their core product set may be better able to meet the business needs of midsize firms.
Ownership costs. Understanding the total cost of ownership, from initial deployment to ongoing maintenance, training, staffing, and hardware needs, helps midsize firms make a cost-effective selection decision.
User organization. Strong, independent user groups are important for an ERP product line’s health and future. With user groups, customers are able to speak to the vendor in a collective voice, which helps drive the future of products.
Choosing an ERP system is a great opportunity for midsize companies to deploy a new platform for growth and success. Midsize firms need to make their ERP selection with careful consideration, taking into account where they are today, where they want to be in the future, and the changing landscape of technology. A well-thought-out ERP decision brings enormous opportunity to any midsize business interested in growth and profitability, regardless of location and industry.