In today’s competitive business environment, how do you purchase an ERP system for the unforeseen requirements of tomorrow?

Abstract

On a weekly basis I meet and engage with businesses making ERP selections. Many take a far too narrow view of their current requirements, with the selection triggered often by reactive factors, such as unmanageable paper/ excel based processes or unplanned increases in support function headcount. Most fail to attribute sufficient value to product breadth and flexibility beyond immediate and short term requirements. This results in a common phrase in software selections; “we’ve outgrown our current systems”. This detailed article seeks to explore the costs of undertaking reactive selection as well as outlining key requirements to purchase a future-proof solution. These can be outlined as followed:

  1. Purchase multi tenanted cloud software – “true cloud”
  2. Consider software capabilities beyond your immediate requirements.
  3. Ensure customisation is possible and does not present issues of ‘version lock’.
  4. Look for clear investment in product development and road map.
  5. Ensure the platform has strong integration and technical capabilities.

Full Article:

The Situation

Globalisation has led to a highly competitive and international marketplace. Product life cycles have shortened, consumer expectation has heightened, barriers to entry in many markets have been reduced. Never before has it been so important for companies to constantly innovate, grow and adapt to remain competitive and succeed.

We have witnessed the rise of the hybrid business model where we can no longer broadly categorise many organisations by the services they offer. Businesses have found ways to turn product offerings into recurring subscriptions, to provide additional services alongside a subscription, or to add products alongside services. It is increasingly common to see businesses offering all three. For example, a telephony company selling conference phones and associated hardware, in addition to providing monthly subscription packages and implementation and upgrade project services. To add to matters, this company is operating in multiple European countries.

Hybrid business models increase the complexity of back office processes, often leading to inefficiencies caused by manual workarounds or additional point solution purchases (software designed for a specific requirement only). Often the nuances of stock, project and subscription management are handled by a number of disparate systems. Monthly financials can be generated in part automatically by the ERP system, but more complex processes, such as revenue recognition, are often manually calculated and imported. Perhaps also different systems are being run by different subsidiaries thereby increasing effort to consolidate and simultaneously reducing management visibility of the group performance.

The Problem

The trigger for investment in new systems is commonly rooted in the need to support new products and services, geographical territories or a combination of both. Often this investment occurs in a reactive manner, when operating inefficiencies have already become starkly apparent. Perhaps it’s the unplanned increase in finance team headcount. Perhaps consolidated reporting across multiple entities is infrequent and lacking insight, thereby delaying decision making. Perhaps an increase in workload and longer hours has led to staff attrition or a reduction in morale. Whilst the business might be growing strongly, could growth have been higher had the back office processes been ready to support effectively on day one? Perhaps the same revenue growth would have been achieved but with lower costs, thereby increasing profit margins.

(above) Even in an unforeseen pit stop, Formula 1 crews are ready, with the correct tools to support the driver. In a business world, we must expect change and ensure we have the software to support it. (Photo: Goh Rhy Yan on Unsplash)

Businesses often talk about the reason for investing in software being the “outgrowing of current systems”. This is too vague and often can point to an earlier rushed or incomprehensive evaluation. I would suggest that in many cases, it is because the value of system breadth and flexibility has not been correctly attributed at the point of selection. The focus instead unduly weighted on “what solves our problem for today”, rather than placing equal emphasis on “what prepares us for the change and innovation tomorrow”. Specifically, I would define “tomorrow” as what is yet to be foreseen, rather that what is currently planned. Software investment decisions made under reactive circumstances as noted above, can also have a tendency to focus more heavily on the immediate need, without full consideration for a more holistic purchase.

I appreciate the capital requirements and restrictions of early stage businesses. As such it would be unreasonable for those businesses in existence or survival phases (Churchill and Lewis, 1983) to be able to influence system selections based on supporting future change or requirements. This is because by the very descriptions of these phases, capital and effort are focused on establishing the product or service within the market place. I would argue, based on the stages articulated by Churchill and Lewis, that at the point of “Success-Growth” is it important to consider whether the back office systems are capable of scaling with the business.

As further note, the growth rates posted by the Deloitte Fast 50 show that for companies with successful offerings, business growth can be phenomenal, quickly attracting the backing of private equity and venture capital in many cases. These investors bring additional reporting and target pressures for the management team. Surely it is easier to select and implement an ERP system that can scale with you, before you “outgrow current systems” and are forced into a reactive software selection?

How to avoid the mistakes of selections past and select an ERP platform for growth?

  1. Purchase multi tenanted cloud software – “true cloud”
  2. Consider software capabilities beyond your immediate requirements.
  3. Ensure customisation is possible and does not present issues of ‘version lock’.
  4. Look for clear investment in product development and road map.
  5. Ensure the platform has strong integration and technical capabilities.

This list is not at all exhaustive, but identifies at a high level, some of the important areas to consider. The evolution of the term “cloud” has been muddied to the point that we must look to define “true cloud” separate from other applications and systems that are experienced through an internet browser. For true cloud software, all customers must be on the same version and upgraded without re-installation or re-implementation effort by the purchaser. Purchasing true cloud software ensures that your business is always on the latest version, taking advantage of new features, without expending manual effort and cost simply to upgrade.

The ability to customise the system remains important. Whilst it is reasonable not to desire heavy customisation from the outset, consider the benefits of lighter customisation; adding additional fields, designing workflows to suit your business, ease of creating new reports, dashboard configuration etc. Ensure that these customisations carry through seamlessly from version to version, without re-implementation of the software. It is this flexibility that I feel is grossly undervalued as people select systems today.

Whilst future product road map is subject to the vagaries of development timelines, you should look for evidence of clear investment in product and road map. Not only does this ensure support for the product continues, but equally the road map of a “true cloud” software vendor can be consumed more readily as product is released. It doesn’t require you to re-install or re-implement just to move to the latest version and thus benefit from enriched software. This places a much lower load on your business teams but yields all of the upside benefits associated with regular product releases.

As a final point, consider wider business functionality beyond your initial and indeed current requirements. How broad is the ERP platform being considered? Is additional functionality native to the product or is it separate? If separate, what does the integration look like, how seamless is it? Many true cloud software providers have partner app ecosystems to other niche products with pre-built integrations. Have a scan, look at the offerings are on the app store? A cheaper ERP system might meet your needs for the present day, but does it have the pedigree to support you longer term? The need to hire additional headcount later on could eliminate cost benefit from selecting the cheaper solution.

Conclusion

Selecting ERP systems today can be a confusing process. With development of modern “true cloud” applications, your business always will run the latest version automatically. As a result, it is more feasible than ever before to reduce the number of buying cycles and implementation projects, allowing your employees more time to help grow the business. Following the points above should help in identifying which ERP solutions are still “systems”, which will be outgrown, and which ones truly represent a viable “platform” that will scale and support your business through ever changing cycles.

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