The allure of Enterprise Resource Planning (ERP) systems cannot be understated. The opportunity to integrate most of your business processes into a single software solution is “a one-stop shopping” panacea for all your data integration needs. With shopping list in hand, you can begin the process of shopping for that ERP system that best satisfies your needs.
“Order entry… check.”
“Customer service… check.”
“Inventory management… check.”
With some or all of these items checked off the list, the final “cheque” will be the one representing the “price tag” to implement the shiny, new ERP system.
The Costs of an ERP Implementation
One of the benefits of an ERP system is that it is modular and therefore you can purchase only the modules that you need (or want). For instance, you can purchase and install the Finance module with the option to add other modules in the future. The alternative is to purchase a standalone Finance software package that may or may not readily provide the ability to integrate with other systems once installed. In either instance, you will have to pay for the software – licenses, maintenance, support, etc – including the costs associated with installing it in your environment. Suffice it to say that there will always be additional costs associated with implementing software whether they are built into the initial price or as additional costs over time. Just think of this as the “You can pay me now, or you can you pay me later” syndrome.
The real cost of implementing an ERP system is best referenced in terms of the effort, time and change that needs to be managed as part of the implementation. ERP systems are regarded as representing industry accepted standards and therefore industry best practices. This is a salient feature of most ERP systems and suggests that it is in your best interest to avoid any customization to the software. Customization of the software implies a deviation from industry best practice and typically involves costly development activities which can make it costly to maintain and upgrade in the future.
To Change Your Processes or Not?
The implication here is that if the software is not going to be changed to conform to your processes, then your processes are going to have to be changed to conform to the software. This approach can be beneficial if one of the goals of implementing the ERP system is to force a change within the organization. The introduction of the ERP system by default necessitates change.
Changing your processes means that your people will have to change the way they do their work and this requires time and training to implement. To facilitate these changes is a process re-engineering initiative; training programs and change management programs therefore become integral to ensuring the successful implementation of the ERP project. Ensuring the changes are implemented smoothly and managing the resistance to change become key success factors to your system implementation.
But What’s The Alternative?
So is it really worth it to implement an ERP system within your environment? This is an extremely important question that needs to be addressed early on before any actual activity actually begins. The alternative to implementing an ERP system is to implement standalone software packages that are more closely aligned to your business processes. The advantage will be shorter implementation times and greater acceptance by the groups and individuals that benefit from the software. Of course the disadvantage of installing a series of standalone software packages is that they don’t “talk” to each other. In order to do so, additional costs need to be incurred in order to develop the required Business Intelligence and data integration that will ensure consistency of information.
The Take Away
- There are advantages and disadvantages to implementing an ERP system and the decision to implement one relies on having a thorough understanding of how the business operates, the benefits to be realized, and the time horizon for the change.
- If your processes are working well and information sharing is not a primary concern, implementing a business process specific software solution can provide a more cost effective solution to your business requirements.
- Any software implementation needs to be well planned with the appropriate programs in place to ensure that the processes are ready, training for staff is in place and the change is managed through an effective program.