Is Your ERP Foundation Worthy?

Jul 31, 2014

kalfvin

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Cloud computing. Mobile. Social media. Big data. It’s hard to open a newspaper or industry journal without having terms like these assault your senses. Perhaps you’ve wondered whether you should be considering how to leverage these new technologies. Perhaps you think it’s all a bunch of hooey. Either way, I can tell you that it would serve you well to not entirely bury your head in the sand.

As a management consultant for over 30 years, I have worked with dozens of clients on business solutions involving information technology. I’d like to think that I’ve got a pretty good read on what’s going on out there. I’m here to tell you that these technology megatrends are real. They have value. And if used appropriately, they can help you innovate remarkably effective new business models that could catapult your company to be a market maker in your particular industry.

But I’d like you to put those lofty thoughts aside for a moment. The reality is that these new tools are best deployed when they augment and leverage an already strong foundation of transactional data – the kind of data that is largely created and managed by your ERP system. Interestingly I have heard a lot of discussion these days around ERP.

Only 2-3 years ago it seemed as though ERP was pretty much a dead topic. Most companies at that point had already been through their selections and implementations, some as long as a decade ago. So why have we been observing the seemingly sudden surge of interest?

I believe, along with many of my clients and colleagues, that there are a few basic reasons:

  1. Businesses can’t hold their breath anymore. Stagnation in the economy over the past 5-10 years prompted most companies to pull way back on investments, including information technology. Ironically, instead of the business world similarly stagnating, quite the opposite happened. In order to successfully compete, businesses needed to do more than cut costs and struggle to improve top line performance. They had to begrudgingly abandon much of the sage, old “MBA wisdom” (touted as “best practices”) contained in the old playbooks, as we watched their application increasingly fail in this emerging new paradigm.
    Businesses began to experiment and try new things that would better position them for success. And so began the abandonment of “best practices” and the vigorous exploration and discovery of “next practices.” In fact, the velocity of change over the past 5-10 years increased at an unprecedented rate. This, coupled with the moratorium on investment spending on IT caused tremendous pressure to build – increasingly pent-up demand for newer information systems that would better serve – and in fact, enable — the new, new economy.
  2. Technology mega-trends have changed the business and IT landscape.
    1. Integration of information systems is now easier than ever before.
    2. Mobile computing has become a de facto expectation of senior executives for nearly every information system.
    3. System deployments have accelerated, in part through the adoption of cloud computing. A company can now launch new enterprise wide applications without having to concern itself with the cost and time involved to develop its technical infrastructure. What once took months, can now be done in days – and with little, if any, upfront capital investments.
    4. Real-time monitoring of activities, movement, environmental conditions enabled by miniaturized, web-enabled devices now allow a constant stream of telemetry data to feed nearly instantaneous business intelligence and facilitate predictive analysis.
    5. Social media has seemingly overnight infiltrated businesses, many of whom routinely and constantly monitor how they and their brand are being perceived. This is occurring not only in consumer products, but nearly every industry segment.
  3. Businesses are relentless in their pursuit of eradicating whatever boundaries they can between themselves and their customers – and in some cases, their customers’ customers! There is a belief that those who can crack that code will be best positioned for sustainable success. Information technology will play a pivotal role in helping make this a reality.

Subsequently, if you believe your business is ready and able to once again “breathe” and resume investing in information technology, you may be wondering where to begin. You may be asking yourself questions such as: “Should I be moving my systems to the cloud?”, “Is it time to build a data warehouse?”, “How much is all this going to cost?” and “How fast can I have it? – Whatever ‘it’ happens to be.”

Of course, for many companies, now might be a good time to take stock, revisit its business strategy and then develop a corresponding refresh of its information systems plan.

But there is a more fundamental question to consider even before embarking down that path: “Does my business have a strong enough foundation of transactional data upon which we can build strategic applications that create superior competitive advantage and take advantage of the emerging information technology landscape?” Said another way: “Does my company need to replace its ERP system?”

Now, I know that such a question can elicit all manner of queasiness, gastric reflux and/or anxiety among my CFO friends – especially those who, like me, have already been through such an exercise – once or many times. While I know many a CFO who would rather have extensive root canal surgery than undergo another ERP implementation project, there are others, who might actually readily gravitate toward replacement as quickly as possible.  In fact, I am amazed at how many favor the latter approach.

Obviously, as I am unencumbered by any facts associated with you and your company’s situation, I cannot recommend going one way or another. Actually, most companies acknowledge three alternatives: replace with something new, upgrade existing product, or re-implement/reinvest. There are several considerations that must be thought through when determining your company’s best course of action:

  • How much has your company grown and otherwise changed since your ERP was implemented? Is your higher transaction volume maxing out processing? Have you entered into new lines of business, new markets, etc.
  • To what extent do you believe your company has an opportunity to optimize business processes or even undergo some level of business transformation that would yield significant benefit? Could your current ERP support that kind of initiative? Would a replacement be called for? To what extent could you commit to avoiding customizations to the software?
  • Is your current ERP still a good fit? Will moving to the new release give you functionality that you now need?
  • How heavily customized is your current ERP? Is it even a practical consideration to upgrade, given the extent of your modifications?
  • Did you ever realize the benefits you expected out of the initial implementation? If no, why not? What would you do differently this time? What lessons did you learn from the previous experience?
  • Does your vendor still support the product? The version that you are running?
  • Which approach would have the most attractive cost/benefit model?
  • How does each approach differ with respect to risk and how to best manage it?
  • Does your company have the necessary skills available to pursue one approach over another?
  • At what stage in its lifecycle is your ERP – from the vendor’s perspective? From your perspective?
  • What are the system integration considerations, with respect to each alternative?

Clearly, these are not questions to be taken lightly. In some cases, companies find that working with an independent facilitator can help efficiently work through the decision-making process.

I am reasonably certain that nearly every company has already asked themselves about the current state of their ERP and its go-forward viability, is just now coming to grips with it, or will soon be addressing it within the next year or two. The answer of course will be different for every company.
I welcome your comments and questions on the subject.

 

 

For More information on ERP, or to speak with Anthony, please send an e-mail to aperrone@pronexusllc.com or call 585-662-2215

Post by Kaitlin Alfvin

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