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The challenge of ERP

enterprise resource planning

Enterprise resource planning (ERP) is commonly associated with either manufacturing or only the largest organisations; those with the money and resources to invest in a best-of-breed system. In reality, though, many mid-market businesses will already be running their own version of ERP already. This could be through managing stock, staff scheduling or financial reporting. Chris Bayne, CEO at Access, explores the real benefits for mid-market organisations.

ERP is really the efficient use of resources, resulting in a reduction in overheads, an increase in turnover and increased margins. If businesses take a joined-up approach to their business systems they are in a better position to deal with the challenges of growth and development.

It’s not always the case that moving to an ERP system requires a wholesale replacement of existing solutions. The same results can be achieved through the integration of best-of-breed solutions with existing technologies. When mid-sized enterprises are looking at investing in a new ERP solution they should be asking, can the solution expand at a later date? Is it possible to add document management or a web portal for project management? Will staff be able to submit time and expenses? Can it integrate with existing software on the site? These may not be requirements right now, but could be necessary further down the line, in maybe six months or a year.

The challenge of ERP

ERP for mid-market enterprises

Many traditional ERP systems are fundamentally flawed, especially in a rapidly changing business environment, due to their inflexibility and costly nature. While ERP was initially embraced by organisations seeking to standardise their processes and reduce transaction costs across the globe, the concept has never sat easily in the mid-market. The ERP concept was designed to provide a broad spectrum of functionality which could serve all of the complex transaction processing and information needs of multinational corporations in a wide range of industries. But this ERP model has proved inflexible and costly to change, requiring an army of consultants to effect even minor changes.

Many global ERP vendors entered the mid-market hoping to emulate the success they had with large enterprises, but their strategy failed. Cut-down versions of major ERP products were simply too complex, inflexible and expensive to work in a mid-market environment, and there was a failure of the large software houses to appreciate the special characteristics of the mid-market.

Market consolidation and the economics of the software industry have driven an increasingly standardised approach to meeting business. Many providers believe that the mid-market has simpler requirements – when in fact they can be every bit as demanding as their larger competitors, just on a smaller scale. Furthermore, smaller businesses are often more agile and entrepreneurial. They are quicker to make decisions, and regularly stretch product and service boundaries in all sorts of innovative ways that cannot be countenanced in a larger enterprise.

For these organisations, the ability to remain flexible and react in the face of competition and regulatory change is critical, but some software vendors cannot match the agility required. As a result, many organisations find themselves constrained by the rigidity of their system. If companies are locked into rigid applications and unable to take advantage of newer technologies, smaller enterprises are often forced to employ workarounds and poorly integrated temporary measures that hamper their growth, productivity and competitiveness.

Software selection

There are many options to consider when selecting an ERP system. There are large domestic vendors that are steeped in the lower end of the mid-market, and smaller start-ups whose support is often provided by telephone hotlines and call centre operations. There’s also the Software as a Service (SaaS) model; advocates of cloud-based solutions claim lower start-up costs, reduced implementation effort, and the reduced burden of IT skills and infrastructure as some of its major benefits.

Lack of flexibility is a key consideration. The business model of cloud-based suppliers relies on repeatability to be cost-effective, with users following a standardised approach. With less room for manoeuvre a ‘one-size-fits-all’ approach is limiting in the face of change and not everyone is convinced that the total cost of ownership is lower than ‘on-premise’ solutions, and there is an ongoing concern regarding security and always being able to access information. Many businesses are now choosing a mix of cloud solutions integrated with their on-premise ERP systems, drawing the information they need from the cloud into the finance system.

Accounting packages have become increasingly standardised – although these systems have contributed to reducing average transaction costs, improving user productivity and customer responsiveness, core financial capability is rarely considered a major source of competitive advantage. Few companies see an advantage in changing financial systems unless the underlying technology becomes obsolete or support is withdrawn. Most businesses, especially in challenging economic times, are seeking to maximise the value of their systems investments by building on existing platforms to realise competitive advantage.

In this situation, the skills and capabilities of software vendors are vital to success. Very few mid-market businesses have significant IT resources inhouse, and the rate at which new applications have come on to the market means that most are unlikely to have the breadth of competencies necessary to sustain existing IT systems and take advantage of new technologies. As a result, partnerships between companies and their software providers are crucial to delivering leading-edge business solutions.

The creation of appropriate business solutions is no longer down to software functionality. The successful delivery of competitive advantage depends on a mix of consultancy, business analysis, software development, advanced functionality and awareness of the latest developments, working in partnership with the business.

When selecting an ERP system there are generally two options; the dealer model or the direct model. It’s often the case that dealers handle more straightforward requirements as they don’t have access to a programme’s source code and are bound by strict rules governing what changes are permissible.

With the direct model, complex customer needs are dealt with centrally by the software author, and all of the capability of the software is retained and shared within the organisation and put at the disposal of customers. This means that imaginative software solutions are not constrained by software development and the company has the resources to draw on a wide range of skills complemented by broad industry expertise.

Benefits of a joined-up system

Many organisations now recognise that technology is an enabler for the business, allowing wider business processes to be automated and controlled. It is rare for a company to purchase an accounting system in isolation – they want a solution that is going to fit the needs of the entire organisation. Effective, enterprise-wide solutions can improve service delivery, allowing the staff and management to focus on the core business.

ERP solutions can quickly drive benefits through an organisation by automating inefficient manual processes. All organisations rely on manual processes to a certain extent, but they are labour intensive and often accompanied by paper documents and physical flows of information which are susceptible to error. Not only do streamlined processes deliver cost saving through productivity gains and reduced error rates, but they also provide a platform for business growth without necessarily adding to headcount or other costs.

By extending the use of central financial systems into every area of the business through integrated ERP systems, all of the information entered or maintained by workers, whether remote or office-based, can be captured, validated and then integrated with the core business data. If all systems are successfully integrated each time transactions are entered, live updates occur right across the solution so that everyone has the same view of the business data.

Having business information centrally located eliminates the need for rekeying information, saving time and resources, while reducing manpower costs. By entering information just once, the potential for human error is greatly reduced. The information then flows through the different systems, providing consistent and accurate data. It’s important to a company to have reliable information that can be easily viewed and analysed.

This constant flow of real-time business information enables the board to manage KPIs, conduct analysis and be alerted to any issues or opportunities that may impact operations, profitability and sales. It provides management with the fundamental drivers for change and business decision making. The availability of information goes beyond being just a tool for the board and can be used by everyone right across the company. The flow of information in and out of the finance system can be tailored, and by setting up different views for different people throughout the organisation it’s possible to present the information in a different way depending on someone’s job role and responsibility.

By having the opportunity to view information from right across the business, managers and directors can make quick decisions and respond to changes. Not only in terms of the organisation’s financial position, but also the opportunity to see which customers, products and services are most profitable, where efficiency can be improved and the status of current orders.

Joined-up enterprise-wide technology puts businesses in a position where they can make the most of the opportunities available to them. They have control over the business and the ability to get a view of the whole organisation, not just one department or process. Effective ERP can help businesses maintain a competitive position.

Making the right choice

Management rely on ERP systems for working capital management, such as balancing debtor and creditor days outstanding, timely reconciliations, purchasing policy, expense management, and keeping inventory to optimum levels. Furthermore, integrated HR planning and payroll allows businesses to keep a careful watch on employee costs and headcount.

Accurate and timely information taking different views of the business is critical to obtaining clear insights into business performance and emerging business trends. But the ERP model, popularised during the 90s, has found itself lacking during a period of rapid change.

Businesses do not have to rely on a big ERP solution, overhauling their entire IT operations in the process. By linking up and integrating existing systems, and allowing information to flow through the business, mid-market enterprises can benefit from ERP in a cost-effective way which is better suited to the size of their organisation.

Mid-market business looking for a change of system should engage with a partner that will help them meet the challenges of implementing the right solution and also provide support for future business growth.

The author

Chris Bayne, CEO for Access, has been involved in business software systems for almost 20 years. During that time he has been instrumental in designing, developing and bringing to market many award-winning software applications. He recently led a £50 million buy-out of Access UK.

ITAdviser 68 Winter 2011

 

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