Investing in ERP

As I write this blog there are millions of companies, large and small, grappling with what to do with systems that no longer match company or customer needs. The existence of COVID-19 continues to exacerbate this real predicament. Some companies are inundated with requests for goods and services, while others seek to reinvent themselves.

The need for enterprise resource planning (ERP), specifically cloud-based ERP solutions, was rapidly growing before the pandemic and the pace has only accelerated. For many companies, efficiency and automation provided by new technology is no longer an option as they attempt to play catchup or address emerging needs. Timing and cost are at the forefront, and it’s somewhat of a moving target as companies try to navigate a wide range of options. There are many critical dependencies that impact costs, and it's important to go about this change correctly to ensure success through such an investment.

Let’s look at three of many considerations.

1. Are you willing to do it right?

For some, entirely new ERP software may be the answer, while for others, key parts of the existing software will be maintained and supplemented with new compatible software. Doing it right means starting with a well-developed strategy, then looking at software options to meet the goals of the strategy. All too often, companies are premature in their excitement and search for new software – and there are plenty of software resellers anxiously ready to sell you something. Selecting a software “first” is almost always the wrong order in which to do things.

Sidebar: A trend we’re observing is companies are less willing to commit to multi-year ERP projects during these changing times. Incremental and strategic system enhancements taking shorter development and implementation times are taking priority.

Doing it right during the age of the virus may also mean addressing your most pressing needs first. There is huge momentum for human capital management (HCM) software. With employees working from home, traditional HR models no longer work well. We’re now talking about virtual environments where employers are having to adjust staffing, measure things differently, and be able to recruit talent in new ways. This is a new challenge that emerged quickly and it often calls for the immediate investment in tech that supports HR and your company’s workforce. So, doing it right in 2020 could look different than doing it right in previous years.

Costs can be somewhat accurately estimated if everyone agrees on the strategy, all the moving parts, who owns them, what your quality control standards are, and if your budget allows for a variance for unexpected costs. Of course, everyone says they want to do it right, but it typically comes down to a few usual suspects – time, money, and expertise.

If you want to know how much your ERP system or enhancement will cost, you must ask yourself if you are willing to do it right. And you might just need an independent outside expert to validate your progress and keep you on a timeline and within budget.

2. Are you willing to be taught?

There are many skills, from martial arts to algebra, that people probably learned from an instructor. Someone who was dedicated to imparting knowledge as well as coaching and guiding you. Good teachers release responsibility in a methodical fashion to help prevent failure. They are always there to give corrective feedback and model the skills they’re helping you to learn. There is a context in what they do, and they can evaluate and show you what you’ve missed.

So, when it comes to complex topics like digital transformations or ERP initiatives why do some companies choose to go at it alone? The days of IT owning what used to be called a “project” is no longer relevant. A couple of points to consider:

• Executive sponsorship is not enough. It conjures up images of a well-intentioned executive agreeing to an initiative while getting periodic updates. In other words, it’s all going to magically happen because there’s a team assigned to it. We’ve seen this scenario too many times with too many disappointing, disabling results. It requires a different mindset, level of involvement, and external resources. Executives should look at it more like a merger or acquisition (M&A). It’s that serious, and the impacts to the company equally as important. Rarely would you see an M&A process that didn’t involve outside specialized counsel, consultants, investment bankers, etc.

• If you are in “legacy land” and have been using your current system for years – cloud technology is a whole different major paradigm shift. The range of services, technologies, and platforms are all different, and radically so. It doesn’t count that your company has been using basic Internet functions like email or customer relationship management (CRM) software. Everything is different from computing concepts to cloud architecture.

The cost and timing of your digital transformation are most at risk if you’re trying to do it yourself. Budgeting for a good independent ERP “coach” will almost always end up paying for itself. The best formula is one that pairs your best and brightest internal stakeholders with independent ERP consultants for synergy.

3. Opportunity Cost

It’s easier (but not easy) for a qualified person to provide cost and time estimates for a new ERP initiative. But what’s the cost of doing nothing during COVID? There’s a cadre of considerations from company growth to company extinction. Sometimes emotional avoidance is the norm. Companies are emotionally and financially invested in what they know and often unable to see the impact of avoiding change.

It’s hard to measure lost opportunity impact because maybe your company is still growing. We recently worked with a desk manufacturer whose volume was surging, but inventory and transportation disruptions were also escalating at alarming rates. By replacing their antiquated shipping methodology with transportation management software (TMS), a new level of transport efficiency and transparency was achieved. We also helped with the introduction of new computer-aided design (CAD) software to expand on their hot-selling line of desks intended for the home.

For many businesses, analyzing and calculating lost opportunity cost is a daunting task they’d prefer to avoid. That’s one of the reasons you’ll see so many companies implement cost-cutting initiatives as they sense shifts in business or profits. It’s easier to remove obligations than to create new processes and implement new technology.

Cost-cutting is often a band-aid for bigger issues and missed opportunities. Take Domino’s Pizza for example - for the last couple of years, prior to the pandemic, they invested in technology expenditures in significant ways. Dominos understood the time-sensitive nature of their business and already had a Domino’s app in place that allowed for the deposit of an ordered pizza into a customer’s trunk. Their profits have soared, and they are a poster child for an effective, decentralized workforce enabled by technology. They are one of many companies that invested heavily in technology - think online commerce that could morph with the times and customer needs. The lesson is - many businesses that have consciously invested in technology over time find that themselves better positioned for change.

In Conclusion

There’s never been a more important time for companies to plan and act on their digital transformation goals. Expect unpredictability from the economy and implications from the virus to continue. If you’d like to discuss your strategy or options, that’s a conversation one of the experts at Third Stage Consulting would love to have with your team, feel free to contact us to discuss.