First, it helps to define the difference between the two. ERP implementations generally entail more incremental improvements to back office systems, whereas digital transformation involves more “quantum leap” improvements and changes to business models and operations. There is obviously a gray area between the two, but below are some of the major differences:
So how are you to decide which is right for you? Below are five questions to ask when deciding which path to pursue:
- Is your organization looking for incremental improvements or more leapfrog technologies? The first thing is to understand what exactly you want to accomplish with your initiative. If you are fairly confident that your operations are effective and efficient and that new technology is simply an enabler of potential improvements, then a new ERP software initiative may be the right route. On the other hand, if you are pursuing more dramatic transformation to your operations, then digital transformation may be the better route.
- Are new technologies or more technologically savvy competitors disrupting your industry? If external forces such as new technologies are disrupting your industry, then digital transformation may be a necessity for your organization. If, on the other hand, your business and operational models are fairly mature and stable – with little to no disruption on the horizon – then a more traditional ERP implementation may be more appropriate. Word of warning: keep in mind that organizations are often slow to recognize potential disruptions to their industry, which can lead to them being flat-footed when things do change.
- How risk tolerant is your organization? Any type of enterprise technology initiative involves a fair amount of risk. However, more intense digital transformations typically entail more time, cost, and organizational risk. Due to their very nature, they entail more dramatic changes to your organization. For example, entirely new business processes, changes to employee roles and responsibilities, and completely new technological capabilities increase the likelihood that the initiative will take longer than expected, cost more than expected and potentially cause operational disruptions to the business in the short-term. Be sure to align your risk tolerance level and expectations with the decision you make regarding technology.
- How much time and money is your organization willing to invest in business process and organizational change management? In addition to considering your organization’s risk tolerance, it’s also important to understand the magnitude of and tolerance for change. If you don’t quite have the stomach to withstand fairly significant business processes and organizational changes – or if you’re not willing to invest significantly in these two critical success factors – then a more incremental ERP software initiative is likely more applicable. If you’re willing to take the leap and fully dedicate time and resources to business process reengineering and organizational change management, then digital transformation may very well make sense.
- What is your overarching enterprise and IT strategy? None of the above four points matter much without clear alignment with your overarching enterprise and IT strategy. Whether you choose a digital transformation or ERP implementation should depend on how you’ve defined your IT strategy, which should be tightly aligned with your overall corporate business strategy and objectives. For example, you probably wouldn’t want to pursue an ERP implementation if your overall business strategy is to completely overhaul your business model and reengineer your business processes.
Though there may be no easy answer, it is important to delineate and choose between the two distinct paths you’d like to pursue. Not only will this clarity ensure that you choose the right technologies, but it will also help ensure that you focus your project resources on the appropriate activities.