ERP software is a lot like caffeine or alcohol: early on, it can generate a lot of energy and excitement. However, after the buzz wears off and reality sets in, it can leave companies with a rough hangover.
Companies evaluating such ERP software packages often get hooked on the initial buzz and excitement surrounding the possibilities of ERP, so much that they often overlook the fact that it may not be appropriate solutions for their organizations. Every so often, during ERP software assessment and selection projects, I have the unenviable task of advising clients that even though they think they really, really want ERP, it is not the right solution for them.
Factors to Consider When Evaluating Whether or Not ERP Software is Right for Your Organization
- Are your business processes broken? One of the great promises of ERP is the ability to streamline business processes. While ERP can help improve processes, even the best ERP software will not enable an organization to implement a business process management mindset. Simply put, if your business processes are inefficient and broken, ERP alone will not fix them. In some cases, focusing time and effort on tweaking business processes can provide more drastic improvements at a lower cost than ERP.
- Can you handle the business risk? How prepared and able is your organization to accept the risk associated with ERP? New enterprise systems require significant changes to people’s jobs and, in some cases, entirely new ways of doing business. In addition, cost overruns are very common for ERP projects (78% run 10% or more over budget, according to one of our recent benchmarking studies). So it is very important to quantify and assess the business risks and costs and compare these to the business benefits you expect to achieve from a new ERP system.
- What is your core competency and competitive advantage? Some companies have spent years building custom software that gives them a competitive advantage over their peers or allows them to do things more efficiently than any ERP package ever could. In these cases, it may actually be a step back to implement ERP. Organizations need to carefully consider where they stand, what they have to lose, and what they have to gain before determining whether or not ERP will work for them.
Some of the above factors can be uncovered during a business case analysis or justification. Others are more qualitative in nature and are more difficult to assess (such as #3 above). The key is that ERP isn’t always the right answer, and that’s ok.
There may be other feasible options that may make more sense and provide a higher ROI to your organization. Examples include implementing business process improvements, enhancements to organizational design, or instilling a performance management program to increase overall corporate performance. In addition, by implementing these types of incremental improvements in the short term, organizations may be in a much better position to more effectively and successfully implement ERP software in the future.