Don’t Lose Sleep Over It – The Decision Is Easier Than You Think
Today’s blog is presented by my guest author Dick Kuiper, who is a senior business consultant with Lawson. He has 40 years of experience in the ERP arena helping hundreds of companies make wise decisions about information systems.
Investing in a new ERP system, whether it’s purchasing a brand new one as a replacement or upgrading to the latest version from your current software vendor, is a “significant event” – both in effort and money.
And as the old adage goes, there’s never a good time to spend money. And, there’s always a hesitancy to spend money on new things. This is not only true with consumers, but also with companies, even though companies realize that investing in new things such as product development, process improvement, new technology, etc. are wise for the long term.
Investing in new application software presents a tough decision for many companies because the cost vs. benefit analysis often includes many gray areas, and the stories of failed implementations are highly publicized.
So, what’s a C-level executive to do about this dilemma? Do we stick with what we’ve got because we know it works, or do we move to a new ERP package to reap the benefits we keep hearing about?
This sounds like another issue that keeps the CEO up at night. This is such a daunting challenge that too many companies keep putting off dealing with it until either the system is so antiquated that it’s not keeping up with the operation anymore, or that the competition has moved to a new system that has enabled them to bite off a bigger market share – or both.
Here is the scenario that occurs more often than not. The frequency of complaints about the aging ERP system has been growing for more than a year, and the IT department bears the brunt of these complaints.
In addition, the folks in the IT department have been keeping up to date with the features and functions being constantly developed by the software and hardware vendors.
So, the IT director decides it’s time to take action. He or she puts together a document jam focused on the technical imperatives for migrating to a new or upgraded ERP system. Unfortunately, the document contains just enough technology buzzwords to put the CEO to sleep (we all know he needs it), and the document sits on a shelf in the executive suite.
Then, one quarter later, the handwriting on the wall becomes too prominent to be ignored – something has to be done about this antiquated ERP system because it’s become an anchor that’s slowing the business down. Remedial action is finally taken – hopefully in time to avoid disaster.
There is, however, a fairly straightforward way to proactively avoid falling into this common trap. And it’s a technique that the business managers themselves can embrace to periodically (perhaps once every 12-18 months) determine whether a new ERP investment is warranted – without having to have a technology background.
The technique is simply a matter of taking a look at current industry best practices that are supported by ERP systems. This is a whole lot easier than perusing a list of over 1,000 feature/function goodies and getting overwhelmed by the massive size of the decision.
It is usually best to bring in a consultant armed with a current list of ERP-related best practices. Then, with the help of the consultant, the management team narrows down the list to those best practices that hold the most promise for reducing costs and/or increasing revenues.
That “wish list” is then compared with the capabilities of the current system to see what’s missing. And, don’t forget the “shelfware” – those software modules that were purchased long ago but never implemented. Those forgotten software modules could likely contain some real gems that the company was not ready for at the time of initial implementation.
Once that list of missing pieces is evaluated and estimated for potential bottom line profitability enhancement, you have the benefit half of the cost-benefit analysis. From there, it’s fairly easy to calculate the cost of moving to a new system.
If the profitability impact outweighs the cost of the project, it’s probably time for a more detailed evaluation. If not, put the issue to bed for another 12 months and get some sleep yourself, knowing that you’ve just had an annual physical check-up for your ERP system.
