Three Guiding Principles for Your ERP Strategy
Increasingly, companies are seeing ERP selection and adoption as a strategic pillar in their digitalization journey. In addition to forming the foundation of the enterprise’s core processes and data, executives are evaluating investments in advanced ERP functionality for strength in automation, data reporting, transparency, and process enhancers.
Just as requirements for each company may differ based on the sub-industry, business model, and organizational maturity, defining an organization’s ERP strategy is a tailored process requiring thoughtful evaluation of current and future needs. Below, we outline three guiding principles for a good ERP strategy:
Fit and Scalability: in crafting your ERP strategy, consider your organization’s current operational requirements while accounting for future projected growth
Structure and Rigor: enable thoroughness and objectivity in defining your ERP strategy and vendor selection through a structured evaluation of requirements, ERP software options, and vendor partners
Transformation-minded: the success of strategy execution lies in good planning and clear enumeration of the transformation impact
ERP STRATEGY PRINCIPLE #1: FIT AND SCALABILITY
In order to fully evaluate fit of an ERP solution, one must assess both technical and functional fit. At the highest level of the ERP strategy is alignment with the organization’s overall IT strategy. This includes evaluation of cloud ERP solutions, on-premise solutions, or a hybrid solution. In addition, assessing the myriad of ERP solutions – deciding on Tier 1, 2, or 3 ERPs – will depend on several factors, primarily the size of the company, near-term growth trajectory, and other future state considerations, such as merger and acquisition objectives. Comparatively, Tier 1s (e.g., SAP S/4HANA) tend to support large organizations with complex business processes enabled by richer functionality and often commensurate with cost and implementation duration than its Tier 2 or 3 counterparts. The differentiator in realizing the value of the ERP strategy then becomes the structure and rigor of the requirements definition, the thorough evaluation of ERP software options, and the implementation partner.
In general, ERP vendors and IT executives are increasingly leaning toward cloud solutions that require less IT maintenance and ongoing support. The automatic enhancements pushed as part of regular, often quarterly releases, help to ensure organizations stay up to date on improvements and latest innovations in software. One key limitation of cloud ERPs is the rigidity of functionality – the push to “fit to standard” means it usually can’t support complex, nuanced process requirements. However, top-tier ERPs often package their “standard” functionality using industry-specific requirements and best practices; to augment, implementation partners may have their own set of industry-specific accelerators to facilitate the implementation experience as well as provide industry-specific tools and enhancements in the solution.
Regardless of ERP tier and hosting options, an understanding of the organization’s business processes is key in defining the requirements, which then feed into the selection process. To do this well, conversations must take place at the executive level as well as at the shop floor level.
Common Pitfall: Companies often over-index on the organization’s current requirements, with little to no consideration for possible future needs. Sometimes, new business requirements are introduced post-implementation that require complex code to address and heavy reliance on a select one or two IT team members to maintain the code. The key is to simplify by reducing complex codes in the software.
ERP STRATEGY PRINCIPLE #2: STRUCTURE AND RIGOR
To further ensure the right ERP fit, craft an objective set of criteria to evaluate ERP options that are defined and contributed to by a cross-functional team.
Work with a partner with vendor selection experience in your industry – one that is equipped with the methodology and tools to ensure a rigorous and structured selection process. The criteria should include the merit of the software on its ability to address the business requirements (both stated and demonstrated by the vendor), pricing of the software as well as implementation cost, and considerations of ongoing fees such as annual licenses.
Common Pitfall: Clients often overlook the benefits of a structured vendor selection and instead choose software because an influential stakeholder in the organization has used the ERP solution in the past. The involvement of a cross-functional team and a weighted model of the key requirements reduces subjectivity and provides the foundations for a thorough evaluation of ERP options.
ERP STRATEGY PRINCIPLE #3: TRANSFORMATION-MINDED
To realize the value of the meticulously defined ERP strategy and selection process, organizations must thoughtfully define the execution roadmap accounting for the transformation required to truly reap the benefits of such an endeavor. Often, the implementation partner’s ability to visualize this transformation and appropriately detail the implementation timeline, activities, milestones, and roles and responsibilities is telling. A committed implementation partner who truly understands your business will be able to lay out a roadmap that brings quick wins, considers risks and provides mitigation strategies, and lays out a resource model with clear roles and responsibilities that are feasible and responsible, allowing the organization to continue business operations with as minimal disruptions as possible during the implementation.
Common Pitfall: Companies sometimes look at execution plans strictly from a software implementation standpoint with minimal to no consideration for solution adoption. It leads to end users resorting to old ways of working and organizations failing to reap the full benefits of the new ERP. Training and change management components must be integrated into an implementation roadmap with careful thought and early planning.
KEY TAKEAWAYS
When your ERP no longer supports your business needs or is limiting your growth goals, it’s time to evaluate your forward-looking ERP strategy. Evaluate your ERP needs with a trusted cross-functional team, diligent to look at the needs of today while also empowered to envision the requirements of tomorrow. We suggest working with a partner who understands your current needs against the context of the overall industry, ensuring that you can fine-tune your ERP strategy to support your business today while setting the foundations for future growth.
This piece was originally published by a partner in our business ecosystem, Clarkston Consulting. Learn more about Clarkston here.