ERP a Big Challenge for SMBs
Updated · Jun 09, 2015
Most midmarket and enterprise firms already have ERP solutions. While there may be business to be had upgrading those users to newer packages, the real growth area for ERP is SMB.
A recent Software Advice survey found that 87 percent of potential ERP buyers fall under the SMB category, which it defines as companies with annual revenues of less than $100 million. The vast majority of these companies do not currently possess an ERP system.
“More and more ERP vendors are targeting SMB niches, and they’ve generally seen strong revenue growth in that space,” said Forrest Burnson, Market Research associate at Software Advice, noting that major vendors have expanded their product lines with software for SMBs.
About half of SMBs are trying to cope by cobbling together a combination of systems in an effort to cover many of the functions of ERP, the survey discovered. While that may work for those at the smaller end of the SMB spectrum, it shows others why they need to forge ahead into ERP.
Fifty-nine percent of survey respondents cited the need to improve integration of data between different business processes as a factor that is driving them toward ERP adoption, while another 27 percent mentioned company growth as a primary driver.
Still, some SMBs continue to use QuickBooks or a similar system in an effort to cope without ERP.
“Many SMBs struggle along with the systems they have,” said Jim McGeever, chief operating officer at ERP provider NetSuite. “Regular events like the financial close may end up taking weeks rather than days.”
Others try to save money by selecting an ultra-basic ERP solution that doesn’t scale as they grow, a strategy that can result in yet another series of information silos.
ERP Challenges: People and Processes
ERP projects are not easy for a business of any size because implementing a new ERP system means having to fundamentally change business processes. Many SMBs have operated in a somewhat informal manner with their finances, budgeting, purchasing orders and reporting. All of a sudden, they find themselves regimented by processes that appear to slow them down.
Sales staff can mutiny if they don’t understand what is going on and do not buy into the new methodology. They may even find ways to bypass the carefully constructed processes and inadvertently sabotage the entire project.
“SMBs can make the mistake of not really understanding what they’re buying and just how much they will have to commit to it,” said Burnson. “So make sure that everyone involved in the implementation and rollout process is effectively communicating.”
Burnson also advises SMBs to look beyond immediate problems to take into account factors such as prospective growth and how the IT world is evolving.
“ERP buyers should assess not only their current needs, but they should try to appreciate what their needs will be five or 10 years down the road, as well as whether they’ll be able to integrate existing and future data into the new system,” he said.
ERP Pricing and How to Spend Wisely
Pricing is another area of concern. Some packages require a hefty upfront cost for hardware and software as well as implementation.
“Scaling the costs of implementation is difficult across a smaller organization since every implementation has a minimum fixed cost and effort regardless of company size,” said Eric Kimberling, managing partner at Panorama Consulting. “This often leads SMBs to cut corners in critical areas in an effort to minimize costs, such as organizational change and process definition, which actually leads to longer term costs.”
More than a few SMBs, Kimberling said, erroneously think they are too small or simple to need certain implementation activities, so they end up myopically focusing on the technical aspects and neglecting people and process issues. This can lead them to omit training and process optimization aspects of ERP, which will come back and bite them later.
“Operational disruption – such as not being able to ship product or close the books – is the most significant long-term hidden cost of neglecting these important people and process issues, but many SMBs fail to realize this until it’s too late,” Kimberling said.
Chris Mindnich, director of Marketing at SMB ERP vendor Exact MAX, suggested that rather than cutting out critical elements that will enable ERP success (like training, appropriate project staffing and management, and time set aside for testing prior to go-live), SMBs consider a phased implementation approach.
“By identifying the most critical business problems the system has been purchased to resolve and ensuring those elements are implemented fully, immediate project costs can be controlled and timelines shortened, allowing the company to benefit from a key aspect of the ERP investment more quickly,” Mindnich said.
SMBs should weigh the benefits and drawbacks of different pricing models, and ensure they have a clear understanding of the total cost of ownership of these models, Burnson said. For many, it may be cheaper to use cloud-based ERP. McGeever is firm in his recommendation of the cloud. (Not surprising, since that is what his company sells.)
“SMBs have become a lot more comfortable with cloud computing and benefits such as fast deployment times and reduced IT costs,” he said.
But the cloud may not be right for all SMBs. Some cloud pricing models involve extra fees for uploads, downloads, high traffic volumes and more. SMBs should perform a full cost analysis that takes into account all costs over the long term to see which route is best.
Enlisting Outside ERP Help
As mentioned earlier, people are a vital part of any project and training and staffing must be considered. Staff know-how could be an issue for SMBs considering an ERP implementation, especially an on-premise one.
“Consider how well-equipped your IT department is to handle such a massive undertaking, and seek outside consulting and implementation services if you are unable to do it in-house,” Burnson suggested.
Drew Robb is a freelance writer specializing in technology and engineering. Currently living in Florida, he is originally from Scotland, where he received a degree in geology and geography from the University of Strathclyde. He is the author of Server Disk Management in a Windows Environment (CRC Press).