From evolution to revolution

17 Mar 2008

Enterprise resource planning (ERP) has moved from the corporate world into the hands of ordinary SMEs. But is the world ready?

They didn’t call it enterprise resource planning for nothing. As the name suggests, ERP software has been aimed at large organisations, at least it used to be.

The concept of gathering together all of a company’s financial and operational data and holding it in one place is a sound one, so it’s not surprising that what started life among large manufacturers and global businesses is making its way down to the small-to-medium business market.

“The awareness of ERP or business software in the SME sector is getting better,” reports Alan Moody, managing director of Mamut in Ireland. The mistake of the past, he believes, was that vendors simply offered scaled-down versions of large business software. “It was a way to hit a price point as opposed to a business need. The experience of people who went down that road has not been positive.”

SAP, the German software house and one of the biggest players in the ERP space, is changing how it serves the SME market to suit this new reality. “There has been a step change in how we implement the solution,” says David Lynch, head of solutions with SAP Ireland. That’s not to say the company hasn’t learned from its heritage. SAP has taken best-practice business processes from a range of blue-chip firms in industry vertical markets and has built these into its software for SME customers.

It used to be said of ERP software that it was like concrete: easily moulded and altered while wet but solid and unchanging when it hardened.

“That’s probably a fair criticism of 10 years ago if you needed to change a business process but with the way we’re bringing out enhancement packages, it’s much more agile and more flexible. That’s a huge benefit for SMEs because they’re usually resource-constrained,” adds Fiona Walsh, business development manager with SAP.

Walsh asserts that as the software has become easier to use, the time it takes to deliver benefit has been accelerated.

Depending on how much of the software can be deployed ‘out of the box’, with no customisation, SAP claims that a working ERP system can start paying for itself very quickly.

“Typically in smaller to medium organisations they’re actually getting dramatic benefits,” says Walsh. At the level of very small businesses, this time can be reduced further still and the return on investment can come as early as six weeks after implementation. “SMEs don’t have six months to sit around and wait for a payback. Owner-managers are going to want to see something pretty damn fast,” Lynch adds.

Moody says many small businesses need to be able to change focus very quickly and ERP systems must be flexible enough to adapt. “Most small businesses aren’t IT-savvy and most do not have an internal IT department, so something standard, off the shelf and quick to deploy is the best way to go,” he advises.

Once deployed, the benefits soon become obvious. “It allows you to see, right across your business, the key factors that make your business grow,” says Walsh. “With the business intelligence in our solution, you can literally get any information out of the system that you’re looking for.”

A good ERP system will integrate all of a company’s diverse information strands into a clearly identifiable pattern. “It must be able to manage customers, suppliers and partners, keep records of who the customers are, emails that were sent to them, the last time they were contacted and ultimately build a record so you get a full picture of the business,” says Moody.

Brian McIntyre (pictured), head of research and development with Sage Ireland, is aware of the accusations about ERP’s inflexibility in the past. As a result, he recommends all organisations should seriously look at their business processes first, before implementing any software system. This could be something as simple as how a company converts its sales leads into orders.

“You may be doing a step that’s no longer required or not doing a step that is needed for regulatory compliance reasons,” he points out. “If you’re automating a process that is not optimal, then the automation won’t be as good as it could have been. ERP software should be made to fit the optimal process.”

One of the latest developments in ERP software is the addition of features that allow employees working remotely or offsite to access company data from a mobile device or handheld computer. “Customers are asking for that,” says McIntyre, who says this feature lets people look up details such as warehouse stock levels or pricing information.

Another trend is the arrival of software as a service (SaaS) in the ERP market. This means the company doesn’t have the software application running on its own servers but simply accesses it securely over the internet. “SaaS is putting pressure on traditional ERP software,” says McIntyre. “There are still very complex systems out there that are hard to use and learn, but the newer software is easier to use and has a lower cost of ownership.”

Moody says it shouldn’t be an either/or scenario: businesses can choose to start with SaaS and move to an on-premises solution or vice versa. “We want small businesses to get the best solution first and then decide how they want it delivered,” he says. Most ERP software suppliers now offer both options to cater for different business needs. “The bottom line is, it’s about offering choice,” says Lynch.

Whatever approach a business decides to take, standing still is not an option. As companies come under pressure to sustain growth and remain profitable, the advantages of a fully integrated system soon become apparent.

“If you’re managing a business on spreadsheets or silo data, you are not going to be as competitive as a company with a workflow from sales lead generation through to logistics. The fact is, businesses are realising that ERP systems can make a difference,” McIntyre concludes.

By Gordon Smith