5 Things SMB Decision-Makers Aren't Getting Right Yet About ERP

Here are five critical areas where SMB executives, managers and other ERP decision-makers still have something to learn in order improve their return-on-investment:

1. Discovering what needs to change in order to make more money as a result of their technology spending
2. Making return-on-investment (ROI) concrete, not mystical
3. Gathering "business requirements"
4. Selecting the right technology
5. Choosing the right vendor

Discovering what needs to change

Most SMB’s (small-to-mid-sized company’s) executives and managers lack a sound tool-set by which to identify the relatively small handful of things that need to change in the midst of the complexities of their organizations in order to begin making more money tomorrow than they are making today. So, they frequent turn to traditional ERP – Everything Replacement Projects in the hope that if they change everything, at least some of the changes will be enough to help them make more money.

This “hope” – not “strategic” – approach to ERP is one of the reasons ERP projects tend to over-promise and under-deliver. Only slightly more than two out of five (41%) ERP projects deliver even 50 percent of their anticipated benefits. More than one out of five (22%) fail to deliver any recognizable business benefits. Additionally, 40% of ERP projects result in operational disruptions at go-live. The net of all of this: very nearly one in three (32%) of executives and almost two out of five (39%) employees are dissatisfied with their ERP results.

Making R.O.I. concrete

There appears to some almost mystical collusion between traditional ERP vendors and traditional ERP-buying executives. The ERP vendors agree to say enough about return on investment (ROI) to make their products and services appear to be a sound investment. Meanwhile, the ERP buyers tacitly agree to suspend their disbelief long enough to reach an agreement to take on traditional ERP – Everything Replacement Project despite the plethora of statistical evidence to the contrary.

ERP-buying executives and managers tend to buy traditional ERP much like one buys an engine additive for his aging automobile. The label on the can or the mechanic says, “Yes, sir! Just put this in your car’s engine and your car will run smoother, quieter and get better mileage.” Never mind how.

So, executives and their ERP search teams buy traditional ERP and dump it into their companies expecting that, as a result, their companies will run more effectively, more efficiently and help them make more money. Of course, no one has really discussed in detail precisely how or why these results will be achieved in the specific work environment where it is to be deployed.

Gathering “business requirements”

The executives and managers intent on acquiring a new traditional ERP frequently begin their process with what is called “requirements gathering.” Some choose to do this internally, while others engage consultants to assist them with the process. Some approach this process with significant formality, while other are less formal in their approach. Nevertheless, the result is usually a long, long list of supposed “business requirements.” This list frequently runs to several pages and may include 250, 300 or even more discrete “requirements.”

Sometimes these “requirements” are further prioritized by assigning codes such as:

1. “Critical” – a code word for an actual “requirement”
2. “Important” – a code word for something that is not actually a “requirement,” but users really want it
3. “Nice to have” or “wish list” – meaning this is not really a “requirement” at all

Unfortunately, since these lists are almost always compiled in functional silos, there is almost never any agreement about what very small number of items on the list will really be effective at delivering improvements that will lead to making more money tomorrow than the company is making today. Unfortunately, out of a “requirements list” running to 250 or more items, the actual number of difference-makers is likely as few as five – that’s fewer than 2% of the so-called “requirements.”

Selecting the right technology

Now we are getting to the nitty-gritty. Unfortunately, the path to this point for far too many executives and managers is (somewhat simplified):

1. We need to make more money.
2. We’ve heard that some companies that have implemented new ERP systems actually make more money.
3. We should buy and implement a new ERP system so we can make more money, too.
4. Let’s take a look at some ERP software to see which one we like best (based on our “requirements list,” of course).

Of course, if the executives and managers 1) do not know what needs to change in order to help make the company make more money; 2) do not know at any level of specificity what changes will actually deliver ROI to the enterprise; and 3) are working from a list of “business requirements” of which 80 percent can be satisfied by any ERP software, another 15 percent will have no bearing in improving the firm’s profit performance at all, and of the remaining five percent, three percent will actually be changed in a negative way and two percent need improvement, but the improvement by most ERP offerings will not be sufficient to overwhelm the negative impacts elsewhere.

Choosing the right vendor

Other than asking some cursory questions of VARs and vendors, most ERP-buying executives and managers make this decision in one and only one way: whatever vendor or VAR comes with the software they selected is the vendor they will take. Of course, at this point, it really makes little difference – right?

While ERP vendors and VARs have taken a lot of very bad press for failing to deliver ROI in the aftermath of traditional ERP efforts, executives and managers really need to step up and take their share of the blame. As another has written: “ROI is not a formula, it is a responsibility,” and that responsibility falls squarely on the shoulders of the executive and management decision-makers. This remains true despite the vague claims made by the ERP software vendors and VARs. ERP-buying executives and managers need to know three things:

1. What needs to change in order to start making more money in the future than you are making today
2. What the change should look like, including how technologies (if required) will support the change
3. How to effect the change, including how supporting technologies can and will be deployed, including a full estimate of the required investment