Are ERPs necessary to run a business?

Pedro is exactly right. The inherent premise of an ERP is to increase efficiency in your business, and so theoretically it would make sense to have in order to ensure maximum productivity, insight, and success. However, he is also right in saying that these are substantial investments, and disruption to the business flow can be detrimental if the implementation is not handled comprehensively.

Some factors to consider when thinking of ERP in the context of your business are size, installed base, infrastructure, and of course, your budget.

Size is important with ERP for a couple reasons. It is easy to go overboard on the product. I talk to buyers frequently who maintain the sales people constantly try to sell them the biggest and most robust product, when all they need is general ledger functionality, or just the CRM component, or a specific add-on, or just a component of a larger system. Also think about size in terms of your company. If you are a very small business or a very young business, you simply may not necessitate a fully integrated ERP system... yet.

Your installed base could also play a role in your decision to pursue ERP. What types of systems do you have now? Are they obsolete or just inadequate for handling what you're trying to do? Do your systems "talk" to each other; do you need to consolidate them to improve efficiency? Does an upgrade make more sense? What's the harm in doing nothing?

Part of evaluating your installed base is thinking about it in terms of integration. Would you be getting rid of an older system, or adding on to it? This decision determines how flexible you can be with selecting the new product. Some products are most easily integrate-able than others. Think about what existing platforms you have, i.e. Macs? PCs? etc. These are all factors that can complicate the process later if they aren't identified early on.

And finally, budget is the deal breaker. You can buy anything if you have the money for it, but these days when resources are becoming more scarce, and buyers more conservative, 'bang for buck' is the mantra. The best way to get realistic price quotes is by speaking with vendors and emphasizing all of your pain points, concerns, and questions, and asking about any potential additional costs (short term and long term).

Initially evaluating ERP in the context of your business could be a better way to determine if this is right solution for you, or if you should go with an alternative.