"What makes the difference in successfully implementing ERP solutions at small and medium-sized companies?"
ERP IN SMES.
- SMEs drive innovation and growth. In Germany, 99% of the economy consists of small and medium-sized companies that employ over 60% of the country’s workforce. Yet, many SMEs still use outdated IT systems to run their business processes and coordinate resources such as capital, supplies, and personnel, making a high demand for more standardized enterprise resource planning (ERP) software. Now more than ever, software manufacturers and IT service providers must take into account the specifics of SMEs in order to tap the full potential of this market.
Core processes in sales and distribution, supply chain management, accounting, financial controlling, and HR are done on heterogeneous IT platforms that have developed unsystematically over the years. All too often the entrepreneurial focus is on quick expansion, and the need for adapting IT systems is overlooked. Process breaks, inconsistent master data, and inefficient duplication of functions can result.
In addition, the manufacturers of such legacy IT systems may no longer be present to provide customer service. An increasing number of small and medium-sized companies need to modernize, harmonize, and professionalize their IT. Many companies, however, are somewhat wary of swapping their existing IT architecture for an integrated ERP solution. They cite the following reasons:
- Considerable investment is required, and introducing such a system in the company requires comprehensive knowledge and experience with large-scale IT projects. The resources are not always available.
- The ERP solutions offered are often too extensive and too complex. Many standard processes mapped in these systems are geared to the needs of large manufacturing companies and are not attractive for SMEs.
- Modifying product calculation schemes or reports often requires considerable effort in many standard packages, and this is a problem for companies with shorter innovation cycles.
- The system provider landscape is highly fragmented. In addition to the SME products offered by SAP, Oracle or Microsoft, there are at least another 300 manufacturers of smaller IT solutions in the German market alone.
Without gaining in-depth insights into the market and engaging in costly and time-consuming provider selection, SMEs find it hard to understand the individual differentiating features offered by the various products and select the ones best suited to their specific needs. The industry is currently witnessing clear consolidation trends among providers, but the market is set to remain fairly diverse for years to come.
At the same time, SMEs increasingly need modern technologies for operating ERP solutions. The traditional license-based business with on-premise software still has the largest market share. On the other hand, cloud-based solutions are increasingly in demand. But the technologies used must be of manageable size and match the existing IT landscapes.
Four key success factors
What makes the difference in successfully implementing ERP solutions at small and medium-sized companies? We have identified four critical success factors:
- A clearly defined IT strategy. SMEs are well-advised to clearly define in advance which processes and how many locations should be integrated into the ERP system, and to select an integrated lean solution or a more sophisticated modular solution on this basis. The IT structure should offer sufficient scope to last for a considerable length of time. Sufficient time and funds should be devoted to developing the IT strategy based on the corporate strategy.
- A local support structure. SMEs need local contacts who can identify business requirements and translate them into technical designs. This requires an in-depth understanding of the industry and the specific market situation. The sales and delivery organizations of major IT suppliers often do not have the required flexibility and offer the same services across national borders. Partnering with local service providers will continue to be very important.
- Packages suitable for SMEs. It is essential for the processes mapped in the ERP to be designed with day-to-day practice and the relevant industry specifics in mind. Manufacturing and service-sector SMEs need differentiated mechanisms for transfer pricing and reporting and new paradigms in the manufacturing sector, such as the smart factory (“Industry 4.0”), provide opportunities that can no longer be linked up with today’s standard IT applications.
- “Workshop methods” for project work. Traditional approaches to ERP implementation often still follow the waterfall model, but introducing a global ERP template according to this approach may take up to several years. Workshop methods are often the better option, first ensuring the basic functionalities and then identifying individual functionalities of limited scope among the host of additional requirements that can be implemented within a short timeframe.
Clearly aligning their business to these success factors will help ERP solution and service providers continue to successfully serve the highly attractive SME segment in the future.
- Photo Credits: Monty Rakusen / Getty Images; Monty Rakusen / Getty Images