Critical.
Authoritative.
Strategic.
Subscribe to CIO Magazine »

ERP rollouts: Why SMBs say no

At what point in a fledgling company's existence does purchasing an ERP system make financial, operational and technological sense?

At what point in a fledgling company's existence does purchasing an ERP system make financial, operational and technological sense?

It's a perplexing question that many small and midsize executives who dream of growing their companies face. It often occurs to them when they experience unprecedented growth or a regulatory disaster, and they soon realize that Excel spreadsheets and QuickBooks simply don't cut it for their businesses anymore.

That's the typical thought process SMBs follow when considering an ERP rollout, writes Cindy Jutras, research fellow and group director of enterprise applications at Aberdeen Group, in a recent report. ERP systems, she contends, enable companies to standardize business processes and gain greater visibility into corporate financial, HR and supply chain functions. (The report "ERP in SME" is available with registration at Aberdeen.com.)

"ERP is more than a necessary infrastructure that forms the transactional system of record upon which a business is based," Jutras writes. "ERP is the potential source of cost savings and operational improvements." (Some larger companies that have been through a tumultuous ERP rollout might disagree, but that is another story.)

[ Think ERP on mobile devices is a good idea? Think again. ]

Not every SMB is sold on ERP, nor do they look forward to having to pay the considerable implementation, maintenance and upgrade costs that ERP systems often require.

An Aberdeen survey of 579 SMBs in summer 2010 found that nearly 70 per cent had yet to invest in an ERP system. The survey unearthed six reasons why those companies said no to ERP (multiple responses were accepted):

* 39 per cent We are too small.

* 34 per cent We have been able to function effectively without it in past.

* 33 per cent We have an internal effort to implement.

* 28 per cent Cost of software and services.

* 21 per cent We can function effectively without it in the foreseeable future.

* 10 per cent Systems are too complicated.

So what has to happen for these respondents to justify an ERP endeavor? According to the survey, the "compelling events" that necessitate an ERP rollout include:

* 44 per cent Availability of low-cost ERP options that minimize risk

* 40 per cent Explosive growth

* 29 per cent Growth beyond a pre-defined threshold

* 27 per cent Regulatory compliance requirements

* 19 per cent A disastrous event that proves we can't operate effectively

Notice what's missing from those responses? Any mention of core ERP product functionalities or specific software features that would offer a better user experience than what the SMB is currently using (i.e. spreadsheets or a desktop application).

That software "unease of use" has dogged traditional ERP suites for years--and, combined with the aforementioned reasons, explains SMBs' reluctance to take the ERP systems plunge.

Jutras notes that there are alternatives to traditional ERP deployments specifically aimed at SMBs: SaaS and cloud-based software with subscription-based pricing models (such as NetSuite or Workday. For more on this, see: Have You Got Software Hairball Syndrome?).

However, Jutras cautions SMBs "against ignoring the cost and effort of not implementing ERP."

She asks: "Is efficiency and productivity leaking out of your organization by not providing adequate tools to run, monitor and manage the business?"

Thomas Wailgum covers Enterprise Software, Data Management and Personal Productivity Apps for CIO.com. Follow him on Twitter @twailgum. Follow everything from CIO.com on Twitter @CIOonline. E-mail Thomas at twailgum@cio.com.

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

More about: Aberdeen Group, Excel, NetSuite, NetSuite, Oracle, SAP
References show all

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.
Users posting comments agree to the CIO comments policy.
Login or register to link comments to your user profile, or you may also post a comment without being logged in.
Related Coverage
Related Whitepapers
Latest Stories
Community Comments
Tags: applications, enterprise resource planning, software
Latest Blog Posts
Whitepapers
  • Workshifting: a global market research report
    New business requirements are transforming the demands placed on IT. To operate effectively in today’s fast-paced global environment, organisations need to be able to get work done anywhere, anytime, by any type of worker to achieve the best results. This is the context for the rise of workshifting—the practice of moving work to the most optimal location, time and resources. As one of the most comprehensive reports ever conducted into the role of desktop virtualisation in enabling workplace flexibility and mobility, it reflects the growing consensus of those using technology to improve the performance of their organisation.
    Learn more »
  • Securing Vital Infrastructure
    A unified approach to information security can help modern vital infrastructure providers deal with evolving IT threats without compromising on communications or the demands of an increasingly mobile workforce. Flexible policies, combined with quality inbound threat detection, deep content inspection and encryption capabilities can help organisations to mitigate the risks – not just from outside the organisation, but also within it. Read this whitepaper.
    Learn more »
  • Networking Strategy Guide
    Articles include: IPv6 guide; How to get more out of Ethernet switches; High-speed Ethernet planning guide; Next-generation firewalls: In depth; How to lock down your wireless network. Read this Computerworld Networking Strategy Guide.
    Learn more »
All whitepapers
rhs_login_lockGet exclusive access to Invitation only events CIO, reports & analysis.
Recent comments