Using ERP Systems to Fuel Operational Scalability
For many, implementing new ERP software is a no-brainer: the old system doesn’t function, people work around it, and/or the organization simply “needs” a new solution. Our clients commonly complain that their legacy processes and software are so outdated that they aren’t able to meet basic business requirements, which leads them down the path of evaluating potential new ERP systems.
However, as you dig deeper into these and other pain points of legacy systems, we often find that the real issue relates to operational scalability. When a company has broken processes, a bloated cost structure and siloes of data fragmented through the organization, it is simply not able to scale effectively as it grows. This is where new software often provides the most benefit, especially for organizations that are experiencing aggressive organic growth or engaging in merger and acquisition activities. Scalability may seem like a natural occurrence after an ERP implementation, but as outlined in our 2013 ERP Report, a full 60 percent of organizations don’t realize at least half of the business benefits that they expect from their new systems.
Since the business benefits required to scale for growth are by no means a slam dunk for most companies, it is helpful to understand what and how companies achieve this advantage. Operational scalability means different things to different people, but we’ve found that for most executives, scalability typically falls into five primary categories:
Operational Scalability: The 5 Categories
- Business process standardization. Most of our clients are open about the broken business processes of their legacy systems, suggesting a need for business process reengineering. However, eliminating non-value-added activities and optimizing overall process efficiency is just part of the equation when it comes to scaling for growth. Business processes also need to be standardized across different business units or office locations to not only decrease costs, but to provide a repeatable operational and system template that accommodates the needs of a company looking to scale. Fortunately for CIOs and CFOs, ERP systems enable just this type of benefit.
- Operational flexibility. While it may appear to be in conflict with the standardization mentioned above, businesses in growth mode also need to find the right balance between standardization and flexibility. As the company enters new markets, pursues new customers and acquires new businesses, flexibility becomes critical. After all, designing business processes for operations in the Asia-Pacific region typically looks much different than those used in North America, so any new ERP software needs to accommodate the changes required to “localize” the software for by region, customer and product line when applicable.
- Integration across the enterprise. Lack of integration of information and processes across the organization is one of the more common pain points we hear from our clients. If your manufacturing group is aware of production bottlenecks that will likely delay the completion of some key work orders, shouldn’t that same information be accessible to your sales and customer service groups so they can alert your customers accordingly? However, this type of integration is difficult, if not impossible, without an ERP system that integrates business processes and information across different departments within your organization.
- Reporting and visibility to information. Just as different departments should have access to integrated information and processes, the executive and management team should have visibility to what’s going on in the entire organization. For example, COOs want to know what demand the sales team is forecasting so they can plan their production accordingly. Similarly, the VP of Sales would probably like to know how well her sales reps are cross-selling other products and services to existing customers. This type of decision-making information is one of the fastest and most effective ways to provide the scale that will ultimately fuel growth.
- Costs and benefits. Cash is ultimately one of the biggest constraints or enablers of growth, so reducing costs and optimizing cash flow is one of the best ways to scale for growth. When an ERP implementation is effective, it will deliver business benefits that ultimately reduce the company’s IT and operational cost structure while also increasing revenue and providing other benefits. These cost savings and optimized business benefits typically come not through the software itself, but through effective business process reengineering and organizational change management strategies.
So what does this all mean, and how can we ensure your organization is primed for growth? First, find the right ERP software that best helps you accomplish the above five points of operational scalability. Second, implement the solution effectively, particularly as it relates to business process management and organizational change management, as those are the two areas most likely to deliver scalability and business benefits.
Learn more about how to choose consultants that will help your organization scale for growth and achieve business goals by downloading our Guide to Choosing an ERP Implementation Partner and our 2013 ERP Report.
[This post originally appeared on Panorama Consulting’s 360 ERP blog and is republished with permission.]
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