Take on your ERP Assessment
By David A. Kelly

Before you take the leap into a new enterprise resource planning system, it's wise to look closely at your current systems and information technology (IT) environment, business needs, and vendor options. Here are issues to consider for your ERP assessment.

In Summary

• With more options and better pricing from vendors, it's often easier now to purchase systems to meet evolving business requirements versus developing your own.

• Evaluate your current systems to see if they will support emerging Web and mobile technologies, and make sure you understand your vendor's technology road map.

• Evaluate the skills of your IT people carefully, particularly in terms of their ability to support a new architecture. Can you outsource or hire to fill the gaps?

Sometimes it's easy to know when its time to upgrade or change your back-office systems—because your employees are telling you, loud and clear. If they're screaming for new functionality or are working around the present system, if they can't easily manipulate or combine data from existing business systems, or if they can't get the right data to use at the right time, it's probably time for your ERP assessment and to consider a new enterprise resource planning (ERP) solution.

"For some companies, we find that if you calculate the number of Excel spreadsheets that are being used as workarounds to [compensate for the] deficiencies of an existing ERP system, it'll give a pretty good idea of how ready they are to migrate or upgrade," says Elaine Watson, a principal with SoftResources LLC in Seattle, Washington, a software consulting group that helps clients assess commercial solutions.

Of course, there may be multiple drivers pushing a company toward replacing its ERP system, according to Sam Dharmasiri, international general manager in the London, U.K., office of ePartners Limited, a Microsoft partner that offers business solutions consulting and implementation for midsize and enterprise organizations.

"We frequently have customers considering new ERP solutions because of a range of specific business requirements," says Dharmasiri, citing government regulations or corporate IT infrastructure changes as two examples. Other drivers include cost-cutting measures, particularly if there are multiple business systems that require integration and even customization in order to work effectively.

Some organizations find that changes in technology are driving them toward migration—for example, if the existing ERP hardware platform is no longer supported. Another reason is the legacy system problem, for example when a mature company with systems that were developed in-house five to ten years ago decides that it wants to get out of the business of being a software developer and focus instead on its core business objectives.

One smart reason not to make a change: The allure of hot new technology. Make sure that your decision is based on solid business needs and goals rather than just taking advantage of a new technology platform that may not deliver appropriate business value to your organization. "You really want to make this kind of major change when the current infrastructure cannot effectively and efficiently support the current or projected business needs," Dharmasiri says.

Why it's a good time to upgrade

Consider these three important trends driving enterprise software investment—and signaling that this may be the right time for you to upgrade your systems:

• Changing business requirements resulting from new government regulations, security concerns, and other issues are having an impact on companies of all sizes.

• The breadth and depth of commercial solutions have grown dramatically not only to meet changing business requirements but also to fit the smallest of niche industry applications.

• Vendors are lowering prices and expanding packaging and licensing options for buyers because of growing competitive pressures and new business models such as software as a service (SaaS).

In many cases, it may be easier for companies to purchase solutions that support new business needs than to build their own. "The market has really changed in the past few years," says Spencer Arnesen, a principal of Soft Resources. "The new packages are more affordable than in the past. When organizations ask us to evaluate whether they should buy or build a new application, we almost always recommend they buy one, since there are so many packages out there that can do just about anything."
Faced with these changing business needs, companies are looking to new systems that can handle project accounting capabilities such as activity-based costing (ABC), lean manufacturing, and specialized electronic data interchange (EDI) and radio frequency identification (RFID) capabilities to help them do business with large global retailers such as Wal-Mart or Tesco.
"Many organizations are struggling with changes in e-commerce and mobile applications," says Dharmasiri. "They often find their existing infrastructure can't easily support those requirements without a significant investment of resources."
He suggests that companies start by evaluating their current systems and defining what can be practically achieved with the existing technologies. For example, does the existing platform support Web services standards and user interface capabilities that an application deployed to a mobile device would require? If the organization uses a commercial software application, it should turn to the vendor for clarification of the vendor's technology road map and information regarding what future editions of the product will or will not support.

Making the decision

The fundamental starting point for an ERP evaluation is to do some type of return on investment (ROI) study to identify what benefits might be obtained from moving to a new solution. Of course, even with a solid business case, migration is no simple matter. It takes a thorough understanding of a range of factors, from the skill sets of people in your IT department to how to time the deployment with other business activities (for example, if your company is about to merge with another or add branch offices, you would want to avoid adding a major system implementation to the mix).
Managing people is critical too. "Companies may have a certain skill set in-house that they need to retain, and that may drive the selection or decision process," says Arnesen. It's a good idea to understand the market availability of specific skill sets before making a decision because, for example, widely adopted technologies and platforms from major vendors will have a much broader base of support and expertise than more nascent or niche platforms.
Budget is, of course, another top consideration. Increasingly, vendors (including Microsoft) are offering attractive financing alternatives to traditional big-ticket ERP investments. "With leasing, you can spread out the payments over three to five years, which can make a compelling difference to the business case for investing in a new solution," says Dharmasiri.
And it's only a matter of time before software-as-a-service (SaaS) options become more prevalent, which may mean downloading and renting applications from the Web at a much lower price than owning a license. However, SaaS does have some drawbacks, such as minimal customization, so you should make sure to explore it within the constraints of your business requirements.
While ERP migrations or upgrades are always a major change to the business and its processes, new solutions can provide significant payback. "Many companies continue to have islands of information that make it difficult to get a single view of their customer or business," Dharmasiri says. In contrast, the right ERP system, deployed at the right time and with the right implementation partner can help you achieve that holistic perspective on your business—which can mean the difference between being a market follower or a market leader.