We don’t want an ERP: If
one can get a list of famous Harvard case studies on Information Systems, one
company’s name would feature more than the others: ‘Air Products’. As a $5
billion gas and chemical manufacturer based in Allentown, Pennsylvania and a
leading innovator in environmental technologies and business systems, Air Products
attracts management graduates attention when it comes to developing successful
information systems which turn-around their business.
However there is one
big fish missing in the pool of carefully tailored IT systems of Air Products –
an ERP system. “We do not need an enterprise system.” a manager of Air Products
says, “We have many information systems for individual business models and we
do not see any substantial incremental benefit that the ERP systems offer.” Why
did a company which has a list of successful IT implementations which have
taken the business to the next level avoid implementing a basic ERP which every
competitor will have?
Regardless
of what the Air Products management thinks, Enterprise systems are becoming
indispensible in today’s competitive environment. ERP systems always come with
a philosophy of ‘scale, simplicity and sameness.’ However, the benefits of ERP systems can be
classified under the following heads,
Standardising business process:
One common headache which managers have when their company implements and ES is
conveying their finalized business process to their IT vendors. ERP requires
your business process to be defined to a very microscopic extent. This benefit
of following a standardised business process after an ERP implementation helps
gain benefits especially in interfacing areas like CRM and supplier
relationships. ERP reaps the highest benefits for a products with short life cycle because the
time from the drawing room to product launch is highly reduced. This helps a
company to launch a product faster than its competitors and a quicker launch if
of tremendous advantage in products with short life cycle.
A Birds eye view: One
of the most common reasons why midsized industries implement IT systems to get
a substantial and quantified picture of the entire business chain. “I want to
know where my money is going” is one common reason why medium scale industries
grab IT systems. IT systems help integrating various facets of business and
bring them in one common umbrella. A well implemented IT system is a decision
maker’s delight. One of the biggest benefits companies try to derive out of an
ERP system is better decision making in terms of forecasting, cost cutting and
also any strategic changes. Comparing industry averages of various modules with
the company’s own performance will act as the basis of structuring future
strategies and Enterprise Systems lend a big hand in data gathering.
Better customer
service: “We could now provide the exact freight, down to the
cubic dimensions and weight of the box, which is helpful with invoicing”, says a manager of Augusta Sportswear.
Augusta Sportswear is
one of the pioneers in Sports good industry who adopted ERP. A renowned maker
of customized sportswear, Augusta Sportswear has realized high benefits from
ERP implementation.
The service providers: SAP
leads the package when it comes to ERP. In-fact there was a time when SAP was
synonymous to ERP. Thanks to their semi-customised packages for almost all type
of industries and a huge fleet of training centres in developing countries, SAP
has captured ERP market.
Image
1: ERP Software market share
Thanks to their
focussed approach to ERP systems, SAP leads its competitors by a margin. One
thing which makes SAP stand out is their adherence to business needs; SAP has a
customized ERP platform for every type of industry you may name. Oracle has
been fairly successful with its attempt for technology leapfrog. Its cloud hosted
ERP systems are light weight and technically sound, the cloud feature brings
the hardware requirements of the clients down and hence subsequent costs of
implementation are reduced.
But why Implement ERP for the sake of it?
At a time when corporations where so concerned about embedding their process
with ERP systems and managers were worried about the next technical module
update their ERP vendor had to offer, Panaroma Consulting solutions conducted a
survey and researched the real impact of ERP on business. The results were
alarming. The image below shows the amount of benefit realised but various ERP
implementations considered in the research.
Image
2: Percentage benefits realised through ERP projects
One might be
surprised on how only 8 percent of the implementations had reaped more than 80%
of expected benefits. But what really is surprising is the 14% of
implementations, where the management did not even have a Business Case for the
implementation. The mistake is not because of implementation errors or a model
misfit, the mistake lies in the reason to implement ERP in itself. Consider a
company which takes commodity supplies; there is no need for a high tech
Supplier relationship module in such case.
The incremental benefit offered by a updated and highly efficient supply
module of an ERP system over a basic model will be negligible.
Managers have started to realise, it
is not the technical efficiency that makes an ERP implementation success, it is
the alignment to business process and needs which drives the benefits. A misfit
between ERP systems and business process will offer no substantial benefits to
the company.
Importance of Business alignment: So as to make an ERP system
reap benefits for the business, one has to make sure the IT strategies are in
line with the core business needs and strategies. A misfit will result in ERP
applications providing a lot of functions which are of no value to the given
business at all. Managers have to ask a lot of questions pertaining to the
relevance of a ERPs system or an ERP update to the current company
requirements.Contributed by:
Satish H. & Madhumita D.B
PGDM (2013-2015)
Tapmi Institute of Management, Manipal
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