Importance of strong IT infrastructure
As you like IT
(A contemporary approach to streamlining business processes with inspiration from the 16th century Bard)
When asked about the strength of their businesses, entrepreneurs of small and mid-sized businesses describe the differentiation of their product/service, management’s capability and their ability to meet the needs of the consumers. However, when probed on their systems, many admit that they have grown in spite of a weak IT infrastructure. In our conversations on areas of growth, the question – “When should we start proactively investing in an Enterprise Resource Planning (ERP) system?” – arises without fail.
The signs of a creaky and makeshift IT infrastructure – patchwork of different systems for sales order tracking, payroll, inventory management, accounting and marketing become more visible with growth. It begins to take weeks instead of days to reconcile end of month financials. Sales forecasts are more guesswork than bottom up figures. Customer satisfaction is faltering due to stock outs or wait times. Inventory reconciliations elicit a painful reaction from management. Yet, most mid-market companies believe ERP is expensive and an overkill.
If Shakespeare were an entrepreneur at a mid-market company, he would likely have pondered:
To ERP or not to ERP, that is the question
Whether ‘tis better for the company to suffer
Or choose to pay a small fortune
To increase transparency in a sea of complexity
To be able to get data, make decisions and peacefully sleep
One needn’t wait for a tragedy of Shakespearean proportion to adopt an ERP system.And in most cases, the investment pays for itself. A recent CRISIL study on 4,500 small enterprises indicates that companies with ERP systems are able to increase operating margin by 200 basis points (25%). Inventory control shave resulted in 12% lower stocks.
ERP systems map and document key steps in the business process and automate them, freeing up valuable management time to focus on growth initiatives. The question therefore becomes, “Can you afford to not have an ERP system?”
Some of the key benefits of an ERP system include:
Increased transparency and integrated data- When various systems run independently in an organization, the communication gap can wreak havoc. Growing businesses run into problems when data becomes compartmentalized in departments. ERP software tames the data shrew by integrating systems so that organization remains cohesive and unified in its information.
Improved controls and reduced operating costs– Increasing volume of business transactions can lead to lack of control over data, leakage of confidential information and an unnecessary (and unfunny) comedy of errors. With all financials in a single database, manual re-entry and reconciliation of data is eliminated, and controls are smoother. Moreover, by streamlining data into fewer software applications, businesses can save money on the individual management systems used by departments.
Faster and better decision making– With one source of information that contains accurate, real-time data and process flows, an ERP solution breaks information logjams. Management can review various cuts of data in real time to make informed and nimble decisions. Exception reporting helps focus on issues that need attention. Access to that data can enable quick corrective action, which can have sizeable implications on the business.
Retain flexibility– Often businesses are forced to delay a product launch or new market entry because existing IT infrastructure cannot handle more complexity. A good ERP system enables mid-market businesses retain their nimble edge. With a good process defined, there is an opportunity to add new lines of business,start new units, branches, points of sale etc. efficiently, without compromising on overall checks and balances.
Increased productivity – This is the single largest benefit of an effective ERP system. With the pace of business faster than ever before, employees and management need immediate access to data. With an ERP solution, management can get real-time holistic view of business operations, while other staff can access more specific information to enhance their productivity. For example, sales representatives can view a customer’s transaction history and proactively improve renewal rates while increasing upsell and cross-sell opportunities.
So how should a mid-market business choose an ERP system? Key factors to consider include:
Ease of implementation and use– Businesses don’t necessarily need the gold standard of ERP but usability is key. Is the system user-friendly? How much training is required?How does it handle data security with different access and authorization matrices? Design a workflow and run demos and pilots based on your requirements to evaluate the overall ease of the system. Modern ERP solutions come with responsive user interfaces and can integrate with most business tools and existing software eliminating the need for a full revamp.
Scalability and customization – Does the software utilization, platform, user count and functionality adapt with business growth? While more sophisticated enterprise-scale software may be too bulky and expensive, some of the lower end ERP software may be too onerous to scale. Don’t pinch pennies to lose much more later. It is important to select an ERP solution with features and customizations that best align with your business objectives and goals – today and in the future.
Cloud or SaaS or on-site platform– Traditionally, on-site systems required expensive licensing costs and large initial investments.With the emergence of cloud and SaaS ERP solutions, an affordable ‘pay-per-transaction’ pricing model is now available to smaller businesses and start-ups. In SaaS model, the vendor has the full control of the application while in a cloud ERP system your data and your application can be placed on a server that you control. A cloud platform also provides faster and automatic updates. Determine which option best suits your business objectives.
Support service– Be aware of the support that is provided by your ERP vendor. Avoid the Shylocks who will extract their pound of flesh post implementation.The vendor should have the capability to assist with set up and maintenance of your ERP software. Negotiate on enhancement fees for future releases and for trouble-shooting. Given software buyouts and partnerships are now more commonplace, protect yourself by ensuring guaranteed support for a certain extent of time on currently implemented products.
The choice of ERP should maximize your return on Investment. Be clear on what the costs for the software, implementation, maintenance, customization, training, support, hardware and updates will entail. It is important for management to make the right set of tradeoffs. SeaLink Capital Partners works closely with partners like Affordable Business Solutions (ABS) to help our portfolio companies evaluate and improve their existing ERP systems. While implementing an ERP system is not a midsummer night’s dream and may be challenging for many mid-market companies, we believe the benefits outweigh the risks. As long as ERP implementation is planned carefully, all will be well and it will end well.
From being in the backseat, let IT become the backbone of your growth.