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Issue of August 2006 

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Mid-market ERP comes of age

ERP systems can help mid-sized companies improve their business metrics. Amitava Sain, Principal Consultant, PricewaterhouseCoopers, looks at this trend.

The Indian economy’s opening up has led to a significant growth of the mid-market segment across industry verticals in the manufacturing, retail, services, communication and information technology sectors. This growth, along with the associated competition and quest for enhancing marketshare, has led organisations to re-look at their processes and procedures, and put in place proper process enablers and solutions to make their business more efficient and effective.

One of the key solutions to address this requirement is the implementation of enterprise resource planning (ERP) systems. The implementation of such systems has helped mid-sized corporations significantly improve their business metrics by process optimisation, improvement of the entire supply chain process, integration across functionalities, and increase in transparency across the organisation.

Mid-Market ERP

Most of the mid-sized organisations were living with home-grown applications which were non-integrated functionally and technically. This resulted in living with redundant technology, lack of support, and non-availability of critical information at the right time, thus resulting in business loss.

The key drivers of going in for an ERP are the introduction of industry-standard processes which are embedded in the application, integration across business functions leading to transparency, access to real-time information, analytical reporting for business decisions, and adoption of state-of-the-art technology providing security and scalability. Another reason for choosing a packaged ERP vis-à-vis a customised development is the speed of implementation resulting in a quicker return on investment.

The objectives of embarking on an ERP implementation are to align business objectives with technology solutions, evolve the organisational value chain by enhancing customer confidence and stakeholder commitment, and achieve better organisational resource and asset utilisation.

But the mid-market segment is very unlike larger and more established organisations which adopt standard organisation-wide processes. Companies in this segment carry burdens such as home-grown processes, people in the organisations who have grown with those processes, disparate or no proper data systems, lack of information transparency across functions, and reluctance of staff to adopt new systems and processes. Despite these factors, since mid-market organisations are emerging as major players, it is imperative to design appropriate implementation approaches and applications to address their sometimes unique requirements.

The path treaded by an organisation from identifying the need for an ERP till actual implementation is long. This involves identification of business needs, budgeting for the procurement of products and services, evaluation of various products to suit its business needs, starting the implementation journey, and finally adopting the ERP as an organisation-wide solution.

Kicking off

The challenges that an organisation goes through in the ERP journey start with the selection of a solution. Key selection factors include the size of the business operations, the projected scaling in the years to come, geographical spread, nature of business and amount of investment needed. Key considerations in evaluation and selection are:

  • Scalability. ERP solutions are designed to grow with the company, and they do not succumb to volume and change pressures.
  • Vendor management. Managing a number of vendors for customer service is not easy. An integrated suite gives you one solution supplier to work with.
  • Functionality. Access to the functionality required to run the business over time—at an affordable price. It may not be the cheapest choice at first, but it will usually be the most economical in the long run as your business needs grow and change.
  • Reliable service and support. The ability to access affordable service and support is critical. It is easier to support an integrated ERP environment than a mix of different applications.

Implementation issues

This is a major and time-consuming activity which involves analysis of organisation processes, recommendation of good practices, mapping the processes to the package, data management, implementation and support. The choice of the implementer is a critical factor as the experience of implementation using standard approaches and methodologies, project management and change management are factors for success. Also important is the implementers’ knowledge of the client’s business processes, local conditions, etc. The key considerations for implementation are:

  • Knowledge of application. ERPs are designed on a state-of-the-art architecture using best practice business functions, hence knowledge of the application is essential for the implementer.
  • Experience in implementation. ERP implementation involves adoption of standard approaches, ability to resolve situations and issues, and transfer of knowledge. These relate to the experience of the implementer.
  • Reliable support. The ability to provide post-implementation support is critical because a lot of issues arise once an organisation starts using the application. The implementer necessarily needs to provide the support services after the implementation.

Internal change management

An ERP implementation entails changes in processes and reporting structures. Addressing this shift is a process that the organisation has to go through. This will help in achieving the acceptability of the new system by the users.

There are three drivers of change management:

  • People. They are the key players in any ERP implementation since they will be the process owners, application users and application administrators. The challenge of an ERP implementation is to achieve acceptability of the system by the people who are going to use it.
  • Process. One of the returns on investment is knowledge of best business practices by virtue of an ERP. These processes impact the efficiency levels to be attained by the organisation.
  • Technology. Implementation of ERP automatically entails adopting technology that will address scalability, death of distance, and upgradeability to newer technologies.

Organisational commitment

ERP has to be viewed as a process enabler rather than a package to be installed and run. The implementation process is a journey towards achieving organisational efficiency. This demands a strong commitment by the organisation’s stakeholders throughout the entire process.

Indian companies in the mid-market sector have shifted focus from requirements and issues of deregulation, Just in Time and TQO to the requirements of process standardisation, managing supply chain from inventory to distributors, electronic interface across business, Web-based technology and customer relationship management. Mid-market clients are now looking for business solutions that are “fit for purpose,” and that would meet or exceed the user’s expectations through continual improvement. Growing economies like India which are already on the technology path are rapidly embracing these requirements to climb up the value chain.

Possible ERP roadblocks

ERP may be a panacea, but even a panacea needs to be administered with finesse and professionalism. The hurdles in the path of a successful ERP implementation in the Indian mid-market context are:

  • Expectations from ERP. There is a feeling that ERP is an intelligent wand that solves all business problems. The fact is that it is an application framework which has to be tuned to the organisation’s requirement and run by humans who make the decisions.
  • Unstructured processes. A majority of mid-market segment organisations are closely-held businesses where processes have evolved over the years. Realigning of these business processes and streamlining of data to suit the ERP requirement is a major exercise where the participation of the client is crucial.
  • Commitment from management. Any ERP implementation is phased over a period of time. In quite a few cases, it has been observed that there is declining interest and commitment of the management during the implementation process. The result is cost and time overrun, and in some cases the process even gets nipped in the bud.
  • Cost-benefit utopia. A common expectation is to get the “skies for nothing.” Although there have been efforts to optimise the total cost of ownership, the fact remains that the value which one can expect is proportional to the investment one makes.

Investing in ERP is a significant decision for mid-market organisations, hence the evaluation of an implementation and the benefits accrued is a major factor in the overall success. The effectiveness of an ERP implementation can be somewhat gauged by key performance metrics (KPIs) of business processes. KPIs are benchmarks with quantitative or qualitative values that help an organisation assess the success and effectiveness of the processes that have been implemented in the ERP.

Today, the trend is that with basic ERP being a given, ERP vendors are rushing to integrate additional capabilities such CRM, sales force automation and RFID.

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