"My client has not upgraded their IT systems in over 15 years, and in fact, they do not even have a CIO. Should I recommend to implement an ERP system? Do we tell them to rip out the old system?"
This is a classic consulting problem. A majority of my consulting experience is in SAP ERP implementation consulting, so I have seen a number of fresh installations; some good and some bad...
So the short answer is, yes you should recommend implementing an ERP system, if you can find a good ROI on the investment. Furthermore, a good consultant will know how to stage the implementation so that the impact to the business is minimal.
In a case like this, it appeared that there were a lot of home-grown applications, and many outdated systems. It leaves me to think that there are probably a lot of "IT Application Kings" in the IT organization. An IT Application King is basically the original creator of the software application, and has been gradually improving it and maintaining it over the years. This is pretty common in many businesses of all sizes. Basically, everything needs to go through the IT Application King, and he is invincible. He cannot be laid off, and in many instances he cannot take much time off. The program and documentation on these systems resides in the creator's mind, and if something were to happen to them (i.e. they get hit by a bus), this could potentially create a huge loss to the business, especially if it is a business critical application, such as an inventory control software or a sales order entry system.
So to these Kings, the thought of implementing a "Vanilla ERP" system is like a death sentence. So a consultant will need to be prepared for severe pushback from this group.
Furthermore, an ERP implementation is a HUGE expense. Can you gain enough efficiencies in business processes to get a reasonable ROI? This topic has been heavily debated, so a few things to look for in an organization before even thinking of recommending an ERP implementation are:
- How many people are maintaining the current homegrown applications?
- How much time is being spent on financial month end close?
- How much time is spent maintaining the interfaces between the disparate systems?
- Can this business fit in a relatively uncustomized ERP solution from SAP or Oracle?
- If the company grew through acquisitions, how good is the transparency between the separate systems? For example, is it easy to pull together a consolidated financial statement?
- Are there opportunities to save in taxes if we put the whole company on a single system and reported financials through a country with lower taxes? Caviot: This implies that a majority of the sales and business happen in this country you are considering.
- Are there Sarbanes-Oxley (SOX) requirements that the company needs to meet? If so, what is the cost of applying SOX principles to their existing system versus implementing a new ERP system?
- Are there other legal or regulatory reasons for implementing the new ERP system?
- Will the ERP system improve operations? For example, will it take less time to enter in a sales order? Or, will it take less people to execute a business process chain?
- Will the ERP enable more efficient flows with suppliers/vendors and customers?
- Can an ERP help improve supply and demand forecasts?
- Can you reduce inventories by utilizing a new ERP?
- If the company is interested in doing business in many emerging markets, will the ERP system help manage the documentation/forms required to sell to these markets?
For now, that is what I can think of to answer my friend's question. I'll add more to this blog as I think of more reasons to implement an ERP system.
