Deciding on ERP: What does C-level leader needs to know before making a decision

ERP systems used to be something only large companies could use.

Now, thanks to cloud technology, ERP is changing. It's becoming something that all businesses, no matter their size, can use and benefit from. This big change means even medium-sized businesses can use ERP to help them work better and grow.

What is medium-sized business?

According to Gartner - "midsize business (SMB) is a business that, due to its size, has different IT requirements — and often faces different IT challenges — than do large enterprises, and whose IT resources (usually budget and staff) are often highly constrained.

Size is usually defined by the number of employees and annual revenue they have. Midsize enterprises are those organizations with 100 to 999 employees and make more than $50 million, but less than $1 billion in annual revenue"

Cloud ERP and the shift in ERP accessibility

The advent of cloud ERP has significantly altered the ERP landscape, making these systems more accessible and affordable for medium-sized and even smaller businesses. Cloud ERP solutions, like SAP S/4Hana public cloud, offer scalability, flexibility, and cost-effectiveness that traditional on-premise ERP systems couldn't match.

The cloud model allows businesses to pay for what they use, scaling up or down as needed without the heavy upfront costs of infrastructure and licensing fees associated with traditional ERP systems.

Factors to consider, before deciding on ERP

When organization starts facing challenges, many consultants start offering ERP systems as a solution. But choosing to implement ERP needs to be weighted decision, as it comes with it's own benefits, but also limitations.

ERP systems are absolutely necessary for businesses that wish to grow. But many more factors need to be considered for making a sound decision.

Here's what you need to assess:

1. Business process evaluation

1. Complexity: Look at your business processes. Have they become too complex, disjointed with duplicate data entry points? Then you might benefit from the integration that ERP provides.
2. Standardization: Assess the degree to which your business processes are (or can be) standardized across the organization. Small businesses often thrive on their ability to quickly adapt to market changes, customer needs, and innovative opportunities. Standardization can sometimes introduce rigidity, limiting a smaller company's ability to be agile and respond swiftly to unforeseen challenges or opportunities. ERP systems work best with standardized processes!

2. Operational efficiency

1. Information Accessibility: Determine if accessing consolidated, real-time information poses challenges for effective decision-making. ERP systems excel in providing accessible and timely data for informed decisions.
2. Inventory Management Assessment: Evaluate if improving cash flow and reducing storage costs through better inventory management practices is necessary. ERP solutions can assist in maintaining accurate stock levels and optimizing reorder points.
3. System Integration: Assess if managing multiple non-integrated systems consumes too much time and resources that ERP consolidation could solve.

3. Technology infrastructure

1. Internet Reliability: Since cloud ERP relies on internet connectivity, assess the reliability and speed of your current internet service.
2. Effective Existing Systems: Be realistic about your current set of specialized software solutions, that may already efficiently meet your business needs. If these systems are well-integrated and there are no significant operational pain points, transitioning to an ERP system might not be necessary.

4. Growth and expansion

1. Scalability Assessment: Consider the anticipated growth trajectory of your company and assess how much expansion do you foresee in terms of users, transactions, and potential international presence. Will your current systems be able to accommodate this growth seamlessly, or do you anticipate significant challenges in scaling up without a comprehensive system overhaul?

5. Security and compliance

• Data Privacy and Security Concerns: For businesses operating in industries with heavy data privacy and security regulations, the move to an ERP, especially cloud-based solutions, may introduce compliance complexities that your current systems have already addressed.
• Data Sensitivity: Evaluate the sensitivity of your data and if moving it to the cloud meets your security and privacy standards. eg. GDPR mandates strict regulations on data transfer outside the EU.

6. Financial analysis

• Calculate TCO: Conduct a thorough cost-benefit analysis to understand the financial implications of implementing an ERP system. Consider upfront implementation costs, licences and subscription costs, internal potential ROI, and long-term value.

Calculating TCO

Calculating TCO involves assessing all direct and indirect costs over a specific period, such as software subscription fees, implementation and deployment costs, training, operational costs, productivity impact, and future upgrade or expansion costs. It's also essential to consider the Return on Investment (ROI) by estimating the financial benefits the system will bring, like increased efficiency, reduced operational costs, and improved business agility.

Here is a list of the of potential costs associated with implementing and operating a cloud ERP system. Some costs will depend on the scale of implementation and how much organization will be willing to use external services vs internal skills.

Implementation / setup costs for cloud ERP

• Subscription Fees: Monthly or annual charges for using the cloud-based ERP software
• Infrastructure Costs: Cloud hosting fees, Band width costs
• Resources: Internal business resources, internal IT resources, external business consulting resources and IT vendors.
• Consulting Services: Strategic consulting, business process consulting, legal and compliance consulting.
• Implementation Services: software implementation consulting, software configuration and development
• Integration Costs: Integration services, Middleware software
• Change Management: Change management consulting, Communication, Adoption
• Training Costs: Employee training, Training material preparation, training material updates/maintenance
• Travel Expenses: Travel expenses for consultants, for Project team for End-user trainings.
• Additional Features and Modules: Extra modules, Third-party applications
• Data Security and Compliance: Security assessment, Compliance management

Operating cloud ERP Costs:

• Subscription Fees: Monthly or annual charges for using the cloud-based ERP software
• Infrastructure Costs: Cloud hosting fees, Bandwidth costs, Disaster recovery
• Support and Maintenance Fees: Internal business, Internal IT and/or external support resources
• End-user training costs (onboarding)

GROW with SAP proposition

The GROW with SAP particularly targets organizations seeking to quickly deploy a high-quality cloud ERP system without the need for extensive customization.

You will have a pre-configured selection of processes that you can adapt immediately. It’s important to mention, that GROW with SAP gives access to the extensive know-how that SAP has built up in projects with companies from a wide range of industries over the past 50 years.

Cloud ERP transforms how medium-size organization are run – it brings core functions (finance, procurement, manufacturing, services.. you name..) under one roof in a way that is not only robust and secure, but also flexible to adapt to changing needs both of Organization and the market in which the company operates.

The cloud ERP provided by SAP includes predictable and transparent costs, high security, uninterrupted operation, reduced IT overhead, enhanced collaboration across your team and real-time data insights availability.

But it's the long-term gains that are even better. Cloud ERP provides a foundation for sustainable growth not limited by technology. SAP cloud solution is available and is supported globaly – which is an important aspect, if you are planning to expand into different markets.

Final Thoughts

ERP systems, once the domain of large enterprises, are now within reach of medium-sized and even smaller businesses, thanks to cloud ERP solutions.

The GROW with SAP proposition represents this change, providing scalability, cost-effectiveness, and a suite of tools customized for businesses poised for expansion. However, C-level executives must carefully assess readiness, total cost of ownership (TCO), and strategic alignment to ensure a smooth ERP implementation. By considering these factors, businesses can utilize ERP systems to streamline operations, improve decision-making, and support sustainable growth, regardless of their size.

#sap #cloudERP #growwithsap #saps4hana