By Bart Perkins
Enterprise resource planning (ERP) is a system of integrated software applications that standardizes, streamlines and integrates business processes across finance, human resources, procurement, distribution, and other departments. Typically, ERP systems operate on an integrated software platform using common data definitions operating on a single database.
ERPs were originally designed for manufacturing companies but have since expanded to service industries, higher education, hospitality, health care, financial services, and government. Each industry has its own ERP peculiarities. For example, government ERP uses contract lifecycle management (CLM) rather than traditional purchasing and follows government accounting rules rather than GAAP. Banks have back-office settlement processes to reconcile checks, credit cards, debit cards, and other instruments.[ Comparison shopping? See “The best ERP systems:10 enterprise resource planning systems compared,” with evaluations and user reviews. | Learn why companies are increasingly moving to cloud ERP and how to spot the 10 early warning signs of ERP disaster. | Get weekly insights by signing up for our CIO Leader newsletter. ]
ERP systems improve enterprise efficiency and effectiveness in a number of ways. By integrating financial information in a single system, ERP systems unify an organization’s financial reporting. They also integrate order management, making order taking, manufacturing, inventory, accounting, and distribution a much simpler and less error-prone process. Most ERPs also include customer relationship management (CRM) tools to track customer interactions, thereby providing deeper insights about customer behavior and needs. They can also standardize and automate manufacturing and supporting processes, and unifying procurement across an organization’s disparate business units. An ERP system can also provide a standardized HR platform for time reporting, expense tracking, training, skills matching, and the like, and greatly enhance an organization’s ability to file the necessary reporting for government regulations, across finance, HR and the supply chain.
Properly operating ERP systems enable enterprises to reduce the time required to complete virtually every business process. They also promote collaboration through shared data organized around common data definitions, resulting in better decision-making. The standardization and simplification that ERP systems offer result in fewer rigid structures, thereby creating a more agile enterprise that can adapt quickly while increasing the potential for collaboration. An ERP systems centralized database, while being a bigger target, is easier to secure than data scattered across hundreds of systems.
The scale, scope, and functionality of ERP systems vary widely. However, most ERP software features the following characteristics:
ERP systems are categorized in tiers based on the size and complexity of enterprises served. Typical tiers include:
Over the past few years, ERP vendors have created new systems designed specifically for the cloud, while longtime ERP vendors have created cloud versions of their software. Cloud ERP is becoming increasingly popular, and fall into two major types:
For most enterprises, ERP as a service offers three advantages: The initial cost is lower, upgrades to new releases are easier, and reluctant executives cannot pressure the organization to write custom code for their organization.
For more on cloud ERP, see:
Choosing an ERP system is among the most challenging decisions IT leaders face. In addition to the above tier criteria, there is a wide range of features and capabilities to consider. With any industry, it is important to pick an ERP vendor with industry experience. Educating a vendor about the nuances of a new industry is very time consuming.
To help you get a sense of the kinds of decisions that go into choosing an ERP system, check out “The best ERP systems: 10 enterprise resource planning tools compared,” with evaluations and user reviews of Acumatica Cloud ERP, Deltek ERP, Epicor ERP, Infor ERP, Microsoft Dynamics ERP, NetSuite ERP, Oracle E-Business Suite, Oracle JD Edwards EnterpriseOne ERP, Oracle Peoplesoft Financial Management and SAP ERP Solutions.
Most successful ERP implementations are led by an executive sponsor who sponsors the business case, gets approval to proceed, monitors progress, chairs the steering committee, removes road blocks, and captures the benefits. The CIO works closely with the executive sponsor to ensure adequate attention is paid to integration with existing systems, data migration, and infrastructure upgrades. The CIO also advises the executive sponsor on challenges and helps the executive sponsor select a firm specializing in ERP implementations.
The executive sponsor should also be advised by an organizational change management executive, as ERP implementations result in new business processes, roles, user interfaces, and job responsibilities. Organizational change management can help everyone in the enterprise understand the impact ERP will have on their work. In many cases, an organizational change management firm, rather than an internal executive, provides this support.
Reporting to the program’s executive team should be a business project manager and an IT project manager. If the enterprise has engaged an ERP integration firm or an organizational change management specialist, their project managers should be part of the core program management team.
See also: How to assemble a winning ERP team
Most ERP practitioners structure their ERP implementation as follows:
The executive sponsor oversees the creation of any documentation required for approval. This document, usually called a business case, typically includes the following:
Once the business case is complete, the executive sponsor presents the business case to the appropriate group of senior executives for formal approval to spend money and direct staff to implement the ERP.
The high-level timeline created for the business case is then refined into a work plan, which should include the following steps:
This is the largest, most difficult phase. Major steps include:
Prior to the final cutover when the new system is in production, multiple activities have to be completed. These include:
Following ERP deployment, most organizations experience a dip in business performance as staff learn new roles, tools, business processes, and metrics. In addition, poorly cleansed data and infrastructure bottlenecks will cause disruption. All impose a workload bubble on the ERP deployment and support team.
For more on ERP implementation, see:
The four factors that are commonly underestimated during project planning include:
For more on ERP costs, see:
Why ERP projects fail
ERP projects fail for many of the same reasons that other projects fail. The most common cause is an ineffective executive sponsor who cannot command respect throughout the organization, is not interested in the project, or is distracted by other responsibilities. Other ways to fail include poorly defined program goals, weak project management, inadequate resources, and poor data cleanup.
There are several causes of failure that are closely tied to ERPs. Specifically:
Even groups who support the ERP can become disenchanted if the implementation team provides poor support or is perceived to be rude or unresponsive. Disenchanted supporters can become vicious critics when they feel they have been taken for granted and not offered appropriate support.
More on ERP:
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