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By: Dr Sudhi Rao, CEO, Proxis Business Solutions
Enterprise Resource Planning (ERP) and similar business systems are the beasts of the software universe. A well-implemented ERP system can bring manifold benefits to an organization. However, the implementation process itself can be a resource intensive and complex process with success dependent on a number of factors. Implementing ERP systems in small and medium enterprises (SMEs) is a bigger challenge since these organizations rarely have the resources required for a successful implementation. The rate of implementation success, here, is quite low.
Definitions of an SME vary but for general purposes, any company with annual revenues of less than Rs 100 crore could be considered an SME. A better measure from an ERP perspective would be the number of transactions the firm generates. Thus, a company with high revenue but few transactions may not qualify as an SME whereas a smaller firm with a large number of transactions could be considered one and would be able to leverage the advantages of an ERP system. Most of them are:
- Family owned firms, many in transition from one generation to the next.
- Experiencing unprecedented growth, often accompanied by pressure on profits.
- Quite understaffed with most managerial staff multi-tasking.
- Attempted to implement one or more ERP systems.
- Despite the above, do not have deep technical or process skills.
- Very cost conscious, especially with regard to IT/software expenses-many might balk at spending 1% of annual revenue on ERP systems.
Typical examples would include a small-scale plywood manufacturer, a multi-location bookstore, an electrical contractor, educational institutions or an automotive components manufacturer.
The ERP market for SMEs in India is still in its infancy despite the long history of such systems. However, it is a vast untapped market (it is estimated that there are over 200,000 businesses which meet the SME criterion) and one that is expected to grow explosively, in keeping with the overall economic growth. Currently, this segment is served by a number of vendors including some traditional ERP powerhouses. However, few vendors have developed implementation methodologies designed for SMEs, factoring in practices and processes specific to this segment.
What are the challenges of marketing and implementing ERP systems in this market? Outlined here are some of these showstoppers and possible responses.
Sell Implementation, Not the Product
Since ERP systems need to support real-life business operations (reengineered, if necessary), they defy categorization as a product.
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One cannot simply install even the best packaged ERP system and leave, much as one could do with a word processor. |
One cannot simply install even the best packaged ERP system and leave, much as one could do with a word processor.
The system needs to be customized to support the organization's processes. Implementation is often the bigger reason for the failure than the software itself. Since SMEs rarely have the resources to either rigorously self-implement ERP or hire a system integrator, the ERP vendor needs to offer the software and implementation as a package deal. The significant costs of implementation need to be factored in at this stage. This cost is often much higher than what some of the SMEs may have spent on their previous attempts at ERP implementation-for example, our proposal for ERP at the multi-location bookstore was over thrice that of a previous attempt. The rationale for a higher cost must be explained to be client.
Expectations: Reach the Top in Small Steps
A well implemented ERP system is expected to provide benefits spanning the two extremes-from supporting operational transactions earlier performed manually to aggregation of information for higher management ie, analysis and business intelligence.
Few organizations-much less an SME-have the resources and processes to implement an ERP system so as to gain the range of benefits at one go. Hence, part of marketing ERP to SMEs is to set stage-wise expectations from an ERP implementation. The following four-stages could be one approach:
- Automate/support regular operations of the company.
- Support local planning such as vendor rating for purchases and so on.
- Consolidate operational data across departments for MIS and exception reporting.
- Aggregate information for analysis and BI.
For example, in the case of the bookstore, Stage I would involve automating billing, ordering etc, while Stage III would include consolidating purchase information (not the purchasing process, which is decentralized) across the main store and the satellite stores.
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