Two years ago CIO.com conducted a survey of over 400 American companies to gauge how dependent companies are upon their business management software systems – commonly known as ERP (Enterprise Resource Planning). In that survey, fully 85% of companies agreed or strongly agreed that their ERP systems were essential to their core businesses and that “they could not live without them.” (70% of these businesses fell into the SMB (Small to Midsize Business) category.
That doesn’t mean they always like them. Within the survey, the respondents comments are most telling.
To begin with, “The tighter your integration with ERP,” said the CIO of a large realty trust, “the more critical it is to your business. We run our business on it.” Indeed, as the survey found, over 80% of companies considered their systems as “legacy” investments, and they continue to invest in them regularly.
Financial applications are, of course, the prime use: 96% of companies reported using ERP for that. Nearly 80% used them for procuring and order management, and nearly two-thirds for better inventory management. Over half deployed in the areas of HR and payroll (respondents could answer to more than one category).
When asked if their company would be able to live without its ERP systems within the next five years, more than 80 percent disagreed or strongly disagreed. ERP systems are here to stay.
But here’s an interesting takeaway…
Three-fourths of IT chiefs said their goal for ERP was “operational efficiency.” That part’s not surprising, but what is interesting was that only 4% thought ERP systems offered them “competitive advantage.”
Turns out that’s because in many industries, ERP systems are already prevalent, and so having one might be less a matter of competitive advantage than of simply keeping up – where what’s important is “how efficient you are at using your ERP system,” according to Amy Doherty of American Financial Realty Trust.
Another factor is that many companies are running older “legacy” systems with an emphasis on the financial and accounting side of the business, as we’ll get to in a moment.
Acording to Ray Wang, (formerly) Principal Analyst (and a founder) of Forrester Research, a “vertically focused solution” is the most important attribute for an ERP system, and makes it more likely to be a competitive differentiator. In other words, software that is specifically targeted to an industry or business (i.e., a “vertical”) tends to give the biggest bang for the buck – the biggest competitive differentiator – at least until everyone else has it too. Then, it’s about using it efficiently.
We think the results are revealing: in our experience, far too many companies run ERP systems (often older ones) that were built for a different time, maybe even a different industry, and while they may provide decent financials, they are very lax at mimicking the processes and thereby improving the productivity of the companies they serve.
As a result, we find many companies we speak with are dissatisfied with their systems, for a rather simple reason: it’s the wrong system for their unique or particular workflow needs. But many feel “locked in” to these legacy systems, and fear the pain of making a change – which as we all know, is never easy, is it?