Investment in an enterprise resource planning system can represent a considerable cost, but if done right, the benefits will be realized in a relatively short time.
Leo Tolstoy’s “War and Peace” is 1,000 pages of overwhelming complication. Very few people have succeeded in reading it cover to cover. That, my friends, pales in comparison to the Herculean task of selecting and installing a new enterprise resource planning (ERP) system!
Why is ERP so painful, fraught with peril and often only a partial success? Let’s examine our industry’s pain points with the help of two seasoned guides, Emma Espino and Oscar Vincenti of management and transformation consulting firm Workflow Consulting LLC. The firm specializes in large transformation projects, business process diagnostics, business process design, and ERP implementations.
The challenge of growth
Many companies in our industry started as small family businesses that grew into billion-dollar enterprises. At the same time, too many of those companies have not managed growth well, especially in business processes and finances.
While growth is often called a “first-world problem,” Espino and Vincenti caution that it must be carefully managed, nonetheless. The penalty for not properly handling growth is harsh. The company may become stunted, inefficient, or less competitive, which often leads to the need to sell it to a more efficient operator.
Growing implies adaptation in many ways. When companies grow organically or through small acquisitions, the organization absorbs the additional workload and inefficiencies relatively easily because that change is gradual. However, when the organization reaches a certain size, coping with the additional workload and accessing usable information to manage the larger operation becomes a challenge. Communication between functional areas becomes more difficult. Business processes start becoming inconsistent and hard to track, mostly because the acquisitions were not adequately integrated.
At that point, organizations begin to realize they need the tools to get things under control. This is generally the starting point of an ERP journey.
ERP requires a process change
“The first common mistake in an ERP implementation project is thinking that it is just a technology change,” says Espino.
ERP systems serve three key purposes:
- Enable planning: Permitting a company’s core business processes—i.e., financial, supply chain, human resources, etc.—to occur through one operational platform facilitates adequate resource planning. Users can better understand the end-to-end processes more for the value they add than for the activities they include.
- Cross-functional communication: Performing as a communication mechanism between the various functions of a company through integrated functionality that connects all aspects of a business and precisely reinforces the end-to-end process execution.
- Automated, streamlined processes: Empowering users to manage day-to-day business activities efficiently and effectively.
Yet Espino and Vincenti point out that companies often have trouble realizing the benefits of an ERP system when it is not installed and rolled out properly. For these companies, the first thought is to bend the system to their current processes. The best thought, however, is to consider their current processes and have the courage to redesign them. Additionally, processes focused on the customer value proposition will enhance profitability.
“When ERP implementation is taken on as a technology project, companies often try to emulate their current procedures in the new system. They don’t realize that what really adds value to customers is the execution of the activities and not the tools used to enable them,” says Vincenti.
Additionally, if the company’s culture does not promote communication across all functional areas, or tie the importance of planning to financial performance, the implementation of an ERP system will not make economic sense.
“Trying to acquire a larger operation with an inconsistent, not appropriately designed operational model will result in a very complicated task,” adds Vincenti. “If the company doesn’t have a consistent standard model, they will have to reinvent the wheel with every acquisition.”
Connecting actions across the value chain
“ERP systems are made to connect the data and integrate the processes within the value chain,” says Espino.
The cost of executing activities is accumulated along the value chain in such a way that any inefficiency or lack of effectiveness of one process will affect the cost of the subsequent processes that receive their result. It is not enough to focus on the optimization of individual methods within their own silos because the issue may have originated in a previous process.
The benefits outweigh the cost
If you think ERP implementation is hard, just try to grow without one! At some point, the lack of integration and the inability to access information on demand will take a toll on your company.
Successful, continued growth at scale demands enterprise tools, such as ERP systems. Installing such types of systems represents an outstanding opportunity to revise your operational model for efficiency and shape your organizational culture to integrate new acquisitions faster. This will help you to realize its benefits sooner as well as continuously adapt to changing market conditions.
Since we started this journey with Tolstoy, let’s use one of his famous statements: “Everyone thinks of changing the world, but no one thinks of changing himself.” Tolstoy should be on an ERP implementation team!
If you have questions concerning this article, Espino and Vincenti have kindly agreed to provide their emails for direct contact: [email protected] and [email protected].
Craig Yeack has held leadership positions with both construction materials producers and software providers. He is co-founder of BCMI Corp. (the Bulk Construction Materials Initiative), which is dedicated to reinventing the construction materials business with modern mobile and cloud-based tools. His Tech Talk column—named best column by the Construction Media Alliance in 2018—focuses on concise, actionable ideas to improve financial performance for ready-mix producers. He can be reached at [email protected].