8 Reasons Why Businesses are Failing to Fully Utilize Their ERP Systems and How to Fix Them
Companies are investing a great deal in adopting new ERP solutions, sometimes tens of millions of dollars, hoping to achieve the promised results of increased productivity, better decision-making, and more accurate processes. However, recent surveys are showing that many companies are underutilizing their ERP solutions, failing to maximize the potential to create a positive return on their investment. A recent Accenture survey of 300 senior IT professionals at the largest 2,000 companies in North America and the United Kingdom revealed these startling figures:
- 31% use their ERP system in half or less of the organization
- 64% use their ERP system’s core functions
- 19% have fully integrated their ERP system with customer systems
- 50% bought ERP systems that where they only needed half of the systems’ capabilities
- 20% don’t make use of all functionality due to lack of training
There are many ERP horror stories out there about exploding costs, the frustrations of change, and losing control of the business. Sometimes the hassle of an ERP can become so great that a company may throw it in the trash and cut their losses. The reasons why things go awry here are plentiful. This article will discuss 8 common mistakes businesses make that prevent them from fully realizing the potential of their investment and how you can fix or avoid those pitfalls.
1 Using the wrong consultant to help choose an ERP system
With hundreds of ERP systems available, it can be hard for a business with no expertise in the field to choose the right one for their business. These businesses will often turn to a consultant who can help them make the decision. Unfortunately, these consultants often represent a particular ERP, or at the very least, always recommend the system that they are most familiar with whether or not it is right for the business. They may talk only about the advantages of an ERP and skip any talk about the side effects of implementing their system. Or, they may have a strong background in the ERP they represent, but not a strong background in business operations.
Fix: Businesses should only use consultants who are not connected to any ERP system. They should be helping business owners make decisions about the best ERP system for their specific business. A good consultant has a strong background in business operations and takes time to understand your unique business. They also make you aware of potential pitfalls upfront regarding implementation headaches and other foreseeable problems. You can help your consultant make the right decision by being vocal about your budget, timeline and requirements. Then, find a vendor who can deliver on these considerations.
2 Choosing an ERP that is too big
There is such a thing as too much of a good thing. Choosing an ERP system that offers too much functionality not only is an unnecessary waste of money, it creates more hassles and frustrations in the implementation and training processes. Robust ERP solutions provided by companies like SAP and Microsoft are not only extremely expensive, but also provide a large number of modules that are not useful to all industries. Approximately 50% of businesses surveyed said they don’t need all their capabilities provided by their ERP and find their ERP solution cumbersome.
Fix: When approaching an ERP solution, businesses should look at not what it is, but instead what it can do for their business. How can implementing the ERP solution mesh with their existing business operations? Most businesses will require a custom ERP solution that is tailored to meet only the specific requirements of their business, rather than purchase a more expensive system that is overflowing with unnecessary features.
3 Poorly implementing the ERP solution
Unfortunately, the problems with ERP implementation are not advertised in the sales process and poor implementation can be far more costly than the ERP solution itself. Often, problems engulf a business after the sale because they have not properly planned out how the solution can be implemented. They fail to have a primary contact for ERP implementation that is familiar with the software.
Fix: Discuss with your vendor or consultant the expectations, both good and bad, that arise during the implementation process. Make sure the lines of communication will remain open after the sale is final and there are ERP implementation managers to assist with deployment. Ideally, the implementation manager will be a seasoned employee with a solid grasp of the budgeting needs of the company. Have a plan ready for the ERP that defines where you want to migrate your data, which resources will be allotted to which departments, and who will be in charge of maintaining each aspect of the ERP system.
4 Misunderstanding the purpose of an ERP system
Sometimes unrealistic beliefs and miscommunications can keep an ERP from realizing its full potential. Often companies mistakenly believe that an ERP solution is just another type of software and is therefore only within the domain of the IT department and not something human resources or upper level management should be concerned with. These same executives complain that the ERP solution fell far short of the promised results. With beliefs like this, it is no wonder that 31% of businesses say they use ERP in half or less of their organization.
Fix: An enterprise resource planning system uses the word “enterprise” for a reason, it is intended to extend across all aspects of a business and company departments and keep them working together. When all parts of the enterprise are using the system, the company will be harmonized and the departments will be synchronized to help realize the full benefits of the solution.
5 Not providing adequate training for the ERP system
After the cost of purchase and implementation, companies are often reluctant to spend more money on training their staff to use the ERP system. But by cutting corners on training, they may end up spending more in the long run than they would on proper training. 20% of businesses surveyed said they don’t make use of all the functionality of an ERP system due to lack of time to learn how to apply the features. Not only will poor training fail to fully realize the potential of an ERP solution, it may cause the solution to become more cumbersome than beneficial. When even just one employee doesn’t know how to use the system, it can throw a wrench in the whole solution.
Fix: When all employees know how to work the system, everything will flow more smoothly. Don’t assume employees can just wing it, and take the time and expense to train them properly. Show them how to develop and perfect competency in a particular system. This will help maximize the potential of the ERP system.
6 Failing to integrate the ERP system with customer systems
An ERP doesn’t just facilitate the flow of information between all business functions inside the boundaries of an organization; it can also be used to connect to outside customers. Yet only 19% of businesses have ERP systems that fully integrate with customer systems and 37% of UK and 27% of NA companies have little or no data sharing with customers whatsoever.
Fix: Take the time to understand how and why your ERP system can integrate with customer systems to share data. Identify the potential benefits that will help you maximize the potential of your ERP solution.
7 Failing to use ERP as an objective-setter
Most businesses use an ERP system primarily for tracking accounting data. However, one of the greatest benefits of an ERP is the ability to enhance company performance by monitoring employees’ key performance indicators. Using an ERP system as an objective setter requires that businesses use both financial and non-financial metrics to set objectives. However, only 11% of businesses thought their ERP system captured all or most of the non-financial information required to measure these objectives.
Fix: Determine what your key performance indicators are for your employees and ensure they are captured through the ERP solution. By monitoring employee performance, you can set measurable goals and identify strengths and weaknesses.
8 Not knowing when it’s time to upgrade an ERP system
An ERP solution is a big investment, so there is a temptation to keep an outdated system around rather than spare the expense to purchase, implement, and train employees on a new solution. However, the longer a business waits the more difficult it is to transition to a new ERP solution.
Fix: Remain in contact with reliable consultants and vendors who understand your business growth and can best recommend when it is time to upgrade to a new system.
Benefits of a Fully Functioning ERP
By facilitating the flow of information to each business function, implementing best practices into the ERP systems, and integrating business processes, a successful ERP solution will save time and expense. Centralized business data eliminates the need to synchronize changes through multiple systems, a comprehensive view of the enterprise allows better and faster decision-making, and best practices ensure redundancy is removed from processes.
- Increased productivity, less redundancy
- Better management and decision making
- More accurate process with fewer errors
- Market forecasting and trend spotting
The Secret to ERP is Simplicity
Overall, the best thing a business can remember is that an ERP system should be simple and elegant. Businesses need to identify what their requirements are and choose an ERP system that best meets only these requirements without extraneous features that bog down the user and add to the cost. Such a solution is easier to implement and it is easier to train employees on using the system when they can understand how each part works and the benefit it creates.