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Why some ERP strategies are better than others

Nick Castellina, Research Analyst at the Aberdeen Group, spends a lot of his time thinking about ERP. In his role at Aberdeen, Castellina studies how ERP technologies are employed across a wide range of companies and industries and reports back on the latest trends.

He recently authored a report, “A Guide for a Successful ERP Strategy in the Midmarket,” that examined the common characteristics or behavior that is inherent in companies successfully using ERP technology. The report was based on an extensive survey of midmarket companies (defined as employing between 100 and 1,000 employees) and illustrated the differences between what he called the “best in class” organizations and the “industry laggards.”

We spoke with Castellina about what distinguishes the ERP successes from the failures and where ERP technology is headed next. Following are highlights from our interview.

Forward View:
Your report, “A Guide for a Successful ERP Strategy in the Midmarket” takes a look at what you call “best in class” organizations. What is the common denominator that makes these companies successful?

Nick Castellina:
Well, if you don’t know, the way Aberdeen defines our Best in Class is we take every single one of our survey responses and we rate them on a set of four different capabilities. In the case of this report specifically, our best in class organizations are doing things that are indicative of a successful ERP implementation. They are using ERP to actually drive performance improvements in their organizations.

There are a lot of different things (that the best in class are doing) and that’s what kind of all my reports are about. In this report, we talk a lot about third-party support for ERP implementations. Do these companies have third-party support? How are they using it? Are they using it for software customization, system implementation configuration, system integration, ongoing support?

What we like to see is they’re more likely to be standardizing processes across their organization. You know, when you standardize processes you’re ensuring that everybody in the organization is using best practices, and then providing a united front to customers. They’re streamlining processes. They’re doing this through ERP. They’re identifying places where they could be more efficient and cutting costs that way. They’re more likely to be using ERP to link different parts of the organization and form cross-functional continuous improvement teams.

So, it’s those types of things, and of course, you know using the technology to provide visibility to decision-makers. These are all things that the best in class are doing at a more consistent rate than all others.

Forward View:
What do you think are the most common reasons why some ERP strategies fail?

Nick Castellina:
Well, I think number one would be not enough buy in from the actual employees that are using it, and then they’re not adopting it as well, and they’re not being trained as well. They’re not integrating it into their daily lives. A lot of my research has found that you really have to commit to employee training on an ongoing basis to continue to keep them in the loop on how to actually get the most out of ERP.

Another reason beyond employee buy in, I would think it would be that the ERP system that was selected doesn’t have sufficient functionality to actually support the business, and it doesn’t really give employees a reason to use it and it doesn’t support the business fully. One of the ways they can avoid this is by selecting an ERP that fits their organization. There are a lot of organizations that are using third-party services to help identify the most important selection criteria for their ERP and ensure that they’re getting the most useful functionality at the best price.

It’s about ensuring that you are providing your employees with the functionality they need to really support the business, and also ensuring that your employees are able to use ERP effectively through training.

Forward View:
In your report, you talk about companies that have already implemented ERP but are not deriving full value from it. Can you talk a little bit about the obstacles that these companies face? Is it the lack of buy in, is it insufficient functionality, or is it something deeper?

Nick Castellina:
It’s both of those things, and it’s also the lack of support from their ERP vendors and the lack of support from their executives to really ensure that this is taking hold. Sometimes it’s that the system is not a good fit for them. Again, like I said, it’s the lack of this functionality. It could be any multiple things where it’s not a solution that fits their industry. It’s not a solution that fits their company size or their processes.

They really have to be able to commit to making the ERP solution a success, because without that commitment, of course, anything is going to fail. It’s the project plan, getting it up and running on a concrete timeline. Some organizations have a three year-long implementation processes, and that’s just not going to be effective. You need to get it up and running as quickly and efficiently as possible to ensure that you reached that return on investment.

Forward View:
How do you recommend midsize companies go about designing and implementing ERP strategy?

Nick Castellina:
Well, there’s a lot of research around that talks about the top things to look for when you’re selecting an ERP. And best in class organizations that are successful with their ERP implementations aren’t basing it solely on cost – which might surprise you. There are two things that always come in above that, and we’ve mentioned functionality already, making sure that the ERP system actually can effectively support your business processes, your products and your people.

And also, it’s about ease of use. If an employee can’t use the ERP, they’re not going to make the most out of its functionality. And then, of course, it’s also about the ability to integrate with some legacy systems, other technologies such as business intelligence, that are hugely essential when you’re selecting an ERP solution.

So really, as you’re looking for a solution you have to ensure that the system is specific to your organization. Whether it’s industry-specific or process-specific, you have to have that functionality.

Forward View:
If we look ahead a bit, what changes do you suspect we’ll see in terms of ERP in the midmarket?

Nick Castellina:
I write a lot of things about the impact of social, mobile, and cloud technology on ERP strategies. I’d say it’s those types of things. You’re going to see more and more social collaboration-type functionality integrated into ERP. What I’m talking about here is anything that’s similar to almost like Twitter or Facebook functionality, but also blogs, Wikis, forums, and enhanced collaboration capabilities within ERP. Of course, we’re seeing more and more people adopting ERP through mobile devices.

And then, the third would be cloud, of course. I do a yearly report on Cloud and SaaS ERP. And what we’ve been finding over the last five years, we ask (organizations) what deployment options would you be willing to consider for your ERP solution? And year-over-year we’re seeing an increase in the percentage of people that would be willing to consider a cloud solution, while at the same time seeing a year-over-year decrease in the amount of people that would be willing, or organizations that would be willing, to consider a traditional on-premise.

So, you’re going to see more cloud-hosted and SaaS model ERP solutions being deployed, especially in smaller organizations that don’t have the internal IT resources to support an on-premise solution.

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