Article | March 1, 2019
The Cost of Inaction - Case in Point for an ERP Implementation
At a Glance
- Companies are emotionally and monetarily invested in their business systems. You need a system that delivers Qualitative and Quantitative ROI.
- The metamorphosis of ERPs from the typical back-office software to the current-day integrated platforms delivers simplicity and interoperability, helping companies make more informed data-driven decisions.
- Top reasons that hinder a successful ERP implementation - resistance to change, inadequate sponsorship, unplanned upfront costs and unrealistic expectations regarding time and cost of implementation.
- The actual cost of doing nothing can be calculated by understanding the potential benefits offered by a new-age ERP system versus the cost of maintaining a not so efficient legacy system (we call it TCO).
- Organizations experience lost opportunities and a slow-down in growth by not moving to a modern day ERP solution.
- An easy to use Tier 1 ERP system like Microsoft Dynamics 365 promotes enterprise-wide adoption, and in most cases, delivers a quantitative ROI in less than one year.
Technology has come a long way with a growing recognition of the transformational benefits and efficiencies it is able to deliver to organizations. Figuring out what software you need, when you need it and how to implement it is what most companies ponder.
While numbers are important, the deciding factor for any new business system should not be driven by Return-on-Investment (ROI) and Total Cost of Ownership (TCO) alone. Continued complacency in choosing a new ERP system impairs your growth and magnifies inefficiencies in the long run.
While most decision-makers understand the importance of upgrading their technology, year after year they end up doing nothing. As harsh as it sounds, it is a reality.
Today’s organizations already struggle to remain competitive. Lack of modern streamlined systems and operations can add undue stress to already-overworked resources, compounding the issue.
While it may be easier to just do nothing, putting off critical business decisions ends up costing more down the road. This is especially true in the case of companies needing operational efficiencies that can be achieved using integrated ERP systems.
Today’s ERP Systems have evolved from traditional back-office tools used only for record keeping, to sophisticated fully-automated systems embedded with Artificial Intelligence (AI), Machine Learning (ML) and Internet of Things (IoT). A tangible benefit the user derives from this sophistication is “Simplicity”, which aids in decision-making, user adoption and operational efficiencies. Tier 1 ERPs such as Microsoft Dynamics 365 render intelligence to enterprises by leveraging synergies of powerful technologies for even faster and more efficient business processes.
This article shares our experiences as strategic technology consultants, commonly sighted patterns and the transformative journey companies experience as a result of their technology investments.
Shortsightedness & the Apprehension to Change
Across industries, business leaders often come clamping down with the urge to make a decision. However, apprehension to change, complexity of ERP implementations and short-sightedness regarding processes result in indefinite delays and lack of results.
There are still companies that rely on multiple standalone applications to handle their business functions. Per our experience, there are two primary reasons why this happens -
01. Piecemeal and Save $X
These organizations will often purchase these individual components piecemeal, as “lower cost items” with the thought that saving $X is the most important aspect. In reality, to get the functionality they’re after they now need to connect 2-3 extra pieces of software with additional costs tied to each.
02. Enterprises Choosing Best-of-Breed
In large enterprises, software built for specific purposes are pulled together as a cluster forming their own “greatest hits” collection. These softwares are connected together by complex interfaces, and often, poorly designed integrations resulting in unforeseen points of failure.
Neither of these options are sustainable in the long run, inevitably driving business leaders back to the drawing board, to now start all over. This is usually a case of business leaders overlooking the bigger picture of what lies ahead.
When organizations are built like this, it limits their ability to leverage connected ecosystems which are designed to provide transparency, ease of use, consistency, efficiency, and most importantly real-time information.
Often overlooked is the fact that while these smaller standalone software can be purchased for a lower price, the long-term ownership, integration, and opportunity costs drive that price much higher than anticipated.
Even worse, once these standalone softwares are integrated, it becomes harder and harder to replace them when they inevitably start to cost more in upkeep, resulting in a need for added maintenance. The growing costs for maintaining different software for different business functions are overwhelming, especially when you begin to consider the resources needed to correctly manage them.
In contrast, a modern, connected ERP helps organizations streamline business processes by synchronizing data across functions, giving way to an agile, transparent, efficient and affordable system. Adding the combined benefits of the factors mentioned above, and still delaying the adoption of an integrated ERP system highlights the actual cost of doing nothing.
Companies are not conscious of the fact that by continuing to use a paper-based system and dated technology, they magnify compliance risks, impaired operations and human capital inefficiencies. While a well-integrated ERP system is designed to better manage operations as your organization grows, only a few companies choose to embrace the change.
Making the decision to move to a modern ERP is no easy task. A successful implementation will largely depend on the abilities and experience of your ERP partner, the degree of customization, and the engagement of your organization’s users and subject matter experts (SMEs). Success, therefore, is predicated not just on the investment of resources (people, time and technology), but also the selection of the right partner that suits your company, and culture, with a high level of expertise in your industry. This helps with a smooth implementation and ensures a faster ROI.
Organizations that are yet to upgrade to a modern ERP must continuously resort to short-term band-aid solutions rather than permanent fixes.
Here are some of the challenges that companies face on a daily basis:
- Paper-based reporting leading to a lack of transparency and delays
- Frequent outages resulting in a loss of productivity
- Old and siloed systems dragging down efficiency
- High costs in maintaining old, customized legacy systems
- Legacy system unable to track inventory turnover rates
- Reported productivity (%) is lower than industry standards
- Projected sales figures are based on guesstimates rather than actual numbers
- Customer satisfaction scores are dropping as a result of inability to accurately forecast order volumes
- Financial and stock volume reconciliation takes longer to process quarterly and at the year-end
- There is a lack of visibility of information across business functions
- Current system lacks the ability to support collaboration
- High dependency on third-party software and add-ons leads to significant budget creep annually
If even one of these pain points seems familiar, your organization is ready to invest in a modern, connected, integrated ERP system.
Patterns Plaguing the Industry
We talk to dozens of customers everyday, and realized there are a few common patterns across industries. This is what some of them say -
Roadblocks to Transformation
From Resistance to Change to the lack of a proper Change Management Plan - there’s an array of reasons that could be considered roadblocks to a successful ERP implementation.
Here are some of the most cited reasons we have seen that have resulted in the delay of an ERP implementation -
Figure 1: Roadblocks to transformation: Top reasons that hinder modern ERP adoption
01. The Workforce Is Resisting Change
Resistance to change is the single most cited barrier (82%) for organizations considering migration to a modern ERP.
People are comfortable doing things they are familiar with; whether its existing practices like manually recording data or by using multiple pieces of software in their day-to-day operations. Unfortunately, time and costs associated with maintaining multiple systems wastes valuable resources which could be better utilized in other productive and profitable jobs.
One of our customers, a successful chemical distributor with multiple locations in the US and abroad is in this exact scenario. They are currently running a dated ERP system supported by a collection of point-to-point siloed solutions.
While they’re not shortsighted and have a great vision for their company, resistance to migrate to a newer, more comprehensive solution is holding them back from achieving their objectives within the expected timeframe.
If this sounds familiar, developing a comprehensive change management plan - taking into consideration your people, culture, industry, vision and organizational objectives on the whole has been proven to ease this transition.
Change management is a vital catalyst to help achieve your project objectives. Users need an emotional buy-in when migrating to a new ERP.
Key factors that need to be considered for user change management -
- Including the end users in the decision-making & planning process in order to streamline change management: Organizations have traditionally focused a great deal on approval processes, while spending little or no time preparing their employees for change.
- Articulating the benefits of an ERP to employees before beginning an ERP implementation: An uninformed implementation could derail the purpose and commitment of the project, requiring, at a minimum, extended training times, which leads to missed milestones and a delayed adoption.
02. Upfront Costs & Cost-Benefit Analysis
When researching new ERP solutions, organizations often pause to evaluate initial costs. This is especially true for small-to-mid sized organizations with less than 1,000 users as the costs for implementing an ERP can vary depending on the level of functionality, features and integrations required, customizations, mode of deployment (cloud vs on-premise) and brand of software.
While it’s necessary for the buying organization to determine the functionalities applicable to their needs, companies needing an ERP solution should always conduct a comprehensive cost-benefit analysis. The modules and functionality need to be factored to accurately determine total value when compared to a piecemealed add-on solution.
Unlike piecemeal systems, modern ERPs pay for themselves in the long run as they include a variety of integrated and interconnected modules driving a majority if not all of your business functions, including: inventory management, supply chain management, manufacturing, material resource planning, financials, embedded business intelligence, and more.
Figure 3: Based on the deployment type, ERP solutions can have varied upfront costs, time & complexity to implement, and maintainance.
03. ERP Implementations Take Too Long
While the right ERP system delivers enhanced efficiency, speed, and transparency to business processes, the timeframe to implement can only be determined by analyzing the following:
- Organizational and Compliance requirements
- Fit / Gap Analysis of the system you chose. In case of gaps, details of the customizations required.
- Host of other equally sensitive factors such as change management
Extended implementation times are often created by a lack of involvement from senior staff and Subject Matter Experts (SME), as well as inconsistent levels of support from vendors and partners unfamiliar with the industry.
Microsoft Dynamics 365 for Finance & Operations is Microsoft’s flagship ERP. Due to its breadth of out-of-the-box functionality and simplicity, it has significantly minimized the implementation time in comparison to its competitors or even its prior version.
As the ERP landscape continues to evolve, here are some additional points that shouldn’t be overlooked
Full Disclosure: ERP Implementations could require considerable changes to the following:
- Existing business processes,
- The training of their workforce,
- The depletion of allocated funds
Additionally, these implementations can introduce momentary disruptions to businesses operations. Keeping the users well informed and involved will go a long way towards minimizing these disruptions to an organization.
Open Collaboration: An open line of communication is a must, organizations and their chosen ERP implementation partners need to work together to
- create a defined roadmap,
- agree on the challenges that could arise,
- and work together
Collaboration in this way helps minimize any possible disruptions to a business in order to ensure a smooth implementation of the program.
Partners that know your industry: Partnering with the right vendor that possesses demonstrated expertise and experience in your industry is key to a successful implementation. Within the Microsoft ecosystem, choosing a partner that builds solutions in your focus industry is a better choice. Building industry-specific products and keeping up with it in the current day requires a lot of depth in the industry in conjunction with the technology.
04. Unreasonable Expectations - Implementation Process
Organizations are often tempted to implement new ERP systems within a condensed, unrealistic time frame. In our experience, companies that enforce such timelines without consideration of users, change, transformation and company objectives, do not end up with favorable results.
Even after receiving clarity on the time and effort required to successfully complete an ERP implementation, an organization may be tempted to try and get their ERP system implemented in one quick step.
This is neither feasible nor recommended given the differences and complexity inherent to any ERP implementation - This understanding comes from user experience, having a defined methodology and through comprehensive user training.
Project Methodology: There is no one-size-fits-all when it comes to project methodologies. With over 40 years of combined hands-on experience with major ERP systems, our founders have learned that “Agile” is the best way to go instead of a waterfall approach. This understanding has led to the development of a tried-and-tested, unified methodology to implement major business systems. This method can be leveraged for phased as well as big-bang approaches.
User Training & Agility: End users need a comprehensive training plan, agility in the pace of learning, acceptance of new, and be able to work with their partner to streamline their organization’s processes.
05. Perceived Risk to Data Security for Cloud-Based ERPs
Since the introduction of cloud-based systems, conventional on-premise ERP vendors have exaggerated the dangers associated with the cloud to promote their on-premise solutions. This negative propaganda has been going on for many years, despite the fact that today’s modern Cloud ERPs are every bit as secure as their on-premise counterparts, if not more.
Most companies still consider their in-house server to be more secure than even industry-leading cloud companies like Microsoft, Amazon, and Google. Most companies are unaware that an analog fax line is the weakest link today, exposing organizations to a major security breach
The cloud is here to stay, and current ERP solutions come with a host of powerful new security features such as: In-stream packet scanning, continuous application vulnerability scanning, and multi-layer firewall testing offering one of the most secure experiences yet.
For organizations with multiple physical locations, the challenges associated with maintaining more than one security software for each server can be daunting. Leveraging the power and security of the Cloud provides a seamless, uniform user experience across multiple locations.
Key factors influencing the implementation, buy and adoption of ERP Systems
01. “Buy” Decision & Implementation
There are two key factors that matter when you consider an implementation of a new business system -
Qualitative ROI: Characterized by ease-of-use, emotional buy-in of users, connection to their day-to-day lives and overall adoption. These are critical elements and more important than just numbers. Left unconsidered, these will result in a failed implementation.
Quantitative ROI: Return of Investment (ROI) and Total Cost of Ownership (TCO) are the monetary drivers.
Qualitative and Quantitative factors are critical elements that will help you choose your ERP system wisely.
A healthy balance of the above two factors not only helped business leaders implement their ERP successfully but also resulted in a company-wide improvement in the key performance metrics, depicted below.
Figure 4: Company-wide improvement in KPIs
02. Factors That Drive Adoption of Modern ERP Systems
Beyond just TCO being within budget or ROI within an acceptable time-frame, there are more factors that drive companies to implement one business system over another. Here are the top reasons in 2018.
Figure 5: Top reasons for implementing ERP, 2018
Source: Panorama Consulting, 2018
Why choose Microsoft Dynamics 365 over other modern day ERP systems?
Other than its competitive cost, ease of operations and higher ROI, Microsoft Dynamics 365 for Finance & Operations (Microsoft’s flagship ERP) draws its strength from the Power of One Microsoft Ecosystem.
So, what is the Microsoft Ecosystem and why is this a differentiating factor?
Microsoft is the only company that provides a full-spectrum of industry-leading software, from Office 365 to enterprise grade, tier 1 ERP and CRM products. Competing software vendors end up building complex interfaces with Microsoft out of necessity resulting in redundancy and cost overruns.
The components within this ecosystem have come together over numerous revisions to form a comprehensive, connected solution that can be leveraged across industries, by any organization.
Microsoft Dynamics 365 is designed for simplicity with a familiar look and feel experienced within other products across the Microsoft Ecosystem. Change is easy with Microsoft, making it an ideal software for small-to-mid-market companies.
For more information, refer to our article and a whitepaper on the One-Microsoft Ecosystem.
Now, can you really calculate the “Cost of doing Nothing?”
The cost of doing nothing is determined by calculating the difference between the Return on Investment (ROI) of a modern ERP implementation and the Total Cost of Ownership (TCO) of existing, legacy ERP software.
Cost of doing nothing = ROI* - TCO of current systems
Both ROI and TCO need to take into account the following -
- Cost of software
- Cost of infrastructure
- Opportunity Costs (Due to the lack of a good system)
- Cost of compliance
- Cost of labor (manual work, paper etc.)
Return on Investment - ROI
Return on Investment (ROI) is a standard measure of performance used to evaluate the efficiency of any investment, such as an organization’s ERP. ROI can also be used when comparing multiple systems, directly measuring the possible return of one ERP against another in comparison to the cost.
ROI = (Value of Current ERP - Cost of Investment) / New ERP Cost
Total Cost of Ownership
Total Cost of Ownership (TCO) is a calculation organizations use to make informed financial decisions. For ERP systems, Instead of just looking at the purchase price, TCO looks at the complete cost from purchase to implementation, including expected costs to be incurred during the lifetime of the product, such as service, maintenance, and more.
- While doing nothing today may seem like a safe move for any number of reasons, doing nothing will only get you further and further away from your organizational objectives.
- You may easily justify the cost of acquiring an ERP system purely based on ROI, however, the decision should be based on more than just dollars and cents. ERP is the heart of an organization and has a profound impact on the day-to-day operations, change management and most importantly emotional buy-in of an organization’s employees.
- Regardless of the software, the system you choose needs to support key business functions and objectives of your enterprise, today and at least 10 years in the future.
- The right ERP partner can guide a buyer in their journey to objectively evaluate the potential of an ERP system based on business objectives and by implementing features relevant to the organization.
XcelPros is a Chicago-based company delivering transformation through technology. We offer business and technology solutions with deep industry experience in Chemical, Pharma, Life Sciences (including Medical Devices, Bio-Medical & Biotech), Insurance, Discrete Manufacturing, Process Manufacturing, Distribution and Food & Beverage.
XcelPros is a Direct Cloud Solutions Provider (CSP), Microsoft Partner and a Systems Integrator (SI) offering software licensing, implementation and consulting services for Microsoft Dynamics 365, CRM, Microsoft Dynamics AX, Business Intelligence & Analytics (Power BI), SharePoint, Office 365 and Azure (Cloud, IOT, AI, Microsoft Flow amongst many others).
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- Provide integrated technology solutions that amplify impact and empower our customer's businesses.
- Help companies create change and deliver efficiencies that matter.
- Care about outcomes and not just projects.
Our Belief - Technology is the key enabler of exponential growth for us and our customers.
Contact XcelPros today to transform your business.
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A modern, connected ERP helps organizations streamline business processes by synchronizing data across functions, giving way to an agile, transparent, efficient and affordable system.
Microsoft Dynamics 365 for Finance & Operations has extensive out-of-the-box functionality to help manage active ingredients for both make and buy items.
A good modern-day ERP ensures stronger supplier relationships, streamlined shipping operations, and better customer communication.
If you are a chemical distribution company, it is all about optimized supply chain, warehouse and floor operations.