Do Small Businesses Need ERP?
Ever since the early 1990s, Fortune 500 companies across the world have been on the ERP bandwagon. With millions of dollars required to implement and well-publicized coverage of ERP failures, many wonder if ERP is worth the cost and risk to small businesses. The topic of small businesses and ERP has been of interest to me, especially lately. Approximately 75% of our new clients and prospects interested in having us conduct an ERP assessment and vendor selection are companies with annual revenues under $100 million. In fact, one of our recent contract signings for this type of work is for a company with annual revenue of $15 million. Ten years ago, this type of small business interest in ERP was very uncommon.
The key things driving small businesses to ERP seems to be 1) growth of the small business sector, and 2) more focus on the small business market from ERP software vendors. Most of our small business clients are considering or implementing ERP because of their rapid growth and the corresponding strain it puts on their legacy systems. In addition, large ERP vendors that typically focused solely on the Fortune 500 market are now developing lower-cost solutions with more appropriate functionality for smaller businesses.
A third and final possible reason is because many niche ERP players have entered the marketplace to provide functional solutions for specific industries. Open technologies such as .net have reduced barriers to entry into the ERP market, so many smaller, industry-specific niche players are able to fill the voids left by the big ERP companies at a lower cost.
Although this increasing focus on small business is good for companies with limited capital budgets, it also poses additional risks. Now, there are more choices than ever, and some vendors' products are much more proven than others. So small businesses should be especially thorough when evaluating and selecting an ERP package. They should engage in a vendor selection process that ensures they choose a solid software package that provides a strong ROI to the company
ERP for small business calls for voluminous investments. The amount was fairly affordable to small business entities. There is no doubt or two say about its benefits. But the question that kept ringing in the market was can everyone afford it. The answer was a stubborn no initially but not anymore. ERP outsourcing, Open Source ERP's and ERP applications designed for S.M.E.'s (Small and medium Enterprises) have successfully overcome the above said limitations.
Some relevant issues concerning ERP for S.M.E.'s are the following:
Evolution of ERP in S.M.E.'S
Enterprise Resource planning was a term restricted purely to elite class. This scene was witnessed in the IT market for some long time ever since ERP was introduced. The large organizations went ahead with ERP process unmindful of negative consequences, not to forget mentioning the fact that they took every proactive measure to curb the same. Needles to say firms were interested in serving such large players. So the fate of Small and Medium enterprises remained unanswered. ERP for S.M.E's remained a mere dream.
ERP Vendors and Corporate giants
It so happened that the number of larger companies without ERP turned out to be nil. Thanks to the awareness created by vendors and IT researchers. No doubt companies were initially hesitant lot and apprehensive on just hearing the word ERP. However the industry proved them otherwise. Then came a stage where a company could not exist but without ERP. Even if their performance was satisfactory they were not able to gain any competitive advantages.
This explanation of how goliaths adapted to ERP has lot of significance in studying their intervention with S.M.E. These bigger companies were not providing the required business to ERP vendors. Even though there are many big companies the number of vendors was always greater in multiples. This means only the best could strike deals and there was no possibility for mediocre or average vendors (in terms of performance).The best players also found that they had none to serve after a point of time because almost every company in the market successfully established ERP (whether on the first or further attempts).
Stabilization of ERP in S.M.E s
SO they had to naturally look for greener and fresher pastures. S.M.E.'S was the only answer. The next question was how to provide best services at an affordable cost and still make profit. In this case the vendors had to be worried only about the number of sales they could make and not the quantum of profits because the number of vendors was few and far between when compared with the number of S.M.E.'S choosing to go for ERP. As the saying goes "necessity is the mother of Invention" vendors had to devise cost effective applications to meet the demands of the Small and Medium enterprises. This was the origin of ERP for S.M.E.'S. This benefited them in terms of business .On the other hand the firms enjoyed greater benefits by making use of this application. Hence ERP and S.M.E. was weighed on the same scale.
S.M.E.'s are becoming the popular choice of ERP vendors. There is an increasing awareness of ERP in S.M.E. market. It has practically helped to unravel the myth that ERP is exclusively meant to business empires. ERP and S.M.E have become important part of enterprise studies.