What is ERP? The answer may surprise you

3-minute read

Choosing an enterprise resource planning (ERP) system is a big challenge for many entrepreneurs. Even the most basic question is hard to answer: What is ERP?

An ERP system is supposed to be a way to integrate all your information into one system and avoid having a mix of software applications in various departments that don’t talk to each other.

Sounds great on paper. But the reality is often very different. Many entrepreneurs end up frustrated with ERP implementations because the software doesn’t work as expected, is hard to use or costs more than planned.

Vendors have different definitions of ERP

One of the problems is software vendors have different definitions of ERP.

Some ERP systems may have only basic accounting capabilities or no payroll functionality. For customer relationship management, some systems only offer basic contact management; others may include sophisticated tools such as sales force automation, quote and order automation, marketing campaign management and social media integration.

Systems are different

When it comes to ERP system selection, the devil is in the details. You’re never going to see that in the marketing brochures or figure that out by watching a demonstration with a vendor.

Adding to the confusion, ERP systems come in various forms: cloud-based vs. on-premise; off-the-shelf vs. customized; installed by the manufacturer vs. by a reseller.

As if that isn’t enough, the firm that developed your ERP system may be acquired by a larger company. When that happens, software you spent a lot of time and money implementing can suddenly be discontinued, meaning no more support or upgrades.

Here’s what you need to do

1. Research your needs thoroughly

As with any major technology purchase, investing in an ERP system should serve a clear business purpose and fit your overall business strategy. To make sure it does, you need to create a detailed list of the requirements you need the system to fulfill.

2. Shop around

Make sure you are not just picking up the first product you saw at a trade show or had demonstrated for you. You want to investigate the offerings osf a lot of different vendors.

3. Consider outside help to make an informed decision

ERP systems remain complex and can be difficult to implement. External expertise can help you map out your processes, choose the technology that’s right for you and train your employees.

Working with someone who has done this before will help you avoid the most common pitfalls and give you a higher chance of success.

4. Score vendors to choose the best fit for your business

As part of the selection process, you’ll want to send your technology requirements to vendors. Each vendor is scored based on how well they satisfy the company’s needs. The total cost of each proposal is also compared, including licensing, hardware, implementation and maintenance.

5. Involve employees in the process

Top picks are invited to present their product in detail. Employees should be involved in the entire process to help ensure buy-in and that everyone’s needs are met.

With the right product and good implementation, an ERP system can be a powerful tool for boosting the productivity and profitability of your company.

To learn more about finding the right technology, download BDC’s free guide: Making Technology Work for Your Business: A Guide for Entrepreneurs.

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