Print

Comment

Email

Digg

Del.icio.us

Reddit

Twitter

Enterprise Resource Planning (ERP) and similar business systems are the beasts of the software universe. A well-implemented ERP system can bring manifold benefits to an organization. However, the implementation process itself can be a resource intensive and complex process with success dependent on a number of factors. Implementing ERP systems in small and medium enterprises (SMEs) is a bigger challenge since these organizations rarely have the resources required for a successful implementation. The rate of implementation success, here, is quite low.

Definitions of an SME vary but for general purposes, any company with annual revenues of less than Rs 100 crore could be considered an SME. A better measure from an ERP perspective would be the number of transactions the firm generates. Thus, a company with high revenue but few transactions may not qualify as an SME whereas a smaller firm with a large number of transactions could be considered one and would be able to leverage the advantages of an ERP system. Most of them are:

• Family owned firms, many in transition from one generation to the next.
• Experiencing unprecedented growth, often accompanied by pressure on profits.
• Quite understaffed with most managerial staff multi-tasking.
• Attempted to implement one or more ERP systems.
• Despite the above, do not have deep technical or process skills.
• Very cost conscious, especially with regard to IT/software expenses-many might balk at spending 1% of annual revenue on ERP systems.

Typical examples would include a small-scale plywood manufacturer, a multi-location bookstore, an electrical contractor, educational institutions or an automotive components manufacturer.

The ERP market for SMEs in India is still in its infancy despite the long history of such systems. However, it is a vast untapped market (it is estimated that there are over 200,000 businesses which meet the SME criterion) and one that is expected to grow explosively, in keeping with the overall economic growth. Currently, this segment is served by a number of vendors including some traditional ERP powerhouses. However, few vendors have developed implementation methodologies designed for SMEs, factoring in practices and processes specific to this segment.

What are the challenges of marketing and implementing ERP systems in this market? Outlined here are some of these showstoppers and possible responses.

Sell Implementation, Not the Product
Since ERP systems need to support real-life business operations (reengineered, if necessary), they defy categorization as a product.

One cannot simply install even the best packaged ERP system and leave, much as one could do with a word processor.

One cannot simply install even the best packaged ERP system and leave, much as one could do with a word processor.

The system needs to be customized to support the organization's processes. Implementation is often the bigger reason for the failure than the software itself. Since SMEs rarely have the resources to either rigorously self-implement ERP or hire a system integrator, the ERP vendor needs to offer the software and implementation as a package deal. The significant costs of implementation need to be factored in at this stage. This cost is often much higher than what some of the SMEs may have spent on their previous attempts at ERP implementation-for example, our proposal for ERP at the multi-location bookstore was over thrice that of a previous attempt. The rationale for a higher cost must be explained to be client.

Expectations: Reach the Top in Small Steps
A well implemented ERP system is expected to provide benefits spanning the two extremes-from supporting operational transactions earlier performed manually to aggregation of information for higher management ie, analysis and business intelligence.

Few organizations-much less an SME-have the resources and processes to implement an ERP system so as to gain the range of benefits at one go. Hence, part of marketing ERP to SMEs is to set stage-wise expectations from an ERP implementation. The following four-stages could be one approach:

• Automate/support regular operations of the company.
• Support local planning such as vendor rating for purchases and so on.
• Consolidate operational data across departments for MIS and exception reporting.
• Aggregate information for analysis and BI.

For example, in the case of the bookstore, Stage I would involve automating billing, ordering etc, while Stage III would include consolidating purchase information (not the purchasing process, which is decentralized) across the main store and the satellite stores.

Sometimes, Manual Processes are Kosher too!
While implementing an ERP, it is tempting to automate all business functionalities/processes. However, the implementation process is not cost free! Typically, in an SME, only a handful of processes/functionalities are critical to the business. Only these functionalities should be considered for automation and others taken up only as resources permit. For example, at an automotive components manufacturer, four processes-purchasing, subcontractor management, accounting and payroll were critical. The rest of the processes generated very few transactions per year. Hence, only these, along with accounting, were considered for support by ERP.

Sometimes manual processes can be interleaved with ERP to achieve the desired objectives. For example, in the case of an on-campus satellite of the bookstore, the process to detect misappropriation by a remote employee was implemented by tying the campus security process with goods receipt system.

Iterative Implementation: The Way to go
Ideally, an ERP implementation would proceed from a thorough systems/requirements study to an implementation design/plan, customization, training and troubleshooting. This chain is tough to follow in SME environments. Most SMEs are quite understaffed at the managerial level. Further, the client's implementation team is usually multitasking to boot. It is but natural that they would pay more attention to issues that affect them currently than to implementing a system with putative long-term benefits.

Minor issues-especially look and feel types may surface, while the second prototype is being used. This should be incorporated into the final prototype.

Thus, not all operational issues surface at the requirements study stage. Typically, only normative processes surface: 'normally, we place the order based on....' type of issues. Many significant operational issues, especially handling of exceptions surface only during the implementation. The best way to handle this is by an iterative process:

In the first stage, develop a prototype based on normative requirements.

Issues that surface when the first prototype is tested need to be incorporated into the second prototype. This phase should last till the prototype is robust enough to support the full functionality required.

Minor issues-especially look and feel types may surface while the second prototype is being used. This should be incorporated into the final prototype.

The iterative process may result in a longer implementation cycle. However, it does not significantly increase the effort entailed and greatly increases the odds of success. Our implementations at the bookstore and an educational institute were spread over a full year, for example.

Costs, Costs, Costs!
The SME segment is very cost conscious, especially about expenses with mostly long term and intangible benefits. It is essential to control the cost of customization and implementation. While it is never advisable to reduce the effort involved, to cut costs, a better approach is to focus on automating only those functionalities that are critical to the company.

Another approach to reduce costs is to use free/opensource software wherever possible. Given the lack of technical skills in the SME segment, this should be done with care. While there are questions/issues about maintenance and support of free software, usage of free software where the customer does not have to directly deal with software should be acceptable.

Thus, while a free operating system, Linux, may not always be advisable, using a free database (often a significant cost in ERP) such as MySQL and an application platform such as JBoss  may be a safe way to use free software to reduce costs.

Be Prepared to Walk, it's Good for Health
The dark side of the moon! Despite following all of the above, despite the best intentions and efforts on part of the vendor and customer, there may still be occasions where it is wiser to halt a failing implementation, however reluctantly. Nothing can be more debilitating to both parties than a failed implementation that drags on. Hence, it is important to judge the progress early and often. From a vendor's perspective, some signs of an implementation heading wrong include:

• Client changes the requirements often and is never able to settle on a minimal set.
• Client focuses on minor functionalities/issues, often to the exclusion of major ones with higher payoffs, if addressed.
• Client tries to match manual system in detail, losing many of the advantages of an ERP.

Often given the small size of projects in the SME segment, it may be advisable for both to walk away in as non-disruptive a way as possible. Unfortunately, it happened to us at an agro-processing firm. The client was fixated on handling an issue that accounted for 2% of the total expenses to the exclusion of bigger issues. Further, incorporating all of the feedback of this customer would have reduced the ERP system to a glorified electronic typewriter. We stopped after a three-month effort.

Implementing ERP systems, thus, is a challenge in any field, only more so in the case of SMEs. However, by developing and adopting suitable implementation methodologies tailored to the segment after factoring in some of the variables specific to this segment, one can address the challenge with a high probability of success. The SME segment in India is passing through an exciting phase of growth and ERP systems will have to make a significant contribution for this growth to be realized.

Dr Sudhi Rao, CEO, Proxis Business Solutions
mail@dqindia.com

Page(s)   1