Cindy Jutras: Have we entered the era of disposable ERP?
The selection of an ERP system has traditionally been viewed as a five- to eight-year decision. But the reality is few are replaced within that time frame unless the choice of systems was limited by budget or foresight, resulting in limited functionality. The average age of ERP implementations in companies under $50 million is just short of eight years.
The selection of an ERP system has traditionally been viewed as a five- to eight-year decision. But the reality is few are replaced within that time frame unless the choice of systems was limited by budget or foresight, resulting in limited functionality. The average age of ERP implementations in companies under $50 million is just short of eight years. By the time a company reaches $100 million in annual revenues, the average age plateaus at 10 years.
In these days of shrinking technology life cycles we have become accustomed to the concept of disposable technology. I recently traded in my three-year-old BlackBerry and you would have thought I was showing the clerk at the AT&T store an antique. “Well of course the battery won't take a charge any more. It's sooooo old!”
That got me thinking of Alvin Toffler's book, Future Shock . While not the main premise of the book, he introduced the concept of a disposable culture. For some reason, the concept of disposable clothing stuck in my head, conjuring up images of paper dresses and shirts. Yet unlike some of his other predictions that have materialized with amazing accuracy, we are still washing, ironing, and dry cleaning our clothes. In fact, my husband has shirts older than some of the recent MBA graduates I have been interviewing lately. Why? Because he buys good-quality shirts that fit well, and shirt making really hasn't changed all that much.
In some ways, ERP is similar. It needs to be well-built and fit your business. But unlike a shirt, it can and should change. Grow a little and a shirt doesn't fit as well. Grow a lot and you grow out of it. But should you expect to outgrow your ERP?
Given the maturity of ERP products today and the level of investments being made by leading solution providers, requiring your ERP solution to grow with you is not an unreasonable expectation. Yet companies with annual revenues less than $250 million are 27 percent less likely than larger companies to have implemented an ERP system they expect will grow with them.
More than one-third (36 percent) of small to midsize businesses (SMB) expects to outgrow their current ERP solution either within five years (23 percent) or long term (13 percent). Yet different companies take different approaches. One IT director recently told me, “When we first invested in ERP we could not project our growth. We looked to minimize our risk and that meant buying the functionality we needed at the time, for the lowest price.” Several years of growth resulted in a replacement.
Mike Cornell, cofounder of Bamboo Pipeline, approached his ERP selection differently. While the company recently selected SAP's new Business One product targeted at companies with less than 100 employees, Cornell anticipates the implementation growing with them. “I have neither the money nor the patience to migrate to another system when we hire employee number 101,” says Cornell.
In other words, Mike intends to be wearing that shirt for a very long time.
To learn more about ERP for SMBs, read the ERP in SMB: Exploring Growth Strategies report by visiting www.aberdeen.com/summary/report/benchmark/4174-RA-erp-in-smb.asp
Cindy Jutras, who oversees research and client development related to manufacturing at Boston-based AberdeenGroup, has more than 30 years worth of ERP and supply chain-related experience. Cindy, a former director for a prominent enterprise vendor, has authored numerous white papers as well as a book titled ERP Optimization.