3 Common ERP Mistakes and How to Avoid Them
For many businesses, a high-powered ERP can streamline processes, increase efficiency, and strengthen the bottom line—at least in theory. In reality, some companies miss out on the opportunity to achieve greater ROI by overlooking a few fundamental truths about ERPs. First, implementation takes longer than usually anticipated. Second, company buy-in and sufficient training can predict success. Third, implementing the full range of features can make the difference between success and failure.
Companies turn to ERPs to streamline and accelerate processes, give users powerful tools to increase efficiency and accomplish complex tasks, eliminate data entry errors and redundancy, and deliver a return worthy of the significant investment required. However, an ERP is no magic bullet. Once chosen (a significant challenge in its own right), the real work begins. According to one study, over half of respondents didn’t fully understand which features they were using in their ERP.1 Like a computer used only for word processing, a partially used powerful ERP is a waste of valuable resources.
Here are three common ERP mistakes and how to avoid them:
1. Underestimating the time and cost of implementation
ERPs are a significant investment and can have a lifespan from five to fifteen years or longer. To address inefficiencies within an organization, proper planning and estimates about implementation time should be realistic—not just based on vendor claims. Part of a realistic implementation plan is including more tasks than just software installation and testing. In addition to allowing time to test and fix bugs, other elements should include.
- Data migration. If an ERP implementation merely moves bad data from one system to another, there will be no substantive improvement.
- Pilot programs. Running a pilot program with key stakeholders not only tests in real time, it achieves greater organizational buy-in.
- Testing. Beyond testing for bugs, true testing should involve pilot programs, but also a gradual roll-out throughout the one to two year implementation process.
- Change management. All the great software platforms in the world can’t overcome organizational resistance. Getting executive buy-in and forming an implementation committee can go a long way to meeting any resistance head-on.
Another way to mitigate some of the implementation complexities is to turn to a cloud-based ERP solution. According to one study, nearly 40% of companies use SaaS enterprise applications. Cloud-based applications allow for easier, faster implementation, greater flexibility and scalability and potentially overall lower costs.
2. Lack of company engagement
One contributor to ERP implementation error is a lack of clarity from leadership about the advantages of the platform change. Employees might initially experience productivity slow-downs and frustrations of learning new systems. Lack of organizational buy-in creates problems down the road. Buy-in starts at the top. The leadership team will be unable to manage change if they are unclear about why an expensive, time consuming, and complicated platform change is necessary.
Other barriers to company engagement include:
- System complexity. Likely the new ERP will require more screens, actions, and accountability given the centralized nature of the platform. The increased number of controls and oversight steps might cause resistance amongst employees accustomed to siloed work tasks in legacy systems. This increased effort can be overcome eventually when longer-term ease of use and accuracy is experienced.
- Insufficient training. Implementing a new system requires extensive and effective training for employees. This critical task can be performed by the ERP vendor, but there are also independent firms that can be utilized for this purpose. Ultimately, users need sufficient time to acclimate to the new processes and ensure success.
- Lack of user involvement in preliminary decisions. Including employees from various parts of the organization in the planning process (including mapping and demos), means greater buy-in from the beginning.
Increasing company engagement comes down to ease of use and proper training. Early and sufficient buy-in assists in ensuring the ERP is a good long-term investment.
3. Overlooking compliance issues
Many times when a company pursues an ERP implementation, the goal is not to cut technology costs. Businesses know total technical costs may well increase with a new application. Given the added expense, the project is often pursued for broader business reasons, such as increasing efficiency and streamlining processes. But what many businesses don’t realize is that compliance (both in tax and in reporting) plays an important role in your ERP choices, from the core ERP you choose, to each module you include, to the third party solutions you integrate. If compliance is not a box your business looks to check when implementing and ERP, you’re overlooking an important piece to the puzzle.
- What framework(s) do you need to be compliant in? If you’re dealing with SOX or COBIT, you’ll want to pay close attention to the audit controls your ERP system provides and make sure all of your bases are covered. Compliance risk doesn’t just occur in the core financial functionality. Audit risk can arise in modules like Project Accounting, Distribution, Inventory, and Credit Card Payment.
- Understand where you have tax compliance requirements. What’s your business? If you do business in a supply chain or offer services like installation and repair, basic sales tax calculations probably aren’t your biggest concern. But exemption certificate management and use tax might be. Will your ERP help you simplify exemption certificate management? What about reporting on use tax transactions?
- Scale the workload. The fact that you’re looking at implementing an ERP indicates a need to solve business process issues, but don’t overlook tax compliance issues. How will your accounting team be handling tax rates and rules in your new system? Are you looking at manual research and tax rate entry in your chart of accounts? Or perhaps you’re considering installing a bulky on premise solution? Both options can be costly and time consuming. Consider automating your tax calculations and exemption certificate management with a cloud-based software that seamlessly integrates with your ERP. It will save your business time and money.
- Retrieve and send information quickly. How are you currently filing and remitting returns? How will you do it in your new system? While ERPs are great for streamlining business complexity, they can actually add extra steps to your filing process, depending on what kinds of modules you use. Make sure you talk to your vendor about how your ERP system can help file, remit, and report on taxable transactions, and what functionality is available to simplify that process.
Can your ERP move with you into your next growth phase? Can it scale and flex as your business expands? Is your business making the most of your investment?
To avoid common ERP errors, savvy companies make realistic estimates around implementation time, include all levels of the organization in decision-making and implementation, and address compliance issues from the start.
1 Morgan Franklin Corp.
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