5 years ago we first published a series of posts entitled “Software That Matters.” It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system. Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.
After five years, we thought it was time for an update, to reflect lessons learned since then. As it turns out, the vast majority of what we said then remains every bit as true today. Still, five years is a long time… so we decided to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2015. We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.
In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy. In other words, the Software That Matters.
Today we offer post #6 in our series. Our full series begins here. We hope you find it of value and welcome your feedback.
So far, we’ve attempted to lay out the fundamental purpose of ERP, the problems it addresses, the motivators to deploy it, and several implementation success stories.
We’ve seen returns on investment of ten to one, sometimes better. We’ve shown how ERP is clearly a launch pad for growth. It enables success. We’ve illuminated how ERP eliminates waste and redundancy, and reduces the need for added staff. In short, we’ve talked about the challenges and the returns.
Next, a few words on the ‘typical’ customer. This is the “Who Benefits” part .
Let’s start with a baseline. Our firm’s experience over 25 years is generally in the SMB or Small to Mid-size Business market space. Our customers typically do anywhere from a few million to a hundred million or so in annual sales. The sweet spot for ERP in the SMB space, at least by our slightly unscientific observation, appears to be companies with sales starting in that $10 to $30 million dollar range and up, but growing.
Frankly, the math with respect to benefits is pretty simple. If you reduce your expenses or costs or waste by a certain percent, then the bigger the company, generally, the greater the overall gain (or cost reduction) in pure dollars. A 1% gross margin improvement is $1 million in a $100M company, and only $100,000 in a $10M company.
Yet we often find that the savings are more meaningful, and often more revolutionary, in the smaller firm. Plus, with costs in line due to improved processes, procedures and automation, they’ve set the groundwork for rapid growth, not to mention competitive advantage. They become larger companies.
Most of the companies we work with closely have a few other common characteristics: They are usually growing. They have forward thinking managers who understand that there is great value buried in the data. They are willing to admit they have redundancies and waste, and want to correct them. They believe in continuous improvement. They understand the business value of being ‘lean.’ They are mostly in solid businesses with a solid future (even during the previous recession). And they won’t spend money unless they see a clear path to an ROI that warrants doing so.
This so-called ‘typical’ customer in our SMB market usually has anywhere from 5 to about 75 users. 10-50 is roughly the sweet spot there.
And most of them grew their systems over time. As we tell people, ERP is a process, not an event. The case studies we referenced earlier took anywhere from about a year to as many as five years to fully realize the benefits of their investment. It comes slowly, just like continuous improvement is supposed to do.
OK, so that’s the client profile – at least in our experience over many years in the SMB space. Next up, we’ll look at some typical costs to implement.