Is ERP an Expense, or an Investment

Is ERP an Expense, or an Investment

Author: | Published: 27 Nov 2014

dave_c_expense_vs_investmentHaving been in the IT industry long enough to remember when the idea of “ERP” first started making the rounds, I have watched with some fascination the struggle that organizations go through to decide how to justify an enterprise solution strategy.  At the same time as a business owner or manager decides they must acquire the latest automated machinery with the  belief that it will improve the business; often a decision about enterprise software is  put on the back burner because the cost seems higher than anyone knows how to explain in the context of the overall business. Although it is obvious that I’m biased on this discussion, there is often a compelling case for understanding  your business inputs, processes and outcomes more fully that is ignored, and opportunities to make the business function better are passed up. 

Perhaps we as ERP providers spend too much time describing the details of our solutions when we should be helping our prospective clients step back to see the key changes that will improve customer service and profits. If a decisionmaker can see these improvements, the decisions become easier to make, and the commitments to assign resources to implement solutions become clearer and more specific.  Once decisionmakers understand the solution, they can properly recognize the people in the organization they can depend on to make the business project happen.  

That is the context for considering any enterprise software solution in the light of an investment, as opposed to an expense line-item.  I have seen ERP firmly embraced as a set of tools to grow the business, and when this occurs business process improvements are often discovered along the way to reduce the time to get a positive return on investment.  

We had an example in the recent past of a client who discovered a business process that reduced waste of raw materials and paid for the entire system in less than a year due to that single process change.  If they hadn’t proceeded with the system this discovery would likely not have been made because the available tools would not have been there to ask the right questions as part of the systems investment. 

There is no doubt an organizational expense to proceeding with ERP (or Big Data, or CRM, or other complex technologyneeds to be discussed as part of the decisionmaking process.  This conversation should also include the upside, and the duration of the system investment.  

These are long-term decisions with long-term payback potential, but if the decision is questioned in terms of short-term expense consideration only an organization can miss the opportunity to leverage these 21st century tools to grow to the next level (and to quote Buzz Lightyear…to Infinity, and beyond).  

OK, perhaps a shorter term than Buzz’s proposal should be considered, but it can be a strategic advantage and should be approached from that perspective.

 

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Comments (2)

  • Derrick Palterman Reply

    The difficulty is not identifying the big benefits it is all the small process improvements that can happen and do that often go unnoticed.

    November 28, 2014 at 7:40 am
  • Dave Cavan Reply

    It would be best to have a framework to capture all the process improvements that are attributable to an enterprise system implementation – it’s one of the reasons I think we often see ERP as a component of a lean manufacturing initiative with specific objectives across the whole organization. I also think that we often stop measuring the returns from a system too soon in its life cycle. Perhaps the answer is to have an on-going program of encouraging users to report improvements they have implemented, and track these as part of a communications program. It certainly would help to track the perspective on where a project has been successful, and where further work is required to continue to improve the business.

    November 28, 2014 at 6:13 pm

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