While watching the National Football League playoffs recently, a new car commercial caught my attention. Footage of various period-specific garages played while the narrator read off a list of successful innovators, each followed by the words “ . . . started in a garage.” As I associated the names with their corresponding innovations, it occurred to me that their success as innovators weren’t the result of ideas but execution.
Likewise, the level of success a small to mid-sized business (SMB) achieves depends on its ability to execute—that is, its ability to gain a competitive advantage by means of product improvement, efficient processes, and increased visibility. In essence, it’s this insight into achieving success though execution that drives SMB adoption of enterprise resource planning (ERP) solutions.
The Inevitable
Like a garage that accumulates various tools, SMBs typically acquire various software products as needed. As the business grows, it becomes increasingly difficult to integrate and access data, reconcile financials, track inventory, fill orders, and satisfy customers. At first, decision makers may try to solve the various issues as they arise by throwing more people at the problem, but sooner or later, it becomes evident that end users are only as good as their tools. The fact is, the SMB’s entire toolbox of QuickBooks and assorted spreadsheets must be replaced by an ERP solution containing the right tools for the job.
The Decision
The decision to acquire an ERP solution should be seen as an opportunity to streamline all processes. To do this, the SMB’s declaration, “We can do this better/smarter,” has to become a question: “How can we do this better/smarter?” With that in mind, a preliminary assessment of the SMB’s core products and services must be undertaken. This assessment establishes functional and scalability requirements. The SMB’s functional and scalability needs determine its ERP options in terms of feasibility and affordability. From there, ERP product selection is more or less a question of where, on-premises ERP, or cloud ERP.
On-Premise or Cloud?
On-premises systems have traditionally been used by larger operations because of the substantial initial capital investment. Also, because of economies of scale, larger companies prefer on-premises ERP because their total cost of ownership is usually less over the long term compared with a fee-based service—the same reasons SMBs have been shut out of ERP. The expense of procuring new infrastructure or employing IT staff for on-premises ERP is simply cost prohibitive.
Cloud ERP removes the barrier of access to technology that once only larger companies could afford. Cloud ERP is ERP software that is hosted in the cloud—in other words, Software as a Service. By centralizing IT infrastructure and staff, providers can pool resources and offer ERP services to subscribers for a low monthly or annual fee.
It’s worth noting the security concerns with cloud ERP compared with on-premises ERP. Business data is intrinsically sensitive. It’s understandable that most businesses prefer their data to be closely held, but the risk of losing control of that data has been largely mitigated. Most SMBs already outsource part of their business operations and are used to the idea.
Potential for Innovation
Undoubtedly, SMBs’ newfound ability to execute with affordable cloud ERP will drive innovation. As more businesses implement ERP solutions and processes are optimized, success will not be determined by how well the organization executes but how soon it innovates.
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