An enterprise resource planning (ERP) implementation is one of the costliest and most complex information-technology initiatives an organization can undertake. If done well and in sync with business processes, an installation can lead to significant benefits.
What if a company decides to convert from one planning system to another because the existing suite of applications does not meet its needs? A switch can include tangible expenses such as software licenses, hardware upgrades and consulting fees, and intangible ones such as lost productivity.
These costs could reach millions of dollars, depending on the size of the company and scope of the implementation. Consulting fees alone could make a CFO queasy.
To justify such a move—provided the company’s hand isn’t being forced because of a merger or takeover—an organization would have to be completely dissatisfied with its planning system and have no plausible way to improve its performance, says Bill Swanton, vice president at AMR Research. The organization would have to revamp its business processes along with the technology change to derive any benefits, he says.
“People are not going to do this because they don’t like their vendor,” Swanton says.
Potential benefits of an ERP swap and accompanying process overhaul include lower operating and materials costs and additional net income. It will probably take two or three years before these gains are realized, if they are at all, Swanton says; companies that have poorly coordinated processes before the change stand to gain the most.
