In this second piece, we will share a practical example of how we helped a client assess and navigate the best path forward and offer some strategic advice to guide your planning.
A client case study in action uncovered the right solution for the long-term.
While it’s easy to approach ERP as a technology and tool-focused decision, in reality it’s a business decision. The starting question needs to be “how can our ERP enable business objectives and accelerate growth?”
Cuesta worked with a leading food service manufacturer, where we identified six key business capabilities that its ERP strategy would need to facilitate. These ranged from a flexible pricing engine and strong supply chain operations to seamless workflows and advanced analytics.
The client had an AS400-based ERP that was also highly customized and an instance of NetSuite that came over as a part of a major acquisition. Each option had its pros and cons as follows:
- The AS400 application – The solution is a workhorse that has supported the business for 20+ years with no issues, but its development team was on the brink of retirement. The solution had limited capabilities and minimal automation, resulting in an abundance of manual processes across the business and within IT. Additionally, the existing ERP application only enabled two of the company’s six critical business capabilities. Given the age of the application and the inability to provide expected levels of functionality, a potential buyer would reduce the company’s valuation by the full cost to replace the ERP ($10-$24M).
- A NetSuite solution – The solution offered an enhanced user interface and all the advantages that would be expected of a cloud-based, SaaS solution. The solution could enable the client’s six critical business capabilities, as the company pursued its goal of becoming a $1B company in the medium-term. However, it likely would not be able to scale with the company in the long-term without the addition of several key point solutions to supplement NetSuite. If the company were to acquire the necessary point solutions to augment the NetSuite ERP (an incremental cost of $10-$14M), the ERP would not have an impact on the company’s valuation when it went to market.
Given the high valuation impact of retaining the AS400 ERP, the aging nature of the technology and the development team, along with the high cost associated with implementing point solutions to supplement NetSuite, we recommended that the client pursue a greenfield ERP selection and implementation. This would give the company the optionality to choose a commercially-available ERP that both met its current needs and could handle additional growth and scale. The cost of implementing a manufacturing-focused ERP is estimated to be between $11M and $19M and will set the company up well to go-to-market in the future.
Major take-aways and areas to guide your ERP decision.
Based on this ERP strategy project, as well as others that Cuesta has undertaken, there are several considerations that every business should make when approaching a strategic ERP decision:
- Center on business goals and strategy: The ERP is the backbone of every business, and it must serve to enable the business’s goals. Aligning on a small set of must-have business capabilities that will help drive your business forward will help focus your ERP strategy and lead to a business-centric decision.
- Process and data quality are more important than technology: Any software solution, including ERP, is only as good as the business processes and data that underpin it. Often, foundational process improvement and data quality efforts must precede a technology decision. Only when these efforts are complete can a true digital transformation be successful and capture ROI at scale.
- Older technology does not always need to be replaced: The adage “if it isn’t broke, don’t fix it” holds true here (sometimes). Older technology solutions that are robust and well-tailored to a business’s needs do not need to be replaced with the latest-and-greatest solution. Only when these solutions lack necessary features and automation, are non-performant, or become disproportionately costly (either because of run rate, capital investment, or valuation impact) should a business consider upgrading.
- Consider supplementing with point solutions: There are situations when an ERP should be the all-encompassing operational platform for a business, but this isn’t always the case. Sometimes a scaled-down ERP that handles financials and accounting can be sufficient when paired with high-quality point solutions that handle other functions. This also provides business optionality, as it can choose to select best-in-class solutions in areas of differentiation and more cost-friendly solutions for less business-critical functions.
Alignment to business goals is imperative for success.
The strategic direction and final decision around an ERP platform for your business has major implications. This ranges from current and long-term costs to capabilities that can help power business growth, to operational efficiencies through best-in-class use of data and automation, to acquisitions and portfolio technology alignment. The end decision will also play an important role in company valuation if a potential sale is in future plans.
Be sure to cover all angles in an assessment and consider partnering with an outside expert to help you take an objective 360-degree view of what’s best and most strongly aligned to your business goals.
Choosing the right partner up front can save you millions of dollars and years of effort. The team at Cuesta have rich experiences in this space and can share our learning and ideas with you, should you have a need. Reach out to us today to discover more.
