Why buy ERP?

Brian Sommer

Nevertheless, many companies try their best to not replace their ERP systems for at least 10 to 15 years -- and, in some cases, up to 25 years -- said Brian Sommer, an ERP analyst and president of TechVentive.

"The disruption potential to an organization is so great that most people would rather have a root canal than replace their ERP system," Sommer said. "These things come with significant risk. If you don't do the implementation just right, if you don't do all the change management correctly, and if the integrations go awry, then you've got a real disaster on your hands. And that's why companies take these decisions very seriously."  

Joshua Greenbaum, principal at Enterprise Applications Consulting, called buying an ERP system "a real reckoning." He said companies that run their operations on Microsoft Excel spreadsheets, Intuit QuickBooks accounting software and legacy systems that don't share data aren't nimble enough to adapt to the changing business environment.

"When companies have overlapping processes and, for example, one department has the customer record with 15 alphanumeric characters and the other uses 22, or you have two manufacturing plants and each one has a different bill of materials for the same product, the inefficiencies are intolerable, especially when you are trying to play in the big leagues," Greenbaum said.

Another reason to want an ERP system with up-to-date functionality is to reduce the time and money spent implementing patches and integrating disparate systems that don't work so well anymore. 

"The only time a company should ever actually worry about the integrations between two systems is the first time they put it together, and hopefully it should stay intact forever," Sommer said.

The effort needed to tweak systems and export data from one system to import it into another doesn't grow top-line revenue. "That process does not contribute to a wider profit margin and may, in fact, do the opposite," he said. "You are not process-excellent and you are not operating in a way that puts you at the top of your competitive ranking in your industry."  

Greenbaum added that as companies deliberate on how a new ERP system or upgrade will improve their business, project leaders should focus on change management, understand how their back office currently operates, find the right stakeholders, secure executive buy-in and decide where they want to be in five years.

"All of those things are much more important than which software to select, because nothing will work right if you don't have those kinds of factors in play," he said.

ERP features that make a difference

Moving to a new ERP system isn't so much about buying technology as much as it's about using the technology as a means to perform specific tasks. Here are some of the key capabilities and features an ERP system should have:

1. Multitenant SaaS (public cloud) deployment. This ERP architecture eliminates the need to manage data centers, as well as related maintenance and security costs. It offers subscription pricing, which can often be more cost-effective than licensed on-premises ERP (especially in the short-to-intermediate term), preconfigured business processes and automatic updates. Additionally, public cloud provides scalability and easy access to ERP for remote workers.
2. Compliance and control features that act as an integrated system to ensure the organization adheres to laws, regulations, internal policies and industry standards, in addition to meeting reporting requirements.
3. Forecasting software that taps historical and real-time data to help organizations understand changing business dynamics and predict the performance of such critical variables as revenue, supply, demand and cash flow.
4. Purchase-to-pay (AKA procure-to-pay, or P2P) capabilities, which link an organization's procurement function to its accounts payable department. P2P features help companies manage how they acquire goods and services more efficiently by providing better end-to-end visibility into the process, from identifying needs and placing purchase orders to receiving goods, processing the invoices and making payments.
5. A quote-to-cash feature, which provides a workflow that closes the gap between sales and accounting systems. It links sales, finance and operations teams and helps them collaborate on deals that are then configured, priced, contracted, invoiced and paid accurately and efficiently.
6. Globalization features to help ERP users navigate the complexities of international business operations. Having a centralized system to monitor the exchange rates and regulatory environments of different countries helps companies improve their planning strategies and make informed decisions in key areas like global finances, supply chains and human resources.
7. An HR module, which helps companies manage their talent more effectively and respond to shifting employment patterns, such as upticks in remote and hybrid work, AI-related layoffs and the ongoing trend toward skills-based hiring.

Understanding the role of AI in ERP

For several years, many ERP modules have had generative AI (GenAI) features that provide content generation, conversational analytics and insights to improve decision-making. More recently, agentic AI capabilities are being added that can autonomously reason, plan and make decisions in areas such as forecasting, supply chain management and logistics.  

Joshua Greenbaum

AI tools dominate C-suite discussions, and the technology admittedly can go a long way to improving ERP systems, but Greenbaum said ERP implementation projects should keep their traditional focus on improving business processes, efficiency, optimization and productivity and less on the benefits of GenAI and agentic AI.

"It's a mistake to think AI first. Let's figure out what it is that we need to improve," Greenbaum said. "What does it look like now, and what do we want it to look like next? And what systems are involved? Then, and only then, should you ask, 'Does my preferred vendor have a better way to do this with a modern AI system?'"

Nicole Lewis is an independent business and technology journalist who covers public policy, technology and business issues.