How An ERP Software Can Help You Meet Your Strategic Objective

Does ERP benefit an organization by helping achieve its strategic objectives? Or is it merely an operational tool? This article seeks to address how a well implemented ERP system can evolve from being an operational tool to being a key driver of business objectives.

For years, ERP Software has been sold to CEOs on two main premises. One, that it will help the company become an integrated whole, as opposed to being a collection of individual departments, or functions or locations. Second, that an ERP system will bring the best business practices that are embedded in the way the ERP software operates to the organization, and those business practices will become the basis for the future growth of the organization.

Both these statements are true to a very large extent, however, it is not a case of either-or.

An ERP, by definition, provides automation for all departments/functions of an organization. Thus, Sales and Marketing will be able to run their operations on the ERP system, and so will Material Management, Finance and Accounts, Retail and Distribution, Production, and so on. It is not as if these functions did not have any automation prior to the ERP implementation, just that after the implementation they share the same data seamlessly, information flow across functions and locations is enabled and process driven. Thus ERP benefits the organizations by enabling organization integration, islands or silos of information get eliminated and everyone is able to work on mutually shared objectives.

Let us take an example: if the retail function is reporting fast movement of a certain type of goods, the entire supply chain is enabled to get the information, and is also enabled to take steps necessary to ensure timely replenishment. ERP Software Benefits the Finance Department by enabling them to have the necessary information relating to cash flow management, and the CEO has ready ability to figure out exactly what is happening in all parts of his organization.

Application software in general including ERP system is nothing but a collection of business rules. For example, an ERP system may enforce a business rule which says that purchases beyond $ 10,000(or whatever) must be approved by two persons including senior manager. Here the ERP is forcing “best practices” into the organization. Such “best practices” are part of the ERP software, and adoption of these practices makes the organization stronger, more process oriented, and in line with the best in the world. No wonder that by the time an ERP system is implemented, the entire company benefits by becoming more streamlined and in tune with the best in the world.

While, all this is very good, we still have to address the issue of ERP helping in meeting of Strategic Objectives.

Typically, managers spend a large part of their energy in dealing with crises. Such crises arise from somebody on the team not having done their job in the manner it was expected to be done. Examples include a shipment to a customer not being made on time, tax payment to the government not done with accuracy, bills not collected, production not meeting the schedules and so on. It is not to say that the ERP will do all this: as always, people are the critical component, and they have to do all of the above, but the ERP enables them to do all this, in a timely, planned and process driven manner

Having done the above, the ERP system, frees up various levels of management form a very large number of operational problems. Finally, they are able to look at what is going on, without the information seeking becoming an end in itself. Now, if the CEO of the company asks a Function Head about what the topstrategic objectives for the next year, the Head can actually get down to defining what those objectives are, and how they will be measured. Once again, the defining of the objectives cannot be done by the ERP, the ERP can only help in measuring the parameters associated with the strategic objectives.

Similarly, at the top level, the CEO in her leadership role, has to define what the corporation’s strategy, and objectives will be for the future. A CEO may state that he would like to have the company grow by 20% next year, focus on doubling revenues from certain geographies, and improve profit from a given product line. This strategy has to be translated to measurable targets for the operational managers. As an example, the head of Growth Markets may need to improve his revenues by 40% for the company’s strategic objectives to get achieved. With the ERP in place, this performance can be measured regularly by all concerned, and obstacles to this growth, whether it is sales, or deliveries can be easily tracked. This tracking enables in the ERP software benefits the organization by early identification of corrective action required, so that the organization remains on stream to achieve the corporate goals.

Thus a meticulously implemented ERP Software benefits an organization on both fronts : Operational as well as Strategic.

About the author

Author Sanjay Agarwala is the CEO of Eastern Software Systems. A Graduate from IIM-Ahmedabad, he brings in a rich experience of managing a company which has more than a decade of creating and implementing a world class ERP Product “ebizframe”