SMBs failing to achieve full ERP benefits 9 January, 2007 By Patricia Pickett

The Benchmarking ERP in SMB Report, which included data based on responses from 1,200 companies of various sizes -- 450 of which were SMBs -- found that SMBs are using only six per cent less functionality than enterprises.

"If you look at the actual percentage of available functionality that (SMBs) use, you see a very small swing when you go from small up to large companies," said Cindy Jutras, vice-president, manufacturing and ERP research at Aberdeen. Companies with revenues under $50 million annually use an average of 9.79 modules out of the 24 generic modules included in the study, while the largest firms use an average of 11.71 modules. "That's less than a two-module swing," she said. Modules listed in the study ranged from basic ones such as inventory control, and accounts payable, which "any ERP company will offer," all the way to event management and workflow, modules that might not apply to every end user organization, Jutras said.

Looking at the average percentage of ERP functionality available to a given organization, responses from study participants ranged from a low of 58 per cent to a maximum of 69 per cent. While the billion-dollar-plus companies were the ones citing 69-per-cent functionality, the smallest companies weren't at the bottom. "Under-$50 million companies are using 62 per cent of the functionality, which means they are somewhat taking advantage of it," Jutras said. However, "when you look at how much smaller businesses are benefiting from ERP, that is where they are falling short," Jutras said.

Lacking size and scale, small businesses generally pay more per user, per functionality used and per percentage point of average performance improvement, the report found.

In addition, the study found that small companies achieve first go-live status relatively quickly -- 86 per cent reach this first milestone within the first year, as compared to 64 per cent of mid-size companies and 47 per cent of large companies. "Small companies tend to get ERP implementations up and running fairly quickly because they have a small number of people to deal with and the project doesn't get out of control," Jutras said. However, they stop short of acquiring the full benefits of ERP because they emphasize the cost of the software and services over process and cost savings, she added.

When small companies hear the word "ERP," they often picture multi-billion-dollar organizations implementing SAP, and they are "scared away by that," said Jutras. However, there are certain basic areas of functionality that any company with more than five employees needs to run its daily operations. At present, there is "probably no reason why a small company can't afford ERP," Jutras said, noting that there are many alternatives, such as lower-priced offerings from smaller vendors, or the software-as-a-service model, which is "just coming to light" for full ERP.

With ERP, there is still a huge opportunity for resellers that serve SMBs, since 14 per cent of small companies have not even invested in any kind of ERP function at all, Jutras said. "The opportunity ramps impressively if (the reseller) is able to present a packaged solution," she said. By "packaged," she meant "something that is easily dropped into the framework of a business," by being tailored to a particular industry or size of company. Tailoring would entail taking much of the complexity of the implementation out of the software, sometimes by removing the burden of decisions that have to be made, she said.

SMBs would do well to change their focus in order to realize the full benefits of ERP implementations, Jutras said. She recommended setting goals for the implementation and establishing performance metrics. In addition, as long as the software is a good fit, businesses should do their best to minimize the number of modifications the make. "The more able you are to run pure vanilla software, the better off you are," Jutras said. Finally, Jutras encouraged the automation of previously manual-intensive and spreadsheet-based processes.