You may be wondering how best to invest in technology initiatives that will support your ecommerce business and drive revenue for the coming year. No doubt you have lots of ideas and investment questions, but one of the most common questions we at AltSource hear from ecommerce businesses is whether they should keep their legacy ERP systems or buy something new.
By the title of this article, you already know that we often advise against buying something new when it comes to an ERP, but you may not know why we recommend this to the majority of our customers.
It all comes down to identifying what problem you are trying to solve through implementing technology solutions. In other words, what ecommerce business problem are you solving by purchasing a new ERP?
Some of the most common ecommerce business problems include:
- Handling changing customer expectations
- Providing consistent brand experiences
- Leveraging omnichannel marketing
- Ensuring data security
- Building technology partnerships
- Improving customer retention
Whether you’re facing these common business problems or something else, when considering the solution to your challenges, verify if that solution will deliver business value.
For example, if your customers’ expectations about delivery and return policies are changing, which solution will deliver the best business value?
You know that by solving this problem, you would increase customer satisfaction, which may improve customer retention and boost revenue. Those are the values you want to get. But how you choose to solve that problem and get that value is perhaps the most crucial part of the equation.
Depending on your business problem, purchasing a new ERP may or may not solve the issue. Even if it does solve some or most of the problem, you must still determine beforehand if the cost of the solution, time to implement it, and effectiveness of that solution will deliver true business value and a return on your investment.
(For more information about determining the ROI and business value of your ERP ecommerce software development investments, we recommend checking out this article.)
In the meantime, let’s examine the three main reasons why you probably do not need a new ERP.
Reason #1: Your ERP Report Proves You Already Manage Business Data Effectively
It is not uncommon for some executive team members to be obsessed with the idea of buying the newest technology to stay ahead. While newer technology can help some companies and enhance business processes, it is not always necessary or practical.
To determine whether making a new technology purchase is practical for your business, you should start by chatting with the people who will use that technology every day.
Talk to all your ERP stakeholders – the people in charge of each department core to your business and who use the ERP regularly, (i.e., finance, accounting, inventory control, logistics, etc.). Ask these team members the following question:
- Can your department capture, control, and report on key business functions with the current system?
If they can do that, even if it is slower than they would like, then that probably means your ERP system is working to meet the needs of your business processes. It could be faster, true, but that is something that can be addressed with updates and modules, not through purchasing an entirely new system.
Reason #2: ERP Implementation Will Set You Back 24 to 36+ Months
Even after talking with the ERP end-users, some of your executive team may still demand that the company invest in cutting-edge tools to grow its ecommerce business. For them, their business value focus is growth, and the only path forward in their eyes is a new ERP.
Unfortunately, switching ERP systems is one of the worst choices they can make for growth-based initiatives.
Most growth-based initiatives focus on growing all or part of the business within a certain period, such as quarterly or annually. That said if your focus is growth, but you want to start by switching to a new ERP system, all your growth initiatives will be put on hold for as much as 24-36 months.
Consider the following average timeline for changing to a new ERP:
During the 2-3 years it takes to switch over to a new ERP, your company will be busy updating backend ERP systems and processes. They will not be focusing much effort on actual growth initiatives, like improving lead generation and retention rates, or increasing revenue with product innovation.
Instead, the growth and profitability vehicles of your business, i.e., the ecommerce platform and your operational business units, will be held hostage to the purchase and implementation process of a new ERP system.
Reason #3: ERP Costs Include Financial, Non-Financial, and Hidden Items
According to ERP Focus, if you are a mid-size business, you can expect to pay anywhere from $150,000 to $750,000 to implement a new ERP system. That only covers the cost of the system and implementation. Then you have to pay per user, which on average can cost $9,000 per person per year.
While this price tag is enough to give you some sticker shock, don’t forget the non-financial costs involved in switching to a new ERP.
For instance, as you switch over systems and train team members, there will be a loss of productivity due to slowdowns and unfamiliarity with new business processes. Such slowdowns can impact your ability to fulfill customer orders, which can negatively impact your revenue and customer satisfaction ratings.
Hidden costs are often not mentioned during your initial meetings with ERP vendors, but they are additional fees you will need to pay to optimize the usability of your new ERP system. Such costs could include:
- Add-on modules for unique business needs
- Additional software or hardware
- Support and system maintenance
- APIs and integrations
Clearly, your cost for a new ERP may be far greater than what ERP vendors will quote you in the initial contract. Additionally, unless you have a business problem specifically related to the functionality of your ERP, this costly investment may not deliver the desired business value or provide the ROI you’re looking to obtain.
What to Do Instead of Buying a New ERP
While the above three reasons prove why you shouldn’t invest in a brand-new ERP, you still have older legacy systems in need of some changes to optimize and speed up processes. So if you don’t want to go through the problem of buying and implementing an entirely new system, what is your other option?
For this situation, our AltSource solution specialists often recommend what is known as a "lift-and-shift" migration.
In other words, we take your existing processes, workflows, and other associated ERP data and move that over into an updated cloud-based platform. Remember that a "lift-and-shift" migration is designed to lift your existing workflows and data and shift them over to the cloud with no real changes to the architecture.
Completing this migration will take less time than implementing a new ERP, but it is a process that does involve backing up information, transferring it over, and conducting testing to make sure that everything operates efficiently and effectively.
While a "lift-and-shift" migration is a simple option to improve your ERP, it will only prove successful if your current ERP setup works for your business.
What If There Are No Other Options Besides Getting a New ERP?
Sadly, some business challenges may make purchasing a new ERP your only option for moving forward.
For example, it may be necessary to invest in a new ERP if your company is unable to capture, control, and report on core business data points. This problem becomes more apparent when your current financial cost structure (SKUs, model numbers, pricing categorization, cost hierarchy, etc.) needs manual data entry and configuring between multiple spreadsheets just to generate financial reporting. Such reporting problems make it impossible to identify, recognize, and forecast general business growth.
If you find yourself in this situation, prioritizing core business data organization over ecommerce platform growth may be a much sounder and more foundational choice for your current needs.
Learn about Other ERP Ecommerce Investment Strategies Right Now
This article is part of a series that focuses on key investment strategies related to ERP and ecommerce business solutions. The series will be released over the next several weeks. Visit our resources page to view other already-published articles.
Get All our ERP Ecommerce Advice in One Packet
After we publish our series of articles, we do plan to release an ebook that includes all four investment strategies. Keep checking our resources page for updates.
If you’ve got questions about the upcoming ebook or anything related to ERPs and ecommerce platforms, reach out to us today: firstname.lastname@example.org.