I started this as a response to Michael Morgan's comment to the last blog entry on September 1st, however the response became too verbose to post as a comment. It's a great question, but one that deserves a complete explanation.
Small businesses to smaller mid-sized businesses need software that will keep business functioning. Everyone must admit this is a true statement. Let's take a simple case to prove the previous statement and answer the question whether or not ERP systems are needed by these same types of businesses. The smallest business that needs a computer system is a Doctor's office.
This type of business typically has fewer than 10 employees. The only way the doctor can get out of having a computer system (in this day and age) is to not accept insurance and to track revenues and expenses on a paper ledger (not too pretty). I can say this because I saw the migrations started happening in the early-to-mid 2000's. Some doctors who were older in age would actually sell their practice to a young doctor just so that he/she would take on the responsibility.
A doctor is not likely to refuse to accept insurance, so instead, the doctor is likely to invest in a practice management system or an accounting package like Peachtree Accounting or QuickBooks.
Medical Office Practice Management systems now come complete with A/R, A/P, G/L, payroll, medical coding, insurance clearinghouse, and integrations to national medical lab testing organizations. Even a software product like Peachtree Accounting and/or QuickBooks has some of this functionality, i.e. A/R, A/P, G/L, payroll, logistics, and inventory management.
If you purchase OneWorld, SAP, Dynamics AX, BAAN, SAGE, or one of the 1000 other offerings for ERP software, and you only buy A/R, A/P, G/L, and Payroll, is it still an ERP system? The answer is yes.
ERP is a misnomer. ERP was derived from MRP systems (Materials Resource Planning) when financials, HR, and project management modules were injected into the system. MRP systems would process what is on order with vendors, what is in stock, what is being produced (if applicable), and what is being ordered by the customer. Based upon these bits of information, it would tell the operations department whether it would be cheaper to build or to buy to meet the demand of the customer (if demand was not already met) or what to build or buy in order to maintain appropriate stock quantities to eliminate the possibility of "stock-outs" or backorders.
So if an ERP system is still an ERP system although it only contains bare-minimum modules for accounting, then isn't a system like a Peachtree Accounting or Quickbooks an ERP system, too? Both software packages come with the option of buying some other integrations like EDI processing. The point is ERP in this day has grown to mean a system that has multiple interrelated, expandable, and customizable modules that allows your business to run from a single set of programs that not only share data but also share "look-and-feel" similarity. How you use the system, whether it is using 100% of the available functionality or only 10% is up to the user to decide.
Finally, now that we have equated ERP systems to accounting systems (or Accounting Information Systems as known in academia), let's discover why small to mid-sized businesses must move to this type of software. Looking at ERP systems from an I.T. perspective, what is an ERP system's greatest attribute? The ability to quickly customize software for the business' needs and it reduces the cost of I.T. systems programmers because it is a software that everyone knows. (I will admit here that this is a stretch today because ERP has not saturated the market, but when it does it will drastically reduce wages in I.T. development and until then I will continue to ride the gravy train - think programming a VCR in the 1980s versus programming a DVR today.) What is the greatest attribute of the ERP system from the perspective of the C-Level leadership? Can it help the business become more profitable, can it be agile enough to meet the demands of changing business models, can the familiarity of the system reduce my overall cost of labor because the labor pool contains workers with experience using it, and can I realize a significant return on investment by purchasing it?
Going back to the case of the doctor's office, if the doctor is running an ERP system and the health care system of the United States is nationalized, how difficult is it going to be for he/she to move towards using whatever payment system the government devises and tracking and reporting on the First Doctor Visit Resolution metric that will be a major part of the plan? This will not be difficult at all because there will be multiple businesses with the same problem existing using the same software. Either the maker of the ERP product will develop a solution or a third-party will. If that same doctor had a home-grown COBOL system that tracks limited data and will only allow the reporting of limited data, how easily will it be for the doctor to find someone who is not only a COBOL programmer but one who is familiar with the interfaces to the new national health system?
In closing, yes small to mid-sized business need ERP systems, but not just for the sake of running an ERP system. Businesses need ERP system to reduce their costs and have universally known systems for the end-user, management, and developers. An ERP system is an insurance policy in many regards. It not only ensures that your business can be agile, but it ensures that as long as you maintain updates, someone will always be around to support it.
