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An ERP Dilemma: Tailor Stitched OR Ready Made?

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Today, the market is flooded with numerous brands of ERP addressing different verticals of various industries. However, companies still feel the need to develop their own IT solutions tailored completely to their requirements rather than going for a standard solution. A parallel can be drawn in our daily lives to our dressing practices where we like to buy our clothes from a branded store or have them stitched from our local tailor. Indeed the local tailor may stitch the dress specifically to one’s dimensions and may come in cheaper too in comparison to a branded dress; however, there must be a reason for the stores to charge a premium for their readymade clothes!

An ERP Dilemma: Tailor stitched OR Ready Made? An ERP Dilemma: Tailor Stitched OR Ready Made?

So in this article we will be discussing some of the arguments for both the sides discussed above: standard ERP and home grown ERP.

Some of the most regular arguments in favor of Tailor-made ERPs given by companies are:

Niche Requirements
There may be various unique requirements for a company or a company may be operating in such a niche industrial vertical that no standard ERP solution can actually address the company’s requirements. In such a case the company may want to develop its own ERP solution thereby also gaining an edge over its competitors in the same vertical.

Total Control
Any company, mostly a big name, may want to exercise complete authority over the IT solutions and the resources. In case of standard ERPs it may not be feasible as the resources and the solution shall be equally and unequivocally available to other customers as well. In such a case it might be that the company may want to have its own dedicated team and software over which it can have complete control.

An ERP Dilemma: Tailor Stitched OR Ready Made? An ERP Dilemma: Tailor Stitched OR Ready Made?

Lower TCO
Companies feel that developing and maintaining a new system will result in a lower TCO rather than buying and implementing a market system. This is because a solution developed in-house would not be dependent on external sources & the in-house knowledge of the software will help in reducing the maintenance cost.

Additional Revenue
If a company develops an IT solution for its business requirements, it may offer the solution on sale to other companies operating in similar industry conditions. This may not only lower their TCO but may also generate additional revenue.

A set of contentions supporting Standard ERP may be seen as below:

Industry Best Practices

In a standard ERP, ideas have typically been contributed from a broader community of clients & research team; hence it is much more unlikely that any important functionality may go amiss in the final product implementation. Besides adding to the completeness of the solution, a broader perspective from a diverse team will typically mean that the solution keeps evolving over time.

Higher Maturity

With standard ERPs, many industrial scenarios and their problems and solutions get captured in the system because of which the Standard systems would typically have a higher level of maturity. As these systems are built to be proven under versatile environments, over time the level of stability these system show is better than any homegrown solution.

Technical Upgrades

As the technology in IT industry is constantly improving, the technical upgrades are part and parcel of any ERP solution. In case of standard ERPs, any future upgrades to new technologies (Windows 8 and beyond, next generation of .Net, Windows Server 2010, etc), although adding to maintenance cost, will no longer be a concern of the company but of the ERP vendors; else upgrades to new technologies would be major projects & would only add to TCOs.

Implementation Time

Experience shows that from the time the decision to implement ERP is made, customization and implementation of a standard ERP for core business processes can typically be done in 6 months to a year; however, a development project takes much longer – typically several years. Furthermore, the timeline can be very uncertain.

Solving the Dilemma?

The aforementioned points were the most typical arguments given in favor of each of the side; however, the story does not end here itself. Although each side has valid points in favor of it respectively, personally I feel that there are still many reasons as to why a homegrown solution might not be an answer to a company’s IT problems.

Solving the Dilemma? Solving the Dilemma?

The homegrown IT solution, however much may be tailored to a specific business need, has major issues which a company should not overlook before taking a call. First and foremost I feel there could be a problem of handling legacy in in-house software systems. The developers who have built it move on to other companies & the end users are stuck with a piece of software where the code is not really understood by anyone within the organization. The software stagnates, leaving the end users with a product that has been outpaced by the company’s growth. Moreover, since it is an in-house product, it also may be difficult to find other technical experts for it in the open market and maintaining it in the long run would become difficult.

Selling an in-house patented product to others in the same market would also be difficult as I believe the competitors themselves would feel uncomfortable purchasing and using a product that is controlled by a potentially hostile vendor. Moreover, the IT development would become a part of company’s business model and possibly a source of distraction from one’s core business.

An ERP implementation requires a lot of change management in the company which needs to be strictly followed in order to make it a success. In home grown systems, discipline in Change Management will be questionable after some time as in case of a homegrown solution it would be difficult to maintain standards over a period of time which will lead to diluted controls, compromised requirement and version control issues. This would leave a company with a software with no use to it despite all the costs that went into building it.

Also, the most important of all arguments is that the TCO for homegrown IT solutions is much lesser than that of standard solutions: but to get an idea of the true costs involved, one must not forget to include all life cycle costs (enhancements, technical upgrades, internal resources, etc) in the equation & not just the development cost. It may be found that the cost for a homegrown IT solution would be very much parallel to a standard solution when compared in the long run.

Concluding

I believe that the best solution would be to have an ERP vendor who can empathize with the company’s needs & has enough horsepower to incorporate the functionality the company requires. But for implementing a technology whose purpose is to streamline existing business processes, the company must have a flexible outlook as well. A functionality perceived by a company as crucial might not be so but a proper vendor who has the best practices knowledge incorporated in his software and the company’s associated processes would know if that functionality is indeed important or not for he knows your business & probably may suggest a better way of getting the same result that is already in the software. A good vendor with a standard ERP offering would take time to discuss with the stakeholders of the company the existing processes and after thorough solution mapping may offer back a plan that is a combination of company process improvement, software configuration and customization.

Moving to ERP requires a change in the behavior and processes of a company. This change must flow from the top down to give the solution it’s best chance of success within the company. Indeed there might be situations when the homegrown ERP may be evaluated to be the best solution for a given scenario but all the aforementioned and ofcourse many other criterias must be considered before commencing on a journey called ERP.

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