Since their inception, ERP software systems have historically been used almost entirely by large organizations: major corporations, financial institutions, federal and state government agencies, and similar behemoths with complex structures and massive operations.
Over the last few decades, ERP vendors have focused aggressively on the small to medium-sized business market. Today, a growing number of smaller businesses (stand-alone manufacturers with roughly $50-100 million in sales) have implemented ERP projects.
This shift marks a sea change in ERP users.
It also means that executives and in-house counsel are contending with not just a transformation of the business but a type of contract they’ve not had to previously negotiate. Contracts for ERP software systems are nothing like the loan documents, sales agreements, leases, or employment offers typical of what smaller businesses review regularly.
Here are six mistakes smaller businesses should avoid when venturing into an ERP software system effort:
1 – Seeing ERP as a technology tool. It isn’t. Viewed correctly, ERP is a management tool that uses technology to more efficiently run a company. Understanding this has widespread implications – from selecting a vendor and its product, to deciding which integrator to choose, and determining how the information will be used once the system goes live.
2 – Not planning for scalability. Small businesses plan their future growth. Likewise, they need to plan how their ERP software system will be scalable as the company grows. This needs to be factored into how business processes and requirements will take them into the future, rather than automating current business processes. If this is not part of the decision process, a company may find itself having to replace its entire ERP software system three to five years down the line, a major undertaking and a huge expense that can be avoided.
3 – The contract is straightforward. None of them are. An ERP contract may seem forthright, but since the vendor and integrator wrote it, it favors them. Many of the clauses need to be negotiated and rewritten, including those that spell out which side is responsible for which activity, who is authorized to approve change orders, and other provisions such as paying for software licenses (which may not be needed).
4 – The vendor and integrator does it all. They won’t, even though many of them will tell you that they will. Starting up with ERP is nothing like ordering a new machine for the factory and then paying little attention until it is delivered and installed. To avoid cost overruns and delayed timelines, senior management must stay actively involved in every aspect of the project.
5 – It will be easy. Implementations are never easy. ERP software systems are incredibly complex and integrating them with existing systems is a major undertaking – for large and small businesses alike. The challenges that plague a Fortune 100 company during an implementation might be on a smaller scale for a smaller business, but it is still highly disruptive.
6 – Forgetting about the users. All change is hard for employees. Launching ERP will change the way many workers do their jobs. People may not be ready for the discipline required by ERP systems. It becomes vital to plan for change management. Critical project activities such as training, communications, and organizational readiness are vitally important.
As many businesses reopen, projects that were on to-do lists and put on hold during the COVID-19 lockdowns are being reviewed and renewed. With extensive experience negotiating, drafting, and litigating ERP contracts, Taft’s Technology lawyers can help you identify potential problems before they arise.