The 4 ERP Implementation Types to Choose From
It’s a sobering reality that as many as half of ERP implementations fall short of expectations. Many even fail altogether. With careful planning and preparation, though, you can avoid the pitfalls and find the ERP implementation type and strategy that will lead to success.
There are four types of ERP implementation methodologies, each with its own particular advantages. Choosing the right type of ERP implementation has important implications, so you should take the time to understand each one and select the strategy that best fits your business.
In this article, we will compare the four different types of ERP implementation strategies. We’ll discuss the pros and cons of each one, and we’ll explore some tips for implementing an ERP system successfully in your business.
What are the types of ERP implementation?
The four types of ERP implementation are applicable across any ERP software system, regardless of which vendor you happen to be working with. The four ERP implementation strategies are:
The “Big Bang” Approach: With this type of ERP implementation, the plan is to go live with every aspect of your new system, all at once. That means rolling out your new enterprise resource planning system for every aspect of your business at the same time. This normally encompasses core accounting functions, but it would also include any other relevant business processes such as inventory management, warehouse operations, manufacturing, sales and marketing, or supply chain management.
The Phased Approach: A phased ERP implementation plan involves a stepwise approach in which the overall ERP system rollout is broken down into smaller chunks that may be more easily manageable for some organizations. You might begin by deploying core financial modules such as general ledger, accounts payable, and accounts receivable, for example, while deferring more complex business functions like purchasing and supply chain management to a future phase in the ERP implementation process. The phased type of ERP implementation can also be broken down by department, or by subsidiary if you work in an organization that manages multiple corporate entities.
The Parallel Approach: Some companies prefer to continue running their existing ERP software system at the same time that they are rolling out a new one. This type of ERP implementation requires more effort during the time those systems are operating in parallel, and it is generally more costly. However, many organizations like it because it minimizes risk.
The Hybrid Approach: As the name would suggest, the hybrid approach combines various aspects of the other three types of ERP implementation strategies. You might choose to use the big-bang type of ERP implementation process for the home office, for example, then apply a phased approach to branch locations or subsidiaries. You could also opt for a big bang ERP implementation but still run a subset of your business functions in parallel.
Why are there different types of strategies?
The reason for these four different types of ERP implementation strategies is fairly simple; each approach involves certain tradeoffs between cost, effort, timing, scope, and risk. For example, the big bang type of ERP implementation ensures that the entire project gets done at once. That usually translates to lower implementation costs, but it also means that your staff needs to commit a larger percentage of their time to the process. It can also involve higher risk than some other ERP implementation methodologies.
Some companies choose to mitigate that risk by running parallel systems for some period of time. That translates to lower risk, but it can also be costly, both in terms of consulting time and staff effort. The type of ERP implementation you choose will directly impact each of these five factors: cost, effort, timing, scope, and risk. There is no single “correct” ERP implementation methodology. Your approach will depend on your organization’s unique priorities and needs.
What are the key differences between the various types of ERP implementation methods?
As we have noted, the key differences between the various types of ERP implementation methods boils down to five key factors:
Cost: Some types of ERP implementations are more expensive than others. Running systems in parallel, for example, is generally more expensive because it requires that you maintain a computing infrastructure for two different ERP systems, and it may involve paying continued software maintenance fees to your legacy ERP vendor. Data migration in a parallel type of ERP implementation can be cumbersome, especially if differences emerge between the numbers tracked in the two systems. A phased approach to your ERP implementation can also be expensive because it prolongs the process and may require more expenditures overall than a big bang ERP implementation. Both the phased approach and the parallel approach to ERP implementation will reduce risk, but the tradeoff comes in the form of higher costs, among other things.
Effort: The effort required to complete your ERP software rollout can vary widely, depending on the type of ERP implementation you decide to go with. If you use the parallel approach, for example, your staff will need to enter data in both systems for some period of time. If there are discrepancies between your new ERP system and the old one, then someone will need to spend the time to research each problem, understand why it happened, and make the appropriate adjustments accordingly.
Timing: Implementing an ERP system can happen in as little as a few months, or in some cases it can take well over a year. A big bang strategy will get the job done faster, but it has significant implications in terms of the human resources required. In other words, you will be compressing a lot of work into a relatively shorter period of time than with a phased or hybrid approach. This can mean higher stress levels, especially around your go live date, but it also means that you will see the benefits of your new ERP system much earlier than you otherwise would. A phased approach, in contrast, reduces risk and stress but delays many of the benefits of ERP software to your business.
Scope: The type of ERP implementation you choose will also be influenced by the overall scope and complexity of your project. Do you plan to roll out a new ERP software system for multiple companies under one corporate umbrella? If so, you should consider the business processes across the entire organization and how they might differ from one entity to the next. If one subsidiary is responsible for manufacturing operations and another handles sales and distribution, for example, then you will probably be dealing with a wide range of different business processes. That means a broader scope of ERP functions that extend far beyond just financial management. In this case, it might make sense to perform a phased type of ERP implementation so that each distinct business process can be given the individual attention that it deserves. Larger scope means greater complexity. That in turn leads to greater project risk, which is the final factor we’ll consider in choosing the right type of ERP implementation for your company.
Risk: Because so many ERP implementations fall short of expectations, it is important to pay very close attention to risk. The larger and more complex your ERP software project is, the more likely it is that something could go wrong. Careful planning and expert advice will give you a solid foundation for success, but the right type of ERP implementation strategy can play a very important role as well. A phased approach is preferred by many organizations because it allows more room for adjustment in between project phases. For others, a parallel ERP implementation provides a sense of security because the old system remains in place as a fallback in case things can’t move forward as originally planned. The big bang approach carries more risk, but it’s entirely manageable for most organizations and if done correctly, it can be very successful.
How do you select the right ERP implementation strategy for your business?
To select the right ERP implementation strategy for your business, start with these tips:
Get the lay of the land: Start the process by defining the overall scope of your ERP implementation process. Will you be replacing an existing system within a single company, or across multiple legal entities? Are there multiple software systems to be replaced, or just one monolithic ERP system? What are the various business processes that will need to be accommodated by your new ERP software? The greater the complexity, the more you should consider a lower risk type of ERP implementation.
Determine your organization’s appetite for change: Are stakeholders throughout your company struggling with your legacy ERP system? Are they eager to get started with a new ERP system implementation? In companies where the old ERP system is very problematic, the big bang approach may be preferred. In other organizations there may be some resistance to anything that is new or different, in which case it might make more sense to take a phased approach to your ERP implementation.
Assess your human resources capacity: An ERP implementation requires a serious time commitment from key stakeholders, including finance, operations, IT, and even executive management. Get a firm commitment from your company’s top-tier leadership that the necessary human resources will be available for the duration of your ERP implementation project. If you believe that this might become a constraint at some point down the road, then you may wish to consider a phased type of ERP implementation, which spreads out the effort over a longer period of time.
Discuss your options with the ERP experts: Above all, don’t go it alone. Talk to peers in your industry and ask which types of ERP implementation strategies worked best for them, and why. Find out who the experts are in your region. Look for an ERP partner who understands your industry and has a strong track record of successful ERP implementations. Nothing beats talking to someone who has depth and breadth of expertise and is willing to take the time to get to know your business.
How to get started
If you would like help in selecting the best type of ERP implementation for your organization, the experts at Synergy Resources would love to speak with you. For every client we work with, Synergy will take time to get to know your business, identify the right ERP solution to fit your needs, and help you select the ERP implementation methodology that best suits your company.