In part 1 of this series we looked at results from a recent Aberdeen Group study, indicating that small and medium size enterprises (SMEs) were much more bullish than their larger counterparts as regards to growth, profitability, head count increases and IT expenditures. SMEs and larger companies significantly diverged in terms of their business goals, as well.

Will smaller companies drive the recovery?

If so, ERP will play an important role. (Part 2)

That divergence continued as SMEs and larger enterprises rank their top five business challenges for 2011. Not surprisingly, both groups named general economic conditions as their greatest challenge. But SMEs felt that lack of brand awareness was almost as big a challenge while their bigger and more established competitors ranked this challenge a distant fifth place finisher. Perhaps as a harbinger of things to come, big companies were more concerned than SMEs about increased competition, ability to execute on their strategy, market volatility, improving employee engagement and rising operational costs.1  Perhaps larger companies simply feel that they’ve hit the wall on “continuous improvement” while smaller companies, newer to ERP, see a clear path to operational improvements.

Those improvements are dramatic, according to the Aberdeen report. Surveyed companies ascribed across the board quantifiable business benefits to their ERP systems. The leading companies saw a 55% improvement in inventory turns and a 20% reduction in inventory—imagine the working capital that freed up! They claimed a 23% reduction in operational costs and a 22% reduction in administrative costs. Complete and on-time deliveries rose 24%.

SMEs understand the potential for ERP systems to positively impact their operations, as evidenced by the ERP selection criteria Aberdeen reports. The most important attribute SMEs had in mind when evaluating ERP vendors was the range of functionality. If the ERP system does not have the functions and features that the organization needs to achieve success, it is a non-starter. Clearly, SMEs embraced ERP as a solution reaching into every department of their growing enterprise, and they expected strong capabilities across the board. To accomplish this, SMEs saw that their ERP system would have to be an integrated suite rather than multiple point solutions; this attribute, along with ease of use and total cost of ownership, clustered as the next most important criteria, after functionality. Telling, that TCO wasn’t at the top of the list, as just a few years ago this was the top concern for companies evaluating ERP.

Rounding out the top seven selection criteria were the ability to tailor functionality without programming, the system’s ability to integrate with other

1 Source: The Aberdeen Group Q1 2001 Business Review

technologies, such as Business Intelligence (BI) and ease and speed of implementation, a nod to Cloud ERP, perhaps?

In fact, 55% of SMEs surveyed were considering on-demand/cloud computing solutions for their ERP systems, narrowly trailing 67% that were considering traditional licensed on-premise solutions. However, non-traditional approaches such as ERP hosted and managed by the ERP vendor (37%) and ERP hosted and managed by an independent third party (28%) indicates that Internet-accessible ERP is on everybody’s mind. In fact, Aberdeen’s research showed that delivery method didn’t even rank in the top 15 selection criteria for SMEs.

Continued in Part 3