Why did Companies Invest in ERP?

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Why did Companies Invest in ERP?

Why did ERP Companies Invest?Image result for ERP Companies Invest

If one accepts only some of the criticisms of ERP outlined in the critical commentary box, it does pose the question as to why companies invested such large amounts of money in it. Partly it was the attraction of turning the company’s information systems into a ‘smooth running and integrated machine’. The prospect of such organisational efficiency is attractive to most managers, even if it does presuppose a very simplistic model of how organisations work in practice. After a while, although organisations could see the formidable problems in ERP implementation, the investments were justified on the basis that ‘even if we gain no significant advantage by ERP Companies invest, we will be placed at a disadvantage by not investing in it because all our competitors are doing so’. There is probably some truth in this; sometimes businesses have to invest just to stand still.
Far from being the magic ingredient which allows operations to fully integrate all their information, ERP is regarded by some as one of the most expensive ways of getting zero or even negative return on investment. For example, the American chemicals giants Dow Chemical spent almost $500 million and seven years implementing an ERP system which became outdated almost as soon as it was implemented. One company, FoxMeyer Drug, claimed that the expense and problems which it encountered in implementing ERP eventually drove it into bankruptcy.
One problem is that ERP implementation is expensive. This is partly because of the need to customise the system, understand its implications for the organisation and train staff to use it. Spending on what some call the ERP ecosystem (consulting, hardware, networking and complementary applications) has been estimated as being twice the spending on the software itself. But it is not only the expense which has disillusioned many companies, it is also the returns they have had for their investment. Some studies show that the vast majority of companies implementing ERP are disappointed with the effect it has had on their businesses. Certainly many companies find that they have to (sometimes fundamentally) change the way they organise their operations in order to fit in with ERP systems. This organisational impact of ERP (which has been described as the corporate equivalent of root-canal work) can have a significantly disruptive effect on the organisation’s operations.
Perhaps the most important justification for embarking on ERP is the potential it gives the organisation to link up with the outside world. For example, it is much easier for an operation to move into internet-based trading if it can integrate its external internet systems into its internal ERP systems. However, as some critics of the ERP software companies have pointed out, ERP vendors were not prepared for the impact of e-commerce and had not made sufficient allowance in their products for the need to interface with internet-based communication channels. The result of this has been that whereas the internal complexity of ERP systems was designed to be intelligible only to systems experts, the internet has meant that customers and suppliers (who are non-experts) are demanding access to the same information.
So, important pieces of information such as the status of orders, whether products are in stock, the progress of invoicing, etc. need to be available, via the ERP system, on a company’s website. One problem is that different types of external company often need different types of information. Customers need to check the progress of their orders and invoicing, whereas suppliers and other partners want access to the details of operations planning and control. Not only that, but they want access all the time. The internet is always there, but web integrated ERP systems are often complex and need periodic maintenance. This can mean that every time the ERP system is taken off-line for routine maintenance or other changes, the website also goes off-line.