Video Transcript: What is ERP Software? Here is everything you need to know

ERP software, or enterprise resource planning software, has been around for a  long time. It's helped a lot of organizations improve and become more effective  and efficient. But what exactly is ERP software? I'm gonna give that answer  here today. My name is Eric Kimberling. I'm the CEO of third stage consulting.  We're an independent consulting firm that helps clients through their digital  transformation and ERP implementation journeys. And I've been in the ERP  software space now for over 20 years. And whenever I'm talking to family or  students or someone who's not familiar with the ERP space that I'm in, people  often ask, What in the world is ERP, and what does that mean? And I mentioned before that enterprise resource planning is what it stands for, but there's a lot  more to it than that, and I'm going to talk about that here today. I mentioned that  ERP stands for enterprise resource planning. And ERP is actually an evolution  from some older technology that was really originated with a lot of  manufacturing organizations, and that software was called MRP, material  resource planning. So the origin of MRP came to be when a lot of larger  manufacturing organizations were finding that they were struggling with  managing their entire manufacturing operations. They had trouble tracking  customer orders and tracking demand, tracking what kind of parts and supplies  they would need to purchase to be able to meet and fulfill customer demand. So MRP systems were a way to handle that. It was a way to manage the tracking of what supplies and raw materials we might need to manufacture for our  customers. It was a way to manage the manufacturing shop floor so that we  could prioritize orders and make sure that we maximize throughput. And it was  really a way to address the whole movement in the 90s towards lean  manufacturing and trying to maximize manufacturing efficiency in the US, a lot of US manufacturers, were struggling with manufacturing efficiency and  manufacturing quality, and they were being beat by Japanese manufacturing  organizations at the time. So MRP systems were a way to help organizations of  all origins and all nationalities to help them better, become more efficient and  more effective. So over time, MRP evolved and morphed into something more  than just a manufacturing solution. It started to focus on warehouse  management and procurement and financials and accounting even HCM or  human capital management or customer relationship management on the sales  side, it took the core of MRP and started to expand in other parts of the  enterprise to where organizations were moving towards single systems that  could tie together the entire organization, provide one unified data set, provide a common workflow across the organization, and for lack of a better term, provide  one system that provided all the operations and data and transparency into what was happening enterprise wide. And so that's the whole evolution of how ERP  came to be. It really traces its origins back decades ago, when enterprise  technology was first emerging. Now there are a plethora of ERP software  providers in the marketplace. The biggest ones, the ones that are most 

commonly used by bigger organizations, are companies like SAP. Oracle is  another one. Microsoft provides its own ERP solution. Those are the three  biggest ones, and a lot of organizations and industry analysts will refer to those  larger ERP systems as the tier one ERP systems. Those are the ones that are  typically better suited for larger organizations, multinationals, more complex  organizations, multi location, types of organizations. Those tier one providers  are generally trying to provide a breadth of functionality that can meet the needs of those organizations. There's also tier two ERP providers, and these are the  providers that are more niche, focused solutions. They might focus on one  industry might focus on one set of capabilities. Just to give you a few examples,  Epicor and infor for example, are two manufacturing ERP systems that are very  common in the manufacturing space, but you don't see them a lot in other  industries. You don't see them, for example, in a lot of financial services  organizations or professional services organizations, they tend to focus more on manufacturing and distribution and nothing else. So that is in another example  or another segment of the ERP spaces, that whole tier two market, and then you have your tier three or industry niche solutions that are there are probably  dozens or hundreds of different ERP solutions that fall into that segment.  They're either. Smaller, simpler solutions that can provide capabilities to specific  industries, or perhaps certain functions or capabilities within ERP. They may not  even be providing full ERP capability. They may be focusing on just one small  segment within ERP. And like I said, there's a ton of different options and  solutions in that space. So overall, if we look at all the different types of ERP  systems out there, there are easily dozens, if not hundreds, of ERP systems that can be used for your organization. Now, I talked about how ERP evolved from  the need to have a single, unified vision and visibility into how an organization  works. And typically, the going in proposition with ERP implementations is that  you're going to have one ERP system that can do everything that you would  need technology to do for your organization. Now that is an ideal situation. It's a  perfect world scenario. But the reality is, is most organizations have unique  needs and unique challenges that can't be met by one single ERP system that's  trying to be everything to everyone. So what the single ERP system model has  done is it's created a niche or a void that's being filled by what we call best of  breed ERP systems. And these are systems that are not meant to be one single  ERP system that's going to be everything for everyone within your organization,  but it might be that you're focusing on different segments of your business. So  for example, within your sales organization, you might have CRM or customer  relationship management software within your HR department, you might use a  separate or a different human capital management software that specializes in  that and workday, for example, is a good example of a system that provides just  HCM capabilities. You might have a different system that provides financial and  accounting capabilities. And you could also, in addition to those examples, be 

using a core back office ERP system to tie it all together. So best of breed  systems is a common trend that we're seeing in the market, and it's in some  ways more complex because now you have multiple systems that you have to  tie together, but in other ways, it provides more flexibility. It provides more  precise fit with what your unique business needs might be. And there's certainly  trade offs to both the best of breed model as well as the single ERP model. But  when talking about ERP, it's important to look at the whole picture of what are  those spectrum and continuum of options available to you in the marketplace?  Now, if you've done any research on ERP software in general, you've probably  seen that ERP implementations quite commonly fail. In fact, many statistics put  the failure rate at above 80% of organizations that try to implement ERP,  whether it's a tier one system, a tier two or three system, or a single ERP, best  of breed. ERP doesn't really matter. The failure rate is fairly high. So the  question becomes, if the technology is great, and there's so much demand for  this technology, how could they possibly fail as often as they do? And if you  check out my channel and some of the other videos on my channel, just search  the word failure, and you'll find a bunch of videos I've created about how to  avoid failure, why projects fail, what some of the common challenges are. But in  a nutshell, the reason ERP implementations typically fail is not because of the  technology, but it's because of the operational and the people side of things. The technology in general, is very robust. It's very sophisticated, it's innovative. It  can do a lot of different things. That's usually not the problem, although  technology can create complications during implementation, but the more  common challenges and problems with ERP implementations are that we  haven't adequately addressed our business process improvements. We haven't  adequately addressed our organizational change management or people needs. So in other words, and to put it simply, people don't like to change and because  they don't like to change new technology, no matter how great it is is going to be difficult for your organization to adapt to. So in its simplest terms, people and  processes are why ERP implementations fail. Like I said, I encourage you to  watch some of the other videos on my YouTube channel that go into that topic in more detail, but in general, that's why implementations fail. So the question  becomes, how do we implement ERP software? If most of them fail, what can  we do differently to implement well and to simplify and to summarize what I've  also talked about in other videos on my YouTube channel, the first thing is to find the right software or technology that's the best fit for your organization. That's  kind of the first step, that's the minimum ante that you need to be able to  succeed, is to make sure that the software technology you're implementing is a  good fit with what your needs are, and make sure you get an independent  assessment and view an objective evaluation of the different options in the  marketplace so you can find the best technology for your organization. A second critical success factor is to ensure that your organization is aligned on what it 

wants to be when it grows up. A lot of times, organizations are trying to  implement ERP software at a time of turmoil, at a time of misalignment, or at a  time of strategic misalignment, where the organization isn't on the same page  with the direction it's going. It doesn't have a clear vision. And then you try to  overlay a new technology on top of that, and that's a recipe for failure. So  making sure you have clear alignment on your overall organization is very  important. And again, I've included some videos below that will help you further  dive into that topic, and then the implementation itself. When we focus on the  implementation, it's important not to focus too much on the technology, but to  shift some of the time resources and attention from technology over to the  people and process side of things. If we do the people and process side of  things very well, and we also have alignment, and we've also picked the right  software or technology for our organization, we have the best chances to  succeed. But the problem is, most organizations fail in one or more of those  three critical success factors. And like I said, I encourage you to download some of the content I've included links to below that'll dive more into what you need to  do to be successful for your ERP implementation. So ERP software had its  origins many years ago with some very simple types of objectives it was trying  to accomplish. It was just trying to track inventory and orders and activities  better within an organization. Sounds simple enough, but over the years, it's  evolved into more than that. It's not only trying to tie together an organization  provide one common, single source of truth for what's happening in the  organization, but it's also now trying to introduce more advanced technologies  and capabilities into ERPs. So for example, there's new artificial intelligence  that's helping organizations automate some of their business processes better.  There's machine learning that looks for patterns and exceptions to things as  simple as accounts payable processing of invoices. Machine learning, for  example, can automate the accounts payable process and use artificial  intelligence to flag the exceptions or the things that look like outliers or the  things that look like could be potential problems in your accounts payable  invoice processing. So that's just one minute example of how machine learning  and artificial intelligence is being used to take ERP to a whole nother level. You  also have blockchain, which is being used by many organizations and  pharmaceutical and food companies. For example, they need to track every raw  material in part in an entire production process, an entire distribution process, so that if there's ever a recall or a regulatory problem, blockchain can be used to  trace problems back to the supplier. And that's a new technology that's being  provided. And then finally, one other common trend we're seeing is Internet of  Things. If you have an Apple Watch and your Apple Watch is tracking your daily  activity, that's an example of Internet of Things. It's tracking that information, it's  storing it in the cloud, and what you do with that information, and how  information like that could tie back to an enterprise is very important. For 

example, a lot of manufacturing organizations will have Internet of Things type  devices out on the shop floor that will be tracking data on the shop floor that will  then tie back to the ERP system, so that you can see complete visibility into  what is not only happening within the corporate headquarters, but also what's  happening out on the shop floor. So those are just a few examples of some of  the trends that are emerging in the ERP space. You so ERP software can be a  very powerful thing if managed correctly, implemented correctly and leveraged  correctly. Organizations can go to the next level in their respective journeys, but  it requires the right focus, the right discipline, and also just finding the right  technology. So I encourage you to look at some of the downloads. I've included  links to below that will give you more of a picture of some of the top ERP  software systems in the marketplace, some of the best practices around how to  implement ERP software. I've included links to some white papers and blogs  below that might help you through that journey. So I hope you found this  information useful, and hope you have a great day.