Repost of author’s article from Chief Executive | January 9, 2015
CEOs need to merge their disparate IT systems to keep growing—but must do so carefully. The cloud can help.
WHEN JANNA RONERT, ORIGINALLY A FARM GIRL FROM NEBRASKA, founded Image Skin Care company 11 years ago in Palm Beach, Florida, sales of her specialized skin-care products swiftly expanded to 50 countries around the world. As sales exploded, Ronert recognized that having separate information technology (IT) systems for such functions as finance, manufacturing, inventory and human resources was no longer working. “In managers’ meetings each week, all this information was flowing in, but it was a river to nowhere,” she explains. “We had to bring it together into one system.”
As CEO, Ronert did not have anyone on her staff who could install an Enterprise Resource Planning (ERP) system that would tie all those functions together, so she hired a COO, Kevin Patrick, who had deployed the systems at other companies. Patrick turned to Effective Computer Solutions, based in Ponte Vedra, Florida, which was a channel partner of the German software giant SAP. They were able to install SAP’s Business One system in about 90 days and launch it two years ago. The total cost, including equipment and training, was $300,000. The ERP system is physically located on Image Skin Care’s premises, but the company moved other functions to cloud computing. The end result was a hybrid system—part on-premise and part in-the-cloud. “It was worth every single penny and more,” Ronert says.
THE ROI ON ERP
What the system allows the company to do is to gather information on what types of its products are selling in different climates around the country and the world, giving it clues as to how to adjust its manufacturing and inventory levels. “That’s where the deficiency had been—in capturing information from our sales arm and disseminating that to the rest of our people,” Ronert explains. The end result has been better decision-making about how to manage the company’s product portfolio. “In Florida, where there is sunshine 300 days a year, sunscreens and protection are key products for us,” she explains. “But where I’m from in Nebraska, we only see the sun six months a year so hydration and protection from other elements becomes very important.” With sales north of $25 million a year, she anticipates migrating more functions to cloud computing.
“In managers’ meetings each week, all this information was flowing in, but it was a river to nowhere…we had to bring it together into one system.”
—JANNA RONERT
Image Skin Care
As smaller companies reach a critical point in their growth trajectories, the vast majority face IT decisions like Ronert’s. They are tough calls because smaller companies don’t always have separate IT staffs. The company’s finance people may use Intuit’s QuickBooks for accounting, but manufacturing, supply chain, distribution, human resources and other functions have grown up with different, non-compatible systems.
Aside from needing to make better, faster decisions, CEOs of these companies find that large customers, suppliers and partners demand timely information when doing business with them. “The requirements for integration today are greater than ever before,” says Joshua Greenbaum, a consultant at Enterprise Applications Consulting, in Berkeley, California, “You have to be able to live in an extended supply chain with very complex demands and very rigorous service levels. You’d better upgrade or you won’t be able to do business.” The advantages of basing an ERP system in the cloud—meaning in the hands of a technology giant like Microsoft or Amazon—are rooted in being able to pay a monthly licensing fee rather than having to lay out the big bucks to buy and maintain your own system.
CEOs can also easily ramp up their use of the services when their businesses enjoy a sudden spike in growth. “In a traditional environment, you go through a procurement process and then, three or four weeks later, you get a piece of equipment,” says Alex Rooney, vice president of SAP’s channel partner Vision33 in Irvine, California, “But if you’re in the cloud, I can spin up another server and expand your infrastructure in 10 minutes. You’re paying for only what you use.” If a company’s business declines for any reason, perhaps because a peak buying season passes, it can cut back on its consumption of services and software. “It’s leaps and bounds ahead of what you can achieve with a traditional infrastructure,” says Rooney.
BEATING BACK BLOAT
The great fear about implementing any ERP system, whether cloud-based or on-premises, is “bloat.” A smaller company may need to hire a consultant to help identify the right technology partner because few can deal directly with an SAP or Microsoft. SAP says 80 percent of its 263,000 customers worldwide are small or medium-sized enterprises (SMEs), but a majority of them work with SAP’s channel partners. While small company CEOs can work directly with smaller ERP companies, such as Epicor Software, based in Austin, Texas, managing that relationship can be still be tricky. If the project comes off the rails, a company might have to hire consultants to help fix it. Delays in implementation and cost overruns can occur if the CEO does not take a personal stake in decision-making and implementation.
“From my perspective, the CEO has to lead the process and be all-in,” says Anthoqny L. Chirchirillo, CEO of Chirch Global Manufacturing, headquartered in Cary, Illinois. One basic problem to overcome is building an internal consensus about the technology path because different departments within the company may fear that a cloud-based ERP system will erode their power base. “It has to be driven from the top,” Chirchirillo explains.
“What was driving us was not just catching up to the competition. We wanted to leapfrog the competition.”
—ANTHONY CHIRCHIRILLO
Chirch Global Manufacturing
If done wisely, ERP systems can transform a smaller business and set the stage for its next leg of growth. Chirchirillo, for example, implemented an ERP system from Epicor that was completely in the cloud. His company is in the tool-and-dye, metal stampings and metal fabrication businesses. When he acquired the company, its software was badly out of date, so he upgraded its systems to the cloudbased ERP system over a three-month period ending in June 2011. “What was driving us was not just catching up to the competition,” Chirchirillo says. “We wanted to leapfrog the competition.”
That platform allowed him to use another cloud-based communications system to create a collaborative network among 14 multi-generational, family-held niche manufacturing companies in Illinois and Wisconsin with total revenues of more than $220 million. “They all had good skills,” he explains, “but they were fighting the trap of being looked at by our large customers as just providing a commodity.”
Now, when a large customer requests bids on a project that may require injection-molded plastic parts, powder coating, machining or other highly specialized services, the Chirch network can see the customer’s drawing on their shared cloud-based system and bid for specific parts of the order. The ERP system and other cloud-based technology thus transformed their business models. Chirchirillo says embracing cloud-based ERP systems allows SMEs to stay focused on their core businesses and not get bogged down in managing IT systems. “SMEs have a very difficult time keeping up with the new versions of systems and having to constantly go through re-installations,” he says. “Every time a new version of a piece of software comes out, you have to go through that process.” Now Epicor manages Chirch’s system and does the software updates behind the scenes.
He takes issue with two reasons some small-company CEOs say they do not want to outsource their ERP systems—they want to retain control of their systems and they worry about data security. Chirchirillo says trying to develop and maintain one’s own internal IT department carries its own set of risks. “It’s very difficult for SME manufacturers to employ high-end IT people because of the cost factor, and they are somewhat transient,” he explains. “You run the risk of having someone who is very knowledgeable about your system leave you.”
When it comes to security against hacking, Chirchirillo notes that software companies such as Epicor have multiple layers of backups and protections and are monitoring systems around the clock. “Their processes are more secure than what the vast majority of SME companies can afford,” he says. “I actually feel we have reduced our business risk.”
The providers of ERP systems to smaller businesses are a fragmented field. The big players include Microsoft, Oracle, SAP and Sage Software, a unit of Britain’s Sage Group, but none of them appear to be dominant. There are also a raft of smaller companies such as Epicor, Intuit and NetSuite. Business-Software.com lists 20 different competitors.
The big guys who sell through channel partners naturally argue that theirs is the best model. “If you have Microsoft combined with our channel partners, you’ve got the best of both worlds,” says Gordon Macdonald, director of the ERP management team for SMEs at Microsoft. “The manufacturer has a massive investment in innovation and tying things together from the software perspective, and the channel partner delivers industry or region-specific solutions that are
perfect for that customer.”
Says Kevin J. Gilroy, senior vice president and general manager of the global SME segment for SAP, “Many of our channel partners develop an intimacy with the customer that the industry misses sometimes. The CEO of a small manufacturing company in Topeka, Kansas, knows he can call that partner 24/7. He has his cell phone number and sees him in church.”
SIZE DOES MATTER
Of course, smaller technology providers, such as Epicor, with $1 billion in annual revenue, argue that CEOs should have the choice of working directly with the original provider of ERP software and thereby cut out a layer of intermediaries. “We think freedom of choice is better,” says John Hiraoka, executive vice president and chief marketing officer at Epicor, which deals directly with its customers in North America. “The ability to choose between working with a local partner or the software organization provides CEOs with much more flexibility.”“The ability to choose between working with a local partner or the software organization provides CEOs with much more flexibility.”
—JOHN HIRAOKA, Epicor
The rule of thumb is that about 20 percent of SME companies buying their first ERP systems are opting for cloud-based solutions, but that figure is up from only 5 percent just two or three years ago and the industry expects the number to continue to grow rapidly. Hiraoka says non-manufacturing companies in finance, retail or distribution industries have been quicker to embrace the cloud because earlier versions of the software couldn’t handle the complexity of manufacturing. However, that is changing as the industry improves its offerings.
CEOs have also tended to locate functions in the cloud that are not seen as mission-critical, like the storage of emails. That, too, is changing as more embrace cloud solutions for their core functions, says Hiraoka. He says CEOs who are considering adopting an ERP system should consider the ease of use of any software they acquire. Hiraoka naturally argues that Epicor’s software has been redesigned to make it perform just as a consumer would use Google’s search engine. Epicor’s software can be used as seamlessly on a smart phone as it performs on a desktop or tablet, he adds. For its part, Microsoft says its systems have been designed to resemble its widely used Office products, familiar to the vast majority of users.
Certainly, there are many variations on a theme. But whether CEOs choose large or small technology partners, and whether they choose to embrace the cloud or not, they do seem to be stepping up to the ERP challenge because the systems are so essential in helping the small guys get bigger. The bottom line? Despite all the fears about ERP “bloat,” small company CEOs are embracing the tool and are increasingly basing it in the cloud.
