Are indian-sme's-read-for-enterprise-resource-planning

Are
Indian SME’s
ready for
Enterprise
Resource
Planning
R
Your Outsourcing Partner
This white paper defines Enterprise Resource Planning [ERP]
and elaborates its role in small and medium enterprises [SME’s]
in India today. This white paper also highlights the growth of ERP
in SME’s, benefits of ERP and conflicting issues and challenges
faced by SME’s in implementing ERP system within their
business process. This white paper also examines the pros and
cons of offline and online ERP.
www.guiresoutsourcing.com

CONTENT
Evolution of ERP
Growth of ERP Software Industry
Implementing ERP in SME’s
Challenges and Conflicts
Traditional [Offline] v/s. Online ERP
Conclusion
01
02
03
04
05
06

01Are Indian SME’s ready for
Enterprise Resource Planning?
White Paper
Introduction Evolution of ERP
In any business organization there is a continuous
flow of information between different processes
which at times is very complex. To eliminate the com-
plexity, organizations both large and small have
reverted to using Enterprise Resource Planning [ERP]
software that facilitates a smooth flow of information.
ERP is also instrumental in enabling the flow of infor-
mation between several organizational units by over-
coming geographical boundaries. ERP software
provides competent authorities in an organization
with an extensive overview of the project in a manner
that is not only reliable but also timely and consistent.
ERP acts as a foundation to an extensive information
system that revolves around a fundamental database
that acquires and serves data into applications that
function under a regular computing platform, thereby
regulating business processes into a unified environ-
ment
The evolution of ERP can be traced to the system
that was in use earlier which was ‘Manufacturing
Requirement Planning [MRP II]’ system. Now
this system incorporated massive information
across manufacturers, vendors and customers
with the help of extensive LAN, WAN and Inter-
net networks. Needless to say, the MRP II is an
enhanced version of ‘Material Requirement Plan-
ning [MRP]’ system. However, the MRP II had its
own share of shortcomings. One of the biggest
drawbacks of the MRP II system was that
• It was unable to efficiently incorporate the
various operational processes along with the
available resources.
• Traditional application systems largely deplo-
yed by organizations considered every transac-
tion as individual transactions.
• MRP II was structured around functional para-
meters that a particular application was bound to
gratify.
ERP on the other hand, considers every transac-
tion as a single transaction by inter-connecting it
with the different processes that constitute a
robust business.ERP is a full-fledged trade management solution that
encompasses operational areas of a business like
finance, production, accounting, logistics and human
resources. It structures and incorporates flow of infor-
mation and operational procedures with an objective
to optimize the use of critical resources such as
manpower, mechanical appliances and liquidity.
ERP also assures:
for the whole enterprise where earlier different
systems were required for different aspects such as
manufacturing, distribution, sales and finance
• single database
• single application
• single user interface
ERP

02 Are Indian SME’s ready for
White Paper
Growth of ERP Software
Industry
ERP in Small and Medium
Enterprises
Several factors were instrumental in driving the
growth of enterprise software market. In this context,
it is a known fact that exhaustive information archi-
tecture enhances the performance of a business. Con-
forming to market trends it is evident that when a
SME adopts ERP software, it immediately comes to
the attention of their competitors who in turn waste no
time in implementing ERP software within their busi-
ness processes with a view to improve their own com-
petency levels. Further, there has been marked change
in the use of packaged applications. This can be attri-
buted to the fact that the European Union adopted a
single currency which prompted organizations to
substitute legacy software with packaged software.
This substitution was executed successfully by
outsourcing the task to vendors offering ERP soft-
ware. Moreover, several organizations were discar-
ding legacy software owing to the strain of ecommer-
ce and difficulties in the front end pertaining to front
office applications and issues of conflict in the back
end pertaining to linking with suppliers and business
partners. In addition, the materialization of vertical
applications based on ERP software that specifically
addressed industry specific requirements led to a
large number of organizations to adopt ERP software.
At the same time, large scale developments in IT and
software arena in conjunction with the volatile
progress of internet and internet applications caused
many organizations to remodel their existing business
protocols by adopting enterprise resource planning
software.
India’s economic development has been extensi-
vely supported by SME’s. SME’s in India com-
prise of around 30 million units and have been
instrumental in contributing 17 per cent to natio-
nal GDP in 2011. Further, SME’s in India are
responsible for providing employment to a large
number of people. As of now, Indian SME’s
provide employment to around 60 million people.
Since early 1990’s it has been largely observed
that ERP’s have been widely embraced by small
and medium enterprises [SME’s]. ERP offers a
unique solution to SME’s with an objective to
enhance their output, competence and their ove-
rall business performance. In order to successfu-
lly achieve these facets, SME’s have understood
the underlying importance of implementing ERP
software within their business processes. At
present, 60% of India’s gross domestic product
[GDP] is largely contributed by SME’s. Owing to
the tremendous growth of SME’s, ERP vendors
are now diverting their focus on SME’s. Their
strategy for attracting SME’s to use ERP software
is by providing economical and customized ERP
software to SME’s. It is also a well known fact
that SME’s in India mainly contribute to genera-
ting large scale employment opportunities,
employing around 30 million people and opera-
ting around 12 million units. However, it is also
noticed that a large number of SME’s face sizable
resource constraints. It is also worthwhile to men-
tion that most Indian SME’s fail to notice the
inherent benefits of adopting enterprise software
within their business processes by citing mone-
tary constraint. They fail to see the big picture
offered by ERP which is, ERP can make a marked
difference to an SME’s overall performance. For
SME’s to whole-heartedly adopt ERP software it
is necessary to drive home the point that ERP can
sizably increase operational efficiency, enhance
resource productivity and lastly to decrease fixed
and variable costs.
The scope for ERP software in India is tremendous.
Market predictions portray a growth in ERP software
market at an enhanced rate of 22.2 per cent spanning
an extended period from 2011 – 2015. IDC reports fore-
cast the spend on ERP software over the said period at
an estimated cost of Rs.2,000 crore [about $400
million]. The growth of ERP software amongst
SME’s is projected at a compound annual growth rate
[CAGR] of 19.4 per cent from 2015 – 2020.

White Paper
The worldwide IT spend on enterprise software is as high as $335 billion in 2015. Out of which the share
of India is minimal to say the least. The figure below depicts yearly worldwide IT expenditure on ERP
software
Though several small and medium enterprises come into existence every year, a critical aspect about
these SME’s is that out of the total number of SME’s that take shape each year, half of them shut shop
within the first three years of their formation itself. Another statistic reveals that only 40% of these
SME’s manage to survive beyond a grueling ten year period. The reason being that the focus of most of
such SME’s is to survive, rather than establishing a sound long term business strategy. As a result, they
only tend to rethink their business strategy when they fail to achieve success with their existing business
models as they don’t match pace with the dynamically changing market. SME’s that manage to succeed
are companies that are willing to take risks and adapt to market fluctuations. SME’s are loathsome to
risk hence; they are more eager and upbeat about integrating ERP within their functional processes for
a multitude of reasons4. Such as
• Most SME’s have MNC clients who require SME’s to adopt and implement ERP to enhance their
service delivery.
• A growing need to keep up with the competition.
• To acquire a competitive edge and mould themselves as per the fluctuating market dynamics.
Graph Source: http://www.statista.com/statistics/203428/total-enterprise-software-revenue-forecast/

White Paper
Benefits of ERP
Implementing ERP in SME’s
By integrating ERP system within their business
processes, SME’s would be able to establish a robust
transactional process that enables a regimented
method to conduct business. This in turn would facili-
tate SME’s to enhance and optimize their overall
business productivity. Prominent vendors like SAP,
Microsoft, Oracle, PeopleSoft, J. D. Edwards, Baan
etc., offer premium ERP software packages and are
continuously in the process of augmenting their
customer base by targeting SME’s. These organiza-
tions have come up with ERP packages that are custo-
mized to meet the requirements of SME’s. Some of
the common benefits of integrating ERP systems
within their business processes include:-
Integrating ERP systems into a business process will
have a major impact on both internal as well as exter-
nal operational procedures of an organization. There-
fore, it is absolutely essential that an ERP system is
successfully implemented and strategically executed
to ensure overall organizational productivity and long
term survival. Successful implementation of ERP
system will culturally and structurally drive organiza-
tional change. Organizational change is facilitated by
ERP systems owing to the robust business processes it
offers.
• Decrease in planning cycle time
• Decrease in manufacturing cycle time
• Decreased inventory
• Decreased ordering errors
• Decreased manpower requirement
• Facilitates a faster turnaround time in adopting to
market fluctuations
• Enhanced resource utilization
• Marked improvement in customer satisfaction
levels
• Facilitates global outreach
. Hence it is necessary that ERP implementation
is considered from tactical, business and scienti-
fic magnitude. Implementation of ERP system is
an amalgamation of business process transition
and software configuration that lines up business
procedures along with the software. Primarily,
implementation of ERP in SME’s follows two
calculated approaches. On one hand, in the first
approach an organization adopts a basic ERP
version where they have to restructure their ove-
rall business procedure to conform to the functio-
nal parameters of the ERP that is crucial in trans-
forming the way a business operates. The
underlying value of this approach is that it
harnesses the benefits of future upgrades and
empowers organizations facilitates organizations
to profit from excellent business procedures.
On the other hand, the second approach enables
organizations to adopt ERP systems that are
customized to suit the requirements of their indi-
vidual businesses. However, the inherent flip side
to this approach is that it delays the implementa-
tion procedure and renders any subsequent soft-
ware upgrade cumbersome and comparatively
expensive. Hence, ERP vendors often recom-
mend SME’s to adopt the first approach and con-
centrate more on transforming their overall busi-
ness processes. It has also been noticed that out of
all ERP implementations, one third of them fail
due to several factors. A factor that is largely
responsible for failure of ERP implementation is
when SME’s consider it as a simple automation
project rather than believing it as a project that
relates to managing change. SME’s also need to
understand that ERP is a business solution and
not an IT solution. Most organizations consider
ERP as an IT solution which is where they falter.
Hence, it is advisable that SME’s adopt a strategic
and planned approach while implementing ERP,
with an objective to succeed. The figure below
depicts ERP implementation in SME’s

White Paper
Challenges and Conflicts
While it is a well established fact that the market for ERP has witnessed a marked increase, there also
exists a numerous set of conflicting issues and challenges that hamper large scale adoption of ERP
in small and medium enterprises. Some such conflicting issues and challenges are
• Understanding: Most SME’s don’t have a proper understanding of the ERP system and are
largely unaware about ERP applications, vendors etc. More often than not, they are ignorant about
ERP systems as a whole and its functionalities. SME’s that are aware about ERP consider it as some
kind of enchantment that will absolve them of all their business conflicts.
• Beliefs: SME’s largely believe that ERP is exclusively designed for large enterprises simply
because of the fact that it requires large capital base for acquiring, implementing and maintaining
and ERP system.
• Past Experience: On the basis of some instances where an SME has failed even after implemen-
ting ERP has left a bad taste in the minds of most SME’s who have come to believe that ERP imple-
mentation is a waste of resources and might even result in going out of business permanently.
Image Source: Kale, P. T. SSB. Enterprise Resource Planning Implementation in Indian SMEs.; :1-7
1Is ERP Needed?
3
To what extent business
process reengineering
required?
5Whether consultant
required?
7What training is
essential?
2 Change Management
4 Who will be suitable
ERP Vendor?
6 Who will be in the
ERP team?
ERP Implementation
phase wise?
8
Post Implementation
Review
9

White Paper
Traditional [Offline] v/s. Online ERP
Traditional ERP refers to software solutions that organizations acquire in the conventional manner whe-
rein they approach a software vendor who physically visits the organization to understand the existing
infrastructure and based on the infrastructure installs the relevant software after customizing it to suit the
organizations business requirements for a prefixed cost. The costs also include monthly, half yearly
maintenance and support services. That is not all, once ERP software has been installed it is the onus of
the organization to deploy personnel who can master the intricate functions of the software. However, the
singular advantage to traditional ERP is that all data is retained and handled within the organization by
personnel who can be trusted. The flip side to it is that since it is handled by a single user, there is nobody
else who can resolve issues of conflict as and when they arise. In such situations, organizations have to
rely on vendors for extended assistance.
On the other hand, online ERP or cloud based ERP system is one where the relevant software is not insta-
lled on the server of the organization needing ERP but rather it is hosted elsewhere, running on a secure
server over the internet. The online ERP model obliterates the need for the software to be physically
loaded on to an organization’s systems. Rather it is licensed to be used from a remote location and acces-
sed through the internet. In this case, the organization does not need to have the requisite infrastructure to
install the software, undertake maintenance or up-gradation from time to time. Another advantage of
cloud based ERP is that since it is hosted over the internet, it can also be accessed using smart phones or
tablets. Furthermore, the organization does not face any hassles with regards to installation, maintenance
or customization of the software and it facilitates the organization to concentrate on their core functional
areas rather than divert their attention to the tools in use. The biggest advantage of a cloud based ERP is
the cost factor. An organization that operates from multiple locations need not worry about installing the
software at every location. A single ERP system can be easily accessed and used by different branches of
an organization irrespective of their location.
• Approach to Implementation: As discussed above there are two approaches to implement ERP out of
which the first approach is feasible. The first approach cuts down implementation costs comparatively.
However, owing to traditional business models SME’s prefer to adopt the second approach and customize
ERP implementation which is rarely cost effective.
• The Cost Factor: Cost is another conflicting area that prevents SME’s from integrating ERP within
their business procedures as SME’s are unable to allocate required funds to meet the ERP requirements.
• Managing Change: A crucial reason that leads to failure in implementing ERP is the perception of
SME’s. Instead of considering ERP as a medium to manage change, it is being considered as an automa-
tion project.
• Lack of Resources: Owing to their small size, SME’s usually don’t have an in-house IT team who can
oversee the implementation of ERP. As a result, they have to depend on outside agencies for implementa-
tion which in turn contributes to incrementing the overall cost of implementation.

White Paper
Conclusion
ERP systems provide a regimented method to the way business is conducted and offer an enhanced over-
view of the overall organizational functioning. The Indian economy is driven by SME’s to a large extent.
Globalization has shrunk the world and has exposed SME’s to global competition. Hence, the need of the
hour is for SME’s to adopt ERP systems within their business processes not only to tackle competition
but also to match pace with changing market dynamics. Just like ERP has been whole heartedly embraced
by large organizations, it is high time for SME’s to follow their footsteps.
Though SME’s seem inclined to adopt ERP systems, a proactive approach is required for successful ERP
implementation. ERP systems have to be considered as business solutions instead of IT solutions. No
doubt the market for ERP is witnessing an upward trend and the focus of vendors now lie on the SME
sector, numerous issues of conflict need concrete resolution. First and foremost, ERP needs to be extensi-
vely promoted amongst SME’s. Next, vendors have to provide ERP solutions that cater to the specific
requirement of SME’s. Another factor that is to be taken into consideration is the cost. The cost of ERP
implementation needs to be significantly lowered. SME’s on their part need to assess their existing IT
infrastructure and outline its drawbacks and at the same time create a road map on what they want to
achieve by implementing ERP within their business.
1. Mendelson H. ERP Overview.; 2000:1-18.
2. An Overview of Enterprise Resource Planning (ERP). https://www.wirc-icai.org/material/7-An-
Overview-Enterprise-Resource-Planning _ERP_.pdf.
3. Rana Basu PU. Factors influencing ERP implementation in Indian SMEs: An empirical analysis.
Manag Sci Lett. 2011:1-10.
4. Kale, P. T. SSB. Enterprise Resource Planning Implementation in Indian SMEs.; :1-7.
http://www.csi-sigegov.org/critical_pdf/27_242-248.pdf.
Source

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