Enterprise Resource Planning (ERP) software is capable of improving daily business activities such as supply chain operations, accounting, risk management, and project and inventory management. However, a digital transformation allows a company to reinvent the whole way it is run. In this article, we will discuss the differences and similarities between both options.
What are the main areas of digital transformation?
A digital transformation project consists of four main areas:
- Process transformation
- Business model transformation
- Domain transformation
- Organizational transformation
A digital transformation requires business processes to be modified through the use of digital technologies. The implementation of modern technology solutions like artificial intelligence during daily tasks allows businesses to develop and achieve new operational goals.
Business process improvement via digital transformation initiatives is accomplished through the following steps:
- Identifying the company’s goals: Decision-makers must identify the primary reasons for the adoption of new technology platforms. Do changes need to be made to the organizational structure? Will a particular technology give a business a competitive advantage?
- Establishing baseline metrics: Data is crucial to a digital strategy. Valuable insights can be obtained by measuring operational costs, the time needed to handle processes, and the number of errors that occur on a regular basis. Measuring key performance indicators will help gauge the success of a digital transformation.
- Getting everyone onboard: All stakeholders should be involved in the digital transformation process. Not only is it important to get everyone motivated to contribute to transformative business operations, but it is also necessary to receive feedback and temper expectations.
- Create workflow paths: Digital systems will help a business operate with greater efficiency. To make the best out of this, businesses must rethink their workflows considering that, for example, many manual processes will be handled automatically. The time and resources that would otherwise go to performing these tasks must be reimplemented more effectively.
- Monitoring progress: Rather than immediately deploying a digital transformation on a company-wide scale, businesses should introduce changes to small teams gradually. This will allow a company to closely monitor the progress and efficiency of new processes before making bigger changes.
Business model transformation
Innovative technologies like AI, Big Data, and cloud-based systems make traditional business models obsolete. For instance, Netflix used to be business based around allowing users to rent DVDs through physical mail. Its adoption of streaming technology and a subscription-based digital model has allowed it to create the customer experiences we know today.
Data and analytics empower companies to reinvent their current business models. Through digital transformation, businesses can renovate themselves and access new growth opportunities.
Digital transformation journeys can open many doors. Business transformations can become an opportunity to expand and reach new markets. While it’s not strictly necessary for a business to attempt a domain transformation, it can be very profitable if properly handled.
A digital transformation process entails more than implementing new technologies. Proper organizational change management through digital transformation requires companies to adapt their cultures to the internal values and behaviors of the digital age. If a company doesn’t keep a proper organizational culture, then initiatives, productivity, revenue, and competitiveness may be affected. Not the other hand, a comprehensive effort to import attitudes towards digital transformation will help staff understand and embrace it.
What are the major phases of ERP implementation?
ERP system implementation is handled through six major phases:
- Discovery and planning
- Support and updates
Discovery and planning
ERP software implementation begins with a research phase. It is necessary to lay out a project plan, target dates, proper resource allocation, design decisions, and daily project management activities.
One of the first goals of an ERP implementation team should be to gain a clear understanding of current operational issues, such as the process inefficiencies that can be improved by ERP. Likewise, it should be chosen if the ERP system will exist on-premises or in the cloud. It may be more cost-effective to opt for ERP vendors who offer subscription-based cloud solutions instead of upscaling the IT department.
Companies must design new workflows and business processes that take advantage of ERP systems. By involving users during the design phase, companies can ensure the design allows them to take full advantage of the new system.
The development phase consists of configuring and customizing software to support the redesign. Organizations may need to integrate their ERP system with other business applications. During the development phase, a company should develop materials for training purposes. Additionally, a data migration plan that involves extraction and transformation of current data should be devised.
Testing should occur concurrently with development to assert the efficiency of features and develop fixes to any issues. Companies can save time by testing one ERP module while another one is currently in development. A company’s ERP testing operations should begin with basic software functions, followed by more rigorous testing of the whole system. Testing operations should include testing migrated data and allowing a portion of staff to test systems during their daily activities.
While some companies deploy all their ERP modules concurrently, others prefer to deploy high-priority modules first. Moreover, older systems are sometimes run in tandem with ERP systems as a risk management strategy. Companies automating the status of their operations via ERP should expect some issues at first. ERP systems have many moving parts and users might be overwhelmed at first. Therefore, it is indispensable for the project team to have a proper understanding of the system, as they will need it to sort out any issues.
Support and updates
After deployment, an ERP project team’s responsibilities shift to adjusting system functionality based on user feedback. Data gathering should continue in order to assess the benefits of ERP implementation and to devise further improvements.
When it comes to updating an ERP system, the required actions depend on the type of implementation. On-premises ERP systems need periodic software updates to keep the software up-to-date. On the other hand, cloud-based ERP systems are automatically updated by the vendors.
How is digital transformation different from ERP implementation?
ERP implementation is a specific type of digital transformation. A full digital transformation initiative may contain ERP systems alongside other solutions such as big data analysis tools, cloud computing, and artificial intelligence solutions.
Core ERP systems replace traditional back-office functions, while digital transformations make overall changes to a company’s business model.
Business process management
Digital transformations have a larger impact than ERP implementation. Therefore, they require an additional focus on defining and documenting business processes.
Organizational change management
As the changes implemented through a digital transformation are larger, more robust organizational change management strategies must be deployed to certify their success. ERP requires fewer resources to go into training.
3 Tips to help you choose between ERP & digital transformation
1. Try to stay ahead of the competition
You may opt out of implementing new systems, but your competition won’t. If other businesses are improving their technological capacities and you don’t, it might be extremely detrimental to your business.
2. Take organizational risks into account
With every transformative process comes a reasonable amount of risk. The risk associated with a complete digital transformation is higher than that of an ERP. Roles must be changed and disruptions are to be expected. If a company wants to save on operational hassle, then an ERP will be the best alternative.
3. Choose the cost-effective solution
The implementation of project management changes through technology involves a considerable time and money investment. It is important to consider if the resources necessary for a digital transformation are worth it.
ERP implementation or digital transformation – which is better for your business?
A digital transformation will create larger changes than ERP. If the motive for business innovation strategies is to gain a competitive edge, then a full-on digital transformation may be the required procedure. However, an improvement in operational efficiency can be achieved through an ERP system.
Asking the question: As an IT leader, what can I do to help my company?
The pandemic forced many organizations to adopt new digital tools to allow users to work from home and efficiently communicate with customers and colleagues. Looking for guidance, many IT leaders turned to ERP solutions providers since they specialized in the field and provided pre-built and configurable tools to address their challenges.
With that in mind, experienced IT industry leaders say that it’s crucial to distinguish ERP implementations and digital transformation for organizations that wish to take their business to a higher level because they are NOT the same.
According to Eric Kimberling, CEO and Founder of Third Stage Consulting Group, they imply different degrees of preparation and results for businesses. So, what are the critical differences between ERP implementation and digital transformation? Let’s dive right into it by looking at Kimberling’s descriptions of each.
Identifying and defining the opportunity
As shown in Kimberling’s table below, digital transformation suggests fundamental changes on an organizational level and requires much more preparation. In addition, the organizational and cultural aspect of the business transforms to fit the new model, resulting in changing tasks and responsibilities for employees. Since the change is deep-rooted and comes with life-changing benefits for everyone working in the organization, substantial risk is involved.
For ERP implementations, the picture is different. Implementing these tools changes your daily work but represents a small step in digital transformation. Employees will need to adapt and train in a new system, allowing them to complete their tasks more efficiently, as this path focuses on increasing efficiency and saving on costs. However, as it only affects part of the organization and business processes, the risk remains moderate.
Making the right decision isn’t easy
As all leaders know very well, growth takes time. So, whether you feel tempted to make small changes first or go all in to transform your business on an organizational level, you must first see if your organization is ready.
You must use technology that fits your organization for a successful transformation instead of being cornered by it. As Kimberling says, there is “no one-size-fits-all answer” since organizations can be at distinct stages of becoming digital. For example, some companies might have limited resources to dedicate to change. However, here are some points to consider if you are ready and want to take the next steps.
Impactful change requires a powerful vision—a vision of helping your colleagues and how you can improve the customer journey and experience. With technology being only one part of the equation, it’s crucial to understand gaps within your organization, just as much as outside.
That means it’s always a work in progress and requires lots of effort to add value to the communities inside and surrounding your organization. However, through new and connected ecosystems, you will have the chance to collaborate, communicate and respond in real time, making everyone in your supply chain happy.
With ERP implementations, you can expect to see quicker results. The new technology will help streamline your business processes, eliminating inefficiencies and reducing labour costs. In addition, with faster results, it’s easier to quantify and track your improvements.
Small steps in the right direction
If you feel late in the game, that’s ok. You are not alone. Only 21% of North American and European enterprises say their digital transformation is done (Forrester, 2018). What’s important to remember is that this process takes time, and you must work on it every day.
Luckily, you don’t have to do it alone. Expert consulting companies like Third Stage Consulting Group and Vantree can help you analyze your progress and guide you through your journey. We will work with your team to identify gaps, set goals, and help you get there.
By choosing the right technology that fits your business and partnering with the right team of experts, you will be sure to take the proper steps toward your goals.
The importance of EDI in your digital transformation objectives
Aside from meeting trading partners’ requirements, EDI automation can help improve the staff’s quality of life by reducing errors caused by manual data entry. By pushing and pulling data from your core ERP, EDI automation improves data accuracy and communication inside and outside the organization. That means your retail and e-commerce clients will also benefit. They can enjoy faster order fulfillment, directly impacting the customer experience.
If you want to learn more about EDI’s importance in your digital transformation for small to mid-sized businesses, check out our discussion with Leena Poodipeddi and Jim Gonzales on LinkedIn.
For more questions about how EDI can help you get to where you want to be, visit www.vantree.com and ask to speak to an expert.