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ERP Integration: Challenges, Benefits, Considerations and Key Types

The oft-repeated phrase “United we stand, divided we fall” is applicable to more than just war movies and superhero TV shows.  It’s also a great summation of why ERP software integration is key to running a successful business.  As Information Builders puts it: “In every ERP implementation, there comes a time where these wide-reaching, all encompassing systems need to communicate with other 3rd party solutions and legacy applications.”  At a certain point, the more you keep your different types of software apart, the more likely it is that data will be inconsistent and your processes will become inefficient.  This can lead to confusion between departments and an ineffective workflow (the bane of any business’ existence).

What exactly is ERP software integration?  In Layman’s terms, it’s the process of bringing together an ERP system with another type of software to maintain consistent information and automate certain processes.  What makes ERP software integration so key is that it provides a single location to find information on everything from ecommerce to HR documents to sales leads, so everyone in an organization stays on the same page.

So what are the best categories for ERP software integration?  Well, all of them, actually; the more you integrate third-party solutions with your ERP the better.  But if you’re going to prioritize certain integration solutions over others, here’s where your focus should be:

Types of ERP Integrations

CRM

The most important cog in your successful-business machine is proper communication with, and excellent customer service provided to your customers, says Aptean.  This can be one of the biggest advantages over your competition, so optimizing your customer communication with a “best-of-breed” CRM is crucial.  For this reason, CRM and ERP integration is one of the most common, and therefore it’s likely be the easiest category on this list to integrate.  If you’re already using a CRM (which you probably already are) but don’t have it integrated with your ERP yet, we highly suggest you do so because of the “critical link between demand (CRM) and supply (ERP)” that it provides.  This link helps streamline the marketing and sales process.

Business Intelligence

Business Intelligence (BI) software is one of the most useful tools in a business’ decision-making arsenal.  By collecting and analyzing internal data, BI software helps businesses find the insights that lead to successful new ventures or business practices.  The lessons learned from the data collected by BI software are often the launching point to these new implementations, so by integrating your BI vendor with your ERP, your data and insights are easy to access at any time by any employee.

HR

The HR department has some of the most extensive back office needs of any department, so providing an efficient workflow is key.  The HR department is, after all, the one department that deals with every employee in your business regardless of title or leadership status.  Incorporating your HR vendor’s capabilities with your ERP helps keep track of all of those time-consuming back office tasks by properly placing them in the workflow on your ERP.

Project Management

Many ERP systems include some type of project management solution, but if you’re already using a third-party project management software, your ERP’s version is doubtfully as sophisticated.  What makes this integration so effective is that all of your business tasks, processes and workflows can be aggregated in one place.  At any time, any employee can see which projects are done, which are in progress, who’s working on them and what projects are coming up.  This can be a huge time-saver so nobody has to ask around to find out, for example, which developer is tackling a bug fix or which sales rep is following up with a lead.

eCommerce

This one comes down to the all-encompassing buzzword of “efficiency.”  Any kind of business that manages orders can benefit from integrating their eCommerce applications for much the same reason as BI: data collection.  Some of the most important data that these businesses collect are related to orders, inventories, customer information and shipping.  As Liz Carpenter at nchannel explains, you can reach a higher level of efficiency when this data is seamlessly communicated with your other systems, thereby automating the data transfer process (and eliminating the need for any manual input).

These five types of third-party software are the most important to consider when beginning and ERP system integration.  When you start the process, it’s important to make sure that it happens as seamlessly as possible.  Ask your ERP vendor about what third-party vendors it already integrates with, and make sure to check our Leaderboards if you need help deciding which one will work best for your business.

Post-Merger ERP

Mergers and acquisitions (M&A) have become a key strategic action for many companies attempting to mitigate the uncertainties of the global economy of the last several years. However, from an operational perspective, they can present serious challenges to the surviving organization after the merger. This point is supported by numerous industry surveys that confirm that, on average, 75% of acquisitions are negatively impacted by low performance results post-merger.

Further investigation reveals that one of the most significant operational pain points is information systems (IS) integration, and topping this list is enterprise resource planning (ERP) integration. Most business processes are embedded in the ERP system, so if the merger is to succeed, this process, knowledge and skills must be transferred to the merged entity. Without this crucial step, all the expected benefits that should result from the synergy of the merger — cost savings, economies of scale and revenue enhancements — are at risk.

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Consider questions such as:

  • Can operations be standardized on one platform without the loss of functionality and productivity?
  • What types of strategic capabilities can be transferred?
  • How do you undertake data migration with the least disruption to the business and the greatest overall efficiency?

The answers to questions such as these should initiate a process that closely aligns the ERP integration strategy with the overall business strategy of the newly formed company. In so doing, operational gaps in the system will come to the surface, and new areas of improvement and opportunity will likewise be identified.

Challenges for ERP Integration

Given the increasing frequency of M&A in the global and domestic economies, the scarcity of research information on the integration of ERP systems is surprising. Existing research indicates that two-thirds of all M&A initiatives end in failure, which only reinforces the need for additional research and study. While cultural problems contribute to many merger failures, the larger number of failures are attributed to the lack of an effective integration strategy for ERP systems.

During the merger and acquisition process, most decisions are made at the management level, scarcely including the involvement of Information Technology (IT). But these decisions directly impact how successful the IT department will be in executing all of the operational changes required to make the merger a success. Mergers and acquisitions can set in motion a high degree of disruption, uncertainty and stress for all of those affected by the changes. Having some form of representation from every unit of the company, especially ones as critical as the IT department, would help to settle some of the anxiety in the work environment. Better communication and openness can go a long way towards decreasing the resistance from the merging staff, who might otherwise feel little, if any, sense of loyalty or ownership in the merger.

But it’s during integration that the future well-being of the company is at its most vulnerable. Therefore, it makes good business sense to introduce a thorough and well-reasoned change management strategy that supports the staff as they undertake some of the most critical functions that contribute to the restructure of the company’s entire business environment.

Below are just a few of the operational issues that should be defined and addressed in order to initiate the process that will lead to a successful ERP integration:

IT Integration Needs the Support of a Coherent Strategy

Deciding which ERP system to keep and which one to retire is an important strategic decision. But in order to determine which system or systems will be most effective for the merged organization, it’s important to first consider how the new business will operate going forward and align ERP with the goals of the business. The decision of which system to keep should be based on business needs; not driven by internal politics. The first steps should include defining the ERP strategy for the new organization. Answering the following questions will begin the discussion that’ll address many of the technical issues that need to be clarified before an effective ERP integration strategy can be put in place:

  • Will or can all operations be standardized on one platform without sacrificing functionality? Or will some operations remain independently operated?
  • Will there be any shared areas across both organizations, such as HR or finance? Or will they retain their independence?

Data Integration and Data Migration

Without the proper handling of data, the likelihood of failure for mergers and acquisitions is very high. In fact, according to a 2007 Hay Group study, 75% of managers don’t even consider the question of how integrating IT systems will impact operations after the merger. When different information systems require integration after a merger or acquisition, migrating data could present a challenge if different formats are involved. Data should be converted to a common format before migration, to make the process accurate. In addition, the information must be up to date and of good quality, meaning it should be standardized across systems and functional areas. Without these basic parameters, integration of data could result in interoperability and data quality issues. Data issues around ERP systems can be very costly problems to resolve, and therefore should play a significant part in any M&A.

ERP Integrations Involving Legacy Applications Might Look to Cloud Solutions as a More Cost-Effective Alternative

It can be difficult and costly to integrate legacy applications that were not designed to integrate with other platforms. There are middleware software solutions that can deal with some of the issues, but they can be costly and require customization and manual processes. Other options, like upgrades to on-premise systems, can also be extremely expensive. Cloud solutions that can integrate with many types of ERP might be a good alternative. They’re more affordable, more flexible and offer pay-as-you-go pricing that lowers the total cost of ownership. This doesn’t necessarily imply that companies would have to convert to an all-cloud ERP. But moving some functions to the cloud could prove advantageous to many companies. This hybrid approach that utilizes multiple solutions is often the best option for merged organizations. This option is becoming more feasible as many enterprise ERPs now support cloud applications on their on-premise systems, furthering the ultimate goal of meeting specific business needs.

Final Thoughts on M&A

Many market forces have aligned to bring about the growing volume of mergers and acquisitions in recent years. The success or failure of many of these deals hinges upon the execution of the integration strategy. This fact reinforces the necessity for IT to play a strategic part at all stages of the M&A, and to pay close attention to data issues, especially around ERP systems. Many organizations decide to leave the discussion about the alignment of IT systems and business needs to a very late stage in the post-merger process. This, however, requires reassessment, as the ability to deliver on the merger’s intended value is dependant upon the proper attention paid to this issue in a timely manner. The benefits of a successful ERP integration to the business are clear, but the fact that they directly reinforce and operationalize the expected benefits of the merger make them indispensable.

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Potential Pitfalls of ERP Integration

Enterprise Resource Planning systems, or ERP, streamline business processes by integrating the routine management of multiple departments into one software system. Large companies that need to manage their finances, supply chain management, customer service, and human resources often want to do so in a single centralized, integrated solution. Therefore, these companies turn to ERP software integration.

ERP systems are in high demand because of their ability to communicate with existing business software. However, such integrations are often complex and costly, no matter if the system is an on-premise solution or a cloud-based ERP. Business owners need to be aware of common pitfalls of ERP integrations while weighing the different options.

When evaluating an ERP application for possible integration, consider these factors:

Complexity

ERP software is often very complicated, requiring specialized knowledge to manage the system. Because of this, some departments may not take to the new software as easily. It’s important to get major stakeholders and decision makers on board before pursuing a new ERP integration. Lay out a timeline and estimates for the integration, so the necessary departments can prepare accordingly.

Cost

ERP integrations for large businesses can be very costly upfront. That’s why doing your research and testing your integration before committing to it is so important. Besides the direct costs of software, you need to consider the indirect costs as well. Will you need to pay someone to maintain the system? What if you have technical problems? What if the system malfunctions? Include these indirect costs in your estimate. To make sure you aren’t wasting your money, check out this cheat sheet of features to look for in an ERP integration.

Training

Because of the complexity of the software, teams usually require training on how to use it. This adds more cost in both time and money. If you’re developing custom middleware to connect your CRM and ERP, for example, you’ll need to provide additional training specifically for that.

Customization

While many companies originally intend to implement off-the-shelf technologies, project requirements often require customization.  ERP implementations in particular usually require a lot of customization. Whether this is a custom interface or middleware to connect the ERP to your existing IT systems, customization is nearly unavoidable these days. And that’s a problem.

According to a report by Panorama Consulting, only 23% of organizations use ERP solutions with little or no customization. On the other end, 34% of organizations say they “heavily” customize their software.

Customizing the system allows your business to meet each of your departments’ specific needs, but also adds a layer of complexity and risk to the product.

ERP Integration Considerations

Many ERP solutions provide a number of modules to interact with their software, but third-party business services require a custom integration. While ERP software is flexible enough to integrate with your existing workflows and systems, that can also be its downfall. According to Toolbox, many companies end up creating complex custom middleware to combine multiple systems (such as connecting a barcode reader or your CRM, for instance). As described in the Customization section above, the flexibility can work against businesses when it makes maintenance and upgrades difficult.

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In addition, be prepared to answer questions about data exchange (how will data pass from one system to another, and does it need extra reformatting?). A package for your ERP may exist, but more than likely you’ll have to build an external integration to manipulate the data from one format to another.

You also have to make sure you evaluate the capabilities of the ERP system, as well as determine which services you want to integrate and which you don’t.

Because of these potential pitfalls, it’s important to consider the ease of ERP integration and maintainability when choosing a system.

SelectHubERP Integration: Challenges, Benefits, Considerations and Key Types

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