I read a very interesting post on this blog by Martin Gunnarson, who is the Director for Research and Strategy at IFS. The title is “Owning Enterprise Software Doesn’t Add Value To Your Business; Using It Does!”
Reading Martin’s words inspired me to share my view about what role an ERP system plays within a company’s organization, and how IFS Applications can be one important element in supporting a company’s aspirations to grow, increase profitability or whatever the business objectives are.
I am fortunate to have the opportunity to talk to university students a couple of times every year. One of the slides I always include in the deck is called “The role of ERP” and it serves as a good platform to prove my point.
Forces
Forces are external and relates to the world a company operates in. It has to do with the competition and the market-place, and the authorities and the legislation the company has to follow. It has to do with cost of labor, energy and raw materials, and with emerging technologies.
Forces can be an opportunity or a threat. Usually, they are both.
- Globalization, trade barriers have eroded: as a result, most companies experience increased competition in the home market. At the same time globalization is an opportunity to grow in new markets.
- The legislation around environmental, health and safety issues has become much stricter over the past decade. The REACH legislation within the European Union is one example of this. Companies’ that manage to deal with these matters in a cost efficient way will gain a competitive advantage.
- The demand for raw materials such as iron, gold, copper and oil has increased: as a result, we see prices increase. By developing new innovative products that depends less on scarce resources a company can gain cost advantages, and maybe as important, raise its image and perception in the market.
Strategies
By definition there isn’t much a single company can do about these forces. Instead they need to deploy different strategies to turn the new circumstances into business opportunities and competitive advantages.
Globalization has meant that companies tend to grow horizontally into new markets. To remain competitive and gain benefits of scale in the new landscape they also shrink vertically, or put it in different words, specialize. With a global market within reach, smaller niche market suddenly becomes a profitable opportunity.
A consequence of both legislation, consumer awareness and – last but not least – increased raw material prices has lead us into a “circular economy” where decommissioning and re-cycling are considered as important elements of the lifecycle cost of a product. This is discussed by Antony Bourne, Industry Director for Manufacturing at IFS, in his recent post, “Remanufacturing and the Move Towards a Circular Economy.”
Examples aside, the main message here is that external forces will drive companies to deploy new strategies to remain successful.
According to Darwinism, those species who fail to adapt will face extermination. This has proven to be true also for businesses.
Seventy percent of the companies that were on the Fortune 1000 list just ten years ago have now vanished, according to Forrester Research. This is largely because they were unable to adapt to change.
Expecting the unexpected and evolving quickly are fundamental characteristics of successful organizations.
Going global and, at the same time, specializing means more complex supply networks. Even though this might be the right strategy for a company, the chances are that things will fail when it comes to execution.
Doing business as an integrated supply network across a number of countries with larger, yet more specialized facilities is quite a different challenge compared to before, when everything happened within the four walls of the company.
Capabilities
You will need a whole new set of capabilities, never even considered before. You need:
- Transparency and synchronization across sites and country borders
- To be able to deal with legislation in a number of new regions
- To consolidate forecasts into a single version of the truth
- To (potentially) source demand based on customer location and product availability
And much more.
Enablers
This is the point where ERP functionality comes into play together with many other enablers such as organization, competence and capital.
Whether we like to believe it or not, I am quite convinced that most strategies can be deployed no matter the ERP system – it’s just a question of how much manual work, Excel spreadsheet islands and mistakes the organization can carry.
Time is an increasingly important success factor for businesses and with an ERP system, companies will achieve quicker results at lower risk thanks to transparent processes and business data.
For us at IFS, it means that we have to work closely with our customers to really understand the market conditions in the industries and regions where we have decided to focus.
We need to be able translate new strategies and the capabilities needed to support them into new innovations. We need agile product development and the underlying technology that allows us to bring new innovations to market in a short time and without sacrificing quality.
And finally, we need to understand the importance of how our being agile allows our users to also be agile.
Those who fail to adapt face extermination. To put that in more positive words, the success of our customers is also our success.
If you have 60 seconds right now, you can find out more about why business agility matters in this new IFS video:
