Globalisation is turning many more small and medium sized enterprises (SMEs) into multinational entities. Slow growth in developed markets means entrepreneurial firms are looking to exploit international opportunities – especially in the emerging markets of Asia and Latin America.
At a time of continued economic uncertainty and heightened volatility, the ability to control operations and balance risk across different areas is critical. Yet a majority of smaller firms with cross-border operations lack visibility across their business.
Often, local subsidiaries have either been acquired or established as autonomous units, meaning they use different IT environments, business applications and business standards. When differences in standards and definitions are embedded within local business applications, it is difficult to harmonise, or manage compliance and data flows with head office. There can also be cultural and language barriers to overcome.
In order to improve global visibility and collaboration, businesses implement enterprise resource planning (ERP). ERP solutions integrate business processes, functions and workflows within a single IT architecture and provide one ‘source of truth’ (or ‘book of record’). However, ERP projects are complex, frequently taking longer and costing more than expected. Further customisation at local sites can add to the challenge, as can managing the necessary organisational change.
The cost, complexity and time required to implement ERP has meant that, up until recently, it has remained beyond the reach of most SMEs. This is changing, with mid-tier vendors now offering modular architectures and utility pricing models that make ERP much more accessible and practical for smaller organisations.
Removing the barriers
The concept of utility pricing in the IT space is nothing new, but it has been given fresh impetus with the popularity of cloud computing. Innovative ERP vendors are offering monthly subscriptions like those employed under the software-as-a-service (SaaS) model, providing a flexible alternative to the rigid user licensing agreements employed by top-tier ERP players.
Under the utility pricing model, the cost of the licence and ongoing maintenance are aggregated into a recurring monthly fee. There is no minimum contract period and upgrades can be implemented on a pay-as-you-go basis. This allows SMEs to start with a sub-set of ERP functionality and add new features as their business grows.
For SMEs expanding internationally on limited budget and resources, the benefits of this approach are two-fold. Firstly, it removes the initial barrier associated with conventional ERP systems by reducing the required capital expenditure dramatically. Secondly, it ensures that the end user organisation is not tied to a specific contract term, thus reducing risk and increasing agility. In the past, firms that have made a significant outlay during an implementation tend to sweat that asset in order to justify the investment.
There are also monthly subscription services available that deliver the benefits of SaaS, but with the full functionality of an on-premise deployment. With the latter, the software and the database are hosted locally, while applications are delivered on a ‘one-to-one’ basis. This gives the end user complete control over all systems and data, with information processed within the confines of the corporate firewall.
Conversely, SaaS solutions are hosted in the cloud and delivered on a one-to-many basis. This means the database and infrastructure are shared by multiple users across multiple sites. Thus there will be limitations in terms of database size, functionality and performance. Recent benchmarking surveys by Panorama Consulting have found that SaaS implementations of ERP take less time but deliver less business value.
Realising speed and agility
Time-to-market is essential when launching additional sites and entering new markets. SMEs in particular, cannot afford complex and lengthy ERP deployments. Utility pricing models and modular architectures are therefore proving attractive as they provide SMEs with the ability to respond rapidly to new opportunities in global markets and reduce the risk associated with conventional implementations.
A modular architecture means that a company can use only the ERP features necessary to support core business functions when establishing a new site. With the traditional capital outlay eliminated and a monthly fee that is a fraction of the cost of conventional ERP licensing, SMEs then have the flexibility to scale rapidly both up and down depending on the local market requirement. At the same time, ERP allows organisations to pool strategic functions such as finance, HR and marketing at one location and deliver them as a shared service to local subsidiaries.
By focusing on (and paying for) only a sub-set of the ERP stack, SMEs can achieve the level of insight and control so critical at the early stage of developing new sites. Process automation is a key business benefit, but global service consistency, shortened cycle times and achievement of legal compliance are also major advantages.
Additional ERP benefits can include:
- Ensuring compliance – ERP delivers accuracy, reliability and speed of reporting to both customers (e.g. SLAs) and regulators (local legislation requirements)
- Ensuring higher frequency of reporting, improved quality control and documentation of SLA compliance
- Management of administrative workflows and CRM processes, with more detailed registration of sales activities to achieve accurate sales forecasts and better lead conversion rates
Supporting early stage growth
A scalable and flexible ERP delivery model is essential for SMEs progressing through the early stages of international growth. Professional services firms for example, typically expand by stationing consultants abroad – and often in response to customers relocating. If the business in that location starts to grow, a new office will be established and more consultants employed locally.
Accace for example, is a provider of project and outsourcing services via a network of six subsidiaries and four local subcontractors. Based in Slovakia, it implemented ERP in order to track and analyse project profitability and achieve transparent business operations. All 130 employees use the ERP platform daily and all interactions have a full audit trail, which has proved essential in finding, correcting and preventing errors. More importantly, standardised processes across the company have enabled it to move towards serving larger, multinational clients that demand strict SLAs as part of the outsourcing agreement.
Meanwhile, manufacturers look to employ agents in local markets to manage incoming and outgoing supply chains. Again, if demand for their products increases, they might open a small satellite office. Should local demand prove strong, they may also establish warehouses, as well as satellite offices in nearby countries – effectively creating regional hubs.
A central warehouse solution enables local subsidiaries to ship directly to local customers, while the inter-company procurement process can be completely automated. This eliminates instances of double entry, meaning time savings, fewer errors and faster delivery time. Local sales offices are therefore able to focus on sales rather than order administration. In addition, ERP enables local subsidiaries to implement EDI (Electronic Data Interchange) for customer order management and logistics processes.
Arai Helmets Europe is a family-owned company that produces hand-built motorcycle helmets and counts Formula 1 racing drivers amongst its customers. It implemented a mid-tier ERP solution to manage its sales, marketing and logistics processes for 44 countries, but has also used it to develop a B2B e-commerce portal that gives its partners (local agents) anywhere, anytime access to the status of their order.
Aligning strategy and structure
Ultimately, building a global network of subsidiaries means aligning people, process and technology throughout multiple locations and across borders. Yet it is a common misconception that this can be achieved via an IT solution alone. For firms to compete successfully, the management structure must be aligned with, and supported by the right technology toolset. Failing to find the right combination can leave companies open to risk.
Improving insight and transparency is therefore a major challenge. Firms must also strike the right balance between standardising and localising to allow subsidiaries the level of freedom to compete effectively. And with global market conditions proving complex and unpredictable, flexible business models are now more important than ever.
Modular solutions and utility pricing mean firms no longer have to be a multinational corporation to support their international business with ERP. Each time the company enters a new location, they can simply roll out what they need in a very efficient and low cost way with minimal disruption. There’s no need to stress existing functionality as upgrades can be implemented quickly and easily.
Likewise, should a local venture fail, the contract can be terminated almost immediately, thus reducing the risk associated with investing in ERP. With the right technology tools at their disposal, SMEs and entrepreneurs have the agility, speed and scale necessary to achieve growth in the globalised economy.