Digital Transformation & ERP explained
If you’re new to the concept of Digital Transformation, you might (rightfully) ask yourself what it entails. Here at Flawless Inbound, we have a goal of helping 500+ B2B companies rise above the noise with Digital Transformation by 2022 – and that journey starts with understanding what it is and how it differs from Enterprise Resource Planning (ERP).
Who? What? How?
To gain a comprehensive understanding of how both concepts differ, let’s first define them individually. Enterprise Resource Planning (ERP) is the use of dedicated software, usually a single system from a single provider, to manage main business processes. It’s generally considered a more traditional approach, and emphasizes the simplicity of centralizing business management using one core system. In contrast, Digital Transformation is much broader in its approach and focuses on adding value by using different technologies from multiple vendors – including ERP.
Digital Transformation is highly specific to the needs of a company with relation to its industry and target audience. For instance, implementing e-commerce may be right for one company, in another case it’s all about Digital Asset Management.
While both ERP and Digital Transformation are centered around the implementation and use of technology, they vary in regard to scope and scale.
ERP generally uses a single type of specialized planning software from a single provider that focuses on improving back office technology – e. g. financials, inventory management, logistics, and distribution.
Digital Transformation is a broader approach to implementing technology with the goal of maximizing business efficiency. While ERP can be part of this process, Digital Transformation may include software for Human Capital Management, eCommerce, web apps, analytics, AI, supply chain management, and more – depending on the business’ needs.
Business Process Management
ERP is aimed at automating and enhancing existing business procedures: the goal to improve existing processes so as to reach maximum efficacy. If we think of the business as a machine, ERP is like performing maintenance, oiling its moving parts and screwing in loose bolts so that it performes at its best.
With Digital Transformation, the goal is to increase business value by reengineering processes and implementing new ones. Instead of bringing an old machine up to speed, it’s about building an entirely new one that works much more efficiently and ultimately maximizes profits.
Organizational Change Management
Both ERP and Digital Transformation require transitional work and well-structured change management. ERP implementation involves training employees to perform transactions using the new technology; it’s a fairly simple transitional period without major disruptions and relatively short in duration.
Digital Transformation, however, requires a much more hands-on approach. Organizational structures must be redesigned to align with new technology and business models, and employees must become experts in the tech they’re using in order to maximize the value added to the business. While the transitional period takes longer, the result is an efficient reorganization of operations that allows companies and employees to maximize their potential through the use of new technology.
ERP and Digital Transformation impact business value differently. ERP focuses on lowering costs in the areas of IT and maintenance, and simultaneously increasing operational efficiency.
While ERP is aimed at minimizing operational costs, Digital Transformation seeks to maximize customer satisfaction, user experience, and brand loyalty through strategic revenue enhancements. It sets businesses up to see more customer-generated value in the long term.
Digital Transformation drastically alters the way a business operates to optimize efficiency of the entire organization. It’s where efficiency-generated business savings meet customer-generated value.
Transformation Time and Cost
ERP and Digital Transformation come with widely different implementation times and volumes. ERP, being more limited in scope, takes an average of 18 months to become fully entrenched in a company’s operations, while costing an average of 3% of annual revenue to implement.
Digital Transformation, on the other hand, is a bigger commitment: as it relies on full-scale organizational and cultural changes, it typically takes longer and costs more in the short term.
Potential Risks and Gains
Every change in how a business operates inevitably carries some risk. ERP has a moderate level of risk: it’s a fairly big change in operational management, but the potential damage is low. Similarly, the potential gains are moderate and lie predominantly in streamlining operations and saving costs.
Digital Transformation carries much more risk as it entails significant changes across all aspects of a business – people, processes, and technologies. If done wrong, Digital Transformation can damage a business, but with the right strategy and implementation partner, it has the potential to catalyze massive gains for an organization.
Both ERP and Digital Transformation have their strengths and weaknesses, and which one is right for you depends on your business. In any case, it’s important to choose the right partner to support you throughout the process.
At Flawless Inbound, we’ve helped 120+ organizations in diverse industries successfully complete their Digital Transformations and ERP implementations, and we’ve seen how rewarding the results are. If you’d like to talk about your B2B’s growth with us, you can reach us at 780-784-7600. Your future starts with the first step.