ERP systems can generate significant business benefits for an organization. The major benefits fall into the following categories:

Organizational flexibility and agility: As you have seen, ERP systems break down many former departmental and functional silos of business processes, information systems, and information resources. In this way, they make organizations more flexible, agile, and adaptive. The organizations can therefore respond quickly to changing business conditions and capitalize on new business opportunities.

Decision support: ERP systems provide essential information on business performance across functional areas. This information significantly improves managers’ ability to make better, more timely decisions.

Quality and efficiency ERP systems integrate and improve an organization’s business processes, generating significant improvements in the quality of production, distribution, and customer service.

The major limitations of ERP implementations include:

• The business processes in ERP software are often predefined by the best practices that the ERP vendor has developed. Best practices are the most successful solutions or problem-solving methods for achieving a business objective. As a result, companies may need to change their existing business processes to fit the predefined business processes incorporated into the ERP software. For companies with well-established procedures, this requirement can create serious problems, especially if employees do not want to abandon their old ways of working and therefore resist the changes.

  At the same time, however, an ERP implementation can provide an opportunity to improve and in some cases completely redesign inefficient, ineffective, or outdated procedures. In fact, many companies benefit from implementing best practices for their accounting, finance, and human resource processes, as well as other support activities that companies do not consider a source of competitive advantage.

• ERP systems can be extremely complex, expensive, and time-consuming to implement. In fact, the costs and risks of failure in implementing a new ERP system are substantial. Quite a few companies have experienced costly ERP implementation failures. Large losses in revenue, profits, and market share have resulted when core business processes and information systems failed or did not work properly. In many cases, orders and shipments were lost, inventory changes were not recorded correctly, and unreliable inventory levels caused major-stock outs to occur.

In almost every ERP implementation failure, the company’s business managers and IT professionals underestimated the complexity of the planning, development, and training that were required to prepare for a new ERP system that would fundamentally change their business processes and information systems. The major causes of ERP implementation failure include:

• Failure to involve affected employees in the planning and development phases and in change management processes;

• Trying to do too much too fast in the conversion process;

• Insufficient training in the new work tasks required by the ERP system;

• The failure to perform proper data conversion and testing for the new system.