Strategic Choices in ERP Management: In-House Teams or External Consultants?

Introduction

Companies operating Enterprise Resource Planning (ERP) systems often grapple with the substantial running costs associated with their ERP solutions. Beyond software expenses, the considerable investment in consulting and support services becomes a major component of their ERP budget. This concern becomes more pronounced for firms extensively customizing their ERP through programming. While some opt for in-house ERP specialists to cut service costs, the debate arises: Should companies running ERP systems outsource or employ in-house ERP resources?

Characteristics of Companies Employing In-House ERP Resources

In my nearly 30 years of collaborating with companies and ERP vendors, those Enterprise Resource Planning (ERP) user companies relying on in-house ERP resources exhibit distinctive characteristics:

Scale and Complexity

Typically, only sizable companies with extensive ERP systems and large in-house teams come close to achieving self-sufficiency, but, they still engage external vendors for specific support services when needed.

Outdated Expertise

In-house ERP resources, who have been managing their Enterprise Resource Planning (ERP) systems for years, may lag in staying updated, dedicating more time to routine tasks and coordination with external vendors.

Dependency on Individuals

Companies with limited in-house ERP personnel risk reliance on a single in-house ERP developer, leading to issues in quality control, documentation, and system continuity.

Old or Obsolete Systems

Firms with in-house ERP resources tend to operate on older or outdated ERP system versions.  This is probably due to higher upgrading costs because of their often heavily customized ERP system.

Challenges of Employing In-House ERP Resources

So, what are the challenges of employing in-house Enterprise Resource Planning (ERP) personnel?

ERP Functional and Programming Skills

Maintaining and supporting ERP systems requires Enterprise Resource Planning (ERP) Functional and Programming skills. Even amongst the ERP vendors community, consultants proficient in both functional and programming are rare and hard to come by. If companies employ only an ERP programmer in-house, the in-house ERP programmer naturally employs his programming skill as the preferred way to meet the user requirement instead of the functional configuration with which he is less familiar.

Companies need to understand that within ERP vendors, programmers usually work with functional consultants for requirement input and quality control of their work. If an ERP programmer works alone without third-party input and quality control, the output from their work tends to be of lower quality.

Management’s Lack of ERP Knowledge

In end-user companies, management is usually not familiar with ERP. So, if even professional ERP vendors are having a hard time screening and recruiting good ERP resources when they are familiar with what constitutes a good ERP consultant, what is the likelihood that management who lacks ERP knowledge can recruit and select good in-house ERP resources?

ERP Services is Not Purely IT Services

The majority of in-house IT Managers/Directors are usually more familiar with IT infrastructure, hardware, and office applications such as Microsoft Office and Servers. Very few IT Managers/Directors that I encountered are truly familiar with ERP except those from very large companies running complex ERP systems. And SMEs will not be able to justify employing their expert services. So, the IT Managers/Directors who have limited knowledge about ERP will still primarily engage ERP vendors for ERP services.

Lack of In-House ERP Work

Except for extensive ERP systems that require constant optimization and fine-tuning, most modern ERP systems do not need much routine maintenance work once they are implemented and stabilized.

Large companies that can justify employing an ERP team often need them to constantly optimize their large databases, multi-site deployment, or periodic needs to set up new entities, such as those in large retail organizations.

Lack of Career Advancement

In-house ERP resources often lack career advancement unless they work within a large in-house ERP team. This makes it difficult to attract and retain good ERP talents. For those in-house ERP resources who feel comfortable staying, there is a lack of motivation to advance their Enterprise Resource Planning (ERP) skills. If they are motivated mainly by remuneration, they will eventually become overpaid or will hop to another higher-paid job when the opportunity arises.

After an ERP in-house person stays in one company for years, they will run out of motivation to improve their ERP systems. That’s why they will prefer to keep the old or obsolete ERP system they are already familiar with for as long as possible.

Impacts of Cloud ERPs

With the more widespread adoption of cloud ERP, the need for in-house ERP specialists and resources is becoming less clear.  Cloud ERPs deliver two significant changes:

1. Infrastructure, routine optimizations, and bug fixes will be handled by the hosting partner.  Hence, it reduces the need for users to perform routine maintenance.
2. Cloud ERPs restrict the extent of customization by programming.  This limits the amount of work of in-house ERP programmers.

Recommendations

Minimize Customization

Most of the problems that I encountered in ERP projects or support of ERP systems arise from extensive customization of the ERP system through the use of programming. Customization through programming is like taking steroids. They are necessary but often come with long-term side effects. So, do it with caution.

If you find that you need heavy programming of your ERP system, re-examine your expectations. The reality is: “There is no perfect ERP solution. If there is, then there will not be new versions and upgrades”. So, focus on selecting the appropriate ERP solution and implementing it well.

Documentation and Quality Control

Insist on consistent documentation and implement quality control procedures to ensure the sustainability of in-house customization.

Maintain Positive Relationships with ERP Vendors

Even with a robust in-house team, maintaining positive relationships with ERP vendors is essential for staying up-to-date and accessing additional resources.

ROI Considerations

Evaluate the decision to employ in-house resources based on both quantitative factors:

Quantitation Factors

1. Understand the Current and Expected annual cost of utilizing ERP vendor
2. Expected reduction in vendor cost after employing in-house ERP resources
3. Total remunerations of in-house resources

Qualitative Factors

1. Understand your ability to recruit and appraise suitable ERP in-house resources
2. Understand the additional effort to manage the ERP in-house resources
3. Consider the risks that come with employing in-house resources such as challenges of retaining good ERP staff and lack of continuity

Engage External ERP Strategic Consultant

For companies lacking ERP expertise, consider external ERP consultants, such as 1st ERP consulting, to provide strategic guidance and reduce uncertainty in ERP strategies.

Conclusion

In the dynamic landscape of Enterprise Resource Planning (ERP), the debate between employing in-house resources and outsourcing services continues to shape the strategies of companies navigating the complexities of ERP systems. While the allure of cost savings may initially attract businesses towards building an in-house ERP team, it’s crucial to weigh the challenges and limitations associated with this approach.

The characteristics of companies relying on in-house ERP resources underscore the importance of scale, expertise, and adaptability. Larger enterprises with extensive ERP systems might find a semblance of self-sufficiency, but even they acknowledge the value of external support for specific services and upgrades. The risks associated with in-house resources, from outdated expertise to dependency on individuals, emphasize the need for a thoughtful approach.

The challenges presented by in-house ERP resources, including the delicate balance between functional and programming skills and the management’s lack of ERP knowledge, underscore the complexity of maintaining an effective in-house team. Additionally, the realization that ERP is more than just IT services and the lack of continuous, impactful work for in-house teams often raise questions about the true necessity of such resources.

Our recommendations revolve around a strategic approach: minimizing customization, ensuring documentation and quality control, maintaining relationships with ERP vendors, evaluating ROI, and considering external ERP consultants. These strategies aim to address the pitfalls associated with in-house ERP resources and guide companies toward making informed decisions that align with their organizational goals and long-term success.

In conclusion, the ERP landscape demands a nuanced understanding of the balance between in-house resources and external expertise. While in-house teams can bring value, the challenges they pose require careful consideration. Striking a balance, leveraging external support, and making decisions based on long-term ROI will position companies for agility, innovation, and sustained success in their ERP endeavors.

Author: Raymond Yap.

1st ERP Consulting offers consulting services and advice to help you “Optimize your business through better ERP Practices“.  Contact us today to schedule a discussion. We can help you strategize and optimize your ERP business, ensuring you are prepared for the challenges ahead.

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