ERP Vendor Business Strategy during COVID-19

Since the COVID-19 was discovered at the end of 2019, ERP vendors went through a business environment that had been constantly changing. And it lasted much longer than one would have expected.  So, what could be the business strategy that ERP Vendors can adopt during COVID-19?

Impact of COVID-19 on the ERP Business Environment

This unprecedented period put strains on ERP business owners and managers and impact the business of Enterprise Resource Planning (ERP) vendors. In this article, we will look at the impact from the demand and supply side of the business and how it affects the ERP vendor business strategy during COVID-19:

Demand Side Challenges

There are a few possible impacts on the leads generation and orders of the ERP business depending on which country/region that your ERP business operates:

Sudden Drop in Demand

With the businesses of most of the potential and existing ERP customers affected by the rapidly deteriorating business condition, these companies will cancel or delay their ERP purchase decision. This is especially so for companies that were already not in a strong cash flow position before COVID-19.

Increase in Demand in Certain Segments

Despite the general decline in sales opportunity, there will be some growth segments during this challenging period:

1. Companies that were in a healthy cash flow situation and especially those who are facing a shortage of human resources due to the lockdown and work-from-home policy. They may have the following requirements:
   • Looking at cloud solution either as in new ERP or enhancing their existing ERP to allow remote working.
   • Some businesses faced a sudden surge in business demand and looking for solutions to improve their capability to handle them.
2. Forward-looking companies trying to make use of the government grants for ERP. They may plan to invest in solutions and training to improve their business capability in anticipation of the recovery. Besides ERP, they may explore areas such as Industrial 4.0, IoT, and e-commerce.
3. The increased e-Commerce activities will generate demand for ERPs with strong e-Commerce capability or additional work to integrate existing ERP with e-Commerce.
4. Companies that are currently using expensive Tier-one ERP solutions looking for ERP that can deliver the required performance at lower running costs.
5. Existing ERP Users who are looking for a change in support partner.

Beware, More Dangers Ahead

The demand for these segments with increased demand for ERP will likely last for 2 to 3 years. There may be an upcoming period when the segments with increased demand will be exhausting and yet segments that experienced a drop in demand will not start their recovery. This is notwithstanding any unexpected future events that may create shock in the economic situation.

Extended AR Ageing and Deteriorating Bad Debt

With the deteriorating business condition, the account receivable aging will increase and even increase bad debt.

Supply Side Challenges

If we look at the supply side, three changes will result in long-lasting impacts on ERP vendors:

1. Social Distancing
2. Quarantine, lockdown, and work-from-home policy
3. Cost-cutting measures such as reducing headcount and welfare-related expenses

These changes will lead to the following impacts and ERP vendors have to adjust their business strategy to meet the challenges during COVID-19:

The sudden surge in Workload with Reduced Resources

For ERP vendors who adopt cost-cutting measures through reducing headcount, the remaining resource will have to take over the existing projects. This will put pressure on the remaining consultants.

In cases when there was a lack of procedure or attention on project handing and taking over, it will result in mistakes and errors in project execution.

Increase in Implementation Time and Cost

The lockdown and work-from-home will make communication more difficult and slow down the speed of implementation.

Poor handing-and-taking-over of projects will make the situation worse. These will increase project implementation costs since more time will have to be spent on each project and yet it is difficult to transfer these increased costs to customers.

The risk that project team members may be quarantined when contacted COVID-19 will increase uncertainty on the project execution.

Lower Morale

The departure of peers due to cost-cutting and the taking over of their workload will lower the morale of team members who remain in the company. They will also have felt a lack of job security.

Difficulty in Employing Foreign Talents

With the government taking action to protect locals through restrictions on foreign talents and the international traveling curb, ERP vendors may experience a shortage of resources and an increase in the cost of hiring.

Recovery Leads to Attrition

The low morale and shortage of consultants will later lead to higher attrition. This will drive costs higher.

What can ERP Vendors Do?

So, what can the ERP vendors do? There are some actions that ERP vendors can consider and business strategies that ERP vendors can adopt during COVID-19.

Business and Cash Flow Planning

At a time when the future is highly volatile, it is important to anticipate the likely upcoming situation and work out contingency plans. Cash is king in this situation and good cash flow management is critical. Work out your cash flow forecast based on:

1. Best case scenario
2. Likely scenario
3. Worst case scenario

Think of the action that you may need to take in these scenarios. In the worst-case scenario, you may want to consider:

1. What costs to cut without serious and long-term damage to the capability of the company.
2. Where are the options for additional funding, if required

It may be good if ERP vendors can go through this exercise by involving the key persons so that they will have a better awareness of the situation and be able to contribute ideas and information based on their expertise.

Enhancing Marketing Focus

Do not panic when situations worsen. If you have done the first exercise, you should be ready for action when the situation is revealed.

ERP vendors may have to re-design their marketing campaigns to target growth segments mentioned earlier. The focus is to achieve higher ROI with the reduced marketing fund.

Improve your marketing messaging to attract the target segment mentioned above. Look into themes such as cloud solution, e-Commerce, Industrial 4.0, reducing ERP costs, etc, and use case studies to support your claim whenever they are available.

Qualify Prospect Carefully

Bad Debt and extended AR will bring more trouble to the ERP vendors. So, it is important to qualify your prospects carefully. This is especially important to avoid the following prospects:

1. Prospects who are looking to replace their existing support partner. There is the possibility that they are not receiving services from their existing support partner due to payment issues.
2. Prospects that are looking for ERP solutions but may not have the financial ability to fund the project through completion.

Optimizing Implementation Process

Try to complete the project as soon as possible because:

1. The earlier the project milestones are completed, the earlier you can start the payment collection
2. Projects that dragged usually result in unhappy customers with project cost overrun. This will make it difficult to bill the customers and collect payments
3. The longer projects drag, the likelihood that there will be attrition in project team members. The project manager and consultants will need to spend extra effort in handing and taking over.

Whenever there is time, organize the consultant team to study the existing implementation processes to find ways to reduce the implementation effort. The group discussion and brainstorming will also provide a team-building opportunity.

Product and Capability Development

Enhancing the E-Commerce capability of your ERP solution or the implementation capability to integrate your ERP solution with an e-Commerce solution, IoT, MES will provide you with the edge to compete.

Focus on Collection

With the risk of bad debt and prolonged AR aging, it is important to put focus on AR collection.

1. Have periodic AR meetings with the salesperson, project, and finance to ensure that all billing and collections are done promptly.
2. It is even more important to minimize customer complaints from project implementation and support so that there are fewer reasons for the customer to delay payment.

Retaining Talents

In the ERP business, people are the most important asset. If you do not take care of your people, someone else will. And usually, it is the more capable people who will leave.
So, no matter how tough the situation is, business owners and managers will need to put the effort into retaining talents. This can be done through the following ways:

1. Communicate, Communicate, Communicate. Managers should always create opportunities and find creative ways to maintain communication with their team. Remember, “no communicate itself is a communication, except that you will have no control of what will be communicated”.
2. Create internal projects for the team to work together.
3. Create opportunities for company social gatherings if possible. However, the safety of team members should always come first.

Conclusion

The impacts of COVID-19 will be long-lasting even after it is over.

While ERP vendors are trying to solve the challenges of short-term survival, they should not lose sight of the mid to long-term business potential. ERP vendors should be careful not to sacrifice their long-term credibility and capability.

Think positive: What doesn’t kill you will make you stronger!  You just need to be better than your competitors.

Learn More about the author, Raymond Yap, and how we can help you.

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