Adopting Cloud ERP: Is it a threat to your organization?
Abstract: Your company infrastructure functions a lot like any living organism. And like any living organism, it is built to evolve over time through its relationship with its environment. However, every business organism has an immune system meant to protect it against threats to its status quo. In this article, I’ll be looking at where a Cloud ERP system ties into the organizational system of a company and where growth is often impeded by a reluctant immune system.
Change: A 6 letter word that will send shivers up the spine of most business decision-makers.
Here’s where things can go wrong.
The 21st century is truly the pinnacle of the international business world, with trends and technologies evolving by the hour. Buyers are no longer just looking for a product or a service, they want to belong to a brand – a company model that they feel will evolve to their growing needs. Just look at Apple’s yearly new release model for phones and how they differentiate themselves through their perception as an evolving industry player vs BlackBerry’s fall from being one of the titans of the mobile industry to a small-scale competitor to today’s titans. Up until the new digital age, major companies were operating under the belief that what once worked will always work. This is simply not true anymore. As technology evolves, marketplaces grow more competitive. Old processes for streamlining your company’s day to day are now slow and cause unnecessary delays and issues, while other businesses take the lead by investing in expanding their system infrastructure.
Gurus CEO Martin McNicoll talks about this phenomenon at length in his popular book for business leaders, “Scale Up Your Business with Cloud Technology”. He uses the example of a small-scale shop that’s run by the same owners over the span of decades. What tends to happen is that you become comfortable with the way things are, because you develop a customer base. Go forward twenty years, and you still have a customer base, your shop still exists in that same old spot and your processes haven’t changed. Your immune system is strong – that’s why you’re still standing. However, the trade-in is that your business hasn’t changed, it hasn’t grown, and it hasn’t adopted. I call this the business equivalent of “surviving”.
Are you familiar with Maslow's hierarchy of needs? In 1943, now renowned philosopher Abraham Maslow proposed one of the most persistent concepts in psychology that exist today. Through his observations of behaviour in people as an organism, he found that our desire for self-actualization and self-growth is structured as a pyramid. At the lowest level of that pyramid is survival (Revenue Stream) – this is essentially when your business requires constant maintenance and exists to generate a consistent profit barring any significant threats to its organizational structure.
For the purpose of this article, here is a business-oriented replica of Maslow’s Hierarchy of Needs.
Revenue Stream (income) for the corporate organism is at the core of its survival. Often, if a company is higher-up in the hierarchy of needs and they find they’re not generating the right revenue, their status will revert back to this stage.
Revenue Management is equally as vital as Generating Revenue. How are your financial processes? What is your planning and budgeting for the next five years? This is where you look at your cash flows, assess your Net Working Capital (NWC), strategize with shareholders to ensure you have a structure in place to maintain revenue.
Acquiring a Steady Customer Base is the phase of your growth where you build ways to capture your clientele. You have customers generating revenue for your business, great - now how can you get repeat business from them? This phase is all about ensuring steady income (especially if you’re a service-based business).
Customer Satisfaction is a significant part of your business growth, as this is the point at which you have an expansive number of happy and returning clientele. Credibility will help bring you to the next phase of your company’s plans for expansion.
Strength of Team is defined by how many resources you have on-site, and how much training has your team acquired cumulatively over the span of your company’s creation. This is also where you account for intellectual property (what unique value and expertise does your company provide?) and experience. Other factors include: Internal communication, collaboration, learning resources, etc.
ORGANIZATIONAL IMMUNE SYSTEM: These are the processes put in place within your organizational infrastructure to ensure your business is built to withstand change. This a necessary component to any successful business over a long span of time, as your core needs are protected. However, it operates under the assumption that all change is necessarily a threat, and does not immediately measure the value of evolving technologies. Companies that have been up and running for 10, 20, even 50 years will become less open to change because of a “what worked once will always work” mentality. However, there is no secret sauce to growth, and the biggest business growth often comes with being able to adapt alongside change. Think of your organizational immune system as a sort of border agent between your vital business foundation and the infrastructure you need to build for expansive growth. How do you convince your organization immune system that your processes need to be upgraded to newer technologies in order to enable a scalable model? It starts with a conversation.
Expansion and Growth is the phase where your business needs to be in this hierarchy. Your executive team has to start thinking about planning and budgeting, mergers and acquisitions, adding new product lines or expanding your customer portfolio. At this point in your company’s timeline, you will find that your team is quickly outgrowing your current systems. Processes that used to work are now creating delays and information loss, miscommunication, and general chaos in your bookkeeping (among a litany of issues). This is where Cloud ERP comes in - as the next step in evolving your business infrastructure to really accommodate the growth plans that your team has set for the next 2, 3, 5, even 10 years. How do you know you’re about to run into this obstacle? These are the 6 signs that you should be looking out for.
The aforementioned business model would then be situated at the very bottom of this pyramid. Over time, the goal of any successful enterprise is to extend itself to the top – which is Expansion & Growth. While your organization’s immune system is built to maintain a steady revenue and ensure your business remains consistent – it can often become an impeding factor for reaching that point of new growth.
A Cloud ERP is designed to motivate new growth and expansion, yet it is often first received as a threat by the organizational immune system. Why is that? Let’s go back to the example of the small shop model. Now, if your shop has lasted decades – whether or not your profit margins have seen an increase, your company is on the second level of the business hierarchy – which would be Revenue Management. The thought here is – why change anything if there is a steady income? After a while, the immune system becomes reluctant towards any unknown factors. Your executive decision-makers are there to maintain the foundation of your company, and anything that deviates from the status quo threatens that. No business actively disregards growth, it’s just that once you’re at a stable size and you’re seeing steady revenue and a solid customer-base, you begin to grow comfortable and afraid of any drastic differentiators. Blockbuster is a perfect case-study of this phenomenon.
Up until about a little over a decade ago, Blockbuster was the titan of the video-to-market entertainment industry. If you wanted to see a new film release, you went to Blockbuster for their tremendous physical collection and expansive North American retail infrastructure. I can’t tell you how many DVDs I must have rented from them back in the day (one of my secret pleasures was browsing through their classic films and discovering oldies I’d never heard of before). When Netflix started their online subscription model for ordering movies to be delivered to your door, it was so new that everyone considered it niche. Why would anyone want to browse movies online? How could an online service compete with a massive brick and mortar enterprise like Blockbuster? (Keep in mind - this was in the 2000s before online retail took over the market). Blockbuster was actually given repeat chances to purchase Netflix for pennies compared to what it’s worth today back in 2000. Not only did they reject the offers, but their organizational immune system refused to see the significance of a market change. They were convinced they had the secret formula to the market because of their past success as a multi-billion dollar leader of industry. In 2016, Netflix upgraded their film streaming service to the cloud and now reside as one of today’s most fast-growing and successful enterprises. [You can learn more about the whole Netflix vs. Blockbuster case study in this great article from Business Insider].
Getting back to Cloud ERP, it extends growing businesses the infrastructure required to handle massive back-office operations on a huge scale. You get to store your business in a massive infrastructure that can be accessed from most devices, with an easy-to-view 360 degree overview of all your company operations. It completely overhauls the high overhead and hazardous use of aged applications like Excel to keep your books (learn more about the hazard of spreadsheets).
Nonetheless, there are still companies with several staff working overtime just to sort spreadsheets and folders that could easily be automated. Why? The threat of change. Let’s go back to Maslow’s concept of hierarchy. One of his hypotheses was that human beings must evolve by climbing up the pyramid of needs to get to the point of self-actualization (personal growth). The business model works in a very similar way. Companies will need to work their way up the hierarchy displayed in the graphic above, to the point where they can get to the expansion and growth stage. At this point, you will need an ERP to solidify your operational infrastructure in order to really grow in a dynamic way.
Then, your next step is overcoming the organizational immune system to move forward in growing the business. How do you do that? I recommend starting the conversation early on, as you begin to notice signs that your systems aren’t keeping up with your plans for expansion.
Here are some tips on how you can start that conversation: justifying the cost of your erp/crm to your executive team.