We’re expecting an economic downturn this year. The Economist is even calling a global recession “inevitable.”
Is this the right time to invest in a new ERP system?
You may be nervous about pursuing large digital transformation projects during an economic down-cycle. When cash is tight and revenues uncertain, expensive software solutions may not be a priority. But an economic slowdown could very well be the ideal time for some businesses to develop their tech infrastructure and invest in an ERP system.
To help you decide, we’ve laid out common pros and cons of pursuing digital transformation projects during times of economic uncertainty.
Pros of ERP Projects During a Recession
Here are some of the reasons digital transformation is essential for business growth, even during a recession.
1. Boost Current Performance
The biggest reason to invest in an ERP is that it creates value. It optimizes business processes, improves communication, and creates operational visibility. Those things ultimately help your business run more efficiently. That’s why ERP systems generate significant ROI.
A recession is a great time to improve efficiency and generate more value. Reduce bureaucratic burden so your people have more time to engage in high-value work and spend less time on mundane low-value tasks (such as data re-entry).
2. Improve Future Performance
The importance of ERP extends far beyond the short term. The value it generates compounds over time. The longer you have it, the more you gain from the efficiencies it creates. In other words, the sooner you implement an ERP project, the better.
Implementing during a recession could help put your business on a strong footing when the economic conditions become more favorable.
3. Leverage Slower Periods to Focus on Internal Projects
Successfully executing ERP and digital transformation projects requires significant internal personnel commitment. For some businesses, a recession may mean less work for certain people. As a result, they may have more time to support a large transformative project like an ERP implementation. A recession could be the perfect time to capitalize on a reduced workload.
Cons of ERP Projects During a Recession
Of course, now may not be the right time for such a large investment. Here are some of the potential disadvantages of implementing an ERP during an economic downturn.
1. Constrained Finances
ERP implementation projects are expensive. During an economic downturn, most companies are careful about where they’re spending money and may aim to cut costs. ERP projects are expensive, and many companies could decide to preserve cash flow to support the business through slower sales cycles.
2. Lack of Staff Capacity
Similarly, there may not be enough staff hours to spare. A recession may require all hands on deck to work harder to bring in new business. Your teams may not have the capability to engage in such a large transformation project.
3. Poor Optics
Your management team may understand the value of an effective ERP implementation, but others in your organization may not. They may even resent the prioritization of an ERP project over other initiatives.
For example, imagine your company lays off staff, and shortly after, you invest in a large, expensive, and potentially risky enterprise resource planning software system. You may lower morale if your team members feel like their colleagues should have been prioritized over the ERP project.
4. Temptation to Cut Costs
Your business relies on a successful implementation, but ERP Projects can quickly go off the rails. To ensure successful implementation, you need a careful planning process and a sufficient budget. A poor economic context could tempt you to cut corners in ERP implementation and put the project at risk.
Weigh ERP Pros and Cons Carefully
ERP systems can dramatically streamline operations and generate value. But your decisions about ERP implementation should take into account the current economic climate and your company’s economic performance in that climate.
Your company may need to significantly cut costs, making it a poor time to invest in an ERP. On the other hand, it could help you increase throughput and improve your bottom line. And ultimately, engaging in digital transformation could help you seize the day and outperform competitors.
The right decision depends on your company’s circumstances. Feel free to set up a session with us to discuss your needs and think through your decision.