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Importance Of ERP Systems In Business

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Discuss about the Importance of ERP Systems in Business.



Any type of business needs to have different departments for maintaining the various functions that goes in a business. It is impossible to perform all the business functionalities for a single person or department. For example, a finance department is required that handles all the financial transactions that is performed within the organisation. An IT team can be needed that will be responsible for the development and maintenance of all the technologies that are required for the business operations (Weißbach 2013). A grievance management team or more popularly human resource management team will be required that will receive grievances regarding any matter related to clients or employees of the organisation. A management team will be necessary that will look after and manage all the operations that are going on in a business. More departments are necessary for maintaining the functionality of other business operations that depends on the type of business (Weißbach 2013).

The various departments in an organisation require to maintain communication among each other as each of the departments are interlinked in their functionalities for the business to work properly. An organisation incorporates many technologies that help to maintain a proper link among the various hierarchies in the organisation (Ver?i?, Ver?i?,  and Sriramesh 2012). The report introduces a system known as the Enterprise Resource Planning (ERP) system that is a type of information system, which is implemented in organisations to help the organisation to manage and integrate the important parts of the business like planning, inventory management, purchasing, sales, marketing, human resource and finance. The purpose of the report is to explain in detail the role and advantage of an ERP system in an organisation (Ver?i?, Ver?i?,  and Sriramesh 2012)

Definition of Business Process

A business process is defined as a collection of tasks or activities that are interlinked and the process ends with the completion of delivery of a service or a product to the client. The completion of the task by the organisation helps the organisation to complete its goal. A business process is required to involve well-defined inputs and a single output (Dumas et al. 2013). The inputs should comprise of all the factors that has contributed both directly and indirectly to the completion and delivery of a service or product. These aspects can be segmented into operational processes, supporting processes and management processes (Weske 2012).


Management process is responsible for governing the activity of a particular company’s system of operation. The operational process looks after the core business functionalities. The role of the supporting business process is clear from its name as it supports the operational process in performing its activities (Jeston and Nelis 2014). Supporting processes are generally managed by the human resource management and finance department of an organisation.

A process requires various steps of activities to achieve an objective. Processes are considered simple or complex depending on the number and complexity of each step, and the quantity of systems involved for the completion of the process (Van Der Aalst 2013). A process can be short or long depending on the complexity level of the process. The longer a process is the more dependencies it tends to have and a greater requirement of documentation arises. The figure provided below shows a generalised business process model that is adopted by most organisations (Laguna and Marklund 2013).

Figure 1: General Business Process Model

(Source: Weske 2012 )

Definition of Business Requirements

Business requirement in general is defined as a statement that explains the functionality of a system rather than the process by which the operation is executed. A business requirement consists of instructions that describe the functions that are required to be provided by the system and the characteristics of the resulting solutions (Robertson and Robertson 2012). It helps a business to identify its functionalities that it requires to perform to achieve its goal. The figure provided below shows the position of a business requirement among the steps of a business process (Wiegers and Beatty 2013).

Figure 2: Business Requirement in a Business Process.

(Source: Robertson and Robertson 2012)

Objective of Business Requirements

The purpose of a business requirement is as given below:

  • Documentation and clarification of the needs of the stakeholders.
  • Setting, clarifying and managing the expectations regarding the delivery detail of the service or product to the client.
  • It helps an organisation to analyse, understand their requirement of resources for the performance and completion of their activities, and provide an outline to them that will aid them to make an informed purchase decision.
  • It helps to maintain the scope of an IT development or purchase.
  • A mechanism is provided that helps to establish communication with a service provider of technology regarding the functionality of the solution that will meet the requirements of the business.
  • Helps to make cost and product pricing decisions.
  • Provide an opportunity to examine the functionality of a product.
  • Lastly, it allows comparing various products during purchasing done by an organisation (Bryman and Bell 2015).

Steps Involved in a Business Requirement

A business requirement involves five steps as shown below that can be useful for any organisation while creating a business requirement analysis (Falge, Otto and Osterle 2012).

Figure 3: Steps involved in Business Requirement Analysis.

(Source: Falge, Otto and Osterle 2012)

Enterprise Resource Planning (ERP) System

ERP is a type of information system that is required for the management and integration of essential aspects of an organisation. It is a term used in industries that is coined for explaining a large variety of operations that allow an organisation to manage its business. An ERP system performs a vital function of integrating back office processes performed by a business and allows smooth data flow within the organisation so that the business personnel can take proper decisions (Hall 2014).

ERP system software is designed to gather and manage information from different levels of an organisation and link the activities of each department of the organisation with each other. A well-planned incorporation of ERP can facilitate a company to automate and standardise its business process and help the efficiency of the operations for further improvement (Romney and Steinbart 2009). An integrated approach to manage business processes not only saves time and money but also ensures that all the departments are performing their functions in relevance to the same data and is able to view the same KPIs (Key Performance Indicators).

The need for the implementation of an ERP system arises in an organisation when the business systems start to outgrow, especially when business systems are composed of a wide range of applications that has been gathered by the organisation over time (Gelinas and Dull 2008). The ERP system becomes necessary when the gap between the capability of the business software and the need of the business processes widens creating a pain issue for the organisation. The ERP system does not have a generalised model or method of implementation, rather it varies from organisation to organisation that implements the system as per the mode of their operation (Richardson, Chang and Smith 2014).


Types of ERP system

Most organisations that use ERP systems implement a homogeneous, complex and large on board legacy systems. These systems are very costly for implementation due to the intensive requirement of the huge legacy infrastructure within the organisation premises. The maintenance of such systems is also very difficult due to its complex structure and the company using such system needs to recruit additional personnel for the maintenance of such systems. Moreover, the essential data stored aboard the legacy ERP system always runs the risk of being damaged or stolen due to any human or non-human activity (Powell, Riezebos and Strandhagen 2013).

The latest type of ERP system uses cloud-based services instead of the bulky and complicated legacy systems. The process of conversion of the legacy ERP systems to cloud-based ERP systems is very difficult as the legacy systems do not easily convert to the cloud-based ERP version (Romney and Steinbart 2012). Moreover, conversion of an ERP system from one type to another requires considerable change in the business process model, training to the employees regarding the new ERP system features and operations, rear support for integration of database and analysis of data. Nowadays, the ERP vendors are providing ERP system software that has cloud-based compatibility as many organisations have started to adopt cloud compatible ERP systems (Zach and Erik Munkvold 2012). Cloud-based ERP systems are easy to deploy and requires less cost for deployment. A company that uses cloud-based ERP systems do not have to worry about the maintenance of the infrastructure nor do they have to deploy any expert within premises to operate and manage the system. Another advantage of deploying cloud-based ERP system software is that the mission critical information of the organisation is stored in the cloud at multiple remote locations secured with latest security tools (Staehr, Shanks and Seddon 2012). Therefore, the chance of data damage due to any human or non-human activities is minimised to negligible amount. The organisation pays for the cloud-based services and the cloud service providers look after all the operations, from maintenance to the security of the system along with complete infrastructure necessary for the ERP system to perform its required task (Clegg and Wan 2013).

Some organisations adopt a hybrid approach to the implementation of the ERP system. In this kind of approach, part of the system is hosted in the cloud server and the rest is deployed on premises. The mission critical information that is required by the organisation for its business operations are generally stored in the cloud-server whereas the hardware part is implemented in the organisation (Elragral and El Kommos 2012).

Multi-tiered ERP System

General deployment of ERP system to an organisation includes a standard monolithic system from a single vendor. These vendors generally provide service with huge legacy systems. However, many organisations are recently adopting the process of running multiple ERP systems within a single environment. This model of deployment is known as multi-tiered ERP system deployment (Bradford 2015). The reason for this mode of deployment of the ERP system is due to the complexity of geographical differences between an organisation with its various departments or company mergers for which various systems are required to be integrated within a single environment.

This type of ERP system generally involves the deployment of a centralised huge Tier-1 ERP, which is installed across the organisation. The Tier-1 ERP system performs all the mission critical activities for the organisation. One or more additional ERP system known as Tier-2 ERP system are deployed, which perform department specific less critical functions (Al-Johani and Youssef 2013).


ERP System Requirements

The system requirement for an ERP system varies among different organisations that depend solely on the type of business the organisation is in and the business area, which the organisation seeks to improve. The organisations that are in the business of selling products adopt an ERP system that manages the functions related to manufacturing, distribution and supply chain management. The organisations that provide service to other companies deploy ERP systems that provide support regarding field services, service level agreements and sales operations (Matende and Ogao 2013).

Useful ERP software has loosely coupled software modules that integrate easily with other information systems that are pre-installed in an organisation. Some of the main components that are included in most ERP software are as follows:

  • Human Resource Management – is tasked to accumulate information and form reports regarding recruitment of employees, training and professional development of employees, and review of performance, exit interviews and mediation.
  • Finance – has the responsibility to accumulate information regarding finance and creates reports like overall balance sheets, ledgers, quarterly financial statements and trail balance information.
  • Supply Chain Management – has the duty to gather information and form reports regarding information, finance and materials that is involved in the process that starts from a supplier and ends with the delivery to the customer.
  • Inventory Management – performs the task of acquiring and accumulating information and generating reports related to stock items and non-capitalised assets (Matende and Ogao 2013).

Vendors of ERP System Software

Many ERP vendors are there who provide a wide variety of functions depending on the requirement of the organisation with both the choice of cloud or on-board deployment.

Microsoft Dynamics, SAP and Oracle are the popular legacy platforms that have multiple functional ERP systems and both the option of on-board and cloud deployment. Many small, medium and large organisations are their clients (Ajit, Donker and Patnaik 2014).

Provided below is a list of other top vendors that also facilitate multirole ERP systems:

  • Infor
  • Sage Software Inc.
  • Epicor Software Corp.
  • IFS World
  • QAD Inc.
  • IQMS

The top ERP cloud vendors are as follows:

  • Plex
  • NetSuite Inc.
  • Acumatica Inc.
  • Kenandy Inc.

Small vendors providing ERP software support often specialise to help in business processes like financials, research and development, supply chain management, engineering and HR. They also provide expert solutions on particular business sectors retail, healthcare, manufacturing or public sector (Ajit, Donker and Patnaik 2014).

Support Provided by ERP Vendor

The vendors who provide ERP software system to various organisations offer a variety of support models for the ERP systems that depends on the licensing contracts made with clients.

The responsibility of support service includes various levels of functionality. An organisation needs to maintain voice support and consultation module for its customers. Other services like solving incidents, fixing bugs, assistance regarding patches, updates and upgrades are also provided by these ERP vendors (Ajit, Donker and Patnaik 2014). However, some organisations provide support as third-party vendor for the management of the ERP system that is provided by another vendor.

Method of Successful ERP Selection for Organisation

ERP solution providers are easy to find and employ who claim to provide the best in market service. However, it is difficult to choose the right vendor who will help to provide a perfect solution necessary for the improvement of the organisation (Ajit, Donker and Patnaik 2014).

The process of choosing and investing on the correct ERP solution is an important process that needs the involvement of individuals from various levels and departments of the organisation to determine that the implementation of the new ERP system will improve the productivity of the organisations, reduce the cost of operation, increase efficiency, increase the profit count and such (Ajit, Donker and Patnaik 2014). The nine steps provided below will ensure an organisation to discover and adopt an optimum ERP solution for the improvement of the same.

Assessment of Need of an ERP System in Business

The initial requirement before commencing the operation of choosing a new ERP system or changing an existing one is to analyse and determine the need to deploy an ERP system in the organisation. It is better to create a list of all basic as well as specific requirements that is expected from the ERP service provider. It is also necessary to create a list of expectations regarding the improvement of business like evaluation of strategy, cost saving and control, better tools for reporting, growth and compliance (Sun, Ni and Lam 2015).


Appointing a Selection Team and Following an Organised Selection Process

Once the necessity of the ERP solution is determined in relevance to the requirements in the organisation, a selection team is required to be organised that will be responsible for the management of the whole process of the ERP system implementation from the beginning until the end (Sun, Ni and Lam 2015). The selection team should comprise of relevant staffs from the various organisational departments, senior management and corporate personnel, so that the new ERP system succeeds to mitigate all the existing organisational issues. The team should be handled by someone who is adequate knowledge regarding the existing organisational system and its issues (Sun, Ni and Lam 2015).

Assessment of Business Requirements and Resource Limitations

The selection team will be tasked to analyse the existing organisational system and assess the operations the organisation performs. It will then examine the drawbacks within the organisation that is hindering it in its improvement and create a list of the issues (Sun, Ni and Lam 2015). A list is also necessary that will provide the required amendments needed to be present in the new ERP system that will seal the loopholes of the company and aid in its improvement. The functionality, responsiveness and adaptability of the system should also be taken into consideration to help avoid high consultation cost (Sun, Ni and Lam 2015).

Communicating With Top Vendors

The communication with vendors regarding the implementation of a new ERP system to the organisation or changing an existing one should include certain questionnaire that is required to be clarified from the vendor. These questions will help the selection team to understand that whether the ERP system provided by the vendor will help to solve all the requirements of the organisation (Sun, Ni and Lam 2015). Some of the questions that may be asked that will help to achieve the objective of the organisation mentioned above are provided below.

  • Which application area is covered by the vendor?
  • How many existing clients of the vendor are there at present?
  • Does the vendor facilitate with structured implementation methodology?
  • Does the vendor provide local customer support in different countries?

Determining the Selection Criteria of ERP Features

It is necessary to measure and grade the ERP features. Some selection criteria are necessary to be determined during the selection process of an ERP system that matches all the business requirements of the organisation. A scorecard is also necessary to be generated that will provide a score-based report to the ERP vendor, which will help the vendor to understand the level of service that is being provided to the organisation. The table given below will help in the selection criteria (Sun, Ni and Lam 2015).


(Selection Criteria)

ERP Vendor

Vendor 1

Vendor 2

Vendor 3

Vendor 4

Vendor 5

Annual Cost


















Core Modules






Business Intelligence and Reporting






Security and Encryption












Workflow Automation












Table 1: Selection Criteria of ERP Features

(Source: Sun, Ni and Lam 2015)




Exceeds beyond requirement expectation


Meets the requirements


May not meet the requirement


Does not meet the requirement


Do not apply


Table 2: Score Card to Compare the ERP systems

(Source: Sun, Ni and Lam 2015)

Determining the ERP Vendor Selection Criteria and Finding the Correct Vendor

To deploy ERP system software that meets the requirement of the organisation it is necessary to analyse the different ERP vendors that is available to the organisation and compare their services to find the vendor whose services are compatible to the requirements of the organisation. To achieve the above-mentioned objective it is necessary to consider more than one vendor, preferable five to ten vendors whose services can be compared and graded. The rest of the process is same as that in the previous step. The table provided below will help the selection team to grade and compare various vendors that will aid in the selection of the compatible vendor (Sun, Ni and Lam 2015).

Selection Criteria

ERP Vendor

Vendor 1

Vendor 2

Vendor 3

Vendor 4

Vendor 5

Technical Requirements






Financial Strength of Vendor






Business Assessment






Licensing Cost






Future Product Development Roadmap of the Vendor






Training Costs






Corporate Value of Vendor






Customer Support






Table 3: ERP Vendor Selection Criteria

(Source: Sun, Ni and Lam 2015)




Expectation exceeds beyond the requirement


Meets the requirements


May Not Meet the Requirement


Does Not Meet the Requirement


Do Not Apply


 Table 4: Score Card to Compare the Vendors

(Source: Sun, Ni and Lam 2015)

Filling the Score Cards and Comparing the ERP Vendors based on Total Score

The scores received in the steps 5.5 and 5.6 are required to be summed and the top two to three vendors needs to be shortlisted for the processes that is described in the next steps (Sun, Ni and Lam 2015).

Short listing of the Vendors and Demo Proposal

The top two to three ERP vendors are shortlisted according to the scorecard result and then they are told to provide demo solutions with their ERP system that will solve some of the issues of the organisation (Sun, Ni and Lam 2015).

Final Selection of the Compatible ERP Vendor and Forming the Project Plan for the New ERP System Implementation

The ERP vendor who succeeds to provide the best ERP solution in the step 5.8 will be chosen for the initiation of a client-vendor relationship and starting the process of implementation. The process stated above begins with the finalising of the service contract, licensing and maintenance agreement between the client organisation and the ERP vendor (Sun, Ni and Lam 2015).


The report concludes with the fact that an ERP/AIS system is necessary in every organisation for achieving flawless performance in business. The implementation of a good and new ERP software system requires involvement from every level and department of the organisation who have to complete a number of complex steps to examine and find the correct ERP solution that is compatible to the critical requirements of the organisation



Ajit, D., Donker, H. and Patnaik, S., 2014. ERP system implementation announcements: does the market cheer or jeer the adopters and vendors?. International Journal of Accounting & Information Management, 22(4), pp.339-356.

Al-Johani, A.A. and Youssef, A.E., 2013. A framework for ERP systems in SME based on cloud computing technology. International Journal on Cloud Computing: Services and Architecture, 3(3), pp.1-14.

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Clegg, B. and Wan, Y., 2013. Managing enterprises and ERP systems: a contingency model for the enterprization of operations. International Journal of Operations & Production Management, 33(11/12), pp.1458-1489.

Dumas, M., La Rosa, M., Mendling, J. and Reijers, H.A., 2013. Introduction to business process management. In Fundamentals of Business Process Management (pp. 1-31). Springer Berlin Heidelberg.

Elragal, A. and El Kommos, M., 2012. In-house versus in-cloud ERP systems: A comparative study. Journal of Enterprise Resource Planning Studies, 2012, p.1.

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Powell, D., Riezebos, J. and Strandhagen, J.O., 2013. Lean production and ERP systems in small-and medium-sized enterprises: ERP support for pull production. International Journal of Production Research, 51(2), pp.395-409.

Richardson V.J., Chang C.J., Smith  R. 2014. Accounting Information Systems McGraw Hill ISBN:0078025494

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Staehr, L., Shanks, G. and Seddon, P.B., 2012. An explanatory framework for achieving business benefits from ERP systems. Journal of the Association for Information Systems, 13(6), p.424.

Sun, H., Ni, W. and Lam, R., 2015. A step-by-step performance assessment and improvement method for ERP implementation: Action case studies in Chinese companies. Computers in Industry, 68, pp.40-52.

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Ver?i?, A.T., Ver?i?, D. and Sriramesh, K., 2012. Internal communication: Definition, parameters, and the future. Public relations review, 38(2), pp.223-230.

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