The Three Percent solution?

I subscribe to a series of e-mail lists (big news there). One I get deals with ERP - Enterprise Resource Planning or the fancy name for accounting, manufacturing and distribution software. Recently, someone asked a question "how much should we plan to spend for this stuff?" Now, while most responses were about "needing to know more", answers came in at 2-3% of revenue for mid size companies. In other words, a 20 million dollar company should expect to be investing about $500,000 in putting in back office software.

My first thought - HOLD ON. Sounds like a lot of money to me. I'm sure that there are $20 million companies that need to spend that much but it amazes me that people think this is the average. Why? Because it shows the industry bias that "real companies need real expensive software". I'm not saying that IT is cheap. I am saying that there are plenty of examples where solid mid size companies can use "small packages" - less then $50,000 in software - just fine. These companies often have to build reports (a better use of money) and perhaps design some custom software. But they aren't starting out at half a million dollars. More over, experience indicates that spending lots more for software doesn't get you necessarily better results. Given the maturity of the software business, most basic functionality in accounts payable, accounts receivable and general ledger is available in packages from QuickBooks through Oracle.

Don't rush out and think that QuickBooks will solve all your problems. However, remember two things. First, most of this stuff just isn't brain surgery. Second, if you really have a unique business process, it probably can't be bought off the shelf at any price.

Now you may ask - how much should you be spending? That's something I'll need to discuss in further blog entries.

November 28, 2008 | Email Us

« Previous | Next »

Red Three Consulting: Transforming Information Technology into Answer Technology