Let me introduce you to ABC Distributors, a fictitious distribution company. They are currently using QuickBooks that has served them well for many years, but they have out grown the software and are now looking for a new ERP software package that will allow them to grow with the software in the future.
They are evaluating a lot of different packages from many different vendors. They have noticed that all modern ERP software packages can be divided into two major groups:
ABC Distributors is confused since the vendors on each side of the fence claim that their software is the best choice for the company. So allow me to explain the pros and cons of both software types.
First of all let's define customizable. When I say customizable I mean that the vendor has full access to the source code in some shape or form. This will allow the vendor to change the business logic inside the software so that it better adapts to the customer's business processes. It also allows the creation of completely new functionality that is not standard in the out-of-the-box ERP software package.
Some customizable ERP software packages also allow the customer to gain access to the source code, thus allowing them to develop and maintain the business logic all by themselves.
Secondly, if the software is not providing access to its source code I consider it non-customizable. That doesn't mean that the software in not flexible and can't be setup in many different ways, it just means that there is no access to change or add business logic using the software's source code.
Now that the definitions are clearer, let's take a look at the pros and cons of both worlds.
One of the most important benefits of having a non-customized ERP software is that upgrading software is usually easier when no changes to the source code are done.
QuickBooks is a good example of non-customizable software. You can still make little changes to reports and so, but you can't change the fundamental way the software works (the business logic). Upgrading QuickBooks is usually just a matter of clicking a button and the software updates itself over the Internet. It can't get any easier than that.
When an ERP software vendor knows that their software is unaltered, upgrades are usually easier, since they can provide a universal upgrade tool to allow the update. I am not saying it is as easy as QuickBooks, but the overall process is usually faster than for customized software.
The major drawback to non-customized software is, well, it can't be customized. If a business like ABC Distributors has special business processes that are unique to them and are not supported by the software, they are out of luck. They will have to adapt their internal procedures to the software and not the other way around. If ABC Distributors has many unique and/or new processes, it can be very cumbersome for them to use non-customized software that is not supporting these processes. They may have to purchase additional software and try to integrate all the software to cover all business processes. That will end up costing them more and adding complexity to the overall software solution.
Another benefit to having few or no customizations is that the software works the same for all companies. Training and support are easier to provide from a central vendor, since it all works the same.
The most important benefit of having customizable software is that the software can be made to fit a company's business processes. If ABC Distributors has a unique way to do certain processes, the software can be modified to support these processes down to the last detail. The software adapts to the customer's business, not the other way around. If ABC Distributors has their own IT-department, they could even purchase the source code and start changing or building business processes inside the ERP software so that it supports their business better. That all sounds pretty good, right? Well, it depends.
You really don't want to customize the software too much. I have seen many companies purchasing access to the source code and spending 8-10 hours per day for many years customizing the ERP software and they end up with a "summer hat”. What I mean by that is that the software is almost unrecognizable by seasoned users or consultants of the out-of-the-box functionality. Sure, it will support the customer's internal processes, but there is a tendency to customize the software first instead of rethinking the process and maybe changing the internal procedures to fit the standard functionality instead.
The drawback of allowing too many customizations is that it can complicate upgrading to newer versions. Typically the software developer releases so-called "Merge and Upgrade Toolkits" that allows the software vendor to provide an upgrade path at a reasonable cost, but if the software is too heavily modified, it can end up being a costly and timely process. The key is to review your internal processes and adapt some of them to the software if it makes sense, and only adapt the software to your processes if it can make you more efficient.
What should ABC Distributors select? Customized or not? It all depends. Personally I think that when you select customizable software you get the better of two worlds. You can keep the out-of-the-box functionality OR custom some important processes to better support your business. This way you at least have the option to customize.
Some companies have more complex requirements that won't fit a specific industry solution, thus forcing them to select several different software solutions to fit all their needs. These companies will most likely benefit from a customizable solution that will allow them to change and/or build new business logic to support their operations.
ABC Distributors should definitely consider solutions from both sides of the fence. They should not be afraid selecting a customized solution out of fear from the upgrade process. If they can save time and therefore money customizing business processes, it outweighs the additional cost upgrading the software which usually only happens once every 3 years anyway.
If ABC Distributors has a non-complex operation that fits into a non-customizable industry solution, they should definitely consider going that route.
Bottom line? They have to take a look at both before they make their decision.