ERP Standardization or Customization: Which Strategy Drives Higher ROI?

Companies face a critical decision when implementing an ERP system: to adopt standardization or customization. Standardization involves aligning processes with the ERP software’s built-in best practices, promising lower costs and faster implementation times. In contrast, customization tailors the system to fit the unique needs of the business, potentially offering a closer alignment with specific processes and objectives. Determining which strategy—standardization or customization—drives a higher return on investment (ROI) is essential for organizations striving to optimize the benefits of their ERP systems.

ERP Standardization vs Customization

For any growing business, implementing an Enterprise Resource Planning (ERP) system at some point is inevitable. ERP solutions help manage vital business processes such as inventory control, supply chain, accounting, HR, CRM, and more – all from a centralized database. However, companies face a pivotal choice when first deploying ERP – whether to opt for an out-of-the-box standardized system or customize it to their specific needs. Both approaches have their own sets of pros and cons, so businesses must carefully assess their long and short-term objectives, industry landscape as well as internal readiness.

Benefits of Opting for Standardization of an ERP Systems

When companies decide to adopt an ERP system, they have the option to either choose customization or standardization. Here are some of the major advantages of opting for a standardized ERP:

Lower Implementation Costs

Customizing an ERP platform requires significant upfront investments, making it nearly 50-60% more expensive than opting for standardization. From business analysts to solution architects and developers, custom projects require bigger teams and more working hours. Extensive code extensions, complex integrations, and process reengineering shoot up costs further. Licenses for development tools, testing environments, and hardware upgrades also add to the overhead.

With standardized systems, you save greatly on fixed implementation costs. Since predefined templates require minimal configuration, you avoid extensive technical efforts. The main focus areas become user training, migration, and change management rather than expensive software development.

Faster Speed of Deployment

Standardized ERP solutions can be rolled out very fast, often within 6-12 months based on the scale. But for customized platforms, the timeline is typically over 12-18 months due to various technical complexities. Developing process flows, building custom apps, running conference room pilots, conducting code reviews, system integration, testing & bug fixes – all these elongate implementation timelines.

With out-of-the-box standard ERP, you accelerate time-to-production as the software is ready from day one. Since best practice processes are already modeled by the vendor, you skip time-consuming design workshops and business requirement analyses.

Easier Version Upgrade Paths

Standardized systems stay highly compatible for effortless upgrades to newer ERP versions or releases published periodically. However, for customized deployments, extensive code changes pose complex migration issues during updates. Conflicts arise causing systems to malfunction unless custom objects are carefully ported or rewritten following strict protocols.

Smooth upgrade paths ensure standardized ERP users always stay current with the latest features and innovations from software vendors. Custom systems often lag by a few software generations as upgrades get postponed indefinitely.

Built-in Best Practices

Top ERP products incorporate proven implementation blueprints and process models benchmarked across thousands of deployments worldwide. This embedded industry expertise and out-of-box functionalities save reinventing the wheel. Highly customized systems where standard workflows get overhauled lack such pre-optimized configurations.

Leveraging established ERP best practices allows businesses to save time and costs. It also minimizes business disruption risks that innovative but unproven models bring.

Reliable Vendor Support

Standardized ERP deployments qualify for reliable technical support, post-implementation maintenance, and regular feature upgrades directly from the vendor. But customized systems with too many bespoke alterations lose out on such benefits. Vendors even charge premiums or restrict support eligibility for highly non-standard deployments.

Without vendor backing, the entire maintenance liability falls onto the customer’s IT team. From issues tracking to bug fixes and version upgrades, internal staff must manage everything even if lacking the domain expertise.

Scalability for Growth

Standardized ERP architecture is designed for scale. The data structures, system capacities, and operational processes can withstand significant spikes in transaction volumes that business growth fuels. However, very customized deployments struggle to handle exponential expansion unless the entire architecture is engineered accordingly from day one.

Retrofitting scalability is much harder, risking performance lags. Standard systems save such expensive refactoring to support regional expansions, mergers, or inorganic growth initiatives.

Advantages of Customization of an ERP Solutions

While standardization has its merits, ERP customization opens unique advantages like:

Tailored to Specific Business Requirements

For companies operating niche processes not covered by standard ERP features, customization becomes mandatory. Special manufacturing models like process costing, complex inventory scenarios in hospitals, or proprietary financial structures can only be supported through tailored customization.

Deep vertical needs within construction & engineering, healthcare, the public sector, etc also demand alignment to industry-specific regulations and workflows.

Unique Competitive Advantage

Some companies strategize ERP environments as a key competitive differentiator by modeling extremely specialized business processes. Complex actuarial computations for insurers, secret proprietary algorithms within manufacturing, or running clinical trial simulations – generic ERP capabilities cannot support these without extensive customization.

Such integral competitive advantages enabled by custom-developed ERP capabilities also discourage replicability, fostering sustainable market differentiation.

Enriched User Experience

Standard ERP interfaces try to satisfy broader user segments, often lacking role-based personalization opportunities. This can hamper productivity and adoption issues within certain user groups. Customizing UI/UX as per specific user needs across business roles, geographies or generations greatly improves satisfaction.

For example, shop floor users in manufacturing prefer graphical interfaces and desk workers need spreadsheet-style views. Modeling such nuanced UX preferences through customization enhances user experience.

Flexibility for Changing Business Requirements

Standardized ERP systems often enforce rigid workflows which prove inadequate in dynamic business landscapes. However, custom-developed ERP solutions can rapidly adapt to support emerging business requirements without waiting for long vendor release cycles.

For global enterprises facing volatile market regulations or disruptive innovations, custom-built ERP systems anchor such transformation initiatives through flexible support models. The ability to quickly expand custom objects, processes, analytics, and reports provides an agile edge to the business.

Smoothing Legacy Modernization Initiatives

Replacing archaic legacy systems like mainframes involves migrating and integrating years of custom-developed apps handling mission-critical functions. Standard ERP systems fall woefully short here. Only customized platforms provide latitude to either re-engineer custom apps for new architecture or build temporary bridges to sustain partial legacy app usage.

This migration flexibility and integration agility allow carefully phased modernization blueprints, minimizing business disruption across volatile transitions.

The Balancing Act

As we observe, both standardization and customization confer specific advantages in ERP journeys. Pure-play options are getting increasingly rare. Leading practices now focus on striking the right balance between the two approaches.

Unless faced with exceptional niche barriers, companies today often prefer standardized ERP for rapid ROI followed by modular customizations to fill key gaps. Specialist bolt-on solutions also complement this hybrid model without altering the core. Cloud infrastructure further allows assembling custom extensions, third-party apps, and self-developed components onto a standardized ERP backbone delivered as as-a-service.

With maturing integration technologies like APIs and microservices, composite customization capabilities now interoperate with mainstream standardization – fusing the best of both worlds through loose coupling and decentralized responsiveness. And that promises to be the new frontier for how enterprises of the future might harness ERP systems.

Critical Considerations When Evaluating Customization Needs

Selecting the right approach to ERP adoption involves evaluating multiple organizational dimensions beyond just software features. Key areas that influence standardization vs customization decisions:

Business Process and Requirements Analysis

Gaining executive consensus on current vs future business objectives is vital. Requirements gathering across domains through workshops, competitor analysis, and process mapping unpacks customization needs. Are existing workflows limiting growth? Does standard ERP sufficiently solve pain points? Will bespoke processes deliver a strategic edge? Such insights steer appropriate customization budgets.

Weighing Industry-Specific Needs

Understanding nuanced industry drivers is crucial as ERP requirements vary significantly across verticals. Manufacturing might demand complex bills of material modeling. Healthcare necessitates managing disparate patient health records. Higher education requires seamless campus management integrations. Only through domain immersions can we gauge customization scopes suitably.

Evaluating Organizational Scale

Large bureaucratic organizations and smaller dynamic workplaces have vastly different ERP expectations. A larger user base, multiple locations, and cross-border M&A require highly flexible and scalable ERP to support complex restructuring. Small firms can better adapt to standardized ERP but also have fewer resources to absorb customization risks.

Analyzing Budget and Timelines

Upfront capital outlay is a key determinant in standard vs custom ERP decisions. Developing clear visibility into all current and future IT budgets helps assess the viability of custom efforts. Alongside costs, organizations must also reconcile shorter standardized ERP deployment timelines versus longer custom development horizons before finalizing rollout plans.

IT Team Capabilities

The feasibility of custom ERP hinges greatly on the availability of skilled IT talent managing the effort. This spans solution architects, business analysts, developers, and ERP domain experts. The lack of mature IT groups and clear governance heightens the risk, making standardization a pragmatic option. However, some customization can be outsourced to vendor consultants.

Hidden Risks Behind ERP Customization

Despite the unique advantages, organizations must also carefully evaluate the downsides of custom-built ERP solutions:

Shooting Costs

Customization can expand initial software, hardware, and services budgets by over 50%. Add recurring expenses for specialized skills, change requests, and upgrades. It is imperative to validate if such investments achieve commensurate returns through revenue growth, productivity gains, or risk mitigation.

Prolonged Timelines

The average ERP implementation timeline increases by 25-50% for customized solutions owing to technical complexities. Multi-step processes like requirement analysis, design workshops, custom development, testing, pilot deployments, and user training consume significant lead time.

Integration Challenges

Connecting customized ERP with surrounding IT systems gets tricky owing to proprietary edits to default software logic. Ensuring data integrity across user interfaces, workflows, and data structures with other standard applications requires additional integration effort.

Costly Upgrades

Seamless ERP upgrades come at a steep premium for customized deployments due to extensive code review, retesting, and troubleshooting needs. Conflicts between older custom code and newer base ERP logic need resolution through patches.

Business Disruption

Bugs and issues are inevitable with complex software systems, despite rigorous testing. Naturally, excessive custom-built configurations escalate this risk. Failure to identify downstream impacts can disrupt operations and end-user productivity.

Which Industries Opt for High ERP Customization?

While most sectors stay moderately customized, few verticals have a greater disposition for custom-built ERP capabilities:

Manufacturing – Numerous niche production models involving formulas, sequencing, costing, and quality modules require tailored handling.
Healthcare – Custom workflows for appointment scheduling, clinical documentation, insurance claim handling, and compliance needs are common.
Higher Education – Custom student/alumni portals, faculty profiles, course management, and hostel modules are typical.
Professional Services – Project costing/billing, resource management, and IP protection provisioning see customization.
Public Sector – E-governance, field mobility, and documentation for law enforcement agencies and municipalities get customized.

Crafting the Optimal ERP Strategy With Versa Cloud ERP

As organizations embark on their digital transformation journeys, ERP software selection reaches an inflection point where leaders evaluate standardization against customization approaches to maximize value. Through an in-depth analysis across critical parameters of business processes, user needs, growth trajectories, budgets, and timelines, we uncover the pros and cons behind both strategic pathways.

While conventional wisdom preached “one-size-fits-all” ERP in the past, modern sensibilities veer towards balanced customization. The emergence of SaaS models like Versa Cloud ERP combines the best of both worlds. Versa’s robust & modular architecture delivers configurable vertical capabilities out of the box while allowing low-code personalization across niche needs.

With pre-built integrations across e-commerce channels, analytics dashboards, and 3PL logistics, Versa enables rapid deployments to unify sales orders, inventory, fulfillment, purchasing, manufacturing, and accounting on one platform. You optimize supply chain visibility without excessive customization overhead. Embedded IoT connectivity and barcode scanning foster warehouse efficiency. API extensibility simplifies linking proprietary apps or legacy systems at your pace.

As business complexity increases, mid-size companies need an adaptable cloud ERP solution like Versa that interoperates seamlessly across modern IT landscapes. Schedule a demo today to experience out-of-box inventory and order processing excellence fused with workflow flexibility to tailor the system to your growth imperatives. Partner with Versa Cloud ERP to fuse industry best practices with customization agility for your inventory and manufacturing needs!

ERP systems are fundamental to the efficient management of a modern supply chain in the manufacturing sector. By integrating various business processes, ERP systems streamline operations, enhance visibility, and improve decision-making, making them indispensable tools for manufacturers aiming to stay competitive in today’s market.

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Stevie Award

Versa Cloud ERP won the GOLD STEVIE® New Product or Service of the Year ‐ Software ‐ Cloud Enterprise Resource Planning (ERP) Solution.

Finances Online

Versa Cloud ERP was recently examined by FinancesOnline, a popular software review website that preselects quality software.

Front Runners

This FrontRunners analysis is a data-driven assessment identifying products in the Enterprise Resource Planning (ERP) software market.

Best in Biz Awards 2017

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