Businesses and the Power of ERP
By Erin Koss, CPA is an Andersen Business Consulting Alumni (1993-1999), and CEO of Syte Consulting Group, Inc.
Putting your company on a path for growth often requires big shifts — new ways of thinking, new processes and technologies, and even changes in governance structures. Every business that's ever looked at scaling up has had to examine these areas and adjust them accordingly. Family-owned businesses are no different. But they are unique in the challenges they have to navigate during these transitions, including (maybe even especially) when it comes to handing over the reins to a new generation of leaders. At Syte, this is something we've seen up close in our decades of helping family-owned manufacturing companies implement new systems for growth. In this article, I'd like to explore some of the key dynamics and pitfalls leaders can encounter and highlight some strategies that ensure a much smoother road to success.
Generational Change Can Be Bumpy
While change is inevitable and often disruptive, it can be even more disruptive in companies that have been run by the same team for years, or even decades. Their traditional strengths — a tight-knit culture, and the deep institutional knowledge of the founder(s) and long-time employees — can be a double-edged sword when it comes to transformational change.
The founder or founders who built the company from scratch have a ton of expertise, and often a preferred way of doing things. Likewise, long-time employees who are steeped in the company’s history are well-versed in the way things have been done in the past, but they don’t necessarily have the exposure to innovative ideas. What we’ve also seen is that the same “hierarchy of authority” has been entrenched for a long time, where the founder or CEO has traditionally made all the decisions. So many experienced employees have a lot of domain expertise, but not much experience in leadership roles.
Obviously, scaling for growth requires a lot more than just increasing production capacity. It requires new skill sets and capabilities, and that capacity isn’t always found in the existing workforce. While promoting from within (or promoting someone before they’re ready) might feel safer, it can be detrimental in the long run.
Bottom line, there are complex interpersonal dynamics, and deeply held values and beliefs about how things should be done.
In managing this new growth, these companies are asking team members to take on leadership roles they’ve never had before, and in some cases, they’re adding formal governance for the first time. This added complexity raises the stakes on all the other transformational initiatives that need to take place.
New Technology Challenges Old Ways of Doing Things
When you introduce new technology into this landscape of changing organizational dynamics, things can get really interesting. It’s easy to make a case for the operational efficiencies that something like a new ERP system brings to the business, but there’s really a bigger question at play: How will ERP change the way a family-owned business functions?
Let me say upfront, the “next generation” of leaders typically understand the benefits and necessity of implementing an ERP system. They see that they have too many ad hoc solutions that don’t talk to each other, and that the organization is managing too much of the business with tools that are outside their core systems (Excel spreadsheets, anyone?). They know that they’re struggling to manage what they already have, never mind having capacity for growth.
So the next generation knows that an ERP is necessary to support growth, and critical to scaling the business. But founders — or that first or second generation of leadership — may struggle to embrace the ERP path, for a number of perfectly valid reasons. They’ve heard horror stories (usually without all the context). They might not understand the technology. And then there’s the power of plain old inertia: They’ve built a successful company up to this point and grown tremendously with the current solutions, so why incur the time, cost, risk and potential disruption to the business?
While the new leaders are fully on board with implementing a new ERP solution, they may not understand the lack of readiness within the organization around them to pursue such an enormous endeavor. That reluctance can result in a lack of buy-in and support from key employees and stakeholders and make it difficult to get the whole initiative off the ground.
Intentional Planning and Communication Are Key
As challenging as these dynamics can be, they’re also an opportunity for organizational growth. At Syte, we’ve been at this a long time, and I can tell you from experience that a new ERP implementation can be a catalyst for transformation on many levels.
At the start of any ERP engagement, we take our clients through a Transformation Readiness Evaluation, so they can identify their existing capabilities and capacities, relative to taking on any business transformation initiative. It helps our clients see what might be missing in their current operations and how existing roles might need to change. We use it to identify gaps in readiness, whether that’s skills, capacity or time — and in the context of family-owned businesses, it can be eye-opening.
In this context, a new ERP implementation is more than just putting a new piece of technology in place. Yes, an ERP can automate a lot of manual processes, but that’s really only the beginning of the transformation.
An ERP implementation opens the door to doing things differently.
Ultimately, next-generation leaders must get buy-in before proceeding with a new ERP solution. Long-time employees need to be empowered to make decisions and to try new ways of doing things. Part of that involves putting the right supports and guardrails in place. Having an engaged project sponsor, a steering committee of executive team members, and experienced project leadership — often at least partly coming in from the outside, through a partner like Syte — are all critical to success.
This is where we do our best work. We use rigorous frameworks (like our Business Process Assessment) to help our clients identify what they really need, but we also get those nuances of generational change and know how important it is to manage them with thought, intention and respect.
Passing the Torch Opens New Opportunities
Change in any organization is inevitable, and if handled properly, it can be a force for tremendous good and renewal. As the current generation of leaders passes the torch to a new generation of leaders, they have an opportunity to breathe new life into the organizational culture and set the business on a path of growth and longevity.
Is your family-owned business thinking about a new ERP solution? We’d love to help you ensure a smooth transition. You can schedule a complimentary consultation session right here.
Erin Koss, CPA is an Andersen Business Consulting Alumni (1993-1999), and CEO of Syte Consulting Group, Inc. She is known for helping family-owned manufacturing companies scale with vision and integrity. Taking a people-first, process and technology readiness approach, Erin and the team at Syte ensure companies are ready to take on big change initiatives like ERP before diving in headfirst. A native to the Pacific Northwest, she enjoys traveling, being outdoors, hiking, biking, rowing, and supporting local culinary scene. Talk to Erin about preparing your company for sustainable growth.