6 ways an ERP system can boost productivity for SMEs in South Africa
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The challenge for business owners is to find ways to grow their business by managing the limited time in a day because there are only so many hours in a day or week and there is only so much energy an individual can have. When people talk about time management, what they are really talking about is energy management. People say and know that time is money but they don’t really mean it because time and time again, you come across business owners actively running their businesses on spreadsheets which are inefficient and just have book keeping as an end in itself which does not provide timely information to guide future decision making. Business owners know that they should focus their limited time and energy during the day into high quality work.
We have all heard from the time management gurus that recommend labelling everyday work activities into blocks of A, B, C D priority etc. with A being the most productive. Thereafter, revisit activities falling under block A and sub categorise them as 1,2,3,4 in order of importance and then work the day according to that priority. The reality is that some people just aren't good at determining what are priority A, priority B and priority C activities and sticking to that. For business owners however, this thinking around activities should simply be categorised as either 1) High Payoff or 2) High Leverage.
High Payoff
High pay off activities are defined as activities that directly bring in revenue. To get an idea of this, we'll use the example of a business owner who every month end, sits down and manually invoices each individual customer (paying little consideration to credit limits- never mind the business risk this introduces) and mails both the invoices and debtor statements to each client manually. Thereafter the business owner prepares monthly management reports to get an understanding of the business’s profitability. These indeed are high payoff activities because they bring in and account for revenue flowing into the business.
High Leverage
High leverage activities on the other hand are far more important and are defined as activities that do not have a single payoff but work towards building a system that will produce the same high payoff over and over again without the individual who created the high leverage activity having to do the work. Building a process for hiring good talent is one such high leverage activity.
Looking at the same business owner mentioned earlier, they could alternatively engage their time and effort into implementing an ERP system which:
Centrally manages inventory and price lists,
Semi-automates the customer invoicing,
Automatically checking invoices against customer credit limits
Performs bulk/mass emailing of invoices and statements to customers.
Business process workflows which proactively manage expenses
Automated monthly management reports
Now that would be a high leverage activity which will benefit the business by freeing up the owner to engage on other activities that grow the business further.
Realising faster business growth
Whilst running the business on spreadsheets, manually generating invoices can be viewed as a high pay off activity, it’s easy to see that if the owner is repeatedly caught up in the same monthly cycle, it will nearly be impossible to realise faster business growth. Now, when a business is starting, it’s okay for owners to engage in high pay off work .For most business owners that have had to start businesses from scratch, it’s the norm that they did everything from taking out the trash, answering the phone and basically doing everything. But the goal must be, that as quickly as possible: get to a point by rethinking and arranging the day, maximising productivity every single day and get to where the business can hire an admin and or a techy to automate critical business operations that are taking up time: with the aim being to off load the burden.
Leveraging free ERP software
Previously, the high prohibitive cost of traditional proprietary accounting software caused business owners to put off the decision of getting sound ERP software. A great majority settled for entry level accounting packages because of the cost factor and have worked with these in conjunction with spreadsheets and word processing software to manage their businesses. With the advent of cloud computing, there are now free open source ERP Accounting systems packed with functionality ranging from inventory management, human resources and payroll, CRM, manufacturing, project management, point of sales systems and so on ; functionality that was only found in high end proprietary systems. Small business owners should work on leveraging such free open source ERP software that facilitate the delegation of work at a significantly low cost and free up the owner's time to other high leverage activities which grow the business further.
One knows they have a built a good system when someone else can step in and run the system.
It is important to make the distinction between high payoff and high leverage. In the leveraging on systems it is critical to understand that putting structures in place to govern and manage the business is not an expense, but a necessity if one's goal is to grow into a sizeable business. In fact even in accounting terms, the cost of an ERP Accounting solution implementation is never recorded as an expense item that reflects in the operating Profit & Loss section of the general ledger, but is capitalized as an asset to the business that resides in the balance sheet section of the ledger.
Now, it’s understood that sometimes owners need to engage in high payoff activities to get the business over a hump, but at least a big chunk of the day should be spent working on high leverage activities which are of higher value to company’s future growth. It’s unrealistic to expect to find time to grow the business if one is actively and repeatedly engaged on high pay off activities that drain limited energy and require the same amount of time and effort over and over again.