Why Private Equity Firms Demand Successful ERP Implementations

Why Private Equity Firms Demand Successful ERP Implementations

We help companies select and implement ERP software and each has unique needs and requirements. Some are looking for more of a strategic and complete digital transformation, while others are looking for a shorter-term effective fix. Some are looking for ways to standardize operations and drive business improvements, while others are simply trying to replace their outdated legacy systems.

Private equity (PE) owners and funds are some of our most frequent repeat clients. They are more predictable customers who hire us to manage ERP implementations at companies they directly own or invest in. Their needs and drivers are laser focused because they are driven to accelerate growth and profitability even more so than most executives. PE firms are formed by investors often using a combination of private and borrowed money. This makes their needs and motivations particularly interesting and time sensitive.

Below are some key things we commonly see PE firms looking for in their ERP implementations:

  1. Low tolerance for implementation time and cost overruns

No executive likes to see an implementation take too much time, money or resources and this is especially true with private equity organizations. They tend to have a very low tolerance for software customization, overly complicated software functionality, poor project management and other things impacting implementation time, cost and risk. Almost to a fault, they want to make sure their ERP investments are maximized and not distracted by what they perceive to be superfluous project activities or costs.

  1. Higher likelihood of opting out of “big” ERP systems

Because of the lower tolerances for cost, time and risk overruns, PE firms are more likely to push for alternatives to “big” ERP systems such as SAP S/4HANA. While plenty of large, Fortune 1000 companies use these products, PE firms are more likely explore ways to get more bang for their buck at a lower cost point.

One common school of thought is the new system may be a shorter-term (but credible) enhancement until they sell the company to an acquirer, so they don’t want to spend too much time or money on a larger or more complex system. This often leads them to a Tier II or industry-focused solution rather than one of the more common “big” names.  

  1. Scalability of business processes and credible reporting

A primary focus is often to ensure their investment in new ERP systems can help scale for aggressive growth. This means they are more likely to stomp out inefficient processes, automate as much as they can and build a business process and technology framework that aligns. Delays or inefficiencies can directly impact profitability and momentum. This is where shared services models, common business practice, optimized business processes and other drivers of scale and precision are particularly appreciated.

Operating and reporting enhancements are another driver, such as credibly being able to report, capture and manage key performance indicators. This is an important tool for PE firms to measure value, progress and predict cash flows.

The most sophisticated private equity firms also recognize that managing organizational change management (OCM) will be a key enabler and driver of scalability and growth. A trend is to use the functionality the software provides, so the people must adapt to the new system and not vice versa. This reduces costly customizations and recognizes the impact on the people side (think business culture change). Experienced ERP consultants like Panorama offer detailed roadmap OCM solutions that should be incorporated with any ERP implementation.

  1. What does this mean to companies that aren’t private equity firms?

While most readers don’t work for or are owned by private PE firms, there are still plenty of lessons to learn from these practitioners. They are fueled by strategic growth even more than most, so if your organization shares a similar focus you may learn from their priorities and approach.

Many public and private companies acquiring other companies with the intention of integrating them profitably, can learn from this discussion. Also, the ability to achieve higher returns or accelerate growth could benefit all types of businesses. Bottom line, underlying most successful enterprises is an effective, modern ERP system that can support the goal of the organization while maximizing resources. PE companies have opportunistically realized they can usually sell a company for a greater premium or valuation when equipped with an effective ERP system.

PE firms have a compelling reputation of a successful buy-to-sell focus that must yield superior financial results. This tends to focus them solely on running their businesses and portfolios, while strategically using outside experienced independent ERP help to do the heavy lifting when it comes to changing or enhancing systems. This begs the question; why do some companies without a core competency in ERP excellence try to do this themselves?

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This article was written by
Eric Kimberling

Eric Kimberling is one of the most recognized and respected independent ERP systems experts in the world, giving 100% unbiased advice to clients for over 20 years. Eric’s extensive experience includes ERP software selection, organizational change management, implementation project management and value analysis. He is the founder of Panorama Consulting Solutions headquartered in Denver, Colorado.