ERP and CRM are both types of business software designed to bring greater efficiency into your business. In both cases this efficiency is primarily achieved by managing your data accurately, using that data to provide valuable insights into what is going on in the business, keeping everyone informed, monitoring activities and automating as many processes as possible. But what’s the difference between ERP and CRM systems?
Let’s first lay down some simple definitions of both ERP and CRM.
What is CRM?
CRM is an acronym for ‘Customer Relationship Management’. This business management software primarily enables companies to efficiently nurture prospects and transform them into customers. As the name suggests, the primary focus is managing the relationship with the customer throughout the business cycle, from first contact as an opportunity through to satisfied, regularly re-ordering, evangelising, long-term customer.
A closer look at the history of CRM suggests that, while computerised contact management has existed since the 1970’s, the notion of exploiting a customer database to enhance the sales effort gained traction through the 1990’s. CRM became an excepted part of the business lexicon by the year 2000.
What is ERP?
ERP is an acronym for ‘Enterprise Resource Planning’. It, also, is business management software which aims to increase productivity by bringing together data from a range of business functions under one, unified control centre. These functions most commonly comprise procurement, manufacture, stock control, management accounting, payroll and human resources.
Forerunners of ERP include MRP (‘Material Requirements Planning’) and MRP II (‘Manufacturing Resource Planning’), both of which now mainly feature under the all-encompassing ERP platform. Unlike CRM, customers only enter this system once they have placed at least one order.
So what’s the problem?
If CRM and ERP had continued to develop their capabilities more linearly, then the discussion of what’s the difference between ERP and CRM would be a little more straight forward. The definitions above would suffice, clarifying that CRM is a sales and customer management tool, while ERP manages all other business operational processes.
However, that’s not what has happened. CRM and ERP developed alongside each other in the 1990’s and 2000’s. When CRM started to look into other areas of a business, ERP did too. The seeds of confusion were sown about which package does what. The result was a blurring of the lines. CRM started to look a little more like ERP and ERP broadened its brief to take in the sales and customer management function.
The rationale is quite easy to see. Businesses that develop ERP software already have plenty of expertise to introduce CRM styled modules, and vice-versa. Surely the customer would benefit from a single package managing the whole of the business rather than relying on two unconnected systems to do the same? It seems to be a small step to win-win; the customer gets greater control and efficiencies while the software companies generate increasing revenues with the same customer base.
The 5 key differences between ERP and CRM
Well, it turns out that things aren’t quite as straight-forward as they might be. To understand the problem, let’s understand the differences between ERP and CRM.
- SCALE: ERP systems tend to be more substantial entities. They cost more to set up and maintain. CRM is more lightweight, consequently tending to be quicker and cheaper to set up.
- SCOPE: ERP systems have far more to integrate. They might span four or five disciplines within an organisation (such as mentioned above: manufacture, stock control, payroll, management accounting, procurement, etc.) while CRM is primarily concerned with sales and customer management.
- EXACTNESS: ERP systems demand precise data. When dealing with stock, salaries, production schedules, sales and purchase ledgers within one system, everything has to balance – exactly. This need for such accurate integration is a challenge. CRM systems require precision too, but they also reflect sentiments as well as hard facts.
For instance: CRM may manage invoicing for a business. Invoicing is a precise business. The sales ledger needs to understand very precisely who owes what to whom; On the other hand, a sales force will enter a series of opportunities into a CRM with sales figures based on expectations rather than fact. Each salesperson will have a greater or lesser grasp of probabilities, so their expectations will be too high (probably) or too low (unlikely). CRM converts this varying sentiment into meaningful trend lines, probable outcomes, aggregated forecasts and so on.
- FLEXIBILITY: Because of the difference in scale and exactness requirements for ERP and CRM mentioned above, CRM systems tend to be more agile. It is likely to be quicker (and cheaper) to make adjustments to CRM systems than to ERP.
This agility is critical, particularly for smaller businesses who may need to react very quickly, and without excessive cost, to changing circumstances.
- CUSTOMER PROFILE: ERP systems’ clients are generally larger, established, corporate entities who have a relatively established workflow throughout the business functions, for which it is possible to build a system which doesn’t require regular and significant change. CRM, on the other hand, can be more easily adopted by smaller businesses for cost and agility reasons.
So why not just combine ERP and CRM?
The understanding of what’s the difference between ERP and CRM helps to clarify why the two haven’t become a single standard in the last twenty years. The differences mentioned above show an incompatibility between the two products, but there are other reasons why software developers have limited the cross-over between the two:
- It is tough for a single company, or a single piece of software, to be the best at everything. For instance, Apple Inc. is the world’s leading expert at producing high-quality hardware and associated software. However, they created an App market for other specialists to share their expertise in the Apple environment with specialist but related software capabilities.
- The decision to ‘over-integrate’ a business can be catastrophic. Integrating can be hard. It will invariably be management-time hungry and very costly. This resource-hungry situation is of particular concern for small businesses where a successful CRM implementation can be achieved relatively quickly with exponential benefits. In contrast, an attempt to integrate a small business across its entire operation could bring it to its knees.
“Businesses can find themselves spending disproportionate amounts of time working on their system rather than on their business.”
So, in short: CRM systems are relevant to all businesses. However, ERP systems tend to be more the domain of large enterprises as they are more expensive, sophisticated, and exhausting of management time. For most small businesses, CRM is the key, and any small business without one should consider what CRM can do for their business as a priority.
From a software developer’s perspective, CRM developers tend to be specialists at CRM, ERP specialists at ERP. In the occasional instances where ERP and CRM are both offered, these tend to be packaged and marketed independently. Competition in both arenas is robust, and the rapid advances in software capability mean they all need to be on their game to provide ever-increasing functionality and quality.
Recommended further reading: Key Features of a CRM System