[teddyc]

I work on an ERP system in the higher education industry. Also, when I got my MBA, they taught us a lot about the ERP systems from an executive point-of-view.

The 'E' stands for Enterprise, which means this is a big installation. I think 2 big reasons to choose an ERP over an in-house solution are:

1. They want support. They want to be able to hire people or pay consultants that already have experience with the ERP system. Building a system that your enterprise entirely depends upon introduces a level of risk. Having a big company like SAP there to support you reduces that risk.

2. They want something built for their industry. ERP systems are typically designed around the generic business processes for a given industry. The technical type of people that can write code might not know how to design a system to properly match the business processes of the company.

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Yes, at the heart of an ERP is a database, but there is more to it than that. There is access/control concerns as well as audit log concerns. There are various industry/government mandates (like HIPPA or FERPA) that need to be adhered to. There are all the interconnections under the hood to make everything work. ERP systems are so complex that usually no single person understands the entire thing. You might understand a module or a component, but it typically takes a group of experts to have a working knowledge of everything.

And yes, ERP systems are really expensive. You have to buy annual licenses and support contracts. The hourly rates for support are expensive too.

[mjn]

On #2, a colleague of mine has a hypothesis that that's a primary reason a lot of smaller enterprises (on the threshold of enterprisey) buy ERPs: it tells them what they should be keeping track of and how, along with providing the tool to do it. When small companies grow large quickly they often end up being very unsure of how to structure their processes and accounting, and having a built-in solution for "this is how companies in field X do things" is appealing. So it's not only that they worry about the risk of building an in-house solution, but they also worry they wouldn't even know what should go in the solution! Buying SAP not only gives them the software, but a template for how to structure their business's processes.

In a way it's a little like adopting git and a particular git workflow. Adopting the workflow can be the really valuable part, especially if you had no idea how to structure a workflow in the company previously. The tool is secondary, and just helps structure the workflow. Seen that way, implementing SAP is sort of like buying a default-business-process template, along with some enabling software. (On the other hand, it does run the risk of producing some cargo-cult business practices. If businesses structure their processes to fit SAP, rather than vice-versa, it's not necessarily the case that anyone is checking whether these processes still make sense.)