Lesson Learned in ERP Selection: Buyer Beware!

This article was originally published in CompanyWeek

So your old Enterprise Resource Planning (ERP) system isn’t cutting it anymore – or you have grown out of QuickBooks. What do you do?

The obvious solution is to replace it with a new ERP system and reap the benefits of the advanced software packages on the market. The big question is: where do you start?

Rather than letting the excitement prompt you to reach for the phone and start calling the most well-known ERP software vendors to come in and demonstrate their wares, take a breather.

Going through the ERP software selection process is a daunting task and your company’s fate for the next ten years or so may hang in the balance. The advancements made in both technology and functionality have made the selection process more complex and intricate. Making mistakes in software selection often results in higher costs or failure during the implementation phase of the project.

The reality we face is that organizations keep repeating the same mistakes over and over when selecting ERP software solutions.

The good news is that, regardless of industry and company size, many of the common mistakes in ERP selection can be avoided. While strong leadership, good team dynamics and competency are key ingredients in the recipe for success in the selection process, additional insights are needed. From lessons learned in working with numerous clients on such projects, we have come up with this baker’s dozen of insights specific to ERP vendor selection you should consider:

#1 – Focus on what’s hard first. Pinpoint your most critical and unique business process requirements – both current and future – that will challenge the capabilities of commercial off-the-shelf packages. Naturally, most people are not in a position to identify what is hard when it comes to software functionality or system integration, and this poses risk. To alleviate the risk, look at the most intricate “workarounds” you’ve had to devise to cope with issues that matter the most in your current environment. Then make your workaround solutions a key component of your requirements definition document.

#2 – Define your scope and commit to sticking to it. “Scope creep” is the most prevalent project killer. Wide-eyed enthusiasm is commonplace when people are looking at new techniques and technology. All of a sudden, each new gizmo appears to be something you can’t live without. Before long, the wish list has driven the situation out of control.

Prioritization is the key to project survival. Keep a keen eye on Total Cost of Ownership (TCO) components, both initial costs and ongoing operational costs. Remember that each feature and function carries its own operational cost. The bulk of that cost is often the time and money it takes to “feed” the data needed for each feature to operate properly. If you can’t afford the fuel, don’t buy the car.

Recognize that ERP involves more than functionality. Within your broader system landscape, the ERP solution scope needs to be defined organizationally as well as for business processes, data, interfaces, system decommission targets and technical capabilities.

#3 – Be business-driven, not technology-driven. Answer the following question early and often throughout the selection process: What does your business hope to gain from implementing the new system? The traits of new and different do not always equate to being better.

Always be looking at the future state. How will the business be different after the new system is operational? Monetize the answers and make sure there is buy-in from the executive and operational teams. It is critical to define the metrics up front that you will use to measure success later.

#4 – Beware of selection scorecards. There is always value in using a scorecard to keep track of individual components of each solution being evaluated and to tabulate comparisons. However, making the final buying decisions based on mechanical scoring alone is fraught with danger. One must take an objective view of what matters most to the business in order to make the best decision. Focusing only on the numbers on a scorecard can lead to a decision that’s not in the company’s best interest long term.

#5 – Recognize you have two vendor choices to make, not one. Just because you will end up selecting one vendor’s ERP software package does not mean you should use that same vendor for implementation services. When comparing software vendors, there is more variability in the quality of implementation services than in software functionality. While the software package itself has the most visibility during the selection process, it is not unusual for the services component to become the main risk-driver and deal breaker. Also crucial to understand is that implementation services represent the biggest factor in budget burn rate on most ERP projects.

While the consultants from the chosen ERP software vendor are often the shoe-in choice for implementation services, they are sometimes the sub-optimal pick. Simply being employees of the primary ERP vendor does not mean the consultants assigned to your project are the best suited for the job. Due diligence must be exercised separately for the software and services components.

#6 – Don’t get hung up on “the cloud” promise. The manner in which the software and infrastructure are hosted is not what’s most important when it comes to selecting an ERP vendor. Furthermore, beyond some small company scenarios, multi-tenant Software-as-a-Service (SaaS) offerings are not yet all that relevant in ERP (and may never be).

#7 – Stay clear of noise, hype and biased recommendations. Most consultant and analyst organizations offering ERP software selection guidance make revenue implementing the software they recommend. Often, the profits they make implementing the software far exceed what they earn for selection services, so the “follow the money” scenario speaks volumes. In other markets, these practices may be considered conflicts of interest and even unethical in some cases.

#8 – Don’t hand over the keys to the vendor(s) during the selection process. Sales people and high-level consultants with ERP vendor companies are typically very competent and impressive. Keep in mind the selection process through which you’re going is a task you may experience only once in 10-20 years. Yet, it’s something the ERP vendor folks do as their ongoing job, and they’ve become very skilled at orchestrating the process.

Avoid allowing vendors to use their sales expertise and tools as a means to control your selection process. It puts them in the driver’s seat and diminishes your ability to make the best decision.

#9 – Control the software demonstration process yourself. Planning and executing software demonstrations are too often left to the vendors. Resist the urge to take the easy way out here by letting the vendors dazzle you with their dog and pony show. Prepare a clear and comprehensive demo script based on your prioritization of the functionality and integration you need. Force the vendor to adhere to your script. Make sure you have the right decision makers from your organization viewing and objectively rating each portion of the demo.

#10 – Do a deep dive on your due diligence reference checks. Realize that every vendor will try to parade their “poster children” user companies in front of you to support their customer satisfaction claims. That’s OK, but don’t stop there. Every vendor has some dissatisfied customers. Part of your job is to go out and find them. A strategy that have yield great results is tapping into the vendor’s user group organization as part of your due diligence. One caveat though: oftentimes a disgruntled customer caused many of their own problems.

#11 – Maximize your leverage in negotiations. Beyond staying in control of the process, keep your options open on all cost components. Don’t source all external contract resources from the same vendor prematurely. If you can do so, plan to close your deal with the vendor(s) at end of a quarter or, preferably at the end of a year. Publically traded vendors are notoriously stuck in their end of period earnings push and consequently offer the deepest discounts at those times.

#12 – Do your homework on total cost of ownership. Pay particular attention to your implementation staffing plan and risk assessment. Many companies take shortcuts in these areas and fail to manage expectations even before the implementation starts. These projects are almost always more time-consuming, costly and risky than anticipated, so treat them as such and manage expectations accordingly.

#13 – Use the selection process to mobilize your implementation team. This is the golden opportunity to recruit, involve, educate and test the cross-functional team that has to make the software work in your organization. If your key users don’t have “buy-in,” you have trouble brewing. Participation in the selection process is also a great learning opportunity for new employees and rising stars.

So, there are your lucky 13 insights. There is more to the ERP selection process than we have covered here, such as using adequate legal support for contract reviews. However, reflecting on and acting on these 13 insights should help you approach the selection process in a way that avoids the pain of an ERP implementation failure. Remember: to make an ERP implementation successful, you must get the ERP selection right.

Christer Wadman is the Chief Strategist at Teccelerators; helping businesses grow and become more profitable by improving their use of Information Technology. He is primarily focused on the manufacturing and distribution sectors. You can contact him at christer.wadman@teccelerators.com

It’s Hard To Choose The Right Business Improvement Program

This article was originally published in CompanyWeek

Companies use many different methodologies, improvement programs and frameworks to make themselves more effective, and in turn, more profitable. Choosing the best ones to implement at any given time is a daunting task and can mean the difference between profit and loss, and in severe cases, even between continued prosperity and bankruptcy.

How should you choose? How do you avoid creating conflicts by choosing one over the others and, instead, create productive lasting energy for the new program? I suggest getting there by developing a clear business strategy while building on knowledge and energy already existing in the company.

Business strategy clarity for program alignment

Before choosing the specific improvement or transformation program(s) you plan to implement, you must have a clear and concise business strategy in place. Your vision, mission, values and strategy provide focus and priorities for your organization, and must therefore be well developed and effectively communicated. At the end of the day, business and functional strategies need to be very specific so the organization can act on them effectively by launching meaningful programs.

External forces may dictate the choice. If your key customers are telling you they won’t do business with you unless you have an ISO 9001 certification, you will of course become ISO 9001 certified. While meeting regulatory compliance and IT security requirements are also “musts,” you have the freedom to choose your strategic agenda and focus once you get beyond the absolute essentials.

The Discipline of Market Leaders (Michael Treacy, Fred Wiersema) is an excellent book for helping executives with strategy development. The authors suggest a winner excels in one of three domains: operational excellence, customer intimacy or product leadership. We have used this framework extensively in consulting engagements and it has proved helpful to the leadership teams in selecting their focus areas at a high level. With that focus in hand, you can then dive deeper and become specific about such things as where you need to excel, how to overcome your barriers and how to align your core competencies.

With a clear business strategy in place, you can then select which programs and methodologies make the most sense for your organization. It will likely take some research and consultation to identify your options, build business cases and prioritize them, but it is not as difficult a task as some might think. For example, if you believe you are going to win in your market with customer intimacy, programs related to Sales & Operations Planning (S&OP), Total Solution Selling, Customer Relationship Management (CRM) and market-oriented Business Intelligence (BI) might be high on your agenda.

As you begin your journey into improvement program selection, beware of the hype you’ll surely encounter. We’ve been inundated with the potential of the “Cloud” but cloud computing is more about a technology platform choice than a strategic program, that is, unless your business provides software, hardware or data services. There is a similar level of hype concerning “Big Data,” which is more of a mechanism than a strategy. Rather than getting all excited about Big Data, it’s probably better to focus on the all to common product and customer data quality problems, with an eye towards goal-driven Business Intelligence. Keep in mind that many program methodologies and concepts fade away—and usually for good reasons.

Building momentum and maintaining program energy

As company employees, we don’t always get excited across the board about a new program pushed by management. In IT, for example, embracing the “Agile Development” methodology might be seen like a game changer, but it has very little relevance to a regional sales manager struggling with CRM system adoption among his staff. The business organization as a whole needs a mantra that focuses on real business benefits like increased productivity or profitability improvements because technology buzzwords alone have little meaning to them. To create breakthrough energy in your organization, you need to strike a balance between technology-focused and functional methodologies vs. strategic results-centric programs that will lift the organization as a whole.

There are only so many top performers in an organization. For success, these “stars” need to be actively enrolled in a new program and put in a position where they can become the champions of real change. As one person can’t do everything, it is important to choose carefully when allocating these critical resources.

Sometimes, conflict between programs pops up that goes beyond just competing for the same resources. Working on a business process improvement initiative in order fulfillment, for example, might make all the sense in the world, but if a new Warehouse Management System implementation is pending, a potential conflict arises. In this case, there is risk the Kaizen team will work to optimize the process without considering all of the system configuration constraints, cross-application integration complexity and people resource issues that may arise. Such lack of collaboration and foresight need to be identified and proactively addressed so as not to undermine and cripple both efforts.

There are a number of companies that have been very successful in inventing and adopting new methodologies, some of which have led to widespread cultural movements. Well-known examples include: GE (6σ), Toyota (JIT), ABB (T50) and Google (Design Thinking). While the most powerful methodology-driven transformation comes from within, it is not necessary to create your own methodology to achieve breakthroughs. Powerful cultural shifts and energy for change can be achieved by learning from, and copying, the best

The bottom line

There is a dizzying and often conflicting array of business improvement programs from which to choose. Rather than jumping headfirst into the newest and most touted program, management must carefully study the alternatives and fully evaluate them from a cross-functional standpoint. New technology-based methodologies should never be implemented just for the sake of technology itself.

In choosing which improvement programs to implement, the management team must create an effective balance between business strategy, program alignment, resource allocation and overall organizational energy. Achieving this balance is critical for the business improvement initiative to deliver the intended results.

Christer Wadman is the Chief Strategist at Teccelerators; helping businesses grow and become more profitable through effective transformation program adoption and by improving their use of Information Technology. He is primarily focused on the manufacturing and distribution sectors. You can contact him at christer.wadman@teccelerators.com

“ERP” Should Never Be The Answer

This article was originally published in CompanyWeek

All too often, executives and business consultants looking for a path forward provide direction in form of a system acronym hiding complexity to the point of sending an organization off in the wrong direction. The answer should never be “ERP,” “SAP,” “AX” or the name of another software vendor.

Of course, Enterprise Resource Planning (ERP) is often a component of an overall solution or program to lift your business capabilities and win in the marketplace. However, simply equating “ERP” to the key system, business process, and information management capabilities required to improve or transform your business is a mistake.

ERP failures are still common

When “ERP” equals core strategy for a company it is a sign of problems. It may include not being specific about what really matters when selecting and implementing an ERP system in the company. A tangible credible return-on-investment perspective is often missing or overly optimistic. Another example is biased solution vendors invited too early into the process. It is not uncommon that the vendor sales pitch becomes the go-forward strategy, sometimes even suggesting that “the cloud” will somehow transform a manufacturer or distributor. The usual pain resulting from these issues includes off-target expectation setting, ERP initiatives launched against the wrong targets, and poorly scoped solutions, among others. Ultimately, this translates into a benefit-cost-risk equation nobody wants.

So, why do so many business leaders assert “we need ERP” without being able to articulate what this really means? The answer stems from the fact that the typical real-world manufacturing company is complex. Consider that all the components of business strategy, people, external parties, business processes, information, systems, and IT infrastructure are part of a larger multi-layered puzzle. With this puzzle subject to constant change, it is not easy to be truly market and business-driven when outlining a well-balanced path forward to improve. Typically, the pressure resulting from high growth, operational inefficiencies, acquisition and other major business impact exacerbates the difficulty to get things right. With this in mind, looking at an acronym as the silver bullet is tempting.

ERP implementation failures continue to be very common among both small and large companies, and, counter to common belief, most implementation and adoption issues are created before the implementation phase begins.

How to get ERP right

Smart leaders acknowledge the complexity of the multi-layered puzzle and address it using research and methodology that simplifies it. This simplification needs to be structured in a way that allows them to focus on what really matters to the organization and on what has a high risk of going wrong during the system implementation.

Small companies use several systems to run their businesses. Large organizations may utilize 100’s of both integrated and stand-alone systems to win in their market. In this multi-system environment, a clear understanding is required of what system addresses what functions, what inter-system integration is worth the effort, where master data is located, where to improve data quality and where to lean on spreadsheets. The targeted system landscape needs to include solutions that reflect what is practical and reasonable at given investment levels and timelines, or expectations will never be met.

When designing the targeted puzzle, it is important to look ahead. Examples of questions to consider include: How will your position in the supply chain change? Will you fulfill dramatically higher volumes of e-commerce orders? What acquisitions are on the horizon? Bear in mind, enterprise system adoption is typically a multi-year journey, and the targeted systems need to fit the business when they are turned on and later.

Beyond proactively detecting the current and future pressure points in the company, you should also identify and articulate any unique business process and data needs. Pinpoint what standardized off-the-shelf business systems will be challenged with and compare these views. Benchmark your industry and make sure to gain consensus on this perspective because it is what makes (or should make) the difference in software selection.

A company that signals a pending system purchase or upgrade attracts lots of third party attention. It is difficult to recognize who should get invited to help and when to invite them given that almost all consultants are either biased, IT-only focused or inexperienced. To outline the business-driven path forward, companies should make it a priority to get outside help with methodology assistance and industry research. Experienced consultants that are unbiased are always the better choice.

It is important to hold system implementation partners and software vendors accountable to deliver within the defined scope of your targeted puzzle. Make them specifically address what’s challenging, critical and unique to you—and not what is easy for them. These expectations must be crystal clear before you launch into the implementation phase.

Don’t make the simplistic phrase “we need ERP” your answer. Instead, learn from industry experts and recognize that successful mobilization of an ERP-centric project is as important as executing well on the implementation phase. Plan, deploy resources, prepare the organization and take action accordingly.

Christer Wadman is the Chief Strategist at Teccelerators; helping businesses grow and become more profitable by improving their use of Information Technology. He is primarily focused on the manufacturing and distribution sectors. You can contact him at christer.wadman@teccelerators.com