Application Focus : Taking the Plunge

Selecting an ERP system is a critical business decision; here is how to evaluate systems that fit, and select the right supplier

In my office I used to have a motivational poster that read: “What we can easily see is only a small percentage of what is possible. Imagination is having the vision to see what is just below the surface; to picture that which is essential, but invisible to the eye.” Now, the quote is powerful enough, but what really caught my eye was the amazing photo. On top of the water was an iceberg that probably would dwarf a crabbing ship, but that didn’t compare at all to what was beneath the water. The part of the iceberg that was beneath the water was big enough to encompass a small town. That photo could well represent your search for an Enterprise Resource Planning (ERP) system. On top, it’s definitely a daunting task. But what lies beneath the water sometimes isn’t discovered until you “take the plunge” into searching for an ERP system. My aim here is to help you navigate your ERP ship through these icy waters without sinking. Selecting an ERP system for your organization is probably one of the most critical business decisions you’ll ever make. Have you been in charge of leading your company to that decision? Or are you the owner of the company and deciding what to do about upgrading? Are you on a team of people in charge of reviewing, then choosing, the right system? If any of these hats fits, then this guide is for you. Why Should I Even Think About Upgrading? Maybe you’ve changed the way you work. As our businesses grow, our processes mature along with them. Perhaps your present system no longer supports your process needs. Maybe your system is DOS-based. Maybe it’s a legacy system that has been so customized for your organization that upgrading or advancing your technology is nearly impossible. It’s easy to see why organizations stay in their accounting systems too long. It is comfortable to stay with a system you know and understand. Fear, apprehension and even discomfort are common emotions when considering switching to something new and unknown. “I can remember the situation…. Our company had outgrown Quickbooks a couple of years ago, but we kept trying to make it work. We had just heard horror stories about ERP implementation and had no clue where to start,” says one project manager. And soon as you put your name and number out there as looking, you can expect a steady stream of sales calls pouring into your phone like a pack of wild dogs after a tame rabbit. So how do you choose? Are there steps you can take to make it easier on you? Choosing the Software We have narrowed down this critical mission into two steps—assuming you’ve already established and defined the internal team that will take the lead in this project. You’ve also defined and written down your needs as a company and what it will take to meet them. These steps are like the top of the iceberg, but what lies beneath them are the layers of iceberg we need to break through. Evaluating Systems That Fit There are many benefits of a good ERP system. (See Table 1.) Here’s a little secret most companies that make and sell ERP systems won’t tell you: Almost every ERP system performs the same basic functions, even though individual companies perform those tasks in very different ways. Does that mean you just choose the system that best fits your budget and that’s the end of it? No, unfortunately—think of it as just another layer of the ERP-berg. There are many elements to consider closely when evaluating the correct systems. (See Table 2.) If those questions aren’t enough to make your head spin, let’s take a look at the next step, which will really test your Q&A skills. Choosing the Vendor I decided to talk to a few friends who were the project leads for choosing an ERP system for their businesses. One story in particular stuck out. I hope it doesn’t sound familiar to you. “We took the time to see 22 different companies in person or in webex demos before we narrowed it down to about eight companies. From those eight, we did another round of demos and narrowed it further to five, and then to three.” These companies followed many of the principles I have outlined above to get to this point. They had found software that would do everything they wanted and more, and the price tag was acceptable. So what was the problem? “It took only to the end of the first day to realize the implementation team was a complete failure.” But promises and smooth speech left them feeling the problems would be fixed. What was the outcome? “At about $60,000 over budget and nothing to show for it, we decided we were going to go back to our previous small enterprise accounting software. It was then that one of the team members suggested not ditching yet, but looking for another vendor instead.” Although many ERP companies will frown on this, with some pushing, it is definitely possible. “We had to push a few buttons, but we knew that our due diligence on the software was solid. It’s just that the vendor made us doubt ourselves.” What was the outcome? “After a few months of struggle and searching, we moved to a new vendor that fixed all the problems and delivered the true power of the software.” This story is not uncommon, but what is even more common is that this company took so long to get out from under a bad vendor. Now, this isn’t a war cry for running off to a new vendor the minute your original vendor ticks you off. But if a true reason for being disgruntled arises, don’t deep-six the option. In this company’s case, besides running over budget and receiving faulty training as well as a flawed implementation setup, it also experienced a critical error by one of the team that disabled the accounting system from taking in sales transactions for nine days. To add insult to injury, the vendor billed them for all that time! So how do you avoid this situation? By doing your due diligence before you sign the contract. Here are some questions that should not only be asked, but should elicit solid, written answers: How many people are in their team? How many are in technical support? How quick is the response time for tech calls? Can other clients back that up? What are the hours of operation? What about after-hours support? What is the charge for support, and what options are there? How many implementations have you done? Many times during the sales pitch you will get gleaming answers for these questions, but can they be corroborated by references? Here’s one idea that will be hard to swallow, but it can save your ERP life: go visit the vendor. Yep, once you narrow it down to the top two or three, go visit their shops. What do their employees say? Does the office look like a professional technical office? Does it give you confidence that they are here to stay? Another major factor to discuss when choosing a vendor is: Who does the training? Are they staffed and capable enough to do the training? Where does the training take place—their place or yours? Let’s talk briefly now about staffing requirements. It may be the case that you’re looking at a particular vendor company and thinking, “I have 100 employees. How can a company that consists of only five to 10 people support us?” That is a good and a valid question. But instead of judging the vendor on its size, take a look at the expertise there. Does this company have employees who specialize in certain parts of the software? Are the employees cross-trained? Perhaps a smaller staff of cross-trained but specialized employees will support you better than a larger company that can only offer a lot of bodies. By the same token, I would use caution when judging “one-man shows.” The way ERP software is made today, it is nearly impossible for a one-man (or woman) operation to be an expert on all aspects. Here’s another question for the vendor, or at least a discussion you should instigate: what is its plan for growth and hiring? It’s important to know that the vendor company has a plan for hiring new people as it grows. You don’t want to slide to the bottom of the totem pole when newer and bigger clients arrive. Cost This is, of course, one of the biggest questions that comes up. There is no way for me to put a number on the time, effort, or energy you and your team will put into this daunting task, but I can help you at least get an idea of what to expect. The features and functionality you are looking for will greatly affect the pricing. Another factor is the vendor. Let’s discuss these points. For the purposes of this discussion, we will assume that you’re using most of the software’s features and, since there is no such thing as the perfect ERP solution, doing some customizing. Prices can range anywhere from $150,000 to $350,000 for the software alone, with nearly every feature installed. Of course, price should not be the only consideration; as I’ve already pointed out, you should also be concerned about quality, features and, of course, the vendor. Furthermore, in my experience it’s not necessarily true that the more expensive the system is, the better it is. Much of the cost, in fact, comes with implementation, and you need to be wary of “scope creep,” in which features, add-ons, and customizations can blow a budget. It’s reasonable to expect a ratio of 1:1 or less. That is, if the software costs $200,000, it is not farfetched to expect the installation to cost an additional $175,000-$200,000. Much of that cost comes from the use of time and material, and there’s not much you can do about that except to assign an internal project manager to make sure that those hours are used wisely, cost-effectively and honestly. You cannot control the rates they charge (besides negotiations), but you can control how that money is spent. Bear in mind that some vendors have very high hourly rates and large overheads to cover, making this a major area for caution. Ask the vendors what has historically been their ratio for installation versus software costs. Really dig deep on what customizations you will need to make your software of choice really stand out, and get a good idea on what it will cost to have them implemented. How can you safeguard your budget, your job, and the benefits of your new ERP system? The answer is: ask more questions. To Sum How long will this all take? From pre-planning through implementation and some customization, you’re looking at roughly a 12-month cycle, if you do it right. You can shorten it a bit, but I wouldn’t recommend extending it too long. The factors involved change so much and so fast that you will find yourself having to restart. Remember there is no such thing as a perfect ERP out of the box, but that doesn’t mean you should expect 50 percent customization (unless, of course, your business needs it or you want it that way). Searching for and finding the right ERP system is a challenge that can really test your limits. Having the right people, the right tools and, most importantly, the right questions at your disposal can make this daunting task much easier. If you outline your steps in advance and ensure you have the resources you need, that huge iceberg is just a pretty picture and not something that will sink your ship.