Maximizing your ROI through optimal ERP performance – Key 3 – Selecting your ERP solution

Once you’ve made the decision as to why you’re considering an ERP implementation (discussed in article #1 of this series) and researched the total cost of ownership (article #2), there are several things you should consider in detail when selecting a specific system for your situation.

The top seven are functional compatibility with current and future business requirements.

• Total Cost of Ownership
• operational metrics
• flexibility
• Time and ease of implementation
• Supplier Relations and Support
• Industry experience and customer references

A survey conducted by the Aberdeen Group (June 2007) found that when respondents were asked what criteria were most important in selecting an ERP vendor, “remarkably little variation was noted by company size… functionality is clearly the top priority for all businesses, followed by total cost of ownership.”

1. Functional compatibility The first question to ask yourself is: which applications can be adapted to the needs of your company? As Christina Soh and Siew Kien Sia (MIS Quarterly, 2005) point out, vendors build enterprise systems based on a number of common frameworks: “ES packages are not tailor-made for every implementing organization.” “Vendors must make many assumptions about organizational requirements in areas such as organizational policies, structures, standard operating procedures, user knowledge, and interfaces. These assumptions are manifested in the processes and features of the ES package,” to which the authors refer. as ’embedded structures in packages’. “ES vendors claim that their packaged structures reflect best practices. However, many customers have found that these configuration options do not meet all of their specific needs, and many question whether ‘best practices’ really apply to all of them.” the organizations”. The context, that is, your reference organizations, may differ from the contexts of potential implementers, particularly those located in different countries or industries. Even within the same country and industry, contextual differences can exist.”

The system must be able to provide functionality for all of your current and future business processes. To ensure this is the case, you must first define and prioritize your company’s processes, identifying the core business functions and developing a comprehensive list of requirements based on input from all stakeholders. This means that, as Soh et al recommend, “Implementing organizations identify, as early as possible, mismatches between the package and their organization. They must create a foundation for determining when to align through organizational adaptation and when to align through package customization. ‘Misfits’—critical missing features or unsupported business processes—could be the elements that turn a great fit into a total misfit. Very often these only arise after implementation. Buyers should be very careful about future promises from software vendors. If the system does not have the required functionality at this time in the current version, you should dismiss any claims of functionality that may be available in the future. The Aberdeen survey cautions that while functionality may be the main selection criteria, “ERP is often considered a commodity today. Don’t assume the functionality you need is out there. Take a ‘show me’ attitude.” in the demo.” One of those who have documented this ‘road test’ guide to assess the suitability of a specific solution is Esref Akpinar (2005), who describes a software selection process for a shipping company using fuzzy logic for decision making. of decisions. This involved five scripted scenarios to understand how the software packages would handle specific key operational situations. A demonstration evaluation document was prepared, in which each question in the document was weighted according to its importance. An evaluation table was prepared from the results of the demonstrations, clearly indicating which product best suited the company’s operations and requirements.

2. Total cost of ownership Prospective buyers should ensure they fully understand the true cost of ownership beyond initial software license fees and the cost of hardware. These can include costs such as integration, interfaces, system communications, additional staff required, upgrades, and help line support. This topic is so important that it has been covered in great detail in the second article in this series, “Total Cost of Ownership Management: What You Need to Know.”

3. Operational metrics It is imperative to ensure that not only the costs, but also the benefits of an ERP system are controlled and measured during the implementation project. The benefits usually come in the form of cost savings and operational improvements (for example, reduced delivery time). Cost savings must be incorporated into budgets and operational metrics must be tracked progressively Legacy systems often do not support operational metrics and these must be manually evaluated. Therefore, a key selection criteria for the new system is also the ability to support these operational metrics.

4. Flexibility Can the application be modified and scaled according to the changing needs of a growing and dynamic business? Look for an ERP solution that accommodates new operating protocols, future business growth, market expansion, and any other initiatives that may arise. Aspects to consider when evaluating flexibility:

• System parameters and default settings;
• Customer screen and menu options;
• Tools to modify standard forms;
• Custom reporting and data access options; and modular format.

5. Time and ease of implementation

Key questions to ask regarding the implementation process itself include:

• How long will it take to implement the ERP system?
• Will it cause significant disruption to your normal business operations?
• Is there an implementation control process (ICP) to manage this?
• What kind of business process reengineering will be required to implement the system?
• How long will it take to train staff to use the system?

6. Support and relationships with suppliers Your software vendor decision is one that hopefully continues well beyond the normal five-year decision cycle. For this, three questions are important:

• Does the provider have a sustainable presence backed by experience in your industry and a proven track record of installing in organizations similar in size to yours?
• Will you and your management team have a comfortable working relationship that extends to knowing you and your business intimately? Do they show a sense of ownership and accountability for making your system choice a success?
• Do you have ‘a throat to choke’? In the event that issues need to be resolved, do you have a direct executive contact who is responsible for making sure your customer service experience is consistently of the highest level?
• How many total vendors will you deal with in your ERP package? Maintaining multiple vendors is cumbersome.

7. Industry experience and customer references Key questions that will determine supplier reliability include:

• Does the provider have a proven track record in your specific industry?
• Can the vendor point to several companies in their industry that are already using the software and confirm that they made the right choice?

One issue that cuts across many of these selection criteria is the issue of software customization, so it is worth briefly noting the issue in this context. As the Aberdeen Group points out (July 2007), only 11 percent of respondents to one of their surveys got away with no personalization at all. According to Soh et al, the simplest form of implementation, the so-called ‘vanilla’ implementation, requires the organization to bend over backwards to accommodate the software package. “Vanilla promotes organizational adaptation, either through conscious redesign and substantial change management, or through evolutionary workarounds, such as individual and group adaptation. Its adapted practices lead to new organizational structures. Modifying package software can range from customizing the package code to interfacing with custom built modules or modules from other vendors.” “Users tend to push package modification to minimize the number of changes they will have to make. Consultants and project managers tend to advocate organizational tailoring, to simplify package implementation and avoid tangible costs (time, resources). and risks) of package modification.” The tiebreaker between these two seemingly contradictory viewpoints can be a key ingredient to ERP project success, particularly total cost of ownership, and therefore should be a primary consideration among your selection criteria.

References:

• Akpinar, E., “Software Selection for a Liner Shipping Company Using Fuzzy Logic Decision Making,” paper presented to the Institute for Graduate Studies in Science and Engineering, Systems and Control Engineering, Bogazici University, 2005
• IBS, “6 Essential Considerations When Selecting an ERP System”, IBS Australia, February 2008
• Jutras, C. and Dalle Tezze, H., “When ERP Relates: Size Matters”, Aberdeen Group, June 2007
• Jutras, C., Trost, J., and Dalle Tezze, H., “Launching ERP for the First Time,” July 2007
• Soh, C. and Siew Kien Sia, “The Challenges of Deploying ‘Vanilla’ Releases of Enterprise Software,” MIS Quarterly Executive, September 2005