| michael.panosh writes: | 8/31/2007 # |
First up, as Eric states, the most important question is "What business problem are you trying to solve?" Unless you know this any effort - ERP or DIY - is doomed from the start. So consider:
* Can your company pinpoint and cost the Top Five business issues?
* How do you know the business will be more effective with an ERP solution?
* Are your competitors doing this?
* Can you grow business profitability using your current tools and methods?
As you answer these questions you will be better placed to talk to ERP vendors. But to reiterate, understanding the business problem is critical, as ERP vendors cannot easily implement an effective solution if the objective is unclear.
Fortunately, vendors can be the best resource to determine your business problems, as their staff should be intimate with the challenges of your industry. Presentations by their presales staff will typically declare broad industry issues then drill into details of specific issues relevant to you. In many cases these may surprise you, as the vendor will speak to as many people in your company as possible to uncover examples of where their system can add significant value. The best part is that vendors usually do this for free as part of their opportunity qualification, potentially saving you from hiring consultants to discover and document basic business issues and limitations.
Expect this process to be iterative - you will learn things about ERP that you can use to ask better questions about ERP.
And while there is no magic bullet solution that is applicable to all companies, there are a number of common aspects of an ERP system and the implementation team that you should consider:
Functionality: Functionality is the heartbeat of an ERP vendor's product. It will drive your competitive advantage so ensure that the solution has all of the functionality you need to trade right now, plus the features you would love to implement if you ever had the time.
Of course, you need to trade off practicality here as well. For example, think very carefully about any solution that requires more than about 30% customisation - having to write custom functionality for you adds complexity and cost and will make upgrades more difficult. And negotiate extra hard if the vendor is offering you some kind of "R&D rebate" where you become the test case for functionality that they actually want to put in their product. Make no mistake, agreeing to this may seem OK at the time, but you are a guinea pig with all the risk and effort that entails (and put a rider in the contract to ensure you are well compensated should they bail out of the project part way through because it is not working out as they expected).
Flexible and Integrated: The solution should be modular so that you can build it up over time, but fully integrated so all modules communicate with each other. That way you can be assured the system can at least deliver on the promise of faster access to business information and streamlined business processes. It should also cater for your business processes without breaking the underlying functionality.
While vendors will promote how they can implement industry best practice, as Eric notes you need to maintain your competitive edge - there is no benefit in adopting your competitors' business model if you currently beat them by being innovative in the way you trade.
In particular, be wary of larger ERP vendors who want to sell you an "industry template" version of their software. These templates seem to be great value as they are usually presented as a cost-effective option that will streamline the implementation process and reduce the risk to your business. However, such templates are typically based on the way their large enterprise customers work, not how SME companies operate and play to the needs of the vendor not you as a customer.
Indeed, in an interview with Datamation, Frank Gens, Senior Vice Ppresident at research firm IDC, made the observation that the large IT vendors attempting to penetrate the SME market "will need to shift more than the size of the products...they’ll need to transform their corporate culture."
As Gens notes, "The business model for those [big] companies traditionally is a relatively small number of very big deals. And to now change your approach, and your operations, and your strategies, is quite a culture shift and a business shift. We’ll see how they do."
He concludes that "History has shown that it’s much easier for the small guys to scale up than for the large guys to scale down."
In a similar vein, be wary of "best practice" templates from large vendors - these work well for highly rigid, fully repeatable legislative or industry compliance issues - such as tax reporting or electronic trading catalogues - but not so well for SME customers who don't tend to trip over the compliance threshold in a big way.
Single Source: Ideally, all aspects of the solution should be handled by the vendor - many SME solutions are presented as "integrated" but you are actually buying modules from various third parties that are bolted together by the service provider. Retail Point-of-Sale is often sold this way, with a core finance and inventory management system connected - often by an end-of-day batch process - to a standalone POS. Be very wary of this type of solution, as your risk of support issues increases as the number of suppliers to the solution increases.
Vendor Credentials: There has been considerable consolidation in the ERP market over the last few years, and the mergers and acquisitions show no sign of abating. Ask any prospective vendors for contact details of at least three customers who have been installed for more than two years in your industry, then use the web to find some customers they didn't tell you about and contact them.
Request the vendor's financial information and ask whether there are any legal actions outstanding against them. If you have access to a ratings firm like Dunn and Bradstreet, use that service to gain an understanding of the vendor's credit worthiness. And don't be worried if the vendors you consider are not household names. Typically, the vendors who focus on SME do not have the marketing budgets required for general advertising, so talk to your peers and industry associations. The ideal vendor is highly likely to be a smaller, local player with deep expertise in your industry and a history of servicing SME customers.
Support: The vendor's professional services team will be very keen to provide 'feet on the ground' support, where their consultants work with your team to optimise the ERP software, provide training and/or help recover if things go wrong (and it's not just software bugs that cause things to go wrong. Your staff can unwittingly cause chaos if they poke around the database or change administration settings on the fly). Ensure that the vendor charges local rates for these consultants, and unless you are outside a major city, do not agree to pay airfares or accommodation for their 'experts', as the cost of travel is their business expense, not yours.
Telephone, email or web support for general queries is commonly bundled into a support contract, and will likely require that you nominate a limited number of staff who can call the vendor for help. Don't be surprised if the contract limits the number of incidents per month or number of hours of telephone support. Finally, the vendor help desk is rarely a cost-effective training method, so vendors will push back if they feel your staff are taking advantage of the support team to wrangle free consulting.
Finally, ask how the vendor will plan and support software changes that better reflect your business needs. You are unlikely to convince an international vendor to update their core code, but smaller domestic vendors can be more easily influenced, especially if they see that the feature can help drive more sales.
Implementation Expertise: Industry scuttlebutt has it that many large implementations have been undertaken by the 'Happy Bus' method where a few experienced (and expensive) team leaders manage a large group of much less experienced (yet strangely, not much less expensive) juniors.
While this is less likely with SME projects, ask to see CVs during the sales process and match those up to the people actually doing the job. Ensure that you are not paying for vendor staff who are training on-the-job, and if you are in any doubt about the skills of the people doing the work, discuss it with the vendor straight away so your concerns can be addressed before the project is completed.
Investment Cost: While your aim should be as inexpensive a project as possible, budget at least one percent of your revenue as a good ballpark for the total project cost when comparing vendor proposals.
For SME projects, the software cost, new hardware/database and implementation services are likely to be each one-third of the total price. Software maintenance and/or ongoing support are typically separate line items that usually range from 15% - 20% of the licence cost. Make sure that proposals cover all the items you discussed with the sales team, and where you decide to delete an item to save cost - such as using your staff to migrate data from your existing system - ensure that the vendor provides some form of written project impact statement so that the implications arising from deleting the item are clear.
And while asking for Return on Investment (ROI) figures is the norm, the reality is that few projects capture the requisite before and after baseline details that provide a definitive ROI. You are better off asking reference customers how the system changed their business practices than studying vendor-written ROI papers.
Solution Type: There is a perennial argument in business circles that advocates either best-of-breed or fully integrated. With best-of-breed you buy specialist products for each business function and bolt them together to build a complete solution. Fully integrated products are typically not as feature-rich in any single area as best-of-breed, but they come from the same supplier and so notionally have a lower purchase cost and overall support cost.
SMEs should approach a best-of-breed project with healthy scepticism, as you will rarely have the skills, time and money required to connect the products together and maintain stability in the face of changing business processes, industry requirements and customer demands.
Note that it is OK to customise a small percentage of your solution to implement your competitive edge, but stay focused on getting that done, don't let scope creep and "hey, what a great idea" pad the wallet of your vendor's professional services team.
Upgrade Path: Before you pay for software maintenance, ask the vendor reference accounts about their experiences upgrading the product. While very few upgrades are painless, you need to know whether the vendor provides value for the maintenance charge (i.e. does the functionality included each year add value to the business?) and whether a team of consultants are required at extra cost to actually do the upgrade each year.
Technology: While there is no doubt that technology can streamline your business process, help retain customers and improve profitability, technology for its own sake is a waste of your money. It is also an area where vendors can use smoke and mirrors to hide inelegant products features...or suggest that the next release is a Golden Bullet tailor made for your business.
In particular, make sure that the vendor is not offering you a product today that they know will be upgraded to a different product in the future. For example, one large international ERP vendor - perhaps more used to consumer software products than business critical implementations - has FOUR versions of their product (actually four different applications from four different acquisitions) that they brand under the same general name. If your business grows then it's very likely you will have to "upgrade" to a different product, which is essentially a new implementation even though it has the same family name as the product you purchased.
Another large international vendor - who has considerable database expertise and should know better - is planning on upgrading customers to "new technology" at some point in the future. Access to this new technology may be included in your Maintenance cost, but once again, it is basically a new implementation and needs to be considered as such. It is highly unlikely that all the features you have already paid for will be in this "new technology" version, at least in the first release.
And a specific comment on Eric's note that "Many ERP systems use proprietary development tools". Yes they do and there are good historical and business reasons for that. But at the end of the day, the cost is not in the proprietary development tools but in the training time bringing staff up to speed on what all those millions of lines of ERP code actually do. And that's the case whether it's .NET, C#, Java, ABAP, C/SIDE, X++ or the myriad of other languages used by ERP vendors.
So... the decision to implement ERP represents a major investment that impacts the whole organisation. A well-planned and implemented ERP can change the way you do business and significantly improve profitability, but remember there can be pitfalls if you have not prepared properly. Make sure you do your homework - have a clear objective agreed at the outset, prioritise your expected outcomes and solutions, research potential vendors carefully, ask the right questions for your organisation and be prepared to invest your time. It may take a little longer at the outset but will prove vital to the long-run success of your business.
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