ERP Selection Land Mines
Top-ten things to know in selecting and arranging cost and terms to access new ERP
The following ten items are typical ERP selection project weaknesses that stand in the way of effectively selecting and arranging favorable cost and terms to access ERP. Many of these items will have further negative effects during and after the implementation of new ERP. A few comments in the list below counter conventional thinking, so feel free to call us to discuss further. All of these points can be easily defended based on the experience of over 1000 client ERP projects since 1996.
1. Operations should own the ERP project
ERP projects are about improving efficiency of business processes and competitiveness. These projects are also complex and in turn have many areas which can be negatively impacted. Therefore, operationally focused executives and team members must firmly own and lead the project to more rapidly and fully reach toward top-level success. Such projects should never be considered IT projects as the apparent topical focus.
2. Cloud ERP hype overly influential
Cloud ERP is managed and controlled remotely, usually by the ERP seller—whether single instance (single tenant) or multi-tenant application architecture. ERP users typically pay an ongoing fee called a subscription to access and use the ERP. The only potential real benefit to ERP buyers is that another entity specializing in the ERP orchestrates ERP application and hardware management. Effectively everything else is net negative for a buyer. The main reason ERP sellers push a subscription cloud model is the revenue potential and customer control is much larger than in the classic perpetual licenses model. Therefore the Cloud ERP hype is intense, and other options for companies to access ERP remotely and still gain the one real benefit listed above are generally not discussed by sellers.
3. Modernized ERP is not understood
There is incredible productivity potential held in ERP solutions that have modern tools for configuring the application and developing custom workflows and metrics. If these capabilities are not understood and valued, they will not likely be properly visible in selection and not well used during the implementation. The result will likely be ERP implemented well short of its potential.
4. Long list of ERP candidates is influenced by inaccurate and biased input
Simply stated— most advice and input which drive ERP candidate long lists are not beneficial to making quality selection decisions, and in fact can often be detrimental. Professional advisor's opinions are often incomplete or biased. Web-based lists are almost always seriously inaccurate and some sites sell visitor's names to software vendors. If a buyer's long list is not known to be concretely defensible, then this introduces uncertainty that will compound throughout the ERP selection and implementation project.
5. Project scope is wrong
The business processes that ERP should support are largely dependent on the selecting company's size, industry, process complexity, and legitimate business process functionality domain of the ERP reviewed. The legitimate ERP domain or boundary is based on these three factors. If this boundary is not effectively established, various levels of error are introduced into the selection process and can result in wrong modules or components being purchased, and even the wrong ERP being chosen.
6. Using the wrong functional requirements to reduce the ERP long list
Appropriate functional screening criteria should have the key attributes of high-value and not be routine ERP functionality that is within ERP scope. Using external information about broad functional capabilities is actually counter-productive to an orderly selection process (see our white paper on this topic).
7. Paying too much to access ERP
Companies routinely pay about double what they should for initial ERP licenses or ERP subscriptions. Paying too much for ongoing costs is an even larger problem, especially with ERP subscription costs. There are ways to have all competitive ERP vendors significantly meet the same buyer-centric target license cost and terms—regardless of what ERP sales people say is possible (see our white paper on this topic).
8. ERP commercial terms are one sided in the extreme
Contracts provided by sellers of complex ERP software and services literally leave the buyer with no legitimate control in the commercial relationship. It's really that bad, and most buyer’s efforts to improve commercial terms are thwarted by the multiple layers of obstacles the sellers deploy—so the typical terms are largely accepted. The bottom line reason for such commercial terms is ERP companies want unbounded options to control the ERP users and to be able to easily raise ERP access costs over time. This is squarely at the heart of the current-day ERP business model. Notwithstanding, commercial terms for ERP access should and can be fixed to properly support buyers’ legitimate interests (see our white paper on this topic).
9. Implementation methods and estimated costs overly influential in selection decision
Statements from candidate implementers on service cost and their ‘market leading’ methods are largely irrelevant in an ERP selection decision. This is because implementers can never legitimately have any true idea of costs for a particular prospect's implementation, and methods among implementers of similar ERP solutions are overall the same with only style and nomenclature differences. What is relevant is the talent and capacity of the specific people proposed for your project, hourly costs of implementer personnel, and proper contractual relationship control. For well-established ERP packages (which the short list should be comprised of) there are typically multiple options to find talented people, arrange reasonable rates, and fix contracts.
10. Not leveraging ERP selection work to improve readiness to implement
Selection projects should include an investigation of current business process weaknesses and improvement ideas. This work should be further organized and developed—and it can form the critical background work that supports the business process and metrics design phase of the implementation. Absolutely do not depend on ERP implementers to do this work (see our white paper on implementation control).
What is a 'highly successful ERP project'?
We define it as a project in which a defensible selection was made and a buyer-centric purchase arrangement was achieved. Further, future-state business processes are well designed and ERP was efficiently implemented emphasizing:
- Enterprise-wide collaboration between business process areas
- Modern workflow and process exception mechanisms
- Collaboration with customers, suppliers, remote sales, etc.
- Best practices overall and standard practices in the ERP
- ERP process metrics that are in a useful format and real-time
After the ERP go-live, the more visible results are large cost savings in day-to-day operations and less stress on the company team. An even larger value is in an overall more competitive and agile company.
ERP Selection – Provo Craft
SoftSelect was a great partner throughout the process of choosing an ERP solution. They helped us control the terms throughout the ERP buying process, and we achieved impressive results in reduced ERP license fees. Having an experienced partner like SoftSelect, helped us negotiate for the products we need and set our expectations for the process of implementing these solutions.
ERP Selection – Leupold & Stevens
Long term ERP license costs were initially very difficult to calculate. Working with SoftSelect we were able to insist on a predicable ERP license fee approach and achieve much lower initial and ongoing license fee costs.
ERP Selection – Cornell Pump
Negotiating ERP costs is complicated and the ERP software vendors take advantage of the buyer’s lack of experience. SoftSelect’s experience and influence helped us level the playing field. We clearly saved money and lowered our long term risk.