ERP Assessment and Selection: Get it Right the First Time

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1 ERP Assessment and Selection: Get it Right the First Time Panorama Consulting Group LLC / / info@panorama-consulting.com Overview ERP vendor selection can be a daunting task, and one that is often not given the appropriate attention. CIOs or other executives in charge of making such major decisions often make decisions based on perception, gut feel, or faulty information. For example, executives often choose ERP software vendors based on what competitors or other large companies have chosen. However, information such as this does not necessarily reflect what is appropriate or inappropriate for your specific company. Further, planning for a successful implementation involves more than choosing the right software; it also involves preparation to ensure that ERP enables measurable improvements to your business. Question #1: Does ERP Make Sense for Your Organization? In choosing an ERP or IT software package and planning for the overall project, executives need to make decisions based on objective and unbiased information rather than gut feel. The first step is to determine whether or not ERP is the right direction for your organization. In particular, organizations should consider the following before embarking on the ERP vendor assessment and selection process: 1. Why do you want to Implement ERP? Unfortunately, this question is the toughest to ask once you're already on the ERP bandwagon. In many instances, ERP will not solve your business problems. If your business strategies or key business processes are flawed, even the most advanced IT system is not going to help. Before making a decision as large as implementing a system that will cost millions and affect your entire company, it's important to have a clear understanding of what you want to accomplish by taking on this challenge. There may be more cost-effective and lower-risk options such as improving processes, redesigning your organizational structure, consolidating your global supply chain, or implementing a performance management system. In these cases, maybe choosing not to implement ERP is the best solution. On the other hand, ERP may be the business tool that enables these improvements. 2. What are your Business Requirements? If you have decided that ERP is the route you need to take, it is important to begin by looking at your desired operational model and using that as a starting point in determining which software to implement. Executives should define and document key business requirements for any package they may select. This includes not only nice-to-haves, but also requirements that are "deal-breakers" if the software is unable to accommodate. In addition, executives should use ERP business requirements definition as an opportunity to improve current operations, efficiency, and effectiveness. The last thing a company should do is implement software to automate the same flawed business processes. Instead, it should be focused on achieving measurable business value for your organization, and you should choose the software the best enables you to do this. 3. What is your Business Case and ROI? This is where many companies fall flat. Even if you complete the first two items discussed above, it is important to understand and document what your total costs will be for each ERP vendor under consideration, as well as your anticipated business benefits. This is important in gaining approval from other executives or your Board of Directors, and it is also helps ensure that you realize the potential benefits of implementing ERP. All costs, including hidden project costs such as internal project resources, data conversion, and lost productivity immediately following go-live, should be included in the business case and ROI calculation for each ERP vendor you evaluate. In addition, benefits should be reasonable and not overly aggressive.

2 Ultimately, your business case should be a tool to manage business costs, benefits, and ROI going forward, not just as a sales tool to justify a decision that's already been made. And if the resulting ROI for a particular ERP vendor does not make sense or meet minimum investment criteria for your company, then it's probably not a good idea to undertake the project. 4. Who will Be Your Implementation Partner? Have you thoroughly assessed all of your options in evaluating potential external implementation teams? Software companies aren't always the best at implementing their software, and some are more expensive than others. You can often find third-party vendors and consultants that can implement ERP more successfully or at a lower cost. It is also important to look at consulting firms that are capable of helping you manage the non-technical aspects of the project, such as organizational change management, training, and ERP benefits realization. Panorama Consulting Group is an example of such a firm, which is technology neutral and specializes in providing project planning and business consulting for all types of ERP implementations. 5. Do You Have Enough Resources to Commit to the Project? Even if ERP is perfect for your company and you have chosen the perfect software, things will deteriorate very quickly if you don't have enough employees to dedicate to the project. It doesn't matter if you have assembled the best team of consultants and implementation partners; it's your employees that will ultimately make the project succeed. Planning for a successful implementation involves more than just choosing the right software. 6. What's the Contingency Plan? No matter how well run your project is, you should be prepared for failure. We've all read of the technical glitches that shut down shipping at Fortune 500 companies for weeks at a time, so it's best to acknowledge that something bad could happen. If the project does fail or if the software is not implemented correctly, what is the backup plan? Will users be able to access legacy systems? Will certain processes be performed manually until the system is up? Dramatic failures are not common, but they do happen on occasion, so companies should be prepared for the "whatifs." While not all of the above points relate directly to the actual selection of your ERP software vendor, they are all important aspects of ERP project planning. It is very important to assess your organization's readiness for ERP before going too far down the path of ERP. Is there Such a Thing as choosing the Right Software? If you've been following the ERP market lately, you have probably seen SAP's assertion that companies that run SAP are 32% more profitable than those that don't. On the other hand, another recent study from The Hackett Group found that there is no correlation between performance and worldclass performance. Page 2 of 5

3 So what's the real story? In our opinion, these conflicting statistics suggest two things. First, the ERP market is competitive and cutthroat. Second, it raises the question of whether it is the ERP technology itself or other factors that increases performance. Based on our experience at Panorama Consulting Group, the specific ERP tool is just one piece of the business performance puzzle. How well you design your business processes, establish KPIs, measure performance, design your organization and employee roles, and train employees to use the new system are just a few aspects that can have a huge impact on the success of your ERP implementation. However, this is not to say that the ERP software itself is not important. Obviously, you want to select software that best fits your business requirements and operational model. But the key is that ERP is simply an enabler, and not the sole reason, of increased business performance. The main conclusion here is that ERP vendor selection is an important activity. However, it is just one component of successful ERP projects and should be combined with an ERP Business Benefits Realization program to ensure business value and ROI are achieved from the implementation. The consulting company you use should have nothing to gain from you choosing one ERP package over another. Choosing an Independent Third-Party to Help Guide the Selection So once you have determined that ERP is the path that is right for your company, it is important to choose the software that will best fit your particular business. This happens to be one of the most difficult aspects of ERP projects. It is also very difficult to choose truly independent consulting advice that will help you select the right software for you instead of the one that will lead the consulting firm to future business. In order to choose the right software that meets your business requirements, it helps to have advice from an independent third-party that can guide you through a structured process and understands the entire ERP market. This is an important aspect of the ERP assessment and planning process. The two simple questions you should ask to find out if a consultancy is truly independent are: 1) do they have a technical implementation practice, and 2) do they have a practice or group focused on SAP, Oracle, or another ERP package? If the answer to either of these questions is yes, then the company you are dealing with is probably not independent. The consulting company you use should have nothing to gain from you choosing one ERP package over another. If they have services or products they can sell to you if you choose a particular software package, then they are not going to necessarily give you the most unbiased advice. Panorama Consulting Group is one company that specializes in ERP vendor selection and project planning, and we don't do any type of technical implementations or sell software. By employing the advice of an independent outside expert, you can leverage their expertise and lessons learned from what works and what doesn't work Page 3 of 5

4 work in ERP implementations. However, it is important that you find one that is 100% independent to ensure a successful software selection. 6 Steps to an Effective ERP Assessment and Software Selection If the resulting ROI for a particular ERP vendor does not make sense or meet minimum investment criteria for your company, then it's probably not a good idea to undertake the project. To simplify the evaluation process without overlooking a package that may be a strong fit with your organization, we typically recommend a multiplephase process to evaluating vendors. This process assumes that you have already identified your to-be business processes and business requirements, which are both critical to an effective ERP assessment: 1. Define the potential industry-specific and general ERP packages. Based on your business requirements and budgetary needs, you can probably eliminate most vendors. We typically recommend arriving at a group of no more than 6-8 "long-list" vendors that you will assess. 2. Once the "long-list" has been identified, identify the key requirements that a package must have in order to make the short-list. These "deal-breakers" should help you arrive at 3-4 "short-listed" vendors. Typically, discussing business requirements with each of the long-list vendors and viewing an overview demo of the product can help complete this portion of the evaluation process. 3. Conduct a more detailed assessment and analysis of the shortlisted vendors. You should identify and prioritize all of the detailed business requirements that your organization needs of a potential ERP package. From these requirements, it is helpful to create demo scripts to ensure that each vendor is demonstrating their product as it relates to your business processes. Otherwise, vendors like to focus just on their strengths and not necessarily on how their software fits with your business. This is the point in the evaluation when you should issue RFPs (Requests for Proposals) to the short-list vendors to get a feel for their costs, software capabilities, and proposed implementation strategy. 4. During the short-list and demo evaluation, involve key users and ask them to complete evaluations for each of the vendors. These evaluations should be quantitative assessments of how well the vendors' products address the key business requirements and demo scripts. 5. In parallel with the functional assessments, assess the technical capabilities of the short-listed vendors. This should include items such as scalability, ability to integrate with legacy systems, how open the architecture is, etc. These technical factors may or may not weigh as heavily as your functional business requirements. 6. Make a decision based on the input from the vendor evaluations and technical assessments. It's not as easy as it sounds, but you will want to gather the input you've received from the various assessments and prioritize the vendors' strengths and weaknesses. Depending on the level of agreement or disagreement on your team, Page 4 of 5

5 it may require more of a quantitative ranking and weighting to evaluate how well each of the packages meets your business requirements. While this process may seem overwhelming and more extensive than you had planned, it is a good way to consider a comprehensive set of options without taking an eternity to arrive at a decision. Often times, it takes the help of an outside ERP consulting firm to guide the process and provide expert insight. However, given the magnitude of such a decision, it is worthwhile to take the time to make the vendor software selection that is right for your organization. Conclusion Choosing an ERP software package is one of the most important decisions your organization will ever make. It is also one that will have long-lasting affects, positive or negative, on your company s effectiveness financial performance in the future. Needless to say, it is a decision that should not be taken lightly, and Panorama Consulting Group can help enable your organization to make the right decision. By Eric Kimberling, President and Founder Panorama Consulting Group LLC About Panorama Consulting Group Panorama Consulting Group LLC is a US-based consulting firm that provides Software Selection, Performance Measurement, Business Process Improvement, Project Management Support, and Organizational Change Management services for ERP and IT projects across the globe. Its international business consultants are equipped to help companies realize measurable business benefits and a strong ROI from IT and business change investments. Developed over 10 years of helping world-class organizations achieve higher business performance from their technology investments, Panorama Consulting Group s methodology effectively provides business solutions during many phases of IT projects, including vendor selection, project planning, implementation, post-go-live measurement, and project cleanup. Founded by ex-big 5 business consultants, the company is technologyindependent and works in conjunction with multiple ERP and IT packages and technical teams to meet clients unique business requirements. Choosing an ERP software package is one of the most important decisions your organization will ever make. To learn more, please visit or contact us at info@panorama-consulting.com Panorama Consulting Group LLC Page 5 of 5