Enterprise resource planning (ERP) Choosing an Implementation Partner

Transcription

1 E R P S E R I E S B Y TO N Y C OT T E R E L L ISTOCKPHOTO Choosing an Implementation Partner Enterprise resource planning (ERP) systems are an increasingly popular method to integrate information company-wide in order to improve efficiency, productivity and communication. In the second article of a series of five articles for Insight on global ERP implementation, we look at how to design a request for proposal (RFP) and how to select an implementation partner that can deliver the optimal results. After determining the parameters of a successful project as discussed in the last article, the next step is issuing an RFP to choose an implementation partner. Some companies seek external assistance in compiling RFPs and in the subsequent evaluation of vendors. This is often done with presumption that expertise is required to select the most appropriate partner. Some companies may also want to lessen the blame if it turns out that the wrong implementer is chosen. However, many of the vendors chosen for this review will examine ERP options from a purely technical perspective when in the fact the selection of the appropriate vendor is a business decision and more importantly, a relationship issue. Assuming that all top-tier ERP implementers who are capable of global implementations have similar technical The second article in Insight's ongoing ERP series examines how to successfully choose an implementation partner. M AY I N S I G H T 2 3

2 The critical question becomes how well an ERP implementer understands a company's business and goals. capabilities, the critical question becomes how well they understand a company s business and goals. How will they design and implement the system? How well do they understand different global markets? What is the value to be delivered versus price and the challenges to be met? How comfortable are you in working with this implementer? External agencies often cannot answer these questions. Designing the RFP Most RFPs typically request information on implementers that is superfluous and irrelevant. An implementer that is a US$10 billion company is little different from a US$15 billion company and 50 finance consultants is hardly different from 100. All are large enough and capable enough. What is more important is the availability of these resources when needed, especially when looking at a long-term delivery timeframe. No implementer can promise such resource availability years in advance and many global ERP implementations can take years to progress to the Asia-Pacific region. The number of consultants now compared to two years from now in a fastgrowing but also high turnover market will not help in determining a suitable partner. Just because a company boasts hundreds or even thousands of consultants does not mean they are all available for implementation, nor do they necessarily have the business skills required to implement effectively. A better indicator of suitability may be how long the implementer has been in a given market and its growth rate in the particular region. Growing practices of a reasonable size will still be in the market two years from now. Another key consideration is the distribution of the RFP to candidate firms. RFPs are often sent to ten respondents without any thought to the implied cost in money and resources. For global implementations, the only companies capable of truly implementing in a global nature are the top-tier consulting companies, so it may not be necessary to look beyond those firms. Simple internet research on company backgrounds and size can define the most likely four to five candidates. This can include a secondtier company for the sake of providing a different perspective and view of cost. The internal cost of wading through ten responses, each typically over 100 pages in length, is also an enormously draining exercise. Decisionmakers should not have to wade through ten different proposals during the selection process. A long, drawn out review and selection period will only detract the reviewers from giving the decision the desired level of attention. Selection criteria One of the most important elements of the RFP is the selection criteria that outlines the requirements and basis for choosing the implementation partner. Many companies will tell an implementer that it is about a successful implementation and that cost is not an issue, when in fact cost is always a major issue. The selection criteria should provide the right level of importance and clarity to all requirements, including cost, so that implementers can adequately respond. When IT departments control the RFP, the focus is typically on cost. This is because IT is often viewed by businesses as a cost center and not as a value driver, so if ERP is seen as an IT project, it will be evaluated on the basis of cost. When an RFP is controlled by the business (with IT as a key advisor), the focus shifts to a businessrelated decision more likely to be evaluated on the basis on value, return on investment and when that return will be realized. A large ERP implementation is actually an investment in the future and should drive value for the business. At the completion of the project, this value should be measured and reported on. Indeed, if value is truly understood and defined, then a cost-sharing arrangement can be agreed with the implementation partner that will also realize higher benefits to both the implementer and the business. In this situation, there is a joint focus on making the business run more efficiently, as the 2 4 I N S I G H T M AY

3 The China Factor When the concept of looking beyond available consultants is applied to a country like China, an established implementer should be expected to be growing annually at around 40 to 50 percent. If there is an established growth pattern spanning many years, then the implementer can be considered stable and is more likely to be in business in the future when you need them. While some tier-two companies have a presence in China, they are often not well represented and rapid growth numbers could be coming off a very small base. For many businesses, China is a market with the greatest growth and the faster an ERP system can be implemented, the sooner the return on investment is realized and the better the operations will be able to support the future growth of the business. In terms of the implementation timetable, two years is a long time in China, where the environment can change overnight. Regulations and policies surrounding business operations may change quickly so it is important to have an implementation partner that has the capability to keep abreast of the changes that occur regularly and is able to adapt accordingly. Over the past two years, there have been significant changes to accounting, tax, customs and business rules that greatly affect businesses, from the Labor Contract Law and the Enterprise Income Tax reforms to accounting standard revisions and value-added tax rebates. Defining a solid business case is often difficult in China because there are times when the quantifiable benefits may not outweigh the costs. Traditionally, ERP implementations yield significant labor savings, but in China, where labor is less expensive, there is insufficient labor arbitrage to outweigh the initial cost of the implementation. In this case, much of the decision to implement becomes one based on the expected efficiencies derived from having standardized processes to support future growth. The major quantifiable savings will be derived from better inventory control, higher inventory turnover, less material wastage and improved manufacturing planning. It is important to understand where the China deployment fits within the global timeline when selecting a vendor for a global implementation. Multinational companies often leave China for later stages by arguing that the U.S. or European markets are larger and therefore more important, even though China is usually the market with the fastest growth. The real consideration should be which market is under the most pressure. In most cases, China is growing at a much faster rate than other markets and current local China systems are usually straining to keep up with that growth. If China is going to be placed towards the tail end of a deployment, then the business assumptions related to China could become irrelevant as the market changes, as could initial business requirements, legal requirements and tax structures. The implementation partner must possess the capabilities to cope with changing requirements in China during the course of the project and ensure that any changes are built into the global template. implementation improvements will benefit all stakeholders. When contemplating implementation price, the same general rule applies: you cannot expect to get the best quality at bargain-basement prices. This does not imply that the best value will be derived from the highest priced implementation, but that the more fees are cut from the budget, the more an implementer will look to cut corners and save internal costs during the implementation. Business is business, and the need to make a profitable return is the same for implementers as it is for manufacturers, retailers, or service providers. Making a business case Even as some global ERP systems cost tens of millions of dollars, most don t have an effective business case to support the implementation. A strong, well-structured business case is crucial as the foundation for negotiations and discussions around project value to be delivered and costsharing arrangements, with payments based on future benefits delivered by the implementation. A good business case should include the obvious costs and benefits from an implementation (both internal and external) as well as understand the non-quantifiable benefits. It should be measured over a period of time, using net present value, weighted average cost of capital and internal rate of return analysis to determine whether the project represents a better investment than an alternative project. Global capabilities All of the tier-one ERP implementers will back M AY I N S I G H T 2 5

4 DELOITTE GLOBAL MODEL: The recommended governance structure for a global ERP implementation strikes a balance between the need for global control and regional execution. global capability claims with statistics about the number of resources and clients in each country and details on a global structure. While this proves that the implementer has a global presence, it does not make them global, nor prove that they think and act globally. The true measure of whether a firm is global is its grasp on local market conditions. What are the differences and challenges that will be encountered in a particular country? How do they go about acting in a global manner? Being global is not a matter of structure or presence, it is a mindset. Truly global firms think and act globally in a seamless way that is transparent to their clients. Firms will often also claim to have global tools as another argument in support of being global. Although many firms do indeed have global strategies, there is little value in having a global toolset to manage and control a project if it is not used the same way in all markets. Companies should seek proof from their proposed implementers that global tools are utilized in the same way across different regions in a global implementation. For example, Deloitte uses the same implementation methodology, Enterprise Value Delivery, in the Asia-Pacific region, the United States and Europe. This allows an easy understanding of the project cycle and what deliverables should be expected when. The same process mapping tools are also used in China as are used elsewhere in the world. This allows consultants in the region to understand how processes should be designed and documented, even though the documentation language may be different. Global governance The aspect of governance comes back to whether an implementer truly has a global mindset. Often, once a project has been awarded, the implementer forgets about being global and retreats to a European, or U.S.-centric view of the project. Thus the Asia-Pacific region may not be involved in further project discussions until it 2 6 I N S I G H T M AY

5 is time for deployment. By this time, it is likely conditions will have changed dramatically, given that Asia-Pacific is the fastest-growing region in the world. The regional and local management will also be unaware of how the project may have evolved since it first began. It is important to understand how an implementer intends to govern the project and to design a governance structure that includes a steering committee consisting of client and implementer representatives from all regions. This ensures that all regions are aware of progress and kept up to speed regarding any significant developments in the project. This should not add significant cost to the project as the steering committee meetings can be held virtually, with periodic face-to-face gatherings where all members are brought together. Ultimately, when selecting a global implementation partner, it is important to be as thorough as possible. Whenever possible, talk to potential implementers; don t just take their word for it. If an implementer is serious about a bid, they will have regional representatives on hand to discuss the needs of a particular region. Understanding how long they have been in the region, challenges they typically face in that region and their previous regional experience are all critical to the selection process. The onus is on the company to question the validity of any global promises that an implementer may make. Tony Cotterell is a partner with Deloitte Consulting in Shanghai. He can be contacted at tcotterell@deloitte.com.cn The onus is on the company to question the validity of any 'global promises' that an implementer may make. M AY I N S I G H T 2 7