Senior Management’s Guide to Evaluating: ERP …...ERP Solutions Senior Management’s Guide to Evaluating: Critical points to consider to ensure success: • How to tell if you’re

ERP Solutions Senior Management’s Guide to Evaluating:

Critical points to consider to ensure success: • How to tell if you’re ready for a new ERP system• How to be prepared to ask the right questions• How to estimate costs accurately• Why being prepared for the demo is so important• Getting key stakeholders involved• Implementation pitfalls to avoid• *Plus, the most overlooked detail that

can make or break your implementation

You may be facing the dilemma of how best to manage the growing complexity and information related to your business.

Choosing to go with a new ERP system can have an overwhelmingly positive impact on your business.

Success depends on how accurately you can assess your business’ needs, ensuring all stakeholders are on board, choosing the right solution, choosing the right partner, and proper implementation.

Misfiring on any of these important components will create a significant negative impact on your business.

• It covers things to consider and resolve BEFORE talking with ERP solution providers.

• It also provides tips on how to select ERP solution providers to engage.

• You’ll find a checklist that can be used by your leadership team to help them through the process.

But before talking to anyone, there’s some important pre-work to be done.

We’ve put together a roadmap for decision makers faced with the ERP question

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Intro

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Table of Contents Making the Decision to Change .....................................................4Business “Markers” to look for when considering a new ERP solution ...............5Complete Replacement vs Compliment ..............................................................6Implementation Options.......................................................................................7Statistics: ERP Benefits Study .............................................................................9Estimating Your ROI ............................................................................................9

Getting Key Stakeholders On Board ...........................................10Executive Sponsorship ......................................................................................10Super Users....................................................................................................... 11

Build the Business Case...............................................................12

Choosing a Solution ......................................................................14Tier I Solutions ($1B+ Market Cap) ...................................................................14Tier 2 Solutions ($50M to $1B Market Cap) ......................................................14Tier 3 Solutions ($10M to $50M Market Cap) ....................................................15

Estimating Costs ...........................................................................17Software Purchase or Subscription Based ........................................................17IT Infrastructure Costs .......................................................................................18Third-party Consultant for Change Management ..............................................19

Choosing a Vendor ........................................................................20Demo Day Prep .................................................................................................24

Decision Time ................................................................................26Checklist ............................................................................................................27

Implementation Pitfalls to Avoid ..................................................28

Wrapping Things Up .....................................................................34

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Making the Decision to ChangeOne of the most significant decisions an executive team can make for their business is the decision whether or not to move to a new ERP software solution.

A well designed ERP solution that is implemented properly not only drives internal efficiencies but can become a strategic weapon for a business by enabling it to be more flexible and quicker to react to market needs than competitors.

On the other hand, mistakes in design and implementation can lead to a missed opportunity to realize the benefits of what an ERP system is designed to provide.

Even a decision NOT to implement an ERP solution can be profound due to the potential efficiency gains and strategic benefits left on the table.

(cont.) Making the Decision to Change

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How does a leadership team know when it’s the right time to move to an ERP software solution?

There are a several “markers” that provide hints that a business should consider moving to an ERP solution.

The following list is not exhaustive but it gives you an idea that the need for an ERP solution is usually driven by the need to either replace legacy business software systems or improve accuracy and visibility into business metrics.

If you recognize some of these markers in your own business, it’s probably time to begin considering a move to a new ERP solution

• Accessing business data and metrics is difficult and not available in real time.

• Accounting requirements have become more complex.• Currently using a patchwork collection of software tools that

individually support different business processes and do not have the ability to exchange information easily.

• IT support costs of running different software tools and compiling data is becoming more than the leadership team would like to spend.

• Functions that track the same data in their own way can’t agree on whose number is right.

• Current software is obsolete or no longer supported and a replacement solution is needed.


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Complete Replacement vs Compliment

While considering a move to an ERP solution, keep in mind there are several different options in deciding what kind of solution to implement and how to implement that solution.

You can decide to completely replace your entire business software system or you can decide only to complement your existing software with additional software that will provide extra functionality that your systems currently don’t have.

Here are some pros and cons of each approach:

Complete replacement pros:• Simplifies IT support needs• Data availability & consistency

between functions• Leverages the full feature set of the

vendor’s solution

Partial replacement pros:• Smaller investment required• Allows well performing systems to

remain in place• Provides the specific functionality

desired

Complete replacement cons:• Significant capital investment• Large impact on the business• May be replacing satisfactory

business systems

Partial replacement cons:• Adds IT maintenance burden• Does not leverage the vendor’s full

feature set• May not fully access data across

functions


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Implementation Options• Large Single Project• Phased Rollout• Parallel

You also have flexibility in how to implement a chosen solution. ERP solutions can be implemented as one large change project, they can be implemented in phases, or you can stand an ERP system up while still running your old business systems. Again, there are pros and cons in each approach:

Large single project pros:• Disruption to the business falls in a

small time window• Users do not have to run dual

systems and make the change at the same time

• Shorter implementation time and lower costs

Phased rollout pros:• Less risk in implementation• Employees can learn as they go• Problems in one part of the system

are less likely to cascade to other functions

Large single project cons:• Higher risk during

implementation…once the switch is made there’s no going back

• Possible dip in performance as employees learn new systems

• Requires more pre-implementation preparation

Phased rollout cons:• Business is in a state of change

for a longer period of time• Some work-arounds may be

needed until later phases• Longer to realize the full benefits

of new software


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Executive teams may agree that their business shows some of the “markers” mentioned earlier. And, they may understand the options related to the scope and breadth of ERP solutions. But still the question may linger “What real benefit will we see from a new ERP solution?”

Parallel installation pros:• Minimizes risk by running old

business systems while starting up new systems

• Employees become proficient on the new system while still using the old system to run the business

• Typically quicker than a phased rollout

Parallel installation cons:• High cost of installation• Employees perform double work

due to the need to enter data into both systems

• Places a high support burden on IT function during transition


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Statistics: ERP Benefits Study

Here are some figures from the Aberdeen Group that shed some light on the positive impact on results businesses have seen after successfully moving to a new ERP solution:

• On average, operational costs are reduced by 23%• Administrative costs are reduced by 22%• On-time delivery performance increased by 24%• Operating margins are improved by 21%

Estimating Your ROI

For an initial ROI estimation that will help you determine if it’s time to seriously consider an ERP solution, apply the above percentages to your business for a rough savings estimate. Use this savings estimate in tandem with a vendor’s rough software cost estimate and your own internal project cost estimate to determine an estimated ROI.

If it’s in the ballpark of being acceptable, it’s time to figure out how to make ERP work for your business.

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Getting Key Stakeholders On BoardA successful ERP implementation requires a “larger organizational commitment”.

First and foremost it’s a commitment to the understanding that the decision to implement an ERP system is a decision to take the organization through a significant change event. Executive Sponsorship

A significant change event that’s going to need significant internal leadership. First in the form of executive sponsorship. One or more senior leaders of the organization will need to serve as a visible and active advocate of the change that comes with the move to a new ERP system. As a sponsor, an executive will need to be able to clearly communicate the vision of what the business will look like after the ERP implementation has been completed. They should be able to speak to the compelling business reasons to make the change.

A sponsor will also have the important responsibility to remove organizational obstacles that are encountered during the implementation of the project.

(cont.) Getting Key Stakeholders on Board

Super Users

The commitment also extends to individuals performing everyday work in the business. A best practice of ERP implementation is to identify capable individuals in each function and develop them as a “super user” of the ERP system. These super users are the subject matter experts in the usage of the ERP software within their function.

Part of the commitment to develop these super users is to free them up for a period of time to be trained on the ERP software as well as assist in the implementation project at specific points.

During that time the business will have to create a plan to cover for these individuals who will be working on ERP project related tasks.

One of the critical support functions these super users will perform will be the day your business goes live with the new software. For about 4 to 6 weeks super users will be moving from station to station, working with users, training them on the use of the system, removing any obstacles that new users may encounter, and reinforcing the new processes with team members.

It is highly recommended that the super users are free during this period of time to solely work ERP project related issues. The visible support sends an important message to team members that leadership is committed to a successful implementation as the system goes live.

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Build the Business Case

ERP systems are designed to organize, optimize and improve business systems and results. But a common mistake businesses make is to begin the process by calling ERP solution providers and scheduling sales presentations. These demos can be impressive and persuasive. But they don’t speak to your specific business needs, processes and culture. Know what your business needs: Be prepared to ask the right questions

Your team has to be prepared to ask the right questions and know what your business needs from any potential solution. Know the Key Performance Measures (KPM) that need to be improved and by how much. Be familiar with your current business processes and know specifically how they need to be improved. Additionally as a leadership group, know the areas where additional visibility into the business are critical for future decision making. In fact, we recommend the best practice of knowing the business critical issues BEFORE selecting ERP providers to engage.

The compelling reason for all of this pre-work is to be able to engage ERP solution providers and evaluate their solutions to find the solution that best matches your business critical issues, best supports your KPMs, and best complements or replaces your current processes.

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(cont.) Build the Business Case

Additionally, knowing which important tools and processes that should be preserved or have their functionality duplicated will make vendor selection easier. It also increases the chances of a successful transition to a new ERP system because the new system tools are mostly additive to existing business practices rather than creating completely new information flows and value streams. Consider it your internal due diligence before externally interviewing your potential new “business partners”.

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Choosing a Solution

When it comes to considering ERP solution providers, be mindful that the market space is generally dominated by 3 large players – SAP, Oracle and Microsoft. Tier I Solutions ($1B+ Market Cap)

SAP and Oracle are the providers of choice for large cap businesses generally referred to as Tier I clients. They offer multiple “modules” to support businesses in the areas of Operations, Finance, Human Resources and General Services (Travel, Real Estate, Environmental, etc.). And typically there are several modules to support each of these areas. The offerings by these big players are quite comprehensive and meet the needs of large enterprises especially those with a significant presence in multiple locations. A recent feature offered by these larger providers is to provide their software modules in a Software-as-a-Service (SaaS) format that allows client companies to simply connect to a solution online “in the cloud”. This significantly reduces the IT financial burden for clients.However, most companies are not Tier I companies. Tier 2 Solutions ($50M to $1B Market Cap)

The largest player in the Tier II category is Microsoft and their Microsoft Dynamics NAV solution with almost 50% market share followed by companies such as Epicor, Infor and Sage.

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(cont.) Choosing a Solution

Tier 3 Solutions ($10M to $50M Market Cap) The Tier III market still sees these 4 companies as the major players but the number of smaller providers serving the Manufacturing and Service segments increase. Most of these companies tend to target either specific industries or specific feature sets in their offerings with a few even offered “in the cloud”. Almost all are designed to allow for some flexibility to integrate with existing business systems rather than be a comprehensive replacement. This benefit allows client companies to significantly reduce implementation risk and the learning curves associated with learning new software. This tends to be the major reason why Microsoft Dynamics NAV figures so prominently in this market space.

A Natural Extension of Microsoft Office Many existing business tools and processes get built on Microsoft Office products and the move to Dynamics NAV feels more like an extension of the Office suite rather than “new” software for clients. The result tends to be quicker adoption.

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(cont.) Choosing a Solution

Determining a Good Fit for Your Business

Everything we’ve just discussed is well and good. But how should you and your leadership team use this information? It’s fairly easy. If your market cap is greater than $1B, you should probably engage SAP and Oracle exclusively. If you’re mid-sized, you’ll start with finding a Microsoft Dynamics NAV provider and then possibly also engage companies such as Epicor, Infor and Sage. The goal is to find providers with experience in your specific industry and who potentially offer a feature set that will deliver the needed project results you and your team defined when you initially began considering the ERP question. If you aren’t able to find at least 3 satisfactory solution providers from within this group of 4 major mid-market players then research “Tier III ERP providers” online for more companies to engage.

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Estimating Costs

Implementation of an ERP project represents a significant investment for a company of any size. As with any other project there is a need to balance costs against benefits. Earlier we recommended a comprehensive review of the anticipated benefits of implementing an ERP system. Balance these anticipated benefits against the full cost of your potential ERP installation.

Software Purchase or Subscription Based

The most obvious cost involved when considering an ERP installation is the cost of the software solution itself. Take care to understand the nature of the purchase. Will the purchase of the software be a one time cost? Or will there be an monthly or annual subscription? Some providers may give you the option of a one time purchase or a subscription-based payment model. They may charge you based upon the number of users that will need access to your ERP system. It may take a bit of extra math to arrive at an apples to apples comparison of vendors pricing.

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(cont.) Estimating Costs

IT Infrastructure Costs

In addition to the software, consider whether or not your IT department will need new or upgraded equipment to support the solution. Sometimes this may just be the addition of a few pieces of equipment or in extreme cases it may require a system redesign and additional equipment in the field. Also understand the level of ongoing maintenance provided by the vendor after the project goes live.

Is there a period of time where they will return to the site to work through issues at no additional cost or will you be assessed additional charges each time you pick up the phone to ask for help?

Your project team will also need to determine if there will be a need for external consulting help. Will you need additional third-party IT assistance during the project?

Or will your internal team be able to handle the project in addition to their normal daily duties?

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(cont.) Estimating Costs

Third-party Consultant for Change Management

Also think about the timing of when a third-party consultant should be added to the project. In some cases it may be wise to bring them onboard early in a project rather than later. In addition to the IT concerns, give consideration to the change management needs related to the project. This tends to be an area that leadership teams underestimate in regards to the amount and the complexity of work needed. The significant tasks of defining the business’s current state, defining the desired future state, building the change plan, and executing the change plan is many times left to internal individuals who in many cases already have their hands full managing their day-to-day operations. It can be a lot to ask of your organization as many of them will be supporting the project in additional roles as part of the larger organization commitment.

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Choosing a Vendor (more like “partner”)

An ERP system installation impacts virtually every function in your business. The impact is so widespread that many executives have compared the experience to a merger activity. Treat your interactions with ERP providers with the same sense of urgency that you would a potential merger partner. Your team wouldn’t just let a potential outside partner come in, make a presentation and then base a decision primarily on what was seen in the presentation, right? The conversation would require a high level of engagement with probing questions, detailed discussions and a high level of give and take. Approach the process of evaluating ERP solutions and providers with similar detail and interaction and you’ve taken the first step toward the right ERP strategy for your company. We made a big deal about business decision makers knowing what they wanted from an ERP system in terms of KPM improvement, process improvement, and enhanced business visibility. The reason is two-fold: First, it helps to greatly reduce the amount of time spent with providers who simply cannot help you improve your business.

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(cont.) Choosing a Vendor

Second, the quality of conversation with potential providers is greatly enhanced. You’ll be able to talk about solutions in PRACTICE rather than in THEORY.

Once confident that your team has a firm handle on the current state of the business and is ready to investigate ERP solutions and providers, your first task is to build the list of providers to talk to. Avoid simply looking into a business directory and starting at the top of the list to make phone calls. A small amount of research online will save a large amount of time. Find ERP providers who cite specific experience within your industry.

They’ll be much more able to address the specific concerns and possible benefits for your business if you were to implement their solution. Additionally, you can likely avoid one of the most costly and risky activities in an ERP implementation – customization. Customization sounds great but a custom solution takes extra time for developers to make the changes. Additionally, customization runs the risk of losing the benefits of a system that was originally optimized to work best “out of the box”.

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Without a doubt, there will be some custom adjustments no matter which solution you choose. But in the ERP world, highly customized solutions tend to add project time and expense and should be avoided. A 2015 ERP Report noted that ERP customizations were significantly on the rise with almost 93% of the companies implementing an ERP solution had the vendor perform some form of customization. They hypothesized that the rise in customization was partially to blame for a rise in ERP implementation failure rates. Avoid some of this risk and target providers offering solutions specific to your industry.

Try to find at least 3 vendors to talk to in depth but keep your list to no more than 5. It will likely be harder to find 3 vendors then it will be to limit the number to less than 5.

Ask the vendors from your list for referral customers with similar operations that your team can talk to. Take the opportunity to talk to these customers and even entertain the possibility of a short on-site visit.

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Chances are the referrals provided to you will not come from your specific industry but as long as their industry is similar, learning about their experiences implementing an ERP system will be highly valuable. You also want to get the vendors point of views on these installations. Have the vendors point out and explain how they can leverage their experience with the similarities between past installations and your business. Also have them explain areas of difference in the strategies they would employ to address these differences. After seeing previous installations, talking to past customers, and gaining insight to the vendors initial strategy for implementing ERP in your business, you should have enough information to decide which solution providers you would like to give serious consideration and see working demos from.

Most vendors will have prepackaged demonstrations available for you to see. If it all possible request that vendors prepare a demo using information from your business. You will need to give them access and some time to work with your Information Technology group to build a demo dataset.

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Using your own data in this manner provides substantial benefits. It will allow your Information Technology team a firsthand look at how easy or difficult it may be to move your information into a vendor’s new system. You’ll also be able to quickly see the impact of a new ERP system on many of your current business processes and will be able to determine potential reductions in effort or potential disruptions to your business.

Demo Day Prep

On demo day evaluate what you see with the critical eye. Fill the room not only with individuals in leadership positions at your company but also with stakeholders in the change. Stakeholders such as function managers or supervisors, administrative support individuals, accounting and finance individuals, or anybody else who currently has a role in either producing or using the information and data generated in your business. Prepare them beforehand and encourage them to ask detailed questions during the demos in an effort to coax out where current process and culture are going to need to change in order to support a new ERP installation.

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Ask the solution provider to design the demo so that stakeholders have the ability to put their hands on the system. Designing a demo using your company’s data and with stakeholders in the room who can see the solution in action, will give your key decision-makers the best opportunity to view the value and utility of the ERP’s output weighed against the amount of process and culture change needed to implement the demoed solution.

Each demo should be an event rather than a sales pitch. Remember, you’re in the process of picking your business partner in a manner speaking for years to come. Key decision-makers and project leaders should ask questions to understand the vendors capabilities and cost of service packages.

Does the vendor only provide a software solution? Or do they offer more services such as business process consulting, project consulting, and/or change management consulting aimed at assisting client companies with their ERP installations. The software only solution will likely be the least expensive. But depending on your organization’s experience with managing large technical and culture change projects simultaneously it may be wise to consider a provider who can provide more services than just a software solution. Another option would be to select a software only vendor and engage a third-party consultant firm to assist with the project.

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Decision Time

If you’ve followed our guidelines, after your last vendor demo your team will have a significant amount of information to sort through and consider. It can all seem so overwhelming and it may seem easier to forgo the effort to implement an ERP system.

Keep in mind that at this point in the process, your decision, whether it’s yes or no, will have a profound and long-lasting impact on your business.

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(cont.) Decision Time

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Checklist

So finish the decision-making process with considerable due diligence. Answer the following questions with your team of decision-makers to determine the right course of action:

• Does the team have a thorough understanding of current business processes and a clear vision of a future state?

• Did a preferred vendor solution emerge from the demo process?• Does the team have a plan for managing the organizational and

cultural change effort associated with an ERP implementation?• Will there be a need for third-party consulting support?• Have all of the anticipated costs, software and related fees, third-

party consulting needs, equipment additions and upgrades, and internal team member support been captured and quantified?

• Do the benefits tangible and intangible provide the desired return when compared with the costs?

If your team can gain consensus on these items and agree that there is a provider who has a solution that is the right fit for your business and that your business can manage the change then you’re on your way to a successful ERP implementation.

Implementation Pitfalls to Avoid

Business Software implementations can be very difficult and bloody. There are a lot of mistakes that can be made and the path is laden with pitfalls. This is true for any business software implementation.

Below I outline the five biggest points, in my opinion, to watch out for...

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(cont.) Implementation Pitfalls to Avoid

#1 People

Without people none of this would be happening. The right people are the key to any successful project. When businesses switch out systems it has an enormous effect on the organization. In most sizable companies the mere planning of a software change will generate a band of Luddites who will try to sabotage the progress. Installing a new business software system is hard enough, let alone doing it with a group of people against you. I use the word sabotage for a reason. During multiple implementations we have encountered groups of people who did not want to change out the system, no matter how good the system was. It is futile to stand in the way of a technological improvement in general. Doing so within your organization will not only make it less competitive but also destroy morale. In 1816, Luddites had to be suppressed with military force to make way for the industrial revolution. Now, some 200 years later, we would hope that enlightened conversations and some strong convincing would suffice. It is very important to convert everyone into a proponent for the success of the project.

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#2 Methodology

Using Dynamics NAV as an example, it’s most commonly employed in the SMB (small and medium business) space. Which means that implementations are usually not in the thousands of users. When you are in this space you can and should allow yourself some flexibility. A smaller group should be nimbler than a larger group. I’m an avid advocate of an agile methodology instead of the traditional waterfall. The experience has led us to projects that are better done and faster. Running the project like it’s for a large conglomerate, when it’s not, is a common mistake. Sometimes the project manager just gets in the way. In my experience productivity is inversely related to the number of people in the meeting. Of course someone needs to make sure everyone is doing their job, but cluttering the process with countless signoffs and bureaucratic red tape sounds more like a CYA (cover your behind) methodology rather than “Let’s get things done.”

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#3 Business Process

Most companies are familiar with the constant battle between sales and operations. When it comes to corporate group behaviors, that falls into being stereotypical. IT is the department that usually gets caught in the middle acting as a mediator between the two.

When you’re installing a new system this battle is usually taken to another level. People within the departments feel like they need to assert themselves and not lose control. Quite frequently a business process is carved out in the system that is meant to satisfy both departments, but in reality it’s faulty.

Companies should take the opportunity to have the departments collaborate on the best process. Features that people fight for the most are often not that important when the picture is viewed as a whole.

Having the experience of knowing what works and what doesn’t is paramount when tracing the path in an implementation. You need an expert guide. A person that knows the system extremely well and can navigate through the minefield. It’s important to note that these minefields are more often business processes not system areas.

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#4 Momentum

All too often, I have seen projects lose momentum. It could happen because other priorities come into play, such as the project is waiting on a decision, cash flow is tight or any other valid reason. Although losing momentum can happen for understandable reasons, everyone involved should do their best to keep the project moving at a steady pace. Sometimes events that might seem like they would hold the project up can be worked around. Losing momentum results in time and enthusiasm lost.

This is the area where I see the project managers play a very important part. The constant pinging and pushing is worthwhile in the end. There are going to be days where you are flying high and checking off those action items at lightning speed. Then there are going to be the days where your project manager is going to push you onwards like a coach yelling at you for that final pushup.

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#5 Don’t Give Up

Let’s say you’re going through an implementation and things are not going well or you just went live and there are serious problems. Don’t give up. There’s definitely a reason to reassess and constructively sail towards less turbulent seas. Don’t take the direction of adopting less technology based on the false rationale that it’s easier and that it worked before.

Almost all problems that arise in an implementation can be solved. If you don´t have a solution, you haven´t looked hard enough. The reward is worth the fight. You made a mistake and shed some blood. Mistakes make you wiser, but if you do nothing with that wisdom it’s a pure loss.

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Wrapping Things Up

• 50% of ERP implementions are unsatisfactory

• 20% of companies purchased without seeing a demo

• 30% of companies choose the first vendor they see

• Choose your vendor/Partner and solution carefully

Considering the question of an ERP implementation can seem to be a burdensome process. But note that many researchers document the fact that almost half of the companies who implement ERP solutions are not satisfied with the results. In addition to that fact, they also document that over 20% of the companies that implement an ERP solution never view a demo and that an additional 30% of the companies choose the first vendor solution that they see. There should be little surprise at the amount of dissatisfaction that many companies experience given the lack of pre-work. As we said before if you approach finding an ERP solution provider in the same manner that you would approach finding a merger partner you will greatly increase your chances of finding an ERP provider that can implement a solution that gives you a competitive edge.

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iNECTA is a Microsoft Dynamics NAV Gold Certified Partner and Business Technology Consultantcy. We’re passionate about delivering value and efficiency to your business through technology solutions.

Learn more about us at: www.inecta.com

CONTACT iNECTATelephone: 1-800-632-057318001 Old Cutler Road, Suite #645Village of Palmetto Bay, FL 33157Email: [email protected]

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Senior Management’s Guide to Evaluating: ERP …...ERP Solutions Senior Management’s Guide to Evaluating: Critical points to consider to ensure success: • How to tell if you’re

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