Five Important Best Practices for Buying and Implementing ERP

Updated: November 28, 2010

To help you navigate the challenges of buying and deploying ERP, I have assembled five important best practices, each of which describes a significant facet of the ERP lifecycle.

1. Define clear goals.

Always select software and plan your project based on a strategy designed to meet business goals and functional requirements. Unfortunately, many ERP projects begin with fuzzy, ambiguous goals and no clear definition of success. Without a crisp, shared understand of the end goal, achieving ERP success is difficult indeed.

To understand this issue more fully, I asked IT project turnaround specialist, Todd Williams, to share his experience. Todd is a frequent speaker on fixing troubled projects and wrote a book on this topic:

Success goes beyond defining your goals. Companies generally take on a software initiative to address some burning issue without looking deeply into the reasons they need the new system. In and of itself, a new system only amplifies the company's philosophy and helps makes existing processes more efficient. If either the philosophy or the processes are problematic, the system alone will not make them better—only more efficient. Too often, enterprise software buyers get lost in the sales jargon and don't properly define the problem they are trying to solve. Buyers quickly jump to a software solution because it is tangible and easy, rather than changing their thinking based on careful examination of what's really needed.

In addition to avoiding unclear goals, analyst Frank Scavo, President of Strativa, a management and IT consulting firm based on Southern California cautions against being overly ambitious:

From what I've seen, the problem is not usually lack of goals for an ERP project, but buyers have too many goals or make them overly ambitious. I recall one example with a governmental agency I worked with some years ago. This agency had a manufacturing business as part of its operation and desperately needed some sort of MRP system for inventory control. They set up overly aggressive goals, which included using sophisticated features of the new system. As a result, they ran over their schedule and budget and still hadn't gone live with the new system. After reassessing the plans, they realized their true needs were actually quite basic. In the end, they scaled back the implementation and went live just a few months later.

Lesson learned: Don't try to do everything with an initial ERP implementation. Figure out what you really need, and focus your objectives like a laser on getting those goals accomplished. Then, build on that foundation with additional functionality.

2. Choose the right software

To gain full value from an ERP system, you must match the software to your organization's information needs, processes, functional requirements, and workflows.

For advice on the importance of accomplishing this goal, I spoke with Brett Beaubouef, an independent management consultant, ERP strategy blogger, and author. Brett emphasizes the importance of finding software that meets your needs, so you can avoid expensive customizing:

Maximizing delivered "out-of-box" ERP functionality is key to gaining a high return on investment (ROI). ERP can become an expensive custom solution, if you don't get the right software.

ERP software selection is a strategic activity that has both short-term implications (implementation costs, organizational adoption) and long-term ramifications (total cost of ownership, business process maturity). No off the shelf ERP software will completely meet all of a customer's requirements, especially in unique areas of competitiveness. However, selecting ERP software that does meet specific industry, country, compliance, and business process-related best practices is important to achieving quick efficiency gains.

Organizational change and adoption are the most overlooked and underestimated areas for ERP implementation success. Therefore, try to find ERP software that closely aligns with your organization's current business processes. The greater the change required, the more effort your organization must undertake to become ready to adopt and use the new software.

Failure to select the right software can cause several problems:

  • Increased development costs to address functionality gaps related to your industry, country, and business processes
  • Higher costs for organizational readiness and change management
  • Higher total cost of ownership, which will result in lower return on investment
  • Higher upgrade and maintenance costs from carrying forward software customizations

3. Negotiate software terms wisely

After selecting software that, hopefully, matches your business requirements and is a good fit with your processes, you must negotiate the license deal with your software vendor. Vendor negotiation is a challenging process with long-term economic consequences to the buyer.

Independent technology analyst and blogger, Merv Adrian, who formerly worked for Forrester Research, suggests practical tips for negotiating with software vendors:

The three most important things in a software negotiation process are objectives, alternatives, and knowledge:

A. Define objectives for what you want the software to enable, and don't settle for enabling only what the software permits. That includes knowing your price: what is it worth to you?

B. Build a shortlist of alternative products/vendors that all have the functionality defined above, and be willing to walk away from one, to go to another, if negotiations are unsatisfactory.

C. Know who you're buying from, including both the company and the sales representative. How hungry are they? When does their quarter end? Work on your schedule, not theirs.

Even following advice such as Merv Adrian's, enterprise buyers can be at a disadvantage during negotiations with vendors. Frank Scavo, President of consultancy, Strativa, explains why:

First, understand that you might do a major software acquisition once every two or three years, at best. However, the vendor does this every week, year in and year out. Therefore, right from the start you are at a disadvantage. Second, help from your corporate legal counsel is needed, but that's still not enough. Your lawyer might be working on an employee agreement on Monday, a real-estate lease on Tuesday, and your software deal on Wednesday. Very few corporate lawyers understand all the specific issues that need to be addressed in negotiating with software vendors. Therefore, buyers should get unbiased outside professional help, from a consultant who has experience negotiating with software vendors. Then let your lawyer take care of the terms and conditions.

4. Find a great system integrator

Selecting software is only one step in executing an ERP project. Once you choose software, you must then deploy it across your organization. Unless your company has the specialized skills needed to perform this work, you will likely hire external consultants and system integrators.

IT turnaround specialist, Todd Williams, offers suggestions for selecting external consultants:

The biggest problem in finding a good system integrator is cutting past the marketing hype and understanding what they can actually do. Beyond checking their references, dig around and find other companies with which they have worked. Do not make assumptions about size: small or large, each SI has something to offer and particular areas of specialization where they are particularly strong.

Start the search early, long before issuing an RFP. Build a relationship with the prospective system integrators before you turn over some key part of your business operations to them. If possible, test prospective integrators on a small, non-critical project, to ensure they are right for your company. All this is part of building mutual trust; it may sound obvious, but if you cannot trust the external integrator, don't do business with them.

ERP consultant, Brett Beaubouef, echoes the importance of trust in establishing a positive working relationship with software vendors. The sentiments hold equally true when hiring external consultants:

Remember, when a you select ERP software, realize you are also choosing a partner. As part of the selection process it is vital to choose an ERP provider that will be a long-term partner versus a short-term vendor; ERP is part of a long-term solution, and is not a short-term fix.

5. Prepare for business transformation

ERP is fundamentally about changing, or transforming, information flows through an organization. By definition, therefore, both roles and processes are likely to change during the ERP implementation. Many projects neglect the need to devote time and resources to help workers through these changes, leading to downstream problems during the cutover from old system to new.

Lack of planning for change management is the silent killer on many ERP projects. Since change does not take place until later in the project, many organizations do not invest sufficiently in this area.

Given the importance of change management, I asked transformation expert, Sameer Patel, Partner at the Sovos Group, to share advice on this topic. To help gain support for business transformation, Sameer suggests establishing early baselines in three distinct areas.

Establishing baselines is extremely important in large technology-enabled business transformation projects. Early in the project examine current business inefficiencies, help workers understand how the new system will benefit them according to the WIFM ("what's in it for me") principle, anticipating objections from owners of existing systems that you are replacing.

A. Quantify current business inefficiencies. Clearly articulate the cost of doing nothing in the business processes under examination. For instance, in an order to cash process, provide benchmark data describing the loss in income on current float levels, heightened rates of churn due to customer dissatisfaction, and so on. This information is critical to obtain budget, secure executive backing, and earn the political right to create the short-term upheaval that is likely during transition from old system to new.

B. Consider cultural readiness and WIFM. Although senior executives might think process transformation is a good idea to assist managing and reporting, success depends on creating incentives for those actually using the new system. For example, sales reps may find little benefit in using their company's expensive new CRM application, because they don't think investing time in manual data entry will improve their own close rates. Identifying user incentives creates a baseline for communicating benefits of the transformation project and addressing the "what's in it for me factor" head on.

C. Anticipate objections. Large technology-enabled projects generally mean budget shifts from one department, or owner, to another. Anticipating these changes can help ensure that all stakeholders understand and accept their post launch roles. Working with managers, early in the project, to gain their buy-in can prevent painful political maneuvering mid-cycle, or even avoid outright sabotage of the initiative.

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