If you’re a CIO, CFO, IT Director or anyone who has been tasked with choosing a new ERP (Enterprise Resource Planning) software for your organization, it can seem like a daunting task to say the least. ERP software is an expensive, time consuming, resource intensive investment and can have a broad positive or negative impact on an organization depending on the implementation and how well the ERP software fits the business.
There are several big ERP names in the industry and each one has very nice-looking demonstrations, images of colorful dashboards, and Power Point decks with words like “Optimize”, “Streamline”, “Automate”, “Business Intelligence” and “AI”. So how does one evaluate an ERP to determine the best fit for the business?
I have been an ERP consultant for almost a decade and have been through several ERP implementations. I have seen ERP successes and ERP failures and I have a ground level perspective that will hopefully provide some clarity on this topic.
You may be asking “This blog is all about Dynamics ERP so how can you have a neutral perspective?” That’s a great question but the truth is that these considerations detailed in this article are universal, ERP agnostic, and can be applied to any ERP search process to help any business find the right ERP fit.
Return On Investment
A new ERP system is expensive. ERP implementations can range from about $300,000 on the lower end for a small cap business to $100,000,000 at the high end for an enterprise level global large cap business. Regardless of business size, ERP software, implementation, maintenance and support represent no small part of a business investment.
As with any investment there must be a positive ROI even if your current ERP system is out of date, buggy, slow, etc. you still need to make sure that the ERP software you select will yield you a positive ROI. So, where does the return on an ERP system come from and how can you quantify it?
In a typical investment in something like a specialized manufacturing machine where you have an initial investment amount with inflows of expected future payments from sales of a product and where you expect it to produce “X” many parts over “X” many years, with a specified depreciation rate, and a discount rate, you can calculate not only net present value but also a ROI.
With an ERP, your return on investment really comes in the form of efficiency gains and accuracy improvements in data driven decisions.
The ways you can start to quantify cash inflows (or reduction in cash outflows) to the business will be:
Manual tasks that took 6 people to do can be automated and those 6 people can be moved to increase operational efficiency elsewhere.
Miscounts during cycle counting caused “X” many hours of re-counts and investigation time by external auditors. The new ERP functionality will increase cycle count accuracy by “X” percent saving us “X” amount.
Production re-work due to incorrect raw material picks or consumption caused this much in write offs last year. The new ERP with warehouse barcode scanning functionality will reduce re-work instances by “X” percent.
These kinds of examples can give you a sense of the numbers you can start to derive to enable you to calculate ROI on the new ERP system and then present the findings to the core steering committee group or upper management peers that need to buy off on and commit to the decision.
Top management buy will be extremely important during the implementation as shown in this study conducted by the Canadian Center of Science and Education. They found that the number one critical success factor to successful ERP implementations was “Top management support and commitment”.
Alignment With Organizational Goals
Aligning your ERP search with your organizational goals can help you focus your search and ensure the ERP you are choosing can help your company reach the stated goals. In many cases the goals of a company are much too vague and immeasurable in a statement of work or request for proposal. Then when they get the shiny new ERP system, they don’t know whether the money they have spent on getting it implemented was worth it or not.
Goals like “Unify disparate operations applications under a single integrated ERP solution” or “Install a scalable enterprise solution across all business platforms” sounds great but the question is why? What benefit does that bring the organization?
Is it that the costs of supporting so many disparate systems are “X” and we want to unify the data to get costs down to “Y”? Is it the cost of maintenance and support of physical infrastructure is “X” and we anticipate “X” percentage cost growth in the coming years with the growth of the business, and a cloud ERP solution will provide savings in the form of lower cost of ownership of the software with maintenance, upkeep, support, and scaling?
Putting numbers to these vague nice sounding statements will help hone in on the reason for the new ERP and will give you the numbers to compare against all ERP solution offerings.
If you have measurable goals and KPIs that the ERP implementation is aimed at improving, you can also see if you’ve met your goal(s) over the years after the implementation. Then you can see if you fell short on your goals.
ERP implementations are expensive, and the budget can get out of control fast with scope creep and when users begin to request enhancements and integrations to be developed on top of the existing system. McKinsey and Company notes that more than 80% of ERP implementations end up over budget.
You will need to budget for contingency because no ERP system implementation is flawless and although I have been on several ERP implementations that came in under budget, it is common for ERP implementation budgets to be exceeded due to unforeseen issues, missed requirements, lack of ownership and missed deliverables from client or partner.
The implementation budget needs to include:
- Consulting services and fees – Which includes costs of custom development, requirements gathering, design, configuration, data migration, security, testing, deployment etc.
- Additional environments – Typically several environments are needed to support the implementation activities.
- Peripheral devices – These are devices that integrate or are used as part of the complete solution (printers, tablet, registers, credit card readers, warehouse mobile devices, field service devices, IOT devices etc.).
The post-implementation budget needs to include among other things:
- Licensing and software costs.
- Monthly cloud fees.
- Support costs – If you have the budget I would pay for premium support until you’ve owned the ERP for at least two years.
- Phase 2 initiatives – These could include enabling or configuring additional modules not in scope of the initial implementation. It might also include custom development or BI solutions not in budget or scope for the initial implementation.
Pre-Define Scope And Requirements
It’s easy to start daydreaming about what your organization’s IT landscape could be when you see all of the features, functionality, business intelligence, and integration capabilities of a modern Cloud ERP solution.
However, most companies do not have the budget nor the appetite to take on so many extra things in addition to the core ERP implementation. Adding too many things to the scope of the ERP implementation can put too many balls in the air at the same time and cause project delays, budget overages, and headaches if the project is not managed properly. Sometimes it’s easier to just get the ERP in place for phase one and then tackle all the really cool things that come with it in a phase two project.
It’s also important do your own internal requirements gathering prior to ERP selection if possible. If you can provide a complete requirements traceability matrix to a potential ERP partner, it can give them a chance to prepare a more meaningful demonstration, more accurate cost estimate, and will save some time during the requirements gathering phase.
The partner will still need to conduct full requirements gathering but it can serve as a good starting point. You could request a preliminary fit/gap analysis to determine which requirement could potentially be gaps to give you a sense of which ERP will be the closest fit to the way your business runs. Keep in mind without the partner doing in depth analysis the preliminary fit/gap will only be an estimate and could change when you get into the deep dive analysis sessions. With ERP, the devil is a mile deep in the details.
Compatibility With Complementary Applications
Today a company can have many business applications, even beyond the ERP system, that users interact with and use to make business decisions on a daily basis. It is important when choosing an ERP system to make sure it is compatible with these applications. The most commonly used set of applications is the Microsoft office suite of applications.
The majority of modern ERP solutions do play nicely with Microsoft Word and Excel including exporting data from the system to commonly used office applications. However there are some ERP solutions that go a level beyond that and have more rich integration with these applications that empower users to more efficiently interact with the ERP system by having the ability to upload data to the ERP or being able to directly connect to the ERP to pull down real time data into Microsoft Office documents. This kind of standard functionality in an ERP solution can increase user acceptance of the system and give them confidence to use the system and report from it.
In addition to the Microsoft Office applications there are a whole slew of applications like Facebook, Twitter, DocuSign, Gmail, Google drive, Instagram, Microsoft Teams, OneDrive, Power BI, Salesforce, SharePoint, Survey Monkey, WordPress, Zen Desk that businesses also use and need to be integrated with the ERP. If you have to build custom connectors and APIs it could add to the cost of the implementation. Try to choose an ERP with built in capabilities with the majority of the peripheral business applications your business uses the most.
Self Service Reporting
If users are easily able to re-create or improve on existing reports, they previously used in the legacy system in the new ERP system, they will be less likely to resist change and embrace training to enable them to be independent in their jobs. Self service reporting also allows the user to get the report exactly how they want it, standardize it, and disseminate to the proper recipients throughout the organization.
If users are able to self-serve reports, they will be less likely to raise a support ticket and request IT help. This can help reduce IT costs and keep IT focused on top priority issues instead of time-consuming requirements gathering sessions, custom report writing, testing, and deployment.
Change management is crucial aspect of an ERP implementation and organizations will spend thousands on change management to ensure that users are ready, willing, and able to accept the change that is inevitable under a new ERP implementation. ERP software that is user friendly from a visual perspective and from a usability perspective will help ease the task of change management. If the application is intuitive and visually familiar there is a lower likelihood of resistance and push back.
User friendliness also helps with user training. In my experience users that get into a test environment in the early stages of a project are much more likely to become super users. Super users are an extremely valuable asset on an ERP implementation because they become advocates for the new ERP, and they become thought leaders on how the business processes should be revamped and optimized to support the new processes. The more user friendly the ERP application is the more users will be willing to go off on their own and explore, try, and test the new system.
Community and Support
This is a consideration that is almost always overlooked. Does the ERP application have a rich community and support network? By this I mean are there an abundance of blogs, articles, forums, and user groups that can help you as an IT director or executive and the users of the application get the support and information you need to help you with minor issues and questions that you may come across during and after the ERP implementation.
If there are very few blogs, articles and good information online to support the application, you may have to reach out to your partner for very trivial issues that normally a quick Google search could remedy. Reaching out to a partner repeatedly for hourly support can start to add up depending on how many tickets are raised.
Take a look at the community and support landscape by Googling some common topics and business processes associated with the ERP and see if there is some good content out there. This site has several articles on Dynamics 365 Finance and Operations topics you can check out.
Ease Of Integration
ERP applications often need to integrate with external applications for various reasons. During an implementation, integrations depending on the complexity, can constitute a majority of the development budget. ERP applications depending on whether the application is on premises or cloud, technology, infrastructure etc. can dictate the integration framework.
When choosing an ERP, do some research and understand how the integration framework works for some of your top contending ERP applications and discuss it with your top developers. Talk through how current integrations would be re-implemented with the new ERP system, rank the level of complexity given all the tools made available by the ERP software and third-party software, and get a sense of the level of relative complexity associated with integration for each.
How easy is it to monitor the integration once you have it up and running? It may be easy to build the integration and get it up a running but if it is difficult to monitor execution runs, error records, and integration timing, you may want to re-evaluate the ERP solution.
There are many implementation partners, small and large, that specialize in every ERP system and it’s hard to know which partners are good, mediocre, and just bad. There are not really a set of published standard metrics by which you can comparatively evaluate partners. To my knowledge there are no google review or independent survey companies that capture any of this data, so it makes it a little more difficult to assess.
In my opinion the best way to evaluate a partner is simply to ask their customers. When you are evaluating partners ask for referrals, testimonials, and references and then give those people a call and ask them what they liked and what they didn’t like about their implementation partner.
If you are unable to find a referable customer for a given ERP application, it may be an indication that there are not many good implementation partners for that particular ERP.
Updates And Roadmap
An extremely important consideration when choosing an ERP is how easily are updates to the application installed and implemented? Most ERP application companies continuously update their software so the question is not will they update but when and how easily is this done. What are the steps necessary to promote a software update to your production environment? Is the update performed by you, your partner, or is it done by the ERP software company? This is an important question to ask when it comes to total cost of ownership.
If an ERP gets monthly updates and you are responsible for installing the update in a pre-production environment, performing regression testing, merging any code conflict, and deploying the update to production this can add a significant burden to your IT department or cost if you have to let your partner do these things.
Does the ERP software company make it clear what their vision for the future of the application is? Do they announce and promote new features and functionality? Do they provide sufficient documentation and release notes for the new features? It’s important to understand the answers to these questions because they could have a huge impact on the way you do business in the future.
Modifications And updates
In every ERP implementation I have ever been in, the client pledges to use as much standard functionality as possible and the partner pledges to try to come up with work arounds using standard functionality when there is a gap identified. Despite this gallant pledge there is inevitably some gaps between what the business needs from the ERP and what the ERP is able to do.
In these cases, modifications to the standard application are required. Since this is the case for the majority of ERP implementations, a good question to ask is how will my custom development to the ERP software affect future updates to the application? Does the ERP have a development framework that allows you to make modifications in such a way that you can avoid doing a code merge for every update release?
Some ERP applications allow over layering of code which allows for more complex modifications, but it also means you are touching the core code base which could be changed when there is an update release. Other ERP applications do not allow external developer to overlay code and they must trigger their code on certain exposed events. This puts limits on the complexity of modifications that can be written but it also means that when an update comes out, your modification has not touched the core code base and is not affected by the software update.
ERP systems are infinitely complex but choosing one doesn’t have to be. There are a number of things an organization must do internally before starting the ERP search, but once you get to that point, learn as much as you can about the top 2 or 3 applications you are considering and don’t be afraid to ask you’re your potential implementation partner tough questions.
I hope I have provided some clarity on considerations you have already thought of and raised some considerations you may not have.