When an organization decides to look for a new ERP system, consultants and vendors often refer to that effort as an “ERP selection project.” Sometimes they will refer to it as ERP vendor selection, or an ERP vendor evaluation, but the idea is the same.
Along with the rest of our management consulting services, Strativa has been doing ERP selection consulting since 2000. After many such projects, we have come to the conclusion that the whole process is misnamed. Why? Because referring to the effort as an ERP vendor selection project makes the choosing the right system the primary objective.
Does this mean that it’s not important for an organization to select the right system or the right vendor? Of course not. But picking the right vendor is only a small part of what organizations need in these projects.
What Organizations Need in ERP Selection Projects
So what should ERP selection projects include, in addition to ERP vendor selection? Here are a few critical needs:
- Forming a team. We’re always concerned when the ERP selection decision is driven primarily by the IT organization. Part of the ERP selection effort has to be to to draft key leaders from the business side of the organization.
- Gaining executive sponsorship. ERP selection is a major business change initiative. Without executive sponsorship, the project will go nowhere. An early activity, therefore, is to ensure that top management is behind the effort.
- Business and IT strategy. Many ERP selections arise from organizations changing their business model, acquiring new lines of business, or expanding into new markets. To provide context, ERP selection should start with a review of the current and future business strategy and how IT is aligned to support it.
- Applications systems road map. Many of our clients have dozens of systems in addition to ERP, and many of them are connected to the ERP system. Should those systems stay or go? Most organizations would do well to first address the entire portfolio of applications and lay out a strategic road map to understand the impact of a new ERP system.
- Application platform decision. Will the new ERP system be deployed on-premises, be hosted by a service provider, or will it be a true cloud system? The choice here will also have implications for the applications road map.
- IT organizational impact. Does the current IT organization have the needed skills to support the future applications road map, including the new ERP system? If not, what new skill are needed and how should the IT staff be organized? Many of our ERP selection projects include side projects for talent acquisition.
- Defining key requirements. It goes without saying, if you don’t know what makes your business different from others, or what makes software vendors different from one another, it’s difficult to pick the right system. Defining key issues should precede creation of the vendor short list.
- Unbiased evaluation of current ERP system. Sometimes insiders, being so familiar with the shortcomings of the organization’s existing ERP system, assume that a new system is the only solution. In our ERP vendor selection consulting, however, we find a small percentage of projects where the current system is the best choice, perhaps with a version upgrade. A truly independent ERP selection consultant will include the current system for consideration.
- Choosing an implementation partner. ERP vendor selection is not the only decision: most organizations will need to select an ERP implementation partner. Having the right ERP system but the wrong ERP implementation consultant rarely leads to success.
- Negotiating contracts. ERP selection does not end with picking the right system. There are ERP software license agreement, implementation consulting agreements, and in many cases there are contracts and service level agreements for hosting partners or cloud services providers. Your legal counsel can address legal terms and conditions, but most lawyers do not have a clue about broader issues of technical agreements. Contract review and negotiation is another key activity in ERP selection projects.
- ERP implementation planning. Generally, the ERP implementation partner has a good handle on the activities it must perform, but the ERP selection team must also plan for the activities required on the client side, such as training, data conversion, procedure writing, and acceptance testing. Planning for client-side staffing is also a key need.
- Business case approval. You can pick the right vendor and negotiate fair agreements, but if your own organization does not see the business value, the project will not be approved. ERP selection projects often need to include business case preparation, in business terms.
- Business process improvement. ERP systems can involve major changes in business processes–hopefully for the better. The ERP selection team should also anticipate the business process changes needed as part of the new system.
- Change management. ERP implementations rarely fail because of technology problems (though, it does happen). ERP implementation projects often fall short because of organizational resistance to change. How you engage the organization during ERP selection is how you gain buy in for the decision, setting the stage for cooperation during the implementation.
As shown by this long list of activities, very little of what we call ERP selection is the process of coming up with a short list and picking a winning vendor. Most of the process should be oriented around the activities to make a major business change initiative successful.
Free ERP Selection Is Not Free
The fact that organizations need much more than picking the right vendor hasn’t stopped some service providers and consultants from focusing on it, however. Since the 1990s, consultants have been advising buyers on how to create a short list and pick the right system.
The free vendor evaluation websites are the worst offenders. Most have just one service: creating a short list of ERP vendors for you to consider. What they don’t tell you is that their service is free because these sites make money is by selling your contact information to the very same vendors that they are short listing for you. They are not advisory services for buyers, they are lead generation services for vendors.
Some companies come to Strativa for ERP selection consulting after they’ve used these free vendor selection websites. Invariably, we find the prospect has already been flooded with phone calls and emails from vendors that were referred to them by the vendor evaluation websites. It only makes our job that much harder while we are trying to focus on the other 90% of what it takes to make an ERP selection project successful.
Buyers Are Getting Smarter
Ironically, while clients come to us for help in ERP selection, the area where they least need our help is in identifying vendors for their short list. Often, by the time clients reach out to us they’ve already done quite a bit of homework online and networking with associates to find out who the popular vendors are. They often know what ERP systems other companies in their industry are running.
Invariably, however, we usually know of a few vendors that should be short-listed that the client hasn’t heard of. In addition, the client may have misconceptions about what certain vendors are good at, or not good at. Nevertheless, buyers today are much more knowledgeable than ever about the ERP vendor landscape.
At the same time, clients are realizing that their needs are much broader than vendor selection. They have heard the stories of multi-million dollar ERP failures, and they realize that not all the blame can be placed on the ERP vendors or the ERP implementation consulting firms. They are much more aware of their needs and are making ERP selection much more than vendor evaluation.
Even if they still refer to their efforts as ERP selection projects.