ERP Selection Survival Kit
Who serves who? Does Technology serve the people – or do the people serve technology?
I started my business during the “Golden Age of Technology” back in 1985. This was a time when the power of computing was being brought to the individual level; a time of personal computers (starting with the Apple-II and IBM-PC) when we all thought that needing more than 640k of RAM and a 20MB hard disk was all anyone could ever possibly need, a time when networking computers and devices was becoming available, a time when accounting systems (then Enterprise Resource Planning “ERP”) and other business applications no longer required a mini-computer (like the DEC-VAX or IBM System 3x) or mainframe (like the IBM 370) but could be run on far less expensive networked personal computers.
And it was a time when the creators of business applications really and truly cared about their users and making an indelibly positive mark with their efforts. I remember when my company, XONITEK (which was a consultancy in technology and business applications at the time), would report issues with the code in an application and the programmers at the creator of the software would “pull an all-nighter” with pizzas and beers to fix the problem as quickly as possible.
It was really exciting and gratifying to identify and attack a problem knowing you had a technology partner who cared, was eager to offer the necessary support, and was invested in the success of the client and the implementation partner. We all felt like heroes – and the client was very happy for the response, efforts, and timely conclusion.
Ahhh… The good old days… Alas, not any more… Not for some time…
During the 1990’s with “Y2K” on the near horizon and into the early 2000’s, there was an accelerating effort to scale businesses with the result being a scramble to “roll-up” ERP firms. The result was an increasing emphasis on the financial aspects of the business to justify exaggerated shareholder value or to meet debt or investor obligations – at the sacrifice of its value-proposition (and focus) on the customer and its business partners. The creators of ERP lost their “True North”, they forgot that the customer was more important than the revenue from the sale of licenses – and that holiest of holies, the annuity value of maintenance.
Yes, the nearly guaranteed revenue to the software company from the annuity associated with maintenance was where the real cash cow could be found – and, like a dog and its bone – nothing better come between the company and its annuity.
This was recurring revenue which the company can almost certainly count upon and, so long as the client acquisition-rate exceeded the client attrition-rate, all was good. This is why you will see software vendors (and their partners) offer steep discounts on the software, but never the annuity.
“Since when has the world of computer software design been about what people want? This is a simple question of evolution. The day is quickly coming when every knee will bow down to a silicon fist, and you will all beg your binary gods for mercy.” – Attributed to Bill Gates (but mere whimsical fancy and never actually said) in a “spoof interview” with Pointless Waste of Time (now defunct) on February 21st, 2000. Even I thought it was real until I investigated it further (as a writer, I feel it is very important to validate your sources). However, it is not far off the mark in how people feel about technology and technology firms as witnessed by how many people believe it is real – that he really said it. And this plausibility is the point.
We have to ask ourselves; “Are we here to service technology, or is technology here to service us – is the tail wagging the dog?” I can’t count how many times I have seen (perhaps you have also seen – or even done);
- “Expensive” people looking at screens and reports instead of adding the value contained in their brains (screaming to get out) – or feeding data to a beast who has an insatiable appetite?
- People “cheating” the system by building spreadsheet work-arounds and back-filling the information into the system later?
- Ignoring the system because its complexity also means the information and subsequent recommendations are not trusted?
- Spent a ton of money on a new ERP system, then another ton of money to make it work like the old system?
There has been a lot of material written about the various approaches for the successful implementation of an ERP system; and most of them involve the use of sound project management methods and skills. But there is very little material on the selection process and what it takes to make a successful decision – after all, if you make a poor decision, the likelihood is that the result will be poor (certainly not to expectations).
ERP Survival Kit
So, whether it’s a company’s first foray with ERP systems or contemplating a replacement ERP system, what can a company do when it’s thinking about acquiring an ERP system? I offer the following as guidance based upon over 25 years of experience. And, when someone with over 25 years of experience is about to lay some wisdom down for free, it’s worthwhile to listen.
“The Big Lies”;
The first thing you need to realize is that the selection of an ERP system is based on several big lies that are openly known and accepted – even by the customer. It’s very similar when someone says, “I am from the government, and I am here to help.” But, that should not dissuade you from moving forward, because knowledge of its existence (and acknowledgement of same) is critical to being able to have open and honest conversations.
Big Lie #1; The ERP company cares about your business
Only from their perspective – they want to win your business, and the annuity. Otherwise, they do not care at all about the success of your business and what part they may play (so long as their annuity is protected). Always remember, ERP companies are not your partner (and never will be), they are merely a vendor.
Big Lie #2; Their solution is the best
ERP companies are arrogant. For instance, a sales tactic that is used by the biggest ERP systems will be to arrive at your office with “samples” from all the major companies that use their system with the expectation that, since these big companies bought their system and have done all of the due diligence, you should just select them. This is the epitome of arrogance and proves “Big Lie #1”. At this point, ERP solutions have evolved to the point where they are almost all the same – they all adhere to GAAP and APICS principles. Where they are different is nuanced at best. Make them do the work and prove their solution is the best for you!
And always remember, the reality is never as easy as the demonstration. So be very wary when the ERP vendors and their implementation partners tout how “easy” something is.
Big Lie #3; You need all those features (aka “It will do everything you want”)
When I was growing up, I looked forward to the Sear’s Christmas Catalog. My brother and I would spend hours “circling” all the things we wanted. But, come Christmas, we were happy with the gifts we received (which were almost always the most important things). I can’t tell you how many times companies get fooled into believing they need things that they will never, ever, implement. But someone told them they needed it; and since the competition didn’t have it, their solution must be better. They will even through it in for free to be a “differentiator”. Don’t fall for it – you will be paying for that cost of ownership forever. Remember; “Elegance is not when you can’t add anything more, but when you cannot take anymore away.”
Big Lie #4; The project will be on-time and on-budget with full implementation
I have never, ever, heard of an instance where this was true. But this is a shared lie – shared between the ERP vendor, the ERP implementation partner, and (it’s true) the customer. The ERP vendor knows you won’t implement it all and the ERP implementation partner knows it will take longer to implement than what they have documented in the proposal. But, the customer knows this and is just looking at the proposal numbers of those on the “short list”.
Sure, the customer will press the ERP team (vendor and implementation partner) to justify the numbers for a sense of reasonableness – but it’s all a lie (and the customer knows this). But the customer is guilty of perpetrating their own lies; they believe they will devote the resources necessary (and they won’t) or that their people are more capable at implementation than they are.
The closest I ever got to real honesty was at a project we once won. As the CFO was signing the contract, he told me; “I know I am going to get fucked in this project, but I believe you guys will fuck me the least.” A shallow victory, there indeed. But the project was a success and the fornication was minimal. After 12 years, they are still a client.
But I have also had projects that faced challenges and went extremely over budget;
- One company thought it was going to do more of the work than was possible. This was because the same resources identified to work on the ERP project were the same resources identified to help the company go public. End-result, success.
- Another company wanted to implement a system to formulate a business that was in the father’s brain. Except, a week after the contract was signed, the father died. And to recreate the business processes required a séance. End-result, failure.
- A division of a publicly traded company had a lead project manager decide to retire when the project was nearing its conclusion. The replacement project manager over-estimated their ability and the project spun out of control. End-result, failure.
- A company had the lead decision-maker, advocate of the solution, and project manager quit for another opportunity near the middle of the project. The replacement project manager(s) were incapable of understanding the needs of the business (being outsiders) and the primary user (who was not involved in the decision) was not an advocate. End-result, failure.
The path to success;
So if the decision is fraught with lies, should we abandon the efforts? Knowing that there are unknown, unknowns – and that the project will not go according to plan – what can be done to establish realistic expectations and maximize the opportunity for a successful conclusion?
Establish a need.
Certainly, if you don’t have a system, you should look at acquiring one. But you should make a determination yourself as to what you are trying to accomplish and what you need the system to do and what you don’t need it to do. It is important to be very pragmatic – less is more. It is important to remember the overall cost-of-ownership. If you buy it, but don’t use it, you are still paying for it in hard costs (annuity) and soft costs (it being in your way). If you don’t know what you need it to do, hire someone who will help you with the evaluation – but make sure the person has the perspective of a pragmatic businessman well versed in operations and not that of a technologist, or just finance.
If you do have a system, why are you changing? Are you sure you need a new system? How about performing a re-evaluation as to whether the existing system is capable? After all, if the deployment of your existing investment can be improved and satisfy your needs, it will be far less expensive (in hard and soft costs), than implementing new. Be pragmatic, be smart.
I have a client who was using an ERP system from us for years. They needed to hire a manufacturing manager and, as part of the hiring and at the behest the new hire, the President of the company decided to purchase the ERP system that the new employee knew. After spending nearly $500k; the manufacturing manager left, the President is gone, the company was never able to implement the new system, and they have reverted back to the one they were using (which could do everything they required as a company anyway).
Hire an independent to help evaluate
You might read this and think; “He’s just pitching himself.” The reality is, I don’t care if you contact me at all about this. Can I help? Perhaps. But only under the right circumstances as I have considerable experience but have a very low tolerance for nonsense and people who don’t take this seriously enough (or think they know more than they do). I don’t have time to waste.
So, unless you have the knowledge, proficiency, and this is a priority to you; hire someone who has considerable experience – an expert – with a variety ERP systems and implementation, but not your accountant or you accounting firm (unless they have such experience). Make sure it is not someone who sells (or has an affinity towards) any system. They should also not take part in the implementation of the solution (except, perhaps, as project liaison or manager or play a role as your advocate). Another key benefit of an independent will be to help manage your expectations and offer a dose of reality (please remember to not shoot the messenger).
Having an independent is tactically advantageous in negotiations. As your (the customer’s) independent advocate, they will ensure that your best interests are a priority. They will also be able to offer a buffer between you and the vendor to ensure emotions are minimized and the effects of sales tactics are managed pragmatically.
Most ERP solutions are the same
As I stated earlier, all of the “ranked” ERP systems adhere to the standards put forth by GAAP and APICS. Therefore, you will first filter-out those that don’t address your industry at the highest level (Discrete Manufacturing, Process Manufacturing, Service, Logistics, or hybrid). Of the rest, first give weight to the stability and health of the ERP vendor as a company; are they investing in their product? What do their reference (make sure to get several) say about their relationship? Do you know anyone other than the references the vendor provides? What is the strategy of the company? Are they looking to sell? What about employee turn-over?
Wait until the end-of-quarter to purchase
Trust me when I say, this is when you will get your best deal from the ERP vendor and also the best deal from the ERP deployment partner is also driven quarter-to-quarter. The other thing to realize is that any “expiration date” on an offer is pure fiction. Once a discount is offered, it will never be rescinded (at least I have never seen it happen over my 25 years of experience). In fact, you should consider any discounts offered a “starting point”. It’s never a final offer unless you say it’s a final offer.
What’s important to whom; The ERP Vendor wants the annuity. The ERP Implementer wants the service business. So you can expect to extract very generous discounts on the software licenses but probably not on the annuity (double-win if you can get it). The ERP Implementer wants utilization of resources – so the more service is required, the more pliable they can be. Perhaps offer to pay within 10 business days for approved and accepted services in exchange for a generous discount.
Interview the people who will actually do the work
The ERP and implementation vendors will task their very best people with making the presentations and pitches – and (usually) you will make your decision based on these presentations with a lot of the weight being placed on whether you like and trust the people presenting. But after the contracts are signed, the actual implementation team will take over and they will almost never be the same as those presenting and their being qualified, capable (and liked) will be the difference between success and failure.
Therefore, before you make the decision and sign the contract, interview the actual individuals who will be assigned to implementation – those responsible for actually doing the work. Get their personal references (and check them). Make sure they are properly experienced with the solution you are about to select. Do they have experience with the system and in your industry? How about any “certifications”? How long have they been with the company? Are they employees or contractors (it does not really matter so long as they are qualified, but it might go to risk)?
Do not contract unless you are satisfied that those responsible for implementation are qualified and that you could work with them (on a personal level). Make sure to put this in your contract – and also, any other persons (in addition to, or a replacement of) assigned to the project are interviewed and approved.
If you cannot make that determination because of lack of experience in hiring this type of person, hire someone from the outside to do the evaluation.
You should understand and respect the benefits that an ERP system can bring to business, but not be hypnotized by the flash and technology. Don’t let yourself be led by your heart, but by your brain. Make sure the benefits of acquiring an ERP system (or any technology) – and the subsequent terms, conditions, and on-going cost of ownership – are in the best interests of your business and not someone else’s.
Understand that making the right decision, in the appropriate manner, from the proper perspective is the foundation for success. A poor decision will likely result in poor results.
And realize that making the decision is only the end of the very beginning – the tip of the iceberg. The implementation will be arduous and will not go according to plan. Understand this and accept its inevitability.
“Plans are nothing, Planning is everything.”Dwight D. Eisenhower
About the author
Joseph Paris is an entrepreneur with extensive international experience. He is the Chairman of the XONITEK Group of Companies, an international management consultancy firm he founded in 1985; and the Founder of the Operational Excellence Society, a “Think Tank” dedicated to serving those interested in the disciplines of Operational Excellence. In addition, Paris serves on the Advisory Board of the System Science and Industrial Engineering Department at Binghamton University and on the Process Industries Division at the IIE. He is also on the Editorial Board of the Lean Management Journal and a sought-after speaker, guest lecturer and writer.
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