Lesson learned in ERP selection: Buyer beware!

So your old enterprise resource planning (ERP) system isn't cutting it anymore -- or you have grown out of QuickBooks. What do you do?

The obvious solution is to replace it with a new ERP system and reap the benefits of the advanced software packages on the market. The big question is: where do you start?

Rather than letting the excitement prompt you to reach for the phone and start calling the most well-known ERP software vendors to come in and demonstrate their wares, take a breather.

Going through the ERP software selection process is a daunting task and your company's fate for the next decade or so may hang in the balance. The advancements made in both technology and functionality have made the selection process more complex and intricate. Making mistakes in software selection often results in higher costs or failure during the implementation phase of the project.

The reality we face is that organizations keep repeating the same mistakes over and over when selecting ERP software solutions.

The good news is that, regardless of industry and company size, many of the common mistakes in ERP selection can be avoided. While strong leadership, good team dynamics, and competency are key ingredients in the recipe for success in the selection process, additional insights are needed. From lessons learned in working with numerous clients on such projects, we've come up with this baker's dozen of insights specific to ERP vendor selection you should consider.

1. Focus on what's hard first. Pinpoint your most critical and unique business process requirements -- both current and future -- that will challenge the capabilities of commercial off-the-shelf packages. Naturally, most people are not in a position to identify what is hard when it comes to software functionality or system integration, and this poses risk. To alleviate the risk, look at the most intricate "workarounds" you've had to devise to cope with issues that matter the most in your current environment. Then make your workaround solutions a key component of your requirements definition document.

2. Define your scope and stick to it. "Scope creep" is the most prevalent project killer. Wide-eyed enthusiasm is commonplace when people are looking at new techniques and technology. All of a sudden, each new gizmo appears to be something you can't live without. Before long, the wish list has driven the situation out of control.

Prioritization is the key to project survival. Keep a keen eye on total cost of ownership (TCO) components, both initial costs and ongoing operational costs. Remember that each feature and function carries its own operational cost. The bulk of that cost is often the time and money it takes to "feed" the data needed for each feature to operate properly. If you can't afford the fuel, don't buy the car.

Recognize that ERP involves more than functionality. Within your broader system landscape, the ERP solution scope needs to be defined organizationally as well as for business processes, data, interfaces, system decommission targets, and technical capabilities.

3. Be business-driven, not technology-driven. Answer the following question early and often throughout the selection process: What does your business hope to gain from implementing the new system? The traits of new and different do not always equate to being better.

Always be looking at the future state. How will the business be different after the new system is operational? Monetize the answers and make sure there is buy-in from the executive and operational teams. It is critical to define the metrics up front that you will use to measure success later.

4. Beware of selection scorecards. There is always value in using a scorecard to keep track of individual components of each solution being evaluated and to tabulate comparisons. However, making the final buying decisions based on mechanical scoring alone is fraught with danger. One must take an objective view of what matters most to the business in order to make the best decision. Focusing only on the numbers on a scorecard can lead to a decision that's not in the company's best interest in the long term.

5. Recognize you have two vendor choices to make, not one. Just because you will end up selecting one vendor's ERP software package does not mean you should use that same vendor for implementation services. When comparing software vendors, there is more variability in the quality of implementation services than in software functionality. While the software package itself has the most visibility during the selection process, it is not unusual for the services component to become the main risk-driver and deal breaker. Also crucial to understand is that implementation services represent the biggest factor in budget burn rate on most ERP projects.

While the consultants from the chosen ERP software vendor are often the shoe-in choice for implementation services, they are sometimes a suboptimal pick. Simply being employees of the primary ERP vendor does not mean the consultants assigned to your project are the best suited for the job. Due diligence must be exercised separately for the software and services components.

6. Don't get hung up on "the cloud" promise. The manner in which the software and infrastructure are hosted is not what's most important when it comes to selecting an ERP vendor. Furthermore, beyond some small company scenarios, multi-tenant software-as-a-service (SaaS) offerings are not yet all that relevant in ERP (and may never be).

7. Stay clear of noise, hype, and bias. Most consultant and analyst organizations offering ERP software selection guidance make revenue implementing the software they recommend. Often, the profits they make implementing the software far exceed what they earn for selection services, so the "follow the money" scenario speaks volumes. In other markets, these practices may be considered conflicts of interest and even unethical in some cases.

8. Don't hand over the keys to the vendor(s) during the selection process. Salespeople and high-level consultants with ERP vendor companies are typically very competent and impressive. Keep in mind the selection process through which you're going is a task you may experience only once in 10 to 20 years. Yet, it's something the ERP vendor folks do as their ongoing job, and they've become very skilled at orchestrating the process.

Avoid allowing vendors to use their sales expertise and tools as a means to control your selection process. It puts them in the driver's seat and diminishes your ability to make the best decision.

9. Control the software demonstration process yourself. Planning and executing software demonstrations are too often left to the vendors. Resist the urge to take the easy way out here by letting the vendors dazzle you with their dog-and-pony show. Prepare a clear and comprehensive demo script based on your prioritization of the functionality and integration you need. Force the vendor to adhere to your script. Make sure you have the right decision makers from your organization viewing and objectively rating each portion of the demo.

10. Do a deep dive into reference checks. Realize that every vendor will try to parade their "poster children" user companies in front of you to support their customer satisfaction claims. That's okay, but don't stop there. Every vendor has some dissatisfied customers. Part of your job is to go out and find them. A strategy that have yield great results is tapping into the vendor's user group organization as part of your due diligence. One caveat, though: Disgruntled customers often caused many of their own problems.

11. Maximize your leverage in negotiations. Beyond staying in control of the process, keep your options open on all cost components. Don't source all external contract resources from the same vendor prematurely. If you can do so, plan to close your deal with the vendor(s) at end of a quarter or, preferably at the end of a year. Publicly traded vendors are notoriously stuck in their end of period earnings push and consequently offer the deepest discounts at those times.

12. Do your homework on total cost of ownership. Pay particular attention to your implementation staffing plan and risk assessment. Many companies take shortcuts in these areas and fail to manage expectations even before the implementation starts. These projects are almost always more time-consuming, costly, and risky than anticipated, so treat them as such and manage expectations accordingly.

13. Use the selection process to mobilize your implementation team. This is the golden opportunity to recruit, involve, educate, and test the cross-functional team that has to make the software work in your organization. If your key users don't have buy-in, you have trouble brewing. Participation in the selection process is also a great learning opportunity for new employees and rising stars.

So there are your lucky 13 insights. There is more to the ERP selection process than we have covered here, such as using adequate legal support for contract reviews. However, reflecting on and acting on these 13 insights should help you approach the selection process in a way that avoids the pain of an ERP implementation failure. Remember: to make an ERP implementation successful, you must get the ERP selection right.

Teccelerators Chief Strategist Christer Wadman helps businesses grow and become more profitable by improving their use of information technology. He is primarily focused on manufacturing and distribution. Contact him at christer.wadman@teccelerators.com.