WHAT IS ERP?
ERP is a term that is widely used yet probably not well understood. It stands for Enterprise Resource Planning and although it was initially targeted to manufacturing companies, today it encompasses any product that can be used across an enterprise. When implemented effectively, ERP enables companies to break down traditional organizational silos, replacing them with a tightly integrated horizontal structure in which strategy, organizational structure, process and technology are closely aligned. Applications can include financial, distribution, manufacturing, human resources, payroll, and project costing.
There is a lot of confusion between an accounting system and ERP. In the past, an accounting system was limited to just financials, but that has changed over the last few years and it’s now hard to distinguish between an accounting system and an ERP system. The difference between them is a matter of degree as can be seen in the following chart.
Accounting System ERP
Enterprise-wide Maybe Yes
Scalable Partially Yes
Fees Low to Medium High
Ratio of Implementation Fees : License < 1 > 1
Customization capabilities Depends Extensive
Functionality Depends Extensive
Technology Platform Single Multiple
Start with an understanding of Critical Success Factors (CSFs)
CSFs are defined as those things that you must do well in order to be successful. You can use CSFs as a way to determine whether a requirement is really critical. If a requirement can’t be mapped directly to a CSF, then it’s not critical.
Define measurements of success
Before starting any project, you should know how to measure success in terms of saving money by streamlining operations, increasing revenues, increasing market share… Measurements of success act as a motivator for staff during the implementation, help keep the project on track and focus effort on attaining important business objectives.
Understand existing business process and seek opportunities for business process improvement
Until you have understood the existing business process, you are not ready. Employees may not know that what they are doing is atypical. Roll up your sleeves and talk to the people who do the work. Remember the devil is in the details. Along the way, your value add may be in identifying ways to improve business process.
Don’t be ambiguous in the definition of requirements
The more ambiguous the requirement, the more interpretation in whether a particular vendor meets the requirement. You need to be precise so that you can compare apples to apples.
Don’t waste time on basic functionality
Systems have matured to the point where the basics are done well. Focus only on the requirements that are unique or could vary by vendor.
Manage scope, budget and timing
Project management is the key factor in predicting success of any project. Project management includes management of scope, budget and timing. Rather than using the school of hard knocks, you should consider working with a structured methodology such as published by the Project Management Institute (PMI).
Get employee involvement
Recognize the significant amount of employee knowledge and the potential contribution of the employees. Unfortunately, the knowledge is typically in the heads of the employees and care must be taken to include their input. At the same time, you are effectively including them in the process and securing their buy-in for the process.
Assign an internal champion
An internal champion should be allocated to the project. Even the most difficult projects can become successful when you have an internal champion who is ready to do whatever it takes to get the job done. It is best to assign the internal champion at the beginning of the system selection project to ensure their commitment and agreement with the system selected.
Manage the risks
Seek out potential risks, their impact, and their likelihood of occurring. Encourage all interested parties to develop strategies to mitigate the risks. Every organization has at least 1 naysayer, who can cause a lot of problems, but who is also very knowledgeable. The naysayers must be included in the risk management process. By getting their input early, you can avoid problems and you effectively limit their negativity.
Ensure management buy-in
Communicate scope of project and get sign off at critical steps along the way. Management should develop or ratify the measurements of success.
Identify potential vendors
You would be amazed at how many vendors want your business. Start with a buyer’s guide such as the one published on the CAmagazine web site which you can access from the menu on the left. You will notice in the buyer’s guide that the vendors are split into Tiers. The largest companies are usually best served by Tier One and Tier Two vendors. Smaller companies are generally served better by the other vendors partly because of smaller investment, but also because of less complexity. Tier One products generally have a lot of flexibility but it takes more time to set-up, train and operate.
There is typically more risk associated with vertical and custom vendors. However, the benefits could outweigh the potential risks. To obtain lists of potential vendors:
• use internet searches
• contact your accountant
• contact colleagues
• contact consultants
• contact industry associations
• look at trade journals for articles and advertisements
• attend trade shows
Find a good reseller
The reseller or Value Added Reseller (VAR)/implementer can make a big difference. Often, companies selecting new systems spend a lot of time analyzing the product and the vendor but not enough time analyzing the capabilities of the VAR. The VAR could have been assigned by the vendor, and the VAR may not be the best choice. The vendors have a methodology for assigning leads to their partners/VARs that is not well-understood. You could be getting the next VAR on a list. Once a VAR is assigned, the vendors are reluctant to introduce another VAR, as it can lead to VARs competing with each other for the same prospect. So do some pre-screening of the VAR. Better yet, get the VAR’s name from someone you know.
Issue a Request for Proposal (RFP)
An RFP is a good tool to communicate your needs uniformly to vendors and to create a short list of vendors. Ask vendors to answer questions related to cost, technology, customer base, developer and implementer qualifications, and similar customers. Have the vendors respond to each requirement with a number such as “7” in current release and quoted in estimate, “6” in current release, “5” available in 6 months, “4” minor modification or workaround, “3” third party, “2” available in a year, “1” major modification or workaround, “0” not available. By extending the priority of each requirement times the vendor response, and then summing the results, you get a score that will give you an indication of closeness of fit for each vendor.
Click here for part 2 of the article.