Mistakes

Choosing the right Enterprise Resource Planning (ERP) system is a pivotal decision for any organization, directly influencing the realization (or non-realization) of business value. Unfortunately, many companies make critical errors in the selection process that lead to costly delays, wasted resources, and a failure to realize a return on investment. Consider a high-volume electronics components manufacturer where the cost of product failure can be significant. If its chosen ERP fails to support critical quality control processes, it can lead to a failure to detect product defects resulting in extensive product failures, customer dissatisfaction, and financial losses. Understanding ERP selection pitfalls and their consequences is crucial. Here are five common ERP selection misses, their potential impact on your project, and how to avoid them:

#1: Failure to Properly Define Corporate Objectives

Many companies begin their ERP selection process by researching different ERP systems without having clearly defined their project’s business objectives. The risk inherent in this approach is that a company will invest in an ERP system because it is enamored with bells and whistles and even the sales team. Ultimately, if a company picks a system that doesn’t meet its needs, that company won’t realize sufficient value to justify the spend, project risk, and business disruption. Corporate objectives are a critical foundation for an ERP project’s vision and charter. They serve as the project’s north star, ensuring stakeholder alignment, and guiding decisions at every stage. When objectives are clearly defined and quantified, you can then cascade those targets through the department down to the specific business process (and they ultimately become business KPIs on dashboards and reports). It’s at this business process level that you identify ERP system requirements and ERP evaluation criteria. 

#2: Failure to Evaluate the Software and Technology Development Roadmap

The value of a vendor’s software and technology roadmap is in the insights it provides into planned development. Companies that don’t adequately assess the roadmaps expose themselves to the following risks:

• Risk of Obsolescence: We had a large distribution client with 300 locations implement a BI solution (prior to our involvement) that the vendor sunset shortly after go-live. Even though maintenance and support were discontinued, our client was still able to run the software (sub optimally) for several years until it deployed a replacement. Believe it or not, this company was relatively lucky. An electronic health records software vendor abruptly discontinued its cloud service, leaving a number of our healthcare clients scrambling.
• Strategic Misalignment: What happens if your business acquires a solution that works in the short term but fails to evolve in ways that are important in the long term? The answer is often spreadsheets and inefficient manual workarounds. This is what happened to a metals client when it invested in an ERP system whose vendor discontinued critical industry-specific functionality.

In summary, your business should analyze the software development roadmap to satisfy itself that the product is both future-proofed and well-aligned with its long-term needs.

#3: Failure to Thoroughly Evaluate the Implementation Consultants and Methodology

Even the best-fitting ERP software will fail to deliver its promised business value if it isn’t well implemented. This is why evaluating potential implementation consultants and their proposed methodologies is critical. We often tell our clients “You’re way better off properly implementing software that’s an 80% fit than poorly implementing software that’s a 95% fit.” Do your due diligence to avoid:

• Hiring Consultants Who Lack Business Perspective: Too many consultants have their heads buried so deep in the software that they don’t appreciate the business needs. Worst case, this results in a system set-up that fails to properly support the business’s needs, causing the business to bypass the system entirely.
• Lack of Cultural Fit: ERP projects are pressure cookers. A company’s core team of internal subject-matter experts is ultimately responsible for transforming business processes. These people are taking on huge risks. Their reputations and jobs are on the line. What happens if the new processes prove too cumbersome? Or ill-fitting? Core team members need to trust that the consultants understand their business needs and advise on how to best set up the system to meet those needs. The core team-consultant relationship demands trust. And trust depends on open communication, transparency, fit, and effective conflict management.
• Unclear or Untested Methodology: ERP implementation is a complex cross-disciplinary project that implicates organizational change, business process, and technology. Inadequate methodologies leave teams floundering, cause companies to burn cash, and often lead to cancelled projects.

When evaluating consultants, it is, of course, critical that you assess their knowledge of the system. Just as importantly, you will want to understand how they approach understanding business requirements and handling those that don’t fit neatly within the software’s core capabilities. From a team and culture perspective, you will want to learn about their communication, facilitation, and conflict resolution styles.

When it comes to assessing ERP implementation methodologies, you should have a thorough understanding of best practices for key implementation management phases, activities, and deliverables. Ultimately, you will want to satisfy yourself that the methodology has all of the key components necessary for successful delivery and, just as importantly, the right tools to monitor performance.

#4 Failure to Require Demonstrations Scripted to Key Business Requirements

Settling for a generic demo or simply taking the vendor’s promise of capability could cause you to invest in an ill-fitting ERP software package. Potential issues include:

• Unmet Requirements: There’s nothing worse than getting sold on an ERP system only to discover that it doesn’t handle key processes. To avoid surprises, develop a demonstration script that includes “day-in-the-life” scenarios that incorporate samples of your data.
• User Experience: From dashboards to transactions, a user’s ability to effectively navigate the system directly impacts adoption and business processing efficiency. For your software demonstrations, consider scripting use cases that showcase navigation, new record creation, transactional processing, and even search and training. Consider asking to see any artificial intelligence innovations that support the user experience.

#5: Failure to Understand the True Total Cost of Ownership

Companies routinely underestimate the total cost of ownership (TCO) of ERP. Too often, they rely on low-ball estimates provided by ERP salespeople. Their analyses frequently omit entire categories of major costs, such as internal labor and expense, peripheral technologies, and even price increases over time. To overcome these challenges – and to get an accurate picture of the year-to-year costs – businesses should build a comprehensive cost model. For software and service cost estimates, it’s important that you use realistic estimates.

Seek Expert Guidance

Finalytics is vendor-neutral, client-side ERP consultancy with nearly five decades of experience serving large enterprises and midsize businesses across North America. We provide unbiased expertise and comprehensive evaluations based on our tried-and-tested selection methodology to help you secure the best ERP fit. Contact us today about our ERP selection services.