Implementing an Enterprise Resource Planning (ERP) system is one of the most complex and cost-intensive ventures for most organizations. We present here some golden rules to choose the right ERP system for your business. These rules are aimed at helping you go through with the inevitable and thorough exercise of selecting the right ERP system, with a sense of direction.
An Enterprise Resource Planning (ERP) system is a software architecture that connects information among the different functions of an enterprise, when implemented successfully. The different organizational silos (which often function separately irrespective of dependencies) are then able to use the flow of seamless integration of information and utilize it to present an enterprise-wide “big picture” to the decision makers. This enables the decision-making process to be timely, consistent and reliable across organizational units and geographical locations. The hallmark of a successful ERP implementation lies in the long term efficiencies (increased productivity and speed of execution) that are gained due to information integration underpinned by elimination of redundant information and resulting cost savings. It is a huge investment entailing an exhaustive change management process, that several organizations undertake with the promise of huge returns over time.
Identifying the Need for an ERP system
So what prompts an organization to adopt an ERP system? There are several reasons as ERP systems are adopted across multiple industry verticals like manufacturing, retail, distribution, financial services etc., to integrate several corporate functions (or business processes) including finance/accounting, human resource management (HRM), customer relationship management (CRM), supply chain management (SCM), etc. Depending on the industry vertical that the organization belongs to and the associated set of business processes, the need for an ERP varies. Typically, the following conditions justify the need to adopt an ERP system.
- Shortcomings in the existing system such as data redundancies resulting from duplication of efforts
- Too many resources allocated to business functions that could easily be automated
- Organizational growth factors such as expansion into multiple geographic locations, thus rendering existing systems incompatible or inefficient
Golden Rules for Selecting an ERP System
Once, one or more of the above conditions come true, the organization considers adopting an ERP system. The next step is where most organizations hit the first speed breaker on this difficult path. Which is the most befitting of all the various ERP solutions available in the market? Let us list down some golden rules that should help narrow down the choices.
Define the “As-Is” and “To-Be” Scenarios
In plain terms, this is nothing but articulating where your organization stands now and where it wants to get (in terms of goals and objectives) after a successful implementation. Ensure that this is something you do even before you begin to shortlist vendors or arrange for vendor demonstrations as those interactions could cloud your assessment of where you really want to go, based on your view of the available solutions. Put together a team of experts from various business functions and document both the scenarios as part of a serious organization-wide effort. Mapping your business goals to the implementation strategy is something you will need to do on a continuous basis throughout the ERP implementation, so select your team from a long-term perspective. At the end of the first phase of this exercise, you must have a “vision” document that will help your prospective ERP solution provider with defining the scope of the solution in the requirements gathering phase. Not just that, once you start talking to vendors who claim to have a “one-size-fits-all” solution or an “easily-customizable” solution, you will have your vision ready and documented to ask relevant questions about the features of that product. This exercise will go a long way in narrowing down the ERP solutions to one that’s best-suited for your business requirements.
Plan For the Evolving Business Scenario
While doing the “To-Be” analysis ensure that you project a scenario for your organization several months into the future. As is the norm, implementation may take months and even years to complete, depending on the complexity of the project. You don’t want to end up with a scenario where a change in business process or some new initiatives few months down the line were never considered while building the ERP solution.
Vendor Selection Process
ERP projects span several months, even years resulting in a long-term relationship with the service provider. There are two schools of thought when it comes to vendor selection. Many corporates believe that networking and lobbying must not qualify a vendor. That is to say, don’t choose a vendor just because your organization has dealt with them in the past, select according to the system that fits best to solve your ERP needs. However, some others believe that a past relationship and the resulting trust are important for the successful implementation of such a cost-intensive effort. It is recommended that you strike a balance between these two views. Proceed with your trusted vendor only after subjecting them to due diligence regarding their experience with a similar implementation and let the selection process be thorough (checking references and verifying claims etc.), just like you would do for a new service provider. Come to an understanding with your final vendor that they would be held fully accountable for their third party relationships (the vendors’ vendors) and obtain a sign-off on the entire scope for the end-to-end implementation.
The “vision” document will serve as the business case for enlisting leadership support for the implementation effort. Ensure that you have been guaranteed strong sponsorship from the beginning to the end of the project. Top management commitment and support are critical to the success of an ERP implementation.
Demonstration and Prototype Building
Vendor selection must be based on evaluations conducted after thorough demonstration of their systems. You can weigh the strengths and weaknesses of each vendor based on these demonstrations. Although most vendors would not show a solution or module that’s an exact fit for your needs, the demonstrated capabilities must convince you that their existing system can be easily evolved to suit your requirements. What you get to see must not be vastly different from what you need. Some vendors promise that they have very agile architectures that can be easily and quickly modified for your needs, in which case you might want to ask for a prototype development for a small but reasonably complex module. You can then evaluate the vendor’s claims based on whether he is able to turn around the desired prototype in a reasonable span of time.
Phased Implementation and Module Integration
Just as breaking down complexity makes it easier to handle, projects implemented in phases are easier to track and handle. Don’t go for an end-to-end solution just because the vendor tries to make it sound feasible. Go for a phased implementation and/or buy only the modules that you require for your business functions. Go for the big bang approach only in case of modules that need to be implemented quickly and urgently.
Project Team Selection
ERP implementation requires the knowledge of technology systems as well as the business functions. Ensure that you have a project team with reasonable expertise on both counts. Familiarity with the technology of the service provider would undoubtedly be a great advantage. The project must be entrusted to a project champion with excellent leadership traits including business, technical, managerial and project management skills. Remember that the stakes are high and you most certainly need someone who can convey that message constantly across the project team. Based on the complexity of the project, you must consider hiring an ERP consultant.
Evaluate Total Cost of Ownership
Ensure to discuss the total cost of ownership while doing vendor evaluations. Remember that you’ll need to pay not just for the solution implementation but for customizations, scaling up of infrastructure, additional staffing and training as well.
An ERP implementation is a mammoth effort. Chances are few that you will be able to find a perfect solution or a perfect solution provider or vendor. Your success lies in identifying the best fit and preparing to evolve the solution along with the solution provider bearing in mind the pitfalls of any ERP implementation. The implementation phase will be followed by an array of change management processes that will help the realization of the projected benefits. It is only after all these activities are completed and the ERP system has been live for several months (or even years) that you can truly begin to measure the results that justify your choice of the ERP system.