This is the second in a three-part series regarding ERP System Selection.
Is your organization ready for an Enterprise Resource Planning (ERP) system? Choosing an ERP system may seem like an overwhelming task for those who have never gone through the ERP system selection process.
While most organizations can usually find a few staff members who have used an ERP system in a previous life or have even been involved with an ERP system selection, there are several reasons you will want to employ a third party to manage this process. Before we get to these reasons, let us start by answering three important questions and talking through some factors to consider when choosing a new ERP system.
What is an ERP System?
An ERP system is an integrated suite of software applications designed to automate processes and manage business functions. These business functions often include finance, human resources, sales, procurement, and manufacturing.
See my first article – Get Your ERP System Selection Right
What are factors to consider when choosing an ERP system?
Although each situation and organization are unique, here is a list of considerations that we discuss when doing an ERP system selection.
Functionality Alignment. You will want to understand how well the ERP system will meet your business requirements. You will want to understand the capabilities of each system you are considering, the existing modules, and the strengths and weaknesses of each compared against your high-level requirements.
Integration Capability. Your new ERP system will need to integrate with other systems. Common examples include interfaces with major banks, internal analytics tools, ability to upload spreadsheets, and integration with third party platforms like Salesforce.com. You will want to understand what integrations are already built and what might require custom code. Some systems also have flexible interface platform tools for integrations that you do not need now but may be required in the future.
Budget / ERP System Cost. Purchasing an ERP system is a significant investment. It is not just the upfront licensing and implementation cost you need to consider, but also the Total Cost of Ownership. What will the maintenance cost be? What is the licensing model? Will you need ongoing third-party IT support? Will you need to hire system administrators? How much should you allocate for implementation? The cost of the ERP is much more than just the software cost.
Configuration vs. Customization. Some ERP systems are designed for configurability, where some require customization to work in your environment. Customization typically takes longer and has more inherent risk while configurable systems have already been “field proven.”
Implementation Capability / Vendor Approach. When conducting an ERP system selection, you are not just evaluating the software, you are also evaluating the Vendor. You will want to get comfortable with the implementation capability and the vendor’s approach to implementation. The duration of the implementation, the time investment from your staff, whether you will need a dedicated full-time team, and similar factors will all play a role in your decision.
Cloud vs On-Premises. Whether an ERP system is cloud-based or whether your organization will host hardware on-site is often a consideration used to short-list potential vendors. In recent years, more organizations are choosing cloud-based solutions. If you are choosing the on-premises path, you should have well-thought through reasoning to support your decision and think through what it will take to build and maintain an in-house team to manage hardware.
Capability in Industry Vertical. Some ERP systems were originally designed for specific industry verticals (e.g., manufacturing) and have some inherent strengths in that vertical. You will certainly want to include in your initial list those solutions that are strong in your industry.
Scalability. An ERP system selection is a big decision your organization will be living with for the next ten years or more. If your organization is planning for growth, you will want to choose a solution that can grow with you.
Security. Security challenges are ubiquitous to today’s business environment, and you will want to understand how different solutions compare in facing these challenges.
The SaaS Model. Many ERP systems are now employing a Software as a Service (SaaS) business model. We regularly come across clients who do not understand SaaS. SaaS is not necessarily bad, but you should understand this model and the implications.
Credentials / References. Buyer Beware! Do your due diligence and do not let a good ERP Sales Representative take you for a ride. We employ tools like Gardner’s Magic Quadrant to help initially narrow the list of ERP systems; however, when you start narrowing the list further, make sure you do your homework.
Why should you employ a third-party ERP system selection consultant?
We strongly advise you to obtain assistance instead of attempting to manage the ERP system selection process yourself. Here are the top five reasons to employ a third-party ERP system selection consultant:
Acquire expertise you do not have. Hiring an ERP system selection consultant can bridge the internal gaps in knowledge, skill, and capacity.
Leverage selection accelerators. A third-party consultant has a structured methodology/process, tools, and templates, and you will not need to re-invent the wheel.
Eliminate internal bias. A third-party system selection consultant is not aligned with any specific solution or vendor. They are apolitical and have your best interest at heart.
It is a huge decision. You want to get it right. The total cost of ownership of an ERP system can easily reach seven figures. Due to this cost, it is a decision you will be living with for the next ten years or more. The ERP system selection process is not something which most organizations can afford to skimp. Hiring MSSBTA to be your guide is like buying an insurance policy.
Avoid the never-ending sales calls. This might sound funny, but are you prepared for the onslaught of sales representatives knocking down the door?
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