During ERP selection, companies typically see limitless possibilities in terms of potential improvements for their businesses. However, somewhere along the way, many projects fall short of expectations and ERP business benefits underwhelm executive expectations.

In fact, in our 2019 ERP Report many companies reported low benefits realization for benefits related to reporting, competitive advantage and technology enhancements.

In our experience, low benefits realization is often due to a failure to define expected benefits and align the company around common goals early in the project. In other words, organizational alignment is not a priority for many companies during software selection. More often, companies are desperate to quickly find a new ERP system that addresses their pain points, so they lose sight of their business goals.

While staying focused on benefits realization is not easy, we’ve found several strategies that help companies realize significant benefits from their ERP projects. These strategies are most effective when initiated before or during ERP selection.

Contents

1. 8 Strategies for Realizing Business Benefits

2. How ERP Software Improves Process Integration

3. How ERP Software Improves Your Competitive Advantage

4. How ERP Software Improves the Customer Experience

5. How ERP Software Improves Operational Efficiency

6. How ERP Software Improves Regulatory Compliance

7. How ERP Software Improves Business Intelligence

8. Conclusion

8 Strategies for Realizing Business Benefits

1. Understand Your Current State

You can realize many business benefits by addressing pain points in your current processes. This is why we help clients map their current state before beginning ERP selection.

During process mapping, it’s important to capture the right amount of detail. For example, you’ll need to document how long a current process takes in order to measure improvements post go-live.

As you identify pain points, you’ll find opportunities for improvement. This is the time to start thinking about how to both fix broken processes and innovate mediocre processes.

2. Outline Expected Benefits and ROI

When embarking on ERP projects with clients, we typically help them clarify their overall business goals, so they can determine how ERP software can support these goals. This leads to a discussion about business benefits – what benefits can technology deliver that support the company’s big picture strategy?

The only way you can answer this question with any specificity is by designing future state processes based on the improvement opportunities you identified while mapping your current state. We recommend designing future state processes based on both your business goals and your pain points.

While business process reengineering is a time- and resource-intensive undertaking, it enables you to quantify expected business benefits. For example, it enables you to quantify the time and cost difference between a current state process and a future state process.

Once you’ve estimated all expected business benefits, it’s time to document your findings. One of the most effective tools for documenting business benefits is an ERP business case. This tool is more than just a means to justify the project to executives. It also is used for setting key performance indicators (KPIs) and tracking them throughout the project and post go-live.

The first step in successful use of KPIs is to understand one core concept: every KPI is a metric but not every metric is a KPI. Essentially, KPIs are the metrics which best define the success of a process or function.

For example, we had a client that defined preventative maintenance on their critical equipment as the percentage of the following ratio: (Number of preventative hours performed per machine) / (Number of hours recommended by the manufacturer of the machine). They were shooting for a score above 95%, and they crafted a concise and meaningful KPI that would help them predict the future performance of critical machinery.

In addition to KPIs, a business case also should focus on estimated costs as well as expected ROI. While you can estimate ROI without focusing on a particular ERP vendor, many companies will re-calculate expected ROI once they’ve evaluated several enterprise systems. Ultimately, though, your ROI will depend more on your project execution than your choice of ERP vendor.

In fact, your ROI depends most heavily on the quality of your business case. The most effective business cases outline specific, measurable ways a new system will improve the business.

In contrast, we see many companies justifying their ERP purchase by pointing to issues with their legacy system, such as a lack of scalability or a decrease in vendor viability.

While these are legitimate reasons to implement a new system, they must be accompanied by more ambitious goals. You don’t just want to maintain the status quo – you want to innovate!

3. Ensure Organizational Alignment

Your company not only needs clearly defined business goals and project goals but also an understanding of how they tie together. Everyone in the company needs this understanding, especially executives.

To achieve this understanding, we recommend using your business case to gain executive buy-in, and then forming an executive steering committee. This committee should be highly involved in the project, especially when it comes to communicating project goals across the company and holding process owners accountable for achieving these goals.

When executives communicate how project goals tie into business goals, business benefits become more achievable. For example, a common, business-related reason that companies implement ERP software is to improve their data insights. When executives explain how technology can enable this business goal, your team is more likely to select the right software and migrate the right data. In addition, your employees are more likely to follow procedures that promote data accuracy.

4. Develop a Realistic Project Plan

One of the key lessons from our dozens of software expert witness cases is that unrealistic expectations often is one of the main causes of low benefits realization and ERP failure.

Many companies inaccurately estimate the time, budget and resources required to effectively implement an ERP system – and so do their ERP consultants, system integrators and VARs.

The best way to avoid this pitfall is to leverage an independent consultant, such as Panorama, to help define a realistic project plan. One of the ways we help clients develop realistic project plans is by benchmarking against other companies similar to theirs.

We also ensure companies include overlooked activities in their project plans, such as change management and business process management. These activities help companies realize more business benefits.

5. Focus on Change Management

You can’t realize business benefits if end-users aren’t prepared to use the new software. This is why it’s essential to communicate with and train employees as early as possible.

We use organizational readiness assessments to help clients identify resistance to change early in the project, so they can proactively address it. The organizational readiness assessment leads to the development of a change management plan that reduces change resistance and helps employees understand how their individual processes support project goals.

6. Think Twice About Changing Your Goals

Every change order, request for customization or scope adjustment must be viewed through the lens of your project goals. If it can’t be justified within the parameters of those goals, either the goals or the request must be adjusted. In most cases, you should adjust the request.

For example, you wouldn’t want to change a goal from “Standardize all accounting and finance functions across all sites,” to “Make sure A/P can access the approved vendor lists.” After all, with all the time, money and effort that goes into implementing an ERP system, you should at least try to maximize your ROI.

When you start getting internal pressure to customize your system, let your business case and ERP project plan be your guide.

7. Continually Measure Benefits Realization

Identifying gaps between projected benefits and actual benefits throughout the project helps managers understand what they are doing well and how they can improve.

Root cause analyses can identify the causes of these benefit gaps. A common root cause is end-users using workarounds because they don’t understand the importance of using the new technology. In cases like this, follow-up end-user training and enhanced communication can bridge benefit gaps.

Many companies designate KPI owners as the people responsible for measuring benefits, identifying root causes and implementing corrective action. The ideal KPI owner is familiar with the processes being measured, has a stake in their success and has the leverage to address lagging performance. In general, department managers are the ideal candidates for overseeing performance metrics for their respective departments. 

In addition to ownership at the functional level, executive ownership of aggregated KPIs at the organizational level is necessary to achieve a holistic view of performance and drive accountability.

It’s also important to measure benefits post go-live. While the ERP project team will most likely be tired and ready to move on with their lives, successful ERP projects never end.

8. Continually Improve

If your company is focusing on business process management as part of your ERP project, you likely understand the importance of continuous improvement.

Business process management is an ongoing process that continues after go-live, so your ERP system should continue to evolve, as well. This ensures long-term alignment between your people, processes and technology.

If you’ve implemented a scalable ERP solution, then long-term alignment should be achievable. However, it is not easy.

One of the ways we help clients ensure long-term alignment is by creating an ERP center of excellence focused on continuous improvement.

 

Now that you know how to maximize benefits realization, you’re probably wondering what type of benefits you should expect. The remainder of this post will discuss some common ERP business benefits and provide advice on how to achieve them.

How ERP Software Improves Process Integration

Within any company, there are bound to be organizational silos. Whether your company has data silos or cultural silos, implementing ERP software may be one of the best ways to break through these isolating barriers. In fact, many companies pursue ERP projects to better integrate siloed functions like customer service, production, accounting and sales.

Silos often are created is when different departments and job sites use different technology and processes for inputting and analyzing data. This inconsistency creates silos of unstandardized, unreliable data.

However, implementing an integrated ERP system enables shared data from any department to be immediately synchronized across all departments and locations. For example, if the sales department signs a contract to sell 500 units, ERP software can communicate this to manufacturing ensuring inventory can be checked and the job can be scheduled.

Silos are not just a problem in terms of data, but they can also slow down an ERP project. If your company is siloed, then different departments, workgroups and locations likely will struggle with key activities, like outlining business benefits that make sense for the whole company.

Therefore, it is essential to begin breaking down organizational siloes before ERP selection. While ERP software will help further break down silos, the foundation you lay during business process management is critical.

Following are three tips for beginning to break down organizational silos:

1. Standardize Your Processes

Your company’s different locations will have different business processes, some of which will need to be standardized. Other processes should be localized to fit the needs of each separate entity.

Striking the right balance between standardized and localized processes is crucial when a company wants to maintain its competitive advantage, which may differ slightly depending on the geographic location.

In general, though, standardization is beneficial for many business processes, especially financial processes.

2. Integrate Your Processes

We recommend an approach to business process management, called value stream mapping. This approach helps our clients depict the interaction between functions and eliminate non-value-added processes.

When improving your processes, you should involve employees from across departments to gain an understanding of the upstream and downstream interdependencies between processes.

3. Ensure Employee Buy-in

Employees are more likely to adopt processes that eliminate silos when they understand how these processes benefit them personally and the company overall.

Therefore, it is important to communicate to employees the value of cross-departmental collaboration. This ERP communication should be informed by a comprehensive organizational change management plan.

How ERP Software Improves Your Competitive Advantage

Most modern ERP software has innovative functionality in areas such as manufacturing, business intelligence and analytics. However, this functionality is likely to get watered down if your primary goal is to simply replace your current system.

How can you ensure you’re gaining competitive advantage from your ERP software? The answer is business process reengineering.

Business process reengineering is most effective when conducted before ERP selection. This ensures you don’t blindly adopt an ERP vendor’s industry best practices but only adopt them where they improve your competitive advantage.

In many cases, industry best practices may decrease your competitive advantage because your competitors who’ve implemented a similar system may be using the same best practices.

While improving your processes, it’s important to look for inefficiencies in your customer- and revenue-related business processes to identify opportunities to improve your competitive advantage.

Once you’ve documented your future state and gathered your ERP requirements, you can begin contacting ERP vendors. When helping clients evaluate vendors, we ensure clients have clear goals and priorities, so they know what to look for in a system.

For example, if a client knows that customer experience transformation is a priority, they’ll know to focus on ERP vendors’ CRM and advanced demand planning functionality.

If you’re hoping to improve your competitive advantage through ERP software, then it’s important to focus on CRM functionality and other functionality related to the customer experience. In fact, competitive advantage is a high-level business benefit that is typically achieved through more specific business benefits, like improving the customer experience.

How ERP Software Improves the Customer Experience

Good customer relationships don’t just happen. They are a byproduct of strategic processes at several stages of the engagement continuum. Each of these processes should be managed by an integrated ERP system.

Here are five ways an ERP system can improve the customer experience:

1. Customer Management

Managing customer relationships is a vital component of the order-to-cash process. The best way to handle customer relationships, especially for mid-size and large companies, is to look for an ERP vendor that incorporates master data management (MDM) and customer relationship management (CRM).

While the MDM and CRM can be used together, they could also be two different modules with two distinct purposes.

An MDM module can ensure consistent and reliable customer information is gathered, housed and retrievable by internal stakeholders. That information can include key pieces of data such as order history, company history, credit information, locations, key contacts, annual revenue and more. It can be thought of as a catalog of all relevant data about that customer.

The challenge many companies have when implementing an MDM module is compiling all necessary data from each customer. The information may already exist in some form but could be scattered in various locations and formats.

If information is scattered, then identifying and consolidating that information into a single resource is necessary. Once consolidated, that information is available to all internal stakeholders and modules through integration.

While MDM compiles overall data about a customer, a CRM solution enables sales staff to track prospect and customer interactions in order to identify opportunities. For companies that have more than a handful of customers, manually tracking of every interaction is nearly impossible.

Only a CRM system can consolidate trends, opportunities, preferences and financial data. This allows companies to better plan revenue projections and budgets.

Many of our clients are seeking better data insights that they can use to improve the customer experience. We often walk these clients through business process reengineering to ensure their processes are aligned with their digital strategy.

2. Order Management and Fulfillment

An order management system (OMS) allows companies to track the status of every customer order at every stage. By understanding when orders are being entered as well as how and when they will be fulfilled, a company can better manage customer relationships.

An OMS can also help a company manage different shipping options, warehousing and multiple currencies. During ERP selection, be sure to look for a system that can . . .

• Improve customer relationships – The customer experience can be greatly enhanced by enabling a better ordering process, faster delivery and more accurate invoicing. The more enhanced the experience, the more confidence customers will have when placing an order. If an issue with an order does occur, an OMS allows staff to quickly identify and correct the problem.
• Maximize working capital and cash flow – An OMS reduces errors, increases the speed of order fulfillment and enables more accurate billing. As a result, a company can experience improved cash flow and greater working capital.
• Enhance supply chain efficiency – An OMS can provide valuable insight into inventory, workflow, pricing and market trends. This can lead to greater organizational efficiency and facilitate proactive decision making. From a supply chain perspective, an OMS may help reduce costs due to leaner inventories and an understanding that products and materials can always be sourced quickly from other reliable providers.
• Improve staff management – By allowing customers to place orders online in a way that is connected to an ERP solution, the company can better manage its staff. Automating the ordering process will funnel customer requests into the operation where resources are then allocated to ensure the operation is properly staffed. Handling orders this way enables companies to better meet customer expectations.

3. Credit Management

Incorporating a credit management component into your ERP system allows for transparency, helping you adhere to an approved set of terms for each customer. Without such a credit management policy and overall credit philosophy incorporated into an integrated ERP solution, companies put themselves at greater risk by possibly extending credit terms to customers that may be unable to pay.

While many companies mistakenly place the responsibility solely on customers for unpaid debts, quite the opposite should be true. It is often the lack of a clear credit policy within a company that results in late or unpaid invoices.

In the same way that fences make for better neighbors, a clear and actionable credit policy incorporated into an ERP system makes for better customer engagements.

4. Invoicing and Accounts Receivable

When submitting invoices to customers, leveraging technology and incorporating some form of automation is preferred over manual submission. Automation allows for better tracking and helps companies get paid more efficiently.

A robust ERP solution should incorporate some form of invoice automation, ideally via a method that submits the invoice directly into the ERP software. This helps eliminate errors and delayed payments.

ERP solutions can provide comprehensive accounts receivable reporting, tracking the progress by which invoices are submitted and ultimately paid. This capability can help companies identify and eliminate possible invoicing errors well before they get to the customer.

5. Payment and Cash Application

Almost no other segment of the order-to-cash process requires more attention than customer payment and cash application. These two processes are vital to the health of every business. Leveraging ERP software that can manage these two areas will go a long way in ensuring on-time customer payment and accurate application of that payment to a customer’s account.

While the payment process may sound straightforward, it’s a challenge for many companies. Even after a new system is implemented, optimized processes may be difficult to maintain. This is because employees often resist new processes and cling to the old way of doing things. We employ change management techniques to help clients mitigate this challenge.

 

Here are three ways to ensure your new ERP software improves the customer experience:

1. Understand How Data is Shared Across the Company

If the sales and marketing departments are “out of the loop,” they are missing key metrics that can be used to engage customers and drive sales.

We recommend collaborating with key stakeholders to ensure they provide input on the data they need and can devise ways to make the most of this data.

2. Ensure Data is not Just Focused on Existing Customers but Also Potential Ones

Modern ERP systems allow you to track how potential customers are engaging with your company across a variety of platforms. Using this information, you can deduce how that engagement is leading to sales.

In an ideal world, this information wouldn’t be trapped in the marketing department but available across the company via an integrated ERP system. This data visibility would allow your company to improve processes to best meet customer needs.

3. Track and Communicate Metrics That Differentiate Your Company

It’s important to look at metrics not just in terms of how they impact your company but how they impact customers.

For example, metrics like time and cost of production or customer service response times directly impact customers. Communicating these metrics to customers should be a priority for your marketing, sales and customer service teams.

How ERP Software Improves Operational Efficiency

Many companies have a hodgepodge of inefficient business processes and legacy systems. New ERP software can often fix these problems, but only if you define and improve your processes before ERP selection.

Defining your future state – along with performance metrics and transition plans – will ensure you realize business benefits related to operational efficiency.

Here are just a few examples of areas where companies often increase efficiency as a result of their ERP project:

1. Data Entry

ERP software can automate data entry. This is beneficial because manually entering data not only takes copious amounts of time, but it puts companies at risk for several other inefficiencies. These include data inconsistencies, data silos and difficulty providing timely compliance reports.

2. Inventory Cycle Times

If you’re holding too much inventory, ERP software can help you more accurately predict demand. This can help maximize resources and cash flow.

3. Customer Relationship Management

When you implement an integrated ERP system, many functions are combined into one platform. This means employees spend less time researching questions for clients, less time switching between systems and less time tracking down invoices and payments.

 

Overall, the automation of manual tasks and the improvement of inefficient processes can result in significant labor cost savings.

In addition, efficiency can increase employee morale. While this seems ironic considering employees’ fears that they will be automated out of their jobs, it actually makes a lot of sense.

In fact, instead of reducing headcount as a result of automation, many companies reallocate employees to higher-level tasks. In other words, mundane tasks become faster and easier giving employees more time to focus on more engaging work.

While employee morale may be a bit tougher to measure than most business benefits, you can always measure your turnover rate and absentee rate to get an idea of employees’ work satisfaction. A reduction in both of these areas equals cost savings. This is not to mention that happy employees are more productive, leading to additional efficiency gains.

How ERP Software Improves Regulatory Compliance

While Sarbanes-Oxley (SOX) and regulatory compliance are often one of the last things on the minds of CIOs, it becomes very important when it’s time for that first audit of your business operations and systems. For this reason, it is important to design processes that promote compliance, and find an ERP system that can support these processes.

Fortunately, most ERP systems are pre-configured with best practices for the regulatory needs of a variety of industries. However, an ERP system alone will not ensure compliance. Your company also needs to focus on business process management.

Here are three tips for ensuring your ERP system meets your compliance needs:

1. Consider Compliance When Mapping Your Processes

Business processes need to be defined in a way that ensures that financial oversight, segregation of duties and other compliance needs are addressed.

We’ve seen too many companies treat SOX and regulatory compliance like an afterthought, only to have their auditors raise red flags after the system is already in production.

This challenge is further magnified by the fact that most modern ERP software solutions are very flexible and can perform business functions several different ways. Some of those processes are going to be compliant with your compliance needs, while others are not.

2. Focus on Change Management

Contrary to popular belief, ERP systems can’t always force compliance. While they can make it easier to enforce segregation of duties, financial oversight and approval workflows, they can’t close off every possible loophole.

Fortunately, there are several change management activities that can help employees understand the need for compliance and help enforce new processes.

Our clients have found their business processes to be much more efficient and compliant as a result of the change management guidance we provide.

3. Involve Your Auditors Throughout the Project

Just as executives and employees need to support the project, your internal and external auditors also need to have buy-in.

For example, auditors should validate key process controls during the testing and user acceptance phases of the project. In addition, auditors should perform a formalized compliance audit as part of a post-live benefits realization audit.

How ERP Software Improves Business Intelligence

Many ERP systems provide business intelligence by gathering data and organizing it into actionable analytics. This business intelligence can provide better insights into your company’s financial position and help you make informed decisions. Not only does this result in increased capital, but it can create a company culture of visibility and trust.

We recommend looking for business intelligence functionality that ensures data integrity and increases data visibility between departments.

How do you make the most of business intelligence? Following are five tips:

1. Develop a Data Migration Strategy

Many companies focus on simply migrating old data from their legacy systems to the new ERP system. However, it’s important to ensure that the data in the new system supports new business intelligence capabilities. This is not possible without a strong ERP data migration strategy.

Developing a data migration strategy helps you identify and locate essential data that doesn’t exist in your legacy system. For example, your legacy system may not have the historic sales information in the format required to support advanced demand planning.

2. Understand What Insights Different Stakeholders Need

When deciding what data to migrate from old systems, we recommend focusing on both business- and technology-related data.

This is important because CIOs often have a very different vision of business intelligence than other executives. While CIOs focus more on internal support types of metrics, such as average system downtime, CFOs and COOs are more concerned with inventory levels and other more business-driven metrics.

3. Focus on Business Process Reengineering

Just because business intelligence capabilities deliver more possibilities doesn’t mean the capabilities themselves will deliver the actual results. In fact, business process reengineering is the real key to driving data insights.

Business process reengineering is important because it ensures processes are designed to ensure the right data is being captured and utilized. 

While real-time data can help you optimize your supply chain management, it can only do so if the right data is flowing to the right people.

4. Focus on Change Management (Again)

This bears repeating a third time because it’s that important. When it comes to business intelligence, change management is important because employees need to adopt new processes to enable new data insights.

For example, if you want data to drive better customer insights, then employees touching the customer experience need to be equipped to take advantage of these insights.

5. Carefully Evaluate ERP Vendors

It is important to understand whether your ERP system has robust business intelligence capabilities.

Some ERP vendors have light reporting capabilities that they oversell as true business intelligence tools. Other vendors have strong capabilities enabled by bolt-ons. Still, others have built-in business intelligence.

What Benefits are You Expecting From New ERP Software?

Most of our clients pursue ERP projects to address inefficient business processes, ineffective technologies and subpar customer service. These challenges are especially ubiquitous in companies that have experienced organic growth or growth through acquisition.

Whatever challenges your company is facing, it’s important to determine if these challenges warrant an ERP implementation. In other words, you should quantify your expected business benefits to determine if they outweigh the costs. You also should set KPIs and measure business benefits throughout the project to continually ensure the project will deliver a high ROI.

Panorama’s ERP consultants can help you develop a business case, align your company around expected benefits and measure benefits realization. We’ll help you maximize your ROI by ensuring a strong focus on benefits realization early in the project.

Selecting the right ERP software for your company can lead to numerous business benefits. However, achieving these benefits entails an awareness of software selection process best practices.

According to our 2019 ERP Report, only 8% of respondents were dissatisfied with their choice of ERP vendor. Vendor satisfaction typically indicates that a company chose a system that resulted in measurable ERP business benefits.

Clearly, the secrets to successful selection are spreading like wildfire. If you haven’t heard them, we’ve outlined them for you here.

Contents

1. Don’t Assume You Need a New ERP System

2. Don’t Forget About Your Incumbent ERP Vendor

3. Focus on Business Process Management

4. Consider Multiple Criteria

5. Set Realistic Expectations

6. Don’t Forget About Your Millennial Employees

7. Carefully Manage ERP Vendors

8. Hire an Independent ERP Consultant

Here are eight best practices from our experience evaluating hundreds of ERP systems for our clients:

1. Don’t Assume You Need A New ERP System

If your business strategies or business processes are flawed, even the most advanced ERP system will be useless.

For example, if you want to improve your customer experience, you don’t necessarily need a new ERP system. In fact, there may be more cost-effective and lower-risk options, such as improving processes, redesigning your organizational structure or consolidating your global supply chain.

When you don’t assume you need new ERP software, you’re more likely to look for specific justifications for ERP since you’re not assuming it’s an obvious choice. Specific justifications are exactly what executives need when deciding to invest in ERP.

So, consider ERP as an option, not a mandate. Then, you will be motivated to outline specific benefits you hope to attain. In other words, you will be well on your way to developing a compelling business case.

A business case should not only outline business benefits but costs, as well. These might include hidden costs, such as internal project resources, data conversion and lost productivity immediately following go-live.

While you may want to contain costs, it’s more important to be realistic as this will ensure an on-time, on-budget project. A business transformation is one of those situations where you get what you pay for, so you should defend what you need to spend and not feel guilty about it.

 

2. Don’t Forget About Your Incumbent ERP Vendor

We regularly work with clients who want nothing more to do with their current ERP solution. In many cases, end users have an overwhelming impression that the old system doesn’t work. 

The reasons for this perception often have little to do with the software itself. More often, discontent is related to the fact that the system was poorly implemented, employees were not adequately trained or the business processes are broken.

Before end users convince you to invest in a new system, you may want to consider some reasons to stick with your incumbent ERP vendor:

Upgrading your ERP software can provide immediate business improvements.

Most ERP vendors make several enhancements throughout any given year, so if you are even just a year behind on upgrades, you may be missing out on key functionality that may address your current pain points.

Several software vendors have acquired other enterprise or point solutions.

ERP vendors have achieved growth through acquisitions over the years, so your current vendor may have products in their portfolio that you are not aware of. In addition to core ERP software offerings, many vendors are acquiring and integrating advanced point solutions that could extend the functionality of your current enterprise system.

An upgrade can yield more cost savings compared to a replacement.

The cost of keeping a customer is lower than losing a customer, so your vendor may be willing to make many concessions on the cost of software licenses, maintenance and upgrades. Another reason upgrades can be less expensive is because your employees are familiar with the current system, so you will likely save on training costs.

Considering your current ERP vendor as a viable option provides more negotiating leverage.

Other vendors competing for your business will know that you don’t have to switch solutions to benefit from a modern ERP system. Therefore, they are more likely to reduce their costs to compete with a viable incumbent. They also understand that the potential cost savings of staying with your current vendor are enticing, so they may offer cost savings, as well.

3. Focus on Business Process Management

Some companies select the vendor with the slickest ERP demo and the coolest features. However, when they begin implementation, they quickly realize that the solution doesn’t meet their business needs.

Then, one of two things usually happens: 1) the company changes the way it does business so their processes work within the ERP system – which often means losing the processes that give them competitive advantage, or 2) the company customizes the software to fit its processes, which is extremely expensive and time-consuming – not to mention these processes may be flawed to begin with.

Preserving competitive advantage and minimizing customization are two reasons many companies begin selection by defining business goals, aligning stakeholders and mapping business processes.

Process mapping also is an opportunity to improve your operations and determine business requirements for a new ERP system.

What is a business requirement? Here are some examples:

• The ability to handle multi-currency
• The ability to track work in progress
• The ability to define discounts based on a contract assigned by a client

Software requirements gathering can be time-consuming, especially if you have multiple business units and multiple global locations. We recommend gathering ERP requirements for each location, while identifying which requirements can be consistent across locations and which should be unique.

Business process management not only entails requirements gathering but also requirements prioritization. It’s important to prioritize requirements because no ERP system can address every business requirement.

When prioritizing requirements, you should involve employees from all departments to determine the most important requirements based on business value:

 

• Must-have – Provides significant business improvements in terms of revenue, strategy and compliance and maintains basic functions of the business that “keep the lights on.”
• Value-added – Beneficial to improving business processes but not critical.
• Nice-to-have – Makes employees’ jobs easier but won’t necessarily provide significant business process improvement.

4. Consider Multiple Criteria

There are several other criteria besides business requirements, that you should consider in your selection project:

Organizational Alignment

The main reason you should be considering a new ERP system is to help you achieve your business goals. This should be the central focus of your selection process.

Technical Fit

It’s important to understand what servers, databases, PCs, etc. will be required to support any potential ERP solution.

IT Strategy

How does the technology of the potential ERP system align with the technology and infrastructure within your IT department?

Cost

While it’s in vendor sales reps’ best interests to downplay costs, it’s your job to validate their estimate. Does it include annual support fees and implementation costs?

Vendor Viability vs. Level of Service

On one hand, it is good to do business with an established vendor that you know will be around to support you in the future. On the other hand, there is value to doing business with a less established ERP vendor that may provide better service than a larger firm.

References

A vendor’s customers can serve as great references for evaluating the vendor’s products, support and services. Be sure to do your due diligence, read case studies and ask for references from customers with business needs similar to your own.

5. Set Realistic Expectations​

Your new ERP system should support your company for up to a decade, so it’s important to mitigate risk by setting realistic expectations.

In terms of timeline, remember that ERP projects rarely take as little time as software sales reps say. To get a more realistic estimate, we recommend developing an ERP project plan that includes activities beyond what vendors typically deliver. These activities might include overlooked items, such as business process design, configuration and customized end user training.

ERP implementation plans should always include training, communication and other organizational aspects critical to a successful project. For example, conducting an organizational readiness assessment prior to ERP selection will help you identify pockets of resistance and determine necessary change management activities.

Another aspect of setting realistic expectations is mitigating risk. We’ve all heard of the technical glitches that shut down shipping at Fortune 500 companies for weeks. This happens all the time at companies of all sizes. In addition, time and cost overruns are a common occurrence, as seen in our 2019 ERP Report.

In light of this grim reality, it’s important to develop a risk management plan that includes contingencies for ERP failure.

Being realistic about vendor sales hype also can help you avoid ERP failure. For example, how many times have you heard one of the following statements when researching ERP solutions?

• “We have the largest market share in your industry, so we are the right fit for you.”
• “Our software is cheaper and easier to implement than other ERP solutions.”
• “The whole industry is moving toward our type of solution, so you should, too.”

While some of these statements may be true in some cases, relying too much on broad generalizations is risky. Your company is too unique for any of these statements to have any bearing on your decision.

Panorama helps clients manage sales hype. We ask clients questions, such as . . .

• How are your business requirements different from those of your peers or competitors?
• How much time and money is it really going to take to fully implement ERP as a business solution, not just a piece of software?
• What are you trying to accomplish with your ERP solution?

These questions help clients delineate between sales hype and reality. This is important because we know how powerful sales hype can be. In fact, gut instinct is a common decision-making mechanism for most humans.

For example, some executives select software based on what competitors have chosen. Other executives have had a previous experience with a particular vendor and are partial toward that vendor.

Separating fact from fiction and business rationale from emotion often requires an independent assessment from a third party, like Panorama.

6. Don’t Forget About Your Millennial Employees

Have you ever considered which of your employees (non-decision makers) will have the greatest influence your ERP software selection? It may not be who you expect.

The largest generation in the American workforce is the Millennial generation. Depending on your industry, they likely comprise about 35% of your workforce. Naturally, this generation’s preferences and propensities will significantly influence your ERP software selection – if you put any weight on user experience when making IT decisions.

User experience is an important consideration during ERP selection as end-users across departments and across generations will use the new software. You have a lot of people to please.

While people pleasing isn’t generally a fruitful pastime, the rules change when it comes to ERP software. Your evaluation criteria should consider user experience as a factor equally as important as functional requirements and total cost of ownership (TCO). The risks of not considering user experience include low employee morale, low system usage and process inefficiencies.

The influence of the Millennial generation isn’t relegated to its size – its unique characteristics also contribute to its power. Millennials are “digital natives,” meaning they’ve never known life without digital technology. This unique characteristic makes them critical of technology that doesn’t meet their expectations.

For example, Millennials expect software to be intuitive, much like their favorite social media platforms. Their familiarity with social media also primes them to expect software features that promote collaboration.

They also expect accessibility – your ERP software better be mobile-friendly. If it takes more than two clicks to navigate somewhere, they may throw their laptop across the room.

If you want to gauge the more specific needs of your workforce, you can conduct anonymous surveys, encouraging employees to provide honest answers.

Many ERP vendors have accommodated Millennials by building user interfaces that resemble social media platforms, adding social collaboration features, improving their mobile-compatibility and reducing users’ click-fatigue.

Deciding to implement modern ERP software is the first step to meeting the needs of your Millennial employees. However, many companies avoid ERP projects because their legacy applications are “fit-for-purpose,” and seem too expensive to migrate.

Some of these companies resort to time-consuming workarounds to please Millennials. They’ve built new front-end applications to improve the usability of their software, while overlooking inefficiencies throughout the ERP software solution.

Meeting the needs of Millennial employees not only requires careful software selection, but it requires a focus on organizational change management. This should start during the selection process in the form of communication.

Even if you select the best ERP system for Millennials, they will still be resistant to it unless you communicate with them before implementation. This ERP communication should include details about project goals and potential process changes.

7. Carefully Manage ERP Vendors

Don’t let vendors control the selection process. If your vendor is exhibiting any of the following behaviors, consider it a red flag:

• Insists on conducting the demo and evaluation process their way, rather than your company’s preferred way
• Controls the tempo and pace of the evaluation process by requesting that they demo last or at a later date
• Bypasses working with your selection team, and tries to work directly with executives
• Creates doubt by criticizing your project team’s approach
• Cries foul by expressing concern that they don’t have enough time to prep or don’t agree with the selection process

These patterns are generally more common when the ERP vendor feels they are at a competitive disadvantage.

The following methods can be very effective in diffusing vendors’ attempts to control the selection process:

Ensure Vendors Understand Your Business

We recommend sending a request for information (RFI) to all the vendors on your long list. You should also provide vendors with a demo script to ensure they focus their demo on how their solution meets your company’s requirements.

Allow Vendors Access to Your Company’s Key Employees

While many sales reps prefer to build strong relationships with your executive team, they should also interact with your subject matter experts. Without this relationship building, key employees may refuse to participate in the selection process.

Evaluate Vendor Responsiveness

The ERP software you select should come from a vendor that listens and responds to your company’s needs. If a vendor is responsive during the sales process, they are likely to be responsive during implementation, and this is where engagement is especially important.

Remember That You Are the Customer, Not Them​

Whatever heartache a sales rep expresses, it is important to remain firm, have confidence in your evaluation process and demand that they earn your business on merit. You are not expecting too much by asking a vendor to demo their ERP system against your business needs rather than simply presenting their canned sales demos.

Coach Executives to Deal With Vendors

It is very likely that at least one vendor will bypass you at some point in the process and go straight to someone higher in the company. Your executive team should be coached on how to handle reps when they call. This might mean redirecting inquires to the ERP project team.

Let a Vendor Walk if Necessary

If a vendor thinks their chances of success are slim, they may walk away from the deal. Your company should allow vendors to self-disqualify. After all, it’s a bad sign if a vendor doesn’t have confidence in their product’s ability to compete.

Negotiate Aggressively

Some vendors will tout their discount rates when first showing you price tags. Don’t be fooled! There are always ways to negotiate even lower license fees and even better maintenance terms. Focus your ERP negotiations not just on short-term costs, but also on longer-term costs, such as future licenses, additional modules and long-term maintenance.

Clearly Define Scope

Make sure you understand what the vendor is and is not responsible for during implementation. For example, who is responsible for ERP data migration and end user training?

Find the Best Implementer

As strange as it sounds, software companies aren’t always the best implementers of their own software. In fact, you can often find better implementers at a lower cost by hiring a value-added reseller (VAR).

8. Hire an Independent ERP Consultant

Unfortunately, many ERP consultants are too quick to make recommendations based on biases, kickbacks from ERP vendors and lack of knowledge of various software solutions.

Independent ERP consultants, on the other hand, bring a neutral point-of-view to the selection process.

In addition to being independent, consultants should have experience in your industry. Industry-specific experience has many benefits for your company. For example, it enables consultants to determine which of your processes should be standardized and which should be differentiated.

An independent ERP consultant, like Panorama, will help you follow all the best practices outlined in this post. We’ll help you find an ERP system that aligns with your business goals.

In a time where businesses are undergoing major business transformations to stay competitive in a modern marketplace, companies are looking to ERP software and CRM software to make that dream a reality.

The two software suites are often discussed concurrently, making it difficult to understand the difference between them. If your business is trying to decide whether to implement a standalone customer relationship management system or a full ERP system, it’s important to understand some of the main differences.

Contents

1. ERP vs. CRM: A Real-world Analogy

2. What is a CRM System?

3. What is an ERP System?

4. Should You Select ERP or CRM?

5. CRM Implementation Tips

6. Conclusion

ERP vs. CRM: A Real-world Analogy

A simple, non-technical analogy to describe the difference between ERP and CRM software is the contrast between a cruise and a traditional vacation. Let’s say you want to take a vacation to the Galapagos Islands.

On a cruise vacation, transportation to and from the Galapagos is provided. Your lodging, food and entertainment are all included as well. The cruise line is aware of your itinerary while on the boat and informed of the scheduled times onshore. You could say your vacation plans are managed end-to-end by the cruise line with all activities and timelines seamlessly integrated – just like an ERP software solution.

While your plans are easily managed by a single entity, you may feel like you’re not getting the most out of the onshore excursions. Instead, a traditional destination-based vacation may be what you’re looking for.

Like a CRM system, specific tourist sights allow you to get the most out of your vacation. If you spend a good portion of your trip in the Galapagos, you may want to seek out the best attractions and tour companies. This is similar to the specificity of a CRM system.

Some people’s ideal vacation would be a mix of both options. Here you have the best of both worlds – a specific destination where you can take extensive tours and a cruise line to show you multiple destinations for a single price.

What is a CRM System?

CRM software’s core functionalities involve managing potential and current customer relationships. Powerful marketing tools like social media management, online promotional campaigns and automated emails are part of the CRM suite that fuels lead generation.

Once leads become customers, CRM software also manages the sales order creation and support processes, like help desk and call center. Business analytics, such as purchasing trends and loyalty metrics, are other out-of-the-box features.

At a high-level, most CRM systems contain the following feature sets:

 

• Marketing
  • Automated marketing emails
  • Online campaign management
  • Social media management
• Lead management
• Sales support
  • Call center
  • Order confirmation
  • Fulfillment inquiries
• Purchasing trends and analytics
• Loyalty management

What is an ERP System?

In contrast to CRM software, ERP software has a wide-ranging set of capabilities across all business operations. From managing payroll for your company’s employees, to creating a bill of materials for the goods you sell, an ERP system is designed to run your business from end to end without additional software packages.

ERP software is often used for its financial capabilities, including accounts receivable and payable as well as month, quarter and year-end reporting. ERP systems typically have the following modules:

• Accounts receivable
• Accounts payable
• Sales and marketing
• Purchasing
• Human resources
• Inventory management
• Warehouse and transportation management
• Product management
• Planning and production

Some ERP software is more specialized for specific industries, such as manufacturing or retail, and may have richer capabilities in those areas. A thorough comparison of several ERP vendors is necessary during ERP selection as each ERP system has its own strengths and weaknesses.

We advise our clients that their ERP software of choice must meet the majority of their ERP requirements to minimize the amount of custom code.

Overlapping Features Between ERP and CRM

Because ERP systems also contain customer management and sales functionality, there are a few areas in which the two software suites overlap.

Most ERP software allows a business to maintain customer data, create marketing campaigns, build quotations and generate sales orders. However, when it comes to supporting the marketing campaigns or tracking sales trends, CRM software has much richer capabilities.

Should You Select ERP or CRM?

This answer depends on two factors: what are your current business requirements and IT capacity, and what are your needs in the future?

If you are looking to streamline all your processes and replace an existing suite of non-integrated applications, an ERP system might be the solution for you. On the other hand, if you need focused capabilities to handle marketing and customer management, a CRM system is probably your best bet. For example, many CRM systems enable sales reps to use real time data to personalize customer interactions.

If neither of these scenarios describe your company, and you’re considering overhauling your entire IT landscape, then you may need both an ERP and CRM system with an integration between the two.

To help you decide, ask yourself the following questions:

1. Where could you find the most benefit: operational efficiency or greater sales volume?

The primary way an ERP system increases your profits is by improving efficiency. It does this by streamlining business processes and cutting overhead costs.

Compared to ERP systems, CRM systems are not as concerned with lean process improvement. Instead, the primary way a CRM system increases your profits is by increasing your sales volume. It does this by empowering employees with the tools to improve customer service and make bigger sales.

Could your company achieve a higher ROI by making your business processes more efficient than by increasing your sales volume? Then an ERP system may be a good choice for you – and vice versa.

2. Do you need a new financial system?

If your answer is yes, you probably need an ERP system. Unless your company is entirely made up of a sales and marketing model where all your requirements can be fulfilled by a CRM system, you likely need a financial system of record.

3. Does the ERP’s sales and customer management functionality meet your business needs?

If not, a deeper dive into your requirements is needed to determine which CRM vendor is best for you. If there is not a CRM vendor that seems to check all the boxes, an integration between both ERP and CRM may help bridge the gap.

4. Is your business ready to tackle an ERP implementation?

While an ERP implementation is a massive undertaking compared to a CRM implementation, ERP business benefits are significant. If your IT department has the resources and your business has the funding for an ERP project, it’s likely worth the investment.

5. Does your IT department have the capacity to develop integrations?

Having a CRM system isolated from your ERP defeats the purpose of having both. Luckily, many ERP vendors are starting to ship product with almost “plug and play” configurations to integrate with popular CRM suites. While this definitely helps expedite your ERP to CRM integration project, custom code often will be required to seamlessly integrate the two.

6. Is your project a digital transformation?

This is a good question to regularly ask yourself as it not only relates to the choice between ERP and CRM but your overall digital strategy.

Companies pursuing digital transformation intend to create new business models. These companies need a scalable ERP solution with a promising product roadmap. If this describes your company, it’s important to evaluate vendors’ product and company trajectory.

However, if you’re not pursing digital transformation, then a full ERP system with a significant number of modules may be overkill for your company. Instead, a CRM system may be a better fit. It might provide you with all the functionality you need, and you won’t have to pay for unused modules.

CRM Implementation Tips

CRM implementations entail the same level of organizational change, operational complexity, business risk and technical risk as traditional ERP implementations. There are several factors that can increase this level of risk, including integration with existing systems, data cleansing and migration, system stability, demand on hardware and networks, system compatibility and deployment options. 

Following are five tips for mitigating risk during a CRM implementation:

1.  Focus on Organizational Change Management

Most CRM implementation challenges are related to process and organizational change management issues. As such, your company should ensure that sales reps are committed to project goals and clearly understand new business processes.

In our experience, salespeople can be among the most change-resistant employees because of the extra work a CRM implementation creates and the temporary pull from their commission-generating activities. A change management plan is critical to mitigating this resistance.

2.  Consider Your IT Strategy

Your CRM implementation should be part of a comprehensive IT strategy. In other words, consider how your CRM system will integrate with other systems now and in the future.

For example, it’s important to determine how the CRM system will interact with inventory management, financials, product configuration, manufacturing and other functional areas.

3.  Remember That Your CRM System Doesn’t Need to Come From Your ERP Vendor

Many of our clients begin their software evaluation process with the expectation that one single ERP vendor will provide most or all the functionality they need. 

However, if CRM is critical to your business model and a source of competitive advantage, it may behoove you to consider a standalone CRM system to augment your core ERP software. 

4.  Understand the Integration Capabilities of Your CRM System

Simply because two systems integrate doesn’t mean they will integrate the way you want them to. For example, we have found that certain product configuration details desired by some sales teams do not integrate well without extensive customization and changes to CRM system architecture.

It’s important to understand how your CRM will integrate with other software, such as business intelligence, product lifecycle management, quality assurance and other point solutions.

5.  Don’t Bite Off More Than You Can Chew

Even though you’ll want to make a decision that’s best for your long-term enterprise solution, you don’t necessarily need to implement or even purchase various solutions all at once.

For example, one of our clients worked with us to procure and implement a CRM system in a separate phase well before they began planning their ERP implementation. We were able to implement and integrate their chosen ERP system in a later phase because we had previously helped them define a long-term IT strategy.

Selecting the Right Technology

Deciding between ERP and CRM software (or some combination of the two) can lead to some interesting discussions among executives and ERP project team members. It can be difficult to reach a consensus, or you may not feel confident in your decision.

Panorama’s expertise lies in understanding a company’s unique needs. Our ERP consultants will help you determine what type of technology aligns best with your business goals and digital strategy.

When companies decide to implement ERP software, they often jump right into ERP selection without taking the time to prepare. However, it’s important to first develop an ERP project plan based on realistic expectations.

Most vendors aren’t equipped to develop a realistic project plan because they don’t account for all the components of ERP success.

This post will help you set realistic expectations for ERP selection and implementation, so you can develop an effective project plan.

Contents

1. The Importance of Realistic Expectations

2. Why do Companies Have Unrealistic Expectations?

3. Realistic ERP Selection Expectations

4. Realistic ERP Implementation Expectations

5. Conclusion

The Importance of Realistic Expectations

We’ve found one of the most common causes of ERP failure is unrealistic expectations. Let’s look at a case study from an ERP lawsuit where legal counsel from one of the parties hired us to serve as a software expert witness:

The multi-billion-dollar company was sold a bill of goods that included software licenses and an implementation across more than 20 sites. They were told by their ERP vendor that by using industry pre-configurations, they could easily get their entire order-to-cash and procure-to-pay operations running on the new software in 18 months.

Even without knowing anything else about the company, you can guess that 18 months is extremely aggressive, unlikely and fraught with risk. So, how did their implementation pan out? Soon after the project commenced, the company found that many of its business requirements weren’t addressed by the off-the-shelf solution.

As a result, most of their processes required software re-configuration or customization. These activities weren’t accounted for in the original project plan. Less than a month or two into the project, it was already behind schedule.

The systems integrator also didn’t realize how significant the organizational change management needs were. This was a multi-site, multi-national company with different operations, cultures and business processes, so change management would have been essential. However, the systems integrator simply planned for a few employee newsletters and some end-user training a few weeks before each go live.

As the project wore on, milestones and expectations were missed, leading the executive steering committee to fire multiple project managers and team members. They put more pressure on the new team to complete the project on time, but they couldn’t succeed either.

In the end, the company was only able to get one pilot location live in three years (50-percent longer than expected). The processes were so broken, and employees were so poorly prepared that the company eventually abandoned the project and reverted to its legacy system.

Many companies, including this one, begin ERP implementation with the goal of selecting software that will deliver a high ROI. They soon realize the project is much more complex than they expected, and the benefits are much more elusive.

Why do Companies Have Unrealistic Expectations?

One reason for unrealistic expectations is that many companies are mainly focused on the technical aspects of implementation. If you want to achieve expected ERP business benefits, you must account for not only the technical aspects but the people and process aspects.

It’s important to watch out for a technology-focused mindset and other mindsets that lead to unrealistic expectations. For example, how many of the following statements sound familiar?

“We’ll get this implementation done in no time.”

Software vendors are notorious for over-simplifying the implementation process. Most sales reps don’t know what it takes to successfully implement software, but they do know they want to make the sale. As a result, they downplay the time, costs and risks of the project.

Make sure you’re not basing your timeline and budget on overly optimistic estimates. Instead, use benchmarks of what other companies similar to yours have achieved, which you can find in our 2019 ERP Report.

“This is going to change our whole business.”

Our research shows that only 19% of the companies that expected to realize benefits related to competitive advantage actually realized these benefits.

Realizing business benefits requires more than expecting them. They also need to be measured with metrics closely aligned with business processes.

Realistic ERP Selection Expectations

As you begin ERP selection, you’re probably wondering how long the process takes. In our experience, selection takes a minimum of fourteen weeks. Larger companies with multiple locations typically need at least sixteen weeks to select the right system.

You also may be wondering about the total cost of ownership of new ERP software. This depends on several factors, such as the number of licenses purchased and the chosen deployment model.

It’s important to note that the total cost of ownership doesn’t just refer to the cost of the software. It also includes the cost of implementation. According to our 2019 ERP Report, which included companies of all sizes, the average cost of an ERP project is about $1.3 million.

The key to setting realistic expectations for selection is understanding the activities that should happen before you even start contacting ERP vendors:

1. Ensuring Organizational Alignment

The key to a successful ERP selection is ensuring that stakeholders across your company understand and agree with the company’s strategic goals. Once you have organizational alignment, you can then consider how you might use technology to achieve business goals.

This isn’t the time to focus on specific technologies. Instead, you should focus on establishing a foundation to help you evaluate vendors based on their ability to enable your strategy.

You also need alignment around why you’re implementing new ERP software. Many companies decide to evaluate ERP systems because their current system cannot scale to support the company’s growth. However, this reason alone doesn’t justify an ERP investment. You must be able to articulate how a new ERP solution aligns with your business goals.

In many cases, ERP software will not solve your business problems. If your business processes are flawed, even the most advanced enterprise system isn’t going to help.

If you find that ERP is not the best path forward, there may be more cost-effective and lower-risk options. Consider improving your processes, redesigning your organizational structure or consolidating your global supply chain.

2. Developing a Business Case

What business benefits do you expect to realize from new ERP software? What are the expected costs? Knowing the answers to these questions is critical to justifying an ERP investment when executives ask about ROI. (You can use our ROI Calculator for a rough estimate).

To really win over executives, your business case should outline exactly how new technology will enable your company’s strategic goals. Armed with this powerful tool, you can convince executives that new technology is a wise investment.

3. Building a Selection Team

More than a quarter of respondents in our 2019 ERP Report cited resource constraints as a reason why their projects took longer than expected. In addition, more than a quarter cited these constraints as a root cause of their budget overruns. It’s likely that many companies beginning selection aren’t dedicating adequate resources to the selection process.

At this early stage, you don’t have a statement of work from a vendor, so you can’t determine all the resources you’ll need on your ERP project team. However, you do know some of the resources you’ll need. These are your selection team members. They are involved in all the activities that precede ERP selection, all the activities during selection and many of the activities throughout implementation.

4. Mitigating Change Resistance

As soon as you’ve made the decision to implement new ERP software, you need to inform employees. You may not know what specific technologies will be involved, but it’s never too soon to start communicating the goals of the upcoming project.

As simple as this sounds, all ERP communication should be strategic, so we recommend beginning to develop a change management plan before selection. By evaluating your organizational culture and employees’ openness to change, you can develop a change management plan that guides your communication.

Our clients have found that strategic communication increases employee buy in throughout the project. This is especially critical before selection. It enables employees to provide useful input, which further increases buy in.

Employee buy-in also is critical during and after implementation. In fact, companies that experience “software issues” after implementation are often just experiencing the effects of low employee buy in. Starting change management early can maximize system usage after go live, ensuring the software brings the expected business benefits.

5. Mapping Your Current State

Many companies do not have clearly defined processes, but as they begin an ERP project, they realize the necessity of business process mapping.

It’s important to map your business processes before selection because of the dangers of out-of-the-box functionality. While out-of-the-box functionality can bring efficiency, it can only do so in areas that don’t already bring your company competitive advantage.

For example, if your company has figured out a way to ensure every widget comes off the line 25 minutes before your competitor’s widgets, you should make the software fit that process.

Mapping current state processes helps you preserve your competitive advantage by documenting specific ERP requirements. While no ERP system will address every requirement, process mapping helps you prioritize these requirements.

Process mapping also helps you determine who owns processes and data, so you know who to involve in the selection process. We recommend involving stakeholders from all departments. This collaborative approach results in process improvements that align with your business goals.

6. Improving Business Processes

While some processes may only need incremental improvements, others may need a complete overhaul. In other words, they need business process reengineering.

This is an approach to business design that focuses on breaking down functional silos and providing end-to-end process understanding. It involves thinking about the purpose of each process and the hand-offs between functions.

Ultimately, this approach builds process efficiencies that will guide your ERP selection. If a system can’t support your optimized processes, then it’s not right for your company.

While business process reengineering can increase your selection timeframe, saving this activity for the implementation phase will be more time-consuming and costly.

7. Understanding Deployment Options

Lately, ERP vendors have increased their investments in cloud and SaaS ERP. As a result, many companies who’ve been partial to on-premise software are now considering moving to the cloud.

While vendors may claim they will only support cloud solutions in the future, we have found this is purely a sales tactic. Cloud ERP is more profitable for vendors, so they provide higher compensation to sales reps who successfully sell cloud technology.

The truth is, on-premise software isn’t dead. We work with several VARs and system integrators that still sell and support on-premise solutions. These solutions are viable. In fact, some have ten- to twenty-year roadmaps, which is great news for their large install bases.

If you’re considering on-premise software, it’s important to note that you don’t necessarily have to host it on premise. In fact, you can host it in the cloud, which is convenient for many resource-constrained companies that require less IT control. In contrast, complex companies that need heavy IT control, generally gravitate toward on-premise hosting.

Some companies choose cloud hosting for some but not all their business functions. This is called hybrid hosting. In these situations, companies keep their back-office functions on-premise and host functions like sales and marketing in the cloud.

Different deployment options each have their risks and benefits. Your decision should depend on your company’s unique goals.

8. Developing an IT Strategy

In addition to deployment options, there are several other IT strategy decisions to make before ERP selection.

For example, you’ll need to determine an integration strategy – do you want a single enterprise system or several best-of-breed systems? While best-of-breed ERP systems can help you build competitive advantage, they also can create technical complexities, integration challenges and data issues.

Many companies implement single ERP software solutions because they enable standardization, which can reduce change resistance. However, single ERP systems don’t allow you the flexibility to choose the best software for each of your functional areas. This means you might need more software customization, which is costly.

Before developing an IT strategy, you need to understand your company’s strategic goals. This gives you a lens through which to evaluate your current IT systems and infrastructure. Understanding your current state is essential as you’ll need to determine how new ERP software will integrate with your current IT infrastructure.

While assessing your current state, you should ask stakeholders from across the company what needs to change to enable business goals.

Focusing on strategic goals keeps you focused on the big picture. For example, when selecting best-of-breed software, one mistake many companies make is looking for software for one particular functional area without considering other areas.

While all your business functions may not be in need of improvement at this current juncture, they likely will require new technology in the future. The functional area you’re focusing on now needs technology that will align with technology you implement in the future. If you define your long-term IT strategy, you will know what to look for in a standalone CRM system or HCM system.

9. Developing a Data Migration Strategy

ERP data migration is often put off until the end of the project. After all, how hard can it be once the system is designed and tested?

Actually, it can be quite difficult. Data doesn’t always map correctly, and the system doesn’t always handle the volumes of data it needs to. In addition, decision makers aren’t always clear-headed enough at the end of a project to decide what data to move to the new system.

This is why it’s essential to develop a data migration strategy before software selection.

Realistic ERP Implementation Expectations

The first step to setting realistic expectations for an ERP implementation project is understanding the scope of change. You also should determine the role technology will play in your project.

At one end of the change spectrum, technology is used to support existing processes. At the other end of the spectrum, technology enables process redesign and supports changes to your company’s business model. In the latter case, technology is not the focus of the project. Instead, the ERP project team focuses on transitioning people and processes.

Many of our clients pursue projects focused on people and processes. Before they select ERP software, we help them define a corporate strategy. We also help them design new business processes to support this strategy.

Reengineered business processes mean new roles and responsibilities for employees. Companies at this end of the change spectrum should expect to spend a significant amount of time and money on business process management and change management.

If you’re not sure what level of change your project entails, ask yourself why you’re implementing new technology in the first place. Maybe you’re changing your business model or expanding into new markets. If so, your ERP project could be more aptly called a business transformation – an initiative that entails significant changes to people and processes.

Once you’ve determined the scope of change, how can you ensure your expectations are realistic? Following are eight best practices we use with clients:

1. Develop a Business Case

Companies use business cases to justify their ERP investments by estimating their return on investment.

If you’ve already defined your strategic goals and identified opportunities for improvement, you have a good starting point for developing a business case. Based on this information, you can estimate the cost savings you’ll see from automating a manual process and tie this back to one of your business goals. This is the type of information executives like to see when evaluating a business case.

While committing to a precise dollar amount can be risky, you can have confidence your estimates are achievable by benchmarking against projects at similar companies. Objective project audits from an independent third-party, like Panorama, also can give you confidence that your estimates are achievable.

So, what performance metrics are important to your business? These should be included in your business case and used as key performance indicators throughout the project.

2. Communicate With Executives

Presenting a business case to executives should not be the only communication you have with them throughout the project. Executives should be involved in other project activities, especially areas like change management.

Executive involvement not only increases employee buy in, but it ensures executives maintain realistic expectations. We recommend regularly meeting with executives to update them on issues that might affect expected results.

3. Don’t Believe Sales Hype

Vendor sales reps are notorious for giving anecdotal examples of the one in a hundred customers that implement in a short period of time. However, those examples are rarely relevant to your organization.

Vendors are only providing one data point out of thousands of ERP projects each year. This is hardly the type of statistically significant data you want to bet your ERP investment (and career) on.

4. Consider Internal Staffing Needs

While internal resources are critical to help with process design, system testing and a host of other activities, few vendors fully understand how many internal resources you’ll need.

As you’re building your own implementation plan, it will become clear what internal resources you need for each project phase.

5. Ensure Strong Project Governance

Implementations often take longer than expected because the implementation team isn’t leveraging effective project controls or instituting the appropriate project governance.

Customization requests, scope increases and other unexpected scenarios can cause your timeline to slip. However, project governance enables your team to quickly analyze and approve/disapprove requests.

6. Account for all Essential Activities

Many companies overlook essential activities, like business process testing. We recommend testing your business processes early to ensure they have been clearly defined in the new system.

Another activity that many companies don’t account for upfront is reviewing vendors’ statements of work. It requires time and resources to ensure estimates include essentials, such as support and maintenance fees. Analyzing estimates to ensure you’re comparing apples to apples is also time intensive. Many companies hire an independent ERP consultant to compare statements of work and negotiate with vendors.

Other activities you might overlook include:

 

• Distributing workshop guides to prepare employees for requirements gathering workshops
• Working with functional leads to validate requirements and schedule ERP demos
• Meeting with your vendor for an organizational design session
• Reskilling employees whose jobs will become automated
• Designing and conducting customized end-user training
• Conducting multiple iterations of conference room pilots

7. Regularly Adjust Expectations

While you may have defined initial time and cost estimates during ERP selection, these will need to be refined once you begin implementation.

As mentioned above, you will likely be faced with scope changes and other requests throughout implementation. In addition, your company will undergo normal organizational changes unrelated to the project, such as staff turnover.

Our clients often find that they need to reevaluate goals, adjust timelines or alter resource allocation to ensure future milestones are not adversely affected.

8. Don’t Forget About Post Go Live

Many implementation activities are actually ongoing activities that continue after go live. For example, the need for training does not disappear after go live. Employees often change roles and turnover is inevitable, so new employees and reassigned employees will need training.

Another reason that ongoing training is essential is that software functionality often is rolled out in phases. Many of our clients – for a variety of reasons – implement basic functionality right away and save more advanced functionality for later.

Measuring benefits realization is another activity that should continue after go live, as many benefits are not fully realized until years after implementation. It’s also important to continuously look for new ways to realize business benefits from your ERP system, even after the project is “over.”

It’s Never Too Early to Begin Developing a Project Plan

Before you begin ERP selection, you should take the time to set realistic expectations and begin developing a project plan. Panorama’s ERP consultants can help you account for all the essential activities required for a successful project.

Baseball great Yogi Berra used to say, “If you don’t know where you’re going, you might not get there.” This quote has survived through the years because it holds an undeniable truth: you need to have a goal in mind, or you’re likely to miss your target.

This saying can be applied to countless circumstances in life, and an ERP implementation is no exception: before you commit your time, resources and money to an ERP project, you need to have a clear picture of where you want your business to be in the future.

The first step in determining where you want to be is to understand where you are. This necessitates the documentation of ERP requirements.

Contents

1. 8 Benefits of Software Requirements Gathering

2. 9 Tips for Requirements Gathering

3. Conclusion

8 Benefits of Software Requirements Gathering

1. Risk Mitigation

Some companies expect that implementing an ERP solution out of the box will transform their business. However, our experience and research show that a contributing factor to ERP failure is a lack of focus on business process management.

In fact, according to our 2019 ERP Report, more than half of companies don’t use ERP consultants for business process management guidance, and many of these companies don’t realize the ERP business benefits they expected:

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2. Process Improvement

While many companies implement software systems with the intent of improving business processes, they often end up with an ERP software solution that replicates their legacy system’s inefficiencies.

When we work with clients to improve their processes, we emphasize the importance of understanding employees’ pain points. We also help clients identify inefficiencies by using Six Sigma, value stream mapping and other business process management tools and methodologies.

3. Documentation and Clarity

Another advantage of requirements gathering is process documentation. Many companies have little to no process documentation – no statistics, no process flows, not even job descriptions for the roles in each department.

This often happens as a result of having a highly tenured workforce. While a tenured workforce can be an overall asset, it can be difficult to document processes because everyone works from what’s in their brains.

Process documentation of current and desired state processes reduces the amount of time needed to train employees. We recommend documenting processes in a way that defines who is impacted and how, so you can define a training strategy and ERP communication plan.

Process documentation also can help you propose new processes to executives and end users. This helps you achieve organizational alignment around project goals.

4. Employee buy in

When employees start hearing about an upcoming ERP project, they generally become fearful. While resistance to change is a common phenomenon, you can mitigate it by involving employees in requirements gathering workshops. This can mitigate change resistance because employees are less likely to resist changes when they are allowed input into process changes.

Requirements gathering workshops also are an opportunity to document change impacts for specific departments and roles, so you can prepare employees for change, thus reducing their fear. We help clients document change impacts, so they can develop a comprehensive change management plan.

5. Competitive Advantage

While some processes, such as general ledger, are not sources of competitive advantage, other core functions may differentiate your organization from competitors. For this reason, it is not always advisable to adopt out of the box functionality that easily can be replicated by others in your industry.

Requirements gathering identifies processes that need to be maintained and protected from standardization. This is important information to have when headed into an ERP selection.

6. Successful ERP Selection

Many vendors oversell their software’s industry best practices. While their software may improve business processes, they still need to be defined in the context of your company’s operations.

Let’s say your company has found that the most efficient and cost-effective pick, pack and ship method is to print labels for customer orders, pick according to the labels and load shipments directly onto the truck.

However, the software you’re considering employs a “best practice” for pick, pack and ship that is quite different. Instead of being a best practice, this method would be a step backward for your organization.

The problem with gathering software requirements after purchasing software is you’re faced with a tough decision when the software can’t meet a must-have requirement:

1) Invest millions of dollars in reconfiguring your company to account for the vendor’s best practice

Or

2) Spend considerable time and money customizing the software to accommodate your requirements

To avoid this dilemma, we recommend gathering requirements before software selection and using those requirements to write ERP demo scripts.

7. Faster Implementation

Most modern enterprise systems are flexible, so even a simple workflow is likely to have multiple variations. In cases like this, it’s not enough to say you’re simply going to adopt the software’s processes.

If you do this, technical consultants or the software development team will have to make decisions for you, which is costly and time-consuming. It’s more cost-effective to make process decisions on your own dime.

8. Understanding of ERP Success

Requirements gathering is an opportunity to define key performance indicators that allow you to track your achievement of business benefits. This is important for tracking benefits during implementation, determining your ROI after implementation and continuing to realize benefits for years to come.

9 Tips for Requirements Gathering

1. Understand Your Business Goals

These often include goals regarding real-time data or the customer experience. All stakeholders should be aligned around these goals, so you can determine what process changes are necessary to achieve them.

2. Involve the Right People

The people involved in requirements gathering should be subject matter experts (SMEs) with an in-depth understanding of the processes within their own departments.

It’s important to remember that the SME is not always the manager. While a manager might tell you how a process should be done, an employee who has actually performed the process might have insight into what actually works best. 

We recommend including SMEs from every functional area, so you can understand pain points and inefficiencies across the organization. A cross-functional group will ensure you don’t record repetitive requirements. This also helps you garner the perspective of different people with the same inherent issues.

Your requirements gathering team is an important part of your ERP project team and ideally will be involved in other implementation activities, so it’s important to choose a team with the right personalities and skillsets.

3. Develop Workshop Guides

Prepared participants result in productive meetings. As such, it’s important to create and deliver workshop guides that tell participants what to expect during the workshop and provide questions for them to mull over beforehand.

We use workshop guides with clients because they help establish a common goal and keep participants focused.

4. Start With Process Mapping

A process map for a particular process might look like this: “Receive order from website EDI > transfer order to picking > deliver product.”

Requirements, on the other hand, look like this: “The ability to integrate with third-party website EDI; the ability to display a list of products that need to be picked from the warehouse; the ability to mark products as picked; etc.

As you can see, the ERP requirements flow from the process map. You can’t document ERP requirements without first mapping your processes.

5. Don’t Forget About Process Improvement

As mentioned earlier, business process reengineering is an essential step before software selection. This is because ERP software is simply a tool used to enable process improvements, not force them.

While ERP vendors provide best practices for your particular industry, you also should look at best practices from other industries to find unique insights.

We recommend using Six Sigma tools to define your own best practices and competitive advantages that you don’t want replicated by industry peers.

6. Prioritize Requirements

No ERP system will address all your requirements, so you must determine which are most important to your business.

There are many ways to prioritize ERP requirements, as described in an earlier blog post, but here are three useful categories:

 

• Must-have Requirement: This will provide significant business improvements.
• Value-added Requirement: This will be beneficial to improving processes but not critical.
• Nice-to-have Requirement: This will make employees’ jobs easier, but it won’t provide significant process improvement.

7. Allocate Adequate Time and Don’t Waste it

Requirements gathering can bring additional responsibility to already overworked employees. As such, it’s important to stay focused on the goal. There’s a fine line between being thorough and allowing a free-for-all discussion that wastes time.

Requirements gathering workshops typically take between two to three hours per functional area. It’s better to over-estimate the time necessary in order to eliminate the need for a follow-up session.

Follow-up sessions tend to break the flow of thinking and collaboration. This can result in weaker requirements. The exception is follow-up sessions conducted after all requirements have been gathered. These follow-up sessions are actually useful as they can bring more clarity to any confusing requirements.

8. Ensure the Right Level of Detail

Take a simple task, such as order entry, and ask questions about it to identify who will execute the work, what’s the expected outcome, etc.

Sample Questions to Ask About an Order Entry Process

1. How do we receive orders (EDI, fax, hard copy, phone)? What percentages does each account for?
2. How many orders do we receive every day?
3. Who receives the orders?
4. Are the orders edited?
5. How many active customers do we have?
6. How many orders do we receive from new customers?
7. How many orders fail in EDI?
8. How many orders cannot be entered without further research?
9. How long does it take to enter an order?
10. How many orders fail credit checks, and how long are they on credit hold?
11. What is our processing time from receipt to shipment?
12. How many orders have multiple lines?
13. How many orders can be filled complete on the first pass?
14. Can we promise ship dates at order entry time?
15. Can we verify pricing at order entry time and match to the price the customer sent?

Essentially, you want to document the end-to-end processes, including all the handoffs and touchpoints. We recommend organizing processes into swim lanes according to the responsible employee or department.

9. Follow-up

A follow-up session need not be a lengthy session, but it should go through every technical and functional requirement to verify that each was understood correctly. All the same stakeholders should be included, so they can validate that what you put on paper is what they meant.

Business Requirements = Business Benefits

Companies that take the time to define their business requirements before ERP selection are more likely to realize measurable business benefits from their ERP projects.

However, requirements gathering is complex and time-consuming, so many companies forgo it to accelerate their selection. Still, some companies take the time to gather requirements and often hire ERP consultants to ensure a more seamless requirements gathering experience.

Panorama’s ERP consultants take the time to understand your company’s competitive advantages and business goals. We assist in mapping your current state and future state, and we make recommendations from not only your industry’s best practices but also other industries’ best practices.

Most importantly, we ensure ERP vendors understand your list of requirements and ensure they deliver ERP demos that help you select the best solution.