Key considerations when selecting an ERP system

28 May 2024 Consultancy.uk 6 min. read
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Replacing an Enterprise Resource Planning system is a dauting task for any organisation. A thorough vendor and system selection process is one of the key success factors – experts from Project One outline seven steps that should be considered during the process.

Because of the vast scale and repercussions of changing Enterprise Resource Planning (ERP) platform, most firms elect to do it on a very infrequent basis. The ERP market is extremely competitive at all levels and as a result continuously evolves as the players vie for market share, developing vertical industry solutions, and seeking to extend their footprint beyond the traditional back-office functions.

At the same time, ‘getting it wrong’ can come with a set of huge expenses.

Key considerations when selecting an ERP package

“There are a number of things to think about, all of which will require close management,” according to professionals at Project One. “We have worked with several customers to help them select and then implement the most relevant and effective ERP platform.”

One thing they have always found is that a “robust selection is therefore a key component of driving a successful transformation”. But what are some of the considerations companies should take?

Business drivers and outcomes

The first consideration boils down to ensuring there is a sound footing for the decision making at the company. Firms should take time to establish clarity and agreement across their leadership teams, detailing why the organisation needs a new ERP platform, and why now.

The experts explain, “This will become your ‘North Star’ as you navigate through the selection and implementation phases. As part of this, consider future business needs, aligned with your business strategy, but be pragmatic about what your size of business actually needs i.e. do not buy a Ferrari if a Mini will suffice.”

Ownership of outcomes

Any transformation needs clear lines of accountability if it is to succeed. As such, firms need to identify who in their leadership team will be responsible for which business outcomes, make them measurable, and “bake them into individuals’ personal objectives, across both business and IT”.

The professionals suggest, “Develop a crisp business case setting out the financial and non-financial benefits to be delivered by the project. Otherwise, how will you know when you have succeeded? Also, importantly, be aware of, and manage, the ‘baggage’ that you and other stakeholders are carrying into the selection process. Some of that baggage might be ten years out of date and unless checked, could lead you down the wrong path.”

Business processes

Over the years, ERP vendors have made significant investment to ensure their solutions give the most effective business processes. Project One’s advisors therefore contend it makes most sense to push for adoption of “standard out of the box functionality”. This means businesses should adapt their own processes to fit the tools and functionality as they have been designed to work – not the other way round. This can give the most efficient solution in the long run, especially with a cloud-based solution which will have regular updates and enhancements.

“You don’t want to be retrofitting customisations with every release, unless absolutely necessary,” they continue. “It is also important to have the current processes documented so you can plot the change management journey from current to future. Don’t underestimate the effort required to win the hearts and minds of your teams and to help them adapt to new ways of working.”

Identifying vendors and solutions

At last, the time has come to start the search. And at the very beginning of that, firms are advised to develop a long list around a short, clear set of minimum acceptable criteria; for example multi-language, multi-currency and multi-company capabilities can add cost and complexity and may not be in the firm’s current business needs, or future plans.

The experts add, “Tier 1 ERPs have industry-specific solutions, and some Tier 2 ERPs are focused on certain industries (engineering, retail etc.) In drawing up your long list, consider what others in your sector are using. In drawing up your shortlist, make the result fact-based by agreeing a weighted scorecard up front, based on the acceptance criteria and questions from business and IT sponsors.”

Sending a Request for Proposal

Once these lists have been narrowed down, firms should send out a Request for Proposal (RFP) document. When drafting this, leaders need to include technical criteria alongside the business requirements, for example, ease of integration with existing applications, cyber-security, cloud-hosted vs on-premise, mobile apps. It is also worth asking about the future product roadmap – especially if the firm has picked out Tier 2 suppliers. That market in particular is volatile, so asking the right questions about the product roadmaps there can elicit some insight into the longer-term prospects for the platform.

Further to this, Project One’s team adds, “As well as the RFP document, you can gain considerable insight from demos, both into the product and the organisation selling it. And consider asking for customer testimonials or reference site visits. Use your own professional network to gain insights beyond the references offered by the vendors. Another important step is to make sure that you agree the selection criteria prior to finalising the RFP. In that way you can make sure you are covering all of the required questions, and you will align all stakeholders prior to the review process.”

Partnering with a systems integrator

In cases of a complex implementation, it is encouraged that businesses find a systems integration partner to provide the additional capacity to adopt a new ERP. This should not be assumed to be the Product Vendor themselves – as keeping the Systems Integrator (SI) separate and objective is often required to bridge the gap between the business and the product.

The experts warn, “You need to be honest about your own capability, resources and capacity. Look at exactly what skills/expertise you have in-house and what you need to source externally. Examine whether the SI will provide knowledge transfer as part of the delivery so you are left with enhanced in-house capability. And very importantly, think about how you would effectively manage and govern an SI – you will need a layer of very capable programme management in-house to do this.”

Commercial considerations

Finally, when comparing commercials, firms should “make sure you understand the total cost of ownership for the new ERP platform, including initial live support, ongoing maintenance, upgrade process, costs for future project/enhancement work”. Key parts of this include understanding “what is included as vanilla standard, and what is extra, and how expensive it would be to scale if your requirement grows.”