Whether it is a Fortune 500 company or a SMB/SME, replacing an existing ERP or selecting a new ERP is one of the most crucial and difficult decision any organization has to take. By selecting the right  software and the right vendor which will result into successful implementation, will be very beneficial to the organization on a long run. This may lead to higher revenue, better performance and lower costs, in turn higher profitability. Where as a wrong selection of the software/vendor can be very detrimental to the organization may include loss of time, money, productivity and which may lead to lower revenues & profitability for several years.

This article is an attempt to help organization (especially SMEs) in their ERP selection process.  

Before we look at how to select the right ERP for your organization, it is very important to understand why it is important to select the right ERP. There are various research and statistics on this topic & they vary a great deal. The variation is due to the different  sample size & data quality & interpretation.  In general the failure rate is higher for SME/SMB compared to large organization/MNCs. The reason behind this is very simple, large organization has lot of time (people) & money and can afford to spend lot of time & money in the selection process. Unfortunately small organization does not have the luxury of either one of these.  Hence they rely on their own knowledge,  the information provided by the vendors & select the lowest cost solution. Penny wise Pound foolish approach, the reason for more than 60% of the ERP implementation failure; see the pie chart below:

As you can see, the statistics of ERP failure or unsuccessful/unhappy implementations are mind boggling.  Before we get into the selection process there are two more things I think one should know to avoid the common pitfalls many SMEs fall into, knowing them & avoiding them will save you lot of time & money (& the headache of dealing with the unsuccessful EPR implementation). 

 Let us look at some of the reasons why many of the ERP implementation fails:

·         Wrong ERP Software
·         Wrong Implementation vendor
·         Improper planning/change management/Project Management
·         Circumventing  BPR/SOP before ERP implementations
·         Lack of commitment from certain group/team/division/top management
·         Inadequate training
·         Implementing limited modules  ( mostly because of lack of funds)
·         Biased Decision 
·         Selection based on lower price
·         Inexperience in selection

Here are some of the steps (partial list) that should be taken to avoid the ERP implementation failures:

  •  Do the due diligence on an ERP or the vendor before finalizing one. This can includes research available solutions (local & international), seeing the detailed demo, mapping it to your organization, talking to the references etc.
  •  Make sure that you go through complete proposal carefully, including the fine line. Avoid all the hidden cost mostly craftily concealed in the assumptions.  Also go through the entire Terms & Conditions & avoid the possible pitfalls.
  • Make sure that NDA, SLA, rewards & penalties are in place in the contract.
  • Look into ROI & TCO.
  • DEVIL IS IN THE DETAILS.  Make sure that you go through the entire implementation process in minutest detail & clarify roles & responsibility of your organization and the vendor/s.
  •  Follow the structured ERP selection process ( see the steps below)
  •  If you are inexperienced in ERP selection (first time ERP implementation) or had a bad experience with your last ERP implementation then I would highly recommend that you take some ERP consultant’s help in the selection as well as for implementation. 

Structured vs. Unstructured ERP select process:

Now that we have seen the reasons why ERP implementations fail & how to avoid such failures,   I am sure now you would appreciate the need to know “How to select the right ERP”.  Every organization does go through some or the other selection process. In spite of that why do most of the organizations select the wrong ERP? 

Answer is quite simple. The selection process what most of the organization adhere to is ad-hoc or unstructured. This is why most of the time they fail. In fact, one of the important criteria of selection for an SME is low price. In the unstructured selection process the price seems to be low at first, however it increases gradually & TCO for say 5 years is higher compared to structured process, where sometimes the initial cost may be higher but the TCO for 5 years will be lower than that of unstructured.  The following diagram depicts the graphical representation: 

Here is the Structured ERP selection process:

  1. Select an internal ERP Selection Committee consisting of at least 1 person from management team and 1 person from each department; optional - include the external ERP consultant in this steering committee.
  2. Define the requirement/scope/budget/ RFP
  3.  Define the selection process
  4. Do the due diligence
  5. Select 5-10 software/venders which initially meet your criteria
  6. Go through the short listing process ( high level  demos)
  7.  Short list the final 2 vendors
  8. Go through detailed demos, T&C, Project management, R&R, SLA, NDA,….
  9. Price negotiations. 
  10. Select the vendor – award the contract. 

There are several surveys on why many ERP implementations have failed in spite of careful planning for its success.  One of the important factor which can reduce the chances of ERP failure is to have a external/independent consultant who can help you with the entire process of planning, BPR, architecting/designing, budgeting, preparing the RFP, selecting the right vendor.  External consultant can also take up the entire Project Management and give you independent view on the progress and if required escalate the problems in its early stage to mitigate the risk of the major failure or bottleneck at the later stage.  In a nutshell, while selecting the ERP, make sure that you know what you are doing, if not hire someone (consultant) who knows what you should do.

If you are a SME and are in the process of selecting an ERP for the first time or the second time and are not sure of the ROI, are having challenges  in the selection process and need some Consultation or Advisory services please take advantage of our FREE Consultation  or Click Here.