Summary: Enterprise software is evolving under selection pressure from challenging economic conditions and the adaptive possibilities afforded by cloud computing, mobility, big data analytics and social engagement.  - By Charles McLellan 
Global enterprise software trends
How big is the enterprise software market? In Gartner's latest worldwide IT spending forecast (March 2013), enterprise software accounts for $296.6 billion in 2013, showing an annual growth rate of 6.4 percent over 2012's $278.8bn. The only sector currently growing faster in Gartner's forecast is Devices, at 7.9% (driven by premium smartphone upgrades). Enterprise software only comprises 7.89 percent of the 2013 IT spending pie; the biggest slice, 44.8 percent, goes to Telecom services:

At $297 billion, enterprise software will account for 7.89 percent of the total worldwide IT spend in 2013, according to Gartner's forecast. (Data: Gartner Market Databook 1Q13 Update)Gartner's figures are projected to 2017, over which period Enterprise software shows the biggest CAGR (6.6%), resulting in a spend of $383.8bn (out of $4,384bn, or 8.75 percent).

These high-level numbers only tell part of the story, however, as there are considerable changes afoot when it comes to the types of enterprise software that CIOs are considering buying.Gartner's January 2013 CIO Survey puts Analytics & Business Intelligence (BI) at the top of the priority list, followed by Mobile technologies, Cloud computing and Collaboration technologies:

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. 
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, selecting, customizing & implementing the ERP. 

An ERP consultant can help  you with any of the following:

  • ERP Selection
  • Project Management
  • Change Management
  • Infrastructure Management
  • System Integration

As ERP consultants would have worked with several ERPs, hence would be aware of Pros & Cons of each of them, would be familiar with the price-features comparison with other ERPs;  with this knowledge he can help you with the selection of a right ERP & this could save you lot of time & money. An ERP consultant also brings experience of several industries, including the best practices of your industries,  he can guide with setting up the SOP and /or BPR, which in my opinion a “must do” task before selecting the ERP.

Over the entire ERP selection and implementation process you would be inundated with the choices and in some cases it would be difficult to decide. An experiences consultant can   provide  you pros & cons of each options & the ramifications of some of the critical decisions.

“To hire or not to hire” an ERP consultant is a difficult decision. If you know what you are doing  and have experience  in selection & implementing  an ERP successfully in past,  then you may not need an ERP consultant, else, I would highly recommend  to hire an ERP consultant.

An ERP consultant/s can cost you 5-20% of the ERP cost, but it is worth it.  You will have a trusted adviser  who will guide you every step of the way and make sure that your ERP implantation is a success.

If you are a SME and are in the process of selecting and implementing an ERP for the first time or the second time and are not sure of the selection process and are having challenges short listing the vendor, calculating the ROI/TCO, setting up the SOP/BPR and need some Consultation or Advisory services please take advantage of our FREE Consultation  or Click Here.