Develop erp operation strategy


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Enterprise Resource Planning (ERP) exists in every enterprise. It is often a low priority for IT managers until changes to the business make a very real, and very expensive, project. The real cost of a failed ERP initiative is IT careers. ERP is always challenging, so IT leaders must determine which of three strategies are most appropriate:

•Stick. Maintain the existing system and establish a date to revisit the strategy.
•Augment. Stay on the existing ERP platform, but augment with additional modules, custom development, or bolt-ons.
•Rip & Replace. Initiate the move to a new ERP system.
The best way to develop an ERP plan is through an annual audit that assesses the priorities of the enterprise and capabilities of the existing ERP platform. Use this storyboard and associated tools to get your ERP strategy on the right track.

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Develop erp operation strategy

  1. 1. Develop an Appropriate ERP Operation Strategy
  2. 2. Introduction <ul><li>Enterprise Resource Planning (ERP) exists in every enterprise. It is often a low priority for IT managers until changes to the business make a very real, and very expensive , project. The real cost of a failed ERP initiative is IT careers. </li></ul><ul><li>IT Leaders can’t afford to ignore their ERP systems. They must anticipate future challenges to their existing ERP environment, and have a plan in place. </li></ul><ul><li>The best way to develop an ERP plan is through an annual audit that assesses the priorities of the enterprise and capabilities of the existing ERP platform. </li></ul><ul><li>ERP is always challenging. IT leaders must determine which of three strategies are most appropriate: </li></ul><ul><ul><li>Stick. Maintain the existing system and establish a date to revisit the strategy. </li></ul></ul><ul><ul><li>Augment. Stay on the existing ERP platform, but augment with additional modules, custom development, or bolt-ons. </li></ul></ul><ul><ul><li>Rip & Replace. Initiate the move to a new ERP system. </li></ul></ul>Info-Tech Research Group To help the IT leader answer these questions, this solution set will:
  3. 3. Executive Summary Info-Tech Research Group
  4. 4. Define: What is ERP & why should a CIO care? <ul><li>What is ERP? </li></ul><ul><li>Enterprise Resource Planning (ERP) is an electronic system for managing resources within an organization, company, or government entity. Resources could include financial assets, customer information, and material positions. ERP systems facilitate reporting and process automation. The category has come to include a wide variety of enabling technologies and specific modules. </li></ul><ul><li>The core of every ERP system is financials. But the key of ERP operational success is in the ability of the system to support the key business processes of the enterprise. </li></ul><ul><li>Why should IT leaders care about ERP? </li></ul><ul><li>ERP is the lifeblood of enterprises. Problems with this key operational system will have a dramatic impact on the ability of the enterprise to survive and grow. </li></ul><ul><li>ERP is rarely the top priority of IT leaders, despite its importance. It’s easy for leaders to minimize their commitment to the ERP system until problems emerge. The ERP system then becomes a very expensive top priority. </li></ul><ul><li>ERP failures have cost many IT leaders their jobs. </li></ul>Info-Tech Research Group
  5. 5. Info-Tech’s POV: There is no “green field” in ERP <ul><li>Info-Tech’s point of view on ERP includes four different considerations. </li></ul>Info-Tech Research Group
  6. 6. ERP 101: Understand the basic concepts of ERP Info-Tech Research Group Many IT leaders inherit an ERP system. They may – or may not – have knowledge of basic ERP concepts and technologies. A basic understanding of ERP is crucial for creating an ERP strategy for the enterprise.
  7. 7. History illustrates that technology innovations have constantly disrupted ERP functionality Info-Tech Research Group 1960s Time Sharing/MRP Birth of ERP Client-Server Consolidation 1970s 1980s 1990s - Early work on manufacturing problems such as Material Resource Planning (MRP) - IBM’s work on a custom application for J.I. Case launched interest in financial systems. - Early Time Sharing computers became available. - MRP grew to include financials and other modules. - McCormack and Dodge and MSA emerge as the dominant batch financial providers. - SAP is started in 1972. Lawson Software launches in 1975, JD Edwards in 1977, and Baan in 1978. Each focused on a specific hardware platform. - Baan and SAP adjust to the introduction of modern client-server architectures by porting to UNIX. - Oracle Financials launched in 1987. - PeopleSoft HRMS launched in 1988. - Solution providers increasingly partner with major accounting firms. <ul><li>- SAP R/3 launched at CeBIT in 1991. </li></ul><ul><li>- Enterprises begin to respond to the Y2K threat. </li></ul><ul><li>Client-Server architectures become standard for ERP platforms. </li></ul><ul><li>ISV-provided bolt-ons for CRM, supply chain, human resources, and warehouse management become prevalent. </li></ul><ul><li>-“Internet enablement” becomes a buzzword and vendors adapt their architectures. </li></ul><ul><li>- SOA and “mash-ups” increase in popularity. </li></ul><ul><li>Industry consolidation begins. </li></ul><ul><li>Oracle, SAP, Microsoft, Infor, and Sage emerge as the dominate ERP players. </li></ul>2000s 2010s <ul><li>- Industry consolidation continues. </li></ul><ul><li>Enterprises increasingly demand improved total cost of ownership, easier development, and better user interfaces. </li></ul><ul><li>Alternative deployment approaches like Open Source and SaaS become mainstream. </li></ul>Bolt-Ons/Y2K Alternatives ERP is about managing the manageable and repeatable processes of an enterprise using the most cost-effective technology. Info-Tech Insight:
  8. 8. ERP always addresses four key processes; enterprises must decide which ones are most important Info-Tech Research Group <ul><li>Financial close. </li></ul><ul><li>Consolidation. </li></ul><ul><li>Reporting. </li></ul><ul><li>CRM. </li></ul><ul><li>Order management. </li></ul><ul><li>Accounts receivable. </li></ul><ul><li>Supplier management. </li></ul><ul><li>Inbound inventory. </li></ul><ul><li>Accounts payable. </li></ul><ul><li>HRM. </li></ul><ul><li>Time and Attendance. </li></ul><ul><li>Payroll. </li></ul><ul><li>Internal operations. </li></ul><ul><li>General ledger. </li></ul><ul><li>Inventory/asset mgmt. </li></ul><ul><li>Industry-specific modules. </li></ul><ul><li>Enabling technologies. </li></ul>ERP involves a blizzard of technological terms and acronyms. All ERP systems, however, manage the core financials of the enterprise and address four key processes. Every enterprises is unique in terms of the emphasis they put on different processes. If these processes aren’t automated as part of the ERP system they are addressed with other solutions or with manual processes. Reconcile to Report Procure to Pay Order to Cash Hire to Retire
  9. 9. The technical complexity of ERP increases depending on where the program logic sits <ul><li>Program logic is maintained and executed on the client. The data is maintained in a shared database. </li></ul><ul><li>Advantages : Ease of deployment. </li></ul><ul><li>Disadvantages : Poor extensibility and multi-location support. </li></ul><ul><li>Data is stored in a shared database. Program logic is executed as stored procedures within the database. </li></ul><ul><li>Advantages : Ease of deployment. Support for multiple clients and locations. </li></ul><ul><li>Disadvantages : Challenges with extensibility and integration of external products. </li></ul><ul><li>Data is stored in a shared database. Program logic is maintained in an application server. </li></ul><ul><li>Advantages : Greatest degree of flexibility and extensibility. </li></ul><ul><li>Disadvantages : Large degree of complexity. </li></ul>Info-Tech Research Group ERP Systems differ in their technological models. There are generally three different models that vary depending on where the program logic sits: client, database, or application server. Complexity Thick Client Program Logic on the Client 2-Tier Program Logic in the Database N-Tier Device Independent Access
  10. 10. The vendor is the least important contributor to the ERP success pyramid ERP projects involve several different parties. Focus on your own ability to manage an ERP deployment and the capabilities of your consultants and VAR. Most people spend nine pages [of the RFP] on technology and the vendor. The should spend one page on the technology and nine pages on the consultant’s capabilities. - Vice President, ERP Reseller Info-Tech Research Group “
  11. 11. On-premise deployments are most common, but they don’t necessarily provide the best value ERP Systems are availability with a variety of different hosting and delivery mechanisms. The different approaches vary on three dimensions: flexibility in supporting new and custom features, ease of maintaining the system, and the overall cost of the system. Info-Tech Research Group Time Sharing (Extinct). Clients use terminals to access a computer located off-site. Time sharing is extinct, but the concept has reemerged with multi-tenant architecture. On-Premise. The advent of mid-range computers led to on-premise deployments of financial systems. IBM’s AS/400 was particularly influential. This approach also afforded other aspects of modern ERP deployments: a SQL database, multiple clients, and standards-based messaging between different tiers of the architecture. Hosted. Some enterprises elect to locate their ERP architecture externally. The technology stack is identical to an on-premise deployment but resides in a third-party data center. In some circumstances the hosting provider also applies patches and upgrades to the system. This full service approach is typically called “Managed Service”. Flexibility Ease of Maintenance Cost of Operation
  12. 12. Cloud-based deployments provide good flexibility; SaaS deployments sacrifice flexibility for cost advantages Info-Tech Research Group Cloud (Internal). Enterprises are increasingly turning to cloud-based deployments. IT leaders are virtualizing their on-premise architectures to take advantage of improved performance or service characteristics. The major vendors have been slow to certify their virtualized platforms, so many IT leaders have moved their non-production environments (e.g. development & test) to an internal cloud arrangement. Cloud (External). The move to virtualization enables enterprises to move parts of their technology stack to an external cloud provider. Again, the core targets are development and test. External clouds are also effective for the creation of sandbox environments for testing new features or demoing new products. External cloud arrangements are often described as “Platform-as-a-Service” or PaaS. Multi-Tennant. Some enterprise elect to rent their ERP environments by paying a monthly per-user fee. This approach has proven to be popular with CRM and is becoming increasingly popular in ERP. The point of multi-tenant is that all users access a single instance of the system. As a result, patches only have to be applied once and infrastructure licensing for databases, application servers, etc. is minimized.
  13. 13. IT leaders must prepare for the periods of greatest complexity for the ERP system & the enterprise Info-Tech Research Group
  14. 14. Plan for the end-state of ERP implementations: divesting multiple instances with bolt-ons Enterprise start . Growth. Acquisition. The enterprise is focused on establishing a system to manage on core operations procedures, and financials. During the growth phase, modules are added, upgraded, and custom development occurs. The ERP system rapidly becomes more complicated. The system rapidly becomes more complicated during acquisition. IT leaders must make the decision to consolidate operational systems or operate discrete ERP systems. Divestiture. Spinning off parts of the enterprise poses a system challenge. IT leaders must determine if a “clone and go” strategy is appropriate or if an alternative option is better. IT leaders must now address the “multi” problem: locations, licenses, upgrade paths, development projects, governance structures, and operating environments. The ERP lifecycle gets very complicated due to overlapping internal initiatives and the natural enterprise lifecycle. X X X X X X X
  15. 15. Three different scenarios illustrate ERP concepts* Info-Tech Research Group * NOTE: The scenarios are based on real enterprises, but the specifics have been altered to protect anonymity.
  16. 16. Prepare: The annual ERP review must consider internal process, product knowledge, and the current state of the business <ul><li>Why conduct an annual review? </li></ul><ul><li>ERP is rarely the top priority of IT leaders. When it becomes a priority, the project draws a tremendous amount of attention from other business leaders. IT gets overwhelmed by the resulting complexity. </li></ul><ul><li>The annual review enables IT leaders to have a regularly refreshed perspective on the ERP system, and the future options. </li></ul><ul><li>What is assessed as part of the annual review? </li></ul><ul><li>Internal process discipline. </li></ul><ul><li>Knowledge of their ERP solution’s roadmap and development path. </li></ul><ul><li>A position on the future requirements of the business. </li></ul>Info-Tech Research Group People don't approach this from a strategic perspective; they approach it from 'Oh Sh*t!'. - Former CIO, large telecom “
  17. 17. Know yourself: IT leaders must develop process discipline to effectively create an ERP strategy Info-Tech Research Group Get your house in order. The most important contributor to overall ERP success is the competency of the enterprise operating the system. The first component of the annual review is an assessment of the internal functioning and planning of the IT organization. This assessment of Process Discipline has four different components: Sure, process discipline is important. It’s the one thing you can address regardless of what else is going on with your budget… or with the business. -Director of IT, mid-sized professional services firm “ <ul><li>Do we have effective project management practices? </li></ul><ul><li>Can we prioritize projects and build out an effective project portfolio? </li></ul><ul><li>Can we assign costs to our current ERP infrastructure? </li></ul><ul><li>Do we know how much we actually spend on support costs? </li></ul><ul><li>How established is our Enterprise Architecture? </li></ul><ul><li>Do we have existing strategies for Applications, Information, Security, and Technology? </li></ul><ul><li>Are we doing an effective job at communicating with our suppliers and partners? </li></ul><ul><li>Are we in a position to begin negotiations with new technology providers? </li></ul>
  18. 18. Know your product, its roadmap, its architecture, and its modules Info-Tech Research Group ERP products evolve due as vendors respond to customer requests, add features, and acquire new functionality. IT leaders must understand how the product will evolve over the next three to five years. The vendor relationship is crucial and it takes work. And I mean it’s nice to know that – not the ERP system -- but your actual business is what matters to them. -VP of IT, large agricultural co-operative “ <ul><li>Is the product architecture compatible with our Enterprise Architecture and strategy? </li></ul><ul><li>Could the architecture support other initiatives? </li></ul><ul><li>When will support for the product end? </li></ul><ul><li>Will the vendor terminate support technology that we use (database, application server, etc.)? </li></ul><ul><li>What does the product roadmap look like? </li></ul><ul><li>What is planned for the next three minor releases? </li></ul><ul><li>What is planned for the next major release? </li></ul><ul><li>What modules have we licensed but not deployed? </li></ul><ul><li>Are there any modules that would meet the business needs from our Enterprise Architecture? </li></ul><ul><li>Are there any third party bolt-ons that would meet our needs? </li></ul>
  19. 19. Know your business: ERP ultimately belongs to the business, not the IT department Info-Tech Research Group The entire purpose of the ERP system is to support business requirements. The IT leader must have a strong sense of how the business is evolving and whether or not the ERP infrastructure can meet the needs of the business. IT doesn’t own the ERP system. It’s just the zookeeper. ERP is a business system and you have to know the business to successfully manage it. - VP of IT, energy distribution “ <ul><li>What was reported in the last annual report? </li></ul><ul><li>What are the immediate priorities of the executive team and/or board? </li></ul><ul><li>Do those priorities have an impact on the ERP system? </li></ul><ul><li>Do senior executives have any biases against the existing system or in favor of other systems? </li></ul><ul><li>Could these biases push the enterprise towards a hasty rip-and-replace scenario? </li></ul><ul><li>What is the future strategy of the enterprise? </li></ul><ul><li>Is there a potential for critical moments related to rapid growth, acquisition, or divestiture? </li></ul><ul><li>Do individual business units have unmet requests that could be met by the ERP system? </li></ul><ul><li>Do any business unit initiatives challenge the capabilities of the ERP system? </li></ul>
  20. 20. The Assessment Leads to three different options: Stick, Augment, or Rip & Replace Info-Tech Research Group <ul><li>There are three options for ongoing operation of an ERP system: </li></ul><ul><li>Stick . The stick option involves continuing to maintain and operate an ERP system in the most cost effective manner possible. It includes management of three different factors: cost, change management, and consolidation. </li></ul><ul><li>Augment . If the current functionality of the ERP system can not meet business needs it must be either augmented or replaced. Augmentation can be accomplished with extra modules, an ISV-provided bolt-on, or custom development. </li></ul><ul><li>Rip & Replace . If the functionality of the system is inappropriate and the anticipated cost of the augmented system is unacceptable, consider replacing it. </li></ul>If you were to go out and ask people with an ERP package and ask them when they're going to transition, you'll get no response. People only decide when they're boxed in. You have to stay ahead of them. - Former CIO, large telecom “
  21. 21. Info-Tech Resources: Use the ERP Annual Audit Template to create a position statement Info-Tech Research Group <ul><li>The Info-Tech ERP Annual Audit Template will help you: </li></ul><ul><li>Assess Process, Product, and Business disciplines. </li></ul><ul><li>Review ERP operational costs. </li></ul><ul><li>Create a recommendation for the future direction of the ERP system. </li></ul>
  22. 22. Stick: It is best to do nothing unless there are unmet feature requests or cost concerns <ul><li>What is the “Stick” scenario? </li></ul><ul><li>Stick describes the status quo. The IT Leader advises the IT Steering Committee that there will be no further investment in the ERP system beyond maintenance and patching. </li></ul><ul><li>The IT leader must still consider and manage the three Cs: C ost, C hange Management, and C onsolidation. </li></ul><ul><li>Stick always includes a recommendation of when the Enterprise must move to either “Augment” or “Rip and Replace”. </li></ul><ul><li>Why should IT leaders care about “Stick”? </li></ul><ul><li>The ERP system is the domain of the CFO and other senior executives. The IT leader must always have an opinion on its effectiveness and future viability. </li></ul><ul><li>Stick is cheap and cheerful. But it’s also temporary and leaders must prepare for when it ends. </li></ul>The question you need to be asking is, are you going to be replacing the system in three years? If the answer is &quot;no&quot; then you're not going to put any more money into the system. - Former CIO, large telecom “
  23. 23. “ Stick” is not passive; the IT leader must play for time <ul><li>Time includes a variety of factors. </li></ul><ul><li>Use the ERP Assessment as a means of determining the future life-span of the ERP system. Base the decision on the needs of the business, the vendor’s product roadmap, and the capabilities of the business. </li></ul><ul><li>Money is always a concern in ERP. </li></ul><ul><li>Baseline the existing costs of the system including licensing, maintenance, and development. </li></ul><ul><li>If the anticipated five-year cost of the system exceeds expected costs for a new system, explore a rip-and-replace option. </li></ul>Info-Tech Research Group The “Stick” scenario is about time. In the “Stick” scenario the IT leader commits to staying on maintaining the existing system without upgrades or additions. There are two key factors in the “Stick” decision: money and time. <ul><li>Augment. If the business prioritizes features that can’t be delivered with the existing system, explore “Augment”. </li></ul><ul><li>Rip and Replace. But if the five year operational cost of the augmented system exceeds its replacement cost, consider “Rip and Replace.” </li></ul>1. 2.
  24. 24. Differentiate Maintenance features from Augment features STICK AUGMENT RIP AND REPLACE
  25. 25. Info-Tech Resources: Feature requests & prioritization Info-Tech Research Group <ul><li>Info-Tech’s OptimizeIT resources on App Maintenance include a variety of tools for Request Analysis : </li></ul><ul><li>Application Inventory </li></ul><ul><li>Request Prioritization </li></ul><ul><li>Business Requirements </li></ul><ul><li>Change Approval </li></ul>
  26. 26. Use “Stick” to address three Cs of ERP operation: C ost, C hange Management & C onsolidation Info-Tech Research Group Stick involves active rest. IT leaders are still responsible for maintaining the ERP system and the vendor relationship. Three particular issues are important. . Consolidation Many enterprises have more than one ERP system due to mergers and acquisitions. The “stick” phase provides an opportunity to determine which systems can stay and which ones can be phased out. <ul><li>Cost </li></ul><ul><li>Monitor all costs related to the ERP implementation. Include: </li></ul><ul><li>Cost of salaries for business analysts, developers, and support staff. It may be possible to assess the project portfolio to apportion development costs to the ERP system. </li></ul><ul><li>Costs of related initiatives that might be subsumed into an ERP project. For example, technologies such as CRM, BI, or SCM may be incorporated into an ERP strategy. </li></ul><ul><li>Exclude help desk costs . Assume that if the issues are of sufficient gravity they would have been considered as projects. </li></ul><ul><li>Change </li></ul><ul><li>Management </li></ul><ul><li>The cost of disruption and change is of major concern within ERP operation. An assessment of these potential impacts is important for determining change sensitivity. Use the “Stick” period as to assess the impact of ERP failures. For example, ask: </li></ul><ul><li>What is the material impact if we experience a two day delay in processing invoices? </li></ul><ul><li>What happens if our system goes down for an entire day? </li></ul>
  27. 27. Talk cost when IT & the business can’t agree on strategy Business leaders rarely want a new system. Instead, they want features. Emphasize that the existing ERP system can deliver the features that the business leaders want with little additional expense . Discuss the potential cost of change. If the feature requests cannot be met, “Augment” or “Rip and Replace.” Emphasize the features that are delivered by the new system and articulate the potential business advantages of the system (e.g. reduced cost of operation or increased business flexibility). Unlike most business applications where the business doesn't really care about the cost... Because the ERP belongs to the CFO, you have a business sponsor who is cost savvy... So money talks - VP of IT, energy distribution “ Info-Tech Research Group
  28. 28. The Info-Tech ERP Rough Cut TCO Calculator will help you estimate when it makes sense to Rip & Replace Info-Tech Research Group <ul><li>The Info-Tech ERP Rough Cut TCO Calculator will help you: </li></ul><ul><li>Estimate project costs for a new ERP project. </li></ul><ul><li>Determine expected costs for software licensing, consulting, and hardware. </li></ul><ul><li>Estimate parameters for number of users based on industry averages. </li></ul>
  29. 29. Applying Stick: Do nothing or prepare to move? Info-Tech Research Group
  30. 30. Augment: When the base ERP package just won’t meet the needs of the business <ul><li>What is the “Augment” scenario? </li></ul><ul><li>Augment describes extending the core functionality of an ERP platform. It is often exploited to deliver features that the business demands without threatening the underlying architectural platform. </li></ul><ul><li>ERP systems can be augmented via existing modules, ISV-provided bolt-ons, or custom development. </li></ul><ul><li>Why should IT leaders care about “Augment”? </li></ul><ul><li>Augment is the most common ERP strategy and it can be used to meet business unit demands. </li></ul><ul><li>Augment has limits. The cost of maintaining multiple deployments can become excessive. The IT leader must provide guidance to the CFO and IT steering committee as to when a Rip and Replace scenario becomes necessary to meet the needs of the business. </li></ul><ul><li>Custom development in pursuit of “Augment” can be extremely costly. Beware of the BRP (Barely Repeatable Process)! </li></ul>We're always augmenting... The biggest one is reporting. What was provided didn't meet our needs at all.. - Director of IT, post-secondary education “
  31. 31. Reporting is the most common driver for ERP projects Info-Tech Research Group Most IT leaders place a high level of importance on improving reporting capabilities and specific executive initiatives. Info-Tech Recommends: Work with the business units to determine new feature requests. Assign a Business Analyst to work with the SME to create a feature request. If the request is for a maintenance procedure, get sign off from the business process owner and assign relevant resources. If the request is for augmentation, work with the business to create the feature request and to compile additional supportive information such as a cost-benefit analysis. 1. 2. 3.
  32. 32. Steering Committee support is required, but the IT leader must still evaluate the cost implications Info-Tech Research Group The business unit must provide a completed business case justifying the project to the Steering Committee. But cost is always a factor. . Excessive Cost Augmentation requests can grow considerably. The IT leader has the responsibility of protecting the budget. If a request for augmentation has a completed business case and committee support, but the anticipated costs for the new system exceed the Rip and Replace costs, stop and reevaluate options. This scenario may arise when meeting the need for industry-specific requirements. Business Case A feature request for augmentation requires a completed business case from the relevant business unit. The business case should articulate the expected business value in terms of TCO or ROI. The IT leader can then compare the business case to expected cost for solution delivery. Steering Committee Support The business case needs support from the IT Steering Committee or similar agency with decision-making authority. Committee support is required to either allocate development resources or secure the necessary level of capital funding. Maintenance features are sufficiently small that they don’t require committee approval.
  33. 33. Use a Cost Benefit Analysis to justify Augment requests Info-Tech Research Group <ul><li>Info-Tech’s Cost/Benefit Analysis Tool can be used in conjunction with the Business Requirements Change Request Template to guide decisions for Augment Requests. It enables IT leaders to: </li></ul><ul><li>Compare four different options or scenarios. </li></ul><ul><li>Tabulate costs for staffing, hardware, software, and consulting. </li></ul><ul><li>Compare ROI, payback period, Net Present Value (NPV), and Internal Rate of Return (IRR) for different options. </li></ul>
  34. 34. There are four options for Augment; avoid custom development if possible 3 rd Party Solution A bolt-on solution may be available. Selecting such a solution requires a selection cycle that includes assessing the capabilities of the product, the viability and capabilities of the vendor, and of the implementation partner. Introducing a third-party solution may challenge project management or vendor management capabilities. Custom Development The most expensive option is generally custom development. The ERP system should generally be protected from customization. Highly customized systems are difficult to upgrade, particularly when the customization has had an impact on stored procedures maintained in the database. Existing Module The enterprise may already have access to a particular module as part of its existing licensing. Consider the costs of implementation and compare it to the business unit’s business plan. Include consulting, training, seconding existing staff, etc. Additional Module The vendor may provide an appropriate module. Ensure that the module can meet the minimum requirements. Compare it to third-party solutions to ensure that it meets expectations and is appropriately priced. Work with you ERP partners to find solutions. Vendors and VARs can provide recommendations for modules and bolt-ons. Also, walk the floor at vendor and user group events. Info-Tech Insight:
  35. 35. Barely Repeatable Processes (BRP) have no place in an ERP implementation Info-Tech Research Group Info-Tech Recommends: Firewall the ERP system from BRPs, particularly with a 2-tier infrastructure. Ensure that BRP solutions do not impact ERP operations from the perspective of the load on the database or the security/compliance mandates. BRPs can be deployed using a variety of different technologies and in many cases are custom built. Consider SharePoint or an existing ECM platform as an enabler. Stay consistent with Enterprise Architecture. Barely Repeatable Process (noun)* . Business processes that are specific to a particular enterprise and are difficult to accommodate. They are characterized by ill-defined or rapidly changing requirements and are often triggered by a phone call or e-mail to an employee. ERP is the domain of documented and repeatable processes. Most IT leaders spend a large amount of effort attempting to automate Barely Repeatable Processes. 1. 2. 3. * NOTE: The BRP concept has been most fully developed by Sigurd Rinde.
  36. 36. Move to Rip & Replace when faced with excessive cost or complexity Info-Tech Research Group There's no point in getting a bolt-on budgeting module and integrating it with an obsolete platform… know when to move. - Former CIO, telecom “ Info-Tech Recommends: The first limitation for Augment is time. When the enterprise can no longer respond to key requests for features from the business units, it is time to consider a Rip and Replace option. If Augment requests frequently linger for more than four months in the project list, explore the Rip and Replace strategy. Each bolt-on and customization brings it’s own needs for upgrading and maintenance. When the enterprise struggles to maintain an effective project portfolio for maintaining upgrades and maintenance requests, the augment strategy is no longer effective. This situation is characterized by an ongoing need to hire additional project managers and developers. When the cost of maintaining an Augment strategy becomes excessive, it is time to move to a Rip and Replace strategy. Use a three-year window as a guideline: if the total four-year operational cost of the ERP system exceeds the rough cut cost of a new deployment, move to Stick, continue maintenance requests, and explore Rip and Replace. There is a limit to the Augment strategy.
  37. 37. Applying Augment: Assign resources or bolt-on? Info-Tech Research Group
  38. 38. Rip & Replace: It’s too expensive to do anything else <ul><li>What is the “Rip and Replace” scenario? </li></ul><ul><li>Rip and Replace describes the complete replacement of an ERP system with a different system. </li></ul><ul><li>Rip and Replace generally occurs when an enterprise outgrows its existing system or when a system is so far behind the upgrade path (or “rusted”) that an upgrade is basically a complete Rip and Replace. </li></ul><ul><li>Why should IT leaders care about “Rip and Replace”? </li></ul><ul><li>Rip and Replace is a costly project in terms of capital investment and business disruption. </li></ul><ul><li>Rip and Replace also involves a great deal of risk. Failed projects ultimately cost jobs. </li></ul><ul><li>The Rip and Replace scenario is daunting due to the extreme amount of work required to effectively execute it. IT leaders need to follow a specific process and they need some exposure to appropriate vendors. </li></ul>There's no point in getting a bolt-on budgeting module and integrating it with an obsolete platform… Know when to move. - Former CIO, telecom “
  39. 39. All parties have an important role in Rip & Replace, particularly the VAR Info-Tech Research Group Reseller/VAR The reseller can be engaged at any part of the selection process. It is a valuable resource for guiding the customer through the selection process and advising the customer on what similar customers are doing. In general, it is always valuable to engage a Reseller/VAR early in the process, provided there is an existing relationship. Client/ Customer Has the responsibility to create underlying documentation and select the vendor. It must emphasize what business processes are actually important to the enterprise and verify those processes through conversations with references and, where warranted, pilot projects. Consultant The client may work specifically with a consultant to assist with the vendor selection process. The consultant may review and document the customer’s business processes and work with the customer to document requirements and project drivers. The consultant may also have a role in implementation. It is… very sensitive to switch vendors on any major system and it is absolutely foolish to believe that you’re going to be able to do all of it yourself. -VP of IT, large agricultural co-operative “
  40. 40. Rip & Replace involves a dedicated ERP project. Spend first two months building the project team & establishing the business case Info-Tech Research Group Establish the business need. Build the project team. Assess organizational readiness. Determine approximate cost. Develop the Business plan. The first step in an ERP project is identifying the need. Start with the gap analysis conducted as part of the annual ERP assessment. Pay particular attention to “Augment” requirements. Deliverable: A statement of direction. It should include the executive sponsor for the team and have representation from the business units that will be affected by the project. Ultimately, the CFO is probably the most important member. The project team will have an important role in both scoping the project and ultimately in product selection. Deliverable: A team list. Solutions may involve a great deal of technical and process complexity. Enterprises must ensure that they either have the appropriate resources in place or are willing to acquire or build those resources. The Annual Assessment is an effective starting point. Deliverable: Appropriateness assessment. If the preliminary requirements can be met by a set of products but those products are excessively expensive, then the enterprise must reconsider either requirements or approach. This cost can be difficult to quantify due to extreme range in quoted costs. Deliverable: A rough-cut cost estimate that meets senior management expectations. An important part of the project is to prepare a business plan that explores the potential benefits of a particular solution and how they will affect different parts of the organization. It should explore market dynamics and include both an opportunity assessment and recommendations. Deliverable: Completed business plan. :: Month 1 :: :: Month 2 ::
  41. 41. Months 3 & 4 of an ERP project get to the vendor shortlist Info-Tech Research Group Create requirements. Decide: Existing technology or go-to-market. Identify Vendors. Prepare RFP. Shortlist vendors. Moving from project objectives to a tactical plan requires the creation of functional requirements. They must identify what the system should do and, ideally, how it should be done. Deliverable: Completed solution specification. Reconsider the Augment scenario. With detailed requirements and a rough-cut cost, the Augment scenario may become attractive. Revisit the operational costs documented as part of the Annual Assessment to validate that Rip and Replace is still appropriate. The next step is to identify potential suppliers of packaged solutions. This long list should include considerations such as solution architecture, functional requirements, and vendor reputation. The list should be compiled in consultation with the project team. Deliverable: Vendor long list. The vendors must be compared in a consistent manner. The RFP presents an opportunity to ask questions that reflect requirements to potential vendors. The completed RFPs should then be assessed with consideration of both the requirements and the business plan. Deliverable: Completed RFP The project team must evaluate the RFPs to determine which vendor presents the best potential fit for the enterprise. Deliverable: Vendor short list. :: Month 3 :: :: Month 4 ::
  42. 42. By the end of six months, the vendor should be selected, and the project focus should turn to deployment Info-Tech Research Group Conduct demonstrations. Perform due Diligence. Negotiate. Plan deployment. Shortlisted vendors should conduct a product demonstration at the enterprise's site. The content of the demonstration should be scripted to a certain extent by the enterprise. Scoring of the demonstrations should happen immediately upon the conclusion of the demonstration. Deliverable: Completed vendor score cards. The demonstration process will likely result in a very short list including only a few vendors. The analysis must now shift to confirming the ability of these vendors and their integration partners to successfully complete the project. The final purchase price and contract terms must be negotiated with the vendor. This process ultimately results in a signed contract. Deliverable: Finalized contract. The implementation process begins with the creation of detailed deployment plan. The preparation of the deployment plan will occur in conjunction with the vendor and the implementation partner. Deliverable: Detailed deployment plan. :: Month 5 :: :: Month 6 ::
  43. 43. Always look at the top-tier vendors, but consider mid-market vendors when scale is not an issue Info-Tech Research Group 1 . The Cadillacs have the best features. The leading vendors offer the most diverse features and functions. The top-tier vendors are appropriate for enterprises with revenue that exceeds $200-million. Enterprises with revenue in excess of $1.5-billion should look primarily at the top tier vendors. 2 . But most people buy Chevies. Many enterprises eschew the top-tier vendors for something smaller and from a vendor that can better handle their requirements. If mid-market features are lacking, explore industry solutions. For alternative deployment options, consider Alternatives. 3 . Alternatives provide emerging options like SaaS and Open Source. Alternative deployment models are still relatively immature. The options offer considerably opportunity. Top-Tier Vendors Lawson S3 Microsoft Dynamics AX Oracle E-Business Suite Oracle JD Edwards EnterpriseOne Oracle PeopleSoft Enterprise Sage ERP X3 SAP ERP Mid-Market Vendors Agresso Business World Epicor Enterprise Epicor ERP Epicor iScala Epicor Vantage Exact Macola IFS Applications Microsoft Dynamics GP Microsoft Dynamics NAV Sage Accpac Sage MAS 500 SAP Business One SYSPRO Alternatives SaaS Aplicor Intacct Plex Systems Plex Online SAP Business ByDesign NetSuite Open Source Openbravo ERP xTuple 1. Top-Tier 2. Mid-Market 3. Alternatives 4. Specialists
  44. 44. Consider Industry Specialists when the requirements are very specific and the top-tier vendors are inappropriate Info-Tech Research Group 4 . Industry Specialists cater to specific verticals. Very specific requirements can only be met by vendors that cater to specific industries. Manufacturers, for example, require planning modules while non-profits have FASB reporting requirements. Manufacturing CDC Ross Enterprise Epicor Vista Infor ERP Adage Infor ERP LN Infor ERP LX Infor ERP SyteLine Infor ERP Visual Infor ERP XA IQMS EnterpriseIQ Lawson M3 QAD Enterprise Applications Professional Services Deltek Costpoint Deltek Maconomy Deltek Vision Microsoft Dynamics SL Penta Software Public Sector/Non-Profit Accufund Cougar Mountain Accounting Harris Computer Systems Infor FMS SunSystems Infor Hansen Public Sector Solutions Innoprise Manatron New World Systems Springbrook Software Tyler Technologies United Systems Technologies Education Datatel Jenzabar SunGard Higher Education Health Care Cerner Meditech McKesson 1. Top-Tier 2. Mid-Market 3. Alternatives 4. Specialists
  45. 45. Successful ERP implementations are characterized by the active participation of business owners & executive sponsors Info-Tech Research Group Most IT leaders place a high level of importance on the involvement of business units and executive sponsors. Avoid Excessive Cost (Again) IT leaders still have to protect the budget and inform the IT Steering Committee of challenges and overruns. The key thing with ERP is that this is a business solution, not a technological choice. To the degree that a business choice has a technological implications or cost implications, by all means point them out. But at the end of the day, the CFO makes the friggin' decisions! - Former CIO, large telecom “ Let the Business Drive ERP Involvement from the business is the key element of successful ERP implementation and operation. Let them own it.
  46. 46. Info-Tech Resources: Vendor selection & evaluation Info-Tech Research Group <ul><li>Info-Tech’s OptimizeIT resources on Vendor Management include a variety of tools for Vendor Selection and Evaluation , including: </li></ul><ul><li>Purchasing Policy Template </li></ul><ul><li>Vendor Selection Criteria Guide </li></ul><ul><li>Vendor List and Evaluate Tool </li></ul><ul><li>Request for Proposal Template </li></ul><ul><li>Proposal Receipt Template </li></ul><ul><li>Proposal Evaluation Tool </li></ul><ul><li>Other Vendor Management tools are related to Contract Negotiation and Managing Vendor Performance . </li></ul>
  47. 47. Applying Rip & Replace: New or major upgrade? Info-Tech Research Group
  48. 48. Next Steps: Continue the process <ul><li>What are the “Next Steps”? </li></ul><ul><li>The annual audit must be repeated every year. </li></ul><ul><li>Options like Augment must be reviewed several times each year as major feature requests are presented by the enterprise. Each time a major augmentation occurs the enterprise has to consider if it’s time to Rip and Replace. </li></ul><ul><li>The Rip and Replace option should be revisited each year based on the basis of cost. </li></ul>Info-Tech Research Group
  49. 49. Next steps for IT leaders interested in ERP Info-Tech Research Group <ul><li>Related Solutions Sets: </li></ul><ul><li>Develop an Enterprise Content Management Strategy </li></ul><ul><li>Select the Right CRM Software </li></ul><ul><li>Select an E-Mail Archiving Solution </li></ul><ul><li>Select the Right Collaboration Platform </li></ul><ul><li>Build a Data Warehouse on a Solid Foundation </li></ul><ul><li>Other content includes: </li></ul><ul><li>ERP Solution Specification Template </li></ul><ul><li>10 Tips to Trim 10% from ERP </li></ul><ul><li>A Solution Specification Simplifies Software Selection </li></ul><ul><li>Enterprise Apps Planning: Govern Consultant Involvement Closely </li></ul><ul><li>Enterprise Apps Planning: Minimize Business Stakeholder Objections </li></ul>Additional Research Share Your Experience Members of the Info-Tech community can share their experience : Share your story. We endeavor to learn from our clients and share their lessons with others. If want to share your insight on ERP or any other technology, please feel free to contact your account manager. They will put you in touch with the appropriate analyst.
  50. 50. Summary <ul><li>IT leaders do not own the ERP system. They do, however, have the responsibility of ensuring that the system meets the needs of the business and of controlling costs. </li></ul><ul><li>The ERP Annual Audit enables IT managers to establish an ongoing and regularly refreshed strategy for their ERP system. </li></ul><ul><li>There are always three options for ERP systems: Stick (do nothing), Augment with custom development or purchased components, and Rip and Replace. </li></ul><ul><li>Moving from Stick to Augment requires feature requests that cannot be met by maintenance activities. Moving to Rip and Replace is driven largely by cost and platform obsolescence. </li></ul>
  51. 51. Need Additional Support? Info-Tech goes beyond research: Speak directly to an analyst and/or engage on-site consulting services to help your team achieve results. Email our Advisory Team to find out how we have helped other clients and get your ERP initiative started today! Trigger Point: Understanding ERP Aligning Enterprise Goals with User Needs Making the Business Case Our Advisory & Consulting Services Performance of high-level scoping, assessment of enterprise readiness, and gathering of preliminary ERP requirements Identification of primary drivers for ERP purchase, upgrade, or replacement and business case development Trigger Point: Developing a Strategy for ERP Selection Understanding the Current State Defining Functional and Technology Requirements for ERP Our Advisory & Consulting Services Definition of existing ERP business processes; assessment of existing policies and technologies Identification of process, policy, and technology areas that can benefit from an ERP purchase, upgrade or replacement and documentation of requirements Trigger Point: Comparing ERP Vendor Offerings Reviewing the Vendor Landscape Identifying and Selecting Solutions that Meet your Needs Our Advisory & Consulting Services Preliminary vendor short-listing, based on established functional and technology requirements Request for Proposal (RFP) development and vendor response evaluation
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