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ERP Software Selection: Getting It Rght

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For companies selecting an enterprise software solution packages - ERP - here is a guide for qualitative and quantitative assessment of ERP packages from different vendors.

For companies selecting an enterprise software solution packages - ERP - here is a guide for qualitative and quantitative assessment of ERP packages from different vendors.


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  • 1. • Cognizant 20-20 InsightsERP Software Selection: Getting It RightFinding, configuring and implementing best-fit enterprise softwarerequires a methodical approach that starts with custom vs. packagedevaluations and includes a searching assessment of organizationalneeds, vendor strengths and weaknesses and competitor strategies. Executive Summary • The opportunity to adopt industry best practices. Manufacturing organizations embark upon enterprise system implementation or develop- • Packaged ERP solutions are well proven and ment programs for multiple reasons. The primary stable. motivations include: • Better systems documentation. • Business transformation: Top management • Established upgrade roadmap. decides to undertake a program to significantly raise the top line or bottom line. • Easier and cheaper to maintain. • Availability of skilled resources. • Business process harmonization: Similar to a business transformation exercise but at a scale However, ERP package selection is a compli- where the objective is to generate process cated exercise. There is a myriad of ERP appli- benefits and harmonize activities across the cation packages available in the market with a organization. range of deployment options. Moreover, most ERP packages claim to offer comprehensive, but • Technology upgrade/replacement of legacy similar, functionality. system: Initiated by the IT organization to replace an end-of-life product or service with The objective of this paper is to outline key issues similar functionality and reduce application faced by organizations selecting ERP packages management costs (AMC) and total cost of and present a set of guiding principles that ownership (TCO). increase the odds of a successful implementation. The primary question that decision makers often When ERP Package Selection face is whether to develop a custom solution or Goes Wrong implement a packaged solution. While there are complex and unique business scenarios that merit Selecting an inappropriate ERP package can the development of custom solutions, most orga- result in a plethora of problems. An ERP system nizations will benefit from a packaged enterprise that is not a right fit tends to weigh down the systems solution for various reasons: entire organization. There is the tendency on the part of people to generate alternative manual • Shorter implementation timelines. approaches and work around ERP system ineffi- cognizant 20-20 insights | november 2012
  • 2. The Outcome of Bad ERP Selection System Costly upgrades.Excessive customization. Inefficient processes. Process Lack of system support for key processes. Inaccurate reporting Demotivated employees. People information. Lack of staff adoption. Takes longer to execute the same processes.Figure 1ciencies. This can compromise security and audit tional strategy, reduce costs and improve pro-requirements and have a debilitating effect on ductivity. An Aberdeen group study estimatedemployee morale. that best-in-class ERP implementations reduced inventory by as much as 22% and operating costsThe financial consequence of selecting a wrong by as much as 20%.1 Figure 2 provides a snapshotERP is significant. There are examples of manu- of benefits of a successful ERP implementationfacturers spending substantial amounts of time based on a 2011 Aberdeen report.and money on ERP implementations only torealize that a different ERP system would have Why ERP Selection Is Difficultbeen a better fit. The ERP software space is crowded with multiple vendors and represents a worldwide market sizeFigure 1 provides a snapshot of key issues of more than $45 billion in annual revenue.associated with selecting the wrong ERP package. What makes it even more complicated for an orga-Benefits of Getting It Right nization evaluating ERP options is that there is aOn the brighter side, there are benefits of getting shift in the ERP market itself. Forrester reportsit right. When implemented effectively, ERP can three key trends shaping the ERP market:2improve alignment of processes with organiza-ERP Implementation Benefits Improvement in complete and on-time shipments Improvement in internal schedule compliance Reduction in inventory Reduction in adminstrative costs Reduction in operating costs 0% 5% 10% 15% 20% 25% Laggard Industry Average Best in ClassSource: Aberdeen Group, “ERP Selection: Starting out on the right foot,” August 2011.Figure 2 cognizant 20-20 insights 2
  • 3. • More choice in how to consume ERP apps — Key Guiding Principles for e.g., hosting, partner hosting or pure software ERP Package Selection as a service (SaaS). The following sections of this paper offer a unique• Increased flexibility in tailoring ERP apps by perspective gained from assisting multiple orga- incorporating graphical workflow/business nizations to select ERP packages across different process management tools. industries facing various business imperatives. While every package evaluation is unique, what• More access to data held in ERP apps by making follows are key guiding principles buyers should these apps user-friendly and adding advanced analytics capabilities. consider to bolster ERP package selection success (see Figure 3 for a consolidated view).These developments mean a mind-bogglingamount of choice for the ERP buyer. ERP package • Combine package selection with business transformation. When asked in an Aberdeenselectors now grapple with issues such as: Group survey about the top reasons for• How to evaluate packages? replacing the current system with an ERP system, respondents revealed some clear• What selection criteria should be used? trends.3 All companies were concerned about• How to ensure the ERP product complements “feature fit,” with well over half of all companies the organizational business strategy? listing this as a top reason for system replace-• What is more important to assess – process ment. The second most common reason was breadth or depth? the need for “technology modernization.”• How to minimize the impact of change on the Given this background, it is easy for companies ground staff and ensure business as usual to fall into the trap of treating package selection continues? as a “technology” project. By doing so, we believe, organizations miss a great opportu-• How to manage change? nity to transform their business processes.• How to ensure the project stays within the Organizations that base the package selection overall budget? exercise on proposed future-state processes• How best to approach the executive decision — incorporating process improvements, rather committee with a proposal for the new ERP than current-state processes — are better package? positioned to reap maximum benefits from an ERP implementation. In addition, by realizing that technology is a means to a business “end,” companies increase the odds that theGuiding Principles for ERP ERP implementation will not only addressPackage Selection true business needs but will gain greater user acceptance within the organization. A critical question to ask before selecting an 1 Combine ERP system is “What is my organization’s package selection strategic motivation for the ERP project?” As with business 6 transformation 2 previously mentioned, most ERP initiatives Don’t boil tend to be driven by either business or IT moti- Lifecycle TCO the ocean vations. If the strategic motivation stems from 7 process or organization issues, and not just IT Business case concerns, this more comprehensive approach along with package 5 selection 3 to package evaluation will greatly benefit the Establish what organization. Also, it is imperative to define a See, touch makes your and feel the business case to quantify the cost benefits of organization solution 4 different implementing an ERP system. Usability is important too! • Don’t boil the ocean. When embarking upon a package selection process, it is tempting to consider a wide array of packages for the baseline list. Apart from more than a dozen mainstream ERP packages, there are numerousFigure 3 industry-specific variants. cognizant 20-20 insights 3
  • 4. Shortlisting more than four or five ERP sarily support the organization’s most critical solutions for detailed analysis, however, has processes. the adverse effect of reducing the focus on We recommend that an organization make a specific package functionality. Selecting a list of all critical processes that differentiate package based on a high-level assessment itself from its competitors (e.g., mixed model might result in a wrong ERP package selected planning for an automotive manufacturer, or and configured. timber processing for a wholesale building We recommend that package selection teams material distributor). A detailed analysis of conduct a preliminary exercise to determine these processes and their associated require- a few key ERP vendor candidates for in-depth ments will ensure that the package evaluation consideration. To determine this baseline list, is done on the basis of processes that are most consider the following: critical to the organization. >> Industry fit: Do you have unique require- While the process of identifying critical ments? Are you weighing generic ERP vs. processes for an organization needs to be industry-specific packages? Do the vendors tailored to each organization, there are some have reference customers of the same size common starting points. If the organization as you are? has documented business processes in a past study, this can be used as a starting point >> Core strengths: What are your core for the list of processes. If processes have strengths? How best can you enable these never been documented in the past, industry via the ERP package? Does the package standard process frameworks like APQC4 and complement your production and delivery SCOR5 can be useful for creating a base list of systems (i.e., made to order or made to critical business processes. stock)? In addition to the above, several other factors >> Industry norms: What ERP packages are need to be considered in ensuring that the ERP generally popular within your industry? has the proper “fit.” These include: >> Vendor sustainability: Does your organiza- tion have an existing relationship with the >> Ability to reskill existing staff, if needed. vendor? If not, can one be created? >> Process maturity.• Establish what makes your organiza- >> Aversion to change within the organization. tion different. It is easy to fall into the trap of evaluating potential solutions based on >> History of past ERP successes/failures. organization-wide processes. This approach • Usability is important too! It has been has two issues associated with it; one, the documented in surveys that manufacturing pro- effort involved in evaluating solutions is much fessionals don’t view enterprise applications as greater, and two, the solution might not neces- very easy or intuitive to use (see Figure 4).ERP Usability Assessment Percent of survey respondents Very easy and intuitive10% Difficult to use 10% Somewhat easy for straightforward tasks 53% 37%Source: Usability and Agility of ERP Solutions, IFS North America.Figure 4 cognizant 20-20 insights 4
  • 5. Only 10% agree that when dealing with individual — sufficient focus must be givencomplex business issues, enterprise applica- to usability.tions are very easy and intuitive. Another 37%say enterprise applications are somewhat easy >> Place of application: The same business functionality may require different usabilityfor straightforward tasks but more difficult for requirements based on the place of applica-advanced usage. The other half of respondents tion (e.g., entering a sales order across theviews enterprise applications as being difficult counter vs. creating an order while stand-to use.6 ing in the yard).It should be clear then that the evaluationprocess for ERP systems must consider • See, touch and feel the solution. It is not sufficient for organizations to just analyzeusability as a critical success factor. In order to software solution brochures or obtain aassess the usability of a system, the organiza- high-level assessment of requirements bytion should set various evaluation parameters the vendor. It is important that the vendorsbased on factors such as: participating in the evaluation are able to>> Ease of use and intuitiveness: Transac- present their capabilities in these required tions should be designed to lead the user areas. Ideally, vendors must be provided with through a procedural flow — prompting for sample scenarios based on real-life situations, data entry rather than relying on the user to present their capabilities. ERP package to know that data entry is required. vendors should be asked to demonstrate these scenarios through demos/workshops. These>> Common navigation techniques: Use of demos should be assessed by a cross-function- mouse-independent support with configu- al team of IT and business experts. rable function and navigation keys. While such an assessment requires investment>> Access to information: Ability to display in the form of time and money, this is insig- relevant information supporting the type of nificant compared with the business costs and transaction on-screen and the availability risks of getting it wrong! of options to drill down into granular levels of detail on demand. • Lifecycle TCO. A Harvard Business Review study of budgets of 1471 enterprise system>> Coherence: Coherent look and feel across projects found that the average cost overrun various areas/modules within an ERP. For was 27%.7 example, similar screens for sales and pur- chasing that enable consistency between This underscores the importance of estimating functions. costs when selecting an ERP package. The evaluation process must result in quantifiable>> Customizability: Flexibility to customize and comparable measures. The assessment content and flow to suit varying business process should evaluate the fit of each scenarios without having to interfere with vendor’s solution to functional requirements the core software product. and usability parameters and translate theOther aspects that require consideration while same into effort required and associated withevaluating usability are: monetary value. A dipstick assessment of the>> End-user profile: The needs of an IT staff vendor’s analysis of the effort by evaluating member will be very different from that of demonstration scenarios is recommended. This a sales till operator. will help in determining whether the vendor’s evaluation is over- or underestimated so>> Size of user base: If the user base is small, it necessary corrections can be made. might be possible to train the users in a more complex system without compromising the The total cost calculation must include overall benefit of the implementation. parameters such as:>> Frequency of use: Usability will not pose as >> Hardware cost. significant a factor when a sparingly used >> Software cost. application is concerned. >> Licensing cost (both hardware and soft->> Business criticality: In the case of very ware). business critical functions, even if an appli- cation may be sparingly used — by, say, one >> Training and change management cost. cognizant 20-20 insights 5
  • 6. >> Cost of allocation of internal resources. as the solution can be adapted, there is merit to proceeding with an implementation. Outlining the >> Cost due to business disruption (e.g., days vision needs to be followed by effective execution or hours of stoppage, loss of trade due to to ensure organizational goals are met. implementation, etc.). >> Application management costs. • Envision: Outlining the vision of success. It is critical to identify baseline parameters to >> Integration costs. be used as success measurement criteria post Costs should also be split into one-time and implementation. This is especially important recurring costs. Recurring costs must be in large, multisite ERP implementations where calculated for the expected usable life of the there is scope for fine-tuning future rollouts software. based on measurements of success. • Business case along with package selection. According to the previously cited Aberdeen In 2011, Ingram Micro, a distributor of systems report, best-in-class companies are almost hardware and software, reported two con- twice as likely as other companies to use quan- secutive quarters of profit shortfalls which it tifiable benefits to measure an ERP implemen- blamed on problems incurred during an ERP tation.8 Those same companies are also more implementation in Australia. There are other likely to measure a return on investment on an instances of ERP implementations not yielding ERP system. expected results. Most of these problems • Measure: Benchmark and measure KPIs. indicate a failure in identifying the associated Once the success measurement criteria have costs and the potential benefits from an ERP been defined, it is recommended that orga- implementation. nizations keep track of KPIs that may be Two fundamental approaches can be used to impacted when the system goes live and have create a business case for ERP — qualitative a measurement process to ensure that success and quantitative assessment. These represent is reported. If the impact on metrics is above the two ends of a spectrum. or below expectation, then corrective action Qualitative assessments are should be taken. For instance, if the goal of an Considering the usually based on instincts organization is inventory reduction, corrective complexity involved and gut feel, whereas quan- action might be needed in other areas that influence inventory management (e.g., better in selecting ERP titative assessments are methodical and based on supplier relationships for achieving lead time solutions, it is not available data. While the reduction that would reduce safety stocks). surprising that former approach can be KPIs measured should include business andmany ERP selection conducted quickly processes, a larger scope of and cover technology gauges from a customer and internal perspective. Examples on the cus-decisions are stalled the latter will provide greater tomer-facing side include perfect order fulfill- for want of more insight into actual benefits. It ment, delivery lead times and customer satis- information. is a good practice to use both approaches as a filtering faction scores. Internal KPIs include metrics such as inventory days, total supply chain process, starting with qualita- management cost and outbound logistics costs tive assessment and then proceeding towards — all of which provide great perspective on how quantitative assessment for a select few areas the ERP implementation impacts organiza- that are deemed high benefit. tional efficiency. On the technology side, imple- Envision, Measure and Execute mentation costs, AMC, number of resources supporting niche technologies, etc. are useful Taking a strategic view of the package evaluation to measure costs and risks. engagement is a prerequisite to achieving the desired results from such an exercise. • Execute: There is a cost to not doing anything! Considering the complexity involved This means outlining the vision of success for an in selecting ERP solutions, it is not surprising ERP during the package evaluation exercise and that many ERP selection decisions are stalled realizing that things can never be perfect. As long for want of more information. cognizant 20-20 insights 6
  • 7. The dimension that is often overlooked is the Organizations must realize that that no ERPcost and risk associated with business delays. If system is perfect. The goal of the ERP selectionthe organization is currently running an outdated exercise is to select a system that can be success-system, lost sales, excess inventory and high fully adapted to the business in time to generatesystem maintenance costs can and often do result. business value.Footnotes1 ERP Selection: Starting out on the right foot, Aberdeen Group, 2011.2 Paul D. Hamerman and China Martens, The State of ERP in 2011: Customers Have More Options in Spite of Market Consolidation, Forrester Research, May 2, 2011.3 ERP Selection: Starting out on the right foot, Aberdeen Group, 2011.4 http://www.apqc.org/5 Supply Chain Operations Reference Model. http://supply-chain.org/scor/6 Usability and Agility of ERP Solutions, IFS North America.7 Why Your IT Project May Be Riskier Than You Think, Harvard Business Review.8 ERP Selection: Starting out on the right foot, Aberdeen Group, 2011.About the AuthorGanesh Iyer is a Consulting Manager with Cognizant Business Consulting (CBC) and is a core teammember of the Manufacturing and Logistics Practice. His primary areas of expertise include supplychain management and business process harmonization. He has extensive experience advisingcompanies on ERP selection and implementation issues across manufacturing industries. Ganeshhas an M.B.A. from NITIE, Mumbai and a B.E. in mechanical engineering. He can be reached atGanesh.Iyer@cognizant.com.AcknowledgementsThe author would like to recognize the following members of CBC’s Manufacturing and Logistics Practicefor their contributions to this white paper: Krishnan Menon (KrishnanJ.Menon@cognizant.com), RamjiMani (Ramji.Mani@cognizant.com) and Raghu Ramamurthy (Raghu.Ramamurthy@cognizant.com).About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 145,200 employees as of June 30, 2012, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com©­­ Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.

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