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

1. • Cognizant 20-20 Insights
ERP Software Selection: Getting It Right
Finding, configuring and implementing best-fit enterprise software
requires a methodical approach that starts with custom vs. packaged
evaluations and includes a searching assessment of organizational
needs, 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 1
ciencies. 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 estimated
employee morale. that best-in-class ERP implementations reduced
inventory by as much as 22% and operating costs
The financial consequence of selecting a wrong by as much as 20%.1 Figure 2 provides a snapshot
ERP is significant. There are examples of manu- of benefits of a successful ERP implementation
facturers spending substantial amounts of time based on a 2011 Aberdeen report.
and money on ERP implementations only to
realize that a different ERP system would have Why ERP Selection Is Difficult
been a better fit. The ERP software space is crowded with multiple
vendors and represents a worldwide market size
Figure 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 a
On the brighter side, there are benefits of getting shift in the ERP market itself. Forrester reports
it right. When implemented effectively, ERP can three key trends shaping the ERP market:2
improve 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 Class
Source: 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-boggling
amount of choice for the ERP buyer. ERP package
• Combine package selection with business
transformation. When asked in an Aberdeen
selectors 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 the
Guiding Principles for ERP ERP implementation will not only address
Package 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 numerous
Figure 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 given
complex 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 usability
for 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 the
views 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 evaluation
process for ERP systems must consider
• See, touch and feel the solution. It is not
sufficient for organizations to just analyze
usability as a critical success factor. In order to software solution brochures or obtain a
assess the usability of a system, the organiza- high-level assessment of requirements by
tion should set various evaluation parameters the vendor. It is important that the vendors
based 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 the
Other aspects that require consideration while same into effort required and associated with
evaluating 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 and
many 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 ERP
cost and risk associated with business delays. If system is perfect. The goal of the ERP selection
the 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 generate
system maintenance costs can and often do result. business value.
Footnotes
1
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 Author
Ganesh Iyer is a Consulting Manager with Cognizant Business Consulting (CBC) and is a core team
member of the Manufacturing and Logistics Practice. His primary areas of expertise include supply
chain management and business process harmonization. He has extensive experience advising
companies on ERP selection and implementation issues across manufacturing industries. Ganesh
has an M.B.A. from NITIE, Mumbai and a B.E. in mechanical engineering. He can be reached at
Ganesh.Iyer@cognizant.com.
Acknowledgements
The author would like to recognize the following members of CBC’s Manufacturing and Logistics Practice
for their contributions to this white paper: Krishnan Menon (KrishnanJ.Menon@cognizant.com), Ramji
Mani (Ramji.Mani@cognizant.com) and Raghu Ramamurthy (Raghu.Ramamurthy@cognizant.com).
About Cognizant
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