The Value of an ERP Evaluation/Selection
It’s time to replace your ERP system. Considering the length of the effort, do you really need to take the time to do an Evaluation Project first? Why not just pick a leading candidate and get started?
Skipping the evaluation is certainly an option. But this approach comes with a few key risks, namely:
When the team encounters the inevitable difficulties of implementation without upfront buy-in, they begin to question whether this vendor is a good fit after all. Some teams get through the first few obstacles gracefully but eventually lose faith when more challenges keep cropping-up. Putting an implementation on hold or shelving it for good is an expensive lesson. Even if the company drives through to cutover, it’s an uphill battle when there is lingering doubt.
Conversely, companies who evaluated multiple candidates already know there’s nothing better out there. Each vendor had gaps in different areas and they selected based on which gaps were easier to overcome or in less critical areas of their business. Thus they have confidence in the solution and it lightens the load during implementation.
Humans commonly report satisfaction based on the expectation metric: “Did I end up getting what I initially expected?” At the beginning of any ERP transformation project most companies would rate ambiguity at 50%. Roughly half of what they see in initial demonstrations meets with what they envisioned. Thus, it shouldn’t be a surprise when expedited ERP replacement projects generally result in less satisfied customers than their counterparts who did more due diligence up front.
Bottom line, the primary purpose of the Evaluation Project is to align expectations; both within your organization and with your outside implementation partner. While 10-20% ambiguity still remains at the end of the selection, there is a likely chance you’ve got prior conversations and notes from which to work through any differences of opinion.
If you haven’t taken the time to establish a vision or design blueprint in advance, you may encounter the following:
- The team configures the new ERP tool to function exactly like their legacy system. It’s easier to change the collective paradigm when considering multiple options and harder when expensive consultants are on-the-clock waiting for you to decide.
- The new system gets configured progressively and in pieces by different people; more likely resembling the Winchester House than the Pentagon.
- The team blindly adopts all processes based on the vendor’s best practices; then after cutover they discover tons of exception cases where users routinely circumvent the system.
Conversely, companies who first conducted an Evaluation Project are more likely to have a collective vision on which to base their new business processes and system configuration.
There are limited negotiations in circumstances without the prerequisite evaluation. Another big risk is that you buy modules the company doesn’t need or that the user counts are off-base. There are no refunds allowed in software licenses/subscriptions. Many companies attempt to just buy a minimal footprint upfront, but those come at list price and the big incentive discounts are usually not available once you’re part of the vendor’s captive audience install-base.
Conversely, the Evaluation Project provides an opportunity to leverage competitive pressures and achieve preferential pricing. Frequently a vendor will offer financial incentives in response to shortfalls revealed during detailed demonstrations and discussions. Plus you’ll have more confidence the quoted modules and user counts are right-sized to your company’s post-cutover needs.
While the software cost data is reasonably available under these conditions, the implementation fee and internal effort estimates are not. In these cases there is a high probability the project will encounter timeline extensions, change orders, and budget overages. Even if this risk is communicated when initial approval is sought, the Board of Directors’ response to delays and requests for more funds is usually the same – disappointment.
Advance notice about the following elements help to fine tune the implementation cost estimates: a) requirements; b) functional gaps; c) anticipated interfaces; d) business process complexity; e) data conversions and readiness; e) scope; f) technical gaps; and g) goals and metrics for success.
Evaluation Due Diligence
In a nutshell, it’s important to do a certain amount of pre-purchase due diligence; whether it involves a full Evaluation Project, a two-vendor Bakeoff or a Fit Analysis. The team saves minimal time by jumping right into implementation because eventually they still need to define requirements and discover/understand the vendor’s capabilities to support those needs. Contact us if you would like to learn more.