Abstract

The process of selecting a new accounting or ERP system can become very time consuming and frustrating. Rather than presenting a multi-page document that discusses each task you need to accomplish, let’s concentrate on a single issue: evaluating the system itself.

At this point in your accounting and ERP software evaluation project you should have completed at a minimum the following significant tasks.

• You have solicited and received the buy-in from each significant stakeholder: executive, CFO, CIO or IT manager, line of business managers, sales and marketing managers and staff and finally the people in the trenches (those people who will actually be using the system on a daily basis).
• You have met with each of these stakeholders and determined what from their perspective they like and dislike about your current system.
• You have met with various executives and managers and determined what the company needs to do well to achieve excellence.
• You have also met with executives and managers to determine the direction the company will be taking in the future (current direction as well as expansion into new industries and geographic territories).
• You have figuratively speaking taken the company apart and put it back together to enable it to become more competitive (some may call that process improvement) and have launched improvement projects to transform the business.
• You have met with stakeholders and determined what features, functions and reports the new system should support to achieve the company’s strategic and operational objectives, some of which may be future events that “might” happen.
• You have researched various product options and discussed your requirements with vendors and/or software resellers.
• You have conducted a very high level needs analysis to identify and eliminate those products that clearly cannot meet your most important operational and business intelligence requirements.

Now we have reached the point in time where this article becomes relevant. The only products being considered are those that appear to meet your most important requirements. Although you have not yet actually “seen” the product in the level of detail you will need, the vendor or reseller has confirmed the fact that their products can meet these requirements. This hands-on evaluation will either confirm or deny the relevancy of those products under consideration and you will decide which products move forward.

Step by Step Analysis

A proper hands-on product evaluation (a.k.a.demo) cannot be completed in a single day. This also applies to an evaluation of a mid-market accounting system. Keep in mind the fact that there are several significant stakeholder groups and each need to view the system. Actually some people might need to view the system twice. The first viewing would concentrate more on ease of use while the second viewing would analyze detailed functional processes. Some people will need to actually “touch” the system as they will be asked to enter transactions and this will require some time to complete. Given all of this you will need to decide who should attend a demo, when and the format of the meeting (viewing from above or actually operating the system).

Functional Requirements

An accounting and ERP software evaluation project must start with a very detailed analysis of features and functions. RFIs (Request for Information) are important decision tools. If a product does not support a significant number of key requirements, it should be eliminated from further consideration regardless of how good it is in other respects. It doesn’t even matter if a product is generally accepted in the industry. If it doesn’t do what you as a unique firm need it to do, then it probably isn’t right for you.

The RFI analysis can be scheduled as a two-step process. Take the RFI you created (If you didn’t create an RFI, then stop and do so!) as you evaluated your current system and created a vision of your future. Identify all of the requirements that are very important to critical. Use this same check list to vet each product under consideration. Look first at the critical requirements that cannot be met. Then look at the requirements you identified as being important, but not necessarily critical.

If a product does not meet a sufficient number of your critical requirements, particularly when compared against other products under consideration, maybe it should be eliminated. Of the products remaining, identify the important requirements that cannot be met. Then determine if these requirements can be met via an existing third party enhancement that has been thoroughly tested. If no third party enhancement is available, can the product be customized? Finally, compare the list of shortcomings for each product. If one product is clearly weaker than other products, decide whether it should be eliminated or not.

At this stage in the accounting and ERP software evaluation process you are looking for products which you and a majority of your users like (first impression discussed below) and one that can do what you need it to do. Whether you eliminate a product now or later is really not that important other than the fact that evaluating any product is very time-consuming. If the products you decide to carry forward are supported by the people who will be asked to use them, then it’s OK to eliminate one or more products as you move forward.

First Impression

While it’s all too easy to immediately launch a detailed hands-on analysis of a candidate product, you really need to approach this in the proper order. The first step should be a high level view that gives people an overall sense of a product. Since resellers and vendors are all too eager to give you a “dog and pony show” to promote what they think are a product’s strengths, give them this opportunity. Let them show their product and all of its glory (with some controls of course to keep them on track). Your objective here is a little different. You want to give your users an opportunity to form an initial impression of a product.

First impressions can become in many cases a self-fulfilling prophesy. If a system seems to be complex and the data input process more time consuming than with their present system, these first impressions may become difficult to overcome. Imposing a complex system on people who have not had an opportunity to view it first and approve it may prove to be a significant issue.

While first impressions are extremely important, you need to submit to your users products that meet your functional and transactional requirements. It makes no sense to ask people to spend a significant amount of time evaluating a system if it doesn’t meet certain minimum standards. That’s why you need to complete the detailed functional analysis first.

Touch the Product

High level views of a product are important, but some people really need to “touch” the system. This is particularly true for people who are going to be responsible for transactional input. Modern accounting and ERP systems have become powerful tools that give firms more control over their daily operations and certainly more business intelligence. Unfortunately the achievement of this power may impose more burdens on people than you might realize particularly if you don’t really need everything that a product provides. That’s why it’s critically important that people assess how a product is going to fit within the business processes of your unique firm.

This hands-on analysis should concentrate on two key areas. How long is it going to take to complete a transaction such as an AP invoice? Second, to what degree do the business processes as required by the accounting or ERP system possibly conflict with the preferred business processes of your firm?

Business intelligence applications can give people very useful information, but the extraction of that information usually requires the addition of data fields that were not present in your “old” system. That’s OK as long as you understand that it’s going to take more time to complete the transactions that contain the added fields. The more information you need, the longer it takes to input source transactions. You need to strike a balance somewhere.

To some extent the same argument holds true for business processes. Workflow can become a very powerful tool that helps people do what they need to do, but at the same time it can impose activities on people that do not need that level of control. The larger the system the more it has the potential to impose processes that are not needed or wanted. As your accounting and ERP software evaluation process moves forward, you need to understand what the system will impose on you and whether this imposition is appropriate for your firm.

Third Party Enhancements

No accounting or ERP system can provide everything every firm needs out-of-the-box. With limited resources vendors have to decide what functionality they are going to create and what functionality they are going to encourage third parties to create. Since it is very likely that your evaluation will reveal functionality gaps, it is vitally important that you determine if there are third party enhancements that address these gaps. Of course this also means that you will need to evaluate these applications just as you are going to review the core accounting functions.

Customization

If the products you are evaluating do not meet all of your functional requirements and you cannot find acceptable third party enhancements, some degree of customization will be required. My first suggestion would be to see if it’s possible to eliminate the need to customize a product in the first place. If there are other products that do not require the same degree of customization, maybe you should eliminate from further consideration a product that requires substantial customization. I realize that this candidate for elimination might be a crowd favorite, but substantial customization should be avoided if possible.

If no product supports what you need, maybe you should change your business processes. I realize that you might think you need certain functions, but it makes no sense to customize a system if you can change the way you do business. Maybe the fact that no product supports what you think you require is a sign that you need to change?

Business Reporting and Intelligence

This is probably one of the less complex issues you will need to address in any accounting and ERP software evaluation. At the same time it is one of the most important considerations. Today’s products all support some form of Business Intelligence (BI). Even mid-market and small business products support fairly sophisticated reporting systems. My challenge to you is this. What do you really require in terms of BI? Given the fact that you can extract just about anything you need, the evaluation really should focus more on what you think you require rather than a product’s ability to slice and dice data. Since it’s extremely easy to create reports and graphs, it’s also extremely easy to produce too much of what you really don’t need.

I have addressed this issue in several past articles and would therefore refer you to these articles if you are interested, but would also summarize my thoughts as follows.

• Ask yourself why you need the information you think you need. Challenge people to justify their need for specific BI information just as you challenged yourself to justify a new accounting or ERP system.
• If you are going to improve business performance, you must start by identifying the key drivers that influence your bottom line. I am not convinced that people spend enough time identifying what they really need to do well. Key drivers are like common denominators. There are no underlying factors that influence their behavior. Identify these key drivers and control them and those business processes that are affected by these key drivers will improve as the key drivers improve.
• Truly effective business metrics give you a basis for comparison that either tells you where you are going and whether you are above or below expectations. As I have said many times in the past, bar charts and pie charts are pretty creatures, but they tell you nothing as does every other “status report”. Status reports are static by their very nature and therefore will never support the decision making process. You need to create a system that tracks key business drivers and helps you understand where you have been, where you are, and where you appear to be going. In addition you need to determine where you would like to be. That’s your target and that’s what you compare against your actual performance.
• Consider creating an interactive Exception Management reporting system. If you identify key drivers and you present that information in terms (mostly line charts with some form of regression analysis and forecasting) that will allow you to see where you need to concentrate your efforts, you have two of the key ingredients for an effective Exception Management system. Use the system to analyze this data and build in alerts that help you become more proactive than reactive. Then take the last critical step. Build a task management system that allows you to track your efforts to control and improve key drivers. A task manager is not unlike a contact manager in that it allows you to record notes and schedule reviews. It also needs to support collaboration so that multiple people can be working on the same issue and sharing their thoughts and analysis.

Customer Relationship Management

Customer Relationship Management (CRM) systems can become powerful tools to generate new business and hold onto the business you already have. The real question is whether the products you are evaluating support CRM the way you would like to practice CRM. Some CRM systems are so powerful that they actually get in the way of efficient and effective sales and marketing activities for individual firms.

Evaluate the CRM system associated with the product you are evaluating. Does it support the way you would like to run your CRM activities? Does it offer the functionality you need as a unique firm? Does it offer so much functionality that it gets in the way? Are there other CRM products that more effectively support what you want to do? To what degree are these products integrated with the product being evaluated?

CRM doesn’t necessarily drive your business, but it is the gateway to new customers. People need to look on the CRM system as their business ally, not their business foe.

User References

While first impressions and hands-on testing of candidate accounting and ERP systems is critically important, these experiences are not the same as day-to-day “testing”. That’s not possible so you are going to have to rely on current users to paint a possibly different picture. Your task is not as easy as it might seems because the most readily available references are those provided by vendors and resellers and these firms are hand picked to represent the best of the best. If users are truthful, they will provide information regarding success as well as challenges they have faced.

By all means talk to vendor and reseller provided references. You might even consider site visits if the reference is fairly close. Don’t stop there though. Product specific user groups can be identified and contacted. Their experiences might be very educational. You might also try web sites such as Toolbox.com that allow participants to literally ask a question such as “Does anyone have any experience with Product X”?

Vendor and Reseller Evaluation

If a product has passed all of the tests you have subjected it to, your final analysis should concentrate on the vendor and reseller. Do the vendor and reseller both appear to be stable financially? What is its roadmap for product development? Is this a new product to the market, an older product that may be declining or a product that is growing in terms of popularity? Who is going to be responsible for support? How quickly will support people address your issues?

In the end the most important question needs to be asked. Is the potential relationship with the vendor and/or reseller one that is more like supplier/customer or true business partner? The services provided by your prime contact (vendor or reseller) can answer part of this question, but your gut feeling is more important. If you are going to establish a relationship with a reseller or vendor, it should feel more like partnership rather than a strict business relationship.

Buy-In

You needed a buy-in from all stakeholders before this accounting and ERP software evaluation project launched, and you will need this buy-in now before you move forward to a purchase decision. Hopefully the vast majority of your users have all concluded that a single product was superior to all others and are eagerly awaiting its implementation. That’s the ideal case. Reality says that people will have questions and issues that need to be addressed. By all means address every issue as it arises. The fact that someone might not have voiced a concern doesn’t mean they have no concerns. It might just mean that they were reluctant to do so.

As you move from step to step in this evaluation process, make sure people feel comfortable moving forward. If several people have the same concern, make sure these issues are addressed before you move forward. Don’t ignore people and don’t “wait until later” to address issues. You want people’s buy-in on a continuous basis, not a specified point in the process.

Conclusion

The accounting and ERP software evaluation process can become time-consuming and that’s OK as long as you are spending your time wisely. Of course “your time” means everyone involved in this evaluation project. Having identified through your research products of interest, you will need to follow this step-by-step process rigorously. The initial steps you take are more allied with eliminating products from further consideration, while the final steps are really geared to painting a picture in everyone’s mind of how a candidate system could be used on a daily basis. Start with several products. Limit the number of people participating initially as those people will be responsible for a single task: determining which products meet a minimum level of your functional requirements and which products do not. As you move forward, more people should become involved as they are going to be asked to use the system on a daily basis. In the end you want people to look forward to the system they have had a hand in evaluating.

Abstract

Why do I keep on discussing accounting and ERP software selection? It’s really quite simple. Accounting software selection (small to mid-sized firms) or ERP software selection (larger and/or more complex firms) projects are difficult, time consuming and frustrating at the best of times. Compound that with a less than effective selection plan (or a poorly executed selection plan) and you can almost guarantee failure; either failure to achieve many of your objectives or failure altogether. While I could spend the next ten pages discussing every task that should be included in your software selection project, let’s just highlight some of my top concerns.

Start at the Bottom

I have mentioned this several times and it bears repeating. Most ERP software selection methodologies stress the active involvement of senior management as a critical first step, I would beg to differ. Senior management must approve and actively support such projects, but it is far more important that the “users” of the system participate in every step of the ERP software selection project.

How can you determine what the organization needs if you don’t ask people what they need to do their jobs more efficiently and effectively? People are a firm’s most important asset. They have to want to succeed and be given the tools to do so before the firm as a whole will ever achieve excellence.

Define Where you Want to Be

You are not going to achieve success if you focus on today’s issues rather than tomorrow’s opportunities. While there is no doubt that correcting current issues is one of the drivers of change, you cannot just focus on what needs to be corrected. Improvements might give you a bit of a positive bump in performance, but they are dealing only with where you are today, not where you need to be tomorrow. The leaders of truly successful firms spend a lot of time “thinking”, trusting today’s issues to others. Operational managers are a bit more rooted in today, making sure things get done. That’s what they get paid to do. However, even operational people should be devoting some of their precious time to developing a picture of where they need to be to meet tomorrow’s challenges and opportunities.

ERP Software Selection is a Learning Opportunity

Ignorance is possibly one of the most critical contributors to failure. How can you build a better tomorrow if you don’t know what’s possible? Although this is certainly a significant issue for smaller firms launching an accounting software selection project, it can and does affect larger firms that are more used to ERP software functionality. The leaders of smaller firms may have very little experience with the rich functional and reporting options available in today’s accounting products and to be honest it’s difficult to secure such knowledge without talking to a reseller. Unfortunately reseller’s tend to want to sell software, not teach people and that’s the dilemma.

Having said that, maybe you can combine your learning experience with your later detailed product evaluation. You are certainly not ready to make a purchase decision, but you do need information to understand the possibilities that can be found in a modern accounting system. Maybe the best course of action is to find a reseller that is willing to teach you. The fact that they are willing to do so is probably a very good indicator of the level of service you will receive if you were to purchase their product.

Better Reporting Leads to Better Decisions

Accounting and ERP systems should not make decisions. Their role should be presenting relevant information in a timely manner that will allow people to make better business decisions. In the past accounting and ERP systems generated lengthy static reports that presented a picture of some aspect of the firm at a single point in time. In today’s interactive world, static reports contribute nothing to the decision making process. Let’s face it; you cannot make a decision unless you have all three elements that contribute to the decision making process:

• Where have we been?
• Where do we seem to be going?
• Where should we be?

As I have said several times in the past (it’s one of my favorite soapboxes), you cannot make effective decisions unless you have a time-phased picture of your actual results (past, present and projected future) as well as a picture of where you believe you need to be. Now you have all of the information you need in a single graphical presentation. Since time-phased graphs lend themselves to analysis, you can even take this information and create a system that presents only the information that needs your attention. If the actual results are within specified parameters, you don’t need to spend any time reviewing that which does not need to be reviewed.

Before we continue, let me jump up on one more soapbox. One of the best examples of scrapping static reports is the trusted Aging Report. In this case you do need to know when customer’s are not paying you in a timely manner and you need to know which invoices are overdue, but the process of collecting overdue accounts doesn’t have to be manual as it is for many companies. Manual business processes are time-consuming (expensive) and ineffective. The collections management process is a poster child for such waste.

If you think about it for a moment, the process of collecting overdue accounts is really a form of contact management and that’s what should be employed to reduce your AR. After all, a modest 3 day reduction in AR for a $10 million firm will generate a cash flow of $85,000. Eliminate the waste. Improve your cash flow. All you have to do is ask your vendor if they or a third party have created an application that is no more than a highly specialized contact manager and one that will help you change your customers’ payment pattern.

Demo Evaluation

At some point you need to actually touch, feel and evaluate accounting or ERP systems. First and foremost you need confirm that the product does what you need it to do and does so following processes that make sense to you. Demos are not just about confirming functionality. You have to evaluate whether the product makes sense to those people who are going to have to use it.

As products reach into the ERP space, they become more robust, but that degree of comprehensiveness may increase the time it takes to enter transactions. That’s why it’s so important that you evaluate your ability to run your business processes on a daily basis. Does the system support your business processes and to what extent does it impose business processes on you that you really do not want?

You also need to evaluate your ability to make decisions based on information that will be in the product’s database. How easy is it to extract critically required information? Does more detailed reporting require additional fields? To what degree will this slow down transactional efficiency?

Let me jump back in time a bit. As I indicated earlier, your learning process might be enhanced significantly if you were to talk to vendors or resellers. After all, your knowledge of what’s possible in terms of functionality and reporting may be lacking. I think it’s OK to contact vendors and resellers to schedule some learning time. While it’s too early in the sales cycle to think in terms of purchase decisions, you can learn a great deal about possibilities by looking at today’s products. Just make sure the vendor or reseller knows that you are not actively “shopping” right now. At the same time remember that their time is as precious as your time. Use it wisely. Learn what you need to learn. If the vendor or more particularly reseller is interested in mentoring you, they may later on become a trusted business partner.

RFI or RFP

As you are moving through your software selection project, you are going to need to evaluate functionality and you certainly are going to need to know what this system is going to cost. Just make sure you do it at the right time. RFIs (Request for Information) should be designed to help you compare your functionality requirements against possible semi-finalists. Once you have confirmed via an RFI and subsequent demo that a product does what you want it to do, you can then take the final step to create what will become a legal document. This RFP (Request for Proposal) will establish the cost of the project (software, data conversion, implementation, training, etc.) as well as the project’s terms and conditions.

Both of these steps are required, but I do have one significant concern. As a user keep in mind the fact that these two activities are very time consuming for vendors and resellers. You need to do your homework first. If you have spent enough time with a vendor and/or reseller, your RFI should really deal with just your most important requirements. If you have reached the RFP stage, a listing of required functionality is important as it requires that a product do what you need it to do. You should already do know this via your research, the RFI and demos, but it’s a good thing to confirm everything.

The real problem is unsolicited RFIs and RFPs. How can you possibly ask a vendor or reseller to answer detailed questions about functionality and project costs when they have spent no time with you? This is a complete waste of time and you accomplish nothing. The vendor or reseller doesn’t know you and you certainly don’t know them or their product. How can you possibly form a business relationship if you are strangers?

Conclusion

The process of selecting a new accounting system or ERP system is one of the most difficult projects any firm will undertake. Failure isn’t an option, but it seems as though many firms challenge failure simply because they don’t understand how to organize such a project. It’s not just about doing some web searches or reading reviews. Accounting software selection must be approached from a step-by-step basis. You have to do your homework. You have to understand not just where you are, but where you want to be. You need to find that one product that does what you need it to do and you need to find that one vendor or reseller with whom you can form a lasting and truly beneficial relationship.

Abstract

Not withstanding all of the marketing literature to the contrary, accounting software selection, successful installation, and efficient and effective daily use is not easy. In fact, it can be one of the most frustrating experiences any company will ever undertake. The time wasted in the selection of an accounting or ERP system that will be replaced is of minor conse­quence when compared with the staggering loss of productivity and profitability growing out of the chaos precipitated by an ill-suited accounting software system.

While it’s true that small business accounting systems don’t contain all of the functionality and business intelligence (that’s reports to most people) typically found in higher end products, the risk of failing to select the best suited accounting product is no smaller, nor are the negative financial consequences.

Step-by-Step Guide

The road to a successful accounting software selection project requires a solid foundation, detailed information gathering and analysis, a step-by-step approach to selection, installation and implementation, patience, cooperation, dedicated and constant management support and finally a little bit of luck. The key to all of these activities is a plan built upon a realistic assessment of your organization’s strengths and weaknesses, including your ability to organize and manage what could become a lengthy and complex undertaking.

The selection process itself can be divided into any number of specific tasks and more detailed activities. Given the limited nature of this accounting software selection article we will discuss only the most significant steps.

Educate Yourself

Any project of this magnitude and critical importance can fail simply because you get off on the wrong foot. If your objectives are not based upon what’s practical for you as a unique group of individual people, everything that follows can carry with it a fatal flaw. If the benefits you attribute to the project are unattainable under any set of circumstances, it’s very likely the project will fail to achieve its objectives, and might fail altogether.

As you are organizing your accounting software selection project, you might want to consider some of the following suggestions.

• Your success in business is not dependent upon what accounting or ERP software product you use. It is dependent on the people who use that product.
• People make decisions, not information systems. Give your people the structure, incentives, tools, processes and data, and let them make the right decisions which need to be made at the right time.
• The most powerful accounting or ERP software system will have little of no effect if it’s the wrong system for you, your organization and your employees.
• If your company is not organized for success, the most powerful accounting or ERP software system will have little or no effect upon your bottom line.

Define Your Objectives

Define your objectives in detail before proceeding further. These objectives could be quite simple or they could become quite complex depending upon the need for changes in the organizational structures, processes and personnel that will surround the new system. Of greatest importance these objectives need to be reasonable and attainable.

Justify the Decision

When people use the term “justify” they think in terms of a monetary return and that certainly is important. However there is an equally important question you must answer and that is “Are you ready to undertake this project?”.

Organize Yourself for Success

Although it may be possible for a bookkeeper or accountant in a small company to select an accounting package with no assistance from any other person other than the owner of the business, this isn’t possible in larger organizations. People need to be involved in each stage of the project. Users should have the right to critique the current system, and define what they need to do their jobs well. People need to be involved so they will feel comfortable with the ultimate purchase decision. This is going to become a very complex project, requiring significant thought and, of greater concern, time on the part of a large number of people. Since each of these people has a regular job to do as well, coordinating their participation and input will require some form of plan. The larger the organization, the more complex the plan will become.

Organizational Analysis and Improvement

Regardless of whether you might be purchasing no more than a small business accounting system or one costing several hundreds of thousands of dollars, some degree of internal reorganization will be required. The selection process will give you the ability to ask yourself the very simple question “What do we need to do very well in order to succeed in our market?” Since the process of acquiring a new accounting or ERP system will require that you at least partially reorganize your accounting processes in order to either meet the requirements of the new system or take advantage of features and functions not previously available (and therefore not currently assigned to any one individual or work group), this is an ideal opportunity to expand your internal analysis to others areas of the business. Use this as an opportunity to build a stronger foundation for success.

Preliminary Needs Definition

The accounting software selection process shouldn’t start by having you launch right into a detailed definition of required features, functions and reports. While you will reach that point, you have to begin by building a solid foundation for that detailed needs definition. You might want to start by asking each person open ended questions that give them the ability and the right to critique the present accounting system, suggest improvements, and of equal importance critique the organizational structure and processes that will surround the new system. In essence, this first step is an assessment of your organization as well as your accounting system.

Preliminary Needs Analysis

This is what could be called a high level needs analysis, concentrating only on the features which are of greatest importance to you. The objective here is to eliminate those products which clearly do not meet your most critical requirements or which do not meet nearly as many as other products. All you are doing is reducing your list of candidates to a number you can examine in detail without the process becoming burdensome.

Identify and Evaluate Business Partners (Resellers)

Most mid-range and above accounting products are distributed via a network of resellers and in the end these people (the firm itself as well as individuals within the firm with whom you will be working) will for all practical purposes become your business partner. Actually even small business accounting products that you can purchase directly are supported by a reseller network that could provide a whole range of services including installation, data migration from your current accounting system, training, installation of ISV solutions and report creation. Just as you have a choice with respect to products, you have a choice with respect to business partners. Talk to several within your geographic region. Talk to them about the product itself as well as the services they provide. Talk to some of their customers. Evaluate them just as closely as you should evaluate the product itself.

You might ask why I would seemingly insert reseller references too early in the accounting software selection process, but to be honest it’s never too soon. You can gain a lot of information from resellers about functional possibilities, but you also need to control the relationship from the get-go. Resellers want to show you a demo and make a sale. They really don’t like wasting precious time with someone who seems to want consulting assistance. You do need to be fair, but if a reseller is willing to work with you on a slightly longer decision time frame, that person may have demonstrated that they could become a very valuable business partner going forward.

Detailed Needs Definition

Once the preliminary analysis has been completed, you can begin to build a more comprehensive needs definition and it is this needs definition which will form the basis upon which you will make a final purchase decision. Start with the Preliminary Needs Definition. It should have listed your most important requirements. Now fill in the gaps, describing in detail every feature you will need. In essence this document will describe exactly how the new accounting system will operate from a functional, reporting and strategic perspective.

Many vendors want you to just start with demos and eliminate any form of detailed functional analysis. They claim that they have spent millions of dollars building best practices into their products and therefore you don’t need to change anything. It’s all been done for you. I am not quite sure I accept this big brother attitude. At a minimum you need to study your current system, gather information regarding what you could do in a modern accounting or ERP system, and finally deciding for yourself what’s best for your unique organization.

Detailed Needs Analysis

While the objective of the Preliminary Analysis is to reject products that clearly should not be carried forward, this detailed analysis is designed to identify a product’s strengths as well as its weaknesses and therefore you can approach this task from both perspectives. If one product really does not compare favorably against your requirements while other products do compare favorably, then that product should be eliminated from further consideration. If you really like one product even though it may not compare quite as favorably as other products, it is perfectly acceptable to keep that product in the mix.

Select and Evaluate Product Finalists

Now you must evaluate the system itself from a practical basis, as well as evaluate the relationship you might establish with the software provider and/or reseller. Once all of the selection factors have been analyzed, a final selection can be made. This isn’t a totally objective accounting software selection review process, particularly for smaller companies where the single most important selection factor is the degree to which people fall in love with a particular product. For these users, functionality is less important than their ability to use the product. Rather than setting a single selection objective based upon functionality, smaller companies should look for a product people actually looking forward to using.

Evaluate Required ISV Solutions

Virtually all accounting and ERP products will utilize add-in applications to either supplement missing features or to meet industry specific requirements. This is even true for small business accounting products. While it would be nice if the core accounting system met all of your requirements, this is not possible for many firms. ISVs (Independent Software Vendors) can provide you with just the right combination of functions and reports that you need. As such you need to expand your search to include ISV solutions and evaluate them just as you should evaluate the core accounting system.

Final Purchase Decision

There is no right answer when it comes to accounting software selection. If you are extremely lucky, one product will have moved to the forefront and impressed everyone throughout your organization. Even if that product may not be the top candidate from a strictly unbiased functional point of view, the fact that everyone likes the product and feels comfortable with it and the reseller with whom you will be working indicates that this product is the best one in this unique situation.

Installation and Implementation

Installation and implementation is no more than a series of physical tasks, carried out in a precise order and managed by a precise in-depth plan. The enemy here is time. All normal accounting functions have to be carried out while the new system is being installed and data transferred. In addition, people have to be trained so that when they first start processing information they will be almost as proficient as they were on the old system.

Post Implementation Management

It won’t be possible to complete all system, process and reporting modifications prior to going live with the new system. In fact it isn’t advisable that you try to do so. Some modifications will have to wait until the core applications have been installed. Time may not permit some adjustments to the system until after it has been installed. New or modified reports may have to be designed. Some adjustments to work flow patterns and job responsibilities may have to be made once daily processing has reached a stable level. The real underlying truth here is that no system is static. Business demands, personnel, product functionality and hardware options will change over time. Therefore, the system itself must change to meet these new opportunities and demands. If you accept the status quo, system performance, either actual or theoretical, will decrease. The only way to avoid this danger is to institute a continuous cycle of analysis and change. This isn’t change for the sake of change, but real change that leads to greater service, efficiency and effectiveness, and therefore profitability.

Summary

There is no single path that will lead to a successful accounting software selection project. You have to do the best you can given the scarce resources you have. In the end your objective is to find a product and a business partner (vendor and/or reseller and ISVs if required) with whom you can form an effective and efficient partnership. Certainly the product selected must be able to do what you need it to do, but you also have to “like” this product and be able to use it effectively and efficiently. You also have to be able to work well with the organization providing and supporting the product. For small to mid-sized business firms this would be a local reseller. That’s why we use the term “partnership”. You have to work well with the product and the reseller standing behind the product.

Here are a few popular posts on ERP Software Blog that you might find of interest.

An Example of Creative Employees Using Microsoft Dynamics AX in a Way the CIO Never Expected, April 9, 2012 by Anya Ciecierski, ERP Software Blog Editor

The Real Difference between Microsoft Dynamics NAV and AX March 14, 2011 by Jeff Pyden, Omnivue

Infographic: A CFO’s Guide to ERP in the Cloud January 30, 2012 by ERP Software Blog Editors

5 Steps to a Successful Implementation of Your New Accounting System by John Hoyt, Technology Management Concepts

Did You Know You Can Get a Microsoft Transition Investment Credit to Move From Dynamics SL (Solomon) to Dynamics GP (Great Plains)? – March 12, 2012

A Connecticut Distributor Adds Order Entry, Inventory Planning & Container Management for Microsoft Dynamics GP – March 5, 2012

Abstract

In spite of all the articles written and expertise available, it seems as though the failure rate of ERP selection projects remains distressingly high. What are we doing wrong? It’s a simple enough question, but apparently there’s no single answer. Maybe that’s because there are multiple opportunities to wander off the path to success and having taken a wrong turn (in most cases without recognizing that this has occurred), the project ultimately fails.

Rather than once again laying out a plan to achieve success, let’s approach the issue from a different perspective. Let’s identify the opportunities for failure and possibly avoid taking a wrong turn.

Challenge your ability to create a successful ERP selection project

To put it somewhat bluntly, there are people who know; those that know they don’t know and finally those that don’t know they don’t know. The process of organizing and driving an ERP selection project to a successful conclusion is difficult at the best of times. If you know what you are doing, then the project should move forward effectively in spite of the fact that glitches will occur (but given your mind set you will be expecting unforeseen issues and will be able to deal with them effectively).

If you know you do not have the necessary experience and/or time to pull all of this together, then you will bring in an outside knowledge source (ERP software selection consultant).

The most significant danger is an organization whose leaders think they know, but do not. That almost guarantees failure.

Where do you fit into this maze?

Start slowly

I think many ERP selection projects fail simply because there was an arbitrary deadline. Rushing leads to mistakes and mistakes lead to failure.

Take your time. Assume the project is going to take much longer than you originally estimated. Make sure each task is completed effectively before you move forward. Set goals, but don’t be driven by the clock.

Don’t ask your CEO for support.

I am not suggesting that the approval and active support of the CEO and senior management isn’t required. The CEO is driven by ROI so how can you get this person’s attention and support if you haven’t estimated and justified the ROI. You would certainly want to inform the CEO that you are considering replacing your existing ERP system, but their support is not required in order to launch an ERP selection project.

Do your homework. Identify the improvements that should be generated as a direct result of the purchase of a new ERP system. Justify these savings and revenue enhancements. Prove to the CEO that this is a sound project. Then ask for their full support to move forward.

Start from the bottom

While the support of the CEO may not be required during the investigative phase of an ERP selection project, you absolutely need the support and active participation of everyone else. Any person who has any “relationship” with the ERP system needs to be involved from the get go. The nature of their participation might be different depending upon their job responsibilities, but they will make or break the system once it has been fully implemented.

Keep in mind the fact that your first task is describing your current system and identifying its strengths and weaknesses. Remember that successful ERP selection projects don’t just involve what you see on screen. If you are serious about improvement, you need to figuratively take your organization apart and build a more agile, effective and efficient whole. The ERP system is but once contributor to success (or failure).

Since every day users are going to be (or should be) involved in a critique of your current ERP system, they are just as knowledgeable of the organization’s strengths and weaknesses as they are the ERP system’s strengths and weaknesses. Use this information to create a foundation for success. A lean and mean organization that is utilizing the capabilities of a well chosen ERP system is your goal, not just a new ERP system.

Identify what you need to do well

This applies to the organization as well as the ERP system. To be honest I am not convinced you should undertake an ERP selection project unless you make organizational improvements as well.

In this case let’s just discuss the ERP system. Take each significant business process that is carried out by or supported by the ERP system. As an example let’s look at the order to shipping process. What do you need to do very well to complete an order? That means putting the right goods in the right condition or configuration in the hands of your customers at the right time and at the right price (ignoring for the moment the fact that the order is not complete until the check is in your hands).

What needs to be done at each stage in the order-to-customer process? How can the ERP system help you complete each task? Forget about your current system. That doesn’t matter unless it helps you identify weaknesses and therefore opportunities for improvement. Forget about best practices unless they are your best practices. It makes me cringe sometimes when I hear ERP vendors say that they have invested millions in researching best practices and therefore no system customization is required. Father knows best so no discussion is required or permitted.

Organizational improvement comes before ERP selection

How can you possibly know what role your ERP system should play if you don’t know what your organization is going to look like? As I suggested above, you need to create a vision of the future first. Once you have defined where you want to be, you can then define how your ERP system is going to help you get there.

Actually you can and should be making organizational improvements as a first step toward selecting an ERP system. Once you have completed your organizational improvements, then and only then should you implement the new ERP system. You cannot do both simultaneously and you certainly shouldn’t implement the ERP system before you have completed your organizational improvements. Why install an expensive “machine” if the foundation for that machine hasn’t been completed?

Grab the low hanging fruit first

Rather than launching a comprehensive improvement initiative (and with it fear, uncertainty and doubt, the feared FUD), start by making improvements that are easy to achieve and obvious to everyone. Quick strike improvements are small changes affecting a limited number of people, usually an individual workgroup or department. Although you will have to be careful the changes you make don’t affect people in other areas, these changes can be made independent of any larger initiatives that may affect the entire organization. In fact, quick strike improvements are important to the success of larger initiatives as they demonstrate to people that progress is being made.

One area in particular comes to mind: AR Collections Management. While you might offer payment terms to customers such as Net 30, your actual payment results might be closer to Net 60 or probably more. This is a tough economy and cash flow is being squeezed. The easiest way to manage cash flow is extending the actual payment date. While this works for your customers, it doesn’t work for you as the supplier.

Since I have posted several articles regarding AR Management, I am not going to go into great detail except to say that changing the way you manage your receivables can generate a significant cash flow. If a $10 million company can reduce their receivables by a very achievable 5% (that’s about 3 days sales), it can generate a cash flow of $85,000. That’s a very significant low hanging fruit.

Every accounting or ERP software product supports an Aging Report by which you can identify every invoice that’s past due. Unfortunately the actual process of collecting overdue invoices is for many firms an entirely manual process. By definition that’s inefficient and in most instances ineffective. Look instead for an ERP software product that supports the collections process. My preference would be the equivalent of a contact management application that is designed specifically to support the collections process.

Since you have to justify the purchase of any accounting or ERP system, implementing a software supported collections process will go a long way toward achieving the ROI you need.

Do your homework

Before launching an ERP selection project, spend as much time as you can researching possibilities. Search the web for articles regarding software selection. Talk to people in the business. Search trade journals and even see what your competitors are doing. Attend seminars and conferences. You should even talk to potential vendors; not because you are interested in their products specifically, but to gain knowledge.

Knowledge acquisition is all about identifying possibilities. How can you create a more competitive organization if you don’t know what’s possible?

Just because someone else does it doesn’t mean you have to do it

Researching possibilities is a critical first step, but the knowledge you gain has to be integrated with the type of organization you want to become. This applies to organizational improvements as well as software improvements.

As you are creating a picture of the functionality you will need in your new ERP system, please don’t forget that there are two types of requirements: mandatory and optional. There are very specific things you need to be doing if you are going to be a successful competitor in your industry. In many cases these requirements are defined by the nature of your industry. In other cases you might not need specific functionality, particularly as it relates to how you choose to compete as an individual firm with a unique set of individuals.

Please don’t create an organization that is a refection of your competition or software vendors’ perceptions of what constitutes best practices. Leverage the knowledge and experience of your team. Create your own requirements definition, not one dictated by your competition or software vendors.

Define where you want to be, not where you are

If you implement a new ERP system that is no more than a mirror image of what you are doing today, then you will have accomplished nothing. At the same time please don’t change just because you can change or someone else says you should change.

Before you launch your ERP selection project, step back for a moment. Look at your organization. Identify what you do very well. Identify opportunities for improvement. Create a vision of where you want to be. Then identify how a new ERP system should support this future vision. ERP systems don’t drive change and they certainly don’t generate profits. All they do is process information and help you make more effective business decisions. Only after you have created your vision of the future should you identify the very specific ways by which your new ERP system will help you achieve this future.

Don’t assume improvements will magically appear

If you read the many White Papers published by vendors, it seems as though success can be achieved simply by purchasing their product. 20% improvement in this area. 15% improvement in another area. If you add up the improvements, you should be able to easily double your profitability.

While there is no doubt that a well designed ERP system can help you achieve greater success, please keep in mind the fact that these improvements are just potentials until they are realized by the actions of individual people. People make an organization successful, not software. Software plays a supportive role by helping people complete tasks more efficiently, serve customers more effectively or make better business decisions.

Measure everything

If you assume that inventory turns will be increased by 10% or that receivables will be reduced by 7% and use those targets to justify the purchase of a new ERP system, you had better be prepared to measure your actual results.

Actually you should not make any “assumptions”. Just because a vendor tells you inventory turns can be increased by 10% or some article in one of your trade publications says so, doesn’t mean it’s going to happen. If you are going to say that inventory turns are going to be increased by 10%, your analysis must be based on the factors that are going to lead to this increase. Inventory turns are influenced by several factors and you need to identify those underlying factors and describe how they are going to change.

Once you have identified the base influencers, then you have to create a system whereby their performance can be monitored. While it would be easier to just measure the overall change in inventory turns (and that certainly can be used to calculate a monetary value that becomes part of your ROI analysis), I will guarantee you that the actual isn’t going to conform to your initial estimate. That’s why you need to measure the base element, not the resulting value.

Improved reporting can be costly

While there is no doubt that ERP systems give people the ability to slice and dice data as finely as a Gensu knife, please keep in mind the fact that more detailed data analysis can occur only if more detailed data is input.

Virtually all accounting and ERP systems give people the ability to define an infinite number of user defined fields. As an example, you can now track the detailed cost of attending trade shows. I’m talking about tracking flights, trade show fees, booth rental, hotel fees, and anything else you want to track. You can also of course define a budget for each of these cost elements. More importantly you can and should track business that is generated as a result of the trade show. If you don’t track revenue, why should you track costs to generate that revenue?

Tracking costs and revenues is certainly important, but keep in mind the fact that tracking this information requires that the information be input in Accounts Payable and Expense Reports. The revenue associated with the trade show also has to be input in Order Entry or Invoicing. In this one example you might be required to input information into 10 – 15 fields. That slows down the AP voucher or Order Entry process.

Tracking detailed revenue and cost information is important, but the purchase of a new ERP system could make the AP voucher input process considerably more time consuming and therefore less efficient.

The fact that you can slice and dice data doesn’t necessarily mean you should do so.

If information doesn’t help you make a decision, you don’t need it

I have preached from this soapbox several times in the past, but I think it needs to be stressed as much as possible. Static reports are no more than a snapshot in time. They tell you nothing except what that condition was at the time the picture was taken. As such you cannot and should not make a decision based on a snapshot. You don’t know where the condition has been and you certainly cannot predict where it is going.

As an example pie charts and bar graphs are pretty to view, but they don’t give you the information you need to make a decision. If you cannot make a decision, then you don’t need the information.

As you are creating the reporting system for your new accounting or ERP product, eliminate any report or graph that cannot be used to make a decision. Identify the lowest level profit, revenue or cost drivers such as the drivers discussed above for inventory turns. Don’t measure inventory turns because they will change over time and you will need to determine why they changed. Measure instead those factors that influence inventory turns. Present them in a time-phased graph that helps you identify where they have been, where they are today and most importantly where they seem to be going. Now you have the picture you need to effect change.

Measure how much your customers cost

It’s very easy to measure the revenue you receive from specific customer and it’s just as easy to measure the cost of goods sold for each shipment. It’s also just as easy to measure project costs if you are in the service industry.

That’s all fine and virtually any accounting or ERP system can do that, but does it really give you the complete picture? Obviously I think we need to create a more complete picture of the cost of doing business with each customer.

Think about it for a moment. How much revenue are you giving away because you offer preferential pricing? Do you cover shipping costs? Does the customer require support after the sale? How much support? How much time does it take to acquire a customer? How much time does it take to keep a customer? How much time is required to constantly change a customer’s order specifications? How long does it take to complete each sale (to many that’s get paid)?

The non-direct cost of doing business with a customer can be surprisingly high. Demanding customers are costly customers, but do you know what the cost is? Maybe they are a lot more costly and therefore less profitable than other “secondary” customers that might not order as much, but don’t require so much attention.

If you don’t know the true cost of doing business with your customers, how can you say they are good customers?

Incremental improvements are better than massive improvements

Large process improvement projects are disruptive by their very nature. Successful firms change to become more effective and profitable. That doesn’t necessarily mean that change has to be painful or disruptive. Maybe it’s better to change gradually over time. Maybe change can be thought of on a work group level. Take a small group of people in one area and determine what can be done to become more efficient and effective. Since work groups are not silos, some changes might need to be made in how they relate to other work groups. That’s fine as long as the changes are agreed upon by the members of both work groups.

Incremental change should be driven by the people in the work group. They determine their own fate so to speak. The key to this concept is the fact that change is self-directed, not imposed from above.

Search for a trusted business partner

At some point in time firms searching for a new ERP system will have to connect with an unbiased ERP software selection consultant, a local product reseller/implementer or the ERP product vendor. In every case this firm must become a trusted business partner that is much more interested in your success than they are in selling you a product.

Let’s use ERP resellers as an example. These firms have developed an expertise in the product itself and can implement it for you. That doesn’t mean you should wait until you have completed your requirements document to connect with this firm. Maybe you should make first contact when you are doing your research? Resellers know a lot more about a product’s capabilities than you do. If they are a highly professional firm, they will be more interested in helping you understand what’s possible, rather than selling you the product.

If a reseller is going to become your trusted business partner, they should understand what it takes to compete in your market. They should be able to help you create a vision of your future, a vision that includes business processes as well as software processes and functionality. If they cannot help you achieve your strategic and operational goals, then you need to move on gracefully. You need a business partner, not a salesperson.

Don’t accept claims blindly. Prove them!

You tell a reseller or vendor you need this or that functionality and in most cases they say “We can do that. No problem”! Well of course they are going to say that! They are after all a salesperson!

Reseller or vendor assertions should not be taken at face value. If they say they cannot do something, you can pretty much be assured they cannot, but positive assertions need to be proven. Yes, you would like to assume they are being truthful, but you are going to spend a lot of money and you need to make sure the product does what you need it to do.

When you reach a point in the sales cycle where demo evaluations are appropriate, you need to do two things. First, you need to make sure the product supports the functionality as claimed. That’s the high level view. Yes, it does do this. Of equal or greater importance, you need to make sure the product operates in a manner that makes sense to you and your users.

As the power of ERP systems has grown over the past few years, their complexity has grown as well. You cannot have all of that power and versatility without more comprehensive process flows. To some people this comprehensiveness becomes complexity that inhibits. That’s the danger.

An ERP product might meet your functional requirements, but the manner by which it does so is seen as counter productive. You might also get a lot of functionality that you just don’t need or want.

Avoid road blocking customizations

Many accounting and ERP products give users the ability to change the way a product operates. Maybe it’s just a matter of adding new reporting fields. In other cases the functionality or process flow might need to be changed to meet the needs of individual firms. That’s fine, but you have to be very careful. If a product is highly customized, it might be difficult, if not impossible to import normal upgrades.

If you feel as though you need to customize a product, take a step back for a moment. If the customization is going to prevent you from accessing the upgrade process, maybe you don’t need that product or maybe you don’t need the customization. Maybe you can customize the product, but do so and preserve the upgrade process.

Third party solutions are our friends…sometimes

Virtually all accounting and ERP systems do not contain all of the functionality required by all users. That’s why Independent Software Vendors (ISVs) exist. These firms create functionality that is not provided by the primary vendor. In some cases the added functionality is minor and incrementally improves the primary product. In other cases an entirely new application or suite of applications is created, usually to meet the needs of a particular industry.

In some cases these applications are written in a different language than the primary accounting or ERP product and sit outside the primary product. In other cases the ISV solution is written in the same environment as the primary product and sits inside the product, making it almost impossible to tell the difference.

ISV solutions will supplement the functionality of the primary accounting or ERP system, but you need to be careful. They are not owned by and developed by the primary vendor. They may or may not have been “certified” by the primary vendor. ISVs might be very small firms that may or may not be around even a year from now. ISV solutions might not support the most recent release of the primary accounting or ERP product. They may not fit exactly within the processing methodology of the primary product and might create process errors.

ISV solutions are important additives to an accounting or ERP system, but you need to make sure those solutions are just as acceptable as the primary accounting or ERP solution.

Conclusion

Given the fact that there are any numbers of stories regarding failed ERP software selection projects, care needs to be taken to maximize the likelihood of success. While it’s important to create a road map that specifies each step you should take from first idea to full implementation, you must assume that there are going to be a significant number of opportunities to stray from the best path. Identifying these potential potholes is critical to your success. If you can see the potholes, you can avoid them.

• Make sure you know what you are doing.
• Start slowly, making sure you complete each step before moving forward.
• Try to avoid deadlines that create too much urgency.
• Prove the ROI for the project before you ask the CEO for support.
• Start from the bottom as well as the top.
• Identify what you need to do well.
• Improve your organization before you define what you need from your ERP system.
• Identify the low handing fruit first.
• Do your homework first.
• Don’t do something just because someone else does.
• Define where you want to be, not where you are.
• Improvements will occur only if you make them occur.
• Don’t just forecast ROI; measure it.
• Slicing and dicing data can be costly.
• If reports and graphs don’t help you make a decision, you don’t need them.
• Measure what your customers truly cost.
• Incremental improvements are better than massive dislocations.
• Search for a trusted business partner.
• Don’t accept vendor claims blindly. Prove them.
• Avoid road blocking customizations.
• Understand the nature of third party enhancements.