Abstract

Why do so many accounting and ERP software selection projects fail to achieve their objectives or fail altogether? Absence of executive buy-in? Implementation failure? Ineffective communication. All of these are legitimate, but maybe there’s a fundamental problem that isn’t addressed adequately. The process of selecting a new accounting and ERP system isn’t just about features and functions. Maybe firms just don’t create a strong enough foundation for success. Maybe they forget that individual people drive a firm’s success. Maybe they forget that the new accounting and ERP system has to help these people do their jobs better and make better business decisions. Maybe they forget these people and their needs and therefore doom a software selection project from the get-go.

Basic Research

Before you launch into your analysis, you might want to spend some time on research or background knowledge accumulation. The more time you spend educating yourself about software selection, the industry and specific products, the better prepared you and others will be when you begin your analysis.

From the point of view of individual people within your organization, how can they know what they need to be successful if they don’t know what’s possible? Rather than one or a very few number of people researching product and functionality options, extend this investigative process to as many people as practical. Rather than building your requirements document from the top down (only including project leaders and departmental manager), build it from the bottom up as well. This might actually give you a more accurate picture of what you need as a firm.

Efficiency and Effectiveness

Efficiency and effectiveness are two key business success elements. From an operational point of view, you want to minimize the cost of doing business per dollar of revenue. However, efficiency isn’t the only answer. People will want to purchase from you because the perceived and actual benefits (other than cost) of doing business with you far outweigh the benefits of purchasing from your competition. In other words, customer service is just as important as price. The way to maximize your customer service is to maximize the effect of what you do. People must work effectively as well as efficiently. Maybe one of your fundamental areas for improvement has nothing to do with software. Maybe it has more to do with customer service and the way you interact with customers.

Identify Requirements, Constraints, Strengths and Weaknesses

Organizing the software selection process is certainly a critical step. Having formed your selection committee, one of your first steps is giving people the ability to critique their own jobs as well as the organization as a whole. Give people the ability to describe their job objectives as they see them, critique the information that flows into them from other sources, critique their portion of the accounting system, and put into their own words what they believe the organization should do well and doesn’t do well.

While you want to launch this software selection process by meeting with most of the people who will be participating in the process, it will not be possible to meet with them personally to discuss requirements. Instead, create what I refer to as a Preliminary Needs Definition document and then let everyone fill it out. The format is open-ended text responses to specific questions as listed below. I have used the term “we” because individuals don’t feel very comfortable talking it terms that refer to them directly.

• What do we do now?
• What works and doesn’t work?
• What can we do individually to improve business process efficiency?
• What can we do to improve customer service?
• What should we be doing that we are not doing right now?
• What changes should be made in the business management system to help us work more effectively?
• What can other people do to help us do better?
• Are these goals or changes reasonable?
• Where is the organization today?
• Where should it be in the future?

If you consider the questions above, you will see that most have very little to do with specific functional requirements. The questions you pose here are designed to build a picture of the type of organization you want to be in the future. Improve the organization first. If you don’t look inward first, how can you possibly define how the accounting or ERP system should assist you from a functional or reporting point of view?

As you move this process forward, you are going to start to build a picture of where you need to be in the future. You may also identify opportunities for improvement (problems are no more than opportunities for improvement). Deal with these issues first as any flaws within the organization can negatively affect the effectiveness of the new accounting/ERP system.

As you move forward, please keep in mind the following suggestions.

• Build a sense of teamwork by giving each person, not just the right to participate, but the right to be heard and taken seriously.
• Begin to build a consensus of what needs to be done by holding open-ended meetings with all groups that will eventually participate.
• Start collecting improvement / requirements information from individuals and workgroups.
• Identify the most important factors affecting your success as a unique business, whether they have anything to do with the accounting or ERP system or not.
• Determine what your customers want.
• Critique current system (software and business processes).
• Determine if specific business processes will require substantial improvement.
• Build a picture of the most important functional requirements.
• Build a picture of the most important reporting requirements, keeping in mind the fact that the reports found in most accounting/ERP systems are static pictures of the firm at a single point in time. What you really need is an effective set of business metrics that help you determine where you are and where you are possibly going.
• Keep in mind the fact that your new accounting/ERP system can produce so much information that it may become difficult to identify where you need to spend you time. Consider supplementing your reporting/metrics system with some form of exception management or alerts.
• Consolidate software requirements into a high-level needs definition document that can be used to review potential candidates.

Commitment to the Process

Now you have reached the point where you must dedicate yourself, your employees and your company to the process of selecting a new accounting / ERP system. I’m not suggest­ing this is anything like a holy crusade, but the commitment is similar. This project will consume a great deal of time and ultimately money to bring to fruition. There will be a tendency on the part of some to lose interest. Their participation and input is critical. They and you must support the project until it has been completed. This is the only way to insure the product you select meets your needs, and will be accepted completely by the people who will have to use it.

Summary

This first step toward selecting a new accounting or ERP system sets the stage for everything that will follow. If you don’t give people the ability to contribute toward the critique of your current system and even the organization itself, you may not receive suggestions that could otherwise prove to be quite valuable, and you run the risk of being seen as imposing a solution on people who have not been included in this process. These people may support your final purchase decision, but they could also resist any changes you might make or resist the new system. That you do not want. Create an inclusive software selection process that will generate enthusiasm. If you ask people how you can help them, they will respond accordingly.

Introduction

If you have reached that point where a critical mass of your employees have decided that your current ERP solution might need to be replaced, what’s your next step? Many firms just launch a search, assuming that at some point they will find the best suited ERP solution. Well….there’s just a tiny flaw in this approach. How can you search for a new ERP solution if you don’t know what you are looking for? If you were purchasing a sophisticated piece of machinery, you would need to define precisely the capabilities this machine would have to possess. You certainly would not call vendors and ask them to tell you what you need, but that seems to be the case when it comes to purchasing a new ERP software solution.

Rather than just calling ERP vendors as your first step, you need to determine not only what you require in terms of functionality, but also the outcome you require. A complex production machine needs to be able to produce a specified number of parts in a specified time frame at a cost that does not exceed a specified cost (cost per piece produced). This same rigorous cost analysis needs to be applied to the purchase of a new ERP software solution. What do you require (improvements) and how much is it going to cost to achieve this level of improvement?

Put very briefly you need to justify the cost of your new ERP business management solution. It really doesn’t matter whether you are going to spend $10,000 or $10,000,000. You need to determine exactly what you need in terms of functionality, by how much this functionality will improve or increase your operating costs, how much these improvements will cost, and finally of course the net return for this anticipated investment.

The question now becomes simple. How are you going to “find” the monetary gains that will be required to justify what could prove to be a sizeable investment?

Reduce Days Sales Outstanding

There are two sources of low-hanging fruit; reducing AR Days Sales Outstanding is probably the easiest target. If you sell on credit, it is very likely that your customers are not paying you on time. You might offer Net 30 days, but your customers might be paying you on average in 60 days, perhaps even more. If you can reduce your AR by just 5 days (seems like a very achievable target), you can generate $13,700 in cash flow for every $1 million in revenue (based on a 365 day year). This translates into $137,000 for a $10 million firm. Unlike operational improvements that can be counted on every year, an improvement in AR generated a one-time cash flow; substantial to be sure, but just once. Since a new ERP solution consists of a substantial one-time cost (purchase and implementation), this cash flow can be used to reduce your up-front investment.

While getting customers to pay you sooner, there are two additional opportunities for reducing AR. First, reduce the time it requires to actually generate an invoice. Time is quite literally money here and the sooner you submit an invoice to a customer the sooner you are going to be paid. Second, reduce invoice error rates. If you submit an incorrect invoice to a customer, it isn’t going to be paid until it’s correct.

Improve Inventory Management

The other substantial asset that can drive cash flow is inventory. If you can manage your inventory more effectively, you will be able to improve inventory turns and therefore generate a one-time cash flow just as I have suggested for Accounts Receivable.

Balancing inventory levels is a tricky business. While you can certainly reduce quantities on hand, this may lead to stock outs. You cannot sell what you do not have. In a manufacturing environment stock outs can bring the manufacturing process downstream to a halt. That’s why many large ERP solutions include sophisticated advanced planning applications. That’s also why lean manufacturing is becoming so important. Rather than having sufficient quantities on hand to avoid stock outs at all point in the manufacturing process, lean manufacturing extends the planning process out to suppliers as well as in-transit inventory.

Reduce the Cost of Purchasing

It’s amazing sometimes how expensive it is to purchase inventory. Take a close look at how many people are involved in the purchase process from initial vendor relationships to the point where purchased goods are received. Each time someone has to “touch” this process adds cost to the material being purchased. Given the sophistication of today’s ERP solutions, it should be possible to construct a process workflow that is based on the assumption that everything’s OK. Spend time (and therefore money) building a rock solid relationship with vendors whereby unit costs and delivery requirements are known and acceptable. Once the replenishment system has triggered a purchase notice, the resulting purchase order sets the best quantity (based on current forecasts and quantify price breaks). If the suggested order quantity falls within specified limits, the purchase order is sent to the vendor automatically with no touches from anyone in the purchasing department.

Once a purchase order has been issued, no human needs to become involved, unless the vendor submits a warning, or no advanced ship notice has been received. Only at that point should someone become involved. No reports need to be generated and reviewed at any point in the process.

Exception management should rule the purchasing process. The entire process should be based on the fact that a purchase order will be completed with no issues. If an issue is identified, users should be able to resolve the issue using the equivalent of an internal task management system.

Increase the Efficiency and Effectiveness of the Reporting System

Eliminate all printed reports, particularly those containing rows and columns. This is a soap box that I have jumped on for many years. My point is simple. Static reports are no more than a single picture in time. They give you no direction with respect to where conditions have been or where they might go in the future. Again I come back to the concept of exception management. Users need to be spending their time improving those critical operations that need to be improved. They don’t need to be wasting their time trying to figure out what needs to be improved.

Users waste precious (costly) time drilling down from static reports to underlying source data. Why not just start with the source data? Identify those lowest common denominator values that represent critical operations. It could be inventory turns or any other factor that represents those things that a company needs to do very well. If you need to drill down from what you consider to be a critical value, then you haven’t gone deep enough. Assuming that you correctly identify these critical values and concentrate on improving them, everything else in an income statement will take case of itself. Basically you don’t need an income statement except for those activities by a CFO that requires an income statement and balance sheet.

Having defined these critical values, track them over time (month to month or some other appropriate time frame). Use a line graph to track these values and a second line graph to specify where the values should be. Now you have a complete time-phased picture that you can use to identify where you need to spend your time. If the graph indicates no changes, a quick view is all you need and then you can go on to the next graph. I think a huge amount of time can be saved by not analyzing information that does not need to be analyzed. Conversely, you can spend more time improving those areas of the business that really need your attention.

Summary

Since this is a blog and not a formal article, I have but skimmed the surface. If you are contemplating the purchase of a new ERP solution, you have to specify precisely how you are going to be able to improve your business. Each of these improvements needs to have a monetary value attached to them. Your task at this point in time is defining a realistic transformation. What do you really want? How can you improve your business? What cost saving or revenue improvement can be associated with each improvement? If you don’t define what’s realistically possible, how can you possibly justify your investment in any ERP solution?

There are any number of articles and blogs that list the top 5 or 10 steps or top 5 or 10 mistakes to avoid when it comes to an ERP selection project. In truth I think there’s no perfect methodology for evaluating ERP solutions. The fact that there are just as many positive steps as there are mistakes and the fact that there are far too many failed implementations leads me to believe that the most critical time in an ERP software selection project is the very beginning before the first product has been reviewed. If that’s the case, maybe we should spend our time creating a foundation for success.

Build a consensus that it’s time to evaluate your alternatives.

There is no such thing as a perfect ERP solution. Every firm will have some issues with their current business management system. At some point the sum total of these issues will exceed the firm’s collective tolerance. This doesn’t mean that a change is in order, but rather that a critical mass of users has decided that maybe there’s a better alternative.

Rather than immediately launching a search for a new ERP solution, maybe you should evaluate your current ERP system and see if it’s possible to improve what you have. You could probably call this an informal evaluation to assess options. In this case the comparison is made between your current ERP product and what you could create if you were to improve it and improve your business processes.

Just as you would expect to find once a formal ERP software selection project has been launched, all of the key stakeholders should be involved with a notable difference. This analysis is bottom up rather than top down. By this I mean that system users are really driving the analysis. Once this morphs into a formal ERP software selection project, executive sponsors and other top managers will need to drive the project.

Identify strengths and weaknesses of the current system.

Each person who has any relationship with the current ERP solution needs to say what they like and what they do not like. This includes functionality and reports that the current ERP product does not apparently support. If this preliminary analysis moves into a formal ERP software selection project, considerably more detail will be required. The information collected here doesn’t have to be that detailed, but it does have to be sufficiently detailed that each reported deficiency can be properly evaluated.

Evaluate what needs to be improved.

While some users might identify a specific weakness, this doesn’t mean that changes will be made. Managers need to evaluate whether the weakness reported is sufficiently critical that some form of action is required. In some cases an analysis might reveal that there is no weakness at all. Maybe it’s just a matter of a user’s perception of the current ERP solution. Maybe it’s just a matter of supplemental training. The end product of this preliminary analysis is a list of actual weaknesses.

Determine where you want to be.

While it’s certainly important to improve your current ERP solution, duplicating what you are doing today will not allow you to excel. All it will do is help you maintain your competitive position, and that may not even be possible. A critical part of this preliminary analysis is defining where you want to be in the future. Rather than concentrating on where you are and improving that, ignore your current ERP system. Define instead what you need to do to increase your competitive excellence. Avoid daydreaming of course. Create instead a reasonable picture of where you would like to be in terms of business processes and the ERP functionality that would be require to support that level of excellence. Define where you need to be (mandatory minimum) and where you would like to be (optional maximum).

Identify changes that can be made to the current system.

At this point you have a list of changes that should be or could be made to your current ERP solution. Before you launch a formal project to replace your ERP product, you need to determine if the current system can be improved sufficiently that a new product is not required. For each weakness identified determine what can be done to eliminate it completely or improve it significantly. In addition determine what functionality you need to support your future. Are there functions in the current system that you are not currently using or might be underutilizing? Can reports be created or modified? Can fields be added to track critically required information? Can third party products be integrated? Can the system be modified, keeping in mind the fact that cost is not a factor at this point? All you are evaluating is whether changes can be made, not how much these changes might cost. Most important of all, is there an upgrade available that will eliminate some of these weaknesses or support your future requirements? Please don’t forget that your current ERP software solution is going to be improved over time. Therefore ask your current vendor if some of the weaknesses that persist after you have completed this analysis could be added to the system in the not too distant future.

Determine if you need to evaluate other products.

Once you have completed your analysis, gaps may persist. The question you need to answer now is whether these gaps are sufficiently serious that you may need to make a change or that the cost of improving your current system might be significant. Virtually any ERP product can be modified. The issue you have to address is whether these changes may so alter your current ERP system that the vendor’s normal product upgrade process might be impaired and/or too costly.

This entire preliminary needs analysis has one primary objective. Is it possible to improve your current ERP product and improve your current business processes to the point where change is not mandated? If you are not convinced that you can achieve sufficient improvements or compete more effectively using your current ERP product, then you need to evaluate other products.

Why do people seem to spend their entire work day in a series of meetings?  I am not a big fan of meetings. I think they waste our time and time is our most precious resource.  Think about it for a moment. Only one person can speak at a time while everyone else must be silent.  Hopefully we are listening intently and learning, but to be honest it’s way too easy to think about other things that are more pressing.  Maybe the meeting is for update purposes only.  If that’s the case, then my time is being completely wasted.  Now sum all of the time people spend in such meetings and they might become the most significant non-productive cost in virtually any organization.

Meetings are for making decisions, not reviewing information or discussing options or being updated.  All of those knowledge acquisition activities can and should be completed prior to the actual decision.  I don’t need to attend a meeting to acquire knowledge.  I can and should do that at a time that is convenient to me.  Maybe the problem is that prior to the past 10 years formal meetings were the only way people can participate in the decision making process.  We are so used to the concept of personally attended meetings that we cannot see that there is a better and certainly more productive way.

The keys to effective meetings are collaboration and structure.  Rather than “listening” to individual people present information that we may or may not need, we should be able to access that same information electronically, study it at our leisure and respond appropriately.  In this case the meeting moderator makes sure the process moves forward and people respond no later than agreed upon dates.  All meetings require a moderator or project manager and all “attendees” need to follow guidelines and timetables set by the moderator.

OK, if the concept of meetings needs to be changed, how can we acquire knowledge and make decisions?  Since this is a blog post and not a formal article, let’s just summarize the key points.

• All meetings need to deal with a single specific issue.
• The moderator needs to define precisely the purpose of the meeting.  If a decision is to be made, the issue itself needs to be defined precisely.  If the meeting is just for update purposes, the discussion topic needs to be defined precisely.  No waffling is permitted.
• The moderator will decide who should participate and when the decision will be made. 
• If the meeting is for update purposes only, the moderator sets the date for the next update.
• If the meeting is an on-going discussion, the moderator’s primary responsibility should be following the discussion thread and keeping people on track.
• If the discussion is to be led by specific people (the primarily stakeholders), they need to create the initial thread.  The meeting begins only when this initial thread has been created and distributed to each participant.
• Each person then has the ability to read each post, consider it and respond accordingly.  If they want to add a comment that is not in response to someone else’s previous comment, they can do so.
• Even though this is a discussion, people should present questions and suggestions for the next steps to be taken.
• Individuals should also suggest solutions to problem areas raised as a result of the information to be presented at the meeting.  While knowledge acquisition is important, virtually all discussions should be oriented toward making progress.

If your firm is small, the most effective vehicle might be simple e-mail exchanges with each participant being copied.  The only problem with this approach is that it would be difficult to create a concise history of the discussion.  The moderator might have to act as the scribe, creating a master document that contains history.

If your firm is large, this approach will not work well.  In this case you would probably need to acquire a software system that has been designed specifically to facilitate an on-line discussion.  My fiancé is currently pursuing a master’s degree in nursing and several of her on-line classes require that student groups collaborate to publish papers relating to some aspect of nursing management.  Each student can access a discussion board whereby group members can submit original thoughts regarding the subject at hand or respond to a comment made by another group member.  The discussion board has the ability to organize the information into new subject areas or associate each student’s submission with another student’s contribution.  The moderator (group leader responsible for writing the final paper) can see what has been submitted and ask questions of the group or individual students.

If a face-to-face meeting is required, particularly if a decision needs to be made, the following suggestions might help. 

• The agenda for each meeting, and all accompanying documents, should be distributed sufficiently in advance of the meeting that each person has the time to read and assimilate the information, and form an opinion as to what needs to be done.
• The agenda itself must be decision oriented.  If someone has reservations regarding the decision that will be made, those reservations should be discussed in advance of the meeting (using some of the suggestions made earlier).  Each person should be ready to make a decision.
• Do not schedule more topics for discussion than can be covered in one hour.
• Encourage people who do not speak up to do so, and counsel in private those who want to take control of the meeting.
• Do not criticize people for mistakes made or suggestions that prove to be unworkable. Brainstorming and taking risks are important success factors.
• Limit the discussion on each topic.
• Make a decision at the end of each discus­sion.
• Use each meeting to praise people for their individual and collective efforts.

Meetings can be an enormous non-productive cost.  We have the ability to acquire knowledge, discuss issues and make decisions in a collaborative electronic environment.  Many of us can increase our productivity if only we didn’t have to attend an endless series of meetings that really don’t seem to have any useful purpose.

Introduction

Let’s say you are the leader of a software selection initiative for your firm. What should you expect from resellers of the products in which you have an interest? Conversely, what should resellers expect from you? The selection of a new accounting or ERP system is a bit like a dance competition with well rehearsed partners that can take your breath away or so bad that you want to change the channel. If you are one of these participants, who do you want for your dance partner?

The Prospect Profile

If I am a prospect, what should I bring to this dance competition to enhance my chances of success? Perhaps the most important attribute is a commitment to the project. I’m not just talking about the project manager, but every level in the organization.

The CEO has to back the selection team 100% and take an active role (not just passive interest) in the project. In addition the CEO and other executives have to define exactly what they require from the system to assist them measure their progress toward the achievement of their strategic goals. If they do not, then the system will be of little use.

Similarly individuals and groups from each level in the organization need to define exactly what they want. It doesn’t have to be an exhaustive list of specific functions, but rather a definition of how the system needs to help them do their jobs more efficiently and more effectively.

The CIO or IT Manager needs to take an active role in the project, but should not direct it. The CIO needs to make sure that the technology of the system is appropriate and that it will carry them forward for many years.

Knowledge is perhaps one of the most important success factors. In many instances people might have formed a picture in their minds (sometimes a very fuzzy picture) regarding where they want to be, but they may not know how to get there. Prospects need to admit that they don’t have all of the answers, but they do have a thirst for knowledge. They need to learn as much as they can before they start this project (industry requirements, strengths and weaknesses of their current system, functionality that is available in today’s systems that might be of interest and of course how to manage a successful software selection project).

Now this is the ideal prospect!

The Reseller Profile

Most accounting and ERP systems are sold and supported by resellers so let’s just pick on resellers.

While an intimate knowledge of the products they sell are a critical requirement, that’s not what’s important initially. Prospects need a firm that will lead them to success. In this case the definition of success is going to be different for each prospect. Since many prospects have not been through this process, their lack of knowledge is the most important initial issue.

Most firms are not an ideal prospect as described above. They may not even understand that their business processes might be one of their restrictions, and they may not understand what’s possible in terms of modern business management systems. Prospects need a reseller that understands business or at least understands that every firm needs to evaluate its business processes.

Prospects also need a reseller that offers as its most important selling point a detailed process roadmap that will literally take a user by the hand and lead them through every stage of the knowledge acquisition, business process analysis, software selection and implementation project. Notice that I have said absolutely nothing about an evaluation of the attributes of the product or products offered by the reseller. The answer is simple. How can you properly evaluate a software product if you don’t have a solid basis for comparison?

In the end prospects need a business partner that will help them acquire the knowledge necessary for them to create a foundation for business success. Yes, prospects need a business management system that will do the job, but more importantly they need the knowledge and cooperation that only the best reseller can provide.