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.

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.

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.

Abstract

Everyone is aware of the fact that accounting and ERP software selection projects seem to have an excessively high failure rate. A month doesn’t go by without hearing that a customer has sued their ERP vendor or implementer/reseller for a failed project. While this is certainly an issue, some of the blame may need to be placed on the shoulders of the buyer and for any number of reasons. While reimbursement could be collected, the lost time and lost productivity can never be recovered. Maybe the following can be used as a checklist to reduce the likelihood of failure.

Introduction

If I attempt to list every step in a typical accounting/ERP software selection project, I could publish a book. Instead, I want to concentrate on those steps you should take before you actually launch the formal project. If you are organized for success, the likelihood of failure will be reduced significantly.

Share the Responsibility

Never launch a software selection project thinking that the vendor/reseller is 100% responsible for the outcome. That almost guarantees failure. Your primary objective in any ERP software selection project should be a successful outcome and that means you need to take whatever steps are necessary to do what needs to be done.

This philosophy also applies to the purchase decision making process. While there is no doubt that you need to appoint a project manager to make sure things get done, no one person should be totally responsible for an ERP software selection project. Every person should be responsible for the final outcome and therefore each person must make the “selection”. The only way this project is going to stand a chance of succeeding is for each person to participate equally in the final decision. The key concept here is mutual responsibility.

Secure Buy In or Kill the Project

It’s really quite simple. If you do not have the active support of each significant stakeholder, go no further. Your ERP software selection project has been significantly compromised.

Educate Yourself

Selecting a new accounting / ERP system isn’t something to be taken lightly. Any project of this magnitude and critical importance can fail simply because you get off on the wrong foot. Start this ERP software selection project by taking no direct action. Instead, spend some time educating yourself so that the decisions you make as you proceed will be based on realistic facts, not dreams or the marketing hype of software vendors. One of the most important steps you can take is learning how a software selection project should be organized. If you don’t understand what needs to be done and by whom, how can you possibly know whether you are on the right track?

Construct a Foundation for Greater Success

Rather than duplicating what you are doing today, take your business apart and create a stronger, more effective structure. While formal Process Improvement should not be undertaken lightly, maybe you don’t need such radical change. Maybe you do. The key concept here is creating an organization that is more efficient, more effective, more productive and therefore more profitable. Then you can determine what you need in terms of business functionality that will help you move to this future vision.

Assess Your Ability to Change

Even though you may have recognized the need to change, and have identified specific areas of the business or business management system that need to be changed and to what degree, if you cannot manage effectively such a n ERP software selection project, or your management and employees are not ready to change to the same degree you believe is required, the project’s basic foundation will be compromised.

Develop an Understanding of what’s Possible

This is to some extent an educational step, but focused more on the software functionality you might need. The more you know about the potential that can be released through current accounting / ERP systems, the better prepared you will be to define exactly what you require to improve your own operations. Learn what other people are doing. Contact prospective vendors or resellers to learn more about what’s possible in terms of functionality. At this stage make it very clear that you are conducting research, not buying.

Remember to Include your Customers

Since your customers are your most valuable business partners next to your employees, involve them in this process. Ask them how you can serve them more effectively.

Build from the Bottom Up

One of the mistakes firms make is driving software selection from the top down. Executives, managers and project leaders will all contribute significantly to this project from defining requirements to making the purchase decision. What about everyone else? Is their input important? Are they ready to change? Will they accept the new system? Any person who will be using the new accounting/ERP system is a vital contributor to the firm’s success and the success of this project. Their contribution may shed light on important software requirements or business improvements. If you want to increase the likelihood of failure, leave these people out of the process.

Answer the Critical Questions

Your first step 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/ERP system, and put into their own words what they believe the organization does well or does not do well. Maybe you should ask and answer the following questions.

• What do we do now?
• What works and doesn’t work?
• What can we do individually to improve?
• What should we be doing that we are not 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?

Please keep in mind the fact that everyone needs to be involved in these initial questions. Leave people out at your own risk.

Build an Effective Information Management System

Let’s admit that it’s now possible to track anything you want. That isn’t the issue. Modern accounting and ERP systems can analyze data and spit out reports and graphs and dashboards that have the potential to either overwhelm people or give them information that they don’t need. Instead, you need to use this power to your advantage. As I have discussed in previous posts, what we need is a truly effective decision management system, not multi-page status reports or meaningless metrics and useless dashboards.

• Start by designing a targeted reporting system. Ask yourself why you need the information. If it doesn’t lead to a decision, then you don’t need it.
• Build a system of business metrics that gives people the ability to “see” where they need to concentrate their attention and to “see” if decisions they have made are leading to improved results.
• Finally, design truly effective Exception Management systems that give people the ability to identify and address issues that need to be addressed.

Summary

I have chosen to address only those software selection tasks that should be undertaken by the buyer and only the most important steps that precede  any form of needs analysis and product evaluation. While I would certainly hope that vendors and resellers would help people understand what needs to be done and by whom, I choose to follow the maxim “Let the buyer beware”. If you are contemplating the purchase of a new accounting or ERP system, you need to take responsibility for the project. If you organize yourself for success, it’s very likely you will succeed.