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.

Cloud computing is becoming one of the “hot” topics regarding accounting and ERP software system deployment. Most of us just think that there are only two real options: on-premise as we have for years or the Cloud where we access a system via a browser and have no local network to worry about. Unfortunately this isn’t the case. There are any number of deployment options: on-premise, hosted, SaaS (Software as a Service) and the Cloud. Within each of these alternatives are several options. It’s all very confusing.

The ERP Software Blog web site (an excellent collection of blogs regarding all things Microsoft Dynamics (GP, NAV, AX and SL) has published a comprehensive white paper (35 Questions Every CFO Needs to Ask about Cloud ERP Software) that might help us understand the Cloud and how it can be utilized to our advantage.

Abstract

There are any number of articles that have been written regarding Accounting and ERP Software selection, including several that I have written myself. While the techniques suggested may differ, the success of any accounting and ERP software selection initiative is dependent on the support given to these projects by each of the various groups of people that comprise the organization itself. These stakeholders have the ability to drive an ERP software selection project to a successful conclusion or they can drag a project to failure. If these people possess this level of power or control, what then can we do to motivate them to positively impact this project?

What is a Stakeholder?

Stakeholders are individuals or groups of people within an organization who have a vested interest in a project’s outcome and/or whose support is required to launch an ERP software selection project, drive it forward to a successful conclusion and ensure that the product selected is utilized to its fullest extent.

Short term support for or giving lip service participation in an ERP software selection project is insufficient. Avoiding responsibility for the outcome of a project invites failure. Stakeholders have the power to drive a project to failure just as much as they have the power to drive a project to success.

Who are the Stakeholders and what are their responsibilities?

Depending on the size and complexity of an organization, the number of stakeholders can vary. The question we must address is the role these people play in an accounting or ERP software selection project.

CEO/Owner

Every organization has but one true leader. That person sets strategic objectives and as such requires information generated by the financial management system that helps them measure how well these strategic objectives are being met.

While the CEO/Owner is a stakeholder by virtue of the fact that they need information (and therefore must take an active role in defining exactly what information they require), their role as leader is far more important. Accounting and ERP software selection projects are complex beasts that can seem to drag on forever, particularly if snags develop (and they will!). Even if the CEO/Owner may not be involved in the intricacies of a project, they unwavering enthusiasm and support is required to make sure that other stakeholders understand the importance of the project and participate to their fullest extent.

Software Selection Project Manager

You might question why I didn’t list the CFO/Chief Accountant as the next most important person. While I might believe that the CFO/Chief Accountant is responsible for initiating the decision to switch accounting or ERP systems, the Project Manager is responsible for guiding the firm through the project. They make sure that all of the detailed tasks are identified, that each task is assigned to the correct individual and that these tasks are completed on-time, on-budget and with the correct level of detail,

One critical fact needs to be accepted by every single person involved in the project. The Project Manager has the full support of the CEO/Owner and has the authority to direct the actions of each person participating in the project. I think that one of the most significant reasons why ERP software selection projects fail is that the participants do not respect the Project Manager. One effective method by which this potential for failure can be avoided is assigning a senior manager as the Project Manager’s report-to. This senior manager has the clout necessary to keep the project on track. Hopefully it will not be necessary to use this “powerful ally” to move the project forward, but to ignore the potential for foot-dragging invites failure.

CFO/Chief Accountant

Obviously the CFO/Chief Accountant is a key stakeholder. In most cases they are responsible for initiating discussions that lead to the decision to invest in a new accounting or ERP system. The CFO/Chief Accountant may also be the Project Manager in a small firm. Much like the CEO/Owner they have to be the primary enthusiast, getting people to acknowledge that change is necessary and that the outcome is worth the effort.

While the CFO/Chief Accountant may be a critical stakeholder, there is a potential knowledge deficit danger that needs to be avoided. The production of financial management statements represents only about 10% of a modern accounting or ERP system’s capabilities. Business Process Management, Business Intelligence and Customer Relationship Management represent the other 90%. The CFO/Chief Accountant may be very knowledgeable regarding their current systems, but do they know what’s possible in terms of today’s software capabilities?

While the Project Manager may be responsible for the day-to-day software selection tasks once a project has been launched, the CFO/Chief Accountant must be responsible for educating each person, including themselves. How can you become more effective and efficient (and therefore more profitable) if you don’t know what’s possible?

Of course this may lead to another form of knowledge conflict. While modern business management systems can give firms software driven capabilities they did not have in the past, this doesn’t mean that more capabilities are the best solution. It’s a bit like a kid in a candy store. Too many software capabilities may lead to a monumental stomach ache. In some cases it’s not possible to turn these capabilities off and users become overwhelmed. The CFO/Chief Accountant has to educate all system users with respect to software capabilities while guarding against the selection of these capabilities simply because they exist.

CIO/System Manager

The CIO/System Manager is a stakeholder by virtue of the fact that they are responsible for the system itself and the network that connects users to the system. I am not a big fan of ERP software selection projects that are driven by the CIO/System Manager. While it is true that they will have to “make the system work”, that’s a technical requirement. The CIO/System Manager may have even more of a knowledge deficit than the CFO/Chief Accountant. Certainly their knowledge with respect to the hardware/software infrastructure decision is critical, but they may not possess sufficient knowledge regarding the business management needs of the organization.

There is one additional critical factor that the CIO/System Manager needs to address and of course that is deployment. In the past the decision was easy. Create a network infrastructure that supports the on-premise software application. While that’s certainly one alternative today, there are several other options: hosting and the Cloud. The Cloud is becoming an attraction to many firms, but it may not be appropriate in all circumstances. Maybe some form of hosting might be the most effective alternative. Actually accessing a hosted solution via the Internet is just one variation of Cloud computing. The real question that needs to be answered here is whether deployment method is going to drive product selection or is it going to become an important decision alternative once several products have been identified as best suited.

Sales and Marketing

Sales and Marketing used to be somewhat of an island unto itself, but most firms now are very aware of the potential benefits of an integrated Customer Relationship Management (CRM) system. The real question when it comes to ERP software selection is balancing the needs of the Sales and Marketing department vs. the business management needs of the rest of the organization. Sales and Marketing must support the software selection process, but it cannot drive the process.

System Users

The process of selecting a new accounting or ERP system must proceed from two different directions: top down and bottom up. The strategic needs of the organization and its executive managers must be defined and usually translated into Business Intelligence requirements. That’s the top down approach. On the other hand people need to “do the work” and that translates into Business Process Management requirements. That’s the bottom up approach. Sitting in the middle of these two approaches is our friend Customer Relationship Management.

System Users don’t need information per se. They need to process business transactions (purchase order, sales orders, etc.) and do so efficiently. They also need to be able to easily track business processes that are not being completed on time (track and resolve overdue purchase orders, sales orders, and overdue invoices). If this critical group of people (usually a majority of the total number of people interacting with the ERP system) are not included in the software selection process, two outcomes are possible. It may cost a lot more to process transactions or worse still significant resistance to the new system will be generated.

You cannot force a system on people who have not been consulted in its design or selection. These people and their needs are just as important as executives and managers who utilize the output of the ERP system.

As organizations grow in terms of size or revenue, the complexity of their business processes tends to grow as well. One of the most significant issues many System Users have to face when upgrading to a more powerful or comprehensive ERP system is that the vendor may have created a set of software driven business processes that differ significantly from the firm’s current business processes. Now what do you do? If the Business Intelligence and Customer Relationship Management needs of the firm can be met by the new ERP system, but it imposes a completely different set of businesses processes on System Users, what do you do? You certainly don’t want to ignore System Users for to do so invites resistance that can literally drag down the new system. There is no easy resolution, but awareness of this potential issue and inclusion of System Users in the software selection process is a required first step.

Summary

In the end every person who has any connection with an organization’s accounting or ERP system is a stakeholder. As such they all have the potential to significantly impact the software selection process as well as the utilization of the system selected.

• Every stakeholder must participate in the decision to replace their current business management system and support the project through to a successful conclusion. Any form of negativity endangers the project and the system selected.
• Every significant managerial or operational person is jointly responsible for creating a vision of the future. The software selection project plan then becomes a road map that describes where the firm is today; where the firm needs to be tomorrow; and finally how the firm can most effectively move to this future vision.
• The software selection process must be directional: top down to set strategic requirements and bottom up to set operational requirements.
• The CEO/Owner is the firm’s leader and as such is also the de facto leader of the software selection project. While the CEO may not participate in the project with hands on, they must approve the project, support the project 100% and make sure every other stakeholder participates in the project fully.
• The Project Manager is the project’s administrative manager. Their most important responsibility is the development of an understanding of how a software selection project should be organized for success. Their most critical potential weakness is letting other stakeholders oppose or resist the project. To combat this weakness Project Managers must have some higher level report to person who has the authority to make people do what they should be doing.
• The CFO/Chief Accountant is responsible for the financial management system (not the operational side of the system). Their most important responsibility is developing an understanding of what’s possible in terms of software driven functionality. Without this vision of future potentials, how can you possibly move to a more profitable tomorrow?
• The CIO/System Manager is responsible for evaluating deployment alternatives. They should not run the software selection process. That’s the responsibility of the CFO/Chief Accountant and the selection committee.
• Sales and Marketing is responsible for defining how the firm is going to connect with its prospects and customers. While the selection of an appropriate CRM system is critical to a firm’s success, every effort should be made to select a CRM system that integrates fully with the new business management system.
• System Users make the new system run. They must be included in the software selection process and must feel as though their input matters. Given the fact that the new system might impose a different set of business processes, every effort should be made to evaluate the impact this might have on System Users. A system that seems to be overly complex or demanding will become a self fulfilling prophecy unless the issue is addressed and precautions taken.