The Pitfalls of Selecting ERP Software

Written By: Bob Blanchette
Date: April 16, 2020

For any company considering new technology, the world of ERP is exploding with possibilities. So much so that the risk of choosing the wrong software may be greater than the chance of getting it right.

While not getting too technical let’s talk about a couple of the biases, considerations or obstacles. The process of selecting a new ERP system is fraught with danger and can be inefficient at best. There are a number of pitfalls to consider during your ERP software selection.

Too Much Focus on a Single ERP System

A point worthy of elaboration is the notion that a software exists that is the “one comprehensive right solution” for your company’s needs. This is a dangerous assumption for a few reasons:

From a business standpoint, you’ve probably had enough of manual workarounds and a what appears to be a hodgepodge of sometimes clunky systems that somehow keep your business afloat. As a software consumer, you envision something slicker, something full-integrated - a software solution that seamlessly handles everything from accounting to product configuration.

Recognize that you have a consumer bias towards this type of model. You are now a software seller’s dream client. They are trained to promise that this panacea exists. Software sellers want to sell you everything they can from their brand, so now you are willingly heading into double jeopardy – your hope and vision of “one system” combined with an over-zealous software salesperson eager to comply.

Think of it this way. No one brand of software does everything well because every business is different and has unique needs. Take CRMs for example. Almost all well-known ERP software companies offer their own version of a CRM. Tier 1 software comparisons like SAP S/4HANA vs. Microsoft Dynamics 365 are good examples of systems that can handle this type of functionality.

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The Best of Breed ERP Model

So why would Salesforce (a standalone CRM) have somewhere near double the market share for CRM vs. SAP? The simple answer is because Salesforce CRM can do a multitude of things that many other CRMs can’t. Over time Salesforce has created their own market and are a Fortune 500 company ranked in the top five for all software sales. The point being - Salesforce, Zoho, HubSpot are examples of standalone CRM products that are built to integrate well with most ERP core platforms. Depending on your business needs, these may be a better solution.

To reiterate, a core ERP will probably offer a CRM option, but there are very good business reasons why software giants like Salesforce are succeeding in winning customers.

Sidebar: Since I’m writing this blog, I can also comment about Salesforce’s bloated pricing model, and the company’s Dreamforce dreams of becoming a “full-blown” competitive ERP solution that are yet to pan out – thus I digress. They build a good CRM - yet possibly too complex or pricey for the needs of some businesses.

As independent ERP consultants we’re commonly called in to pick up the pieces of a software purchase gone wrong, which can begin by focusing on the promises of the “one software” approach. Take a step back and be open to the suggestion that sometimes a combination of unrelated (but compatible) software packages may be the better solution for your company.

A wrong software selection is sometimes paired with the choice of a wrong implementor – now you’ve collapsed into a money pit that is hard to dig out of. How would you know that that software you’re being pitched is nearing the end of its lifecycle and a new version is imminent?

As independent ERP and digital transformation consultants we can cut through the FUD and help guide you to software solutions and support tailored to what you are trying to accomplish and within your budget.

Looking for a Deal in ERP Vendor Negotiations

You’ve probably realized that the cost of an ERP implementation goes far beyond the software itself, but let’s talk about some of the dynamics in play around how software is priced and how to best handle ERP negotiations. For prospective buyers of software, I can’t think of a good way to point you to the “true” price of the software itself and it’s probably a dirty little not-so-secret trait of the industry.

Expect little to no transparency or consistency in pricing – even for the some of the most well-known software brands. How do you know if you are getting a good price, bad price or something in between?
I recently talked to client that was offered a 90% discount on software if purchased by quarter end. The client seemed quite elated, but when we searched our internal database of what other clients had paid for the same product the story looked quite different. If you don’t know the true base price – or let’s just borrow the term MSRP, how can you evaluate what kind of deal you’re getting?

To be fair there is some variability in approaches and deployment methods – and yes, they impact pricing differently. The number of users varies by business, how many locations, number of applications, customizations needed, etc. The “out of the box” version of the software probably won’t work for most established businesses. The person you purchase the software from is often not the same person who will help you implement it. One also has to consider the effect of the Covid-19 health and economic pandemic on ERP software pricing (hint: you will have most of the leverage over vendors).

Sound confusing? It is and can be. In our opinion a customer should not be shopping for software themselves. It’s putting the cart before the horse. Buying an engine without a car to wrap around it.

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Many steps should take place before looking for software. They include a thought-out strategy of what your company is trying to accomplish, what your future state will look like, defining requirements, evaluating what internal and external resources will be devoted to the effort, and of course parameters around budget and timing.

Keep in the mind when all is said and done the cost of the software will be only a piece of your total costs. We’ve seen situations where the quoted cost of the software was fair, but the software contract itself was heavily biased towards escalating costs and risks for the client (as time goes on).

So, in addition to getting independent assistance to select and negotiate a good software, you’ll also want an “experts” legal review of the contract (before you sign) to ensure that you’re negotiating a deal that is equitable (for both sides) and clearly gives you flexibility around future costs as your businesses needs change. Unfortunately, this unique type of expertise may not exist within your own legal department. We can help suggest legal experts that review ERP software contracts on a regular basis. They can be hard to find.

In Conclusion

Hopefully this blog expands on how to think about selecting and negotiating software (and some things to watch out for). When you look at published criteria for selecting software you probably won’t find the points we’ve mentioned. Below are a few more parting considerations:

  • Watch for internal software biases within your company. You may have a CFO who previously ran a company that used Oracle, or an IT lead that’s familiar and comfortable with Infor. While both companies sell reputable software, they should not be given preference when doing a comprehensive unbiased software selection. Unfortunately, we see this creeping into the decision-making process all too often.
  • It’s great that ERP systems can be customized. The bad news is that sometimes software resellers promise they can meet your company’s needs (via a certain software) but don’t fully explain that it will happen via extensive (read expensive) customizations. An uneducated buyer may not know how to drill down on this point sufficiently.
  • We are seeing a trend away from huge multiyear, multimillion-dollar implementations of expansive core ERP systems, with companies favoring incremental or targeted approaches. This is especially true as we see more companies restructure their ERP or HCM implementations as a result of the current economic environment. Understand that you have choices. It stands to reason the larger the project the more risk.

We are Third Stage Consulting. Our differences of opinion and innovative perspective matters – because our underling loyalty is to our clients rather than to industry software alliances. If a conversation with one of our team members would help, we’d love to have that conversation. Please contact us for an informal conversation – we are happy to be a sounding board as you continue your journey!

Author:
Bob Blanchette
Bob brings a creative blend of understanding operational benefit and navigating employee resistance to change, ultimately helping organization realize success and benefit through maximizing the effectiveness of people. He holds a successful track record of HR leadership and promoting fair and unbiased outcomes.
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