Many businesses find navigating the enterprise resource planning (ERP) market increasingly difficult. Mark O’Sullivan explores differentiators between ERP vendors and what factors to consider beyond organisational size.
Rapidly evolving business models and a flooded market of software as a service (SaaS) providers – each claiming to have the answer for a given industry or function, with marketing that may stretch the realities of what can be achieved in practice – all serve to drive a reluctance among buyers to commit to the investment.
Many advisers continue to simplify the question on ERP by pointing organisations toward solutions based on their size, leaning on outdated perceptions of 'tier 1' and 'tier 2' vendors. These perceptions are often shaped around organisation turnover, size or international reach, however, this thinking needs to change with a focus on process complexity, not company turnover, driving the evaluation of prospective solutions.
We see the biggest single differentiators between ERP vendors within each tier as:
- the completeness of their overall solution
- their ability to seamlessly deliver and automate complex processes.
When it comes to helping our clients evaluate ERP systems, the ‘80/20 rule’ can be helpful. For example, typically 80% of an organisation's requirements across finance and supply chain will be consistent with other businesses. Understanding this allows the focus to go into the 20% of requirements that are particular and fundamental to that company.
Gaining a clear understanding of your own areas of process complexity and uniqueness will substantially improve the likelihood of both successful vendor selection and implementation.
Comparing two client case studies
Through our work with clients of different scale and complexity, we've begun to build a picture of those areas where the ‘tier’ of solution offers functional richness, which isn't made clear to clients. Two of our recent engagements illustrate this difference well.
In the first example, we worked with an asset leasing business, whose turnover would typically see them pitched tier 2 ERP solutions, including its existing application. During initial discovery conversations, it was apparent that the key areas of challenge for the business would relate to complex organisational structures, use of special-purpose vehicles and a need for complex intercompany transactions at high volumes. Working these through in detail identified only a small number of vendors who could potentially support these requirements. Focusing on these areas of complexity allowed the business to then concentrate vendor demos on these areas of capability.
As a result, a vendor, typically described as tier 1, was selected for its superior capabilities in delivering the parts of the solution that might otherwise have derailed the delivery. The business has recently completed a successful eight-month implementation, delivered to time and budget.
In the second example, we were engaged by a much larger asset leasing business. The critical intercompany and lease accounting functionality was again identified as a key area of significant complexity with a need for automation of process.
Two potential solutions were identified as the tier 2 product that the first client was moving away from, and the tier 1 solution they eventually selected. Both ERP vendors had outlined that they had functional capability to deliver intercompany automation and complex ledger structures. Only when discussing this with our original client did it become clear that only one offering presented a valid option for this second client.
This organisation is now in the early stages of implementation of the tier 1 solution, and this is a good example of how that richness of functionality can be impactful. The smaller organisation was clearer in this case on the need for a higher-tier, more functionally-comprehensive solution due to their international reach. The larger organisation, however, believed that their domestic footprint would allow for a simpler solution. The focus should have been on the complexity of mission-critical processes and their ability to be delivered using the standard configuration of the chosen solution.
Focus on areas of complexity and uniqueness
We still see lots of businesses who, in capturing their requirements to share with ERP vendors, effectively document a list of 'what we do today'. These requirements are picked up by a system integrator who then builds a replica of the old system in the cloud, often with excessive levels of hard-to-maintain customisations. It’s hardly surprising that so many businesses report a failure to deliver the original business case benefits.
Entering the vendor selection process with an open mind to new ways of delivering basic processes while also focusing on analysing the fit and capability in the most complex areas will improve the delivery of your transformation objectives.
Critically, when embarking on selections of this kind, you need to ensure your advisers and internal teams interrogate functionality at a more detailed level. Many ERP vendors will suggest that they can provide comprehensive solutions whereas this is often not the case for more complex organisations.
Mark O’Sullivan discusses some of the common challenges and explains what can be done to resolve them.
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For further insight and guidance, get in touch with Mark O'Sullivan.
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