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By Tom Calder

Changing core business applications can be a daunting challenge. Finding a single solution for your entire organisation and integrating it with your existing IT estate is not a simple thing to do. Apart from third parties you will have to work with stakeholders across your business, all with their own priorities, as well as varying states of numerous legacy systems.

A coherent and well managed vendor selection process is vital when moving through the tender process for a big ticket IT contract. When you engage with the ERP vendors in your bid you will be dealing with professionals who sell to people like you every day and they’re very good at it. Not exactly a fair contest is it?

Here are 10 simple steps to help you chart through the ‘ERP jungle’, articulate your requirements to a credible shortlist of vendors, objectively evaluate their bids, select the most suitable solution and negotiate fair contracts. All this while staying in control of the bid process! 

Where do people go wrong?

Being in too much of a hurry: Managing an ERP/vendor selection process takes longer than most people think. Allow at least six months before you plan to sign contracts. You will be in a relationship with the chosen vendor for more than 10 years so take the time to get it right.

Focussing on product and functionality: Too often the best solution is assumed to be the product with the strongest functionality but this is rarely the deciding criterion. There are other differentiators and nothing is more important than the people that you partner with.

Not controlling the bid process: Frequently, buyers engage with vendors before they know what they require or how to proceed. Vendors will influence the buyer by increasing the sense of need, offering solutions and speeding the selection to an early conclusion.

Very poor quality documents: Often buyers produce documents that lack structure or consistency. They are full of jargon and acronyms, are incomplete and too brief. From the other side, sometimes vendors offer templates to the buyer which means the vendors have control.

Poor contract negotiation: This is often done far too quickly. This contract will define your relationship with the vendor for the term of the contract. There are so many clauses to be checked that a thorough review of contracts by solicitors specialising in IT contracts is essential.

Of course, it is possible to make all of the mistakes above (and more) and still buy a great system from a vendor leading on to a successful implementation. However, the deal will be on their terms and you won’t appreciate the impact of that until there’s a problem which, one day, there will be.

What should we be doing to get it right?

The approach to be adopted can be summed up in a single word: control. Control comes from asserting your authority from the start, gaining knowledge of your priorities and using a robust but simple process that will be followed by all participants.

The 10 steps below set out an approach that is methodical and auditable. There are key activities and outputs that will build a document set to support all subsequent decisions.  Risk of failure will be reduced (not eliminated – nothing does that) and even if an incorrect decision is made, the basis of that decision will be understood.

Also the participating vendors will understand how to engage with you. They will know where you are coming from, why you are in the market, the scope of the opportunity, the approach to the selection, the time frames and the protocol for the engagement.

These first three steps should be completed before you engage with any vendors:

Phase 1: Protecting your business in the ERP jungle

STEP 1: Define a change strategy

This should describe your current circumstances and the business drivers behind the decision to buy a new ERP system. It should include relevant sections of your business and IT strategies and an application strategy. The success measures of the selection should be defined including the benefits of the change, time frames, and an indicative budget.

STEP 2: Treat the selection like any other project 

Make sure that you have an actively involved sponsor who is senior enough to make or influence the big decisions and interested enough to be available. Likewise, don’t compromise on the project manager. Appoint someone who understands vendor management.

Document all of the usual details that you would find in any Project Charter or PID and make sure that all identified stakeholders agree to it.

STEP 3: Define your ERP scope and your selection criteria You need to define those areas of the business that will be in scope and to generate a master process list that will set out the extentscope of the ERP. 

Selection criteria need to be defined so that consistent decisions may be made about bids received during the selection process. These criteria will include high-level non-functional requirements such as IT standards and ISO compliance. Also they will include corporate information such as industry sector presence and details of financial performance.  

It is important to concentrate the selection criteria on those aspects that actually matter to you. Too many criteria at this level will not enable simple and clear decisions.

At this stage, you may be ready to speak to vendors.

You may send out a ‘Request for Information’ (RFI) in which you ask vendors to provide the information required to assess them against your selection criteria. This is useful if you wish to generate a shortlist for the bid. Just make sure that the vendors sign a ‘non-disclosure agreement’ (NDA) first.

STEP 4: Define your requirements thoroughly

Well drafted and concise requirements are a powerful tool for determining how vendors will respond to your bid and how your stakeholders will be able to assess these responses. The basis of these requirements should be the scope and selection criteria defined above.

Remember, non-functional requirements are just as important as functional and process requirements. From this you can generate a consistent basis for evaluation of the responses, for example a scoring matrix.

Do not ask the vendors to write these for you or use their templates. Unsurprisingly, this will lead to a definition of your requirements that matches perfectly with their system’s capabilities.

STEP 5: Generate your vendor shortlist 

There are numerous sources of information from which you may derive a shortlist.  Companies like Gartner, journals, and surveys published on the internet are an excellent source of information. However, don’t let these sources unduly influence the selection outcome: the key decisions are all yours. Also remember that many of the authors that publish surveys – like Gartner, IDC and Forrester are commercially supported by the vendors so it’s vital that you do not rely entirely on what you read.

STEP 6: Prepare a professional document set for the vendors

The documents prepared so far will be the basis for a set of bid documents for the vendors.  Typically, there are four components:

• 1. An introduction to your company, with the project background, selection criteria, engagement protocol, selection stages time frames and the approach to the selection

• 2. Requirements: functional and non-functional including the master process lists

• 3. A basis for the vendor’s response

• 4. A request for a proposal (RFP)

The quality of this documentation will dictate the accuracy of the vendors’ understanding of your needs and their responses. Remember to get all vendors to sign an NDA before sending them the document set if you haven’t done this already.

STEP 7: Evaluate all bids and vendors fairly, make your decisions firmly 

All vendors must be treated equally and professionally. You have told them that they will be fairly assessed and you should do just that. Your selection exercise will be more successful if you do.

When you need to eliminate the weaker bids, make sure that those vendors understand the reasons and don’t allow them to reverse the decision. Be respectful and grateful – they have done a lot to help you with your selection and they will have nothing to show for it.

STEP 8: Deep dive into the remaining vendors 

After the ‘first cut’ elimination, subsequent investigations will seek higher quality information from product demonstrations, discussions about IT, support and implementation and ‘proof of concept’ workshops for critical business processes.

This is very important work that will help you to truly understand how the remaining vendors will deliver a solution and support you with a positive long-term relationship into the future. These events must be prepared for thoroughly in advance and be well controlled.

Once you have chosen your final vendor (or two), you must take up references. Seek references from companies that are similar to you (sector and scale), use a standard questionnaire and take up enough references to gain a consensus view as any one single statement may not be significant.

STEP 9: Financial sensitivity analysis 

When assessing the financial bids and illustrations, make sure that you pull these apart thoroughly and understand their sensitivities. The lowest cost quote may turn out to be the most expensive if your user volumes increase (for example).  

The number at the bottom of the analysis is highly unlikely to be what actually gets charged, once proper sizing has taken place. In particular, bear in mind that ‘fixed price’ deals will have a risk premium built into the costs and variation clauses in the contract which will allow the price to rise if any assumptions turn out to be misplaced.

STEP 10: Contract review

As stated earlier, I cannot emphasise enough how important it is to complete this step thoroughly and not to sign too early. Bear in mind that there will be contracts for SaaS, application support and for implementation. Perhaps others too, such as hosting.

Things to look out for include negation of warranties, termination clauses, liabilities under the contract, remedies for failures, service level agreements, reciprocity and much more. Use a solicitor who specialises in IT systems and service contracts.

Remember, once you have agreed the contractual and financial terms and conditions and signed the contract, you have no more leverage. The deal is done.

Phase 2: Let the implementation commence!

Everything has been leading up to this point. However, one missing ingredient is often the lack of sufficient resources to actually deliver on the project plan. Don’t skimp on the resources. Always bring the best people from within your business to the project team. If the business says that ‘they cannot do without someone’ for 12 months then that is precisely the person that you need on the team. For more information on how to correctly resource your team you should read ‘how to get a tune out of your project team’ in the June 2019 issue of ERP Today.

You should be in a good place to start the implementation project, working closely with the vendor or their implementation partner. Everything you’ve done so far will flow straight into this phase: the change strategy, project charter, stakeholder analysis, success criteria, scope and processes and such like.

Make absolutely sure that you have very strong change control procedures and that any impact assessment takes account of the implementation fees. Appoint really strong people to be the business and technical design authorities to control the implementation consultants.

Summary

You can follow all of the above steps and make none of the mistakes I highlighted, and it can all go horribly wrong.  You can ignore any form of sensible practice and be plain lucky. As we have said in previous articles on this subject “even the best ERP projects take some casualties,” so be prepared to manage difficulties but make sure you give yourself the best chance of success by following the steps above. Bear in mind that by managing out the uncertainty (as much as is possible) and by establishing yourself as being in charge, you really have done as much as you reasonably can and stand a much better chance of achieving a great outcome with your ERP project.  

One final selection hot tip for you. The vendor that wants the contract most will try the hardest and you’ll probably notice that. They’ll be quickest to respond and nothing is too much trouble. The references will probably be compelling. If all other things are equal, that’s your partner.

Just remember, there are two types of disaster: disasters for which you are forgiven and disasters for which you are not. Best practice is the difference.  

Tom Calder is a qualified accountant and management consultant with 30 years of experience. He has helped clients of all sizes to define application strategies and requirements and to select ERP systems using his own methodologies and artefacts.