ERP Rescue in Action: A Real Case Study

According to analytics from Gartner, approximately 65% of all ERP implementations do not meet the clients’ expectations for a myriad of reasons. The purpose of this case study is to provide an anonymous real-world business example, sanitized for specific company or tech names, with the goal of educating senior executives at $15M to $150M businesses, generally refer to as a small-to-medium-sized businesses (SMBs) or SMB’s, on how they can both prepare to select the best ERP software package for their business and have a successful ERP implementation experience.

It is written for an audience that does not live in the “tech world” every day. Firms in this revenue range typically have very limited IT departments and no cloud ERP expertise on staff to assist in the process. We’re not here to point fingers. We’re here to highlight how a real-world, non-IT executive views the situation where project expectations and outcomes didn’t align and what we recommended to turn the project around.

ERP implementation dissatisfaction is a 10,000-piece puzzle

Recently, we met an owner of an SMB firm. This owner described an ERP project that is twice over its original timeline and budget. The CEO further shared that in their mind, mission-critical functionality from the software selection portion of their project remains incomplete in the implementation of the ERP package, with a distinct worry that it may not be achievable or may cost more to drag the project over the finish line. All of this is happening while the company bears the weight of paying for its legacy application subscriptions, the ongoing ERP implementation resources, consultant travel, and even the new ERP’s monthly subscription fees. The CEO explained that there are many non-tech implications for a twice-over-budget/timeline project — specifically, its impact on their sales pipeline, employee burnout, and damage to their brand.

The non-IT or “non-tech world” business owner describes the ERP implementation dissatisfaction metric in their own business lingo:

- “My costs were more than I expected.”

- “We are talking about years to get this project done, not months like we thought originally.”

- “We started getting new proposals (change orders) for functionality that we thought was covered in the original proposal.”

- “Our old ERP data wasn’t very good, and it has been difficult for my people to load into the new tool.”

- “I thought training my people on the new tool would be easier.”

It is never just one thing that isn’t aligned in an ERP project that isn’t meeting expectations — it is usually more like an unfinished 10,000-piece puzzle.

About the ERP System

What is ERP?

ERP Module	Function / Purpose
Human Resources	Handle payroll, recruiting, and workforce management
Sales & Customer Service	Track leads, orders, and customer support
Operations	Streamline production and supply chain
Finance & Accounting	Manage budgets, expenses, and reports

It is important to remember that this article isn’t for those of us who live in the tech world and obsess about ticky-tacky functionality, features, or scoping of ERP packages; it is for the folks who are running SMBs. Enterprise Resource Planning (ERP) is the software on your desktop computer, laptop, or even phone that you log into every day to do your work.

In short, it’s the tech that lets you sell, quote, track, plan, get things made, ship, invoice, collect, etc. Your employees really don’t care about the brand name of the ERP or even if it is in the “cloud”; they’re just looking for a tool that helps them get their work done. If it is working well, this tech is the backbone of a thriving business — driving efficiency in your individual departments and providing enterprise-wide accountability and reporting.

The breadth of modern ERP tech is massive — and so is its implementation dissatisfaction rate at approximately 65% — and this presents a dilemma: How can you focus on finding an ERP solution that not only fits your specific business goals but also avoids becoming a multi-year implementation disaster?

How is the new ERP selected?

When an SMB with limited IT staff decides to upgrade its ERP technology, it has a daunting task ahead. They do not live in the “tech world,” and even if they utilize the services of an ERP selection firm, the process will add time and expense — with more detailed internal steps such as determining goals, budget, timeline, a list of existing apps, and highest-priority requirements before engaging with ERP vendors.

So, sometimes the ERP vendor both sells and implements the new ERP system, while other ERP packages have a go-to-market strategy that utilizes what is called a value-added reseller (VAR) to sell and deliver the product. Complicating matters, there are also many firms that have dedicated ERP implementation teams that just focus on delivering ERP projects but do not sell the software. The industry jargon words of requirements, scope, sales engineer, delivery, subscription pricing, “bolt-on” applications, etc., are usually new to the people looking for a new ERP package. Please have your ERP selection consultant explain these terms to you or do your own research so that you can make an informed decision.

Sales — the ERP sales team, combined with a product expert called a sales engineer, usually asks for an introductory session to understand your highest-priority requirements so that they can provide a demonstration of how their ERP meets your needs. This presentation is commonly called the “demo.” It can be confusing, but the sales team can be direct from the ERP vendor, from the VAR, or a combination of the two. If basic requirements are not met with the base ERP package, they will introduce specialists from other software firms to meet these needs.

These additional applications are commonly referred to as “bolt-on” applications. One client refers to them as “tie-on” applications. Either way you refer to them, these are applications that are being positioned by the sales team to combine with the ERP package and provide a comprehensive solution, but they also add cost and risk.

Delivery is the team of people (could be part of the ERP vendor, could be a VAR, or just an implementation team) that is taking the information gathered from the sales team and trying to show you how the package meets your requirements. The delivery team is usually the ones that are formally documenting what they call your project scope, or “scope” for short.

Scope is an IT-industry word for what they are including in their proposal, so review it very carefully. Scope then is translated into an implementation cost and timeline. Fancy words such as “investment” and “duration” are often used in the tech world during this process.

To visualize this whole experience, imagine a relay race. The first leg of the race is run by the sales team, which documents your higher-level business needs and their perception of your scope. Your requirements and scope are then handed over — like a baton in a relay race — to the second team of people that are going to create a proposal that includes their perception of your scope, the timeline, and cost to deliver the ERP implementation project. Again, the firm generating the scope could be the same ERP firm or two different firms.

How is ERP purchased?

Once upon a time, ERP software was purchased in what was called an “on-premises” business model. This meant that you made a large upfront capital expenditure (CapEx) to buy a specific number of “seats” or licenses of the software and then the servers that it would run on.

The investment was typically amortized over five to seven years, and you were responsible for maintaining the ERP application, interfaces, applying updates (called patches, which added complexity), and scheduling ERP system backups with either your own internal IT employees or external consultants. Once you have purchased the software, you will receive an “annual maintenance invoice” to the tune of 15% to 25% depending on the vendor and your arrangement. The on-premises model has not completely gone away; there are still firms that prefer this approach for industry vertical, security reasons, or personal preference.

Sometimes, one would have to purchase the whole ERP system, whether you utilize all of the functionality parts of it or not. Customers also had to endure “software audits” from the ERP vendor to ensure that all the licenses were being utilized correctly, which could be a whole other blog topic someday. Implementation of the on-premises software was a separate purchase that involved consultants who knew the software's functional areas (think of a department-type focus, such as finance, HR, distribution, etc.), a technical team for interfaces, and a group that helped your internal team set up the hardware.

These proposals even included a line item for physically loading the software onto your servers. We have purposefully excluded jumping into the way-back machine to discuss mainframe, mid-range, and server-based computing. All of these platforms had a huge impact on the deployment of ERP software, but we are keeping this article focused on the basics.

Source: ElectroIQ

The advent of cloud ERP opened up new opportunities for $15M to $150M-sized firms to compete with the big guys who had the cash, the IT staff, etc. The large upfront CapEx barrier to entry was replaced with a known OpEx subscription-based approach to purchase the exact number of software subscriptions for the items you needed à la carte, and the “servers” were, well, “in the cloud” and not at your facility.

One typically purchases the cloud ERP subscription in a 36- to 60-month subscription commitment, with discounts given to the longer terms. It has been described as slightly more expensive than the on-premises business model and certainly isn’t perfect, but it gives a $15M to $150M-sized firm a known cost structure from which to budget and the ability to scale upwards if needed. It also eliminated the prior need for a heavy IT logistics team to maintain it, and the software application is typically automatically updated twice a year. This approach is by no means a silver bullet. Utilize every resource possible to fully understand your options.

As with the infrastructure underpinnings of the on-premises model, we are not fully explaining that there are several “flavors” and investment categories of cloud infrastructure for you to choose from based upon your security needs, business model, industry vertical, government/regulatory requirements, and budget.

Why is this important to you?

Cloud ERP hasn’t magically made ERP easier to select or implement; it has just made the process of obtaining the use of the tech easier by charging a known OpEx monthly fee for the specific products you need. The process of gathering your requirements, improving your processes, loading master data, training your people, creating forms and dashboards/reports is all still there.

There is no “perfect ERP package,” and every single ERP implementation is going to have an issue. Scope, timeline, and cost misunderstandings in the sales process can, unfortunately, plant the seeds of downstream implementation dissatisfaction in the delivery of the project. We advise our clients that it is in everyone’s (both client and implementation firm) best interests to plan and work together in the selection and implementation of your new ERP tool so that you can both achieve ERP implementation success. In plain talk, you need to know your ERP purchase options and the obstacles that present risk to your business.

What did the client say they would do differently if they had it to do over again?

From poor training to people just not getting along, SMBs have enough on their plates as it is. They don’t need to start living in the tech world and start babysitting yet another aspect of the business. For them, tech not only is, but must be, a tool that just works – no different from a cutting machine or a crane. As such, they are counting on their ERP implementation partner to meet the proposed commitments they made to project costs and timeline. Here are a few “lessons learned” quotes from CEOs for your consideration:

- “We would have taken the extra step to extend the sales process long enough for us to 100% verify that we are purchasing one unified ERP solution with minimal or no bolt-on applications and that the ERP could meet our top business issues in a line-by-line review until we knew exactly what we were getting ourselves into.”

- “We are great at making complicated products, but we need to learn how to measure twice and cut once with ERP.”

- “I would have led the selection personally instead of delegating it because my eyes were opened quickly once I started to dig into the details — once you sign up for a five-year ERP subscription, you are locked into a long-term commitment with very few options to change to another package.”

- “We didn’t know any better, but once we selected the package, we should have taken the extra internal time and effort to interview several implementation firms instead of just one.”

- “We should have paid more attention to how our data was going to be converted and how our people were going to be trained on the new tool.”

- “It would be an added cost, but we should have hired an outside project manager who was independent from the ERP package sales and delivery teams to ensure the project stayed on time and on budget for us.”

- “We are definitely going to meet every week to discuss the project status from now on. We just have to do it.”

Pro Tips for ERP Rescue

It is our wish that you are never in a situation where you must discuss an ERP rescue. However, if you are in that situation, consider these tips to get things back on track:

• Leverage the fact that ERP implementation firms want and need you to be successful — these firms thrive on a strong set of references. There will always be issues in an ERP implementation, so we advise finding every way possible to work things out for a win-win scenario.
• Hire an external firm to quash conflict between all parties and remove emotion from the equation.
• Executives set the tone for internal cooperation and, as such, are essential to working with the ERP vendor. Be a role model for success.
• Start weekly sessions where you listen to both your internal team and the consultants on what’s working well and what’s dragging.
• Review the content and cadence of your status reporting, change them to highlight the items you want to see weekly, and then actually read them!
• Request weekly invoices and dedicate your executive calendar time to reviewing their accuracy.
• Set up a peer-to-peer relationship with the most senior person at the consulting firm and grab lunch with them — think win-win.