Enterprise Resource Planning (ERP) exists in every enterprise. It is often a low priority for IT managers until changes to the business make a very real, and very expensive, project. The real cost of a failed ERP initiative is IT careers. ERP is always challenging, so IT leaders must determine which of three strategies are most appropriate:
•Stick. Maintain the existing system and establish a date to revisit the strategy.
•Augment. Stay on the existing ERP platform, but augment with additional modules, custom development, or bolt-ons.
•Rip & Replace. Initiate the move to a new ERP system.
The best way to develop an ERP plan is through an annual audit that assesses the priorities of the enterprise and capabilities of the existing ERP platform. Use this storyboard and associated tools to get your ERP strategy on the right track.
6. ERP 101: Understand the basic concepts of ERP Info-Tech Research Group Many IT leaders inherit an ERP system. They may – or may not – have knowledge of basic ERP concepts and technologies. A basic understanding of ERP is crucial for creating an ERP strategy for the enterprise.
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10. The vendor is the least important contributor to the ERP success pyramid ERP projects involve several different parties. Focus on your own ability to manage an ERP deployment and the capabilities of your consultants and VAR. Most people spend nine pages [of the RFP] on technology and the vendor. The should spend one page on the technology and nine pages on the consultant’s capabilities. - Vice President, ERP Reseller Info-Tech Research Group “
11. On-premise deployments are most common, but they don’t necessarily provide the best value ERP Systems are availability with a variety of different hosting and delivery mechanisms. The different approaches vary on three dimensions: flexibility in supporting new and custom features, ease of maintaining the system, and the overall cost of the system. Info-Tech Research Group Time Sharing (Extinct). Clients use terminals to access a computer located off-site. Time sharing is extinct, but the concept has reemerged with multi-tenant architecture. On-Premise. The advent of mid-range computers led to on-premise deployments of financial systems. IBM’s AS/400 was particularly influential. This approach also afforded other aspects of modern ERP deployments: a SQL database, multiple clients, and standards-based messaging between different tiers of the architecture. Hosted. Some enterprises elect to locate their ERP architecture externally. The technology stack is identical to an on-premise deployment but resides in a third-party data center. In some circumstances the hosting provider also applies patches and upgrades to the system. This full service approach is typically called “Managed Service”. Flexibility Ease of Maintenance Cost of Operation
12. Cloud-based deployments provide good flexibility; SaaS deployments sacrifice flexibility for cost advantages Info-Tech Research Group Cloud (Internal). Enterprises are increasingly turning to cloud-based deployments. IT leaders are virtualizing their on-premise architectures to take advantage of improved performance or service characteristics. The major vendors have been slow to certify their virtualized platforms, so many IT leaders have moved their non-production environments (e.g. development & test) to an internal cloud arrangement. Cloud (External). The move to virtualization enables enterprises to move parts of their technology stack to an external cloud provider. Again, the core targets are development and test. External clouds are also effective for the creation of sandbox environments for testing new features or demoing new products. External cloud arrangements are often described as “Platform-as-a-Service” or PaaS. Multi-Tennant. Some enterprise elect to rent their ERP environments by paying a monthly per-user fee. This approach has proven to be popular with CRM and is becoming increasingly popular in ERP. The point of multi-tenant is that all users access a single instance of the system. As a result, patches only have to be applied once and infrastructure licensing for databases, application servers, etc. is minimized.
13. IT leaders must prepare for the periods of greatest complexity for the ERP system & the enterprise Info-Tech Research Group
14. Plan for the end-state of ERP implementations: divesting multiple instances with bolt-ons Enterprise start . Growth. Acquisition. The enterprise is focused on establishing a system to manage on core operations procedures, and financials. During the growth phase, modules are added, upgraded, and custom development occurs. The ERP system rapidly becomes more complicated. The system rapidly becomes more complicated during acquisition. IT leaders must make the decision to consolidate operational systems or operate discrete ERP systems. Divestiture. Spinning off parts of the enterprise poses a system challenge. IT leaders must determine if a “clone and go” strategy is appropriate or if an alternative option is better. IT leaders must now address the “multi” problem: locations, licenses, upgrade paths, development projects, governance structures, and operating environments. The ERP lifecycle gets very complicated due to overlapping internal initiatives and the natural enterprise lifecycle. X X X X X X X
15. Three different scenarios illustrate ERP concepts* Info-Tech Research Group * NOTE: The scenarios are based on real enterprises, but the specifics have been altered to protect anonymity.
27. Talk cost when IT & the business can’t agree on strategy Business leaders rarely want a new system. Instead, they want features. Emphasize that the existing ERP system can deliver the features that the business leaders want with little additional expense . Discuss the potential cost of change. If the feature requests cannot be met, “Augment” or “Rip and Replace.” Emphasize the features that are delivered by the new system and articulate the potential business advantages of the system (e.g. reduced cost of operation or increased business flexibility). Unlike most business applications where the business doesn't really care about the cost... Because the ERP belongs to the CFO, you have a business sponsor who is cost savvy... So money talks - VP of IT, energy distribution “ Info-Tech Research Group
31. Reporting is the most common driver for ERP projects Info-Tech Research Group Most IT leaders place a high level of importance on improving reporting capabilities and specific executive initiatives. Info-Tech Recommends: Work with the business units to determine new feature requests. Assign a Business Analyst to work with the SME to create a feature request. If the request is for a maintenance procedure, get sign off from the business process owner and assign relevant resources. If the request is for augmentation, work with the business to create the feature request and to compile additional supportive information such as a cost-benefit analysis. 1. 2. 3.
32. Steering Committee support is required, but the IT leader must still evaluate the cost implications Info-Tech Research Group The business unit must provide a completed business case justifying the project to the Steering Committee. But cost is always a factor. . Excessive Cost Augmentation requests can grow considerably. The IT leader has the responsibility of protecting the budget. If a request for augmentation has a completed business case and committee support, but the anticipated costs for the new system exceed the Rip and Replace costs, stop and reevaluate options. This scenario may arise when meeting the need for industry-specific requirements. Business Case A feature request for augmentation requires a completed business case from the relevant business unit. The business case should articulate the expected business value in terms of TCO or ROI. The IT leader can then compare the business case to expected cost for solution delivery. Steering Committee Support The business case needs support from the IT Steering Committee or similar agency with decision-making authority. Committee support is required to either allocate development resources or secure the necessary level of capital funding. Maintenance features are sufficiently small that they don’t require committee approval.
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34. There are four options for Augment; avoid custom development if possible 3 rd Party Solution A bolt-on solution may be available. Selecting such a solution requires a selection cycle that includes assessing the capabilities of the product, the viability and capabilities of the vendor, and of the implementation partner. Introducing a third-party solution may challenge project management or vendor management capabilities. Custom Development The most expensive option is generally custom development. The ERP system should generally be protected from customization. Highly customized systems are difficult to upgrade, particularly when the customization has had an impact on stored procedures maintained in the database. Existing Module The enterprise may already have access to a particular module as part of its existing licensing. Consider the costs of implementation and compare it to the business unit’s business plan. Include consulting, training, seconding existing staff, etc. Additional Module The vendor may provide an appropriate module. Ensure that the module can meet the minimum requirements. Compare it to third-party solutions to ensure that it meets expectations and is appropriately priced. Work with you ERP partners to find solutions. Vendors and VARs can provide recommendations for modules and bolt-ons. Also, walk the floor at vendor and user group events. Info-Tech Insight:
35. Barely Repeatable Processes (BRP) have no place in an ERP implementation Info-Tech Research Group Info-Tech Recommends: Firewall the ERP system from BRPs, particularly with a 2-tier infrastructure. Ensure that BRP solutions do not impact ERP operations from the perspective of the load on the database or the security/compliance mandates. BRPs can be deployed using a variety of different technologies and in many cases are custom built. Consider SharePoint or an existing ECM platform as an enabler. Stay consistent with Enterprise Architecture. Barely Repeatable Process (noun)* . Business processes that are specific to a particular enterprise and are difficult to accommodate. They are characterized by ill-defined or rapidly changing requirements and are often triggered by a phone call or e-mail to an employee. ERP is the domain of documented and repeatable processes. Most IT leaders spend a large amount of effort attempting to automate Barely Repeatable Processes. 1. 2. 3. * NOTE: The BRP concept has been most fully developed by Sigurd Rinde.
36. Move to Rip & Replace when faced with excessive cost or complexity Info-Tech Research Group There's no point in getting a bolt-on budgeting module and integrating it with an obsolete platform… know when to move. - Former CIO, telecom “ Info-Tech Recommends: The first limitation for Augment is time. When the enterprise can no longer respond to key requests for features from the business units, it is time to consider a Rip and Replace option. If Augment requests frequently linger for more than four months in the project list, explore the Rip and Replace strategy. Each bolt-on and customization brings it’s own needs for upgrading and maintenance. When the enterprise struggles to maintain an effective project portfolio for maintaining upgrades and maintenance requests, the augment strategy is no longer effective. This situation is characterized by an ongoing need to hire additional project managers and developers. When the cost of maintaining an Augment strategy becomes excessive, it is time to move to a Rip and Replace strategy. Use a three-year window as a guideline: if the total four-year operational cost of the ERP system exceeds the rough cut cost of a new deployment, move to Stick, continue maintenance requests, and explore Rip and Replace. There is a limit to the Augment strategy.
39. All parties have an important role in Rip & Replace, particularly the VAR Info-Tech Research Group Reseller/VAR The reseller can be engaged at any part of the selection process. It is a valuable resource for guiding the customer through the selection process and advising the customer on what similar customers are doing. In general, it is always valuable to engage a Reseller/VAR early in the process, provided there is an existing relationship. Client/ Customer Has the responsibility to create underlying documentation and select the vendor. It must emphasize what business processes are actually important to the enterprise and verify those processes through conversations with references and, where warranted, pilot projects. Consultant The client may work specifically with a consultant to assist with the vendor selection process. The consultant may review and document the customer’s business processes and work with the customer to document requirements and project drivers. The consultant may also have a role in implementation. It is… very sensitive to switch vendors on any major system and it is absolutely foolish to believe that you’re going to be able to do all of it yourself. -VP of IT, large agricultural co-operative “
40. Rip & Replace involves a dedicated ERP project. Spend first two months building the project team & establishing the business case Info-Tech Research Group Establish the business need. Build the project team. Assess organizational readiness. Determine approximate cost. Develop the Business plan. The first step in an ERP project is identifying the need. Start with the gap analysis conducted as part of the annual ERP assessment. Pay particular attention to “Augment” requirements. Deliverable: A statement of direction. It should include the executive sponsor for the team and have representation from the business units that will be affected by the project. Ultimately, the CFO is probably the most important member. The project team will have an important role in both scoping the project and ultimately in product selection. Deliverable: A team list. Solutions may involve a great deal of technical and process complexity. Enterprises must ensure that they either have the appropriate resources in place or are willing to acquire or build those resources. The Annual Assessment is an effective starting point. Deliverable: Appropriateness assessment. If the preliminary requirements can be met by a set of products but those products are excessively expensive, then the enterprise must reconsider either requirements or approach. This cost can be difficult to quantify due to extreme range in quoted costs. Deliverable: A rough-cut cost estimate that meets senior management expectations. An important part of the project is to prepare a business plan that explores the potential benefits of a particular solution and how they will affect different parts of the organization. It should explore market dynamics and include both an opportunity assessment and recommendations. Deliverable: Completed business plan. :: Month 1 :: :: Month 2 ::
41. Months 3 & 4 of an ERP project get to the vendor shortlist Info-Tech Research Group Create requirements. Decide: Existing technology or go-to-market. Identify Vendors. Prepare RFP. Shortlist vendors. Moving from project objectives to a tactical plan requires the creation of functional requirements. They must identify what the system should do and, ideally, how it should be done. Deliverable: Completed solution specification. Reconsider the Augment scenario. With detailed requirements and a rough-cut cost, the Augment scenario may become attractive. Revisit the operational costs documented as part of the Annual Assessment to validate that Rip and Replace is still appropriate. The next step is to identify potential suppliers of packaged solutions. This long list should include considerations such as solution architecture, functional requirements, and vendor reputation. The list should be compiled in consultation with the project team. Deliverable: Vendor long list. The vendors must be compared in a consistent manner. The RFP presents an opportunity to ask questions that reflect requirements to potential vendors. The completed RFPs should then be assessed with consideration of both the requirements and the business plan. Deliverable: Completed RFP The project team must evaluate the RFPs to determine which vendor presents the best potential fit for the enterprise. Deliverable: Vendor short list. :: Month 3 :: :: Month 4 ::
42. By the end of six months, the vendor should be selected, and the project focus should turn to deployment Info-Tech Research Group Conduct demonstrations. Perform due Diligence. Negotiate. Plan deployment. Shortlisted vendors should conduct a product demonstration at the enterprise's site. The content of the demonstration should be scripted to a certain extent by the enterprise. Scoring of the demonstrations should happen immediately upon the conclusion of the demonstration. Deliverable: Completed vendor score cards. The demonstration process will likely result in a very short list including only a few vendors. The analysis must now shift to confirming the ability of these vendors and their integration partners to successfully complete the project. The final purchase price and contract terms must be negotiated with the vendor. This process ultimately results in a signed contract. Deliverable: Finalized contract. The implementation process begins with the creation of detailed deployment plan. The preparation of the deployment plan will occur in conjunction with the vendor and the implementation partner. Deliverable: Detailed deployment plan. :: Month 5 :: :: Month 6 ::
43. Always look at the top-tier vendors, but consider mid-market vendors when scale is not an issue Info-Tech Research Group 1 . The Cadillacs have the best features. The leading vendors offer the most diverse features and functions. The top-tier vendors are appropriate for enterprises with revenue that exceeds $200-million. Enterprises with revenue in excess of $1.5-billion should look primarily at the top tier vendors. 2 . But most people buy Chevies. Many enterprises eschew the top-tier vendors for something smaller and from a vendor that can better handle their requirements. If mid-market features are lacking, explore industry solutions. For alternative deployment options, consider Alternatives. 3 . Alternatives provide emerging options like SaaS and Open Source. Alternative deployment models are still relatively immature. The options offer considerably opportunity. Top-Tier Vendors Lawson S3 Microsoft Dynamics AX Oracle E-Business Suite Oracle JD Edwards EnterpriseOne Oracle PeopleSoft Enterprise Sage ERP X3 SAP ERP Mid-Market Vendors Agresso Business World Epicor Enterprise Epicor ERP Epicor iScala Epicor Vantage Exact Macola IFS Applications Microsoft Dynamics GP Microsoft Dynamics NAV Sage Accpac Sage MAS 500 SAP Business One SYSPRO Alternatives SaaS Aplicor Intacct Plex Systems Plex Online SAP Business ByDesign NetSuite Open Source Openbravo ERP xTuple 1. Top-Tier 2. Mid-Market 3. Alternatives 4. Specialists
44. Consider Industry Specialists when the requirements are very specific and the top-tier vendors are inappropriate Info-Tech Research Group 4 . Industry Specialists cater to specific verticals. Very specific requirements can only be met by vendors that cater to specific industries. Manufacturers, for example, require planning modules while non-profits have FASB reporting requirements. Manufacturing CDC Ross Enterprise Epicor Vista Infor ERP Adage Infor ERP LN Infor ERP LX Infor ERP SyteLine Infor ERP Visual Infor ERP XA IQMS EnterpriseIQ Lawson M3 QAD Enterprise Applications Professional Services Deltek Costpoint Deltek Maconomy Deltek Vision Microsoft Dynamics SL Penta Software Public Sector/Non-Profit Accufund Cougar Mountain Accounting Harris Computer Systems Infor FMS SunSystems Infor Hansen Public Sector Solutions Innoprise Manatron New World Systems Springbrook Software Tyler Technologies United Systems Technologies Education Datatel Jenzabar SunGard Higher Education Health Care Cerner Meditech McKesson 1. Top-Tier 2. Mid-Market 3. Alternatives 4. Specialists
45. Successful ERP implementations are characterized by the active participation of business owners & executive sponsors Info-Tech Research Group Most IT leaders place a high level of importance on the involvement of business units and executive sponsors. Avoid Excessive Cost (Again) IT leaders still have to protect the budget and inform the IT Steering Committee of challenges and overruns. The key thing with ERP is that this is a business solution, not a technological choice. To the degree that a business choice has a technological implications or cost implications, by all means point them out. But at the end of the day, the CFO makes the friggin' decisions! - Former CIO, large telecom “ Let the Business Drive ERP Involvement from the business is the key element of successful ERP implementation and operation. Let them own it.
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47. Applying Rip & Replace: New or major upgrade? Info-Tech Research Group
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51. Need Additional Support? Info-Tech goes beyond research: Speak directly to an analyst and/or engage on-site consulting services to help your team achieve results. Email our Advisory Team to find out how we have helped other clients and get your ERP initiative started today! Trigger Point: Understanding ERP Aligning Enterprise Goals with User Needs Making the Business Case Our Advisory & Consulting Services Performance of high-level scoping, assessment of enterprise readiness, and gathering of preliminary ERP requirements Identification of primary drivers for ERP purchase, upgrade, or replacement and business case development Trigger Point: Developing a Strategy for ERP Selection Understanding the Current State Defining Functional and Technology Requirements for ERP Our Advisory & Consulting Services Definition of existing ERP business processes; assessment of existing policies and technologies Identification of process, policy, and technology areas that can benefit from an ERP purchase, upgrade or replacement and documentation of requirements Trigger Point: Comparing ERP Vendor Offerings Reviewing the Vendor Landscape Identifying and Selecting Solutions that Meet your Needs Our Advisory & Consulting Services Preliminary vendor short-listing, based on established functional and technology requirements Request for Proposal (RFP) development and vendor response evaluation