eBook series

A new approach
to evaluating ERP
How the right framework can improve
business outcomes
 August 2
2020

Table of
contents

3/ 4/ 6/
Rethinking the ERP A brief history Selecting the
evaluation process of ERP right ERP

7/ 9/ 11 /
Go beyond box A new approach to Lesson learned:
ticking evaluating ERP engage the business

12 / 17 / 18 /
Business case first Summary Accelerate your
business growth
 August Rethinking the ERP 3
2020 evaluation process

Rethinking the ERP

evaluation process

Selecting an enterprise resource planning without heavy capital expenditure. They

(ERP) solution is a major undertaking for any can also free themselves from the burden
organisation. Many senior executives are of maintaining and upgrading hardware,
battle-scarred from previous experiences infrastructure and software, as those tasks
with ERP implementations, not all of which are all handled by the vendor.
have lived up to their original expectations or
aligned with vendor promises. Forward-thinking vendors are now focused
on cloud-based ERP solutions that deliver
Companies today expect vendors to provide outcomes for businesses, rather than simply
a vision of realistic ERP outcomes, stripped of investing in longer feature lists to try to
hyperbole. outdo competitors’ offerings.

Meanwhile, the advent of the internet and This paper provides a framework for
cloud computing has fundamentally changed evaluating modern ERP that extends
the way ERP can be architected and delivered. beyond a checklist of features and functions
ERP-as-a-Service in the cloud means that into the more useful and mature territory of
customers can subscribe and use the solution ensuring ERP impact.
August A brief history 4
2020 of ERP

A brief history
of ERP

While it may be a common acronym in IT

and business today, to understand what
ERP promises, we need to go back to the
1960s. In 1964, as a response to the Toyota
Manufacturing Programme – the precursor
to modern LEAN techniques – Joseph
Orlicky developed material requirements
planning (MRP). The first company to use
MRP was Black & Decker in 1964, with Dick
Alban as project leader.

Orlicky’s 1975 book, Material Requirements

Planning, is subtitled, ‘The New Way of Life
in Production and Inventory Management.’
By 1975, MRP was implemented in 700
companies and this number had grown to
about 8,000 by 1981.

During the 1980s, largely driven by the

rapid expansion in computing technology,
MRP – traditionally a mainframe or paper-
and-calculator-driven function of supply
chain practitioners – moved into the world
of spreadsheets.
 August A brief history 5
2020 of ERP

What used to take hours and days to left to a new class of application – ERP.
calculate and re-calculate every time ERP brought together all aspects of an
sales orders, purchase orders or inventory organisation’s IT system into a single
changed was reduced to a much shorter IT application, on the basis that one
timeframe. integrated system is better than multiple
systems requiring complex integrations and
However, it still relied on small and significant maintenance.
independent calculations that were isolated
in silos. The advent of more affordable However, ERP deployments have often
client server computing saw these required extensive customisation as
calculations transformed into the basis of organisations attempted to fit them into
what became known as manufacturing existing business practices. This meant that
resource planning, or MRP II (mostly upgrading to new versions became very
driven by the work of Oliver Wight). expensive or, alternatively, not commercially
This brought together the modular, viable, leaving users frustrated and
previously disconnected, operational incapable of taking advantage of
areas of inventory, purchasing, sales and developments in technology. That, in turn,
manufacturing in a combined application, stymied organisations’ ability to compete
which then used all of these elements to with more agile competitors who were
provide an overall planning function. quick to react to the shifts in globalisation,
economic events and technology advances.
But, it still did not connect these elements
to the financial and other operational It’s time for a different approach.
systems of an organisation. That was
 August Selecting the 6
2020 right ERP

Selecting the This process sought to address several

factors:

right ERP • Functional compliance

• Technical compliance

• Risk mitigation
Over the last 30 years, the process for
evaluating software has evolved based on • Commercial compliance
the constraints of traditional technology,
aided by consulting organisations, which Unwary businesses could be sold on the
provided these evaluation services in an benefits of all-encompassing ERP that on
advisory or risk management role. paper had all the bells and whistles, but
was practically unsuited to the organisation
This has prompted the rise of the ‘search when measured against outcomes. How
and select’ organisation and the Request for many times have we heard the lament after
Information/Request for Proposal (RFI/RFP) an ERP implementation, “I have to use Excel
process. A ‘tick the box’ mentality, endemic to do reporting”, “It’s not user friendly”,
to this approach, has bloated RFIs and RFPs “It’s clunky”, “We had to customise it” or
with long lists of features, functions and “We needed to get another application to
technical requirements. The implication was do that?”
that the vendor that ticked the most boxes
was the right selection for the business.
 August Go beyond box 7
2020 ticking

Go beyond The adviser had not even bothered to excise

questions pertinent only to manufacturing,

box ticking distribution or heavy asset maintenance –

all irrelevant to an aged care provider. The
third party acted as a gatekeeper to the
client and claimed this approach gave it “a
view of capability for the future”. Vendors
An aged care provider wanted to implement were unable to get clear visibility of what the
ERP in order to improve its procurement business really needed, severely limiting their
process to drive efficiencies in the supply ability to structure a proper solution.
chain, negotiate better volume-related
purchasing and improve margins. It followed In a separate, 665-line-long RFP, vendors
the classic process: RFI, RFP, third-party were asked if their system could perform a
adviser, multiple demonstrations, shortlist and series of tasks (see table). Leading vendors
finally selection. The third-party ‘search and would claim to be able to tackle all of them,
select’ adviser used an off-the-shelf template, so how would this shopping list of functions
bought from an online source, and sent it actually help identify the best solution?
to four vendors in its entirety for response:
4000 Excel spreadsheet lines of questions for
vendors to respond to.
 August Go beyond box 8
2020 ticking

Must Functional Ability to make a one-off invoice payment via any of the payment methods

Must Functional Ability to make a batch payment via any of the payment methods

Must Functional Ability to issue a single payment covering multiple invoices

Ability to authorise payments in accordance with authorisation workflow

Must Functional
and business rules

Ability to select payment method: BPAY, Direct Bank Transfer,

Must Functional
Payments File download or Cheque

Must Functional Ability to print cheques

Must Functional Ability to make a weekly cheque payment run

Must Functional Ability to cancel cheques, if required

Must Functional Ability to select payments to be made from approved, unpaid invoices

Ability to run Accounts Payable aging reports showing list of payments

Must Functional
to be made in a payment run

Ability to hold unauthorised payments for further investigation,

Must Functional
specifying the reason for non-payment
August A new approach to 9
2020 evaluating ERP

A new approach
to evaluating ERP

An evaluation process that focuses on

linking organisational outcomes to the
selection criteria will ensure the best chance
of success.

This demands a change in the way we

measure a successful implementation. Most
RFI/RFP-based opportunities use scoring
criteria for the RFP that looks something
like the following, on a scale of 100:

Functional Fit 30

Technology Fit 20

Vendor Reference 10

Commercial (Price) 40

However, these measures have never been

tied to organisational outcomes, i.e. the
benefits that an organisation expects to
achieve because of the implementation.
 August A new approach to 10
2020 evaluating ERP

Because 90% of ERP solutions in the Tier This process has potentially little
1 and 2 space have a functional footprint alignment to the outcomes required,
that will cover the requirements of most optimistically takes a year to get to a
organisations horizontally, i.e. they will decision and imposes significant costs.
tick the boxes of most RFI/RFP questions, Also, note that if the organisation decides
a new model of selection is needed. Let’s to run the process itself, the timeframe
have a look at the effort required to will extend significantly, as organisations
select an ERP solution based on the classic seldom backfill the roles of the people
methodology in the table below. running the evaluation process.

Step Who Timeframe Focus

Select evaluation Have a methodology for RFP

Management 1 month
partner executives process and for selecting ERP

Requirements 3 to 6 Functional and technical

Evaluation partner
gathering months requirements

Comprehensive list of above

Build RFP Evaluation partner 1 month
plus commercial construct

Invite vendors to
Evaluation partner 1 month Completion of RFP by timeframe
respond

Vendors respond Vendors 1 month Completion

Evaluation partner,
Review responses 1 month Review responses and rate them
management

Shortlisted vendor Evaluation partner, Demonstrations of shortlisted

1 month
presentations management solutions plus follow-up

Commercial discussions,
Evaluation partner,
Preferred vendor 1 month negotiation and solution
executives, management
confirmation
August Lesson learned: engage 11
2020 the business

Lesson learned:
engage the
business

A large government department

went through the entire required
procurement process, including RFI and
RFP, and spent a considerable amount of
time implementing the chosen solution.
There was little satisfaction at the end. A
‘project team’ was formed, which did the
implementation, but remained separate
from the business. The business only got
its first view when end-user training was
done, with consequent lack of ownership,
finger-pointing and lack of accountability.

Meanwhile, not focusing on business

benefits meant that, while the system
worked and could perform the required
transactions, there was little real benefit
for business stakeholders.
 August Business case first 12
2020

Business A business-case-first approach allows for

organisational innovation and process

case first renewal. Instead of shoehorning or

customising an ERP solution into an
organisation, the business case sets out
what needs to be done – not how to do it.

A more effective approach is to first The fact is, the core processes required
develop the business case for the ERP. for standard accounting and supply chain
Why do you want to do it, and what do domains are adequately covered by most
you want it to achieve? This needs to ERP solutions.
be expressed as quantifiable business
Avoiding ERP customisation, even if
benefits, for example, increased revenue,
that means some reforms to business
improved efficiency and reduced costs.
processes, speeds the time to benefit and
Delays often occur in the process of ERP
reduces risk for the ERP implementation
selection when the business case is left
by protecting against costly upgrades.
to the end, after the vendor and solution
have been selected. The business case
is then built ‘in reverse’ to justify the
decision instead of being used to make
the decision.
 August Business case first 13
2020

A business-case-first
approach allows for
organisational innovation
and process renewal.
Instead of shoehorning
or customising an
ERP solution into
an organisation, the
business case sets out
what needs to be done –
not how to do it.
 August Business case first 14
2020

A foundational principle of this approach is even though there is not a practical

to adopt standard processes unless there outcome? Then, calculate the benefit
is a business case, including a return on attributable to the business from this
investment, for doing so. process in terms of additional revenue,
decreased cost or improved efficiency.
This demands a greater emphasis on change These benefits should be quantified, e.g.
management and requires tools to help staff if you perform this unique process then
adapt to the change. you can provide additional customer
visibility to the sales force, which means
On occasion, there will be truly unique they can spend X more hours in front
business processes that are central to an of clients, which means you can expect
organisation’s success, but it is important to a certain amount of improvement in
question any assumptions of ‘uniqueness’. revenue.

If unique processes are identified (as opposed Once these estimates have been done,
to unique fields and functions, which are select the vendors that might address
often mistaken for unique processes) these the unique processes (this is often
should be listed and the outcomes related possible using a simple internet search).
to these expressed as required reports, key This provides a starting list, which,
performance indicators or customer/vendor coupled with filters on technology,
deliverables. implementation capability and
customer references, should establish
Then debate whether the processes are
a manageable shortlist.
truly unique or ‘self-inflicted’, i.e. do you do
it that way because you always have done
 August Business case first 15
2020

Typically, you would not want to have Secondly, give vendors real data so they
more than three vendors on a shortlist, can set up a walk-through of the standard
though in rare cases one vendor will stand system process in their ERP solutions for
head and shoulders above the rest on the the unique business requirements defined
key requirements. above. Have stringent requirements for
the workshop: no customisations, one
Be prepared to open the business to week to prepare and defined outcomes.
vendors. Too often in the classic scenario Have the vendors come back and
we find that the nature of the RFI/RFP workshop (not just demonstrate) these
process means that vendors are excluded processes to the business. This allows
or allowed minimum contact with the gaps to be identified (at a high level), but
customer. In several cases where third- also gives enough visibility into where
party search and select firms have been configuration is needed or whether the
involved, they act as ‘gatekeepers’ to solution needs to be customised. Both
protect their revenue stream (each hour customer and vendor are then able to
of consulting is billable revenue) and quantify the impact of customisation
secondly to retain ‘control’ of the vendor. from a time and cost perspective.

This limits the vendor’s ability to fully Give vendors time to work out how to
respond to the customer’s real needs, address any gaps, return to the business
and risks wrong assumptions being made and demonstrate their proposed
regarding scope and cost. solutions. If necessary, allow a limited
amount of time to validate non-standard
Instead, open the business for discovery. processes. Workshop the implementation,
Once you have set the bounds of the making sure that the vendor factors in
scope, allow vendors time to access current delivery of the business benefit. It is not
users, managers and executives to get a enough to base the implementation on
real understanding of what the business configuring the solution. The end goal is
is about and the processes it needs to to achieve business benefits. Therefore, all
perform. While this may seem excessive, activities must be aligned to the goal.
compare the time taken with that needed
to create and manage an RFI or RFP.
 August Business case first 16
2020

Step Step Timeframe Focus

Management and
Build business case 1 month Quantifiable benefits of new ERP
executives

Processes that are unique

Identify unique or contribute directly to
Management 1 month
business processes the required business case
outcomes

3 months
Executives,
(1 month for the Workshop the outcomes
Vendor workshops management,
business case required for the business case
key users
per vendor)

Commercial discussions,
Executives,
Preferred vendor 1 month negotiation and solution
management
confirmation

Lastly, regarding customer references, all While this is a short-cycle, intensive

vendors will put their best references on the process, the overall disruption of the
table. Typically, these have focused on features business is less, and the ‘irritation’ factor
and functions rather than processes and is reduced. Staff members do not have to
benefits. Instead, ask reference customers: educate third-party consultants, vendors
and then, potentially, vendor partners.
1. What were your key/unique processes and Instead, there are short, intense bursts of
how did you achieve them? activity that provide a focused perspective
on critical processes.
2. Did you define a business case for the
project and did you achieve the benefits?

3. How long ago did you implement the

process and have you maintained or
improved on those benefits?
 August Summary 17
2020

Summary Reference clients of the vendor to

test their achievement of business
benefits and, most importantly,
structure the implementation plan
around realising benefits.
We need a better model to evaluate
ERP applications. This method aligns the selection
process with desired outcomes rather
First, understand the benefits that are than just performing an orchestrated
required. Next, define the processes due diligence with no alignment.
required to achieve these benefits,
then workshop these processes with a It also allows for a shorter evaluation
researched shortlist of vendors. cycle and aligns the benefits to the
implementation, thus providing
Define the gaps and the amount of work a more realistic opportunity for a
needed to fill these, but only if they are successful outcome.
material to achieving the benefits.
 August Accelerate your 18
2020 business growth

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