ERP Software: Don't buy a Pug if you need a St. Bernard

Don't buy a Pug to rescue stranded hikers, no matter what the salesman shows you

Everyone wants to save money installing software…… but 'saving' isn’t nearly as important as 'not wasting' money during a software installation, because there’s a lot more money to lose than there is to save. We’ve all heard the horror stories—4+ year installations of top shelf ERP systems that never work quite right, warehouse automation software that doesn’t ship anything, or even Business Intelligence tools and CRM software that no one uses. Those are big money losers.

Saving money tends to be in smaller denominations, but when you talk about running over budget, the sky’s the limit.....It's a hole with no bottom. To paraphrase Senator Everett Dirksen’s famous quote about government…..”A million here, a million there, and pretty soon you’re talking about real money”.

So how do you prevent these projects from getting so out of control? There are lots of tactical issues to consider, but here I’ll discuss three key strategies often overlooked, yet central to the success of your project: Be aware of economic incentives, concentrate on 2% of the software, and have the right project manager.

Economic Incentives:

Each of the four major parties involved in a software installation have very different economic incentives. By being aware of how each party benefits economically from the transaction, you can save money while dramatically increasing your chances of success.

•    The purchaser: A business which is looking to implement new software wants the most appropriate software for their company at a fair price. They are buying new software because they believe they need it to be more competitive and efficient, and although they know it will be expensive, they would like to save money if possible.

•    The salesperson:  the person selling software wants to sell only the software he represents, regardless of whether it is the best software for the purchaser—he’s working for a particular software company or distributor, and because he is commission based, that’s the software he’ll want you to buy. He isn’t necessarily trying to get more than a fair price, especially if it jeopardizes the sale, since $10,000 more (or less) on a $300,000 sale won’t change his commission substantially, but he is absolutely looking to sell only the software he represents (and no one else’s), because no sale equals $0 commission.

•    The software vendor: The vendor (developer or VAR—value added reseller) for whom the sales person works is interested in selling their software at a price that gets the business, just like the sales person, but they also want to sell services-- VARs make most of their money on the installation, modifications needed, and services, while the software company makes money on sales and services. For a VAR there isn’t much money to be made on the actual software, and they have to pay commission to their sales rep, but there’s plenty to be made customizing and implementing.

•    The consultants who help you: As a consultant I’ve run into many practices that I wouldn’t have expected to be common, or even legal, and I haven’t exactly just “fallen off the apple cart”. There are all sorts of incentives out there, which are really just bribes. There are ‘finders fees’……money for steering a client towards a company, ‘commissions’ paid to independent consultants when clients purchase particular software, ‘rebates’ on hardware purchases, etc. These exist, and are a normal part of business, much like a company salesman making a commission. For a consultant this may create a situation pitting short term self interest against the interests of the client. 

From your point of view, as the company buying the software, what this means is:

•    Ask for discounts, particularly around the end of a quarter, because you’ll most likely get them (saving money). Don’t be afraid to ask for discount extensions.

•    Much more important than getting a discount is making sure you get the best, most appropriate software for your company in the first place, because a discount on the wrong software will end up costing you plenty of money and functionality. It’s buying the wrong software, and then modifying it extensively to make it fit, that radically increases the overall cost while also dramatically increasing the risk of the software installation failing completely.

•    Monitor requests for modifications—the company doing your implementation will always be happy to accommodate your modification requests, because that’s where they make their money. If there is a simpler or smarter way to accomplish what you need, the VAR's economic incentives argue against pointing out a different method, and for doing the modifications as requested.

•    Find an ethical consultant--if you use a consultant, make sure it is someone you trust and can work with honestly. There's no magic bullet to determine this.....it's much like hiring an employee. You need to do the due diligence, but in the end it's as much an art as a science, and just like everything else, it's not a black and white situation. My first job after business school was with an old line German firm dating from the Middle Ages. The owner of the company told me one time, after a few drinks, that he had a salesman he knew was cheating on his expense reports, but he tolerated it because it was a cheap price to pay to keep his best salesman happy. I still think about that one, and I'm not sure how I feel about it, but the point is that you need to be aware.

Concentrate on the 2% of your company that is unique:

Within the major categories of software—ERP, CRM, WMS, etc., another fact is often overlooked. ERP and CRM software (and other systems) are like dogs—they don’t fetch tennis balls, but they’re 98+% genetically the same, and it’s that last 2% that determines if the dog is a Pug or a St. Bernard…..and it’s that 2% that makes all the difference. Just like you don’t want a St. Bernard sitting on your lap in a NYC apartment and a Pug can’t move with a collar-keg of brandy around its neck, you don’t want software designed for companies that are not like yours.

Ignore appearances and fancy dashboards--Pugs are not good financial advisors

First, keep that in mind when seeing demos of the software…..it’s easy for the sales person to show you the 98% of his ERP system that fits your company perfectly, but it’s that last 2% you have to watch for. Otherwise you’ll be modifying the software over and over, which is expensive and will never be quite right. Getting the right system in the first place is the key to a smooth installation, and you have to spend the time and money upfront looking at the software in detail. The sales rep, if he or she is honest and the software is completely wrong, might tell you that his software simply doesn’t handle what your company does, but even the most honest sales person is unlikely to say, “My software will work pretty well for you, but if you buy XYZ software from our competitor, you’ll be much happier”.

You need to concentrate on the unique 2%. Every ERP system in the world can print invoices, produce financial statements, and keep track of facts about customers, and most have fancy dashboards with graphs that behave like speedometers. Don’t buy a system just because you like the dashboard, or because they have cool reports. Those features are good, but common. Make sure it can handle those tricky parts of your business, because you don’t want to pay to rewrite 2% of someone’s ERP system.

Let’s say, for instance, your company manufactures expensive, engineer-to-order products that take a long time to design and build, and the components are expensive. In this case, you need to hone in on the bill of material. If you produce products that sell individually and in sets, but the sets are priced differently…..does the software handle that? If you are a restaurant chain, can your point of sale system easily integrate with an ERP system? If It’s cloud based, what happens if the Internet connection goes down? Can it switch to 4G? These are the areas where you concentrate.

Minimize modifications: Assuming you purchased the correct software, question all modifications. All good software is designed to be flexible, and incorporates best practices. When someone in order entry or the warehouse or payables says that the way the system works simply won’t work for them, question it. What’s so special about how your customers pay invoices? Probably nothing. See if it’s the old “the way we’ve always done it” problem. Realistically, it’s highly unlikely that your company is so unique that major changes need to be made, if you bought the right software in the first place. Maybe you do need to make a modification, but if it’s major, which at $200 an hour most are, ask why……is it the wrong software? Are we doing something that doesn’t make sense?

As something of the converse of the above, be careful buying an ERP system that claims to be ‘one size fits all’. Many of the major ERP systems, including some of the most expensive systems, fall into this category. One of these might very well be the right system for you, depending on the complexity of your organization, but just be aware of the following:

•    You’ll be paying for features you don’t need and won’t use.These systems might be popular and flexible, but they aren't bargains unless you need many of the features.

•    If you are highly specialized, it’s unlikely that the ‘one size fits all’ will be geared to very specific needs. It’s like men’s socks—fits sizes 9 through 12. If your company takes a size 16, it’s modification time.

•    The complexity of these systems, particularly the higher end ones, involves a great deal of work during implementation, by the software consultants, to configure everything correctly. This also is not a bargain.

Have the right Project Manager:

Someone has to be in charge of the project, and it should be someone who has the time, and knows a lot about business in general, besides just software and databases. Hopefully it’s your CIO or someone equivalent on staff, but if you don’t always need a CIO, odds are you don’t have one, so then what do you do? You hire a contract CIO or a consultant who has experience with this sort of project, and you pay them on a contract/fixed fee basis. Again, think of the economic incentives. If you pay by contract, there’s no incentive to rack up hours.

Versatile consulting, backed by the top shelf engineering and design services of Versatile Communications, offers CIO Advisory services, project financial analysis, software analysis, project management and implementations, security analysis and program development, and affordable packages for moving to Office 365, developing a cloud roadmap, and more. The author can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it. or by calling 508-597-2857 (Direct) or 978-758-8516 (cell).
 
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