ERP Evaluation: An Insider View

Introduction:
Many of the medium and small enterprises are adopting and embracing “ERP Solution" with open arms as a next big disruptive change to make their organizations efficient, effective and competitve.ERP implementation requires significant amount of capital investment, long execution time, meticulous planning, highly skilled resource pool and unflinching faith of the organization leadership in the product and the people handling the execution.
With the mammoth cost of failure hovering around, an objective analysis of the ERP Solution vis-à-vis organization business processes becomes the sine qua non for the organization to make the prudent decision about the need and fitment of the ERP solution.

Evaluation Parameters:
Here are the key questions which must be understood, analyzed and answered objectively during the solution evaluation process.

1.Alignment with organization’s strategic growth Plan:
ERP solution must be an integrated component of the overall strategic growth plan of the organization. It should not be treated as a dream project of an exuberant CIO, which might bring good luck to the organization.

2. Measurable Objectives and Outcomes:
Measurable KPI,s need to identified, evaluated and bench marked with the best practices of the industry. Following the foot print of the competitor (“Me Too” Syndrome) without objective analysis will not yield the required result expected out of much hyped product and technology. There are many statistical tool and methods available for evaluating the product cost and the benefits. Comparison of “Total Cost of ownership” and “Return on Investment” over a period of 3-5 years is one such method which provides useful insight to the leadership for making a decision. Various Factors influencing the TCO are mentioned below.
• Cost of Acquisition (Hardware, software License etc.).
• Cost of implementation (External services, overheads, Internal cost etc).
• Operation and maintenance cost (Direct and Indirect cost).
• Cost of replacement.
• Cost of not having the required tool which may result in the loss of future opportunities.

ROI calculation for any ERP solution is very complex since all current and future benefits must be quantified and aligned with the financial matrix. Following factors significantly contribute to the ROI calculation.
• Identification of measurable KPI,s.
• Measurement of “KPI and Expected Improvement”.
• Direct Cost saving e.g. resource reduction, maintenance cost of legacy system, consolidation of multiple IT systems.
• Driver of future business growth by providing significant cost advantage, and efficient operation.
• Enabling fast and consistent Decision making

3. Business Process Reengineering:
ERP solutions are merely the tools for improving and integrating the business processes. For better utilization of the ERP Software, business processes must be streamlined and standardized to a greater extent by carrying out the Business Process Reengineering as a prerequisite of the ERP implementation. According to Hammer and Champy, “Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service and speed".
Business process identification and BPR methodology adoption are two critical functions of the BPR processes.

• Business Process Identification (What to Reengineer?): Identification of the business processes for reengineering is the cornerstone of any BPR process. A business process is comprised of a series of steps or activities cutting across different functions of the organization. Measurement and Comparison of the Critical parameters (KPI’s) of the existing processes with the Industry bench mark, competitor’s data or the similar process of the other industries would help to identify the processes which are required to be reengineered.”Criticality of the process” and “Alignment with the BPR objective” are other important parameters for business process identification.

• BPR Methodologies: Various “Best of Breed” methodologies are available for BPR. It is selected by the organization based on the industry sector, business model and the objectives of the BPR. To facilitate the understanding of the BPR methodologies, key steps of one such basic methodology is mentioned below below.
• Declaration of Objective and Mission Statement.
• Project Preparation.
• "AS IS" Process documentation.
• "To BE" Process development.
• Implementation of Changes.

4. Leadership commitment and Communication:
It is the commitment of the leadership which drives the changes down the organizational hierarchy. Leadership need to communicate, clarify and explain the long term benefits which can be derived from the product. Clarity of communication from the leadership will ease out the resistance to change and alleviate the apprehensions.

5. Product Fitment:
ERP solution is not the panacea for ills, an organization is suffering from. None of the ERP product will be able to completely address all requirements of the organization out-of-the-box and map all the business processes. Business must exhibit the readiness and flexibility to adopt the best available solution offered by the product. In case of absolute necessity, custom product modifications should be allowed as they have a high impact on the maintenance and future upgrade of the application. There are various methods available for evaluating the product compatibility. Some of the well known methods are explained as mentioned below.
• Study of the product compatibility with the competitors.
• Analysis of the product compatibility in the same Industry or other industry with similar business processes.
• Product success stories and reference check.
• Suggestion of Independent Advisory firms.

6. Delivery Model Selection:
In the current context, consideration of software delivery model choices has become imperative from ROI standpoint. Gone are the days when the expensive “Greenfield on-premise implementations” were the only option available to the customer. With the advent of On Demand models, there are multiple choices available. Customers have a choice to go for a hosted solution or a shared hosted-outsourced solution or a dedicated infrastructure hosted solution and many more. A comprehensive cost/risk analysis needs to be done to finalize the right delivery model.

7. Cross Functional Project Team:
A cross functional evaluation team needs to be formed before the evaluation process begins. The team should draw from Senior Management who will act as sponsor, business users, IT team members and the project management staff. Formation and empowerment of such a team goes a long way in right requirement formulation, best product selection, efficient project execution and ultimately organization wide user adoption.

8. High Level Roll-out Plan:
It is very necessary to have clarity on the realistic timelines for the solution roll-outs. Moreover, prioritization of business processes and the organizations from a roll-out standpoint is as much important. This helps in optimal resource deployment and staggered investment mitigating the project risk. Having an unrealistic timelines and a big bang approach is the first step towards destabilizing the project.

Conclusion:
ERP is a wonderful Tool for integrating the various complex functions of the organization. First and foremost step for the successful business transformation using ERP solution as enabler is the selection of the right product and implementation partner. There are various techniques available for the product evaluation. ERP implementation is only a part of the broader business transformation strategy and should always be preceded by the Business Process Reengineering and standardization of the business processes. For the successful ERP implementation, dedicated cross functional team mandated by the leadership of the organization must be formed and empowered to take critical decisions.