07 May Five Steps to a Best Practice System Selection
By Nate Palmer
Companies considering ERP, MES, PLM, or other enterprise system purchases face a number of troubling statistics: data suggest that 68% of IT projects are considered partial or total failures. 74% of ERP projects experience cost overruns. Most implementation timelines are longer than expected, with half taking at least 80% longer than planned. At least half of the projects deliver less than 70% of desired requirements. While a successful enterprise system implementation can provide significant efficiency gains, how does a company avoid falling into the pitfalls of IT failure?
Our experience shows that the ability to influence any project outcome, including enterprise system implementations, is highest at the front end, and diminishes over time as the project comes to completion. Figure 1 shows how the ability to influence success decreases over time, while the cost of making changes increases during the latter stages of the project.
Figure 1: Ability to Influence Success vs. Cost of Changes
As such, the need to focus on the front-end work of requirements development, system evaluation and selection, and statement-of-work (SOW) development is critical. These phases are sometimes overlooked and under-resourced, and the cost of correcting problems created in these early stages is substantially higher during the later phases of implementation. The following steps provide best practices for accomplishing the system selection process, creating the best chance for a successful implementation.
Step 1: Requirements Development
Perhaps the most important of all phases of a system project, clearly defining user requirements is critical to ensuring a successful outcome. While most project leaders understand the importance of good requirements, they often fall into one of two traps in trying to develop those requirements; 1) they ask functional staff to create a list of requirements from scratch, or 2) they find a “typical list of requirements” on the internet, and adopt that list with minor modifications.
To create a robust set of requirements that truly represents the needs of a company, the process should roughly follow these steps:
- Map current processes and information flows.
- Identify gaps in quality, information, and efficiency in the current state.
- Develop a proposed future state process and information map designed to address quality, information, and efficiency shortfalls.
- Create user requirements based on the desired future state process objectives.
Jumping straight to requirements documentation without a formal future state process mapping effort inevitably results in missed requirements. Beginning with a set of industry-standard requirements typically results in overkill, which may unnecessarily increase the cost of the implementation, while potentially missing some essential requirements that are unique to the company. Greater detail on requirements development, both for system and other project types can be found in a previous article: [Five Pillars of Successful Requirements Management.]
Step 2: Software Vendor Research and Request for Information
Developing the short list of vendors to invite for demonstrations takes research, phone calls, and more research. The software industry changes rapidly – especially for mid-market and smaller-market companies – so updating the landscape of potential software vendors is critical. Also, finding those vendors that specialize in your industry is crucial to finding the right fit. Process vs. discrete manufacturing, for instance, require very different software capabilities. Many life-sciences and food and beverage companies need end-to-end lot-traceability, a feature not found in all packages. While many accounting, financial, and HR modules are relatively standard, it is the functionality closer to the product and production line where critical nuances lie, and where the selection of the right vendor is most crucial.
Once potential vendors have been identified through the research process (the “long list”), contact is initiated to further determine appropriate fit. This step should include a Request for Information (RFI), where the user requirements are sent to prospective vendors for review and response. The RFI need not be overly complicated or burdensome at this stage. The objective is to let the vendors self-select by determining if they can meet the requirements, if they believe they have a chance to win, and if they are willing to spend the time and resources to compete. The cost of participating in a system selection process is high, so software vendors who are a poor fit will usually eliminate themselves at this stage. Those that remain can be vetted through phone interviews or online presentations if needed.
Through this process of extensive research and RFI review and response, the short list of vendors who will move to the next step is developed. Typically, the objective is to have 4 to 7 vendors remaining after this step.
Step 3. System Demonstrations
System demonstrations are organized into two or more rounds. In the first round, the software vendors typically utilize a “standard” demonstration, which shows the breadth of the offering – influenced by the user requirements – to focus on areas that are most important to the customer. During this initial demonstration, the evaluation team provides further guidance on the most critical features, process and information objectives, and evaluation criteria. Depending on the size of the short list, typically, one to three vendors may be eliminated as a result of this demonstration.
While the initial demonstration is sufficient to eliminate some vendors, it is typically not detailed enough to determine if the remaining vendors can completely satisfy requirements. To create separation more clearly, the evaluation team should create a script for subsequent demonstrations. The script(s) should follow each step in the critical end-to-end business processes with sample product data provided to the vendors. This approach seeks to answer several critical evaluation questions:
- Does the software vendor team understand the business and process objectives?
- Is the system easily configurable, enabling a demonstration to be tailored to a specific business process within days or weeks?
- Is the system capable of supporting the user requirements?
- Does the system use modern technology, enabling configuration, robust reporting, metrics, and fast response?
Step 4: RFP & Vendor Selection
In parallel with the final round(s) of system demonstrations, a Request for Proposal (RFP) is developed and sent to the remaining vendors. The RFP specifies the scope that is being requested, including all software modules, professional services, hosting, and hardware requirements. The final selection process weighs a combination of the system demonstrations completed in step 3, along with the RFP responses, pricing, and overall fit of the vendor relationship.
It is important that at least two vendors remain at this point – one who is the “winner” and another vendor who remains viable as a backup candidate. Without a viable backup, leverage is lost in contract negotiations.
Step 5: SOW and Contract
In addition to comprehensive user requirements, the development of the Statement of Work (SOW) is critical to enable a smooth implementation process. A vague SOW often results in misunderstandings between company and vendor, extended timelines, blown budgets, and mutual aggravation. The SOW needs to include a feature-specific level of detail to ensure there is no ambiguity. Starting with a detailed and comprehensive set of user requirements provides the foundation for SOW development, simplifying this step and reducing the likelihood of problems during the implementation.
Negotiating the terms of the contract is similar to other contract negotiations, and we cannot stress enough the value of a viable backup vendor. If a company has two vendors that can support the requirements and meet other evaluation needs, the ability to compare pricing and select the vendor that provides the best overall proposal is critical to ensuring a competitive financial result. In our experience, this can provide a 20% – 30% cost advantage over situations where a single vendor is selected without a viable backup.
These five steps to a successful system selection provide the best chance to achieve the ultimate goal – a successful system implementation. Focusing on these foundational steps will save time, money, and headache during the implementation process, and help the company to achieve the desired bottom-line results.
For further information on how Accel Management Group can assist in your system selection process, please contact Nate Palmer at email@example.com.
About the Author
Nate Palmer has 25 years of consulting and business leadership experience within life sciences and high-technology companies. His focus includes process design and project team leadership for product development, operations, customer service and support, and information systems programs. Before joining Accel Management Group, Nate held positions as Vice President of Professional Services at RiverOne, Principal at PRTM, and Manufacturing Engineer at Raytheon. Mr. Palmer earned his BSME from the University of Massachusetts, Amherst, and MBA from the Anderson School at UCLA. He is CPIM certified.