SCMN - ERP

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The Dangers of Uninformed ERP

Selection

October 2013

Nick Castellina

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This document is the result of primary research performed by Aberdeen Group. Aberdeen Groups methodologies provide for objective fact-based research andrepresent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc.and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

October 2013

The Dangers of Uninformed ERP Selection

Selecting an Enterprise Resource Planning (ERP) solution can be a high risk /high reward decision. While a successful ERP implementation can lead tosubstantial gains in many metrics, such as operating margins and inventory, apoorly selected and implemented solution can add complexity to anorganization, keep employees from doing their jobs, and cause customerservice delays. These problems compound when considering an ERPsolutions actual cost to an organization. Finding a poorly suited solutionthat either is not fully utilized or having to rip and replace a solution cancripple an organization with limited resources. Therefore, organizations

must do all they can in order to ensure the solution they select is going tobe successfully implemented and deliver the highest possible ROI.Conversely, they must ensure that the solution is a good fit and is not goingto alter the processes that an organization has relied upon in the past. ThisAnalyst Insight will uncover what an informed ERP buyer looks for whenselecting a solution, as well as the consequences that uninformedorganizations face.

Get Informed

AberdeensBest-in-Class Strategies for Selecting an ERP in 2013asked surveyrespondents to select their top four ERP selection criteria out of a list of 22(Figure 1).

Figure 1: Best-in-Class ERP Selection Criteria

Source: Aberdeen Group, July 2013

Of course, cost is a part of the picture when selecting an ERP solution, butfor the Best-in-Class it is not the most important part of the conversation.

18%

21%

26%

28%

28%

44%

56%

64%

0% 20% 40% 60% 80%

Relationship with vendor

Global capabilities

Ability to tailor functionalitywithout programming

Ease and speed ofimplementation

Must be an integrated suite

Total cost of ownership

Ease of use

Functionality

Percentage of Respondents, n = 204

Best-in-Class

Analyst Insight

Aberdeens Insights provide theanalysts perspective on theresearch as drawn from anaggregated view of researchsurveys, interviews, anddata analysis.

Aberdeen Methodology

The Aberdeen maturity class iscomprised of three groups of

survey respondents: Best-in-Class: Top 20% of

respondents based onperformance

Industry Average:Middle50% of respondents basedon performance

Laggard: Bottom 30% ofrespondents based onperformance

Respondents to Aberdeens

2013 ERP Services, Selection,Implementation, and Trainingsurveywere ranked on thefollowing criteria:

Months it took to reachReturn on Investment

(ROI):Best-in-Class 14.6,Industry Average 34.7,Laggard 102

Percentage of originalbudget spent on ERP

project:Best-in-Class 88%,Industry Average 117%,Laggard 153%

Lateness of ERP projectcompletion:

Best-in-Class 3%,Industry Average 20%,Laggard 54%
http://aberdeen.com/Aberdeen-Library/8584/RA-enterprise-resource-planning.aspxhttp://aberdeen.com/Aberdeen-Library/8584/RA-enterprise-resource-planning.aspxhttp://aberdeen.com/Aberdeen-Library/8584/RA-enterprise-resource-planning.aspxhttp://www.aberdeen.com/survey/0556-ERPImplementation2013/http://www.aberdeen.com/survey/0556-ERPImplementation2013/http://www.aberdeen.com/survey/0556-ERPImplementation2013/http://www.aberdeen.com/survey/0556-ERPImplementation2013/http://www.aberdeen.com/survey/0556-ERPImplementation2013/http://www.aberdeen.com/survey/0556-ERPImplementation2013/http://www.aberdeen.com/survey/0556-ERPImplementation2013/http://aberdeen.com/Aberdeen-Library/8584/RA-enterprise-resource-planning.aspx

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The Dangers of Uninformed ERP SelectionPage 2

2013 Aberdeen Group. Telephone: 617 854 5200

www.aberdeen.com Fax: 617 723 7897

Best-in-Class organizations are more prone to focus on functionality andease of use than the total cost of an ERP solution. What good is an ERPsolution if it does not serve the organization? Identifying and implementingfunctionality that supports the processes that are essential to anorganizations success should be paramount. Ease of use should follow toensure that employees can actually take advantage of the solution to moreeffectively perform their jobs. Additionally, 28% look for an integrated suite.This is to ensure that all of their modules are contained within one placeand workflows can continue on unimpeded.

Combined, the top four selection criteria are the main aspects that anyorganization should be looking at when selecting an ERP. Even cost must beconsidered since any resources used for ERP may have to be taken out ofother investments. For the rest of this report, Aberdeen separates potentialERP buyers into two classes:

Informed These are organizations that selected three or moreof the top four ERP selection criteria of the Best-in-Class.

Uninformed These are organizations that selected less thanthree of the top four ERP selection criteria of the Best-in-Class.

So what are the actions of informed organizations, as well as the benefits ofbeing informed, and the consequences of being uninformed?

The Results of Informed Selection

When an organization is informed heading into the ERP selection process,the resulting solution is better aligned with the objectives of the business(Figure 2).

Figure 2: The Impact of Being Informed on the Solution


This begins with ensuring that business processes are standardized anddocumented. The practices that are essential to success must be identified

63%

76%

51%

61%

39%45%

15%

36%

0%

20%

40%

60%

80%

Business processesare standardized and

aligned with ERPimplementation

ERP solutionselection is aligned

with businessobjectives

Ability to identifygaps between ERP

functionality andother internaltechnologies

Line of businessultimately owns the

success of theimplementation

Percen

tageofRespondents,n=204

Informed Uninformed

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so that they can be carried over once the ERP solution, which will changethe way the organization operates, is implemented. Therefore, 63% ofinformed organizations standardize and align their business processes withtheir ERP solution. As a result, informed organizations are 69% more likelythan the uninformed to have an ERP solution that is aligned with theirbusiness objectives. This is an important finding: since an ERP solution is theessential tool for supporting an organization, it must be in lock-step with theorganization itself. Additionally, informed organizations must alsounderstand the technologies with which their solution must integrate. It isall about selecting the best fit for the organization as it stands. Therefore,informed organizations are over three times as likely as the uninformed tobe able to identify the gaps between ERP and other internal technologies.

Part of ensuring that the organization has selected the best fitting ERPsolution means involving the employees that will actually use it. Theorganization must understand how the new solution will impact day-to-day

operations. In order to accomplish this, informed organizations involve asmany key stakeholders as possible throughout the process. Therefore, 61%of informed organizations hold the line of business responsible for theongoing success of ERP compared with 36% of the uninformed.

But the value of being informed really shines when scrutinizing thedifferences in performance of the solution itself. Informed organizations sawgreater improvements as a direct result of ERP than uninformedorganizations in a variety of metrics (Table 1). For example, informedorganizations saw almost twice the improvement in administrative costs thatuninformed organizations saw. This is proof that taking a measuredapproach to selecting an ERP solution can pay exponential dividends in the

future.

Table 1: ERPs Impact on Operational Metrics

Result of ERP Informed Uninformed

Reduction in operational costs 11% 9%

Reduction in administrative costs 11% 6%

Reduction in inventory 11% 10%

Improvement in cycle time 12% 9%


To really drive home the point about the consequences of beingmisinformed in ERP solution selection, note the difference between the finalamount of budget spent by informed organizations compared to the finalamount spent by the uninformed (Figure 3). While informed organizationsultimately spend more than they had originally budgeted for their ERPpurchase and implementation, uninformed organizations spend, on average,155% of their budget. In the simplest terms possible, an uninformedorganization with a $100,000 budget for ERP would spend around $155,000,while an informed organization would spend around $110,000. In thesesituations, the difference between being informed and uninformed would be

Fast Facts

Fifty-three percent (53%) ofinformed organizations

select an ERP solution that isindustry specific incomparison to 30% of theuninformed.

The informed are 60% morelikely than the uninformed tohave senior managementcommitted and attentive toERP throughout the processfrom selection toimplementation.

The informed are 72% morelikely than the uninformed tohave cross-functional teamsof IT and the line of businessinvolved in selection andimplementation.

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$45,000. It should also be noted that informed organizations meet ROI in70% of the time it takes the uniformed (see Fast Facts). These differencescould have a huge impact on the bottom line and may be the differencebetween a successful and an unsuccessful implementation for those holdingthe purse strings.

Figure 3: Avoiding ERP Project Scope Creep


Key Takeaways

The dangers of being uninformed when selecting an ERP solution includesmaller improvements in operational metrics, more expensive solutions andimplementation projects, and longer to reach ROI. Informed organizations

identify four main criteria when selecting a solution:

1. Functionality Informed organizations identify the essentialfeatures that they need to operate and ensure that their ERPsolution has that functionality.

2. Ease of use Informed organizations secure solutions that areintuitive and enable their employees to easily navigate the solution.

3. Total cost of ownership Informed organizations define andstick to their budget.

4. Integration Informed organizations ensure that their solutioncan integrate effectively with existing technology.

By focusing on these four main criteria, organizations can choose an ERPsolution that will support them for years to come.

110%

155%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

Percentage of previously defined budget spent onERP

n=204

Informed Uninformed

Fast Facts

The informed reached ROIin 27.9 months incomparison to theuninformed, who reached

ROI in 39.7 months.

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