The PSSI Blog

8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

Key Conclusions About ERP

Our purpose has been to set down in writing the fundamentals for how you know when you need an ERP system (or a new system)… its strategic importance… the key motivators that indicate the need for ERP… a few client success stories on ERP’s benefits… what it costs for software and services to get started… how to get started… key performance indicators… the importance of turning information into action… and what your business management system should provide.

We’ve covered a lot of ground.  While covering the broad spectrum of ERP in the small to mid-size business requires dealing in some generalities, we’ve tried to be specific as possible about why to do it and what a typical project might cost — of course, there is no ‘typical’ project, but our guidelines should certainly give you a few key objectives and a manageable budget from which to work.  A few key takeaways:

• Remember, ERP is a strategic investment in your company’s long term health, even survival. Thus, it is a long-term business improvement strategy.  It is essential to sound growth.
• You’ll know you need ERP if: You have information scattered across many independent ‘silos’… You frequently key and re-key data… You rely on spreadsheets to run your business… Different parts or your business do not have equal, common access to others… Information is hard to find, organize or retrieve… You don’t know what it costs to complete a project or build a product… You have no common database or history of projects, products, customers. In short, if you don’t have all your information under the fewest possible umbrellas, then you need to look into an ERP system.  How else will you be able to discover, report, and turn information into actions that lead to significant business improvement and growth?
• Done right, ERP pays for itself – many times over. ERP will make you money.
• Start small. Where possible, segregate one or two key functional areas for early-stage implementation.  Work from a project plan.  Review and assess regularly.  Build, a step at a time.  Remember, like continuous improvement (which ERP really is), it’s a process not an event.
• Recognize the costs. Each project is unique, but a business in the $10 to $30 million dollar (revenues) range can get all the software it needs and a good foundation in services for around $100,000.  Again, user counts and complexity greatly affect the final figure.  But it’s a good starting point for a strong foundation that you can build upon for years to come.  You can probably even get started for less than that, but have realistic expectations.  Oh, and don’t skimp on training.  Scale back the scope of your efforts if need be, but don’t shortchange the very people who will make (and save) you money when ERP is intelligently implemented.  Train them well.
• Your mother was right – if it sounds too good to be true, it is. Trying to go it alone or ‘do it on the cheap’ yields failure stories, not success stories.  Do your homework.  As W. Edwards Deming said: “It is management’s job to know.”  That’s how companies get to ROI.

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8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

Key Indicators: Taking Action

Our own experience with deploying ERP solutions dovetails nicely with a web presentation given a few years ago now by Alexandre Attal, then an ERP executive from one of Sage Software’s many ERP divisions.  The topic was “How ERP Can Translate Information into Business Success” and Attal was addressing the area of performance indicators and business intelligence.

In other words, in gaining all this information from a modern business management system… What’s important here, what do I do with it, and how do I manage this data?  Some key takeaways…

You have four key questions to ask yourself:

1. Do you have the right data to make the best decisions?
2. How confident are you in the accuracy of data?
3. Do different departments have conflicting data?
4. How up to date is your information?

Each company has to work through these questions as they plan and then execute their ERP deployment, until executives feel confident that the answers are, for the most part: Yes; Very; No; and Current.

In the last analysis, we are looking for the Key Performance Indicators that will lead to improved measurement (or benchmarking) and then improved performance.

We start with: What are we measuring?  This is the DEFINITION phase.  Here it is important not to get bogged down in details.  Don’t use metrics made to make you look good – the goal is improvement.  Take a customer-centric point of view.  What’s important to them? Track that.  And finally, take a look at new ways to measure.

Next: What data should we use?  This is the COLLECTION phase.  The data should be in a centralized repository.  The information you track and analyze – and upon which you will base your final judgments about where to act – should be based on information derived from data entry that is easy to enter in order to ensure the most reliable results.

Then: What are we looking at?  This is the EVALUATION phase.  Don’t get bogged down arguing results.  Analysis requires understanding of the definition of the various Key Performance Indicators – make them clearly defined and easy to use, so you can focus on action.

And finally: What do we do now?  This is the ACTION phase.  Remember, the goal is action – information alone will not improve performance.  This requires continuous measuring.

We’ll look next at some conclusions from this line of thinking, notably, what your business management system then should provide.  Stay tuned…

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8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

Start Small and Discrete

Having deployed a couple hundred accounting or ERP systems over 30 years, probably our most important recommendation on the matter can largely be distilled down to the one simple principle summarized in our headline above: start small and discrete (whenever you can).

Prior to ERP purchase and deployment, the wisest course is always to engage in a discovery process (or needs analysis, or business process analysis – they go by many names).  During the discovery process, pain points are identified.  How those pains affect others in the company should also be identified.  Bottlenecks and redundancies are uncovered.  A basic workflow is flowcharted that boils down to: How are things done now… and how should they be done in the future?  This by the way is also the foundation of a process known as Value Stream Mapping.

As you move through the discovery process, you’ll find various business process/problem areas that need to be addressed, improved or corrected.  Your job is to pick out just the one or two areas, departments or pains that warrant the most immediate attention.  These are the areas usually best suited to become the first phase of your ERP deployment – after all, they should be among the most urgent.  Solve those, and you will see some immediate ROI, a good benchmark for success and for continuation of the deployment.

The task at hand is to identify the obstacles and their potential solutions, and map out a project plan that addresses and resolves them.  The tasks should be confined to the one or two project areas that will initially be addressed.  For example, it may be that the company needs to deploy ERP across many functional areas including some or all of… the front office, billing/purchasing, payroll, order flow, customer service, warranty and returns, production, shipping, warehouse management, and so on.  Nonetheless, the prudent course is to pick just a couple – say financials and order processing for example – and start there.  You can’t always do it this way, but it’s the safest route when able.

This ‘small and discrete’ project approach will yield several benefits:

First, it gives project stakeholders on all sides a tangible, realizable goal to work toward.  Everybody knows the goal, though not everyone is affected (only the departments in question) and frankly, there’s less to go wrong.  The likelihood of bringing the company ‘to its knees’ due to a dramatic changeover is minimized or eliminated.  Besides, with a well-defined project plan, transition damage should be largely nullified.

Second, it gives you a chance to evaluate your provider.  Before committing to the whole project, you’re committed to only part of the project.  Also – worst case scenario — it’s easier to pull the plug on a small, phased project than on a large and sprawling one.

Third, it mitigates, or at least spreads, project costs.  While you’re usually going to buy substantially all the software modules up front, you are only committing to a manageable slice of the services at the outset.  Moreover, services are typically paid for as you go, so you’re spreading your costs over the timeline you define.

Fourth, it gives you the opportunity to celebrate small victories, while laying the foundation for rollout to other departments in a positive light.  When you change business management systems, everyone is watching, even the people not immediately affected.  Early successes make subsequent departmental adoptions that much easier.  Next we’ll look next at benchmarking steps, that is, how to know when you’re making progress.  After all, you cannot improve what you do not measure.

Next up: turning data into intelligence.  The Key Indicators you need to have before taking action.  Stay tuned…

Read Full Post »

8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

More on ERP Costs (How Much, Part Two)

We earlier noted an entry point price of about $20-30,000 for a complete financial and rather modest manufacturing (or distribution) software suite.  That’s for about 5 users.  Figure roughly $4,000 for each additional user, and you’ll have a pretty valid estimate of software costs.  Thus, at 10 users, figure about $50,000.  At 20, you’re in the $75,000+ range.  Pricing diverges as user counts increase, so it’s not a straight line calculation, but these will get you in the ball park.  Again, that’s for software, and frankly, your cost depends on too many individual details to parse perfectly here.  Much depends on the extensive of functionality, and the number of users, you choose to buy.

In the short run, cloud purchases cost you less; in the long run, compared to on-premise software installed at your site, the price differential can narrow considerably.  You need to investigate the pros and cons of both with a trusted partner, and look at five-year TCO (total cost of ownership) scenarios going both ways.

With this rough estimate of software costs, the other shoe now drops: services.

We’re prejudiced, admittedly, but our view is that the best software in the world is fairly useless unless it’s properly, carefully and methodically deployed.  The truth is, ERP deployment is complex, difficult, time consuming, labor intensive, and generally not fun.  (Although we once had a client tell us “You guys make ERP fun!”  That’s the first time we’d heard that one.)

Deployment costs (i.e., services) are more difficult to estimate, as truly, no two clients or deployments are the same.  Very broadly speaking, a fair range of cost estimates runs from one to two times software costs – but it can run a lot more.  There’s a lot of analysis, setup, configuration, data transfer and planning time required in all system deployments.  These are more or less ‘fixed’ costs, so when they’re spread over fewer users, their actual dollar value forces the estimate to closer to two times software; whereas when spread across more users, these costs represent a smaller percent of the overall deployment costs, and thus a final figure closer to one or maybe 1.5 times software costs.  Again, all estimates are just that: estimates.  Your mileage may vary.  Software customizations will add additional cost – sometimes by a lot.

And for sure, we always say this: We cannot quote what we do not know.  We live and die by those words.  Any experienced ERP implementer will tell you the same.

So, to wrap up: If you’re looking to implement ERP – properly – for about 5 or so users, complete with financials and some very basic inventory control, manufacturing or distribution functionality, you’re looking at a project that will probably run about $75,000, spread over several months, again depending on any number of factors.  At 10 users, you won’t be double that range, but you’ll probably be over $100,000, give or take.  Less complex deployments will cost less; more complexity, and other functionality not listed here (which you can often add later) will increase costs.  To be fair, it’s not unusual for costs to go double the above estimates.  The important thing is to know what it’s going to be before you even get started.  At the least, you can build your planning budgets around these figures, and in turn, use those figures to determine just how big a bite of the apple you’re willing to take.

Which brings us back around to one of our long-time, key implementation tenets: Whenever possible, start small and discrete.  We’ll have more to say about that next.  Stay tuned…

Read Full Post »

8 years ago we first published a series of posts entitled “Software That Matters.”  It was an ERP implementer’s point of view, culled from long experience, on why and how to purchase a business management software system.  Later, we turned Software That Matters into a popular white paper that has since been viewed hundreds of times.  

Now eight years later, we thought it was time for an update, to reflect lessons learned since then.  (We also did a 2015 update three years ago.)  Much of what we wrote then remains every bit as true today.  But we decided again to carefully retrace our steps, re-edit our paper, add some comments and present it as a series of blog posts that will carry us through November, 2018.  We think that’s timely, as many companies at this time of year tend to reconsider the software they use to run their business — and how they might do better.

In our series we will again try to convey what’s important, what to measure, how to buy, what works, what it costs… and the many other business considerations required of this strategic investment, in what is probably the most important (and expensive) software a company will ever buy.  In other words, the Software That Matters.

How Much?

Previously, in order to discuss pricing, we defined our so-called typical client as a firm in the $10 to $100 million (revenues) range.  Most are engaged in either manufacturing, distribution or both.  Of course, ERP can benefit anyone.  Manufacturing and distribution just happen to be our particular areas of greatest expertise.  Given our baseline, let’s take a look at typical costs.

Whenever we’re asked ‘What’s it cost?’ I’m always inclined to give an answer along the lines of ‘How many trees are there in a forest?’  Not to be facetious, but really, cost varies according to many factors, including the obvious (How many users?  How many areas of the company do you want to tackle?  How complex is your manufacturing process?)… as well as the less obvious (How many of the necessary implementation steps do you want your team to tackle instead of ours?  How experienced or tech-savvy is your staff?  How committed is the top management?)

Let’s take a stab at it anyways.

We’ve sold $50,000 systems and we’ve sold $500,000+ systems.  The difference, generally, had to do with… the number of users; the scope of the initial phases of the project; the computer and business literacy levels of the users; the amount of customization required; and the depth of planning groundwork required to reformulate or re-design business processes.  One other factor: How heavily will engineering be involved, with all its cascading layers of staff, resources, projects and plans?  Add to that, how many people across how many different departments require training?

The list is longer than that, but the conclusion we’ve come to after many years is pretty simple: start small and discrete.  We like to start with the base software and one or two key departmental deployment objectives.  These are typically the areas of greatest pain or urgency.  They usually become pretty self-evident during the discovery process at most companies.  Mind you, it’s not always possible to go ‘small and discrete.’ Companies replacing an existing full-scale system may have little choice but to go Big Bang.  It requires communication, planning and consensus between you and your provider.

It may surprise you to learn that today, within a certain range of dollars, pricing on most ERP systems for the SMB market is remarkably close from product to product.  We know this because we represent several different systems, and are familiar with many others.

For a typical starting point, say 5 users, and a commitment to deploy ERP across one or two functional areas initially (say, financials and order fulfillment as examples), the cost difference across multiple different ERP choices might be only about 25%.  Typically, a ‘basic’ 5-user ERP system with most of the expected accounting functionality (financial reporting, receivables, payables, order entry, purchasing and inventory control) and maybe some basic ‘kitting’ manufacturing capability (BOMs, Orders, Routes) might run around $20-30,000, give or take.  That’s for the software.

With today’s ‘in the cloud’ solutions, configurations can be priced by user, by month, making the costs, at least initially, appear much lower.  That decreases barriers to entry, though in the long run, it’s pretty much a marketing game that the big-name publishers feel destined to win.  They sometimes lure in prospects with exceedingly low cost-per-user entry fees, but generally, the full functionality you want, spread over years, adds up either way.

Except of course, with cloud, the data often resides on “their” servers (or at least somewhere other than your own), thus increasing the cost and complexity of ever moving off that system – a fact publishers know and relish.

At any rate, all software publishers today add an annual maintenance plan fee for on premise software which typically runs about 16% to 20% additional.  Cloud users have it built into their pricing, and so it’s basically amortized over time.  These maintenance plans are usually ‘required’ by the vendor for the first year.  They do not entitle users to free support or training or other services; rather they entitle you to all software upgrades (and maintenance releases, or ‘bug fixes’) released by the vendor during that year.  They are renewable, optionally, on an annual basis.

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