Enterprise resource planning systems have been variously called the heart, brain, and backbone of a company. All the comparisons are apt, considering the core functionality that an ERP system can comprise — accounting and finance, human resources, sales management, supply chain management, customer relationship management, and more. Choosing and implementing an ERP system is therefore a significant, even risky undertaking; according to a survey by Panorama Consulting Solutions, the average ERP project in 2013 cost $2.8 million and lasted 16 months, with 54% of projects exceeding budget.
No wonder, then, that many finance chiefs get involved with the selection of ERP software. “I see more CFOs on sales call than CIOs now,” says Grant Fraser, president of Navigator Business Solutions, a value-added reseller (VAR) of SAP ByDesign, a midmarket ERP solution.
The CFOs of midsize companies have plenty of systems to choose from. Veteran midmarket providers like Epicor, Sage, and Syspro boast large installed bases of midmarket customers (generally considered companies with between $10 million and $1 billion in revenue). ERP giants like SAP, Oracle, and Microsoft, finding the Fortune 1000 market increasingly saturated, now compete in the midmarket with promises of massive R&D budgets and functional breadth. Cloud-based vendors like NetSuite offer freedom from the constraints associated with the traditional on-premise software model, while all the major midmarket ERP vendors provide cloud functionality to a degree.
Given the range of choices, how can CFOs make sure their companies select the right system? We offer guidelines below. We list product information on midmarket ERP systems from 10 leading vendors here. And in “Show Me” (at the end of this article) we offer tips for preparing a “scripted demo,” in which a vendor can prove that its software will actually satisfy a company’s requirements.
Note: All of the vendors listed here offer broad accounting and finance functionality, including multitax and multicurrency capability, and therefore such features are not listed in this buyer’s guide. The general ledger, accounts payable/receivable, cash management, credit and collections, fixed assets — these and other functionalities have become table stakes in the ERP midmarket.
Before starting to shop, a company should begin by asking what it does well or poorly with its current systems. Chuck Langenhop, senior director of CFO Advisory Services, an ERP consultancy, recommends that project teams perform a gap analysis, specifying the goals a company wants to achieve with a new system. Those goals may include, for example, hard-dollar savings, more efficient processes, faster inventory turnover, or the ability to accommodate overseas expansion.
Such an analysis begets a list of “must have” functionalities. A logistics provider requires freight optimization, for example, while another company with a far-flung sales force needs mobile interfaces for placing orders from iPads. A third company expanding into China seeks a localized solution with multicurrency and multitax functionality.
Having clear, defined selection criteria, in short, reduces cost and risk. Obvious as this may seem, Panorama found in its “2014 ERP Report” that 91% of companies using ERP needed at least some customization to meet their basic business needs, even though the required functionality was available from other ERP vendors.
Still, no system may have all the functionality that a company requires. “Look for an 80% fit; anything less won’t grow,” advises Langenhop. “There’s a big difference between building a solution from scratch versus optimizing an 80% fit over time.” If the vendor offers a developer’s toolkit, a company with sufficient IT brainpower on staff can optimize the fit without waiting for a next-generation release.
To fill in functionality they lack, midmarket ERP vendors have formed robust partnerships with implementers, VARs, and application partners. These third parties develop the niche applications that customers may demand, such as automated transaction monitoring or enterprise asset management. In these cases CFOs should ask vendors which of their partners provide the needed application, whether they are certified, and who are their references for that application.
Automating routine finance functions can generate measurable improvements, by eliminating manual reconciliations, for example, or shortening the monthly close. Some midmarket ERP systems include an automation toolset. Unit4’s Agresso Workflow enables users to visually define rules and processes (such as requisitions and invoices), and enforce activities like approval processes. Syspro’s toolset includes process modeling, workflows, and messaging that notifies key people of critical events via e-mail or other messaging. Both the Unit4 and Syspro toolsets give business users the ability to create and automate processes and workflows without involving IT staff.
Such automation should be a “show me” request in a product demonstration: “We have customers who routinely go over their credit limits. Show me how I put them on hold, automatically.”
NetSuite, a software-as-a-service ERP vendor, includes similar user-friendly capability, says COO Jim McGeever. “Not just our product but our platforms are built for point-and-click customization by mere mortals like CFOs and business analysts,” he says. McGeever adds that the SaaS model in particular enables users to customize functions without worrying that an upgrade will leave the customizations behind. “In the old world you did a customization and spent a fortune to take it with you when you upgraded,” he says. But with SaaS solutions, “all your customizations migrate with you. You’re not fearful to customize, so [our customers] do more of it.”
This too is a requirement to specify during selection; can essential functions be customized, and will those customizations migrate with an upgrade?
All midmarket ERP providers offer business intelligence and data-mining functionality. But purchasers should ensure that the data produced is relevant, easily accessible, and easily configurable.
“Make sure the information covers every aspect of your business, and that the tools provided are easily accessible within the application and available to use without resorting to the IT department,” says Malcolm Fox, vice president of marketing at Epicor. This is another proof to demand in the demonstration stage—for example, “Show me sales data for the Midwest. Now show me sales data for Chicago. Show me my top and bottom performers.”
Governance, risk, and compliance functionality is an especially strong driver of ERP system change in heavily regulated industries like medical devices, multinational companies, and domestic companies dealing with legislation like the Affordable Care Act.
GRC solutions are expected from Tier 1 vendors like SAP and Oracle, but midmarket vendors like Epicor and Sage offer them, too. Epicor’s GRC software, for example, offers compliance with international accounting standards, international financial reporting standards, and even nitty-gritty standards like the EU’s waste electrical and electronic equipment directive.
The specific standards a company must conform with should be included in a gap analysis. If a company is expanding globally, what is the vendor’s answer for compliance with the Foreign Corrupt Practices Act, or with localized standards? Does the vendor keep pace with evolving regulations, and update the software with patches or automated upgrades?
CFOs have been attracted to cloud-based computing for three reasons, says Mark Humphlett, industry and solution strategy director of Infor Global Solutions: “speed and a faster time to market, agility, and cost savings.” Companies have long deployed cloud-based systems for managing talent, expenses, and customer relationships, he points out; now, they “are starting to gain confidence in ERP cloud offerings and are requiring core ERP in the cloud in order to more quickly transform and modernize their business processes.”
Panorama Consulting’s 2014 report found decent savings from the cloud, with 46% of companies claiming to recognize cost savings of 41% or higher. But the consultancy also noted some caution about the cloud, with new adoption of cloud-based or software-as-a-service ERP systems dipping from 26% in 2013 to 15% in 2014. Some 30% of companies cited “risk/fear of security breach” — a misplaced fear, believes Panorama president Eric Kimberling.
“These hosting providers with SaaS or hosted solutions — that’s their whole business, all they do,” explains Kimberling. Not only are they “economically incentivized” to provide enhanced security, he says, “but look at the uptimes of those vendors. They’re capable of more than any IT department can do.”
Most cloud-based ERP users in the midmarket have adopted a hybrid model, combining an on-premise ERP system with cloud-based storage, platforms, and select applications. But even with an on-premise ERP backbone, Forrester Research recognizes several instances in which SaaS makes good business sense, given its promises of speed and agility plus lower barriers of cost and risk. Examples of such instances include when a company launches a new business operation, is growing quickly by acquisition, or wants to standardize on a two-tier ERP architecture, with a backbone system at the corporate level and local solutions at the business-unit level.
Meanwhile, pure-play cloud ERP implementations are atypical, but growing. NetSuite says it has 20,000 SaaS installations worldwide.
The Consumerization of ERP
Access to ERP systems is no longer limited to an elite few, but can be made available to anyone in the company who can use them to improve performance, from anywhere. Increasingly, this means “consumerization”—the use of interfaces that resemble web, social, and mobile consumer technologies. “We built NetSuite to be used by everyone who has an impact on the results of the business,” says McGeever. “You have to build a system that’s intuitive and Google-like in ease of use.”
Mobile ERP interfaces are rapidly becoming standard. SYSPRO 7, for example, includes a device-agnostic mobile platform to support practically any mobile device, including iPads, iPhones, and Android phones.
Most modern applications include some social capability — tools for collaboration both in-house and with customers. Epicor Social Enterprise is a social platform that opens up ERP to everybody within an organization. Local knowledge becomes immediately accessible; a collections manager, for example, may hear from a California-based employee that a customer missed a month-end payment because a wildfire.
A final midmarket value proposition is that vendors or their VARs typically implement the solutions, which vendors say limits cost and risk. “Generally, midmarket providers do a pretty good job of delivering end-to-end,” says Joey Benadretti, president of Syspro USA. Syspro claims implementation times of three to nine months. Some midmarket providers share the risks of cost and budget overruns; Sage, for example, offers fixed-price implementations and money-back guarantees.
Dann Anthony Maurno is a writer based in Salem, Massachusetts.
Put ERP systems through their paces with a scripted demo.
Just as you wouldn’t buy a $30,000 car without taking a test drive, so you shouldn’t buy a $300,000 ERP system without putting it through its paces first. This means developing a scripted demo, in which the vendor shows how the software handles specific tasks supplied by the customer, in real time. Here are some tips for setting up the demo:
• Provide your own data. Having the vendor work with a company’s actual data results in a more meaningful and believable demo.
• Ask, “How would you do this better?” Take a change that has been recently made to your current software and ask the vendor how it would make such a change in its ERP system, advises Malcolm Fox, vice president of marketing at Epicor. The vendor should demonstrate a better way to make that change.
• Have the vendor configure a user interface.Ask the vendor to show how an ERP user would personalize the dashboard and push it out to an iPad. Can a user construct a combination of forms, reports, alerts, and business intelligence in context—essentially everything he or she needs to interact with ERP?