We recently conducted interviews with 225 companies who were all looking for enterprise resource planning (ERP). The goal of this survey was simple – listen and learn from what these companies had to say about their individual decision-making strategies. We all agree that this is not a simple task. But we also agree that selecting the best ERP software is a critical factor for business success. Our intent is to analyze all these responses and present the most salient observations in a report that will help assist companies along this selection path to a successful conclusion.

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This report will identify ERP buyer profiles based on demographics and their specific business and technical needs. It will also analyse buyer behavior during the research phase of the selection process. Our goal is to provide you with user-friendly guidelines to help you navigate this very important phase of software selection. Here is why we consider the research phase of this process to be so vital:

• It has the greatest impact on all the subsequent phases and consequently, your final decision.
• Research begins at home – in other words, the first step is to determine your company’s specific and unique needs.
• Once your company has thought through and determined its software requirement, then and only then does the process to evaluate vendors and their offerings begin. This can be a very challenging step because many companies are not equipped with the time, knowledge, or tools to perform this step.

Our analysis is intended to provide you with a first glance of some of the steps undertaken by your peers and the outcome of those steps. Because all companies and their requirements are unique, we cannot provide a generic process that will work for all, but the experience gathered from other companies engaged in the same process can be very valuable.

Buying ERP yourself? Assess the features you need by using an ERP Software Requirements Template

Buyer Profiles: Who’s Looking for ERP and Why?

This mixing up of industry functions has been adopted by some businesses as a means to diversify and expand their activities and find new sources of revenue. When selecting an ERP system, this ‘cross-over’ of functions does create some additional challenges for those companies, as they no longer belong completely in one business category or another.
The breakdown of companies in our business sample, by industry, was as follows: manufacturing (47%), distribution (18%), services (12%), construction (4%), retail (3%), utilities (3%), government (3%), healthcare (3%), and other (10%). However, to complicate matters a little, 20% of manufacturers also manage distribution and some distributors include light manufacturing in their operations, like assembly.

In our very competitive business environment, many companies are looking for ways to maximize the efficiency of their business outreach, and consequently, this hybrid model may become more and more the norm.

Companies looking to invest in business software may very well be addressing this additional challenge – looking for a comprehensive package that integrates all aspects of a business. ERP software systems are powerful and comprehensive but are not necessarily known for their agility and ability to accommodate many disparate functions.

However, the powerful market trend towards consumerization was a strong influencer of software production. It initiated the change of focus in the technology market from organization-oriented offerings to end-user focused products. This was a highly significant turning point in the IT marketplace. By developing new technologies and models that originate in the consumer space rather than in the enterprise sector, software producers opened up the market to a flood of small and medium-sized businesses looking for more cost effective, and less complicated solutions to run their businesses.

A Closer Look at Manufacturing

In our business sample, 47% of ERP users were from the manufacturing sector. This is not a surprising statistic for two reasons: first of all, manufacturing companies were some of the earliest adopters of ERP systems and, secondly, once in place, these systems were not easily and quickly replaced or upgraded.

ERP solutions were, generally speaking, large, rigid systems, very proficient at automating repetitive tasks and reducing, or in some cases, eliminating error – a very attractive component for manufacturing. As well, these systems represented a very significant investment for companies, another reason why a profitable sector like manufacturing became the logical early adopter of ERP.

The consumerization of software (as noted above) has precipitated the move by many companies away from enterprise IT towards more streamlined and user friendly consumer-oriented technology. This change is equally relevant for ERP software and manufacturing companies have participated in this very significant development, albeit more cautiously and slowly than SMBs.

However, a common misconception about the manufacturing industry persists – that they are slower adopters of business technology than other industries. In fact, research shows that they simply approach software selection and implementation from a different perspective – perhaps one that is more suited to their industry requirements. A recent article in the Rockwell Automation Blog presents a very interesting assessment of the speed with which manufacturing companies adopt new software.

The article refers to a “purposeful implementation that follows a development lifecycle”. Essentially, what this blog article is arguing is that not many manufacturing companies can nor should adopt new technology as an “all or nothing” proposition. A company’s priorities should always be at the forefront of the adoption drive. The adoption of technology is uneven because the maturity and return on investment is equally uneven.

All Industries

In fact, most industries follow a very similar approach to the above-referenced “purposeful implementation” strategy, managing software adoption as a series of “sprints in a well-planned program” rather than insisting on the “all or nothing” approach.

For example, a small company looking to invest in software might decide to begin with an accounting system which can be used alongside point solutions and spreadsheets. As companies grow and their transactions become more complex, they may find that they have also outgrown their initial software selections. Our survey results confirm this finding. The most popular solution currently used by companies surveyed was QuickBooks (provided by Intuit), followed by Excel, multiple Sage products, and local vendors.

An interesting finding (from our survey) is that roughly 10% of companies did not use any software solution to run their businesses and relied on spreadsheets or Access databases all the way down to pen and paper.  It is important to note, however, that the majority of these respondents managed companies that were very small, with less than 50 employees.

The chart below provides a visual analysis of the mix of software that is currently utilized by our business sample:
 

 
As their business complexities grow, the software mix that companies had been relying on may no longer be adequate. Almost 40% of companies interviewed regarded ‘functionality’ as the most  important aspect to consider when selecting software. But what is really meant when companies speak of ‘functionality’?

Overall, in IT, functionality is the sum or any aspect of what a product, such as a software application, can do for a user. With this definition in mind, when a software’s functionality decreases, impacting the overall productivity of a company, the logical response is to replace or update the software. So while a large number of our respondents identified ‘functionality’ as the principal cause, it is important to view that term as a set of product features that enables a user to have a set of capabilities.

Some relevant comments we extracted from our survey included:

• The CEO of a small services company mentioned that he was “tired of the hodgepodge of systems”
• A manufacturer considered their current arrangement to be “very siloed.” Reconciling the inventory balance is a “constant battle.”

Recommendation: At all phases in the software selection cycle, a business strategy with a comprehensive list of business priorities is essential. Work within that strategy and pay attention to your priorities. Consider taking a phased approach and remember that a “purposeful implementation that follows a development lifecycle” might be the most prudent course.

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Buyer Behavior: How are Companies Approaching ERP Selection?

Buyer behavior is a difficult variable to evaluate because it can be highly subjective. Individuals authorized to make these decisions are human, afterall, and do not always follow the most rational course of action. That is why the selection process is most successful when companies adhere to some basic selection rules: involve as many direct stakeholders as possible and keep business priorities and strategies firmly in mind when making the final decision.

Reasons to Upgrade or Replace Software

We noted in our previous section that one of the most important reasons for software update or change was the need for increased functionality.  The software systems currently in place no longer adequately met the basic requirements for a successful business operation. So while functionality is identified as a critical requirement, there are a number of other reasons that directly impact the decision process. The chart below identifies these reasons and presents them in order of importance based on our survey results.
 

 
Of particular significance is the fact that many of the reasons listed in the chart above, relate directly to user experience. Issues such as the age of software, outgrown applications and tools, user-unfriendly, manual input, and difficulty integrating applications all hinder the usability of a system and ultimately affect the day to day work routines of users. Such functional pain points are difficult to overcome without taking drastic action – usually replacing the software system. When an existing system isn’t delivering on a core function, you might be able to ‘get by’ but the right tool would make the job much easier and increase productivity and efficiency.

Feature Functions

As the integrated management of core business processes, ERP is an indispensable tool for all businesses. As we have noted, early ERP systems focused on large enterprises, but with the market’s shift towards more consumer-based products, smaller enterprises have increasingly adopted ERP systems. What differentiates ERP systems from one another is essentially the complexity and the number of components needed to support the business functions of a particular company.

In our analysis, we have determined that accounting was by far the most critical function for most of our respondents (89%). And within accounting, the features considered most important were general ledger (GL), accounts receivable (AR), accounts payable (AP), budgeting, and financial reporting.  Not a surprising finding given the importance of managing all aspects of a business’s finances. From sales and revenue to payroll and expense management and sales analysis, the management of these areas can impact the success or failure of a business.

As your business grows, the management of multiple areas of your business will increase in complexity. The appropriate ERP solution for your company should be capable of keeping abreast of the increased complexity in all areas of your business, like customer relationship management (CRM), inventory, and manufacturing.

The challenge, as a buyer, is to select the vendor that not only offers the functions you are looking for but, more importantly, that you can create a workable long-term relationship with. A vendor relationship does not end with the sale of the product, to the contrary. A strong vendor relationship is one that offers ongoing support of their product and includes your growing and changing needs in the product roadmap.
 

 
Recommendation: A software change can trigger a vast administrative upheaval within the company. It is important to carefully analyze the business case for the change and whether it supports the level of disruption as well as the implementation time and spending that will be required. Even if the change may be entirely justified, a well thought out analysis is well worth the time and effort.

The final analysis may include a mix of old and new software products. You may keep some of what you have and supplement your system with innovative technology that helps you stay competitive. The assessment should take into account business growth over the next 5 to 10 years and whether your business can sustain this investment.

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The Vendors in the Spotlight

According to our survey results, the chart below identifies the vendors under consideration by the companies surveyed. A majority of companies (53%) were not, for the moment, looking at specific vendors. However 47% of respondents had narrowed their search to specific vendors.

Of this group, 18% identified Microsoft as their top choice. Microsoft has a good selection of ERP products, whose primary focus is toward midsize organizations. Of their various offerings, Dynamics AX (formerly Axapta) is their most popular product. Microsoft Dynamics offers a particularly popular and important advantage – a completely seamless integration with the Microsoft Office Suite. The ability of these two applications to share and exchange data effortlessly greatly improves the life of the end user and the business operation in general.In recent years, the introduction of Microsoft Azure Cloud platform has made these products available in the cloud.

SAP was the number 2 choice (14%) of vendors identified by our business sample. SAP Business ByDesign is a popular ERP software sold by SAP SE, a German software company.  This is a software product designed for small and medium-sized enterprises. SAP responded to the market pressure towards consumerization by producing an ERP system tailored to SMBs and investing in the rebranding of the company’s image. Previously, SAP was largely associated with large enterprise software and thought to be inaccessible to most medium-sized enterprises.

Netsuite (now owned by Oracle) was the number 3 choice at 11% . This ERP product was designed exclusively for SMBs and built for cloud computing. This differentiates Netsuite from products like Dynamics AX and Business ByDesign which were rewritten for the cloud, as opposed to being  designed to operate exclusively in the cloud.

Oracle software was selected by 10% of our survey sample. Like SAP, Oracle was able to expand its market share by rebranding themselves. But unlike SAP, Oracle invested in sales teams that reached out to SMBs to promote their mid-market ERP solution. Like Microsoft and SAP, these companies were willing to invest in rebranding for the opportunity to gain a market share of this very lucrative mid-market sector.

What differentiates these vendors from the rest is their ability to remain flexible in the face of a significant change in the direction of the marketplace. Apart from designing products that appealed to a mid-sized market, they also made their products available for the cloud. Change has become a very common characteristic of our age and the inability or reluctance to make the necessary changes can be detrimental.
 

 

Who’s Involved in this Decision Selection Process?

Our sample results indicate that the people in charge of the selection process are distributed as follows: employees in the finance and accounting departments (23%), IT department employees (23%). The other important categories  were  independent consultants helping companies with the selection process (17%), operations managers (17%) and presidents or CEOs (12%). It is worthwhile mentioning that project managers and business analysts only made up 5% of the total.
 

 
Our business sample was comprised, for the most part, of companies looking for ERP software to assist with manufacturing or distribution operations. (manufacturing (47%), and distribution (18%). However, our results show that the software selection process was largely driven by the finance and IT departments of these companies.

As we have indicated in our introduction, this disconnect between the selection team and end-users can be a potentially serious problem. By far, the most effective method of choosing a software is to employ a collaborative system whereby the actual stakeholders of that system (the end-users) have a direct voice in the decision outcome. As the front-line users of the system, their insight and knowledge is very valuable. Their input along with all the other stakeholders input will produce the best possible outcome of this process.

Whereas roughly 1 in 6 businesses hire a consultant to help steer them through the selection process, again, the input of company stakeholders should not be left out of the process. A consultant can bring valuable experience and knowledge to the task at hand, but the value of team players that will ultimately work with the system is not to be underestimated.

Recommendation: While working with consultants can be a great asset to the company’s selection process given their level of expertise, there is the risk of relying too heavily on this expertise and perhaps giving it more weight than the input of team members. The internal dynamics of an individual work environment are unique to each business and are best assessed by employees on the inside. A consultant’s input is most valuable when balanced with the input of all stakeholders.

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What Timeframe has been Allotted to the Selection Process?

Another important variable that we can assign to buyer behavior is the timeframe that companies put in place to complete the selection process. The majority of companies (74%) in our survey prioritized speed as an important variable to making a decision. In fact, most companies were not willing to invest more than 6 months in the process. While completing the process as quickly as possible is a justifiable response, (especially for small companies that do not have excess resources) it may not produce the best results.

Our survey results also appear to confirm that a correlation exists between companies looking to expedite the selection process (85%) and the number of end-users (around 100) that are directly impacted. This correlation further confirms the premise that small and medium sized businesses feel greater pressure to complete the process as quickly as possible given the strain on resources.
 

 
The reduced timeframe has several weaknesses that companies of all sizes should pay attention to. We found that 87% of companies that were only willing to spend 6 months on this process had not contacted vendors nor participated in any demos.

The scheduling and conducting of demos with vendors takes time and patience, and an individual demo could take as long as 2 months to organize. Given their self-imposed timeframe, these companies will not have the time to gather enough information to make an educated decision. It does not make much business sense for a company (large or small) to make a significant business investment that will influence all areas of the company’s operation in a rushed and thoughtless manner.

One horror story is that of a local government using AS400, which is a 30 years old ERP system. The system is out-of-date and so basic that they have to resort to spreadsheets to complete what needs to be done. The timeframe for their decision was 7 months and, to date, did not include meeting with any vendors or having demos.

Recommendation: An ERP system is a major business investment and is best handled with the appropriate amount of time and diligence given to the process.

The Software Deployment Process

Software deployment is everything that goes into making a software system usable. The process consists of several related layers of activities that are customized to meet the specific requirements or characteristics of the software system within its unique setting. The advent of cloud computing has indeed radically changed the landscape for deployment of business software. According to a recent press release by Gartner, “ a Corporate “No-Cloud” policy will be as rare as a “No-Internet” policy is today”. In other words, cloud deployment will become the default.

Our survey results, in fact, support Gartner’s analysis. Ninety-five percent of companies responded that they were open to a cloud deployment model, while just over 50% were willing to also consider on premises ERP.  Of this latter group of respondents, 65% of them were manufacturers and distributors. This makes sense of course, given that these industries made significant investments in hardware and IT personnel and may not be as ready or as willing to move to the cloud model.

Additionally, it is probably safe to assume that management officials of manufacturing and distributing companies are more conservative in their thinking and probably require more convincing before embracing as major and disruptive a change as the cloud. In fact, a few companies candidly responded that they are “old school” and that the “owners aren’t open to trying the cloud”.

This line of thinking, however, does not discount some of the real concerns that still exist for companies thinking about a move to cloud computing. Some of these concerns include security in the cloud, the dispensing of the existing IT infrastructure, and the need to be in control of their data. Again, Gartner observes, “Unless very small, most enterprises will continue to have an on-premises (or hosted) data center capability.” (Ibid)
 

 
As for the preference for cloud computing (as demonstrated by our responses), we argue that it reflects the very strong tendency in the market to opt for simpler, more streamlined and less expensive computing solutions. As more information and assurances of security and stability by cloud providers enter the marketplace, more and more businesses will be convinced that the many benefits of the cloud outweigh some of their remaining concerns. Gartner’s prediction that cloud will increasingly be the default option for software deployment looks to be right on course.

An interesting observation that we extracted from our data is that even if organizations are cloud aware they don’t seem to be very familiar with the cloud ERP vendors landscape. Cloud only solutions like Acumatica, FinancialForce, Intacct, Kenandy, Plex, and Workday were considered by only 20% of the companies. Instead, companies seem to prefer reaching out to brand name vendors that they already know like Oracle, SAP, Microsoft, Infor, and Sage. All these vendors provide both cloud and on premises solutions, which may explain why companies considering both options included them in the selection process.

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Conclusion

An important consideration for companies embarking on an ERP software selection process – the average lifespan of an ERP system is approximately 5 to 10 years. If we consider important factors like the investment of capital, time, and loss of productivity that the selection and replacement of an ERP system requires, perhaps all companies would be more willing to invest the necessary effort in this process.

Many factors can jeopardize the selection process and we have attempted to outline a few of the more important ones. With the support of our survey results, we have emphasized the benefits of undertaking a thorough, detailed and all-encompassing approach to this important task of software selection.

At the outset, we have stressed the importance of making your process as inclusive and collaborative as possible. Having project leaders for the process is proper, but excluding the voices of all stakeholders in the company is detrimental to its ultimate success. We have also stressed the importance of working closely with your company’s strategy and priorities.

A decision that is not closely based on your company’s needs and priorities is a decision that can ultimately lead to a bad and costly end result.. Finally, we also spoke of the importance of assigning the correct amount of time to this project. Assuming, from the start, that an artificial time line of 6 months is sufficient, can add unintended pressure and frustration to the process. The best advice is to take as much time as is needed. This is an important decision. Interview as many vendors as you see fit, and participate in as many demos as you need to make the best possible choice.

Perhaps one other factor to consider that we did not fully elaborate is the notion of customer bias. What do we mean by this? Because decisions are still made by humans (for the now), we may enter this process with some preconceived ideas about the software or the vendor. The best approach is to enter into this selection process with a clean slate and an open mind. That will certainly help move the process forward in the most impartial and positive manner. Having as much information about choices that exist for your company is the best way to ensure a successful outcome.

In closing, we would like to stress that whether you work with a consultant, on your own, or as part of a team, the focus is always on your company’s specific needs and the best way to achieve a successful partnership between your software selection and your company.

Addendum

The 225 companies range in number of employees from 1-10 to more than 10,000. Since there is no universal methodology to categorize companies based on the number of employees, we adopted the ranges used by LinkedIn. The graph below shows the number of companies for each range. The majority of companies (80%) can be considered SMBs since they have between 1 and 5000 employees.

From a revenue perspective, 31% declared revenues between 10 and 50 million and 28% between 1 and 10 million. Almost 75% of all companies have revenues between 1 and 500 million.

In order to categorize companies by industry, we used the methodology used by the US Census Bureau. The ‘Other’ category includes industries such as hospitality, education, real estate, and not for profit.

Since all of these companies were looking for ERP solutions, it is not surprising that the majority are manufacturers (47%), followed by distributors (18%), and services providers (12%). It is worth mentioning that 19 (or 20%) of the manufacturing companies also consider themselves to be distributors.

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All types of manufacturing were present, from discrete, to process manufacturing, and engineer to order. Some distributors mentioned that they also include in their operations activities such as assembly, which is a light form of manufacturing.