more-arw search

Lessons Learned: Before You Sign Off on a New Technology System, Who Will Support It?

After vendors walk away, things can get messy.

Sit half a dozen chief financial officers from large organizations in a room. Ask them to take a deep breath, then say these words: “ERP implementation.” Now run for cover.

Despite the backbone utility of enterprise resource planning systems, which seamlessly facilitate the flow of internal and external information between business functions, the significant process changes required are a headache in the making. Add to this the eye-popping costs and the risk of a security breach and it is no wonder why more than one CFO has lost his or her job in the post-implementation dustup.

Don’t believe us? Type the words ERP Nightmare in Google and read stories that would make Stephen King swallow hard. Why such spectacular failures?  One can blame the mishaps on the parties involved in the transaction — the vendor, consultant and, yes, even the buyer.  The deal may go smoothly during the decision-making process and the initial setup. But afterwards – when the vendor leaves – things can quickly take a messy turn.

A Failure in the Making
Juan Carlos Bertini, former vice president of finance at Del Monte Foods, has seen the after-effects of ERP installs firsthand. “Every ERP implementation that failed when I was a management consultant at PwC occurred after it was handed off to the internal people,” Bertini says. “Millions of dollars were spent, and when the time came to turn on the system, the internal team wasn’t prepared to receive it. They just never had the knowledge or training to run the system.”

That’s just part of the story. Nick Castellina, a senior research analyst at Aberdeen Group, faults vendors for not adequately preparing lines of business for the necessary process changes. “It all comes down to training, and in this regard you want a consultant or a vendor that is contracted to provide ongoing support,” he says. “When I hear that the ERP vendor was unavailable to help with problems post-implementation, it tells me the buyer either picked a bad vendor or had a bad lawyer draw up the SLAs [service level agreements].”

Yet shouldn’t vendors, even bad ones, be somewhat forgiven for client frustration? “Once the customer pays the money upfront, the vendor has already recognized the vast majority of the value of the transaction,” says Mark Verbeck, senior vice president and CFO at Coupa Software, which provides cloud-based spend optimization solutions. “That’s why they invest so much time and energy on the initial sale. There’s very little money left on the back end for the vendor to maintain an ongoing relationship with the customer.”

In the past, this arrangement meant buyers were left in a lurch. Then, a solution reared —consultants developed a new line of work providing software maintenance services for a fee. That’s what PwC did. “We actually made a business out of this, where we’d come back, tweak things, and solve problems,” Bertini says.

The vendors did the same. Verbeck, a former consultant with Deloitte, says service providers “worked things out so they got the best of both worlds — paid whether the implementation was successful or not, upfront for the initial software license, and then again by charging significant maintenance fees. Companies were stuck in the middle, squeezed both during and after the implementation.”

Minimize the Post-Implementation Woes
Finance organizations can evade many of the aforementioned miseries by sticking to prudent pre-ERP implementation best practices, such as:

  • Develop a long-term plan that pinpoints project milestones both during and after implementation.
  • Holding the vendors’ and consultants’ feet to the fire via carefully written SLAs.
  • Assume the inevitability of project scope creep; no matter what you do, the implementation is sure to take longer and cost more.
  • Know that training and education will be problematical and protracted, but prepare everyone as much as possible and lean on the vendor for assistance while the project is underway.
  • Don’t let the vendor or consultant out the door until everything is in working order (plan for this by contractually reserving as much money as possible for the last payment).
  • Get everything in writing. “There are horror stories out there where companies thought they were paying for certain support, only to learn otherwise,” says Castellina.

All these recommendations are solid, yet in the relatively new cloud-based financial technology environment, they may be moot. Not only do such systems obviate the huge upfront capital expenditures required to install an on-premises ERP system, the maintenance is left to the vendor. And all the supporting needs fall to the vendor and are paid through manageable operating expenditures. “If you have your financial systems in the cloud, you don’t have to worry about any of this,” Castellina argues.

Less worry explains why cloud-based systems are making great headway. “A number of companies fed up with the hardware and infrastructure expenses of an ERP system are saying `enough,’” says Scott Brennan, managing director of enterprise performance management at Accenture. “They don’t want to own the software, they’d rather rent it in the cloud.”

In this way, post-implementation headaches are passed on to the vendor. “The cloud business model is predicated on customers renewing their contracts or the provider won’t make any money,” Verbeck says. 

So which is the better solution — on-premises ERP or the cloud? That’s a question many CFOs have been asking. The next time they’re faced with such a decision, they should make sure to give as much thought to what will happen after the system is built as they do to the reasons they are making a tech change in the first place. They need to make sure to ask: How will the company get ongoing support, and who has incentive to provide it?

Russ Banham is a veteran business journalist and author of numerous books, including The Fight for Fairfax, a political and economic history of America’s fastest growing, most affluent county. He can be reached at www.russbanham.com.

To help finance professionals sort through noise in their IT purchasing decisions, Proformative has launched Proformative Exchange, a directory of over 4,500 products and services peer-reviewed by others working in corporate finance. Those who have already had to make the tough choices over an ERP system or other business solution have written about their experience or provided a review. 

Comments

Topic Expert
Bob Scarborough
Title: CEO
Company: Tensoft, Inc.
(CEO, Tensoft, Inc.) |

This is nicely written and certainly consolidates a good bit of the CFO experience. However, I would propose that vendors also have their own horror stories to share. Rather than getting into vendor side stories (I have been on the vendor side for 20+ years) I would propose a different way to think about this effort. I believe viewing an ERP implementation vendor as anything other than a partner is a significant problem from the start.

When you make a decision to purchase an ERP system, and the related decision on an implementation provider, your mutual success from that time forward should be important to both sides. Your internal team needs to deliver along with the vendor team – so mutual documented commitments on both sides should be part of the standard project plan. Knowledge transfer should be a critical part of the equation – which means both sides working together and accountability for results / status on both sides as well.

It is interesting you mention the sales effort required from an ERP supplier. The required sales effort is dictated by the customer – and ERP sales are an expensive and significant effort. I would propose a different way to think about this that will help your partnership. ERP providers live and die by the quality of their references. It is in your best interest to be a reference site (within reasonable business expectations) because that incentivizes ERP vendors where they live. If you treat them as a disposable vendor you are building into the relationship a disincentive for their future success.

When you view the solution as needing more lawyers, tighter SLAs, or never letting the vendor leave because they never deliver everything you might want you are creating an arm’s length adversarial environment. I’m not advocating letting your vendors off the hook – they should deliver. You should have a project manager that manages to milestones that are mutually agreed upon. At the same time it is literally impossible for any vendor to do a good job implementing a solution without a solid, active, participating customer. The less you incentivize the vendor by offering something positive at the end, the more adversarial you make the process, and the more one sided you make the evaluation process the more likely you are to be writing a future horror story.

Bob Scarborough
www.tensoft.com