E27 – What They Don’t Tell You About ERP
(but you soon find out anyway)
MFX up and under
It’s Episode 27 of the ERPodcast, What They Don’t Tell You About ERP (but you’ll soon find out anyway). I’m your host, Gene Hammons the Director of ProfitFromERP – a business consultancy revolving around software, it’s uses and misuses – and as we like to say, Our Clients Make ERP Pay – pay for itself, pay off, pay back, break even and we even have the cash flow analysis to prove it.
But all that aside. What’s this about what they don’t tell you about ERP? Who are they? And Why are they so hush-mouthed about important ERP situations? We’ll get to that in today’s episode, what they don’t tell you, but more importantly, what’s their motivation, what’s their incentive and how are we going to shift incentives both for the software vendor, but also shift incentives for your internal team – all so that your company comes out on top in your next ERP project.
But here’s the Number One Thing they don’t tell you – most ERP projects fail. Some are small fails, like, the software wasn’t live on time. Some are big fails like, we went over budget. By double. And some are epic fails, like, this doesn’t really do what we saw in the demo. But we’re stuck. And some fails are Ed’s fault. Ed ran the selection committee that got us into this mess in the first place – he’s not here anymore so we pretty much blame it on Ed-ware instead of software. So today we’ll even tell you how to keep your job if someone walks into your office and says, “We need a new ERP system and we want you to run the project…say, your middle name isn’t Ed is it”? – all that and more – right after this word from our sponsor – It’s Episode 27 of the ERPodcast What they don’t tell you about ERP.
Endorsement – SaaS Success Series
Much has changed in the Business world over the last year – – don’t need to tell you that. While we don’t gather in large groups, conventions, presentations, business meetings – have moved online and I have to say the webinar content has improved dramatically.
I know for myself, instead of my normal speeches at various conventions, I’ve avoiding airlines, hotels, overserved networking parties and have still appeared on a few panel discussions over months past – most recently, the SaaS Success Series by Sage Intacct – which is still ongoing the week we release this podcast – but even better, you can catch the on-demand links of the sessions just passed as well as registering for next week’s sessions. We link the registration on the website ProfitFromERP.com – just look for the News & ERPodcast page and it’s under Episode 27. Here.
So the Saas Success Series is all about SaaS B2B companies and issues that concern them. I spoke on a panel with Ben Murray of the SaaSCFO.com and Sam Jacobs who runs the Revenue Collective – these guys are great sources when it comes to technology for today’s businesses. Other than that panel theres’ Best Practices for Forecasting for raising funds, ASC 606 Rev Req, and a lot more – some leaders of great businesses letting you in on what’s really happening for SaaS B2B companies.
Now, I hear you saying, well, I’m not a SaaS B2B but let me stop you right there. As regular listeners to the podcast know, I’ve been in over 400 ERP projects over the last couple of decades and seen quite a bit. But when I walk into a young startup SaaS company, yes, I still present my proven methodology and help them ProfitFromERP – but the reality is, I learn more, quicker on how these amazing tech-oriented startups are approaching markets like never before – and isn’t that what we’re all pivoting toward in the post covidian economy? The SaaS Success Series – it’s brought to you by Sage Intacct, no slouches in the SaaS area themselves – it’s great content, leading company presenters and you’ll get a lot out of it. Like I said, www.ProfitFromERP.com click on the News and ERPodcast tab and look for the registration link under Episode 27. Link
Back to the ERPodcast – What they don’t Tell you about ERP. And who are ‘they’ exactly and who are these nefarious truth-twisters? Well, let’s not get all judgmental right out of the gate, there’s plenty of time for that later.
Heres’ a thing – was watching Netflix last night, Gemini Man – it’s a Will Smith action adventure as he plays a 50 year old assassin who unbeknownst to him, was cloned and now has to face a 22 year old version of himself – and action adventure highjinx ensue. Towards the resolution of the movie, the older Will Smith is telling the younger, same Will Smith a few life truths.
I thought, this is just like the ERPodcast – well, without the major motion picture budget of course. But here I am, the 25 year veteran of hundreds of ERP projects talking to you, giving you a few life truths about ERP – and we’re the same person – sort of – I mean, just like Will Smith and his clone, both are just as smart, just as talented, given all the same tools – only I’ve watched ERP go right, and go wrong for all these years – and meanwhile you’ve built a successful business that you’re trying to take to the next level with ERP.
So what don’t they tell you about ERP?
The truth is, different people have different incentives. An ERP sales guy is incentivized to sell you some software. An ERP software consultant is incentivized to give you the standard safe proven implementation that most often avoids big problems – but should big problems erupt, well, it ends up he bills more hours, makes more money, he goes to President’s Club Annual celebration for top performers in Aruba for all the billable revenue he generates.
Now on some level, the software vendors, the software resellers want to have happy customers but you know what’s the biggest impediment to customer satisfaction?
Well, maybe not YOU personally, but your people…Henry, Dan, Marcy – the names change but the stories live on –
I mean you have Henry down in purchasing who’s been against this ERP thing from the beginning – he’s the company expert in your current system UltraBizPro, and everyone in the company goes to him when they have questions – and they have questions since UltraBizPro was written in 1989 by some guys who were past their sale date before the first line of code was written.
There’s also Dan. Dan remembers you moved his cheese some time ago. He remembers walking a lot during management by walking around. He wrote his own mission statement. Developed 7 Habits of Success. Then was before you tried activity-based costing, then lean, then Kanban, Dan is sure this ERP thing will be another passing fancy.
And Marcy. Don’t tell her your moving the invoicing to 100% digital with AP Automation. Marcy’s job is data entry. Sure, she has an accounting degree and has worked for some pretty big firms back in the day – but this ERP thing looks like the end to her and her heads down data entry.
You see, Dan, Henry, Marcy – the ERP software vendors have absolutely no control over their incentives, what makes them tick, heck, they don’t even know if Dan, Henry or Marcy is a project asset or a project roadblock – so how can the ERP vendors promise you success when it’s really up to Dan Henry and Marcy?
So what they don’t tell you about ERP? Well as you can see, you need a team to make it work. So think about what makes a team succeed – they need achievable goals, measurable progress, practice, learning, motivation – it’s kind of like football, you have your Pittsburg Steelers, pretty great every year and then you have, well, everyone else – one guy is playing for stats because he’s a free agent next year, the next is playing just good enough to sit on the bench a couple of more years, some guys don’t know why they’re there. And you may be in Pittsburg but Dan, Henry, Marcy – Dan’s incentive is to roll with the latest management fad doubtful it will last. Henry’s incentive is to keep being the one guy everyone depends on – and if you take away UltiBizPro – Yikes. Marcy’s incentive is to keep her head down and don’t make waves. Can we get this team on the same page?
So another thing they don’t tell you about ERP is the ProfitFromERP approach. You need a commitment from Dan that with this new system saving him time and effort, he can drive sales up by 10%. You need Henry in the early training sessions for the new software so he’s still the go-to for everyone learning the new ERP. You need Marcy’s experience shifting to business analysis instead of data entry – helping drive costs out and analyzing workflow in every single department.
What Else don’t they tell you about ERP?
Demos are made to be a smooth, end to end look at the ERP software. Unfortunately, your business is not a demo environment. A big bunch of real life is going on in your business, not planned that way, little messy, but it gets the job done. And the thing is, these ERP software packages, the good ones, work in many, many different business environments. They’re designed so you customize during setup – it’s really called configuration instead of customization because custom software has such a bad name historically – but they set up ERP to work specifically for you – and that implementation, the setup takes hundreds of hours, much more effort than can be done to prepare a speculative demo for software you may or may not purchase. So what’s to be done? Well, if you’ve studied your business with the demo in mind – if you’ve gathered your Requirements, that’s what you’ll require the software to do, if you know those Requirements – you can get the demo to focus on those specific important requirements that are a must have.
What else they don’t tell you? You don’t even know where to start with Requirements, because you don’t know what to ask for – there’s new developments in ERP, that unless you’re familiar with what’s on the market today, you didn’t even know you needed them. We tell the story of a smallish client, when we told them the first step was to gather Requirements, they said, we’re one step ahead of you, we’ve done that, here’s our Requirements and they handed me a list of 25 items. So we agreed to jump ahead to the next step in a cost saving move for the client. Only we were a bit sneaky – as we did the departmental audit, we kept saying, Is that a Requirement? And we kept adding to the list. The CFO called us aside later in the morning to tell us we were right. Within an hour and a half, we’d uncovered another 52 Requirements to add to their list of 25. What we didn’t tell them, was afterwards, we checked that original list of 25 items against the website of the last software salesperson they talked to. It was a stock list their marketing department prepared – especially suited to show off that particular ERP.
What Else don’t they tell you?
Cost. When someone asks me how much any ERP system costs, I tell them the truth. TOO MUCH. Really. If you’re a million dollar a year small business, the 10-thousand dollar ERP is more than you wanted to spend. If you’re a $500-million dollar business the $3.5 Million dollar ERP system that’s right for you is way too expensive. It’s always too expensive – yet still companies buy ERP – but here’s where it gets tricky.
ERP software has a license cost – the software itself, usually priced by how many users are on the system. There’s also the implementation costs – hundreds of hours of highly qualified software consultants, usually in the $175 to $225 per hour range. Now, what they do tell you is that if you take on more of the work with your internal team, the software consultants don’t bill for hours not used, so that lowers your implementation cost. And every company, every time, agrees to take on more of the work themselves. Of course your team hasn’t implemented ERP recently, so there’s really only so much they can do. And besides that, they have a day job already. So what you end up with is a tight budget.
I was talking to a CIO Chief Information Officer of a pretty major company – he’d been through 4 ERP implementations with several different companies over the past few years – this guy was a hotshot, the kind of shooting star that fends off job offers constantly – so he was involved with a lot of rapidly growing outfits. Anyway, he was saying a couple of things – #1, he never had enough budget to finish the ERP project the way he wanted to….that’s because when you’re looking at several ERP packages, price matters – they cut back on the implementation estimates, you agree to do more of the work – the initial cost estimates come down in the name of low prices … and the CIO – the guy responsible for the project gets squeezed at the end. The #2 thing he said, and this was really eye opening for me – he said the very worst thing about it, and he mentioned several other CIO’s agreed with him completely here – the very worst thing was if you miss a go-live date , or end up over budget on the skinnied down implementation – you’ve spent a ton of time, a ton of budget on a project that everyone in the company thinks is a failure. They look at is as a Failure. They’ll say, “ERP, that was a nightmare” and is this a tool they’re going to embrace, or a failure that they don’t want to get any on them?
But that brings us to the last thing They Don’t Tell You about ERP.
If 80% of our projects fail, If cost overruns happen, if internal staff gets shaken up – why do companies still go through with ERP? Because despite all these costs, you can make it PAY. So ProfiitFromERP, our company, has observed hundreds of ERP projects – and we’ve built a methodology containing the consistent, repeatable steps used by the companies that really succeed with ERP.
We do this in the very beginning.
So we know what we’re looking for, for this company with this ERP project. We call it the Cost/Revenue Model – it’s sort of a value justification but it’s another generation ahead.
What we do is examine every transaction ERP will affect. Let’s say for oversimplifications’s sake, your staff prints out Purchase Orders and sends them around the company for different management signatures prior to purchase. Each PO gets emailed, printed out, signed, scanned and emailed to the next approver. Let’s say you do this X times a week, so many a month and by year’s end, you’ve spent the equivalent of 4 FTE’s chasing signatures. On an expenditure that’s in the budget that was signed at the beginning of the year. Then we’re signing off on the AP side – we’re doing this three times for every single item purchased by the company.
So what could we do with those 4 FTE’s every year? And what about the savings we find in Inventory, Operations, Sales, Marketing,
All of the sudden your small business Cost/Revenue Model says a $15m company can save/make $7m over three years. A $500m company Cost/Revenue Model shows a $60m annual savings.
I know these numbers sound huge.
But the thing about the Cost/Revenue Model is once you look at the incremental improvements and how they can add up over time, well, it makes all the difference.
All of the sudden you’re asking Henry, Dan and Marcy to get onboard with a $20m bottom line improvement – which is very very different than just saying ‘We’re getting new software.’ All of the sudden that $350,000 ERP system that seemed too expensive is replaced with a $20m goal – and whether the implementation budget is a realistic $125k or a price driven $100k is overshadowed by a $20m prize. Gathering Requirements from the beginning is not just some onerous exercise, it’s how we’re going to come up with $20m. And here’s the last thing, we talked about how most ERP projects fail. But most ERP projects don’t have goals – and you know what they say, you never attain goals you never set.
So what they don’t tell you is the ProfitFromERP you can expect – because it’s not driven by the software vendor it’s driven by your internal team – how you manage the project from initial selection, through implementation and eventually how your team performs once the software is in place.
This is what we help our clients with. This is pure business consulting – yes – it revolves around ERP software. But It’s pure business improvement, all the way to digital transformation.
And again, this is not some pointy headed pronouncement from on high, it’s from the older Will Smith to his younger self – here’s what you learn from experience, and in our case, it’s the experience of our client companies proven time and time again.
So, the thing is, we didn’t tell you everything they don’t tell you about ERP – that would be a very long podcast -but we’d like to. Tell you everything about ProfitFromERP, so drop us a line at Info@ProfitFromERP and we’ll get back to you.
And finally, we promised to tell you how to save your job should you find yourself running an ERP Project – Remember we told you that somewhere north of 80 percent of ERP projects fail when measured by time to go live, expected functionality and the big one – Budget overruns. And the fact is, we’ve seen more than a couple of project leaders lose their jobs when the project went south – we’re usually called in to rescue those types of projects – but instead of waiting to call us in after it’s all gone south, ProfitFromERP will help you get the budget you need, help your company prioritize the project, and help you come in on budget, on time and instead of looking for a new job, you can be celebrating massive efficiency increases and productivity goals. That’s what we do. So whether you just need initial guidance planning the project or you want us to put a System Admin on site for to run the entire implementation – give us a call or drop a line to info@ProfitFromERP – and we’ll get right back to you.
I’m the Director of ProfitFromERP Gene Hammons, reminding you – at ProfitFromERP, our clients make ERP Pay.