This article ran in several business publications in 2006 and was updated for the Profit From ERP website in 2014 – since the theories and principles still fully apply – Ed.
The goal of a software evaluation is to gather the available data and come up with a rational, reasonable decision. This rarely happens.
There’s an old sales adage “People buy from people” – which is generally true because people rarely buy from, say, trained seals. However, many salespeople armed with PowerPoint can sound a lot like a trained seal but that’s another story. So are we relying on the people in a good demo to select software? Tip – once we sign the agreements, we’ll never see the sales team, demo engineers or any of these people again.
ERP technology is constantly shifting, new software versions and vendors come onto the market, yesterday’s tech leaders are today’s also rans, even our business requirements have a certain fluidity – changing from month to month.
We generally know what we’re lacking today, but the theory of constraints teaches us, fixing the squeaky wheel usually leads to another squeak downstream, only this one is louder and more costly.
So how do we make the best – the rational, reasonable decision?
Dr Philip Mizzi, economics professor at Arizona State University West teaches MBA students to analyze the why’s and wherefores of how businesses make decisions. While regression theory, value of information and probabilities are all relevant – perhaps the most important tenant to understanding decision making is that Rational Choice is based on the decision maker’s current assets. Current assets defined as not simply financial, but also time and information and so forth. And this is best illustrated in the extremes.
For example, is robbing a bank a Rational Choice? Our current asset, information about other bank robberies gathered from the 6 O’clock Eyewitness News, tells us that few bank robbers get away with it, most bank branches don’t have a great deal of cash on hand, there are cameras, dye packs, security… so most of us decide that robbing a bank wouldn’t be a Rational Choice – the cost of getting caught outweighs the probability that we’d get away with it – thus we arrive at the decision ‘robbing the bank is not rational’.
Now let’s change the current assets of the decision maker. Say for some reason, the life of your child depended on your robbing that bank, if your current asset was information that your child would come to immeasurable harm unless you rob the bank within the next 20 minutes – you may well decide the life of your child outweighs the possible cost of 5-15 in Sing Sing – so in that case, under those conditions, with those current assets, we arrive at the decision ‘robbing the bank IS a Rationa Choice with my daughter at stakel’.
So how does this affect a companies’ Software Evaluation and with the price of ERP software should we be bringing up robbery?
Primarily, once we’ve bought, installed and implemented ERP software – the assets of our future decisions changes. Reports, price information, cost curves, KPI’s, demand forecast all of our reports, all of our information on costs, price, market performance, it all changes.
Thousands of future business decisions will be based on the information (current assets) of your managers (decision makers).
So knowing that every future decision will be affected by our selection of ERP software, literally the value of all future decisions, how do we arrive at a Rational Choice?
This one key decision – ERP selection – is too important to leave to chance, untested evaluation methods, even the best processes we can imagine – if we have very little background in selecting software – which given most people select ERP software every 7-10 years, that’s the norm.
In most cases, We don’t even know what we don’t know about ERP Software.
Our decision all relies on the information we have available to us at the time of the decision. If we decide on incomplete information, our end choice can be less than optimum. If we place too great a value on the wrong information, a choice while certainly rational given we’ve been listening to what sounds like trained seals in demo after demo, may also end up being entirely wrong.
Also – we need to assess the cost of perfect information. Understood, that if you took your entire management team and devoted them exclusively to finding software companies and vendors, undergoing endless demos and pilot room tests, visited headquarters and development centers, client sites, user group conventions, in 6, 8, 10, or 18 months depending on your team’s productivity, you’d amass a great deal of information. You’d also have lost out on 6-18 months productivity from your most senior staff.
But wait, as they say, there’s more. One moderately successful ERP client recently boosted bottom line profits by $350,000 in a single quarter. Should you have the same success, your 18-month evaluation process just cost you $1.57m in lost opportunity cost.
Enter a new vision – Profit From ERP
AT Profit From ERP, we take the experience of literally hundreds of software evaluations and re-create the most effective decision making guides, tools, resources, and methodologies all with the goal of identifying the right information for your business in a reasonable amount of time.
We look at where previous committees have gone wrong and let you learn from other’s expensive mistakes. We inflate the value of your current assets, that is, give you more useable information that allows your team to make the rational and optimal decision.
If you’re like most companies, you may select your core business software once every 8-10 years. So if Joe The Project Manager has been with the company for 20 years, he may have the experience of 1 or 2 software implementations to go on.
Might Joe make a different decision if he’d been involved in over 300 software evaluations in the last 10 years? He might have picked up a trick or two.
And here’s the other thing. If Joe’s experience selecting ERP was 18 months ago – that’s OK – but anything beyond that, the technology world has changed – and if Joe was looking at 5 year old software two years ago – Joe’s experience with software almost a decade old could be the very worst information to bring to the table.
That’s where we offer unbiased advice and consultation, giving you the information you need to make a rational decision.
We’re not affiliated with any one software publisher or implementation partner – so our view is totally based on what YOU need, not what we happen to represent.
Also, we’re showing our client companies what to look for – identifying what’s important – establishing a roadmap for success we’re betting a better educated customer will make a more rational decision – and a better educated customer will utilize the software more effectively – making a better case study and market recommendation – so you see, it’s in our best interests to help you find the right software solution – both for our short term and long term success, which is tied directly to your short and long term success.
For more information contact Info@ProfitFromERP.com
Gene Hammons, MBA (The MBA thanks in part to Professor Mizzi) can be reached at GH@GeneHammons.com