Many organizations are looking at ways to restart ERP projects that were deferred when the pandemic forced widespread lockdowns. Whether a company was in the midst of upgrading a legacy system or had been on the verge of moving forward on their first ERP software system, we suggested five ways senior executives can fast-track an ERP transformation safely and cost-effectively during the Covid-19 pandemic while warding off a potential “train wreck” as they recalculate and recalibrate their overall technology strategy.
At the same time, it is important for users to recognize that both vendors and integrators of ERP software systems are in a vulnerable position right now. They have been as hard hit by the shutdowns and recession as nearly every other business. Perhaps more than at any time, users are holding a great hand of cards in terms of their ability to negotiate or renegotiate favorable terms.
There are six things to understand when dealing with vendors and integrators.
1 – Know their weak points. You will be talking with a sales team. They are under enormous pressure from their organization right now to get you to sign a contract. Corporate profits for the year are on the line as is the bonus package each member of the team will get when you pick up a pen to ink the deal.
The ERP business is incredibly competitive when times are good; today, in the midst of a pandemic and steep recession they are likely to make reasonable concessions you demand. In some ways, it is like buying a new car. When the salesperson says, “I do not think that my manager will approve your offer” and you get up to leave the showroom, they’ll do what it takes to keep you from going to another dealer.
2 – Don’t take anything at face value. Sales teams are notorious for saying what they think a potential buyer wants to hear. They will assure you that they know all about your industry or sector even if their experience may be scant. The slick product demonstration put on during the sales process may not be how it will actually work when it goes live. Many of the software disputes we have litigated over the years had their origins in a vendor or integrator making misrepresentations during the sales process and demonstrating capabilities that did not quite work as demonstrated.
If they say it, ask them to write it.
This is why when we negotiate an ERP contract, we always strive to include all of the sales material as an attachment to the agreement. It adds weight to a user’s argument that what had been promised did not get delivered when the ERP software system fails to meet expectations.
3 – Plan for higher costs. In our long career of working with ERP from both sides of the table, we have come to know that the vast majority of the integrations go over the original budget. Sometimes, it happens because, as the system is being developed and integrated, the user wants additional features or components added. But often it is the result of a vendor or integrator “upselling” things that aren’t necessary such as licenses for software enhancements that may not be needed for several years.
Budget overruns are commonplace as ERP software systems are integrated. To prevent surprises, add anywhere from 10-percent to 25-percent of the price quoted for the project. No executive or shareholder will be upset if the budget is not spent.
We have seen too many organizations completing a project and wonder why it cost so much more than anybody thought it would.
4 – Plan for longer integration. Just as many projects cost more than was planned for at the outset, nearly as many take much longer to complete than is anticipated – sometimes years longer.
Each delayed integration has its own unique reasons behind it: Management not knowing up-front precisely what it wanted the ERP software system to do so specifications were changed; the integrator not possessing sufficient experience in and knowledge of a user’s business’ circumstances that were not planned for sufficiently in advance.
By planning that a system will take X number of months longer than expected, there will be great joy if the system is switched on ahead of schedule.
5 – Know who’s in charge of what. Every contract for an ERP software system must detail who will be responsible for what at each stage of the project. Specify who is authorized to make change orders, and that the changes will be documented in writing.
Often, an integrator will subcontract part of the project to one or more third parties. Ensure that the master contract specifies what third party contractors will do, their experience with not just the software but integrating ERP in the user’s industry or sector, how they will be managed and supervised, and who is responsible for their actions or omissions.
Many court battles hinge on a version of “he said–she said” arguments. Clearly detailing where responsibility lies for each phase of a project can eliminate many of these disputes.
6 – Expect the unexpected. The adage what can go wrong, will go wrong is not a bad way of thinking about an ERP project. Creating an integration plan around a worst-case scenario reduces the possibility of an unexpected dragon rearing its head on the horizon, breathing financial, operational, or technological fire.
It is highly unlikely that a vendor or integrator will tell you in advance, “… and here are all of the ways your project may run into trouble” so a user will need to figure out where the project may get derailed and plan accordingly.
Done strategically, thoughtfully, and carefully, many organizations will be able to revitalize an ERP project that had been put on hold because of the pandemic.
We have devoted our career to negotiating, drafting and litigating ERP contracts. We know where potential problems lie and ways to minimize them. We are happy to share with you what we have learned and can also refer you to our experienced network of consultants who also work extensively with ERP. If you have a question, feel free to call or send an email.