ERP Buying Guide | What You Need To Know Before Selecting A New ERP System

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Things Your Enterprise Software Sales Rep Doesn't Want You To Know... 

Written for business and technology decision makers, this ERP Buying Guide outlines what you should know about the players and many of the nuanced sales messages and sales tactics often used in enterprise software sales process.


What Motivates the Sales Rep You’re Dealing With
Sales is an exciting, results-oriented, “What have you done for me lately?” profession that takes a certain personality type to be successful. We all know the type. Enterprise sales reps for reputable vendors receive excellent sales methodology training, share their insights with each other at monthly/quarterly sales meetings and come armed with very current information on “what’s working in the field.” Prepare to be impressed.

The enterprise software representative assigned to your account is a true sales professional focused 100% on software sales and only sales. They have no software delivery responsibilities whatsoever. Their job is only to sell, sell, sell. Working for public companies, they are quarterly sales quota driven and want/need to close their deals ASAP and with the lowest business development costs possible to maximize their commission-driven compensation. However, once you sign the contract you likely won’t hear from them again until it’s time to sell you more.


The Pre-Sales Engineer You Never Get To Meet
Pre-sales engineers (aka product demo specialists) are a shared resource amongst multiple sales reps. They typically only work remotely so you likely will never meet one in person. Their job is to demo the software 3-5 times a day, every day. Like your sales rep, they have no delivery responsibility (but usually have a technical background and/or may have worked in the delivery organization previously). New specialists work the smaller accounts, more senior folks the larger, higher priority accounts. Like sales reps, their only job is to sell, sell, sell. Once you sign the contract you also likely won’t hear from them again unless they get asked to field a clarifying question that was raised during the demo that has now resurfaced as an issue or “miscommunication” during the project.

Because of the repetitive nature of their role, the pre-sales engineer/ demo specialist is very good at what they do. Prepare to be wowed by how everything is (seemingly) so easy to do. While every step has been scripted, it comes across very natural. They know what you are going to ask before you ask it, they know how long to pause and fill empty time with chit chat while the system is processing data, they know how to deflect questions that might take them off their script, and they know just what to show (and what not to show) to position the product in the best possible light. If sometimes they seem disinterested or distracted, it’s because they know they have another demo starting in a few minutes.

Many SaaS providers will only perform remote demos. Unless you are a large client, they will not meet with you in-person (if ever) until the deal is very well qualified and large enough to warrant the added business development expense of driving to your location. They have no time to waste in a quota driven world.


You Are a Transaction
While no doubt there are many sales people who genuinely care about you and the well-being of your company, that’s not the focus, core competency or strategy behind their business. You are in many ways a one-time transaction, a line item in a sales pipeline, and when your transaction closes, they’ll be focused intently on the next transaction.

If services are involved, the deal will be handed-off to the implementation team or back to the “partner” team (partners are not normally allowed to do demos or speak too much during demos). If issues or “misunderstandings” come up during the implementation, you’ll need to deal with whoever the implementation lead is at the time. The original sales team (surprise) will not be available.


The Free 30-Day Trial
The free 30-day trial is a great sales tool. It provides prospects the opportunity for the direct, up-close, hands-on experience that want. Most vendors describe their product as “intuitive” and “easy to use” then hand you the keys to take your own test drive. Sounds great.

The first thing you should know is 30 days passes much faster than you would think. Unless you plan your evaluation approach in advance, life happens in the interim and you end up with far less time than originally envisioned. Likewise, because of time constraints and precisely because most products aren’t as intuitive as advertised, users really don’t get very deep into the product before being asked to weigh in on a final decision. In fact, vendors are banking on the fact that you will only scratch the surface of their product and that they won’t have to answer any hard questions.

The second thing you should know is to be sure to check your ego at the door. Do the trial but don’t take the ego bait. Whether or not the product is actually “intuitive”, know that by claiming it is and that it allegedly has a “zero training user experience” you’re expected to figure it out on your own – now and during the implementation. Conversely, if you can’t figure it out on your own, “What’s wrong with you because presumably everyone else has, after all its marketed as intuitive remember…?” This racket tends to silence those who would otherwise have tons of questions but suppress them for fear of embarrassment. My advice, ask your questions.

Accordingly, be mindful of the dual edged sword risks that you; 1) end up choosing a solution that seems to be more intuitive and easier to use (in part because of the limited functionality and therefore simplified choices that make it seem “intuitive”) or 2) choose a product that is perhaps more capable yet really is too hard to use (in part because it seems like it has everything yet no one really tested its usability). This is not to say you shouldn’t do a trial, just know what you are getting into and use your time wisely to make a thorough evaluation.


It’s Been 30-days, Time to Sign My Long-Term SaaS Contract…
Cloud-based (aka SaaS) type solutions offer compelling value propositions and are a great fit for many businesses. As such, regardless of whether you’ve done a free trial, after 30 days the assumption is you’ve had sufficient time to do your due diligence and it is now reasonable to expect you to be comfortable signing a long-term contract.

What you should also know is once you sign that contract you have very little/no future negotiating leverage and no real viable solution alternatives going forward. You are locked in from both a business and technology perspective. You are now a tenant in the building like every other tenant and must operate within the same constraints. In short, you must assimilate.

As well, know that if you were offered a pricing incentive to sign-up, the vendor will then systematically seek to recover that lost margin through added fees somehow, someway, no matter what - period. No exceptions. It’s their business. They do it because they can. It’s what your business would do too if you were them. Consequently, get all your potential fees for all your potential modules and add-on services in writing today to avoid any unpleasant “surprises” tomorrow.


Migrating Off A Proprietary SaaS Product Is Very Expensive
SaaS providers have zero incentive to make the migration process easy. To begin, when it comes to data migration keep in mind when you move off any legacy solution to a new ERP you essentially have two choices; A) Migrate your master data (customers, vendors, items, etc.) and open balances at a summary level and leave the legacy solution in place with a limited number of users to access the remaining transaction detail when needed, or B) Migrate all data at the transaction level to the new solution and truly retire the legacy solution.

The later also requires rebuilding/retesting the relationships between documents (e.g. multiple payments linked to the same invoice, etc.) and is therefore very time consuming and expensive. For that reason, client’s almost always choose option A.

Trouble is option A needs ‘care and feeding’ forever on your SaaS provider’s platform (e.g. is subject to minimum number of user clauses, incurring minimum charges, requires coordinating/testing/training for mandatory upgrades, et al). No wonder they want you to sign-up quick, it’s a guaranteed annuity for a lifetime.

To enable option B, customers can negotiate to receive a ‘full data dump’ but, as stated, the challenge is the data delivered in its proprietary form does not make it easy to migrate into a different vendor’s solution. Recreating the relationships between documents is very laborious and therefore expensive.

Cloud and SaaS offerings can be a great option, just make sure you know what you are signing up for.


It’s Not Just A Technology Decision
ERP projects are not just technology product decisions. As important to your overall ERP business success as selecting the right product technology is selecting the right project implementation approach aligned with your risk-based needs (i.e. based on your stakeholder and resource availability, capabilities, skill set, constraints, expectations, aspirations, etc.). Business success will not happen spontaneously via access to new software alone. CRM and ERP projects are fundamentally change management projects that materially impact people and business processes that are enabled through technology (i.e. automating a poor process will not make it better). As such, how you go about implementing your new ERP solution and how well you operate it are the real key value drivers to whether you actually achieve the ROI intended.


The Initial Implementation Is Only The First Step
To support your post go-live success, all the enterprise software vendors offer their own online business user and developer communities, training, FAQ forums and technical support help desks. All of which are good and helpful.

What you should also know is that it likely won’t be nearly enough to satisfy your users. Whatever product you implement, your users will have loads of follow-up questions they’ll want answered quickly - regardless of how good your initial training was.

So, to be successful, you need a plan for what happens next after you go-live. How will you address near-term questions and get support during your first period close? How soon do you envision subsequent business process optimization and application enhancements being introduced (not everything is going to fit into the initial project scope and budget)? How will you train new users that come on board? How much support do you think you will want/need and who/how do you envision getting it?


Services Estimates Should All Be The Same
Standardized, largely commoditized and entirely people-driven implementation tasks typically comprise one-half (1/2) to two-thirds (2/3) of a total level of effort estimate. The truth is, with the exception of each solution provider’s product-specific software installation and configuration effort estimates, there is no fundamental reason why each competent solution provider’s other line item estimates should be materially different. If they are, it signals each is making different assumptions (for potentially noble and perhaps not so noble reasons) and that you should seek to clarify why.

You should also know that absent detailed direction, solution providers will strategically either bid the “mythical average case scenario” or more likely their “best case scenario” to lower the initial estimate (where the product is assumed to be a near perfect fit, very little/no configuration is required, the client is expected to do a high percentage of the implementation work and the training cost is minimal given the presumed ‘zero training user experience’ required). None of which may align with your customer-specific needs and expectations. Without your direction, solution providers will make an assumption. Without your direction, expect an unpleasant “surprise” and an accompanying ‘change request’ once you are into the project and the competition is eliminated.

For the less than noble solution provider a “low ball” estimate strategy can be particularly effective. The reason is, in the course of the project there will almost assuredly be both client requested scope changes and impacts from dependencies outside the reasonable control of any solution provider that legitimately warrant one or more change requests be processed. The high-probability of these changes makes this strategy a good bet and provide the opportunities solution provider’s need to erase their prior sins shrouded in the context of the new bona fide change(s). 

To mitigate this risk and enable a more ‘apples-to-apples’ solution option comparison, buyers should dictate the scope, approach and normalized number of hours to be allocated to all standardized tasks according to the implementation methodology they are most comfortable with. These standardized tasks include project management, status meetings, deliverable reviews/signoffs, requirements definition, data migration, user acceptance test support, training, deployment, and post go-live support. If a solution provider can’t reasonably complete a given task in the time allocated by you, allow them to explain why. There may be a good reason.

In any case, you should know the services level of effort to implement any ERP system on any platform (on-premise, hosted or cloud/SaaS) and particularly the people-driven (rather than product-driven) component is relatively the same. The work effort is what it is. There really aren’t any short-cuts to a successful project without increasing risk. And, aligned with your risk tolerance, the only open point is who will do which standardized tasks – you the client or the solution provider. Be sure both parties are clear on the expectation.


Competing Application Architectures
Software solutions can be characterized as ‘point solutions’ or ‘end-to-end solutions’ whether they are traditional on-premises, hosted or cloud/ SaaS deployments. Point solution vendors like to call themselves ‘best of breed’ and tout presumed easy integration to other applications to enable a ‘string of pearls’ type end-to-end application architecture. They will characterize so called end-to-end solutions as monolithic, brittle and slower to innovate. On the other hand, end-to-end vendors tout the virtues of an already proven, pre-integrated solution with a uniform look and feel. They will warn you against point solution’s hidden system integration and maintenance costs and inconsistent user interfaces that negatively impact productivity. As you might expect, both camps claim superior architectural elegance and TCO benefits.

During the sales cycle you will also undoubtedly hear vendors contrast their offering to the mythical average client’s presumed “hair ball” or “spaghetti code” application architecture of today. They will also preach the virtues of the web and the evils of the proprietary platforms built by the big software firms that got you into this mess in the first place.

What you should also know is both camps are alike in many ways. First, regardless of how end-to-end they claim to be, for any one functional area both are busily adding features through new development, acquiring other smaller point solutions to merge in and are teaming with other third party ISVs to fill gaps in their current solution. Any vendor who claims to have a true end-to-end solution without the need for other third party add-ons or software partners is likely not being forthright.

Second, the system integrations between third party applications provided by all vendors almost never work the way you expect. They almost always need further customization (see next topic for more detail).

Third, counter to the open source movement, all the most popular new cloud/ SaaS platforms are built on their own proprietary platforms using proprietary programming languages that require specialized, often hard to find resources to do the ‘simple’ integration work yourself much less customize or operate any of the varied components. In this way, many of these vendors are simply offering a shiny new replacement proprietary “hair ball” to your alleged current one.


Off-the-Shelf Integrations Never Work The Way You Expect
Virtually all enterprise software APIs, middleware and “app store” type connectors are designed to support the ‘least common denominator’ for the mythical average company. If you happen to be that elusive average company then you are in luck. But for the rest of the companies out there, while they do function as advertised, they almost never work exactly the way you expect since every company modifies each end of the integration to meet their own needs.

The lesson learned is there are great core products and add-on products out there to be leveraged but don’t fall for the “download an app, push a button and it works” sales pitch.

For even more evidence, ask around and you’ll find some of the most profitable, high-growth companies going focus on SaaS solution component integration services. Integration services is a thriving business (for Armanino Consulting too).


User Interface Technology for Cloud Solutions
You should know that even though many SaaS providers recommend you “insist on a browser interface” and decry a ‘fat client’, at the same time they and the whole IT world are trying hard to develop technologies that mimic the rich 'fat client' interface features they know users prefer.

You should also know that a browser interface into a ‘simple’ server-side application and a terminal services/Citrix interface into a ‘rich’ server-side application deliver about the same performance. But, a browser interface into a ‘rich’ server-side application runs slower than a terminal services/Citrix interface into a similar application (due to high HTML overhead vs. more efficient terminal services/Citrix technology that only paints pixels that have changed). Bottom-line, let the debate rage. Consumers benefit as both browser and thin client application technologies like terminal services/Citrix continue to improve.


Multi-Tenant SaaS vs. Virtual Instance Cloud Solutions
You should know that the trade-off of gaining SaaS economies of scale means you are sharing the application and database with other tenants and so are precluded from customizing your version of the application beyond the standard capabilities offered to everyone. Likewise, you cannot access the database schema directly. To do so poses security risks to your fellow tenants and inhibits the SaaS provider from achieving their desired operating efficiency and profitability.

On the flip side, with a hosted subscription-based or traditional perpetual licensed solution running on a virtual server you have unlimited access to your own virtual instance where you can modify your version of the application and/or the database as desired. The trade-off is the hosting provider cannot achieve quite the same economies of scale as the true multi-tenant provider. Still, the industry battle lines have been drawn and the hardware manufacturers continue to innovate ways to achieve near multi-tenant like efficiencies while still enabling unconstrained customization. Again, the good news is all consumers win from both technologies (vs. the economies of supporting your own dedicated IT infrastructure).


Product Upgrades Included
A vendor that continues to enhance their product and release minor and major upgrades is a good thing. For all solutions, minor enhancements are released in the form of updates, hot fixes, or patches and can be and often are implemented directly into the production environment with very little effort or risk. More material enhancements are released as either new versions (e.g. v10) or “dot something” (e.g. v10.1). For these it is prudent to plan, implement, test, and train on the major enhancement in a test environment and then migrate it to the production environment. Regardless of the product or platform, the steps are essentially the same.

So, while most SaaS providers tout the added value of “upgrades included,” you should also know that those “upgrades” are shipped turned off. If you are a large enough client you can negotiate to delay when you take the mandatory upgrade but if you’re small, you take the upgrade when they tell you. And, when you do take an upgrade, you will need to follow the steps outlined above on your own. Consequently, the actual effort ends up being very similar to a traditional perpetual license upgrade.


Frequent Product Upgrades Included
Another common SaaS sales message is the added value of frequent product upgrades. In 2009 the message was you get quarterly updates. More recently it’s you get semi-annual updates. The truth is most clients don’t want to be constantly planning, implementing, testing and training on new updates so SaaS providers have extended the time somewhat.

At the same time, you should also know that while enhancing their product is good, frequent updates isn’t necessarily always something to be proud of for a software provider. It’s also a sign that the software provider is still busily maturing their product to fill gaps (else they wouldn’t need as many updates). Though any self-respecting sales rep will dismiss that last comment and put a great spin on it – it’s true.


Avoiding Product Obsolescence
The ERP history books are filled with literally hundreds of “great today, gone tomorrow” stories of promising technologies and service providers who for various reasons didn’t or couldn’t keep pace with the market. While each started under the guise of serving a specific market’s unique requirements, today there has been and likely will continue to be significant consolidation in the market.

It reasonably follows that it takes a certain level of R&D investment to create and sustain a true, robust end-to-end solution in the market. While multiple providers tout it, it’s hard to believe they all will deliver and sustain it over time.

It’s certainly a fair expectation that your ERP system should meet your business needs for 3-5 years or more. Consequently, it’s important to place your bet on which product(s) and service providers will still be here when you need them in the future. A few good indicators of whether your short-listed ERP vendors have and will have what it takes to continue to innovate and keep pace with the market include the following:
• Current and historical R&D total spend and spend percentage – Even a product that shows well today may not have the resources to keep pace with the market going forward.
• Stability of the company - Have there been any significant management changes, a restructuring, and/or changes to their go-to-market model?
• Current and historical marketing/sales total spend and spend percentage - Are they a technology company or a marketing company?


Software Pricing Models
The pendulum swings back and forth on whether software providers prefer to bundle their modules or sell them a la carte. Each model has its benefits and the relative appeal to any given prospect varies based on their specific needs.

Bundled pricing is intuitive but what you should also know is usage based pricing (aka “pay only for what you use” type pricing) means the initial price might be lower but your fees will increase proportionately with every additional functional module, added feature, storage increase, etc.

Rest assured the vendors have studied their customers buying behavior and design their bundles and pricing scheme to simultaneously attract new customers and maximize their total return.


Service Provider Hourly Rates
You should know that even though the cost studies and sales messages out there rail against the high cost of ‘consultants’, both your traditional and SaaS enterprise software service provider rates are typically higher than those greedy consultant rates. If you are quoted a lower rate, get it in writing and verify for how long and for what type of services it applies.

Third Party Total Cost of Ownership (TCO) Studies
You should know that most TCO studies cited by enterprise software vendors are in fact commissioned by them in the first place.

You should also know that these cost studies always assume full-list price on all components and ignore all sunk costs. The comparisons are often to very large ‘Big 4 accounting/consulting’ onshore standard hourly rates and Tier 1 size company implementations performed years ago. Needless to say, they are typically ‘apples to chairs’ type comparisons that are far less applicable to the mythical average implementation than advertised.


Third Party Product Comparison Studies
You should also know that most product comparison studies you read may have a significant time lag. Consequently the product versions they are comparing are often not the most current ones. Since vendors are frequently acquiring new products, merging and renaming their existing products, forging new alliances and courting independent software vendor (ISV) add-on products to add capabilities and ‘leap frog’ their competition, it’s a challenge for anyone to compare the moving targets.

In addition, given the data gathering method for these studies ranges from contacting the vendors directly, to requiring vendor’s pay for having their product review listed, to soliciting ad hoc input from industry portals and social media platforms, it’s no wonder why one report will tout a particular product and then the next will tell a completely different story.


“You Can Do That”
Lastly, in response to any prospective customer question, beware of the catch-all phrase "You can do that". While customers hear that as “the sales rep just told me the product can do blank…” The actual coded sales rep meaning of this phrase is often, “The product doesn’t do blank, but you the client can customize it as needed to make it do what you want…” It’s a favorite to software sales reps and demo specialists everywhere. Buyers beware!


Six Critical Risk Management Questions To Ask Your Prospective Multi-Tenant SaaS/Cloud Provider

It’s often said “The only constant in business is change.” For that reason it is prudent to think about the impact of change on your business and your risk mitigation plan to manage it before you sign a long-term CRM or ERP service contract.

More specifically, consider:
• What has been the pace of change in your industry and in particular on your business the past 3-5 years?
• Has it accelerated or stabilized more recently?
• What degree of business change do you expect over the next 3-5 years and the duration of your service contract?

With your answers to these questions top of mind, make sure you are 100% comfortable with your prospective multi-tenant SaaS provider’s answer to the following open points:

1. What are my solution options if I’m not fully satisfied?
Multi-Tenant SaaS Answer: Effectively few or none. By definition multi-tenant SaaS solutions are strictly sole-sourced offerings. As such, multi-tenant SaaS providers have no incentive to make it easy for you to migrate to another third party solution and no real incentive to delight you further once you are already a contracted customer. You have few options once you are committed and SaaS providers know it.

2. What other deployment model options are available?
Multi-Tenant SaaS Answer: Likely none. While some other major software providers offer on-premises, partner-hosted and vendor hosted cloud deployment models, multi-tenant SaaS providers offer one and only one deployment option. Their products run on specialized proprietary platforms and are built using proprietary programming languages. Consequently, resources with these relevant skills are scarcer to find and generally command higher fees/ compensation in the market.

3. Can I customize my solution if needed?
Multi-Tenant SaaS Answer: No. While supported by other on-premises and virtual server based partner-hosted cloud deployment models, with the multi-tenant SaaS model customers are not allowed to modify the application or database. All users are constrained by the same standard functionality available to all other tenants. Sharing solution components between tenants in this way enables economies of scale but also adds complexity and creates dependencies that require tenants behave in unison for things like upgrades and maintenance (e.g. rebooting the system for one tenant impacts everyone else on the same machine).

4. How can I be sure your offering road map will keep pace with the market and my future business needs?
Multi-Tenant SaaS Answer: You can’t. While no vendor software solution can be expected to be all things to all customers, reason would argue it is especially unlikely that vendors with R&D budgets orders of magnitude smaller than their competition (however efficient they might be) are in the best position to truly deliver and sustain market leading end-to-end solutions and service performance over the long term. Furthermore, while the multi-tenant SaaS pioneers benefited from a first mover advantage and certainly shook up the industry, at this point all the major software providers now compete with their own cloud services and development platforms.

5. What alternative support service options are available?
Multi-Tenant SaaS Answer: Effectively few or none. With the notable exception of Microsoft, all multi-tenant SaaS and other major software providers utilize a direct sales and service go-to-market model. While each vendor is well-equipped to answer inbound product-specific help desk questions, their strategic focus, investment and attention is not (and cannot be) on helping their customers operate their respective business’ more effectively. As public companies (and aspiring public companies) their market-driven mandate is to increase (high-margin) software sales (only). Too much (low margin) services revenue actually negatively impacts their stock price/business valuation as a would-be high-growth technology company. Consequently, their macro level business incentive is to cap their services revenue percentage by having either the customer or a services partner do more of the services tasks. Thus, in addition to the obligatory “you can do it yourself” marketing messages, most ‘direct’ software vendors also have some type of service partner program.

Yet, as inherently ‘direct’ model companies these adjunct partner programs are frequently a source of channel conflict with their own sales and service departments. This rivalry in turn leads to a less collaborative and effective service partner program. And, as a visible result, the quality, depth and breadth and therefore the viability of these partner-based support service alternatives varies greatly by software provider, product and geography. Bottom-line, if you don’t like their support services, in general you don’t have much of a choice.

6. What price negotiation power will I have in the future?
Multi-Tenant SaaS Answer: Little or none. Multi-tenant SaaS providers are well aware of the high switching costs your business faces so they have little or no incentive to negotiate further once you are customer. Charging incremental fees to increase their margins over time as your business grows is the core premise of their business plan. There counting on it.

Needless to say the implications of the multi-tenant SaaS provider business model outlined above on your company’s business flexibility (or lack thereof) are reason for pause and should be considered carefully.

At the same time, the good news is there are other cloud solution business models that deliver the same benefits without forcing you to give up control over your business. Research the alternatives then decide which model is the best fit for your company.

Choice and competition are good things indeed.  

Conclusion

So, with all these clever sales tactics going on and half truths muddying the waters, what is a good intentioned prospective CRM or ERP buyer to do? Likewise, supposing you do seek to take advantage of the many benefits of a cloud solution (i.e. low price, subscription model, time to market, availability, security, anywhere access, world-class IT infrastructure capability, outsourced IT support, et al) but don’t want to give up management control, lose your business flexibility or become beholden to a single proprietary multi-tenant SaaS or other major software provider, what then?

First, start by being an informed buyer and ask the right questions. There are viable options to choose from. Fortunately, you are now more prepared.

Second, have a plan, predefine your selection criteria, and do your research. Not every solution is created equal. Consider your business needs and risk management approach in determining which deployment model is the best fit for your company. The additional time it takes to perform a thorough due diligence effort is well worth the investment. It will pay dividends for many years.

Third, do business with the vendor/solution partner(s) you trust. Don’t get sold something; buy the solution you are confident will best meet your needs. You are in control. Don’t rush to sign a contract until you’re sure it is the right long-term solution for your company.

After all, you’re going to live with your new CRM or ERP system selection a long time. Make it a good decision!