Software Selection for Enterprise Resource Planning

W H IT E PA PE R HIGHLIGHTS SOFTWARE SELECTION FOR ENTERPRISE RESOURCE PLANNING September, 2015 By Martin Gunnarsson Product Director & ERP Evangelist, IFS Perhaps more importantly, you need a software vendor with deep industry knowledge that works closely with the market and its customers to ensure that future releases of the product will enable you to stay ahead of the market, rather than reacting after the fact. …an ERP system needs to be built and implemented to offer the flexibility to capitalize on change over time. It shouldn’t stop you or slow you down when going into new markets, acquiring and merging with new business partners and processes, or expanding into untried geo- graphical regions. Fuga. Nequi cum fugia aut alibusam estiumqui nam, unditis dollest, quid ea elluptae. P2 P3 P4 Top among the illenni l traits is placing a h gh priority on purpose in life. Organizations that value this need for meaning and help provide purposeful work have taken the essential steps toward employee engagement. CONTENT COMMON BUSINESS CHALLENGES .............................................................................. 2 HOW DOES THE RIGHT SOFTWARE ADDRESS THESE CHALLENGES? .............................. 5 10 KEY SOFTWARE SELECTION FACTORS .................................................................... 6 Is the software appealing for today’s generation of workers? .........................................6 Is the software easy and cost efficient to modify and maintain? ....................................6 Does the software enable stepwise implementation? .....................................................6 Can the software be implemented as a global, single-instance application? ..................6 Is there a non-disruptive upgrade capability available? ..................................................7 Can the software be extended as business demands change? .......................................7 Does the software provide different deployment options? ..............................................7 Can you as the customer influence product development? ............................................7 Does the vendor’s R&D organization include a workspace to drive disruptive innovation? ....................................................................................................8 Are you offered references to customers using the evaluated software package? ..........8 CONSIDER INDEPENDENT THIRD PARTY ASSESSMENT ................................................. 8 ARC ADVISORY GROUP ................................................................................................ 9 ABOUT IFS ................................................................................................................ 10 1 SOFTWARE SELECTION FOR ENTERPRISE RESOURCE PLANNING In today’s dynamic and constantly morphing business competition, companies need to understand that change is the most pervasive and critical element of the commercial landscape. It’s an ongoing challenge that must be met with agility if a business is to “keep its feet” and stay on course while the world shifts in often unexpected ways. “If you do not change direction, you might end up where you are heading,” Lao Tzu once observed; this truth can be seen nearly 3,000 years later, where 70 percent of the companies that were on the Fortune 1000 list have vanished in a decade. In our digital, data-driven, constantly accelerating modern business environ- ment, the use of enterprise resource planning (ERP) software is one of the principal tools companies use to manage and leverage change to maintain or improve competitive standing. For most companies, it is the most important technology they will implement to run their business. According to industry analyst Gartner, “ERP systems are one of the core business applications used by almost all companies above a minimum complexity. The basic concepts and functionalities have been developed and implemented for more than 30 years, but the term ‘ERP’ was coined by Gartner in 1990. In the original definition originating from manufacturing resource planning (MRP II), ERP systems’ functionality normally covers finance and accounting (general ledger, accounts payable, and accounts receivable), purchasing, HR management, sales or customer order management, and operations manage- ment. Gartner now defines ERP in a broader sense as a technology strategy that integrates a set of business functions, such as finance, HR, and purchasing, with operational aspects, such as manufacturing or distribution, through tight linkages from operational business transactions to financial records.”1 This paper addresses how companies can best approach the selection of ERP systems. The biggest mistake a company can make when selecting an ERP system is to see it as a one-off selection and implementation project that has a start and an end; when they have reached the end of their implementation, they don’t touch the software anymore. The reason—or even worse, the experience—might be that changing the software to adapt to new processes, risks, or opportunities is too expensive, too difficult, or takes too much time. SOFTWARE SELECTION FOR ENTERPRISE RESOURCE PLANNING 70% of companies on the fortune 1000 list 10 years ago have now vanished. 1 Magic Quadrant for Single-Instance ERP for Product-Centric Midmarket Companies, November 26 2014 http://www.gartner.com/technology/reprints.do?id=1-25FCRSP&ct=141202&st=sg 2 SOFTWARE SELECTION FOR ENTERPRISE RESOURCE PLANNING …an ERP system needs to be built and implemented to offer the flexibility to capitalize on change over time. It shouldn’t stop you or slow you down when going into new markets, acquiring and merging with new business partners and processes, or expanding into untried geographical regions Instead, an ERP system needs to be built and implemented to offer the flexibility to capitalize on change over time. It shouldn’t stop you or slow you down when going into new markets, acquiring and merging with new business partners and processes, or expanding into untried geographical regions. Change happens all the time, continuously presenting new business risks, opportunities, and challenges. Successful businesses will see change coming and turn it into an advantage; other businesses will merely cope. As noted in the Fortune statistics above, many will not survive. The main reason businesses fail is because they were unable to change. Only those companies that spot opportunities early and evolve ahead of the market will thrive. Those that master this process empower their personnel to work closely with the business through quick, at-a-glance visibility of what is happening at any moment in time, to turn vision into operational reality. For a company to leverage its ERP to capitalize on change, it must closely evaluate the important criteria the business software delivers, including: • Business visibility to give users a consolidated view and empower them by delivering the tasks and information they need to see, when they need it. • Collaboration in any context to allow users to interact when they are out of the office or on the move—away from their desks. • Process and screen configurability to adapt the user experience to users’ needs and to the environment in which it is used. • Deployment alternatives that suit the organization not only today, but also enable benefit from deployment choices in the future. • Implementation and support models that allow the organization to put into use only what it needs, thereby avoiding lengthy, expensive, and dis- ruptive implementations. • Easy process upgrades to quickly access the latest releases, minimizing business disruptions while providing access to innovations in the core product. • Disruptive innovation management that allows the company to become an early adopter of new technologies to realize significant and tangible benefits. COMMON BUSINESS CHALLENGES While the business drivers or challenges of selecting and implementing an ERP system differ depending on the industry the company is engaged in, this paper outlines a number of generic concerns encountered when selecting, implement- ing, and managing an ERP system. 3 SOFTWARE SELECTION FOR ENTERPRISE RESOURCE PLANNING Perhaps more importantly, you need a software vendor with deep industry knowledge that works closely with the market and its customers to ensure that future releases of the product will enable you to stay ahead of the market, rather than reacting after the fact. When we as an ERP vendor receive a request for information (RFI), we often see that the requirements are based on today’s business challenges, to support the current processes used to run the business. The challenge is to predict and present future business requirements such as new business regulations, changed business models, etc. However, meeting this challenge is next to impossible. Instead, you need to secure a software investment that can manage today’s concerns while being configurable and adaptable to meet future business requirements. Perhaps more importantly, you need a software vendor with deep industry knowledge that works closely with the market and its customers to ensure that future releases of the product will enable you to stay ahead of the market, rather than reacting after the fact. Finally, you need an upgrade process that allows the company to cost-efficiently—and with lowest possible risk—upgrade the software to the latest version. Together, these three characteristics will ensure a lower total cost of ownership (TCO) of your ERP software investment, helping you stay ahead of competition. Among the key business challenges most companies face today are global- ization, employee engagement, and innovation management. Globalization. Most enterprises want to grow their business by following their customers wherever they set up a new business. Therefore, the majority of today’s companies are on their way to becoming truly global. Typically, it’s a cumulative journey, one that started in a single territory that later grew into a multi-national business in different countries, with various independent business units. The next step is to become truly international, i.e. managing the business across several countries while interacting with business units in yet other countries, and sharing resources across all the different territories. Only a truly global business manages to remove regional boundaries to act as one company worldwide. The challenge for companies as they become global is to efficiently run processes worldwide using a business software architecture that supports a worldwide, single-instance strategy. This will allow the companies to more seamlessly merge acquired businesses into their organizations and product portfolios. Moreover, it will enable them to launch new products and imple- ment new business models and processes on a global scale. This kind of development includes dealing with a multi-everything challenge: multi-site, multi-language, multi-currency, multi-division, multi- mode, and the like. This multi-nature puts high demands on your software so you can remain competitive over time. 4 SOFTWARE SELECTION FOR ENTERPRISE RESOURCE PLANNING Employee engagement. Having a pool table in the cafeteria or a games room may no longer satisfy the needs of an increasingly younger and more diverse workforce. Rather, personal growth and making a difference make employees work hard to overcome challenges and go the extra mile in their efforts to boost productivity. An increasing number of millennials comprise today’s workforce, and this demographic shift has just begun. The millennial generation was born roughly between 1977 and 1998. They are 75 million strong and typically were raised by “helicopter parents” who doted on them, giving them an ample supply of attention and affirmation. Because they were heralded with high expectations, millennials tend to display an abundance of self-confidence and believe they are highly valuable to any organization from day one. They are extremely focused on developing themselves and thrive on learning new job skills, always setting new challenges to achieve. Top among the millennial traits is placing a high priority on purpose in life. Organizations that value this need for mean- ing and help provide purposeful work have taken the essential steps toward employee engagement. In this context, how does ERP software come into play? New work pat- terns put different demands on the way talent expects to interact with your business systems. Being mobile and able to access systems through unlimited types of devices is taken for granted by this generation—they work wherever they are and whenever they want to. They like to work closely with their firms, which means a more intimate understanding of what is happening in the business in real time. What’s more, this group is used to instantaneous and col- laborative communications in their personal life (think social media); they expect the same in their professional role, including the systems they work with. Innovation management. The pace of change in today’s market is fright- eningly fast. Innovation is not seen as the exclusive domain of a company’s R&D department, but rather as something accessible to all workers, at every level, who see themselves as contributing to the firm’s product and business development. A company’s strategy for innovation management presents the challenge of more quickly categorizing, selecting, managing, and governing applications to support business change. Innovation management allows an organization to respond to external and internal opportunities, and to use its creativity to introduce new ideas, processes, and products. The payoff for an idea will only happen as it is implemented and deployed in the organization. Implementation of a new idea, whether it is software, product, or process, needs an incremental approach to effectively manage risks and opportunities. Top among the millennial traits is placing a high priority on purpose in life. Organizations that value this need for meaning and help provide purposeful work have taken the essential steps toward employee engagement. 5 SOFTWARE SELECTION FOR ENTERPRISE RESOURCE PLANNING Consequently, a modern software solution must allow capitalization on business opportunities with a new degree of flexibility and speed. In practice it can mean launching a new software component for the extended global supply chain, deploying a new IT architecture for the Internet of Things, or just implementing a few new fields in a screen to capture or visualize critical business information. HOW DOES THE RIGHT SOFTWARE ADDRESS THESE CHALLENGES? Enterprise software should drive your business forward, not hold it back. This idea is reflected in recent research from Aberdeen Group, which notes the top reasons that companies replaced their old ERP solution: • Obsolete technology foundation or infrastructure of ERP systems (32 percent) • Lack of features (29 percent) • Cost of maintenance and support (18 percent) • Inability to tailor ERP solution to integrate changes to the business (13 percent) Three of the top four reasons concern solutions that are no longer able to support the business. Regardless of the reason, what is the point of paying maintenance on an ERP solution that can no longer support the business? Selecting and deploying the right business software is an important and strategic decision for a company. According to the Aberdeen study, best-in- class organizations are 83 percent more likely to have a solution that can be quickly tailored to reflect business change. This often requires templates and self-service solutions to ensure that new workflows and business rules and regulations can be supported. To implement a new ERP system, an organization must ask itself and the ERP vendor the following question: What’s the price for the flexibility to capitalize on change? The price doesn’t only mean the price tag for making a modification in the system; it includes all aspects of change in the software: • Lead time from request to deployed solution • Do-it-yourself tailoring or new development by the vendor or its partners • The software upgrade path to move to the latest release • Global support capabilities According to the Aberdeen study, best-in-class organizations are 83 percent more likely to have a solution that can be quickly tailored to reflect business change. 6 SOFTWARE SELECTION FOR ENTERPRISE RESOURCE PLANNING 10 KEY SOFTWARE SELECTION FACTORS To see whether software under consideration is meeting the needs of today’s evolving ERP environment, the following questions are key: Is the software appealing for today’s generation of workers? People, supported by the intelligence collected and visualized in your enter- prise software, make business decisions. To ensure users have access to, and can benefit from, this intelligence, you need a user experience that is attractive, intuitive, and efficient for any type of user within the enterprise ecosystem. An appealing user experience means that data can be fetched or consumed from devices with different form factors and capabilities. Being on the move or sitting at their desk, employees may prefer a range of devices, from smart- phones to tablets to laptops. The technology behind the ERP system should not set the boundaries. Is the software easy and cost efficient to modify and maintain? Modern business software is built on best practices gathered from a great num- ber of customers in different industries. Each company has its unique strategy and vision, but surprisingly often, the business challenges across industries appear to be quite similar. Standard software offers the optimal total cost of ownership, so many customers will share the investment. However, the soft- ware must enable customers to tailor it to fit their special needs over time in a way that doesn’t impede upgrading to the latest release to benefit from new innovations available in the core product. Does the software enable stepwise implementation? Implementing an ERP system can be expensive and disruptive to the business, as well as carry a lot of risk. To avoid this risk, companies should choose soft- ware built on components that allow them to choose only the ones they need, and add new ones as they progress. This approach will speed up implementa- tion and give much quicker return on your investment. Can the software be implemented as a global, single-instance application? When an organization becomes global, it gets a great deal of benefit from run- ning its business on a single application, preferably in the same global single instance of that application. A global, single-instance strategy allows compa- nies to reduce complexity and cost while providing insights and analysis at much faster speed. It also enables them to manage employees around the world, regardless of location or reporting structure. The payoff for an idea will only happen as it is implemented and deployed in the organization. Implementation of a new idea, whether it is software, product, or process, needs an incremental approach to effectively manage risks and opportunities. 7 SOFTWARE SELECTION FOR ENTERPRISE RESOURCE PLANNING Is there a non-disruptive upgrade capability available? The Aberdeen Group study shows that best-in-class companies are 61 percent more likely to be on the latest release, as well as doing necessary tailoring themselves. An ERP system must not been seen as a one-off implementation but rather a platform for business innovation over time. Following the upgrade path ensures that companies will benefit more from their existing investment as new product features are continuously developed and made available through the product maintenance fee. Can the software be extended as business demands change? As your business evolves (e.g., a manufacturer that wants to add aftermarket services), you should easily be able to add these components without affecting any of the other ones that you are using. This approach enables business devel- opment without business disruption. A modern system should offer a layered application architecture that facilitates the development and management of different types of code changes such as localizations, customizations, and con- figurations. Depending on the level of modification complexity, you should be able to decide whether you would like to make the change yourself or with help from the vendor or its partners. Does the software provide different deployment options? Single instance, on-premise enterprise systems are rapidly being transformed into hybrid models—and cloud deployments are on the rise. While most of those hybrids are a combination of cloud and on-premise solutions from multiple vendors, enterprises will increasingly use cloud-based solutions as a part of their infrastructure. Companies should consider their need for a soft- ware solution that enables full-suite deployment or deployment as either the backbone or point solution for key processes in a two-tier application strategy. Can you as the customer influence product development? Enterprise software is one the most important asset investments made by a business. It needs to be state-of-the-art when delivered, but also cost effective and able to generate return on investment throughout its lifecycle. How can you influence product development to secure future versions of the software that will help you retain your competitive edge? The vendor should have an agile development approach where product requirements are collected and prioritized in close collaboration with industry specialists in the customer base. The vendor should have an agile development approach where product requirements are collected and prioritized in close collaboration with industry specialists in the customer base. 8 SOFTWARE SELECTION FOR ENTERPRISE RESOURCE PLANNING Does the vendor’s R&D organization include a workspace to drive disruptive innovation? In most R&D software organizations, the bulk of investments is focused on products prioritized and requested based on actual customer needs today or in the near future. The result is an incremental approach to software develop- ment. Thinking and investing outside the box to look beyond today’s expecta- tions requires a different setup. Conceptual products and prototypes will not always result in a launched product for various reasons, and that’s the purpose of prototyping. Ask the software vendor how they work with the innovation selection and development process. Are you offered references to customers using the evaluated software package? Don’t take the vendor’s word only for the capabilities of the enterprise soft- ware you are evaluating. Ask for customer reference calls and site visits to learn from customers’ experiences of implementing and using the software. Also verify the customers’ experiences of collaborating with the vendor’s implementation staff, product development department, and partners. CONSIDER INDEPENDENT THIRD PARTY ASSESSMENT Finally, companies are well served by looking to respected analysts who assess the status of software providers. Of those who study enterprise software and systems, the best known and perhaps most highly respected is Gartner, a tech- nology analyst firm based in Stamford, Connecticut, USA. Gartner’s “Magic Quadrant for Single-Instance ERP for Product-Centric Midmarket Companies”, published November 26, 2014 focuses on ERP systems that support a single-instance strategy for multi-entity midmarket and upper-midmarket companies. Companies are evaluated on multiple aspects of two parameters (ability to execute and completeness of vision), then mapped in an X-Y grid to create a quadrant: niche players, challengers, visionaries, and leaders. Of the 10 companies recognized in the 2014 report, two were in the Leaders quadrant. IFS Applications is one of the leaders*. *NOTE: Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. You may download a complimentary copy of the full report at: http://www4.ifsworld.com/l/5332/2015-02-05/xvd87 9 SOFTWARE SELECTION FOR ENTERPRISE RESOURCE PLANNING IFS is known for: • Broad & scalable ERP system • SOA architecture enables modular approach and easy modernization • Strong partnerships • User friendly UI • Focused approach on key industries ARC ADVISORY GROUP ARC Advisory Group is a leading technology research and advisory firm for industry and infrastructure. Their expertise extends from business systems to product and asset lifecycle management, supply chain management, operations management, and more. Ralph Rio of ARC Advisory recently noted in a blog post, “ERP systems encompass many functions and business processes in the extended enterprise. This can result in a daunting user experience with multiple applications and screens. IFS Lobby helps solve that problem with a user interface matching the person’s role—whether it be operations, maintenance, or an executive. ARC believes that this represents a clear market differentiation for IFS Applications 9, one that could provide the company with a competitive advantage.” Rio recognized, “Suppliers in the ERP space must achieve a delicate balance between allocated resources for new client acquisition and for services to help assure successful on-boarding—particularly for global, multi-site clients. The recent partner additions for IFS represent a big step for additional resources to assure success for larger clients.”2 2 ARC Advisory Group, Blog, “IFS Announces Significant Ease of Use Enhancements at IFS World Conference 2015,” Ralph Rio, Research Director, May 2015 www.arcweb.com/Blog/Post/557/IFS-Announces-Significant-Ease-of-Use-Enhancements-at-IFS-World-Conference-2015 En 03 53 -1 P ro du ct io n: IF S Co rp or at e M ar ke tin g, S ep te m be r 2 01 5. www.IFSWORLD.com COPYRIGHT © 2015 INDUSTRIAL AND FINANCIAL SYSTEMS, IFS AB (PUBL). IFS AND ALL IFS PRODUCTS AND SERVICES NAMES ARE TRADEMARKS OF IFS. ALL RIGHTS RESERVED. THIS DOCUMENT MAY CONTAIN STATEMENTS OF POSSIBLE FUTURE FUNCTIONALIT Y FOR IFS’S PRODUCTS AND TECHNOLOGY. SUCH STATEMENTS ARE FOR INFORMATION PURPOSES ONLY AND SHOULD NOT BE INTERPRETED AS ANY COMMITMENT OR REPRESENTATION. THE NAMES OF ACTUAL COMPANIES AND PRODUCTS MENTIONED HEREIN MAY BE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS. IFS AB ©2015 IFS is a globally recognized leader in developing and delivering enterprise software for enterprise resource planning (ERP), enterprise asset management (EAM) and enterprise service management (ESM). IFS brings customers in targeted sectors closer to their business, helps them be more agile and enables them to profit from change. IFS is a public company (XSTO: IFS) that was founded in 1983 and currently has over 2,700 employees. IFS supports more than 2,400 customers worldwide from local offices and through a growing ecosystem of partners. 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