15 Ways the ERP Industry is Broken
A Call for Change
By Richard Sellar
Here are 15 ways the ERP industry is broken and needs to change. Click on each point to learn what other industry insiders aren't telling you. Then check out our solutions in our companion post, 15 Fixes for the ERP Industry.
1. The price of your ERP experience should not change every year.
2. Talking to salespeople sucks. You shouldn't have to do it.
4. You should be able to cancel your subscription at any time.
5. You should never have to pay for ERP implementation.
7. Software is not the answer to your problem. It is a tool to help you achieve the right answer.
9. Be unique where it matters. Be boring everywhere else.
10. ERP implementation does not have to be hard. Don’t make it harder than it should be.
11. Get done fast. The longer it takes to go live, the worse your experience will be.
12. You shouldn’t get an invoice every time you ask a question.
13. The biggest barrier to success is your team (and consultants).
14. Go Live is the beginning of your ERP partnership, not the end.
1. The price of your ERP experience should not change every year.
What could be more hypocritical than selling you a system that is supposed to make you more efficient, then being charged more every year because the people who sold you the system aren’t getting more efficient? If the experts selling you on the vision of reducing costs and effort can’t do for themselves what they are telling you to do, maybe they shouldn’t be trusted to advise you on your business. Yes, there are increasing infrastructure costs, but the technology company selling you an ERP experience should be at the forefront of adopting smarter, leaner ways of deploying new capabilities. Toyota proved that this is the right way to do business decades ago. Why is your ERP partner still running their business essentially the same way as it was done in the 1980s?
There are days when I weep for our industry. I have seen subscription renewal quotes with year-over-year increases over 100%. Either your “partner” mislead you to get you as a customer and thinks they have you locked into their ecosystem (I’ll address this later), or they lack the customer focus to continue to drive more value for your business at a lower cost. Both of those models are broken and need to disappear. If you are working with a “partner” who does these things, they are not your partner. It’s time for you to look somewhere else.
2. Talking to salespeople sucks. You shouldn't have to do it.
I have been in this industry since 1997. In all of my time knee deep in the ERP world, I have yet to figure out how having a commissioned salesperson as the initial point of contact for a future customer is of any benefit to that customer. The world is changing. ERP buyers have the capability to find almost all of the information you need to make a buying decision. What is a salesperson really doing? Primarily they are there to show you how their product solves your problem – not in a production-ready, sustainable way, but just that the platform can do what you are asking. The salesperson is involved with you because they are good at “guiding” you through the buying process. The funny thing is, it is their process, not yours. Sure, they will put together a mutual action plan or something similar with you. Conveniently, that plan coincides with the salesperson’s decision timeline, not yours.
So, why even bother talking to a salesperson? Unfortunately, they are the gatekeepers to what you need most – the price. They insert themselves between you and the information you need to make an informed decision. They do discovery calls so that they can scope out the capabilities you need and capabilities you didn’t even know you needed (the upsell). They want to make sure you get everything you could possibly use and discount it up front to get you to sign a larger contract. But, that’s not the end of the “relationship”. The salesperson still has one more critical task to do. The handoff to the services team. Everything you went over with the salesperson is supposed to be communicated to the delivery team. Lots of salespeople try really hard to do a complete job of this, but they fail miserably. Why? Because they aren’t asking the questions that the services team needs to ask to implement the solution. Salespeople only go deep enough to show you that it is possible to make the solution work. They don’t go deep enough to uncover issues that will prevent the demonstrated solution from being feasible. Who wants to deal with that?
3. You should be able to get a complete picture of how an ERP solution and partnership will work before you buy.
How many demos and hours of software show and tell have you sat through to figure out if a solution is right for your business? How many times do you think you have confused the capabilities of two different systems (hint, it’s a lot more than you think). How many times have you made a buying decision because “everyone uses that solution”? It’s like being back in the 1980s again when no one ever got fired for choosing IBM.
The problem with the people and process you are being forced to follow is that you get very little true proof of fit. Working with a sales team is not the same as working with the people who will help you get from point A to point B. Seeing a curated set of capabilities which solve your biggest business issues is not the same as experiencing the future relationship. Don’t get me wrong. If the solution you are evaluating can’t handle your biggest problems, run away, don’t walk. The issue that you are facing as an ERP buyer is that you are spending time on the wrong things without any control over the situation. Developing a relationship with the sale team is not going to help you in the future. Seeing your top 3 issues being addressed in demos is not going to help you visualize your business on a new platform. Seeing slides about implementation methodology and project plans is not going to help you feel comfortable that the people you will work with during implementation and after go live will be able to solve your business challenges. While things like NPS scores and churn rates for software publishers are nice to see, they aren’t indicative of your ERP partner’s ability and desire to continually engage with you as your business evolves and grows. None of what happens during almost every ERP sales cycle prepares you to make an informed decision about this significant expenditure. The only way to do that is to actually get your hands on the system and work closely with the team who will be your support system in the coming years. You need this before you make a buying decision. Good luck finding someone who will do that for you.
4. You should be able to cancel your subscription at any time.
So, you finally made an ERP decision, but for whatever reason it wasn’t the right choice. I get it, you aren’t an expert at buying ERP systems. Most people only do it once or twice in a career. Mistakes can be made. Or, maybe your partner is doing a terrible job for you and are only interested in add-on sales, not collaborating with you on a roadmap to get what you need from your current purchase to support your business. Or maybe your partner doesn’t even talk to you about where you are trying to go. Why should you be stuck with a long-term contract? Why should you be stuck with any contract? The answer is simple. It’s not about you.
In the subscription world, the contract gives the partner, be it a reseller or software publisher, guaranteed revenue for a period of time. Cancellation periods are at least 30 days and often longer. Why is that? It doesn’t take 30 days to turn off access to a system. That can happen immediately. Any subscription contract exists solely for the benefit of the person selling you the solution. It is not in your best interest, but in theirs. The notice period gives the provider a chance to rescue the relationship, or, absent that, the ability to plan for your exit and still collect revenue from an unhappy customer. Kind of sucks, huh? Why do you put up with this? There has to be a better way out there, right? Once your provider reaches a certain point (which is different for different providers) they are making good margins on your subscription. The problem for you is that you are locked in and the contract terms and renewal windows you are given don’t provide a lot of incentive for the publisher to spend a lot of resources on you. As long as churn is avoided, the provider does quite well. Your only lever to get better service is threatening to leave. It costs a provider about 5x more to acquire a new customer than to keep an existing one. Think about that for a minute. By year 3, the provider is spending very little to keep you, raising your prices, telling you how hard it will be to make a change (I am excited to dispel this myth in a bit), and focusing a majority of their effort on getting new customers on their system so that they can repeat the cycle. This sounds like a bad situation for you as an ERP system buyer. You should be able to cancel your subscription at any time (after some initial period – more about this later). If your provider doesn’t let you do this, you should really be second-guessing your relationship.
5. You should never have to pay for ERP implementation.
For decades, a big chunk of an ERP company’s revenue came from implementation. The old rule of thumb was 1x – 3x of perpetual license cost for implementation. With the subscription model the multiple went up for a while and has settled into the range of roughly 1x – 3x of the first year subscription amount. Of course, good luck finding someone to quote you a fixed price and timeline for this. After 40 years you would think this industry could have figured out how to run an implementation by now.
Even worse, the implementation process has hardly evolved since the dawn of ERP systems. Certainly there is a lot less reliance on customization than in the past which has reduced costs, but the ease of implementation hasn’t changed. As an ERP buyer, you are stuck with the inefficiency of implementers everywhere. There is little to no incentive for those selling ERP systems to reduce or remove this cost, because the professional services team is on most company’s income statement as a Cost of Goods item, meaning, there is a strong focus on making a profit on services. Additionally, most consultants have bonus plans tied to “billable hours” or revenue generation. This drives up billing rates and creates incentives for the services team to bill more time to customers. Sounds to me like this isn’t in your best interest as an ERP buyer.
The thing is, ERP systems can be very easy and fast to implement if you are willing to follow some guiding principles (more on this later). The process can be very efficient. Most of the “choices” have to make shouldn’t even enter into the conversation because: a) they are immaterial to your business process, and b) make no difference to the outcomes you are trying to achieve.
Here’s another little secret about our industry. The lifetime value of a customer is typically 7 times the revenue of the initial purchase. Let’s say that half of the initial purchase is for implementation. That means the company selling you the ERP system will generate at least 10 times more revenue from you than the implementation price over the lifetime of your relationship. The number is much higher if the ERP partner is truly focused on your long-term success and business outcomes. If this is the case, then why are you being charged for implementation? A better question is, why are you willing to pay for implementation?
The last point I want to make here is that, by starting your subscription or buying your license before you start the implementation process you end up double-paying for capability until you go live. That’s a really bad deal for the ERP buyer, especially since 6 – 9 month implementations are the standard for many ERP providers. Do you really want to pay for two systems that do the same thing for the better part of a year? I certainly don’t.
6. You should never be asked to undertake tasks for which you do not have the capability or expertise.
I can’t tell you the number of times that I have seen an ERP Implementer “reduce” the cost of deployment by having the customer take on tasks they can’t possibly accomplish well. Things like reporting, security, process documentation. During implementation you are focused on trying to get your business processes right. They are morphing and being optimized for most of the implementation. Issues are coming up and being resolved. You are shooting at a moving target on a lot of things. How is it reasonable to expect you to be able to take on ancillary tasks that rely on everything being done?
Another big area where customers struggle and that can quickly derail an implementation is data migration or conversion. Data prep and extraction from existing systems usually falls to the customer. While some customers have a dedicated technical team to help with this work, many do not. Additionally, data conversion depends on the end state of the system (configuration choices, desired outcomes of the system, etc…). The data conversion process needs to support the business decisions made for the new system. Data conversion is typically very tedious and most of the time involves spreadsheets and lookup tables. And your friendly ERP partner tasks you with putting data into their standard templates. This is a nightmare situation for most customers.
7. Software is not the answer to your problem. It is a tool to help you achieve the right answer.
If you think that you are going to buy an ERP system and all of your problems will be magically solved, you should probably not buy an ERP system. You wouldn’t buy a hammer, nails, and wood, and think that you have a place to live. One of the biggest mistakes I have seen prospects make is spending most of their time evaluating the software platform with a salesperson, and not nearly enough time evaluating the partner that they are going to use. In reality, the platform you choose will have a much smaller impact on your success than the partner you select and the relationship you have with that partner. The ERP system needs to “check the boxes” on functionality and be easy for users, but it is not the answer to your problems.
This also raises an interesting question: Should I buy directly from the software publisher (when available) or is it better to buy through a partner? I admit, having been in the partner community my entire life I am biased on the topic. However, I try to look at things objectively. I like to look at motivation. Software publishers are motivated by selling more software, more modules, more capabilities. Why? Take a look at their Income Statement. Software is where they make their money. Write once and deploy many times is a very lucrative model. If you believe it is a good idea to engage with the publisher directly to implement your system, ask yourself the following :
- When I run into business changes in the future, what are the likely answers I will get for solving new challenges?
- Will the publisher want to spend time rethinking the way the existing platform is used, or will they be more focused on having me buy more capability?
- When I have a business question, will the publisher have a full and complete understanding of my business and understand my future year plans and technology roadmap, or will the publisher be trying to craft a roadmap for me that is focused on the acquisition of more of their products, regardless of whether or not they are the best solution for me?
A lot of this conversation goes away when you understand the systems for what they are – a tool to help you accomplish a business objective. In and of itself an ERP system is not a solution to your problem.
8. If you are moving from one software platform to another, don’t try to replicate the old platform on the new one.
Whatever reason is causing you to change platforms, don’t expect the new one to be exactly like the old one. In fact, instead of trying to replicate what you did on the old platform, embrace the new one in all of its glory. We are seeing quite a few prospects who have a desire to move to a new platform, but are stuck in the mindset of “this is how we did it on x”. It makes no sense to try to continue to do things the exact same way on a new platform. There are things an ERP provider can do to ease the transition and make change management in your organization easier, but moving to a new platform means adopting that new platform and letting go of the old. Additionally, when changing platforms, many things about the new platform will seem slower at first. Why wouldn’t they? You have probably used your old platform for many years and have fine-tuned it to your needs (or at least to what your users wanted). You shouldn’t expect that in 3 – 4 months you will be on a level playing field in terms of productivity in all areas. There will definitely be some gains, but there may be some areas where things are slower at first. This is typical, but users often can’t see past what is happening right here and now.
9. Be unique where it matters. Be boring everywhere else.
To all business process owners out there I say the following. The “efficient” pricing structure you have concocted, the complex commission plan you have invented, or the convoluted availability calculation you have dreamt up are doing absolutely nothing to help you do what you should be focusing on which is, building a better customer experience. Stop making a science project out of back office processes. These cost you so much more time and money than you realize and provide no benefit to your customers. The unique thing about you is something to do with your product or the experience you provide, not the 27 different ways that you can discount a product. I am continually amazed at how much time and money companies insist (I use that word deliberately) on spending to implement things that could be greatly simplified and give almost exactly the same result. Things that make almost no difference to the customer experience.
When implementing an ERP system, instead of porting over your vanity project for commissions, understand what the new system will do and take the opportunity to leverage modern, out of the box technology to simplify something you did in the past that you can’t explain to anyone else and that you can ‘t even remember why you did it.
The best, fastest, smartest way to implement a new system is to use the most common business processes for everything that is not directly part of your company’s differentiators. As boring as that sounds, standardized / out-of-the-box business processes and calculations will speed up user adoption, make it easier to hire people or automate processes, and create a much broader community for assistance when needed. Dare to be boring in your back office.
10. ERP implementation does not have to be hard. Don’t make it harder than it should be.
Just because you can make a choice about something doesn’t mean you should. ERP systems have a ton on configurability for things like numbering sequences, master and transactional data naming conventions, and field names on reports and screens. It is very tempting to rename lots of things to the terms you currently use. I have news for you, unless it is an industry standard or government compliance situation, you are much better off using the language that your ERP system uses. There many be some confusion or lack of understanding at first, but that will quickly fade as you are on the system every day. One of the biggest reasons that ERP implementations drag on is that you have too many choices you can make, most of which are immaterial to the outcomes you are trying to achieve. Adopt the new platform as is and make decisions about those things that will have an impact on the results the system provides.
11. Get done fast. The longer it takes to go live, the worse your experience will be.
Data around ERP implementation time and the impact on customer NPS scores shows that implementations that last more than 6 – 9 months result in much lower customer NPS scores. But that’s not the reason to move fast, it is just the symptom of the problem.
The problems with long implementation timeframes are numerous.
- Your team cannot sustain their daily job as well as get a new system up and running for a long period of time. Let’s face it, you don’t have extra people hanging around your organization that you can put on an ERP implementation and not impact the daily operation of your business.
- The people who you need to implement your ERP system are business process owners. There are decisions that need to be made and it is inefficient to have your implementation team consist of people who don’t have the authority or knowledge to make decisions. There will always be things that need to be escalated to a steering committee or business owner, but there are a lot of things that need to be decided during implementation that do not get escalated. Of course, if you follow what I said earlier you will limit the decisions to those that have a material impact on your business and reduce the effort of implementing the system.
- Businesses change over the course of a year. You are not standing still. There are always new markets, locations, and products to launch. There are new government regulations, and you add suppliers with new requirements. These don’t wait for an ERP system to go in. They also have an impact an the work happening during the implementation.
- People leave for a variety of reasons. Even though we like to think that all of our people will stay forever, the longer an implementation takes, the more likely it is that you will lose a key project team member. Then what? Someone new with a different vision takes over and at least part of the implementation undergoes a reset.
So, how long should an implementation take? In our experience, for smaller companies or those with a standard business model (B2C eCommerce selling through a website and Amazon for example), you should target implementation of no more than 90 – 120 days. If you believe what I tell you and adopt the out-of-the-box configuration where you should, it can go even faster than that. For more complex companies that manufacture products or have multiple legal entities you should really be trying to go live in 6 months or fewer.
One other thing that I have found during my 25+ years in this industry is that people focus on the wrong things during an implementation. If your project manager and executives focus on hitting the go live date at all costs you will be much more successful. The question you should always be asking is not “What happens if we miss our go live date?” The question you should be asking is “What do we need to do to hit our go live date?” Nothing else will have as large an impact on your future success as focusing on getting done quickly and on time.
12. You shouldn’t get an invoice every time you ask a question.
In an industry so full of issues, this simple thing is probably one of the most impactful. Resellers and publishers that work on a Time and Materials basis create so much friction between themselves and their customers, but for some reason they can’t get out of their own way. Customers do not want to get a bill for every little question. They want a relationship that is focused on business outcomes. In this day and age, if a reseller cannot figure out how to make money without charging hourly then their lifetime is limited. More self-service resources are becoming available for customers every day, which is as it should be. If a reseller is charging hourly and not providing those resources, there are a couple of likely outcomes. One outcome is that the reseller (or publisher) will lose customers. The other likely outcome is that, if customers do stay, they will be less engaged and the customer/provider relationship becomes transactional. In the ERP world, the last thing a customer should want is a transactional relationship. Having a reliable team of experts ready, willing, and tasked with assisting at every turn is essential to help customers adapt to a rapidly changing technology landscape.
13. The biggest barrier to success is your team (and consultants).
I know this sounds harsh, but it is true. Let’s talk about your team first. A vast majority of users that we encounter are not adaptable. This includes business process owners and business owners. They have “their way” of doing things, even when the details of what they are doing are not material to the outcomes the business desires. People are in general resistant to change, even when it will benefit them greatly. Say what you want, but even if you paint a realistic, awesome picture of what the future will be, people have a difficult time adapting to the new reality. This is why change management is a critical part of any project. It is also one of the biggest contributors to project failure, both in terms of missing timelines as well as trying to re-create the old way of doing things.
On the other side of the relationship, we have the wonderful world of consultants. I am not disparaging them – I started my career as one. Consultants love to present options and solve problems. They are great at empathizing with customers and typically want to do what the customer asks, but not necessarily what the customer needs. One of the most difficult skills for consultants to master is drilling down into requests to understand requirements. Quite often a customer will say they need to do something and the consultant leaps into action to solve the problem without first considering if it is the right problem to solve. As consultants, we want to help our customers and to make them happy. Unfortunately, that doesn’t always mean making them better.
The problem is also not solely with the consultants themselves, but with the way they are compensated. Most consultants get a bonus based on “billable hours” or revenue generated. Unless a company is on a pure subscription model or running fixed fee only projects, consultants are incented to “bill more hours”. That doesn’t translate into “become more efficient”. Efficiency makes it more difficult for consultants to earn their bonus.
If you are an ERP buyer and the partners you are talking to are giving you time and materials quotes, you need to understand what this means to you in terms of project incentives and your ongoing relationship (see my point about getting invoices for every question).
14. Go Live is the beginning of your ERP partnership, not the end.
An ERP system is the engine that runs the core of your business. It is an enabler of communication, planning, and reporting. It should constantly be evolving as your business grows and changes. The biggest part of your ERP journey is not implementation, it’s what happens afterward. It’s the automation, the refinement, the roll-out of new business models and relationships. So much of what you implement in your ERP system happens after you go live. Yet, ERP buyers and customers tend to view system acquisition and deployment as the scope of the relationship with their partner. Both the customers and providers get very myopic during the initial sales cycle and only talk about the future in vague terms. As I’ve said elsewhere, buyers will spend at least ten times the cost of their initial implementation on their ERP system after go-live. What does that tell you about the value of the relationship after go-live?
Every software publisher will tell you how important their capabilities are. They will discuss their “roadmap” (without making commitments, that would be bad for them legally) and how their platform will adapt to your needs in the future. The truth is, that’s just the baseline of what you should expect. Ultimately you should view your ERP system as a strategic asset to power your business. You should care for it like you would any other strategic asset. It is not a one-and-done implementation in most cases. There are always opportunities to improve your usage of the system and automate repetitive or labor-intensive tasks. That’s where a great partner excels. ERP implementations will soon be a commodity. They will get simpler, faster, and less expensive (or cost nothing at all). That’s because the value of the system and your partner is in the ability to continually improve your operations.
So, if you are viewing your ERP system as a strategic asset and you recognize that it should receive attention long after initial deployment, then what are you doing to evaluate your long-term partner and the cost of doing business with them over 5 – 10 years?
15. Your ERP partner is supposed to be the expert - they should act like it. “It depends” is a terrible answer to your question.
Yes, I get that there are a lot of variables in play when a prospect or customer asks a question. The problem is that too often ERP providers give the lazy answer. For example, how much does an ERP system cost? When a prospect asks this question, they absolutely should be able to get an answer. Not an estimate. Not a “quote”. Not a ballpark. An answer. It depends is not that answer. Do you know what ERP providers are afraid of when a prospect or customer asks that question? The unknown of dealing with the customer or prospect. Instead of acting like the expert and laying down the rules of engagement, most providers hedge because they don’t truly have a proven, repeatable, effective process for deploying a system that takes into account the behavior of the customer. Providers over-complicate the management of the project by focusing on the wrong things.
As a buyer, if the people you are talking to cannot give you a real, firm price, that’s an indicator that you might be in for a rough ride. If the provider is good, you will get a reasonable fixed price. If the provider is outstanding, you will not pay for deployment and you will get a long-term price lock for the capabilities you purchase.
I have seen the answer of “it depends” during implementation as well. This is an indicator that you will need to either provide more information or there is a decision coming your way. The interesting thing about a vast majority of the decisions you make is that they are reversible. So many times you are asked to agonize over something that can be changed later. “It depends” is code for a long conversation about something that should not take hours to discuss, log, track, escalate, and decide, yet it typically does. The “it depends” questions have been asked to providers before. This is not the first time we have heard the question that is being asked. In fact, one of the most common questions we get is “what do other customers like us do?” Hmmm, shouldn’t we have already presented that? Why do providers still act like this is a new conversation every time? Because there is little incentive to document and provide up-front education about these decisions.
Leading Change for the ERP Industry
Now you see why change is long overdue for all the ERP users who deserve better.
The good news is, we're making all those changes. Check out 15 Fixes for the ERP Industry to see how!