The recession has forced many midsize manufacturers to cut expenses to the bone requiring fewer people to do more with less. As a result, everyone in the organization -- from the CEO to the shop floor worker -- needs timely and accurate information at their fingertips to maximize productivity and control costs. For many organizations, however, information systems have been cobbled together over the years and simply fail to deliver the information needed to effectively compete in a global economy. Moreover, decisions made based on faulty or dated information can lead to mistakes that are in turn magnified by interdependent and ever more complex processes.
When the cost of an aging enterprise resource system outweighs the benefit received it is time for a new system. Vendors today are selling an array of solutions with competing claims, and analyzing what is best for your organization can be challenging, time consuming and costly -- especially if you invest in system that does not meet your needs now and in the future. Yet many companies simply do not have a sound and logical methodology in place for the critically important process of enterprise software and vendor selection.
Before describing a best practice that streamlines and improves software and vendor selection, let's look at how this process -- or lack thereof -- has been done at all too many organizations.
The finance department is often the first to feel pain from an out-dated system because of the large quantities of transactions they handle and so leads the charge for change. Next, members from operations join the movement to obtain better information about production and those in procurement voice support because supply chain benefits can pay for a system in a relatively short period of time. Soon, a team is formed around the promise of improvement and excitement builds. Members of the team gather to dream about how life will be better with the information they think they need, and begin to document how they want business to be done going forward. Documentation of dreams leads to a narrative or checklist of what the team wants in an ideal world. This list of wishes evolves into a more formal documentation of needs known as a request for proposal (RFP) from vendors or a request for quote for those that have better defined needs.
The point is that the RFP evolves more from a list of wishes and dreams than rigorous analysis and a sound strategic plan -- not exactly the best tool for communicating needs with prospective vendors. Overlooked in this state of wishful thinking are serious questions critical to making informed decisions such as, What do we need to do now and in the future to be more competitive in a global economy? What information needs do we have with respect to planned new products, empowering suppliers and strengthening customer relationships? How might our information needs change over time?
The team surveys the technology supplier landscape and then chooses a list of potential vendors -- often on the basis of brand awareness, trade show demonstrations and hearsay at networking events rather than a methodical investigation into vendor capabilities and fit -- and sends out its RFP. Eventually the list is whittled down to a handful of vendors who are invited to demonstrate their wares. This is where separating hype from reality gets tricky. In some cases, vendors feel compelled to show the company that functionality can be achieved quickly when in fact customization could be slow, arduous and costly.
After exhaustive vendor demonstrations, it comes to decision time. The selection team has invested a lot of time crafting their wishes into requirements, documenting, communicating and attending endless meetings. Decisions made weeks or months ago, perpetuated across revisions of plans, and communicated to prospective vendors, are sometimes communicated ineffectively or, worse, have changed through interpretation or even process evolution. Finally, two favored prospective vendors are selected, often because of a perception of low estimated costs. Vendors, however, have little incentive to make their pricing easy to understand or compare to their competition. It is unfortunate, but true that the more complex and mismatched this process is, the more the selected vendor benefits. At this late stage in the selection process, pricing can be difficult to understand making clear comparisons challenging. In the end, the decision to select one vendor and system over another is based on dreams, inflated claims and incomparable numbers. The odds of making the right choice are slim indeed, and yet the price for failure is incredibly high.
A Better and More Strategic Approach
To avoid these problems and pitfalls, I recommend a five-step approach:
1. Develop a Written Strategic Business Plan
You should have a strategic plan that provides a roadmap for the business. Gaining a competitive advantage starts with a strategic plan that clearly describes how you plan to gain and keep that advantage. Your strategy drives technology selection, not the other way around. For example, let's say you are a midsize company with an outsourced supply chain. Your goal is to improve the overall experience of the end-user of your product and thereby increase market share and profitability. But, because of a complex web of outsourced supplier relationships, you do not have access to information about your end users. So, you will need to ensure that your Enterprise Resource Planning System is aligned with your Customer Relationship Management System so that you have a 360-degree view of your customers all the way through your supply chain.
2. Assemble a Team from Each Key Department and Give Them Clear Direction
Specify to your finance, operations, sales, marketing other department directors that you want them to provide a list of their top ten -- and no more than ten -- information needs to run their business better. You may get moans and gripes, but this will force them to critically analyze everything and even re-examine their processes. Make certain they can justify every need by how well it supports the objectives of the strategic plan.
3. Control the Vendor and Software Selection Process -- Not the Other Way Around
Once you have determined your information needs -- needs that clearly support the strategic plan -- you are now ready to draft your RFP. Your goal is to create a document that asks for very specific items on the basis of information needs and business objectives, not wishes. Establish a budget. This will force vendors to critically evaluate their own capabilities and deter them from overselling. Also, you will be able to compare apples to apples.
4. Carefully and Methodically Select your Initial Vendor List
Do your research and limit the number of vendors you send your RFP to no more than five. Your objective is to identify vendors that have a track record in your industry and understand your business.
5. Consider Outside Help to Oversee the Selection Process
There are many advantages to hiring a consultant with experience at selecting vendors and software. First, is their objectivity -- an ability to help you identify real information needs as opposed to unrealistic wishes. Also, they can keep vendors from overselling and straying from the RFP.
Remember, selecting the right technology to give you a competitive advantage starts with a clearly defined business strategy. From there you are able to determine what technology you really need to achieve your objectives.
Brian Larsh is a Business Advisory Manager at Grant Thornton. He specializes in IT strategy and system selection.