Solving the ERP Puzzle in Hospitality
By Steve Nezer, director, AlixPartners
Enterprise Resource Planning (ERP) packages were first introduced more than 20 years ago and some ERP predecessors such as MAPICS and McCormack & Dodge have been available for more than 30 years. Yet, the selection and implementation of a new ERP system often remains a risky, challenging and mystery-laden process.
Following time-tested program management disciplines as well as adhering to newer approaches in the ERP selection process can lessen the risk, remove the mystery and reduce the cost of an ERP implementation.
An effective ERP selection process is a prerequisite to a successful implementation. During the selection phase, the following steps are key:
* Objectives need to be articulated and agreed upon
* Selection criteria needs to be defined
* Software and the implementation partners need to be selected
* Legal and working relationships with the implementer (the system integrator who implements the ERP system) need to be established.
Companies can effectively conduct this process in just eight to 12 weeks, and spending more time on this phase is counter-productive.
The most successful selection efforts focus on features that provide the company with a competitive advantage in terms of cost structures or new customer offerings. These benefits could include: shortening the time it takes to close the company’s books each month, automating labor-intensive chores like daily credit card reconciliations, or accommodating things like mobile wallets.
Developing the traditional long, detailed and time-consuming requirements list for standard features such as invoice paying or general-entry posting are no longer necessary because all, ERP providers support the basic functions and features that a restaurant needs to manage its operations. In fact, ERP systems’ more basic functions and features can be explored by companies during their due diligence of the ERP in a half-day software demonstration.
Key to success: pick the perfect ERP partner
The most critical decision in selection process is the selection of the implementation partner. The difference between success and failure depends on the strength of the integrator – that, plus the commitment of the company implementing the ERP package and the clarity of the relationship between the two.
While it is important to select an ERP package that has the necessary breadth of functionality to support the company’s current and future needs, the truth is that the capabilities of ERP packages within a given tier ranking (ERP packages are ranked by the breath of their functionality) are all relatively similar.
There are, however, significant capability gaps among the various implementers. These gaps explain why virtually every ERP software company can point to several satisfied customers while at the same time there may also be several well-documented cases where that company’s software implementations have failed.
Clarity achieved through negotiations
The best course of action is to draw up a short contract of 15 to 20 pages that focuses on the non-standard, unique and strategic requirements. These requirements are critical as they will determine the extent of the package customization and, by extension, implementation cost and duration. The advantage of a shorter, more open-ended contract is that it allows the company, during the implementation design phase, to maximize the value it realizes from all the special features of the selected ERP system.
In addition, the contract-negotiation period is a good time to get a feel for the quality of the integrator’s staff and to assess their professional and personal attributes. Based on this assessment it can be decided if the integrator’s approach and culture is a good fit.
The negotiation can result in significant reduction in costs and risks of cost overruns with the ERP software provider and the integrator, particularly if the final negotiations are done in tandem with two potential partners. There is the potential for product license cost reduction of up to 60% and a 15% reduction in implementation cost. When it comes to the negotiations with the implementer, it is important to remember that a long-term partnership is at stake and that it is in the buyer’s and the integrator’s best interests that it be a profitable relationship for the integrator.
Steve Nezer is a director in AlixPartners LLP’s Restaurant & Foodservice Practice.