Safeguarding against failure. When embarking on an Enterprise Resource Planning (ERP) solutions project, it is crucial to recognise that ERP solution providers (whether the software house itself or Systems Integrators/Strategic Partners) are usually not simply vendors. The law often implies that they are experts in their field. Though this is not a legal article, our lessons learned through providing technical evidence as ‘Expert Witnesses’ to the High Courts in major ERP solution disputes, have afforded us many practical insights in this area. Emerging case law indicates that these expert providers possess a ‘duty to warn‘ clients about ambiguous requirements or potential misunderstandings that could arise within the project.
This duty extends beyond the mere provision of software; it includes the supplier’s responsibility to provide informed guidance to clients based on the supplier’s industry knowledge and technical expertise. For senior executives of organisations, understanding this duty to warn is essential, as it serves to both inform their team’s insights to assure success, as well as acting as a protective measure against ERP implementation failures and disputes that can so often end up in costly legal battles.
Explicitly contracting for ERP supplier’s experience and advice. Our experience in resolving highly complex technical disputes between ERP solution providers and clients, both in and out of the courtroom, has underscored the importance of explicitly contracting for the supplier’s advice, separately, from the ERP solution itself. We find from our dispute work, that too often, clients and their legal teams, focus solely on the licensing and implementation support arrangements for ERP software, neglecting to explicitly contract for the invaluable industry experience and technical expertise that the supplier brings to the table. In our experience, these oversights often lead to misunderstandings that result in severely misaligned and/or failed implementations.
Ensuring a fit-for-purpose ERP solution, every time. It is imperative to approach the procurement process as a dual investment – firstly, priority (c.60% weightage) should be given to structuring an agreement which will foster a strategic partnership that includes explicitly contracting for the supplier’s expert advice and secondly, contracting for the actual ERP software solution and implementation services (assigned a weight of c.40%).
Why supplier expertise matters more than ‘just’ the software
The benefits of a well-considered ERP solution. An ERP solution is a comprehensive software platform designed to integrate and streamline diverse business processes – from marketing, sales and operations to finance and human resources – into a single unified system. It is the backbone that can drive efficiency, ensure effectiveness and provide insights to bolster both operational effectiveness and growth.
The secret to success. While ERP software capabilities are undeniably important, it is the expertise and experience of the supplier you choose which will absolutely make or break the success of your ERP journey. Buying the software solution is, in reality, just the final part of your contracting journey; the majority of which lies in the forging of a partnership with an ERP provider equipped with the industry knowledge, technical initiation and prowess to configure the ERP solution you need.
The stark reality of ERP implementation failure. More than half of all ERP solutions fall short of meeting client expectations. Our own experience, often initiated after contracts have been signed, to evaluate mismatches between the software and a client’s business needs, accounts for 66% of our work. So, grasping the intricacies of articulating clear requirements, procurement, contracting, and the governance of roles and responsibilities of both client and provider – as well as resourcing, mobilising and implementing these complex solutions – is fundamental to assure a fit for purpose software platform that aligns with your agreed requirements.
Therefore, where data-driven decisions are the linchpin to organisational efficiency, an integrated system like ERP is no longer a luxury but a necessity. However, many organisations have discovered that the software itself is just one piece of the puzzle. The real magic happens when the software is paired with the right ERP solution provider’s expertise.
The choices you make along these lines will shape your operational landscape for years to come. This is not just a transaction, it is a long-term commitment. And much like any commitment of this magnitude, it is imperative that you focus not only on the product, but also on the relationship you foster with your supplier.
You need them to invest their wealth of industry experience and technical expertise in deeply understanding what the business outcomes are you want to achieve, where the current enablers and disablers are in achieving those outcomes, how you currently operate your organisation, using that understanding to work with you to define a future operating model and based on that model, configuring their solution to meet that model.
Pressures on efficiency and effectiveness
Operational, financial and other commercial pressures can ebb and flow within organisations, but there will be times when they will inevitably intensify. Often, within the public sector this will involve expectations to deliver more using the same, or even fewer, resources. In the private sector, there are often significant competitive pressures to innovate and drive better efficiency. All of which underlines the need for the procurement, configuration and implementation of an appropriate and effective ERP solution.
Current operational challenges
Fragmentated processes. While many organisations function effectively, without the right supporting software systems in place they can experience significant challenges. Different departments may operate on disparate systems which may lead to delays, miscommunication and missed opportunities for optimisation.
Data inconsistencies. Without a centralised data source, you may notice inconsistencies in your inventory counts, financial reports, tracking production schedules and other operational areas.
The gap in internal expertise
Acknowledging limitations. Your team, while skilled in their own field and possessing some limited experience of prior solution implementation projects, should acknowledge that wider industry knowledge and ERP business process analysis, configuration and implementation, are specialised fields. While the ERP provider will (or should) have much greater overall industry expertise and know its own solution inside and out, to be able to configure it on a wider basis to support your future operating model, your internal IT team may well be operating at the edges of its own expertise here in comparison to the ERP solution provider.
The misconception
A surface-level understanding
- Taking a software-centric view: Most organisations believe that procuring an ERP system is solely about identifying a solution that aligns functionality with perceived needs. The focus therefore often remains on features, user interfaces and system capabilities.
Beyond the software
- Deployment complexity: An ERP system is not a plug-and-play solution. Its implementation is a complex endeavour, requiring a thorough understanding of your business processes and process interdependencies, as well as what needs to change for those processes to be best integrated into a unified system with minimal configuration time, but still achieve the right business outcomes for your organisation.
Underestimating supplier expertise
- Value of experience: ERP suppliers bring to the table a wealth of experience from numerous implementations across a diverse range of industries. This experience is not just about the technical know-how of their ERP solution, but also about understanding the unique challenges and nuances of each industry and organisation, including yours.
- Learning from past implementations: Each ERP implementation offers a learning opportunity. Suppliers, having overseen countless such rollouts, come equipped with insights on common challenges, potential pitfalls and best practices that can be invaluable for your own implementation journey.
The value of supplier expertise
Industry experience
- Broad perspective: ERP suppliers may have collaborated with numerous companies in your industry, exposing them to a broader, more comprehensive view of the sector. This is likely to have equipped them with insights into best practices, common challenges and innovative solutions that have proven effective across the board.
- Highly adaptable configurations: Their extensive industry experience means they’re unlikely to be offering a one-size-fits-all solution. Instead, they can often configure their ERP system to your specific needs, challenges and goals, ensuring a fit for purpose solution (within agreed compromises) with the capacity to drive optimal results.
Technical expertise
- Deep product knowledge: Suppliers have an intimate understanding of their ERP systems, having been involved in their development, refinement and implementation across various settings. This deep product knowledge ensures that the system is configured and implemented in a way that maximises its potential for your organisation.
- Continuous updates and support: Beyond the initial implementation, suppliers offer continuous updates, patches, and improvements. Their technical teams are dedicated to ensuring that the ERP system evolves with technological advancements and industry shifts, ensuring that you should always have a cutting-edge solution at your disposal.
Interpreting business processes
- Translating needs into features: A hallmark of seasoned ERP suppliers is their ability to take your business processes (suggesting appropriate changes to those processes along with way) and ‘translate’ them into system configurations. They can understand your workflows, identify bottlenecks and then configure the ERP system in a way that addresses these challenges and streamlines processes and operations for your new future operating model.
- Recommendations for improvement: Their expertise isn’t confined to the software. Leveraging their extensive experience, suppliers often provide actionable recommendations on how you can refine your business processes, aligning them with industry best practices and optimising the value you can derive from the ERP system.
Training and skill transfer
- Empowering the internal team: An invaluable facet of a supplier’s expertise should be their commitment to skills transfer. Their role should not culminate in implementation; they should ensure that your internal team is trained, empowered and confident in using and managing the new system. This ensures sustainability and long-term success.
- Ongoing support: After the system goes live, suppliers remain a valuable resource. Their support teams should be on hand to address any challenges, provide further training and ensure your transition to the new system is as smooth as possible.
Benefits of leveraging supplier expertise
Operational efficiency
- Streamlined processes: By tapping into supplier expertise, you can ensure that your ERP system is configured to the unique needs of your future operating model, streamlining operations, reducing inefficiencies and enhancing overall productivity.
- Data-driven decision making: A well-deployed ERP system will equip you with real-time, accurate, data from across the organisation. This will empower you to make informed, data-driven decisions, driving operational excellence.
Best industry practices
- Learning from others: Suppliers bring a wealth of knowledge from their work with other industry players. By leveraging their expertise, you can adopt proven best practices, ensuring you operate at the forefront of industry standards.
- Maintaining your competitive edge: In a rapidly evolving industry landscape, adopting best practices isn’t just about efficiency; it’s about staying competitive, innovative and responsive to market demands.
Risk mitigation
- Foreseeing challenges: One of the invaluable benefits of supplier expertise is their ability to foresee potential challenges. Their experience allows them to anticipate and address issues before they escalate, ensuring a smoother implementation process.
- Cost savings: By mitigating risks and avoiding common pitfalls, you not only ensure a successful implementation but also realise significant cost savings. Mistakes in ERP rollouts can exact a hefty toll, both in terms of finances and time. Leveraging supplier expertise is a proactive approach to safeguarding your investment.
Future-proofing the organisation
- Scalability and growth: An ERP system isn’t solely about meeting your current needs. With the right supplier expertise, the system can be configured to be scalable, supporting your growth ambitions and ensuring you are equipped to also handle future challenges and opportunities.
- Continuous innovation: Your supplier’s commitment to continuous innovation means that your ERP system will always be aligned with the latest industry trends and technological advancements.
Recommendations
Having now reviewed the many aspects of a fully considered and optimised relationship with your ERP solution provider, it is time to bring all the primary parts together into a list of recommendations.
- Prioritise supplier expertise in your evaluation
- Beyond features and pricing: The depth of a supplier’s industry experience and their technical expertise should be at the forefront of your evaluation criteria.
- Long-term partnership: The right supplier will be instrumental in your ERP journey, from implementation to continuous improvement. You should be entering into a long-term partnership.
- Engage with suppliers early (Early Market Engagement, pre-formal procurement stage)
- Preliminary discussions: Once you have clearly defined your business outcomes and objectives, key Use Cases, plus other key requirements it is advisable to engage with potential suppliers prior to any formal procurement process. This allows you to gauge their expertise, understand their approach and assess their track record to gain a clearer picture of what each supplier brings to the table. This will help you to determine whether your expectations can be met within your anticipated budget, resourcing and time scales, prior to going into a formal procurement process.
- Proof of expertise: To ensure you are making an informed decision, it’s prudent to request similar case studies, references, or even live demonstrations from potential suppliers aligned to the key Use Cases you have outlined. This will offer a clearer glimpse into how effectively they are likely to apply their wider expertise and the value they can deliver.
- Foster continuous collaboration
- Beyond implementation: It is vital that you foster continuous collaboration with your chosen supplier to gain maximum value from their ongoing insights, support and expertise as you adapt and grow.
- Feedback loop: Establishing a robust feedback loop with the supplier ensures that any challenges or needs are addressed in real-time to ensure that your ERP system remains aligned with your evolving needs.
- Invest in internal training and skill development
- Leverage supplier training: You should leverage any training programs offered by the supplier, ensuring your team is equipped to manage and optimise the ERP system effectively.
- Dedicated ERP team: Forming a dedicated ERP team within your organisation is critical. This team can serve as a bridge between the supplier and your internal departments, ensuring smooth communication, effective system management and continuous alignment with your business goals.
Contracting Approach to Maximise ERP Supplier Expertise
Collaborative contracting
- Partnership mindset: As you embark on your ERP journey, it’s essential to view your supplier as a strategic partner. A collaborative contracting approach sets the tone for a relationship built on trust, mutual benefit and shared goals.
Clearly defined scope with flexibility
- Detailed requirements: Your contract should clearly define your requirements and these requirements should have been clarified through an early market engagement exercise, though it is still important to allow room for flexibility here. This flexibility ensures that you can tap into the supplier’s expertise throughout, allowing them to suggest enhancements or modifications based on their industry experience.
Incentivise knowledge sharing
- Performance-based incentives: To truly harness the supplier’s industry knowledge, you might consider performance-based incentives. By rewarding proactive knowledge sharing and continuous improvement initiatives, you encourage the supplier to consistently bring their best insights to the table.
Regular review and feedback sessions
- Scheduled collaborations: Scheduled collaboration sessions are vital. By embedding these into your contract, you ensure a consistent platform for knowledge exchange, allowing you to benefit from the supplier’s insights and address any challenges in real-time.
Training and skill transfer clauses
- Mandatory training: To ensure your internal team is equipped to harness the full potential of the ERP system, your contract should mandate regular training sessions and workshops. This not only empowers your team but also ensures you are continuously updated on best practices and new features.
Intellectual property and custom developments
- Shared innovations: In the event of custom developments or unique innovations, it’s prudent to address intellectual property rights and/or compensation in your contract. A shared innovation approach, where both parties stand to benefit, can be a win-win, encouraging the supplier to continuously innovate.
Exit and transition clauses
- Smooth transitions: While you should be optimistic about a successful partnership, it’s essential to plan for all eventualities. Clear exit and transition clauses ensure that you retain the knowledge and system optimisations, even if you need to transition to a different supplier or system in the future.
Contracting for the supplier’s advice, separately to the ERP solution
- Better insights: It is critical to undertake a two-stage contracting process with your selected ERP provider. This could be in the form of two separate contracts or one contract, but with a ‘break’ or ‘pause’ clause, pending the output from the supplier’s due diligence/configuration phase.
- The first contract award is to cover the supplier’s advice. This may be phrased as the first phase of the implementation, or called a due diligence, blueprinting or configuration phase. You may need a limited number of software licences included in this part of the award so that this first phase can be appropriately configured and demonstrated to you, reflecting how the solution will be fit for its purpose.
- The second phase is the wider roll-out of the implementation to the rest of your organisation, the larger number of remaining software licences, consulting support, business change adoption and entry into business-as-usual (BAU). But this would only be awarded on the basis that the outcome from the first phase of the implementation (due diligence, blueprinting and/or configuration), has evidenced that the solution will be fit for its purpose, within the scope, budget and time constraints you have contracted for.
- Note that some organisations will procure software licences and then select an implementation partner later. In other words, a contract for the purchase of licences and a separate contract for consulting services covering due diligence, configuration, implementation and business change adoption. We would strongly advise against this approach. It is far more likely you will achieve a fit for purpose solution by contracting with an ERP implementation partner in the first instance, and having them provide software licences. By adopting this approach, the partner can undertake appropriate due diligence and solution configuration so that you have much greater certainty any solution they propose to you will actually be fit for purpose. If the outcome from the due diligence and configuration phase fails to evidence the solution is likely to be fit for its purpose, then you will not be tied into wider licences for a lengthy period.
Beware the ‘Jam Today, Gruel Tomorrow’ approach
Many software providers (and some implementation partners) will offer a ‘deal’ to buy their licences at a huge discount before ‘quarter end’ or within a fairly short time window (usually a period of months) after their proposal and/or bid offer has been submitted to you. And, while some of these offers may be legitimate, as the old adage goes, beware of strangers bearing gifts.
We know from our work as Expert Witnesses for the High Courts, that many disputes arise when insufficient time or focus has been taken by the solution partner to undertake appropriate due diligence on your business outcomes, requirements and expectations either pre-contract or during the early part of the blueprinting phase, to establish the best solution configuration for your organisation’s needs. Then, it is often only after implementation, that clients find key aspects of their organisation have not been catered for, or will cost many times more than anticipated through higher than expected configuration time.
In the projects we have asked to come in and review after the event, more than 50% of ERP implementations do not (a) meet the client’s requirements, (b) complete within time (often taking twice as long) and (c) come in within budget (often costing more than double what was originally anticipated).
Solution providers often cite the reason for these failures as being the client’s inability to clearly articulate its requirements, even though, as “experts” in their ERP field, these providers are usually under a ‘duty to warn’ their clients of expectations that appear ambiguous or could be interpreted in more than one way. All of which underlines the need for clarity to be achieved and care to be taken by all parties before configuration and/or implementation work begins on a solution.
Therefore, if you split the contract award into two phases – the first covering the provider’s time to get a deeper view of your expectations and how your organisation operates, so it can go on to evidence that its proposed solution will be fit for purpose prior to the wider implementation roll-out and licence purchase – then you will have a much greater chance of success while also building a more collaborative working relationship together.
In real terms, while the software provider may present you with eye-watering discounts to entice you to buy your licences ‘now’ (or soon-ish), it’s important to keep in mind two points (1) those discounts will pale into insignificance with the overall end-to-end implementation cost, in the event your expectations are misunderstood by your implementation partner and (2) most implementation partners can source licences themselves at not-dissimilar discounts, so not taking the two-phase contracting approach outlined, really opens you up to a much greater chance of your software provider failing to meet your expectations.
The first contract award (known as; first phase implementation, due diligence, configuration, blueprinting)
Step 1 : Detailed Discovery and Planning
- Joint workshops: Initiating your project with detailed discovery and planning workshops led by your ERP solution partner, ensures you are laying a foundation based on mutual understanding. The supplier leading the detailed discovery using its extensive expertise, combined with your knowledge of the internal workings of your organisation, sets the stage for an appropriately configured and fit for purpose ERP solution.
- Industry best practices: By tapping into the supplier’s superior industry experience during the planning phase, you can align your ERP strategy with proven best practices, ensuring their solution is both innovative and effective.
Step 2 : Design and Configuration
- Fit for purpose solution design: The design phase is where the supplier’s technical expertise truly shines. Working closely with them ensures that their ERP system is configured to your needs while you also benefit from industry-standard configurations.
- Iterative feedback: By the supplier leading an iterative design process, this ensures continuous alignment with your goals. Regular feedback sessions with the supplier allow for real-time adjustments, ensuring the system remains fit for purpose throughout the configuration phase.
Step 3 : Testing, Validation, Deployment, Go-live and Continuous Improvement
- Scenario-based testing: By the supplier testing the system using real-world scenarios (Use Cases of your future operating model), both of you validate its effectiveness in a practical setting. The supplier’s expertise is invaluable here, as they can also suggest scenarios based on common industry challenges. It is important that the supplier clearly articulates the structure and benchmarking for the user-testing, albeit using your organisational insights, so that the end-to-end testing regime is appropriately performed.
- Supplier-led training: Supplier-led training sessions empower your team to effectively test and validate the system. Their technical insights ensure you are fully equipped to assess the solution’s fitness for purpose.
The second contracting phase (full solution roll-out)
Deployment and go-live
- Staged rollout: A staged rollout, informed by the supplier’s experience, reduces risks. By starting with a pilot, you can address any teething issues before deploying the solution across the entire organisation.
- On-site supplier support: Having the supplier’s experts on-site during the go-live phase is invaluable. Their on-the-spot support ensures any challenges are promptly addressed, assuring a successful launch.
Post-implementation review and continuous improvement
- Regular review sessions: Post-implementation, your collaboration with the supplier shouldn’t end. Regular reviews ensure you are continuously leveraging their expertise, refining your ERP system and driving operational excellence.
- Leverage supplier updates: The supplier’s continuous industry insights are a goldmine. By staying updated with their recommendations, you ensure your ERP system remains cutting-edge and aligned with industry best practices.
Conclusion
By encouraging your legal team(s) to approach the development of your ERP contract terms to focus primarily on contracting for the ERP solution partner’s industry experience and technical expertise in the context outlined in this article, then you are more likely to drive the ‘right behaviours’ between your ERP partner and yourselves to ensure the solution’s fitness for purpose and maximise the value derived.
