CIO’s Corner – Marco Tapia PicNet Pty Ltd Page 1
CIO’s Corner: Practical ERP Justification, Selection and Deployment. August 2011
Interview and Case Study
Insert: Ashwin Ram, General Manager IT, Australand
Most companies need an ERP system to run their business, however the investment is not insignificant and mistakes can cost a lot in time, money and effort. These systems tend to be entrenched in a company for a long time. The wrong system can definitely hinder business growth and efficiency.
If the “annual CFO Software Guide (from the AFR)” is to go by, there are literally hundreds of ERP solutions in the market, ranking from the very small to the very large, the cheap (even free as there are some open source solutions) to the very expensive enterprise based solutions.
Selecting the correct system is a major task and it needs to be done professionally. In my view an ERP tends to stay with a company for about 10 years or more, so it is worth doing a diligent selection and implementation. There are methodologies for software selection and in this case it is well advised to follow them. In terms of cost, don’t be surprised if the overall project cost is some 4 – 5 times the cost of the software licences. Depending on the size and complexity of the operation, the implementation time can easily be months or even years.
Listed on the ASX, Australand is one of Australia’s leading diversified property groups with activities spaning across Australia and including development of residential land, housing and apartments, development of and investment in income producing commercial and industrial properties, and property management. Its General Manager for Information Technology, Ashwin Ram is leading a new project that has justified the selection and implementation of a new ERP for Australand, so no one better to ask for some practical advice on how to go about it.
With significant systems experience for large companies in Australia, Ashwin Ram has been the GM of IT at Australand for more than three years and believes a good and well selected ERP system should stay with a company for a very long time, therefore its cost can not be considered as a short term project but instead as a long term one. Ashwin explains herein his unique and practical methodology to successfully select and implement a large ERP solution.
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MT: How can you justify the investment on a new ERP system?
There could numerous reasons to justify such an investment, however selecting one or two key reasons are better to drive the message through the organisation. Reasons could be risk mitigation against an unstable system, scalability, the need for richer functionality, integration leading to unified and common view of data (single view of the truth), enablement and enforcement of standard processes, simplification of IT landscape (removal of spread sheets, multiple systems, etc).
MT: What is your unique and practical methodology for selection?
My real focus is on implementation. I would rather spend the company’s energy and resources implementing the solution in partnership with the selected vendor, rather than spending lots of time, energy and resources selecting a system; and then be exhausted when the implementation starts. Some companies assess multiple vendors and request huge amount of work from them, answering RFP, providing demos, prototypes, etc. Scoring these systems and options can only induce cost and confusion to the project. A number of vendors will score similarly and the focus will be in the selection rather than in the implementation.
Instead, my selection methodology is short, sharp and effective; based on risk mitigation and then focus in the implementation instead.
To start with, I identify macro level requirements at a strategic and operational level. Then I establish a list of products with input from independent advisors, market knowledge etc – the list would typically consist of products that are prevalent for your company size, for your particular industry, both locally and globally. The chances are that a few products would meet these requirements.
The temptation is to conduct detailed product evaluation however; this is likely to lead to fairly similar rankings across 2-3 products but will lead to a polarised user community conducting the evaluation. It is better to document some top 50 mandatory requirements and run a validation against one product from the short list which has a low risk profile for your company (e.g. Management experience, commonly used in the industry, commonly used by similar sized companies, etc). If the product fails on mandatory requirements, move to the next one. This keeps the internal users more focussed, and leads to quicker outcome. Usually, the first product works and the vendors tend to do a better job explaining the product to the business rather then trying to out-do the competition as is typical during an evaluation exercise.
MT: How much to spend?
Lots of companies believe the cost is in the software, when really it is in the implementation. As a guide, the costs can be split at about 5% on validation, 15-20% on software, 5% on hardware, 70-75% on implementation. Actual cost depends on scope, number of processes, number of users, complexity of data conversion, quality of implementation partners, willingness to accept standard solutions (and fewer customisations), interfaces to existing systems, mandate from executive team, number of variations entertained during implementation, etc. In my experience, over a 5 year period, an integrated ERP is more cost-effective and stable than a best of breed interfaced solution delivering comparable set of processes
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MT: How long do you think and ERP will be running on a company?
We have taken a 10-year view, with a technical upgrade to be executed in year 5. You don’t want upgrade too frequently as cost to train people and convert data from one system to another, no matter how small the implementation is, is quite a burden
MT: What are the key features to consider?
Vendor stability, product roadmap, availability and capability of product specialists in the country, sticking to standard solution, rule based configurable product supported by a strong development framework (to develop workarounds where standard solutions may not work), active change management, strong governance, proven project management, gaining executive support and mandate, engagement from key subject matter experts from the business, and holding internal people/steering committee accountable for success
MT: What is an appropriate implementation timeframe?
Depending on the company size and complexity it could take years, however, even in that case, modular implementation of 18 months maximum should be aimed for. On average 12 months is the ideal, depending on access to internal staff, project scope, and level of business process re-design. In terms of the go live methodology, I personally prefer the ‘big bang’ deployment of the selected modules, after appropriate test, dry runs and multiple data conversion exercises. Large companies like ours can’t afford parallel runs for enterprise level rollouts. It is not practical to expect 80% of the employees to be entering data into two systems for any sustained period of time
MT: What technology considerations will you keep in mind?
Your technology requirements need to be listed as part of your top 50 requirements as part of the selection. Your company architecture needs to be aligned and should be an important part of the selection process.
However, it is always safe to have your IT aligned with major players (Dell, HP, IBM, EMC) for hardware, (Oracle, Microsoft) for databases, and software depending on the Tier (e.g. Tier one SAP, Oracle, Microsoft, etc).
MT: What project governance will you use?
We have used an executive committee that reports to the board. The executive committee must be chaired by the business owner of the ERP project and includes the Project Director and GM of IT. The board wants to know the risk, project milestones and new policies or significant new processes to be implemented.
We also have a Business Process Management group that is chaired by a nominee of the Executive Committee. This group compromises of General Managers, Project Director and GM of IT. It is this group that provides the direction to the Project Director.. The Project Director is supported by team leaders and a Change Manager and this group carries out the detailed planning and execution of the project. The project team has strong representation from business subject matter experts and IT
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MT: How important is vendor R&D on ERP?
Very important and in my experience, the majors tend to spend a high proportion on R&D resulting on significant benefits to customers like ours. Also, it is best to stick with the majors as they are likely to be around in 10 years time and transfer significant R&D results to you. Niche players tend to get bought out, lose product directions or go bust – hard to take a 10 year view on these.
Marco Tapia - PicNet’s Managing Director (www.PicNet.com.au) a former CIO with broad national and international experience; and an enthusiastic supporter of Australia’s IT innovation.
Case Study
Australand ERP selection case study – How Australand’s Ashwin Ram took the organisation through a journey of selecting and implementing an ERP
This case study follows up the detailed interview about Ashwin general approach to ERP’s selection and deployment.
Introduction
Starting in 2009, over a period of 18 months Australand conducted formal and informal research into a number of potential software solution providers for Real Estate companies. The research included findings from professional advisors, Australand’s internal competitor analysis, discussions with independent vendors (The Butler Group and Real Foundations), and peers in other corporate organisations.
The research yielded a number of potential products but the four that featured commonly across most findings included SAPand 3 other ERPs prominent in the Real Estate industry.
Product Assessment
The IT Platform Steering Committee, over a period of time, rated the products across a number of ‘comfort’ factors. These factors were seen as key to ensuring Australand had a low risk project
CIO’s Corner – Marco Tapia PicNet Pty Ltd Page 5 implementation; and, also achieved a cost effective, stable and sustainable IT platform capable of supporting the business over a 7-10 year period (punctuated by a technical upgrade around the 5-year mark).
The risk assessment of the comfort ratings, for project execution and post Implementation across a range of products from various Tiers, are listed in the table below.
Product Comfort Factors
SAP Tie r 1 T ie r 2 T ie r 2 T ie r 1 T ie r 3 T ie r 3 In cu m b e n t T ie r 3 Vendor Stability Product Maturity/Stability Product Footprint
Product Technology Cycle
Specialised Real Estate Modules
Fit For Listed Companies
Fit For Real Estate Companies
In-House Mgmt Skills
In-House Technical Skills
In-House User Skills
Product Ecosystem Maturity
In-House Ecosystem Experience
In-House Project Rollout
Experience
Leverage via CapitaLand
Legend
Low Risk Medium Risk High Risk
The rating indicated a greater level of comfort with SAP compared to all other products. There was a level on concern around SAP’s capability in the Real Estate industry and the steering committee instructed an evaluation team to extensively validate the capability prior to committing to the product. The fact that the GM of IT had extensive experience associated with executing SAP projects and managing complex SAP environments, and that CapitaLand, our major shareholder was also a satisfied SAP customer were both seen as positive.
CIO’s Corner – Marco Tapia PicNet Pty Ltd Page 6 The other products were at the end considered a higher risk and Australand was only going to look at them should the first option fail.
Some of the reasons why other products were considered higher risks included concerns around the technology roadmap, effectiveness of the Real Estate management modules, suitable coverage around the broader enterprise management capability (such as CRM, HR, Payroll), corporate
ownership, business track record, internal experience and general internal awareness of the broader ecosystem supporting those solutions.
Assessment Conclusion
A costed plan was developed to evaluate SAP and three others. The cost of executing this plan was approximately $1M with an expected duration of 6-7 months. By comparison, running a project just to validate SAP as a fit to Australand’s Real Estate requirements (seen as a key risk in the table above) was a 3-4 month exercise, costing significantly less and consuming fewer business resources (at a time when business is ‘ramping’ up and access to suitable business resources is limited) .
Based on the product ratings, the lower cost and speed of execution time to evaluate one product, the CEO endorsed formal validation of a single software product (SAP). This ultimately led to Australand selecting SAP for its ERP platform.
Marco Tapia - PicNet’s Managing Director (www.PicNet.com.au) a former CIO with broad national and international experience; and an enthusiastic supporter of Australia’s IT innovation.