The most overlooked cost item in ERP system selection

During ERP system selection, the various costs and possible benefits are analyzed in considerable detail and then assessed for each vendor. Oddly enough, one important component is often completely missed during this process. Which one? The cost of the next ERP system!

The selection of a new ERP application is never done as a back-of-an-envelope exercise. After all, most organisations want to profit from the new tool for many years. Many prospective buyers tell us something like the following:
“From a bookkeeping standpoint, the investment’s term of depreciation is 5 years. But ideally we want to work with the new solution for 10 years or more”.

Anyone who wants to work with a system for that long must have a really good crystal ball. Because in 10 years’ time, a lot can change! What will the world look like in the year 2026? Which devices will we be working with then? How far will the technology be developed? And which parts of our future have yet even to be invented, developed and marketed? So there are plenty of questions, and from today’s vantage point we can only guess at the answers.

To get a handle on this challenge, it can be instructive to turn the clock back some 10 years. Can you remember the exact state of technology in 2006? No one had ever heard of tablets back then. Let alone the verb ‘swiping’! WhatsApp didn’t even exist at that point. Google was a relatively unknown company. And cloud technology was in its infancy. Perhaps this comparison provides you a bit of perspective into what we can expect in terms of new developments in the coming 10 years. But far more importantly – can you comprehend what all this means for your potential ERP suppliers? Consider the required competencies, for example; or the required R&D budgets, the availability of international sales channels or the necessary entrepreneurship and decisiveness, of course.

If you think about the future of ERP technology, you come to the conclusion that you are selecting more of an ERP concept these days than an ERP solution – a concept that is developing at a furious pace. And which must develop! Because vendors that fall behind or miss the boat at any time are quickly lost in this market. And the most painful bit: their clients are lost, too.

Companies that are considering new ERP solutions would do well to test their vendors’ degree of future-proofing rigorously. Do the vendors on your shortlist have any chance at all of surviving this rat race until 2026? Are they (sufficiently) profitable these days, for example? Do they have sufficient international scale? What is the size of their R&D budget? How innovative are they? And is a formal product roadmap available for the solution on offer?

By getting a good understanding of the prospective vendors’ commercial legitimacy during the selection process, you can prevent many unpleasant surprises in the future. However, if you fail to look to the future, then just make sure you include a huge sum in your budget for the next ERP system!

This blog was published on MSDynamicsWorld.com