Follow the yellow brick road:
Routes to market in Public Sector ERP selection
Procurement in the public sector is just different - and the same is true when it comes to selecting and buying ERP software. The public sector has all kinds of red tape and compliance to wade through in procurement - and that’s before you get into building a business case based on citizen value instead of customers and profits.
As not-for-profit organizations, the ROI and benefits of implementing a new ERP system don’t come from profit and increased share prices. Many public sector organizations are far more interested in streamlined services and system simplicity so that users and citizens alike can feel the benefit of ERP implementation.
Although ERP selection best practices are fairly well defined, as a public sector organization there are additional considerations to take into account for example; compliance, interoperability and citizen value.
Best practices are important - I mean, it’s in the name - so it’s vital that you approach ERP selection with these practices in mind. However you also need to consider the unique benefits you need your ERP system to deliver, and the additional hurdles you need to overcome in your ERP selection process.
Often, public sector ERP customers become overly concerned with requirements like budget, training or data privacy. These things are important, and we’ll get to them later, but most important of all for the public sector is choosing the right route to market so you get everything you need from your ERP software vendor and partner selection.
Without further ado, let’s get into it.
What’s new in the land of ERP for the public sector?
It’s probably easier to answer what isn’t new, I’ll be honest.
ERP is typically implemented once in a generation so a lot has changed since your organization last did it.
Scary right? Wrong.
These changes have totally changed the way ERP is viewed and used, and we think for the better, but there’s a lot to catch up on before starting your ERP selection process.
ERP software and infrastructure as a service - SaaS and IaaS
First things first, it’s time to get saas-y.
SaaS (Software as a Service) is easily the most common model for ERP licensing in this day and age.
SaaS and IaaS (Infrastructure as a Service) can remove much of the responsibility for things like hosting and maintaining your ERP system, and cloud hosting allows users to access your systems from literally anywhere.
Of course, with ERP vendors and hyperscalers taking responsibility for things like maintenance and hosting, you’re paying for this ongoing support. That means there’s a change in how you procure your licenses.
For many, ERP licensing and hosting is no longer a one-time purchase. SaaS works like a subscription. Basically, ERP is the new Netflix.
This isn’t intrinsically better or worse than the old way of doing things, but it does mean that your ERP system will likely flip from being largely CapEx to OpEx.
This is an important point to make clear early in your selection process as it could have a major impact on how your finance department views ERP spending in terms of both implementation and running costs.
When ERP was originally devised it was intended to bring together the islands of computerization within a business. This idea really came to a head in the 90s with products like SAPs R/3 and ECC being run as single, monolithic ERP systems that ran everything in the business.
This has its benefits, like better integration between different parts of the business. However, it comes at a cost as that level of integration made change, testing, and change management a nightmare.
Today, thanks to improvements in integration and API technology, many organizations are building smaller, nimble, composable ERP systems.
Composable ERP systems are made up of modular components that you can combine and recombine to deliver seamless integration across your business, without running a single monolithic ERP system.
It’s like an all-you-can-eat buffet of tasty IT dishes, all aiding your organization’s delivery of services.
Today, many people choose a smaller ERP core that runs the back office and integrate cutting-edge products to deliver functionality in value-add areas like procurement or Sales and Marketing.
Developments in areas like API, Artificial Intelligence (AI) and Machine Learning (ML) enable composable architecture so that it functions like a single, integrated ERP system.
This gives you all the benefits of old world monolithic ERP, while enabling you to adapt to changing business requirements, enhance operational efficiency and drive innovation.
It gives your business people access to the cutting-edge software they need while keeping your ERP small and agile enough to evolve with the changing needs of the business over time.
When you think about your new public ERP system, leveraging composable design principles is definitely something you should consider.
Public and Private Cloud hosting for Public Sector ERP
But SaaS and composable isn’t all that has changed in ERP.
As cloud computing becomes increasingly ubiquitous, it too changes the best practice approach to ERP selection in terms of hosting, implementation and support.
Whether you choose an offering like SAP’s RISE which includes cloud hosting, or you work with a hyperscaler like AWS or Microsoft Azure, the majority of ERP implementations taking place today leverage cloud hosting rather than on-prem.
For the public sector this can be a terrifying thought as you likely hold a lot of sensitive and important citizen data inside your system. With the level of data sensitivity and the security required, some public sector ERP customers instinctively feel that on-prem is the safest bet.
However, the majority of hyperscalers have data centres around the world to help you comply with legislation like The Data Protection Act 2018 and will be able to work with you on meeting the required security standards for your system.
So even the most security-conscious public sector bodies shouldn’t rule out cloud hosting from their ERP selection process straight away.
Now that we’re all caught up on some of the biggest changes to ERP over the past few years, let’s get into what you need to have in place before you go to market.
We’re off to see the Wizard, do you have your ERP and Business Strategy?
The biggest mistake any organization can make when selecting and implementing ERP is treating it as a technical exercise.
ERP should deliver your business strategy - so you need to consider your long-term business objectives and goals. This doesn’t just mean thinking ahead, but taking into consideration what you have now and where you want to be in the future.
Create your business process framework
Let's start with process knowledge and process frameworks. Seriously, if you don’t know how your organization runs business processes and they aren’t documented - now is the time to start.
In fact, our research shows 70% of ERP customers don’t have an up-to-date list of business processes.
It may seem obvious to you, but when you go to market for ERP you need to be able to explain what you need an ERP system to do so that SIs and Vendors can respond accordingly.
It’s not only beneficial for ERP selection, but having a comprehensive business process framework at your fingertips is an invaluable tool for understanding how you work.
Remember, what might be obvious to you won’t be for everyone else.
Defining your as-is and to-be technology landscapes
Your business process framework defines what you do. It’s just as important to describe the technology that does it.
Completing an audit of your as-in technology gives you a head start when SIs and Vendors ask what they're being asked to migrate or replace in a greenfield implementation.
Mapping your technology is also important from an infrastructure perspective. If you need to make upgrades, then knowing what you have makes life easier in the long run.
And, by defining your as-is and to-be systems, you are well on your way to creating your ERP transformation roadmap.
Understand what the business needs to achieve with ERP
Let’s talk business strategy. What’s yours?
As previously mentioned, ERP selection and implementation is more than just technical - far from it. Understanding your business strategy and how ERP can make this happen is vital when it comes to ERP selection.
You can define your strategy in a number of ways. If you’re lucky your board will publish strategy documents every year.
You can also run executive interviews with senior business people to understand what they like about the current system, where they’re feeling the most pain, and what they want from a future system.
Turn this into a narrative playbook to play back to the business and communicate what you want to achieve from ERP when talking to software vendors and systems integrators.
Finding your yellow brick road - 4 routes to market for ERP selection in the public sector.
When it comes to choosing ERP software and your Systems Integrator, there are many approaches you can take.
Here are the 4 main schools of thought on ERP selection, along with who we think they’re right for.
Option 1 - Single source SI selection
For some organizations, their preferred ERP vendor is clear and there’s little need to evaluate alternatives. For example, there are many organizations with an extensive SAP footprint and complex solutions spanning multiple process domains. For these people a move to SAP S/4HANA is realistically the only option.
That said, although choosing your ERP core may be straightforward in this situation, it's still recommended to consider a composable approach with different applications surrounding that core.
In these situations, a typical ‘go to market’ approach is to engage an SI directly who can then help define a proposed solution map and, ideally, help you understand the application choices that could surround a core S/4HANA solution.
For example, rather than automatically selecting SAP Ariba for Procurement, could Coupa be a viable alternative? Similarly with SAP SuccessFactors or Workday for HR.
There are certainly benefits in this type of go-to-market approach, particularly as this is often a single-step sourcing process to select an SI, but it requires a high degree of in-house expertise to define requirements in the right way. This can lead to an increased cost, largely due to the increased role of the SI.
An alternative to this approach is to engage an independent 3rd party to help with the SI selection and ensure that the go-to-market approach is based on clear requirements and a well-articulated vision and roadmap.
Option 2 - Select the application then select the SI
For some organizations the move to SAP S/4HANA is an obvious choice, but for many the forced migration to S/4 is an opportunity to revisit their ERP roadmap and consider if there are viable alternatives to SAP.
Good examples are smaller organizations that use their core ERP solution to run primarily commodity processes in Finance, Procurement and HR. A move from SAP ECC to S/4HANA may not be the right answer and there is significant benefit in exploring the alternatives in the market.
However, this approach can be complex and requires both a structured approach to market engagement and clarity regarding the scope and requirements that will be fulfilled by the core ERP solution.
Significant expertise is required - not around the specific applications, but about the go-to-market approach. You need to articulate requirements in such a way that it’s easy to assess the solution fit of the different applications.
Outside of solution fit, understanding SaaS-based services, cloud hosting options and how this impacts legal, data and information security requirements is vital.
As this is a two-stage sourcing process, it can significantly elongate the selection cycle. Selecting the SI can’t begin until the software application selection has concluded.
It's also important to note that the application choice can determine the type of SI partner. For example, the partner ecosystem for Microsoft is quite different to the partner ecosystem for SAP and SIs don't necessarily have capabilities across all ERP applications.
Similarly, a number of SIs specialize in specific ERP applications. Of course, there is also an option for the Software vendor themselves to take on the SI role, as is sometimes the case with SAP and Workday.
Option 3 - Engage the SI to select the application then engage the software vendor
This option effectively combines elements of Option 1 and Option 2, with the SI providing the application and market expertise to help make an informed decision.
The clear benefit is leveraging the SI’s expertise whilst in theory keeping all options open with regards to application selection.
However, the challenge with this approach is a potential over-reliance on the SI and the risk that they make recommendations based on the best application choice for themselves in terms of capability and capacity, rather than the best choice for you.
This is a two-stage sourcing process as the SI is selected first, but you must still engage with the software vendor about licensing and overall subscription costs.
Option 4 - Select the application then select the SI (with independent market expertise)
Option 4 is our recommended route to market.
This option builds on Option 2 with the addition of independent consultancy to supplement your internal team. This lowers risk and speeds up the sourcing process with accelerators and improved market knowledge.
This is particularly relevant for organizations that have a long association with a particular ERP solution.
It’s important to see what else is out there in the market and understand how different applications can deliver on your business strategy.
By working with an independent consultancy you will have clearly defined requirements and go to market in a way that promotes healthy competition between the software vendors.
Your advisors will ensure vendors clearly demonstrate how their application meets your ERP system requirements and stop you being misled or oversold.
This approach also mitigates potential bias that the SIs may have towards a particular solution e.g. partner agreements, their capabilities and capacity, or their sales targets.
It’s also important to note that in our experience many ERP vendors and SIs advocate customers partner with an independent expert.
It benefits them as an independent consultancy speaks their language, and will help you articulate your requirements in a way that makes sense to software vendors and SIs alike.
Keep an eye out for flying monkeys during your ERP selection
This is all getting a little too Wizard of Oz right? Bear with me, it’s not that loose of an analogy I swear.
Your ERP selection journey is a lot like Dorothy’s journey to Oz.
Much like the Scarecrow, the Tin Man and the Lion, you too will meet various sidekicks along the way - but I admit the vendor, the SI and the independent advisor don’t quite have the same ring to it. But no journey would be complete without making friends along the way, right?
But just like the Wizard of Oz, there are going to be some flying monkeys that throw you off course.
These are the things that organizations often get too wrapped up in when it comes to ERP selection, when in fact preparing properly and choosing the right route to market is going to have the biggest impact overall.
Here are some of the common flying monkeys we see throwing people off their yellow brick road to ERP software selection.
How much will my ERP implementation cost?
We’ve all seen the consulting triangle. If something is cheap and quick, it’s never going to be good. If you go down the road of choosing ERP based solely on what is cheapest you’re unlikely to get a system that does what the business needs it to.
Often, if people are being pushed into a decision by budget constraints it’s because they haven’t been able to demonstrate the value of a new ERP system with a strong business case.
Budget is of course massively important on an ERP program - it’ll likely be the most expensive program your organization ever runs - and you should do everything in your power to keep the implementation on plan and on budget.
But, choosing an ERP software because it’s cheapest is the wrong way to go about ERP selection.
Which ERP software has the best training and change management
Our SAP Success Report uncovered that adoption has the biggest impact on ERP program success, so change management is really important to get right.
However, no single ERP software is easier or better to implement from a change management perspective.
While many come with their own training and change tools like SAP Enable Now, there are tons of great 3rd party training tools that are compatible with any ERP software.
And, ERP adoption best practice is the same across all ERP software.
So, change management is very important in your program, but which software you choose isn’t going to make it easier.
Focus on choosing the best software to deliver your business strategy, and if you’re worried about change management read our 7 Sins of SAP adoption guide.
Managing scope creep in ERP selection and implementation
Similarly to adoption, scope creep is a risk on all ERP programs, and is unlikely to be mitigated by choosing a specific ERP software.
To avoid this problem you need to be clear about what you want to achieve with ERP, and what the scope of the project is upfront.
You can achieve this by choosing one of our proven routes to market and using an independent advisor when selecting your SI.
Managing scope and scope creep is important, but it isn’t going to change if you choose Oracle over SAP for example.
Maintenance and support considerations when choosing ERP
As covered earlier, you'll likely end up choosing some combination of SaaS, IaaS and PaaS during your ERP selection which means a lot of maintenance and support will be covered by your software vendor or hyperscaler.
To make sure you’re getting the level of maintenance and support you need, work with an independent advisor during your selection process and they will help define this before you go to market.
No ERP software is inherently easier to support and maintain, and "as a service" models means you'll likely get a fairly standard (but well proven) package from your vendor. Instead of choosing ERP because it's easy to support, choose the software that delivers your business strategy.
Continuity and Recovery when choosing ERP
Much like change management and adoption, continuity and recovery are vitally important - but it’s primarily your responsibility.
There’s no one ERP software that is particularly immune to disasters. No one hyperscaler has managed to make their hardware volcano-proof.
If you have continuity and recovery concerns you can work with an independent advisor on your continuity and recovery plan but this won’t be significantly affected by which software you’re running.
Instead, focus on creating a strong business case and roadmap, and choosing the right route to market for ERP to get the best results.
There’s no place like home
Luckily, when you’ve finished your ERP selection journey you won’t end up in Kansas. (Unless you live there of course, but you’ll still be in a better place.)
However you look at ERP, whether it’s SaaS or on-prem, composable or monolithic, understand what's new and possible gives you an objective and open mind when you go to market.
Of course, as ERP implementation only happens once in a generation, we recommend getting independent advice on which route to take to get the best outcome for your business.
Independent consultancy can help you make the choice between SAP or Oracle, Workday or Microsoft or any other ERP software. It’s reassurance that someone has your back wherever you are on that yellow brick road. Like Toto.
Choose the right yellow brick road and get in touch today.