ERP Software Buying Trends 2013

Mark Canes

Capterra, a free service to help businesses find software, recently released the results of their 2013 Software Buying Trends survey.  The survey was conducted amongst 400 business professionals from over 30 industries, and was designed to evaluate their experiences with purchasing software.  Although most of the information garnered from the survey was as expected, there were also a few surprising results.  Let's examine some of the more surprising results, and the key takeaways from each when applied to purchasing ERP software.

40% of CEOs/Presidents were involved in all software purchases.  

The above statistic makes sense from a large business perspective – in large companies the CEO/President is often so high up the bureaucratic food chain that it is not necessary for them to ever use the company’s software system or become involved in the search process.  The task is handed off to a committee of employees from upper management who oversee the project and potentially use the system themselves.  Usually these large businesses are coming off similar ERP systems and have a good understanding of what is available and what to expect during the search and implementation processes, and the cost has already been factored into their budgets.  For small businesses however, especially those coming off an introductory system or no system at all, buy-in from the CEO/President is very important.  In many small businesses the CEO/President will be an active user in the system and therefore should have a say in the final decision.  Even if they are not an end-user, it may be the first time they are making an investment into a proper ERP system and so it is important that they understand what they’re getting into.  It is imperative that the CEO/President understands the benefits of implementing a new system in terms of increased efficiencies and overall cost savings in order to help justify the investment, when operating with a small budget.

Only 35% of organizations had a pre-defined budget for purchasing software.

Although it’s not necessarily crucial to have a clear-cut budget when starting the software search process, it is very important to have at least an idea of how much inventory and accounting ERP software costs and the different software system pricing tiers.  Too many businesses set arbitrary budgets without any real-world frame of reference, which limits their chances of finding the right solution. At a macro level there are three main ERP pricing tiers: introductory systems, which can range from $1,000-$10,000, tier two systems, which can range from $10,000-$100,000 and tier three systems which can cost anywhere from $100,000 to many millions of dollars.  Understanding the difference between each pricing tier and knowing what kind of system is appropriate for your business will reduce the sticker shock and give you a better idea of final costs.  Without a realistic budget you may be looking at the wrong system, which can result in spending more than necessary, or spending too little and not getting the functionality you need.

It's also important to understand the benefits of different systems in terms of cost savings.  Perhaps the system you choose is more expensive than you expected, but it means you can reduce human capital costs because now you don’t need to hire additional staff to perform specific tasks.

Tech Support Availability, Ease of Implementation and Commitment to Customer Service were within the Top 5 Most Important Factors in Software Selection.

This statistic was interesting as the above factors were ranked more important that the actual software platform, low price point, software company size or the vendor’s market share.  Businesses are starting to recognize that the relationship they have with their ERP vendor, the type of after-sale support and the ease of implementation are often more important than a company’s brand name or size.  This has given smaller ERP vendors the opportunity to compete against brand name solutions with better customer service, support and consulting services.  Evaluating the implementation process and after-sale support is now just as important as looking at a system’s functionality, and can often be the differentiating factor between vendors in a sometimes saturated market.

Most difficult parts of the software selection process (1) getting a clear picture of how well each possible software option could meet specific needs (2) being able to make comparisons between software companies/vendors (3) absorbing and understanding the information available about different solutions.

The above three issues can often be a result of poor planning and evaluating too many ERP vendors. Many companies believe that the more vendors they evaluate, the better chance they have of making the right decision; however this can often lead to no decision being made.  Referred to as the “paradox of choice”, the idea is that when consumers have too many choices they will often become overwhelmed and end up making no decision at all. Although it is important to spend time researching different ERP systems, when you begin to actively engage with vendors – discussing requirements and viewing demos – only a handful of vendors should make the short list; ideally between two and four.  This will help prevent information overload and allow you to better see and compare the differences between each vendor.  To further simplify the software selection process:

1. Create a list of must haves vs. wish list features.

Many ERP vendors will provide similar base functionality so it is important to understand what aspects of a system are must haves vs. nice to haves.  This will allow you to more easily compare the differences.  Is the user interface the most important factor? Do you need the ability to create custom reports? Does the after sale support matter?

2. Compare vendors as apples to apples.

Make sure that the vendors you’re comparing are within the same software tier.   Comparing an introductory system such as QuickBooks with a mid-market system will only lead to confusion as there will be large differences in the cost and functionality.

3. Invest the time in making a decision.

To avoid information overload, give yourself and your employees enough time to properly evaluate all your software options.  Leave a day between each demo to re-group, start the search at least a couple of months before you hope to get a system in place and make sure you involve the right people in the process.