4 common reasons why companies evaluate products from their ERP vendor first...even if they don't want to

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I just read an article titled: “Throwing Enterprise Software Vendors Under the Bus” by Thomas Wailgum of Enterprise Software Unplugged on CIO.com. Obviously, I work for a SaaS based software company and we compete against some modules from the big ERP vendors. We work with very large companies who primarily deal with Oracle or SAP. Whenever there is an IT need most of the companies, by default, will evaluate the products from their ERP vendor... even if they don’t want to.

These are some of the most common reasons I hear from these customers on their evaluation criteria (this is not an inclusive list):

  1. Common platform (or may be called Standard Platform): Most big companies are trying to standardize their IT requirements on one or two “common platforms”. Typically this means a software platform that has broad functional capabilities that can solve multiple business problems. If a company had a new business need they would first evaluate whether one of their common platform solutions can meet their requirements prior to evaluating a point solution. In theory, this should save the company money on integration, hardware and licensing costs. However the company will likely have to forego some functionality. If a software vendor can be designated a common platform, then they have a better chance of being more broadly deployed.
  2. Technical infrastructure and scalability: The big ERP vendors have done a very good job marketing their technical infrastructure to ensure very large deployments of software. They have benchmarking services to prove scalability. Although these companies are strong on infrastructure and scalability, large customers still have issues with performance on some applications. It is important for any other software company to be able to address these concerns and compare their solution to the big ERP vendors.
  3. Job security: The employees in an IT department typically want to work with name brand software companies so they can make themselves more marketable. They don’t want to become experts in a little known software that won’t help them get their next job. Many CIO’s have staked their careers on implementing their ERP solution and don’t want to admit it cannot meet all their needs.
  4. Costs: Big ERP companies many times “throw in” extra modules in a bundled license agreement with the hope that the customer will sign up for the M&S cost if they use those modules. (see John Westerverld's recent post about M&S - that's a whole discussion on its own) Regardess, the extra "free" modules make any ROI evaluation between software vendors look better for the ERP vendor. Although, there are typically many “hidden” costs in implementing new modules. For example, some of the modules actually require a fairly heavy integration effort even though it is on the same platform because they are not native products to the core ERP engine. Being able to show Total Cost of Ownership and ROI will be important for any software company wanting to compete against the big guys.

In order for a software company to be successful against the big ERP vendors they will need to address these concerns. Certainly the above concerns can be overcome, but the software vendors should know the bias they are up against.

What reasons have you seen on why companies don’t want to leave their ERP provider to choose a better solution?

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