Jack McDonald’s business was growing fast, and its accounting software simply couldn’t keep up. In 5 years, the company, Leeza Distribution, had grown to 12 employees from 2 but was still using an off-the-shelf accounting package.
McDonald and his business partner Mark Hanna knew they needed a more big-league enterprise resource planning (ERP) system to replace the outdated accounting software and meet other business needs. What they didn’t know was that the task would turn into a major headache.
The Montreal company, which distributes branded surfacing material such as floor tile and quartz-based countertops, ended up spending 5 times more than budgeted on the ERP software. What’s worse, the system turned out to be poorly suited to the company’s needs and was still causing frustration 5 years later.
McDonald’s experience is common when small and medium-sized businesses go shopping for new information and communications technologies (ICT). These disappointing experiences could explain, at least in part, why most Canadian companies don’t invest enough in ICT, according to studies.
Once burned, many entrepreneurs hold off on needed investments on hardware or software and end up depriving themselves of the systems they need to compete, says BDC consultant Lawrence Young, a Montreal-based technology expert.
With a little planning, however, Young says an ICT purchase can do much more than just satisfy basic business needs; it can become a vital tool for enhancing competitiveness, reducing employee stress and boosting profits.
The secret, Young says, is to follow a detailed ICT purchase plan that is aligned with your company’s strategy. Failing to go through a rigorous planning process is one of the main reasons many ICT purchases go off the rails, he says.
“The buyers and sellers often don’t start off on the same page,” says Young, who specializes in implementing ERP software. “The choice of vendor and system is often a decision based on the buyer’s instinct or which vendor is perceived to have the lowest price.”
To avoid those kinds of pitfalls, here are the steps for making the right ICT purchase for your business.
- If you haven’t already done so, draw up a strategic plan for your business, including a vision for the future and an action plan for achieving it.
- Create an inventory of your existing ICT. Then, list the problems with your current system and opportunities for improvement. Is it possible your existing system was simply poorly installed or could be reconfigured or upgraded to meet your needs?
- Create a thorough list of requirements for new ICT systems. This “needs assessment” should be based on your strategic plan. Give each requirement a weighting based on its importance within the strategic plan. Be sure to include ICT implementation elements, including employee training and re-engineering your business processes if necessary. Seek the help of an outside consultant if needed.
- Assess potential costs and determine the financial and human resources available to meet them.
- Send prospective vendors a request for proposals based on the needs assessment. Be sure to consider smaller vendors—not just the major players.
- Score how well vendors meet each requirement, and determine the total cost of ownership of each proposal including costs for licensing, professional services and maintenance.
- Invite your top picks to present their product. Provide them with “a demo script” covering the specific requirements that you want them to address during their presentation.
- Involve employees throughout the process to help ensure their needs are met and that they take ownership of the new system.
- With employees’ help, develop an “action plan” for implementing the ICT.
- Monitor implementation and impacts.
When McDonald decided to update his ERP system earlier this year, he opted to take a more systematic approach than he had the first time around. He quickly realized he needed outside help for the job.
He called BDC Consulting and retained Young. McDonald says Young did an in-depth needs assessment for the business built around the company’s strategic plan, which envisages the number of employees growing to 120 over the next 5 years.
The result was a highly detailed request for proposals that listed nearly 1,000 requirements. The top 4 vendors were each invited to do a half-day presentation focused specifically on Leeza’s needs, making them easy to compare. “We were comparing apples with apples, not apples with pomegranates,” McDonald says.
The top 2 picks were then each brought back for a full-day presentation, followed by an additional half-day each to answer follow-up questions.
The final choice was about as well researched as it could be, McDonald says, and the new system will be a cornerstone of the company’s ambitious growth plans.
Content in this section is provided in partnership with the Business Development Bank of Canada. BDC provides entrepreneurs with financing, venture capital and consulting services. To find out more go to BDC.ca.