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Tech & Sourcing @ Morgan Lewis


In an April 1 CIO Magazine article outlining “[eight] ways to get the most out of your ERP system,” Jennifer Lonoff Schiff noted that, according to the 2015 ERP Report developed by Panorama Consulting Solutions, approximately one in five enterprise resource planning (ERP) implementation projects is unsuccessful. The article sets forth solutions and management-specific steps to help avoid failure, including choosing an ERP solution that best suits your business needs/industry requirements, looking at total cost of ownership, vetting vendors/integration partners carefully, making sure senior management is onboard, and establishing a cross-functional team. 

However, beyond these and other solution-focused considerations, many people tend to overlook the roles that the contract and the contracting process play in achieving the value of a project. In fact, many contracts can act as an inhibitor to achieving value.

Customer Roadblocks and Resistance to Change

In any project that is meant to act as a change enabler, such as ERP, it is important to remember that both the vendor and the customer will play a role in the project’s success. Failing to understand the customer’s participation and any institutional roadblocks or failing to take these into account in the contract can easily lead to a situation that causes one of the parties to act in a way that is not beneficial to the project’s outcome. 

For example, it is common to structure payments around project milestones and attach corresponding financial disincentives for the vendor when a milestone is not met. This can work; however, it is important to realize that a milestone may not be met because of the customer’s resistance to change. Putting the vendor in a position where it is financially motivated to become more aggressive can actually exacerbate the problem if the problem is the customer’s resistance to change. 

It is key that customers be introspective about their own capabilities and thoroughly think through any special business considerations that may make any changes particularly difficult. Identifying and assessing barriers to adoption early when drafting a request for proposal (RFP) may not only help determine and select the right vendor or integration partner, but may also serve as a useful tool when drafting the contract. 

Stakeholder Involvement in the Contracting Process

It is also important for customers to be inclusive in identifying the stakeholders that will be involved in the business’s adoption of the ERP system. This allows customers to begin their change management process early, and the contract can actually be used as a conduit for those considerations. 

It can be helpful to engage stakeholders in drafting or at least reviewing the RFP. This allows early buy-in and avoids confusion later on about requirements.

Shifting or Accepting Risk

It is imperative to be cautious when shifting or accepting risk, because improper risk shifting can have unintended consequences. For example, establishing a low price with a vendor may affect the quality of the resources devoted to a customer’s project and ultimately the project’s value to the customer.

Taking Possible Failure into Account

When an ERP project fails, remediation tends to be expensive and time consuming. This should be taken into account when devising the fee arrangement. Carefully drawn incentives may be a great investment when weighing them against a failed implementation.