Is your business considering purchasing a new business information system – ERP, CRM, WMS, TMS, etcetera but you have heard horror stories of projects that went wrong?
I can help you, I have a robust, proven, tender based procurement process with a collection of 17 template documents including a 60 page “Request for Proposal” template with tough contractual terms designed to ensure that the price that is agreed is the price you pay and that you secure the “A Team” for your implementation. The entire approach is based on that applied in the Construction Industry to secure robust contracts and delivery.
If you are considering a new business information system, please reply to this email to arrange a no obligation Zoom call to discuss your requirements.
In a series of recent projects for Manning Impex Ltd, the Managing Director, André Cheong stated as follows:
“… James’s remarkable skills in budget management were evident throughout the entire project. He ensured that every aspect of the deployment adhered strictly to our financial constraints without compromising on quality. His meticulous attention to detail and strategic planning helped us avoid any unexpected costs, demonstrating his proficiency in financial stewardship… ”
For the entire testimonial please see the testimonials at the bottom of the home page on my website.
Introduction
In my article on “The Real Issues in Business Systems”, I mentioned the bad experiences of Bridgestone and BMW with business systems implementations. These situations highlight the fact that even the most successful businesses experience difficulties with regard to system implementation.
While the “Real Issues” series of articles discusses the factors that give rise to the problems experienced and specific measures to prevent the problems, this series will address the question of how to go about procuring systems and initiating the implementation of new systems in a way that takes account of the Real Issues principles.
In considering what follows note that the successful implementation and operation of business information systems (ERP, WMS, CRM, etcetera) has little to do with the technology or the industry in which it is deployed – it is largely a function of human psychology – the governance, strategic alignment, configuration precision and related issues that drive success or failure. As the ERP Doctor I have many years of experience diagnosing these soft issues and prescribing solutions that work and deliver high value outcomes. See my articles on the critical factors for success and the critical factors causing failure for more information.
The procurement approach outlined below is directed at addressing the factors causing failure and the factors for success in a robust manner in order to maximize the probability of a successful outcome.
This article is directed at informing executives and senior managers with regard to methods that are vital in order to be able to manage the procurement and implementation of new systems effectively. These same methods have application in the procurement of general business improvement services as well, and some of them can be applied to contract renewal with regard to ongoing support contracts.
In this article I will set out to explain a robust business systems procurement approach, which is directed at achieving robust and enforceable contracted outcomes for a truly fixed price. This approach is based on the manner in which large construction projects are tendered and contracted, something that I term “the engineering approach”. Inherent in this approach is a requirement that the entire procurement, configuration, customization, testing and commissioning process is undertaken to standards that permit effective litigation by the client in the event of non-performance.
Fundamental to the engineering approach is the reality that engineering construction takes place within the framework of tried and tested procurement methods with tough, enforceable contracts. There is also a clear understanding by all parties that litigation will follow negligence, non-compliance or default. Because litigation is entirely practical in such situations litigation is virtually never required.
The approach to business systems procurement outlined in this article is directed at achieving this same level of robust contracting such that successful litigation is entirely possible and therefore not required. This will be discussed in more detail in subsequent articles.
Fundamental to this engineering approach to business systems procurement is an emphasis on requiring the implementation contractor to accept responsibility as the expert in the implementation of their software. This is done in such a way as to transfer all appropriate risk to the contractor while clearly delineating the responsibilities of the client organization. This is achieved through a robust procurement process with clearly defined governance and results in a tough and robust contract, leading to an effective implementation (configure, customize, test, deploy, commission) which delivers the agreed realistic business outcome.
The approach comprises the following major components. The discussion focuses on major projects but can be down-scaled to even the most basic business systems or even business services procurement:
1. Strategic Facilitation and Executive Governance
For large projects which operate across operational divisions in the organization, the Executive Sponsor of the project must be the Chief Executive. The Chief Executive is the custodian of the integrated view and function of the business and is therefore the only person with the perspective and authority to perform this role.
In order to ensure that the Chief Executive can perform this role effectively and with limited time commitment there are a number of other roles that are critical:
a. Strategic Advisor to the CEO and Strategic Project Facilitator
An expert in the field of business systems procurement and implementation, with the ability to serve as an advisor to the sponsoring executive and guide the project. NO alliances or allegiance to any product or contractor organization. This person must be able to operate at the executive level.
Analogous to the senior architect on a prestige building construction project. This person must interpret the requirements of the business, express these with a far-reaching long term view of where the business is going and ensure that the new business solution is geared to this “future” view. This person should not have any line responsibility in the business. They should monitor the “Factors Causing Failure” and “The Critical Factors for Success” that are discussed in the articles on “The Real Issues in Business Systems”.
This will generally be an independent contractor. It is sometimes challenging to plan their time since they are largely dependent on the rest of the people working on the project for day to day workload.
It is generally not practical for the CIO to play this role, they are too caught up in the day to day pressures of the business.
b. Business Team Leader
A member of the executive team who is responsible for ensuring that the right people in the business are consulted at the right time. Also ensures that the right people are in the room for workshops, testing sessions, etc. This person carries the ultimate responsibility for ensuring that the business is fully consulted and engaged in all stages of the project.
c. Contract Manager
Also an executive or at least a senior manager one level down from the executive suite. Responsible for all the logistical and contractual arrangements with regard to the procurement, assisted by the procurement department as necessary. Also responsible for all contractual matters during the implementation.
This can be the CIO.
2. Robust Request for Proposal (RFP)
The Request for Proposal document is the heart of the procurement process. It should be a well proven document that contains all necessary clauses to manage both the procurement process and lay the foundation for the project.
It should set out the stages of the procurement process and the specific contractual requirements for the configuration, customization, testing, deployment and commissioning of the system. The RFP should form the basis of the final contract.
Note that it is pre-requisite that the Client will define the contract with amendments to accommodate the contractor, using the contractor’s preferred contract is only an option if the RFP and related documents are bound into the contract.
One of the objectives of the RFP is to scare off fly-by-night operators. Another is to allow as many different bidders as possible in the first stage of the tender process in order to ensure that the best possible combination of software and Implementer is selected.
By way of example, the RFP document that I typically use runs to over 60 pages. This is available as a template to purchase together with templates and instructions for the full set of documents referred to in this article. Email me for information.
A key objective of the RFP is to make it clear that the client is purchasing services from the successful bidder on the basis that they are experts in implementing their software and will be held fully accountable for the project outcome.
3. Strategic Essence based Business Requirement Specification
Refer the separate thread on “Strategic Essence: The Missing Link in Business Information Systems” for more information on this point.
The Business Requirement Specification should be drawn up by the Strategic Advisor to the CEO (Strategic Project Facilitator) in close consultation with the executive team and operational management.
This strategically focused requirements document focusses on documenting the essence of the business, the ‘right things done well’ that have caused the organization to prosper. This should be done within the context of clearly stating a twenty year view of what is required from the system in terms of business outcome.
Components of the requirement should be prioritized on a percentage weight basis over not more than about nine primary categories and preferably closer to seven.
This is not a technology document, it is a strategic business outcome orientated document – based on what is required from the investment in order for the organization to prosper. This document is the heart and the art of the final outcome.
It must be worded in such a way that the onus for the outcome rests with the contractor (Implementer), subject to close cooperation by the business.
In this regard it is vital to understand that operational business personnel lack the long term perspective to define a long term solution. They must be consulted but they must not dictate the solution.
4. Detailed Bill of Services
In the construction industry the “Bill of Quantities” is central to quoting for the work and to executing the work. In this case this is replaced with a “Bill of Services”, a detailed draft schedule of all the work that it is expected in order to execute the project. The blank schedule should be compiled by the Strategic Advisor in partnership with the Contract Manager and the Business Team Leader. This is the client’s best estimate of the work to be undertaken at a detailed level and may run to a hundred A3 pages or more in an Excel spreadsheet. There are techniques that can be used to produce such a concept plan relatively quickly.
Bidders are free to ignore items in the schedule and to add as many of their own items as they choose. This is done with the understanding that the resulting project plan will form the basis of the final project plan. This schedule of services results in budget line items on a deliverable basis, structured in terms of “allowables”. All activities are required to be costed against a full range of personnel categories.
An “allowable” is a budget provision for a particular activity or item and is fixed unless it can be clearly shown that the nature of the client’s business changed after award of the contract.
Milestones for partial and complete release of retention are also tied to this plan.
A key element of this procurement approach is the third stage of detailed discovery and contracting. During this process the preferred bidder can “go anywhere they want in the business and talk to anyone they want to talk to in order to fully discover the business and the requirement” – this takes place against a fixed fee budget in stage three of the procurement process.
Key Implementer personnel must be bound to the offer and the Bill of Services and only Implementer personnel who will actively be involved in the project should be introduced to the client.
5. Precision Configuration
The two enduring elements of a Business Information Systems project are the configuration and the knowledge and experience of the people who use the system. Of these, the most enduring is the configuration.
It is commonplace for the configuration of systems to be left to mid-level operational personnel from both the client and the Implementer, people who do not have a strategic long term view of where the business is going and who lack information cataloguing and organization skills.
The configuration is, in fact, the most important element of any business information systems project. This should be driven from the executive suite facilitated by the Strategic Facilitator in close consultation with executive management in conjunction with highly experienced information management specialists from the Implementer.
I have coined the term “Precision Configuration” to describe this component of a project. It entails highly organized information, strategically determined taking account of the essence of the business to high standards of precision that accurately measure the real world.
My articles on “Strategically Enriching your Business Systems” discusses this in detail.
6. Business Simulation Laboratory
A further element of the Request for Proposal is that it prescribes testing of the entire configuration in a Business Simulation Laboratory (commonly referred to as User Acceptance Testing but more rigorous). The Laboratory is a test environment where the configuration and customization is tested to destruction by the most experienced members of the client’s staff. They must set out with a full selection of representative data to introduce the most obscure situations into the operation of the software with the express intention of causing the system and configuration to fail.
Once this has been carried out exhaustively and all weaknesses identified and resolved, such that they are no longer able to cause failure, the resulting small data sample is used to test reports and business intelligence models, to ensure that they are working correctly and reliably. Workflow automation is prescribed from the executive suite, developed and tested, also to destruction. Once all these elements are in place and working reliably, operational standards and policies are finalized and training material is developed, preferably including high quality computer based training material.
Only then are all staff trained up in the laboratory, until they reach a level of comfort that they can run the system effectively and efficiently.
Once this point has been reached a final review takes place by the executive management of both the client and the Implementer and, subject to a clean bill of health, the final “Go-live” Certificate is issued.
7. Formal “Go-Live” Certification
Building on the Business Simulation Laboratory the “Go-Live Certificate” is the final output of the configuration, customization and testing stage of the project. As mentioned above this is issued at the executive level once the Business Team and the Implementer Team have signed the Certificate.
This is the final safeguard against a failed or sub-optimal implementation and involves a formal certificate with tough contractual wording and backing, such that no one will put their signature to it unless they are fully satisfied with the readiness of the system to deploy and commission.
Note that in the case of a badly run project, the issue of this certificate will give rise to substantial and valid delays until the quality of the work reaches a level where commissioning can take place with certainty that there will be no damage to the business. Penalties for premature acceptance should be built into the contract.
8. Prescribed Certificates
The procurement pack should also include a set of prescribed certificates to be used for all aspects of the project such that no element of significance and no interim payments are made without the issue of a formal certificate signed by the business and Implementer team leaders and team members as applicable. Exact wording of these certificates is to be agreed during stage 3 of the procurement and their issue is to be built into the project plan.
9. Client Compact
Inherent in the approach outlined above is a very tough and robust contract that will hold the successful bidder to very onerous performance terms.
Since the system is to be implemented in the client organization, based on information supplied by client personnel, the performance of the client must, of necessity, also be subject to tough conditions. This is handled in the RFP by a “Client Compact” in which the client undertakes to ensure that the right personnel are “in the room” for all workshops and that the required review and input takes place on time, in accordance with the project plan.
Here too there are penalties such that the Implementer can claim standing time for workshops that are cancelled at the last minute, because key client personnel are not available and that once a certificate has been issued, any changes to specifications take the form of formal “Variation Orders” for which the client will pay. Of necessity, these terms require due performance by the Implementer.
10. Executive Engagement
A vital component of the Client Compact is executive engagement, ensuring that Client Executives engage with the process and provide critical input and decisions timeously and in a focused manner.
Concomitant with this is a requirement for the Implementer to mobilize staff who can operate at the Executive level effectively, such that Client Executive time is limited to what is only really required. This necessitates a high standard of professionalism on the part of the Implementer. Inherent in this approach is that the Strategic Facilitator is able to represent the Client Executives in terms of business and project insight to a significant degree. This is thus a crucial role.
11. Facilitation of Change
So-called “Change Management” is a key element of any large business systems project. The common wording is inaccurate and unhelpful, I prefer “Change Facilitation”. This is a role that the corporate Human Resources function should be actively involved in.
Much “Change Management” involves using training and other measures as a blunt instrument to bludgeon staff into accepting a badly designed and badly configured solution that pushes large amounts of work out of the system and onto the users. A well configured and well tested system, configured in close partnership with the business, will be easy to teach and easy to operate, thereby significantly reducing the Change Facilitation component.
That said, there remains a need for smoothing the path of change, particularly for staff members who have their jobs radically redefined or eliminated. Appropriate expertise should be a core element of the requirement and the project.
12. Bid Compliance Checklist
Returning to the Tender documents, another key document is the “Bid Compliance Checklist”, a list of all the documents that bidders are required to submit as part of their offer. This checklist was originally created as an internal client bid evaluation team document, but I have found that it is helpful to provide the checklist to the bidders and have them tic every item to indicate whether they have provided the item or not.
13. Bid Adjudication Schedule
The Bid Adjudication Schedule is developed by the Executive Team, facilitated by the Strategic Facilitator and comprises a hierarchical classification of the Key Criteria to be used in adjudicating the bid.
I generally work with between 7 and 9 primary criteria, each of which is broken down into between 5 and 9 secondary criteria. Each primary category is weighted out of 100% to indicate relative importance and the child criteria are similarly weighted. The primary weight is then applied to the secondary weight, in order to give the overall weighing of each of the roughly 49 points. These are the most important factors to be used in evaluating each bid.
The schedule is included in the Tender documents as a “draft for information” so that bidders are informed as to the most important elements that their offer must address. This ensures that bids are more readily compared and are comprehensive.
The schedule is issued as a draft on the basis that, during the evaluation process, the adjudication team may realize that as they gain insight into the offers, they want to revise the criteria or the weights.
The structured and weighted list ensures that the most important items receive most focus, this works far more reliably as a decision support tool than a simple list of about 49 points without hierarchy. This is far better than the lists of hundreds of detail points that I have seen applied on numerous occasions on sub-optimal projects.
14. Prescribed Bid Table of Contents
A detailed “Bid Pack Table of Contents” should be provided which prescribes the Table of Contents that bidders must use for their offer. This ensures that competing bids can be easily laid out next to each other and compared on a section by section basis.
This also allows adjudicators to more readily engage with and internalize competing offers, resulting in a more effective and efficient adjudication process and a more defendable and better quality recommendation.
This also makes it very easy to assess the extent to which bidders are willing to align themselves with client requirements during the bid process. A bidder who cannot be bothered to align with client requirements at the bid stage, is unlikely to align later on.
15 Comprehensive Pack of Reference Documents
In order to make the required scale of the project visible, the Tender pack must include a comprehensive set of reference documents as a minimum requirement. This should include samples of all reports, spreadsheets, outputs of custom software that is to be replaced, etc. The goal is to define the current state as comprehensively as possible.
In the first stage of the procurement these documents can be redacted (sensitive detail removed or blacked out) but in the final stage of the procurement the actual documents and spreadsheets should be furnished, in order to ensure that the preferred bidder is able to estimate effectively. This obviously goes hand in hand with a robust Confidentiality and Non-Disclosure Agreement.
It is important to note that this pack is a reference to the current state of affairs and not a specification for the future. The future requirement must be developed in detail during the discovery stage once the software and implementer have been selected and there is full knowledge of what is standard in the new solution. Budget provision must also be made for further definition of new reports and Business Intelligence models during the Laboratory stage.
16. Data Warehouse and Business Intelligence
As a general principle any new system should be accompanied by a Data Warehouse and Business Intelligence component for analysis and reporting purposes, particularly across multiple systems. Provision should be made for this in the RFP or it should be explicitly excluded.
17. Three Stage Procurement Process
I advocate a three stage procurement process geared to spreading the net as wide as possible to start with in the “Market Scanning” stage, refinement of bids with selected bidders in the “Select Preferred Bidder” stage and then detailed discovery of the business and the software resulting in the final project plan, fixed price and formal contract in the “Detailed Discovery, Finalization of Project Plan and Contracting” stage. These stages are outlined below:
a. Stage 1: Market Scanning
The first stage of the Procurement Process is, in effect, a market scan. Contact every software company and implementer that you think might have a solution, give them the full tender pack and ask them to bid.
In the case of software companies require them to nominate their preferred implementer and in the case of implementers let them nominate their preferred software. The bid must be a total solution with a single prime contractor who will be contractually responsible for the entire team. Bidders are free to assemble teams as they see fit.
The first stage should include an initial detailed briefing on the business and requirement which could run for one to two days and then a follow-up briefing a few weeks later to clarify issues to all bidders. This should include a basic walkthrough of the client’s business.
In general expect a significant number of those who attend the first briefing not to submit bids and do not be surprised if firms you thought of as serious contenders drop out. The process is onerous and the resulting contract will be tough and it is a reality that not all firms have the stomach for such a tough contract.
These initial bids are adjudicated by a client Bid Adjudication team comprising key client personnel, who were involved in the drafting of the Tender pack. The goal is to reduce the list to about three bidders, certainly not less than two and not more than four. It may happen that only one bidder really qualifies but, in such circumstances I would suggest that you go through stage 2 anyway as part of getting to know them. I also recommend that you include at least one other bidder in stage 2 as a safety precaution in case something comes up that disqualifies the seemingly ideal bidder.
b. Stage 2: Select Preferred Bidder
Stage 2 involves taking the short list bidders through a more detailed exposure to the business, further presentations, walkthroughs of different components of the business, etc.
It also involves the bidders individually taking the Adjudication Team through detailed walkthroughs of the software and visits to relevant existing client sites.
It also involves private discussions with each bidder to answer their questions. At this stage the goal is to assess the offers as thoroughly as possible and have the bidders learn more about the business in order to refine their offers.
At the end of this process bidders are required to submit revised offers with the caveat that the new bid price may not exceed the original bid price plus the specified bid price tolerance. The new bid will be subject to a tighter tolerance that may not be exceeded in the final contract price, unless it is established that the client failed to disclose information that has a material impact on the price.
At the end of this stage, each bidder is required to formally submit their revised offer and give a detailed presentation of their offer, and answer detailed verbal questioning. At the end of stage 2, the Bid Adjudication Team review the revised offers and revise their scoring in the light of the information gained during stage 2.
A single Preferred Bidder is then selected.
c. Stage 3: Detailed Discovery, Finalization of Project Plan and Contracting
Stage 3 proceeds with the Preferred Bidder based on a fixed price quoted in the Tender Offer.
In stage 3 the Preferred Bidder undertakes an in-depth discovery of the business according to a plan agreed with the client.
It is vital that they are granted unfettered access and that they are connected with ALL the right people. Their brief must be to speak to whoever they need to speak to and go wherever they need to go in the business, to the extent relevant to the project, so that they can undertake comprehensive discovery. The goal is that by the end of this stage there will be no surprises later in the project, so the full attention of the Business Team Leader, the Contract Manager and the Strategic Facilitator to ensure that the Implementer Team is fully briefed, is vital.
Note that it should be a contractual requirement that the people who undertake this discovery on both sides, are locked into the project at whatever level is appropriate, for the duration of the project in order to ensure that the knowledge transfer that takes place during discovery, is retained.
Concurrently the implementer and software vendor must conduct a full range of walkthroughs of the software with different components of the business, in order to ensure that the business is fully exposed to the workings of the software and, in particular, any limitations. The goal is to ensure that at the end of this process, the key business team members have a solid understanding of the software and that all significant gaps have been identified.
The outputs of the above go into a detailed project plan and project budget. The project budget is constrained by the budget tolerance on the first and second bids.
Concurrently with the above, the legal teams of both parties must finalize the contract, so that by the time the Project Plan and Budget are finalized, the Contract can also be finalized and signed.
Up to the point of signature, the client should reserve the right to terminate the discussions and pay for work executed to that point, according to the agreed plan. This would apply if the client team have reason to conclude that they cannot work with the bidder, that the standard of work is suspect or that the software does not live up to the earlier claims.
d. Configuration, Customization, Testing and Commissioning
This is the project itself. The quality of the procurement process, the discovery and the contract will largely determine the level of success of the implementation.
Discussion of this component is outside the scope of this article.
Conclusion
I have used this approach successfully to conduct fixed price fixed business outcome projects. If you are about to embark on a business information system procurement this is the only way to do. Please reply to this email to arrange a Zoom call to discuss how we can help you.
If you are embarking on any form of business systems procurement, large or small, this approach can be adapted appropriately. It also has application to procurement of other soft business improvement services. Some of these principles can also be applied when entering into negotiations to renew contracts with existing suppliers.
I offer advisory and facilitation services with regard to the application of these principles and would be delighted to discuss how I might be of assistance.
Yours faithfully
Dr James Robertson PrEng
James A Robertson and Associates Limited
Assisting clients to thrive through effective and efficient application of Business Information Systems