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6/24/2004
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SmartAdvice: Nonprofits Should Focus On Costs and Services In Choosing An ERP System

Nonprofits should evaluate an ERP-style system following a proven process, The Advisory Council says. Also, make sure you understand a storage system's complexity and what dedicated resources it needs before making a choice; and tips on changing your IT group's culture so it's proactive.

Editor's Note: Welcome to SmartAdvice, a weekly column by The Advisory Council (TAC), an advisory service firm. The feature answers three questions of core interest to you, ranging from career advice to enterprise strategies to how to deal with vendors. Submit questions directly to smartadvice@tacadvisory.com

Question A: How should a large nonprofit organization evaluate the appropriateness of an integrated ERP-style system?

Our advice: The same way as any multibillion-dollar commercial organization would--focus on defining specific opportunities to cut costs and simultaneously create value-added services. Granted, nonprofit organizations are concerned about the societal impact of their work, but most recognize that they face the same performance pressures as commercial enterprises, perhaps even harsher. For example, Illinois state universities must freeze tuition for five years for incoming freshmen--talk about pricing pressure! Furthermore, nonprofits face escalating expectations for "constituent care." On the customer front for hospitals, repeat patients expect streamlined check-in, and woe is the institution that creates an adverse medication event due to out-of-sync patient clinical records.


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Project-Design Template
The long answer to the question is follow a proven process for ERP evaluation and project design, with the additional caveat that nonprofits such as universities and hospitals generally face a critical need to integrate strategic solutions, such as online learning or clinical records management, with traditional administrative ERP systems. This requires thinking through the long-term IT architecture during the initial ERP system evaluation.

  • Articulate your operating logic: How must your organization operate to succeed in the future? What practices must change soon, and which must evolve longer term? Challenge the story, make sure it's both realistic and aspirational. Finally, plan to update the story as you develop the specifics in subsequent steps. Use the story to assure that project specifics are operationally consistent with the logic, and to enroll constituents in a new operating future.
  • Identify specific, measurable operating outcomes: Most enterprise systems failures occur because goals are feature and function or, worse yet, technology oriented. Specify goals in measurable, valuable operating terms. For a university, "95% of all course registrations occur online, with no clerical assistance required." This example requires integrated student records, credit verification, accounts receivable, and classroom-capacity management. Again, as your due diligence proceeds, you will redefine goals and measures based on feasibility and value, but being specific about operating outcomes forces hard-edged decisions on priority and scope. Further, specific operating outcomes drive the financial case to justify the system.
  • Identify essential process performance and information availability: Outcomes are achieved by executing processes with access to the correct, timely information. The 90/10 rule applies: Less than 10% of your operating activities demand optimal performance; the rest require general best-practices. If your project team doesn't have the expertise to distill critical outcomes and performance, don't proceed further until you enroll help.
  • Test for operational success: Make sure that the evaluation process focuses on the critical success factors to enable the operating logic, not determining the most robust set of features and functions. Incorporate active validation, don't just view demonstrations. It's impractical and unnecessary to validate all vendor claims, but being 100% certain about the critical 10% is wise.
  • Determine the integration architecture: Pick at least two strategic solutions that will be implemented in the future, and assure that the technical environment is supportable (e.g., performance, complexity, and economics). You will face the issue of choosing between an ERP vendor's integration architecture (e.g., SAP NetWeaver), proprietary middleware (e.g., IBM WebSphere), or an open-standard (e.g., Web services). Resist pressure to defer the decision until after ERP selection. Your operational and IT options get limited fast once large expenditures are committed.
  • Remember that financial pressures and constituent-service expectations are intrinsically drivers for all ERP decisions. Improve operations on both dimensions to assure project success.

    Walt DuLaney, TAC Thought Leader, is an authority on the planning, design, and management of strategic business and technology initiatives. He consults extensively on strategy-alignment, project-management, and performance-measurement methods to assure that strategic initiatives are delivered successfully and operating results are verifiably improved. He has extensive experience applying these techniques to enterprise systems, supply chain, and large-scale technology projects, and also has integrated these techniques into enterprise-governance and performance-measurement models. He frequently facilitates executive management decision-making and alignment sessions. He's completing a book on the role of strategic-initiative management in organizational renewal.

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