When Onyx EMS decided to overhaul its financial accounting system, it focused on the new capabilities it would see when it finally took down its 10-year-old version of a leading ERP platform. In particular, the Watertown, S.D.-based manufacturer of medical, industrial and communications products wanted a modern financial accounting platform that would enable the company to make process improvements as it grew and acquired other firms....
The final choice turned out to be familiar -- Onyx went with the latest version of its current ERP platform, but opted for a new, from-scratch implementation rather than a traditional ERP upgrade.
“The payables, receivables, and general ledgers have not changed very much in functionality, but we will have standard APIs [application programming interfaces] for integrating our manufacturing software with our financial and inventory software,” said Tammy Anderson, IT manager at Onyx. “The APIs will also be available for snapping third-party apps into the solution.”
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But Onyx’s financial application project represents more than just the decisions one mid-sized company makes when choosing a new financial management system. The 23-year-old privately held organization learned some valuable lessons about how to negotiate a viable software contract with one of the largest ERP vendors in the world.
For example, Onyx was well aware of the size mismatch with its mega-vendor. So Anderson and her staff took time to identify ways the company could gain leverage in the contract negotiations. “Software vendors are always saying they want to build a relationship—but that works in reverse, too,” she explained. “So by emphasizing the fact that we are a growing company, we worked this as a relationship and said, ‘You are going to see future revenues from us. So let’s make this work for both of us now.’”
Financial application deal makers
Consultants say some upfront research and negotiation strategies will help enterprises gain valuable leverage with vendors of financial application software. Here are five additional considerations:
Scrutinize maintenance contracts. “You should expect an annual maintenance fee of 15-25% of the total licensing costs of the software. Be concerned if the annual fee is much less or much more,” said Chris Arndt, partner at Red Granite, a Chicago-based consultancy that specializes in financial reporting systems. “You want an annual maintenance fee to ensure that you remain important to the software vendor and that they will continually issue software upgrades.”
Consider Software as a Service (SaaS) options. Agreements for subscribing to financial accounting capabilities rather than purchasing the technology and implementing it onsite fundamentally alter vendor-client relationships. One big change is that the burden of maintaining and updating the programs shifts from customers to vendors. “That’s helping to obviate the need to have this big, one-time contract negotiation,” said Steve Tennant, managing director at Tennant Consulting, a technology and business advisory company based in Orinda, Calif. “With a subscription, the vendor has to meet your needs in order for you to continue using its solution. So instead of one negotiation, it’s an ongoing relationship with an ongoing conversation.”
Choose consultants carefully. Ongoing consolidations in the ERP market mean that formerly separate specialized applications, often called “point solutions,” are now being incorporated into larger product suites. As a result, ERP vendors are creating ecosystems of systems integrators who may have expertise with point solutions but not the larger suites. “The challenge that enterprises run into is that one set of partners may be really good at performance management while another set of partners does really well at analytics or ERP,” said Charles Wilson, director of the business analytics practice at the consulting company RJT Compuquest, based in Torrance, Calif. “It’s very difficult for some of these systems integrators to communicate a unified message and a synergistic value proposition.”
Seek out committed partners. “Negotiate with prospective vendors as if they are already your partner,” suggested Marc Hoppers, president and CEO of Cogent Co., an IT and management consulting firm based in Dallas. “The feeling you get about the relationship during contract negotiations is going to be very similar to the feeling you get after you go live. If they don’t act like a partner [before the contract is formalized] then this may not be the right direction. Even if you’ve spent all that time making that selection, the experience that you have with them during contract negotiation shows the culture of their business.”
Use timing to your advantage. Anderson offered one last piece of advice to influence negotiations with the sales reps of largefinancial accounting system vendors. “Always make sure you hit them right when their quarter or year is ending” and there is a push to meet sales quotas, she said.