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The Human Side of Conversions: Managing Vendors, Consultants, Executives, and Employees

Disclaimer: It is hoped that the information provided on these web pages will be helpful to readers. We assume that readers understand that any advice must be weighed against an individual's situation. Some of the information on these pages may be inappropriate for your circumstances. So use your head! Neither Jim Thomas nor Linda Tuerk nor John Barry can be held responsible for an individual's particular use of these suggestions.

Those of us observing the ERP market have noticed some disturbing problems. Cost overruns of 100-300%, delays of 1-5 years, and staggering performance problems are common. Owing to the astronomical price of conversions, a hostile environment of finger-pointing and scapegoating has developed at corporations of all sizes, often at IS Management's expense.

Is the vendor going to make you look bad? Are the executives really behind you? How are you going to get and keep your staff to keep the project afloat? This article is intended to warn you of common political problems arising during the sales process and the executive buy-in phase. It will also include a discussion of staffing difficulties and retention nightmares. It is my hope that this information prepares you for setting expectations you are able to deliver, thereby preserving your professional reputation and enhancing your career.

First, let's look at some assumptions many of us remember from the "good old days." In a perfect world (or at least 10 years ago), there were several expectations MIS management could count on:

1. When a system implementation was late, it was weeks late. (Now it's months or years.)

2. When software didn't work, everyone knew about it. And though it wasn't perfect, it didn't cost so much.

3. MIS Management and Executives shared with each other candidly regarding their software problems.

4. When a company was "up" on its software, it actually closed its books on it.

5. When consultants were needed, they were rarely needed, and only the excellent survived.

6. When a project was over budget, it was 5-20% over budget. (Now we hear of 100-300%+ cost overruns)

7. Hardware and software companies worked well together; if you planned on buying three CPUs, you didn't end up buying six.

8. If you were talented, and had decent time management skills, you worked an avaerage 40-50 hour week.

Unfortunately, most of these assumptions are outdated. There are dozens of large, sophisticated, manufacturing companies who have failed, in various degrees, to implement new ERP replacement systems on time, or anywhere near budget.

Common Myths

1."This is a user-driven project."
......But I have yet to see the user community fired or outsourced because they couldn't implement a system.

2. "He just wasn't a ‘can do' kind of guy."
......I know several managers and directors who have been driven out for not going along with Big 6 recommendations. I have personally been called in to find their replacements; the vague complaint about the predecessor is often that "he wasn't a ‘can do' kinda guy." Scapegoating is at an all-time high. And IS management is at the top of the list.

Information Gathering

Press: When it comes to software products, don't trust everything printed. Be a critical reader. The press is often way behind in getting the real scoop. Additionally, many publications have an obvious conflict of interest. Consider their advertisers and consider their sources.

References from Software and HardwareVendors: Make the software vendors prove to you that this workable. If the vendors or their partners can't give you enough references of the specific version you are looking at, drop them or negotiate to be a beta site.

Hardware: as one client put it:"Whatever they tell you, double it, and it still won't be enough." I hear this a lot. Some blame the hardware vendors. Some blame the software company. Some say it's an honest mistake. Some say it's a ruse. Some say it is a crime. Clearly, the jury's not in. What is clear is that Software and Hardware companies are not as coordinated as they once were. When checking references, make sure to include a discussion on hardware. Negotiate with hardware and software vendors early; and build into your contracts a contingency that makes them share part of the financial burden if their estimates are wrong.

References of Customers: The earlier the better. Many clients have told me they were promised references "soon", and they never materialized as promised. Also, check out upgrade costs; they can be astronomical! References aren't as candid as they used to be, so you will need to scratch beneath the surface to get beyond the "official" reports. Be aware of spin-control. When the costs start getting really high, everyone shuts up, and there is virtual non-disclosure. Make sure to interview several levels.

Some demonstrations are being held before a successful month-end, let alone quarter. So be tough, be a good interviewer. Ask them if they have closed a quarter without consultants yet. Ask about their time-lines and budget, including hardware and consultants. What do they mean when they say they're "UP"? All divisions? Any patches back to legacy? Bolt-ons as final user interface? PDM? Sales? Service? I know of "successful conversions" that are also fixing legacy systems for Year 2000. Why?

Negotiating with Large Consulting firms, Independent Consultants and Contractors

Here are several suggestions for success, or at the very least, damage control:

1. Hire 1st string only; their output is double.

2. Don't let them charge you $200/hr for a recent graduate.

3. Build in increasing financial incentives (retention bonuses) tied to definite milestones to secure until go-live. Make sure retention bonuses are filtering down appropriately.

4. Ask the consulting group or firm for their staff turnover rates. Insist on meeting the team. Find out if they are outsourcing to another consulting group for the team. Beware of the phrase: "We have the talent and the expertise to make this a success." Make them show you.

5. Reference, reference, reference!!!!!

6. If the consulting group is new in this particular game, negotiate appropriately for mutual benefit.

7. Require regular status reports--produced on their time. Do not accept billing for time used to pitch extra projects.

Managing Corporate Executives' Expectations

You can't necessarily control the executives at your company, but you can be aware of the warning signs suggesting a potential disaster (and perhaps get out of the way). Certainly before accepting a position to lead a conversion, you want to know your risks.

1. Are the VP's realistic? What are their motives? Do they know anything about this outside of reading magazines?

2. Have any done a conversion elsewhere? Do they know how much it costs?

3. What sort of executive turnover do you have? Buy-in is relative at turnover rates over 30% annually.

4. What is the company's track record at completing large corporate-wide projects?

5. Do the execs have contempt for IS, or really see its value? Are they likely to work with you, or outsource at the first sign of trouble?

7. Suggestion: ask management to tie all VP's bonuses to a successful and on-time conversion.

Staffing in a Negative Unemployment Market

Nationally, there is a shortage of general IT talent expected to last at least seven years. For experienced ERP implementation managers and programmers, there is a -200% unemployment market. For every 1st string player there are 3-5 jobs available. I am aware of many requisitions that have been open 12-18 months

Yet frequently you might hear executive plans for staffing that are naive. Unreasonable plans include: "We're not going to train our people. It's too expensive and they would just end up leaving." and "We'll just hire them!" From where? They're all making a fortune already. You can't "just hire them" with no extra incentives in this market.

Not training your own people may be the biggest mistake companies make amidst conversions. In a few companies, the decision has been made not to train the IS staff in the new software, because then they'll be too expensive to keep. This is the fastest way to drop employee morale. As a recruiter, I can tell you for sure, if you train your people, treat them well and involve them in the project, you will keep most of them. If you don't, you will lose all of them.

Remember that turnover is costly. The national average replacement cost per employee is reported to be $10-20K in all segments of the economy (not high tech). I believe in certain markets it can be as much as 40% of the salary. Some companies counter the retention problems with retention contracts. They should be aware that the most highly regarded accounting and consulting firms no longer do this. Taking hostages is not the way to go. Most people are ethical. They know you have invested in them, and as a headhunter I can promise you, most do not relish changing companies. It takes a lot for an employee to be disgruntled enough to walk. If you treat them decently, you will come out ahead.

The key motivations for hiring and retention can be grouped in three categories: Technology, Money, and Lifestyle (including benefits and the "good guy" factor). Most people combine these factors when making career choices, but usually one is more significant than the others.

For the technology motivated, it's simple: train them in new technologies. Be prepared to take someone with only 50% of the requirements, and commit significant dollars to training. Advertise a healthy training budget. And keep the projects coming as significant ones are wrapping up.

If you plan to use monetary incentives, prepare to pay enormous salaries, sign-on bonuses, and escalating retention bonuses. You get what you paid for. You just recruited the Melrose-Place-gang, and you need to be aware that someone else can get them at anytime by waving more money in their face. Personally, I won't work a search where this is the only incentive. It attracts the least desirable in many ways. For those candidates motivated by big money, remember that big money means huge sacrifices. There is a suspicious reason when you are being offered 25-50% increases.

However, everyone cares about money to some extent, and you will need to be competitive. Some of the trends regarding compensation include:

1. Use escalating retention bonuses tied to specific milestones.

2. Give bonuses based on tenure to seniors you value.

3. Give bonuses tied to profit more than once a year.

4. Give stock grants or options that vest very quickly.

5. Perform salary adjustments 1-4 times a year, as needed, and never late!

6. Recognize that it's not just the money, it is feeling underappreciated that makes people leave. At the very least, reviews must be on time or early.

Lifestyle incentives can be very powerful. They include great benefits like day-care, telecommuting, job sharing, extra vacation days, and true flex-time. Tap into the alternative work force. Treat people better than they have been elsewhere. Likewise, good corporate citizenship inspires loyalty. Sharing corporate wealth amongst all levels creates goodwill. Substantial charitable giving and corporate community projects will raise morale and influence retention.

Just being a "nice place" can work for you too, but you will have to highlight and advertise it. Pleasant corporate environments have some pull, as do convenient locations, stable management, low executive turnover, 40-45 hour weeks, a history of few layoffs every time the stock dips, and a strong record of corporate funding for IS projects.

Average IS turnover is 15-20% nationally. In high-tech it is higher. Your best people are receiving many recruiting calls every month. The good news is that very few are interested in what recruiters have to say. People do not take to random change. The recruits that return our calls are those who feel taken advantage of, who no longer trust their company, or department, or executives. Building trust can keep your staff stable, and your job secure.