The F-word: Fraud and ERP Vendor Misrepresentation

During the sales process, slight exaggeration is common among ERP vendors – they emphasize their strengths and successes while downplaying their gaps and weaknesses. However, when a vendor goes beyond slight exaggeration, this behavior may be reflective of ERP vendor misrepresentation or fraud.

Most organizations are not ERP selection and implementation experts, so the best way to spot fraud is to hire an ERP consultant.

At the same time, we recommend educating your ERP project team about the challenges and best practices of ERP implementation. For example, it’s important to share the facts:

• ERP implementations are challenging and risk endeavors.
• An ERP implementation will be very disruptive to the business.
• The company must be prepared to address employee fear and resistance to the change. It should consider engaging the vendor and an ERP consultant to perform organizational change management.
• ERP implementations are most successful when internal company resources are effectively allocated, scheduled and backfilled during the critical activities of the implementation process.
• While software consultants are knowledgeable about software functionality, the company also should engage internal resources to provide expertise on the business processes unique to the company. This is essential for business process reengineering.

Sharing these facts will give your team a basic knowledge of the best practices and risks of ERP implementations, so they are prepared to spot ERP vendor misrepresentation and fraud.

How to Avoid ERP Vendor Misrepresentation

The key to avoiding fraudulent ERP vendor practices is to select the right vendor. In other words, you should do your homework before engaging a vendor:

1. Establish Clear Objectives for the ERP Project

It’s easy to get drawn in by the bells and whistles vendors like to promote, but ultimately, you should focus on your main objectives. If a vendor has more innovative features than other vendors but can’t meet one of your key requirements, this vendor is a poor fit for your organization. However, you wouldn’t know this to be true unless you had clearly defined objectives at the top of your mind.  

2. Obtain Internal Alignment from Key Personnel

Similar to the point above, you not only need clear objectives, but all stakeholders need to agree on these objectives. Otherwise, a wayfaring stakeholder could influence your selection decision, and you could end up with a system that has flashy features that serve no immediate business purpose.

3. Hire an ERP Expert to Assist with ERP Selection

Objectivity during the ERP selection process is difficult to maintain. Your CEO may have a bias toward the incumbent ERP vendor, or they may have a buddy at another organization that had a really good experience with a certain vendor. These biases can make your organization more susceptible to ERP vendor misrepresentation because you’re likely to be less critical of a vendor of which you already have a good opinion.

That’s why it can be helpful to hire an independent ERP consultant with no financial ties to ERP vendors. These consultants will be equally critical of all ERP vendors.

4. Interview Several ERP Vendors

With no frame of reference, how can you tell if a sales pitch or an ERP demo is “too good to be true?” While your can always rely on consultants to tell the difference, it’s also important to have a discerning internal team.

The best way to build discernment among your project team is to expose them to a variety of vendor sales pitches and RFI responses. When your internal team and your consultants are on the same page in terms of vendor messaging, there’s no chance you’ll select an ERP system that can’t meet your business needs.

5. Vet the Vendors

All vendors will say they understand your business, but unless they have customers in your industry, their depth of understanding only goes so far. We recommend asking vendors for references from clients that are a similar size, scope and industry to yours.

If they can provide references, this verifies that their sales messaging was honest. If they can’t, their sales messaging could be considered misrepresentation.

You also should verify each vendor’s financial viability. While a vendor may say their product has strong R&D, they might be planning to stop developing the product and discontinue support in the near future.

6. Understand Different Uses of the Term “Organizational Change Management”

While a vendor may say they do organizational change management, they may only provide basic templates and expect your team to do the rest. Before the vendor even starts writing a contract, you should ask what change management activities will be expected of your team. In the meantime, make sure you understand the full gamut of change management activities required for ERP implementation success.

Should You Take Your Vendor to Court?

If you spot ERP vendor misrepresentation early in the sales process, there’s no need for an ERP lawsuit. However, if you’ve already signed agreements to purchase the system and you’ve begun implementation, you may be able to pursue litigation if and when the project goes south.

Hopefully, you’re early enough in the process that you haven’t signed anything. If so, you can follow the tips in this post to determine if what the vendor is proposing is true and congruent with ERP implementation best practices.

Many of the ERP Expert Witness cases we handle involve vendor fraud and misrepresentation, so we know what to look for during the selection process. Request a free consultation below to speak with our experts.