The business battlefield is littered with failed Enterprise Resource Planning (ERP) projects, and the anxiety associated with an ERP implementation is profound in many companies. Whether borne of personnel experience, reading about ERP failures, or speaking to colleagues and friends, corporate executives many times delay projects out of fear and worry that an ERP project will lead to spending overruns and significant business disruption. Many business owners have told us that the reward is not worth the risk. In our experience, these fears are overblown and frankly not relevant when a business manages an ERP implementation with the assistance of a proven team. Over the past 30+ years of implementing technology, we have led successful ERP solutions, and (more often) we have been involved in remediating less than successful ERP implementations. What sets the successful ERP implementation apart from the unsuccessful implementation?
It is People, Process, and Technology. In that order. Not Technology, Process, and People. A successful ERP implementation or improvement project is business-led, business-supported, and technology-enabled. Like a manufacturing production line, business people use the line to produce products, and business people use an ERP system to run the business. However, based upon our experience, companies that consider an ERP implementation to be a Technology Project led by CIO or VP of Information Technology often experience significant delays, increased costs, and often a botched implementation that does not support the business. So why do companies continue to put the CIOs in charge of ERP implementations?
While most people embrace the use of information technology to improve their business lives, many C-level middle market executives still believe it’s the CIO’s job to get into the details of the technology and tell their business users how they should use the functionality with the ERP solution. Nothing could be further from the truth. The best CIOs spend at least as much time understanding the nuances of the business operation as they do on updating their technology knowledge, and they know that any successful IT change needs to be led by the owner group. Technology needs to support the business, and businesspeople need to author, lead, and embrace any substantive technology changes. And for an ERP implementation that impacts the operation of the entire company, that leadership comes from the top. Successful ERP implementations need to be owned by a senior C-level business executive, such as the President or COO, and led by a team of competent businesspeople who have been temporarily assigned, often full-time, to the ERP project.
A middle market CIO recently confided in us after a failed ERP implementation (that he had managed) that the C-level business executives had believed the expertise and skills of the business individuals would increase because they were going to start conducting business using an ERP solution. This assumes (incorrectly) that businesspeople will readily embrace a new way of doing business where they had little authorship. In our experience, ERP implementations do not improve people’s skills and business results unless people are educated and trained on improved business practices prior to the use of the new ERP solution. In the case of one failed implementation, the company conducted only cursory training for their employees immediately prior to the ERP implementation. Once implemented, staff did not know how to support the business using the new ERP solution and quickly reverted to their old methods. Companies that spend the time and energy to educate and train their employees on new business practices, and how these practices have been incorporated in the new ERP system, have greater adoption of the new ERP technology than companies that merely train their employees on how to use the new solution.
But business process improvement can be difficult to obtain. Thousands of books and articles espouse the virtues of Lean, Six Sigma, TQM, Toyota Method, ITL, etc. as ways to improve enterprise business processes. Although these methods do help facilitate documenting and implementing new business processes, rarely do these methods work well on integrating business functions across the enterprise. Other factors including people’s experience, skills, and expertise need to be factored into the equation when any company launches a business improvement project prior to an ERP implementation.
There is an old adage that applies here that “we only know what we know.” Although most would agree with this adage, many middle market companies continue to expect people to “know more than they know” when it comes to business process improvement. If you have worked at the same company for more than 10 years, you know how your company operates and the challenges you face because of it. Understanding what does not work well is different than knowing how to design and implement a better business practice. In most cases, internal employees have not been exposed to best practices, and often that perspective can only be obtained by adding operating executives with hands-on “best practices” experience to the project team.
Critical to ERP project success is the makeup of the project team, and there are four elements required for a successful project.
The objective of installing a new ERP system is not to replicate the current operational processes. Rather, it is often to achieve a step-change in operational capability and efficiency, and that requires a team that is capable of understanding and embracing new processes to achieve those efficiencies. Companies that achieve step changes in performance understand that designing and documenting new business practices with the assistance of resources outside the company prior to the ERP implementation is critical to a successful implementation.
Choosing the best ERP software, and there are hundreds to choose from, is a challenge for most middle market companies. Many companies evaluate their future ERP solution based upon the functionality their current legacy business systems offers to the business. Adopting this process would be analogous to searching for the functionality of new car using the 15-year-old car you are currently driving as your reference point. A lot has changed since you purchased your last car (and your last ERP solution), and you may not know what you are missing. There have been massive changes and improvements in ERP solutions in the past 15 years that should be considered by any middle market company in their selection process.
For example, cloud-based ERP solutions have been developed over the last 15 years, and these are replacing premises-based systems, along with the overhead and staff required to maintain a premises system. Large and small software companies have capitalized on the ease with which cloud-based solutions are implemented and maintained in the middle market. Prior to cloud-based solutions, ERP solutions were run on premise, using data rooms and server-based solutions where the company owned the application code and was responsible for enhancement and maintenance of the application code on behalf of the enterprise. These premises-based solutions required expensive IT resources to enhance and maintain the ERP application. The total cost of operation (TCO) for these solutions was significant and tended to increase over time. Almost all market leading ERP solutions are now cloud-based or offer a cloud-based deployment option.
Our experience over the past 30+ years with premises and cloud-based systems suggests that middle market companies look first to cloud-based ERP solutions to replace their current enterprise solutions. Companies buy a subscription for service in a cloud-based solution similar to a mobile phone subscription for service. The solution provider is responsible for maintaining the applications code and the supporting infrastructure to deliver the service to the users. And because they are maintaining the system for hundreds or often thousands of businesses, they enjoy economies of scale and employ technical experts that are simply impossible for a single middle market company. And unlike server-based solutions, cloud-based ERP solutions are configured rather than customized, which means there is no custom code, and updates can be easily applied because all users are on the same system. Therefore, there is no need for you to employ IT technical resources to enhance and support the application code and server infrastructure. The total cost of ownership for a cloud-based solution is considerably less than a server-based ERP solution.
We should also address the issue of cloud-based security. Many CIOs who have grown up with premises-based systems believe that their data security, which has data distributed to users throughout the company, is superior to cloud-based systems. The fact is, any system is subject to unauthorized “hacking,” and the most vulnerable are on-premise based solutions for the simple reason that they are not able to employ the advanced staff of security experts that cloud providers employ to detect and deny security breaches. If data security is a factor in system selection, cloud-based solutions will prevail every time.
We are asked often by both prospective and existing clients: Why do ERP projects experience cost and time overruns and fail to deliver on the promise of business improvement? The reasons for these failures are relatively straight forward and can be addressed effectively with the proper approach.
We have already discussed the need for strong business leadership, improving process and skills in employees prior to implementing the ERP solution, and choosing the appropriate ERP solution. So what else is required for a successful ERP implementation that is on-time, on-budget, and delivers business results?
First, it is critical to assess your internal business team’s business capabilities. Are they able to step outside their current operational paradigms and help design how people, process, and technology need to work together in the future state? If your internal team lacks best design experience and skills, as most middle market companies do, then seek external expertise to augment the skills of your internal team. The external resource(s) should have extensive business design and information technology implementation experience allowing them to be a coach and mentor to members of your implementation team. Our experience has shown that many ERP projects stall and become more expensive to implement because the internal business team is not capable of making critical business decisions in a timely fashion which in turn causes delays in solution configuration and testing. By having a trusted external advisor that can help facilitate the business design decisions in a timely manner, the ERP implementation stays on track and continues without disruption.
Second, select an ERP solution that meets today’s needs and is scalable as the company grows. Ideally, any move to a new ERP system should support the business for at least 5 to 10 years or longer. For example, if your company envisions doing business around the globe, it is critical to have multi-currency capabilities in your new ERP solution. If you anticipate opening online sales, then this function needs to be integrated in the system you choose. If your supply chain needs to accommodate multiple inventory types and complex vendor and intermediary relationships, then ensure that functionality exists today.
Third, spend effort, time, and money on creating a qualified Master Data Governance team. We have all heard the phrase “garbage in, garbage out.” Business users create business data, and left unchecked, their inputs will be inconsistent and incomplete. In today’s Enterprise Systems, the completeness and accuracy of data is critical; bad data is the most common reason why ERP implementations fail. If you do not get data integrity right, nothing else matters. This data integrity must be maintained because it is the fuel that allows the ERP engine to run at full capacity and performance. This means that all data must conform to an agreed standard, and appropriate edits must be decided and enforced—or else the data will be inconsistent, and users will not trust (or use) the system. In many ways, an ERP solution is like an integrated business calculator that provides an enterprise with the business information that is needed to make critical decisions. Often overlooked, Master Data Management is integral to obtaining ERP success.
Finally, remember that ERP systems today are used successfully by tens of thousands of companies around the globe, and the software tends to be exceptionally reliable. The system should not be blamed for over-budgeted and underperforming implementations. In today’s business world, ERP technology is robust, yet many times users struggle to use the application. They struggle because people-related issues such as education, training, process design, and accurate business data keep them from effectively implementing and using the ERP solution. If planned and executed correctly, a successful ERP implementation and ongoing use is achievable for any Middle Market company.
The experts at FortéOne have led the successful implementation of ERP solutions, including the choice of systems and the business process engineering, for many companies. If you are considering upgrading your ERP system and would like to do it right the first time, without drama or delay, please give us a call at FortéOne.
Author: Philip Franz