Key Factors for ERP Business Case Success

Author:  Jeffrey Shinn, GLB Associate

Abstract:  Is there a way to improve your chances for an ERP implementation success?  Yes, there is a way and it includes an approach that doesn’t cause timeline delays or add a large expense.   This article identifies several impactful areas of analysis not commonly addressed that are important for selecting and implementing the right ERP system.

Even though an ERP implementation should be of strategic importance, most organizations approach the ERP decision with only a high-level understanding of a few of the business issues to be addressed; for example, cost, productivity, process efficiency, automation, and standardizing data structures (Matilda Smeds, 2010). Alternatively, the enterprise may be seeking to replace the existing enterprise solution(s) because the current ERP, or collection of IT applications, running the business is ancient (think unsupported software/hardware where there are few people in the workplace to address support needs).  In this latter case, the project too often becomes an “IT project” meaning the business folks may not participate to the extent needed. In either of these situations, there is a serious risk to project and investment success.

There are steps an organization can take to validate software selection and implementation assumptions, to clarify scope, and to assess key risk areas that expose the gotcha’s that undermine ERP implementation success.  The topics below are not all inclusive but they do identify often overlooked opportunities or issues and quickly identify means to leverage these opportunities during selection of the software and implementation firm.

Do You Trust Your Numbers?

Too often there is a belief among executives that the quality of data is sufficient especially if the financials tie-out (even with Herculean effort), then all the data must be good then…right?  This belief results in unexpected work during the project that results in cost overruns and missed milestones.  Validating the accuracy of data converted to the new ERP system is the client’s responsibility.

Ideally, data validation and hygiene/clean-up efforts should occur before the implementation project starts. Trying to clean-up the data during conversion is difficult, at best, and makes validation of the ERP system complex.  ERP systems require the following types of legacy data:

• Metadata – for initial configuration…think drop-down boxes on the screens, site addresses, etc.
• Conversion – depending on deployment scope, data for all key entities must be extracted, mapped, and uploaded into the new ERP system.
• Integration – often the new ERP system will integrate with other applications on a permanent or temporary basis as part of a phased rollout.

Leverage application designers, specific operational business users, and reporting analysts to spot the data quality issues and assess the extent of the issue.  These folks work with the data daily and have a solid understanding of the challenges.  Data issues may also be a function of late delivery, an incomplete view for understanding, design issues forcing a workaround, etc.

How Much Intelligence Do You Really Get from Your Data?

Most organizations have a limited view of business performance and much of that view comes from data that is days or weeks old – monthly financial reports for example.  If this situation sounds familiar, then you will be pleasantly surprised by the capabilities of modern ERP systems.  However, the challenge is to know where you need better and faster information.

Prior to starting software selection activities, ask department heads, line operators, VP’s, etc. what decision are they making today that could be improved with a more timely and complete view of information.  Forget about the ‘how’ and focus on the ‘why’ and ‘what’ aspects of decision-making.  Provide this list to the vendors prior to demonstrations so the vendors can demonstrate the core/standard ERP functionality along with any additional add-on products that would be required to meet your needs.

Assess the need for additional Business Intelligence (BI) tools beyond those of core ERP systems.  While ERP vendors claim their software comes standard with many hundreds of canned reports and sometimes even a rudimentary BI tool set, most of these are not deeply insightful into the health of the business.  Ensure you get your vendor on record for the complete set of software tools needed to meet your needs – and absolutely make sure their final proposal reflects all software discussed.  Your best deal is at the time of the big buy…subsequent purchases will not receive the same discounts you can negotiate with the initial purchase.

How Well Do You Execute?

In today’s regulatory world, variation can lead to brand damaging security breaches or injury/death to your customers.  As you survey your key processes (this is not a detailed study or re-engineering activity), look for processes that are not conducted well.  They will have highly variable performance in terms of time, cost, and quality.  Do these processes have skilled, educated workers or are the activities performed by under-skilled staff, with manual tools (e.g., Excel), where data is rekeyed from input sources and for deliverables?

Make note of these processes as this is important information for the implementation plan but also use it to test the implementers to see how they handle these situations.  Low maturity processes and functions carry the most risk during transition to an ERP…impacting culture, job definitions, decision making, operating policies, external stakeholder reporting, and financial measures/methods. They are also difficult to reconcile in the new ERP during system testing.  Critical-to-Safety processes should be reviewed with an eye towards actual vs. reported performance. Validate that policies and Standard Operating Procedures are followed.

How Would You Describe Your Culture?

ERP implementations can enable new strategic capabilities or they can destroy an organization’s profits and its culture.  On the flipside, if the culture is already toxic (i.e., lacking integrity, internal destructive competition, bullying, passive/aggressive behaviors) prior to starting the ERP project, then there is a higher risk of knowledge gaps and project team member turnover, to name a few (Toxic Workplace Assessment).  An organization’s culture embodies its mindset for readiness and acceptance of change.  A cultural assessment can provide insights into how well an organization’s team will function and how much ‘change management’ will be needed.  A good change management model is the McKinsey 7S Model-Based Framework for ERP Readiness.

Alignment of Scope and Objectives to Reality

ERP projects are often scoped based on time-to-deploy or cost.  The KISS principle, while valuable in so many ways, can ignore the complexity of an organization and ERP software thereby setting the ERP project up for failure.  ERP vendors cannot be relied upon to identify your risks as they stand to benefit from the Change Orders that ensue.  Regardless of how scope is initially defined, it must eventually be validated against the impact to Customers, regulatory bodies, and in some cases, Suppliers/Vendors – thinking outside in.  Taking a next-level-down look at how the proposed scope will impact customers, products (engineering and manufacturing), sales, warehousing, geographic implications, government taxation and custom requirements, etc., gives you needed insight into the process disconnects, information challenges, and organizational breaks that would otherwise be discovered during the project.  While fixable, they will come as a surprise forcing cost overruns and missed milestones.

Operational Performance within Functional Areas

Significant investments come with the burden of proof and a return on the investment.  ERP implementations change or replace the current performance measurement systems such that the post-implementation performance analysis is often difficult or impossible.  Consider capturing financial, productivity, and quality performance baseline data for key processes within the proposed scope – include processes that impact Customers, Vendors, Production, and key administrative functions (e.g., onboarding a new associate).

Not only is this insight helpful post-implementation, it serves as justification for organizational changes during new process design.  Non-strategic processes and services should be standardized – this speeds the implementation and reduces costs of analysis and software customizations.  In doing so, task responsibilities are often either eliminated or the activities are moved to other departments.  As work is moved around the organization, the initial performance baseline provides justification that headcount needs to change – higher or lower.  Collected activity volumes help during those difficult, mid-project ‘work around’ discussions…do we make the software change or handle as a manual process?

Opportunities for business improvement

Assessments are also good for turning over stones with some moss on them…that is, the good ideas that people know about but hesitate to tell.  They can reach the ears of executives bypassing political blockers.  If a third party conducts the assessment, they will bring a wealth of insights for process improvement.  Combining the internal improvement insights with an outsider’s view will likely find a few diamonds in the rough.

Strategically important processes (think value-add reasons your customers do business with you instead of your competitors) can be described and presented to ERP vendors and implementation partners for inclusion in the product demonstrations.   Discuss with the candidates how the solution will embrace your competitive strengths either as part of the core package or force them to identify what it will take to accommodate the changes.

Next Steps

Along with the business requirements, include the compilation of the above assessment areas in the Request for Proposal (RFP) to Vendors.  Identified risks and opportunities impact the selection of the software and implementer and, ultimately, the strategic approach to the project, for example, phasing the rollout via scope, locations, business segment, or product lines.  This, in turn, affords an opportunity to license the ERP software over time in alignment with your rollout scope.  This opportunity is only made possible by understanding your risks and opportunities before specific selection of software or an implementation partner.

Assessment learnings provide insights into project estimates for duration and cost – both are key metrics for project success.  Too often the dates and dollars for a project are made without input from the operating view of the company.  Knowing that project scope and direction changes made during the project will ultimately cost an organization more time and more dollars, it is imperative to bring as much organizational knowledge into the selection and project planning processes as is realistically possible.

Conclusion

Preparation for an ERP selection and implementation effort is critical – this is a measure twice, cut once exercise.  Rush to start and the project will stall.  But when it stalls during the implementation, there will be a conference room full of consultants and staff being underutilized, milestones will be missed, budgets blown, your credibility questioned, and perhaps, even careers ruined.  The information in this paper provides you with a map to seek out the key information to support ERP software/partner selection and proper planning for the implementation. The assessment areas discussed are not exclusive, but are additive to classical approaches for ERP selection and implementation planning.  We discuss in our Six Steps to Success Methodology what a deliberate and focused selection methodology should contain.

For more information about using a consultant to help with software selection, see our previous post titled The Smart Software Selection Consulting Decision.