Beating the ERP Implementation Odds

 Technology project executions rank high on CFOs’ most worrisome risks[1] and enterprise resource planning system (ERP) projects are among them. Surveys regularly show that a significant number of strategic ERP projects fail to deliver expected outcomes, are delayed and exceed budgets by a long shot. While most companies avoid catastrophic ERP failures, only a few wring out the most value. For top management, failing to deliver a strategic priority is rarely an option. Given a mature ERP solutions market place and mostly competent ERP installers, why do organizations frequently stumble? [Download PDF]

“Twenty five or more years after ERP solutions entered the applications market, many ERP projects are still compromised in time, cost and more insidiously in business outcomes,” says Gartner, a leading information technology research and advisory company. “Organizations need to resist the temptation to succumb to pressure from business leaders to get started before the enterprise is really ready (and without a business-agreed ERP strategy). Business leaders must understand what it will take to ensure success. The blame for this, however, does not lie solely with end-user organizations that lack the experience and expertise to avoid many of the pitfalls. System integrator (SI) and ERP vendors have to be accountable to their customers in this respect.”  Press release, March 2, 2016

ERP issues are seldom due to inferior software; issues stem from degrees of inattention to four integral activities, which results in costly and painful rework: 1) Develop a clear vision, 2) Manage project outcomes, 3) Re-align processes, and 4) Manage change – including political, emotional, and user-centric dimensions.

ERP systems are multi-faceted and complex to implement, given the potential for integrating 10-20 business functions within an organization. There are many decisions to make, from software selection, appointing system integrators, forming an implementation team and structures, among others. What can CFOs of midsized organizations do to ensure project success? We, at Solutionsthink, offer an outcome-based approach:

Develop a clear vision – We believe an ERP implementation should be handled as any other strategic priority. Too often companies focus on the efficiency aspect of an ERP implementation, without setting aspirational targets (for example, establishing a scalable ERP system that can be deployed rapidly when a new subsidiary is formed, or to unlock information from multiple system silos). Whether management is considering replacing a legacy system or an assortment of disparate systems or installing a long overdue software upgrade, the starting point is a high-level vision statement. The vision statement is a board ready document, which is authored by the c-suite with input from significant stakeholders. The vision statement identifies and defines a few critical ERP objectives that will lead to a number of favourable (and measurable) outcomes and challenges that it will overcome. It is not necessary to provide full clarity on how it will be achieved at this stage. Take the time to define these needs.

Next, challenge key stakeholders (including operations, finance, IT), those that have the institutional knowledge, to expand and develop the value statement into a set of explicit features[2], immutable benefits and outcomes. Encourage transformative change and fresh thinking over incremental change – disregard attitudes that favour status quo and/or indifference. This is not an easy exercise by any means but bypassing these steps will lead to compromises later and a mediocre ERP delivery.

Involve ERP software vendors and system integrators, discuss and shortlist potential ERP systems for further research. Once a software package is selected, reference agreed upon outcomes, benefits, and targets in contractual agreements with the software vendor and the system integrator (and include reciprocal client obligations). Negotiate payment terms on achieving indisputable KPIs. Also, involve key stakeholders and users by assigning responsibility owners for each quantifiable benefit and outcome and hold them accountable – even if they are hundreds of them.

Manage project outcomes – Managing an ERP project is complex, due to its size and scale, as perhaps being the largest initiative a midmarket sized organization may take – involving multiple internal and external groups. Project success can mean different things to different groups: the client, the software vendor, and the system integrator. If these groups do not align their goals at the outset and fail to follow a coordinated and mutually beneficial approach, conflicts of interests can arise and dilute expected outcomes[3].

Software vendors and system integrators have a strong relationship, stronger than their individual relationships with the client – resulting in an asymmetry of information, which can set the client at a disadvantage. Software vendors can help by expanding the dialogue with clients and identifying superior alternatives that address the client’s planned business outcomes, before meeting their sales quota. Equally, clients are best positioned to confirm the system integrator’s understanding of the organization and gauge if the project requirements are defined well.

Ability to ask difficult questions of top management and line managers and having ‘healthy’ discussions and hammering out solutions are key for third party consultants for gaining respect quickly and establishing requirements correctly. Consultants that work as peers rather than vendors of clients, and are included in the project’s direction, better imagine the big picture and generate solutions that fit.

ERP vendors and integrators are still not feeling the might of dissatisfied clients that are dealing with business disruptions and associated costs of bringing recently installed software up to grade. Typically, we encounter project schedules with insufficient controls over readiness testing and coverage of core systems – over routine events such as shipping goods, issuing a cheque or emailing a customer invoice and much more. These omissions can lead to interruptions in business operations, dent credibility with trading partners, and if left for too long, erode working capital. If these execution risks are not anticipated, expect emergency project consulting for customizing business forms, report writing, outputs, workflow, load balancing or you-name-it, to add to the project cost.

Re-align processes – Midsized companies can consist of multiple entities that offer different products and services and operate in multiple geographies. The core set of business processes of midsized companies are often equally complex and resemble that of large companies. A good ERP implementation emphasizes on the core set of business processes while also delivering a sufficient approach to non-core processes.

“The poor practices of the past and the associated excuses for suboptimal business outcomes won’t hold water any longer. The focus of postmodern ERP is on improved business agility and flexibility for example, through deployment of solutions and services that are better targeted at the business capabilities and address other needs such as user experience,” says Gartner. “It really is time that the significant investments enterprises make in ERP solutions reap real benefits. ERP vendors and system integrators (SIs) must raise their game on implementation approaches, renovating and revisiting their own implementation methodologies for speed and with greater emphasis on the benefits realization activities.”  Press release, March 2, 2016

Frequently, the ERP software purchase is motivated by discounted base licenses rather than the suitability of a given ERP for achieving management’s goals. Software architecture that is mismatched with management’s intent can limit opportunities for optimizing business processes. For example, some multi-entity clients prefer a federated approach by giving each entity its own ERP instance where autonomy and independence are preferred; others install a single ERP instance to support multiple entities and benefit from lower cost through standardized business processes and IT support costs – not all ERP architecture can handle both approaches.

Too often, business requirement gathering is limited to a group of users in a boardroom setting, responding to questions from a questionnaire. This approach foregoes valuable context and detail that are gained by interviewing users in their own work environments and observing team interactions, workflow and use of ancillary tools. Digging deeper than the boardroom ‘tick the box’ exercise tends to reveal more opportunities for automating processes across functions and preserving unique processes that provide a competitive edge; it also sparks creativity.

Benefits of process alignment and automation via a well-chosen ERP system are many. Frequently missed opportunities to exploit key features after an expensive ERP install include: a) continued reliance on monster spreadsheet silos for significant accounting (e.g. revenue recognition, fixed assets and equipment leases), b) not automating the 3-way match of purchase orders, goods received and supplier invoices, c) not automating inter/intra-entity transactions, d) currency exchange/translation logic mismatch with accounting rules, e) failing to speed up the financial close cycle and the consolidation of results, and f) ignoring multi-entity planning and forecasting, and g) ignoring automated controls included in the ERP.

Manage change – Any transformative change initiative requires unwavering commitment and tone set by the c-suite. Top management support for desired ERP attributes should be continuous throughout the implementation and be in plain sight. A collaboratively written value statement and a competent implementation team aren’t enough; It also means preparing the organization for consultants to work quickly and setting up suitable structures for training (e.g. arranging assistance for users being trained, and avoiding work pile up in their ‘day jobs’). It also means monitoring outcomes and benefits with military-like precision and acting decisively when unplanned events occur. For changes to be sustainable invest in tools for preserving key learning after the consultants depart. Also, invest in on-going support, and a maintenance plan with reputable third parties, and stay current on critical ERP software updates.

We realize that the leadership and governance efforts we are describing lie with the CFO, the CIO, and their appointed project leader, rather than, through an ERP implementation committee and a program management office. Results are greater when top management are connected directly to the front line and truly understand their perspectives and frustrations. When clients wait until the ‘conference room simulation’ (i.e. a practice run of the ERP system), to realize that the ERP as configured is too basic or is laden with poorly migrated data), it is often too late to course correct.

There is no recipe for the perfect ERP install, but ERP teams that underestimate people-centric issues, create significant project execution risks: it is better to address the ‘what’s in it for me’ more than mandating compliance, promote people based on capability and not their current position, and setup bonus structures that reward line managers and end users for over delivery.

Achieving maximum gain – Despite a panoply of sophisticated ERP packages and mostly competent system integrators implementing them, business benefits of installed ERPs are underwhelming. Project teams struggle with a transformative change due to many constraints, not just tight timelines and budgets. These constraints lead to a series of small yet sub-optimal decisions, rather than a single one that dilutes benefits; for the unfortunate few, these decisions accumulate and create headline-grabbing business consequences after the implementation. If instead, organizations recognize dissimilar motivations of different project stakeholders and target mutual benefits, they are charting the course for success. Senior leadership should go beyond setting the tone for the project and be advocates for the results they expect. Envisioning an end state and assembling a great project team are a great start; and building structures to communicate, remove roadblocks and ensuring outcomes actually emerge, create a great finish. Motivating key users rather than demanding compliance is a smarter play for ensuring alignment and timely project execution. They need to alleviate people issues and ensure the changes do not roll back. Neutral project leadership is pivotal for achieving maximum gain across the organization. Organizations that weave these approaches into their ERP projects avoid compromising on speed, cost or business results. Instead, they can, and do, beat the odds and achieve a successful ERP implementation.

Pradeep Shakespeare is the president of Solutionsthink, a neutral management consultancy based in Ontario, which helps clients with transformational change initiatives such as ERP/specialty technology implementations, group financial close-consolidation-and-reporting, M&A integration, process re-engineering and IFRS adoption. He has more than 20 years of experience in public and private companies, delivering strategic mandates such specialty software rollouts and customer-facing technology. Pradeep is an MBA, a Chartered Global Management Accountant (CGMA) and a Chartered Management Accountant (ACMA). Pradeep can be reached at +1.905.609.4105 or pshakespeare@solutionsthink.com

© 2016 Solutionsthink Consultants Inc.  All rights reserved.

End Notes

[1] CFO Signals, Q3 2016, Deloitte CFO Program, September 2016.

[2] Independent on-line tools are available that allow technology buyers to evaluate and short list ERP systems.

[3] Exploring the Devil’s Triangle, Michael Krigsman, ZDNet, September 7, 2009.
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