by R. Michael Donovan
It's not pretty out there. Companies have spent fortunes on ERP software and implementation only to find that business performance has not improved at all. These large investments and negative ROI's have created a whirlpool of controversy, rampant company politics and even a number of lawsuits. The trade press has reported many negative ERP stories, and even annual reports have pointed the finger at ERP for less-than-expected earnings. For some, this has created a higher level of fear about making a big ERP mistake.
Much of the time, the ERP software vendors are the targets for blame when the anticipated results do not materialize. Are the ERP vendors that sold the software the real culprits for the lack of business performance improvement? The answer is not very often. Certainly, there are many arguments to be made that ERP system logic was sometimes illogical, functionality was missing, the function performs poorly as designed among other issues. However, accountability for ERP software selection and implementation usually lies to varying degrees with internal personnel and often with external consultants.
Selecting and implementing a new ERP system, with appropriate business process changes, is unquestionably a not to be underestimated complex process. Regardless of your size and perceived resources, an ERP implementation is not something that should be approached without a great deal of careful planning. For the vast majority of companies who have been through a less than fully successful ERP implementation, there were five consistent lessons learned from these experiences:
1. Operating strategy did not drive business process design and deployment;
These lessons learned or mistakes have a consequence impact that varies by degree in each given ERP implementation situation. Almost always though there are precipitating events that are primary causes for failure. So, how can we avoid some of these costly mistakes? Here are some guidelines to help you with ERP success.
It's The Process
With management's hoped for results from ERP more often the exception than the rule, some answers for this lack of ERP system performance are mandatory. What many manufacturers fail to realize is that extensive supply chain improvement requires as a prerequisite that management begin to re-define it's business in terms of the strategic opportunities available. ERP technology is to enable the business processes that will support the company's strategic opportunities.
There are some basic tenets of ERP that should guide management's actions and decisions.
1. Know there is no magic in ERP software. The benefits from ERP are a direct result of effective preparation, implementation and appropriate use which sounds like a confirmation of the obvious, but 9 out of 10 companies don't get it right the first time around. Mistakenly expecting a quick fix, silver bullet solution is a dangerous mindset. .
2. No amount of advanced information technology can offset the problem of a flawed business strategy and poor performing business processes. This area, in particular, is something that ERP software implementers tend not to fully address because it can slow system deployment through the prescribed rapid implementation methodology.
3. Define a business strategy that will preferably give you a competitive advantage, or, at the very least, make you competitively equal. Then, analyze your current business processes and develop your 'should be' objectives. Once this step is done, the following steps for preparation, ERP software selection and implementation can be more supportive of your strategy and supporting process objectives.
4. Acquire flexible ERP information technology that can accommodate rapidly changing business conditions. The high velocity flow of information that is needed, when it is precisely needed, to act upon up and down the supply chain is a major step forward for most manufacturers. It will be mandatory in the future just to compete never mind staying ahead of the competition..
5. Have the implementation led by a senior executive that has the authority to make changes happen and quick. Make sure there is a sense of urgency mindset and true accountability for completing preparation and implementation activities on-time.
Moving away from the functional silos and creating effective cross functional processes, that are truly integrated via an ERP system, is not an easy task. However, when ERP is not fully integrated into day-to-day business operations it is not likely to be very beneficial.
If enterprise integration or more advanced supply chain management strategies have any chance of complete success it will be due, to a large extent, to the removal of the cross functional barriers that traditionally exist. These silos comprise the organizational boundaries where information flow stops and cooperation is less than desirable. This mandates the very important question, "How will we use the ERP system?" Some not so obvious issues should surface for answers as well. For example, will you combine demand-based flow and lean manufacturing techniques which will negate the need for a lot of traditional ERP functionality. It is very necessary to focus on your business strategy and objectives you want to achieve and not just the selection and implementation of software. Many of these and other problems are reinforced by objectives and performance measures which are opposing and actually create disparate value and belief systems which are detrimental to the company as a whole. No amount of Information Technology will correct these problems without management taking a very aggressive stance to remove these problems once and for all through business process redesign.
Assess Your Skills and Prepare
Management too often plunges into ERP being less than fully-informed or worse with very limited or no knowledge of what to expect. Often times, there is a misconception that the skills necessary to select ERP software and then implement it already exist in the organization. Some skills may exist but rarely to the extent necessary to effectively implement ERP within a reasonable time frame. Enter the consultating "experts" from a systems integration firm (often "mis-labeled" as management consultants) who helped sell you the system, with a software business partner. Worse, when the implementation "experts" arrive some are so inexperienced it should make you quickly re-assess implementation risk. It is of paramount importance, with such a high risk/reward ratio that you be absolutely certain the necessary knowledge and skills are present on your implementation team.
Another commonly overlooked, and therefore not well-prepared for, is the issue of information technology change. Often the IT infrastructure changes required to enable the implementation of a new ERP system are not given the high priority these technology issues deserve. Certainly, the implementation of ERP should be driven by the business issues and not those of technology. However, it's IT's understanding and skills that supports the technology that enables the business process issues to be improved. To not consider that new information technology is going to require preparation through education to understand the new technology is asking for trouble. For example, a current client's IT staff is very knowledgeable about Cobol and HP-UX, but it's new ERP will be using very different technology. IT's understanding of the new technology is an absolute requirement for a successful ERP implementation. Furthermore, the IT personnel have to make the technology transition fast. If the necessary technology adoption and infrastructure transition are not done well it will, at the very least, delay the project.
One of the biggest problems that many have had with implementing ERP is misunderstanding what ERP is all about and underestimating what it takes to effectively implement. Driving ERP preparation and implementation, senior operating management can not relegate critical decisions to workers who may not have the background and/or the temperament for this type of decision-making.
Companies need a well-thought out and comprehensive process that will help plan, guide and control the entire ERP implementation effort. Starting an implementation with an undocumented, skimpy or untailored implementation methodology is open invitation to disaster and, at the very least, a long drawn out implementation. Everyone from the boardroom to the stockroom needs to clearly understand their role and responsibilities for implementation. And above all, encourage dialogue that will get people focused on the business objectives as well as early identification and/or correction of any problems. In addition, and no small matter, the questions of how, when and who will be accountable for results must be an integral part of this understanding. An implementation that's going astray becomes recognizable when repeated schedule slippages surface. As time moves on, the schedule miss problems starts compounding the implementation quality as the almost invariable response is to start taking short-cuts and by-passing critical business issues. The slam and cram method of an ERP software transplant is now in high gear.
Software Selection Is Not Easy
Before the nitty gritty's of software selection begins, it is a good idea for management to know how current strategy, processes and supporting systems compare to what could be. In fact, this discovery process should be performed every couple of years so management will know where the company is a compared to a previous stake in the ground. This is a basis from which to evaluate opportunities.
Many people avoid the essential examination of strategy and business processes and jump right into examining software functions and features. This is often caused by the urging of the software vendor(s) who want to quickly move you along in the sales cycle and get you closer to licensing their product. For example, very tempting vendor offers such as "confirming the concept" by implementing that particular vendor's software at your site often coupled with various guarantees often adds confusion to the software selection process, especially for the uninitiated. Obviously, ERP software vendors are in the business of selling their products (just as your company is) and they have their very best people "work" the sales cycle to expertly guide your organization to their "obvious best solution" for all of your problems.
Start a tightly structured software needs definition and evaluation process by examining your current processes that govern the flow of information and material throughout the order-to-delivery process and ultimately the entire supply chain. There is a high tendency to shortcut this very important activity and, as a result, you will pay - sometimes dearly - in time and money for avoiding this essential step.
Evaluation and selecting ERP software is a complex task. It should be a process that is a fact-based approach to the quantitative and qualitative that brings you to a point where you can make a comfortable well-informed decision. This by definition necessitates an objective and comprehensive methodology to guide you through the selection process. This does not mean you should follow the very popular pre-determined questionnaire approach that is not oriented to your specific process needs, rather it means your evaluation and selection process should be to develop your strategy and business process model and use these as the drivers for ERP software search, evaluation and selection. A comprehensive methodology to plan, guide and control the effort has the potential for dramatic savings never mind, the most important benefit, mistake avoidance.
At some companies, management is so preoccupied with seemingly other more important activities that ERP is relegated to the Information Technology people to deal with. The logic it's software so it belongs with IT is wrong and, in fact, will likely lead to ERP failure. Following this approach puts the IT function in the unenviable position of needing to evaluate the business implications of trade-offs and to determine the importance of their impact on day-to-day operating results versus strategic intent. The unfortunate but likely result of leaving ERP hanging with just IT is that it becomes their albatross. Certainly, this shouldn't be the case as operating decisions belong with senior operating management and not IT.
Once an ERP software system selection is made, good or bad, for your needs, it's a rare situation where a company will cut its losses and scrap the investment until some years have passed. The political fallout is often considered the biggest obstacle. No one wants to tell upper management that the ERP investment of "X" millions of dollars should be scrapped and the process restarted. However, in reality, when companies live with a poor ERP decision for many years there are substantial costs. Just think of the lost opportunity dollars which are potentially massive. The ERP software search, evaluation and selection process must be done right from the outset to minimize this risk.
A Clean Slate vs. Rapid Implementation
The "clean sheet of paper" approach, although alluring in concept, was a big bust for too many in practice! The compromising trade-offs that industry specific best-practice templates enforce are now being largely accepted primarily because the alternative of the "clean sheet" business process redesign and the subsequent ERP system configuration is complex, costly and time consuming. While pre-configured template approaches are inherently compromising it does allow faster system deployment and the refinement of processes at a later date. This is not to say that it is OK to just slam and cram predetermined processes into place. On the contrary, processes must still be "generally" designed and deemed acceptable, at least for now, before going forward with pre-determined templates. This approach is essentially developing best-fit processes that are acceptable for now, but adjustable as future needs change what is required.
The demand for rapid ERP implementation is high. This was the primary driver for the development of "off-the-shelf" templates that are suppose to make the entire ERP implementation experience less of a long, arduous nightmare. However, many templates, approaches, by their very nature, incorporate specific so-called best practices that create systems that will support cross-functional business processes. While this, on the surface, may sound like nirvana the problem in practice is that very few organizations have taken the time to rethink how they should and could run their business. As a result many companies ran into the inevitable barriers that made the day-to-day application of these process templates have become the accepted method.
Plan To Succeed!
Successful ERP implementation the first time requires following a structured methodology that is strategy, people and process focused. It is the only way to effectively manage risk. A good methodology covers all the bases, but when the unexpected pops up as it usually does, you will be prepared to handle these exceptions without severe negative consequences. One very common mistake is not having your employees prepared to effectively use the new processes and support system. The consequence here can range all the way to total failure, but are avoidable.
Evaluate your business strategy and ERP plan before you commit to software acquisition and installation. Doing it right the first time is the only cost effective way to go. There are many people out there who wish they had taken a pause to evaluate their direction. The following questions do not cover every possible contingency, but should be helpful to stimulate thought, and discussion and the right action.
ERP and Supply Chain Management systems implementations are, in actuality, projects without ends. After all, the supply chain is to a large extent, the very life blood of a manufacturing company. For some of the lucky ones, new supply chain management systems, based on ERP, have become significant competitive differentiators.
Implementing ERP can become a "mind-altering" experience for the many involved.
However, following the advice in this article will increase your opportunity
for success the first time manifold. Yet, it will not guarantee your
success. You need to do that.
R. Michael Donovan is a management consultant based in Framingham, Mass. He can be reached at (508) 788-1100. Readers may obtain a copy of the book Strengthening Manufacturing's Weak Links, and other educational materials through www.rmdonovan.com.