We recently hosted a webinar reviewing our 2019 ERP Report. In this webinar, Chris Devault, Panorama’s Manager of Software Selection, and Vanessa Davison, our Managing Partner, share advice based on their client experience and findings from the report. You can watch the webinar below or read the transcript below that:
Webinar Transcript (edited)
This is one of the most comprehensive reports we’ve ever done. There’s just no way we can address this whole report and the content within the hour time frame.
That said, let’s dive into the independent research we’ve done based on our benchmark survey. We’re going to provide you an overview of some of the trends we’ve seen, not only from our survey results but also from what we see while working with clients.
A Wide Range of Industries
Respondent companies represent industries like manufacturing, IT and professional services.
Some ERP consultants are very industry-specific. In contrast, Panorama focuses on a wide variety of industries, which gives clients exposure to a wider range of ERP vendors and allows us to glean best practices across industries.
For example, we have some public sector clients that operate like a business – The City of Pembroke Pines made it very clear to us that they don’t operate like a public sector entity but more like a business.
ERP Selection Tips
1. Understand Why
It’s important for companies to understand why they are going through ERP selection. One good reason to do an ERP project is to leverage technology as a competitive advantage within your industry. This is a better reason than, “Our support is ending on our current product, and we need to switch.”
Once you understand your reasons for implementing ERP, you need executive sponsorship around these reasons, and you need buy-in all the way down to end users.
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2. Document Requirements
It’s important to do requirements gathering upfront as opposed to doing it after you’ve selected an ERP vendor. At that point, you’re on the vendor’s dime, and you’re rushing to define your business requirements.
From our project recovery experience, we have found a common theme is companies waiting too long to begin requirements gathering. It’s painful work, but it ensures you implement successfully. In fact, one of our clients’ CFOs told us that spending money upfront decreases expenses during implementation.
3. Prioritize Functional Areas
Your choice of ERP software will depend on what functional areas you prioritize. Maybe you want to focus on financial management and operational management since you’re aiming to optimize your supply chain and manufacturing processes. Or you might focus on financial management and omni-channel since you’re trying to improve the customer experience within with an e-commerce platform.
Depending on your focus and the size of your company, ERP vendors have a different mix of solutions – some stand alone, some fully-integrated. Do you just want a workforce management solution, or do you want human capital management, as well? Do you want your system to include payroll, or do you want to continue to outsource it?
If your organization is prioritizing the customer experience, you’ll need a system that handles marketing and customer relationship management. Some of these systems also handle configure-price-quote.
When you’re talking about meeting customer expectations, you probably need an e-commerce platform that integrates with a core ERP system. This allows you to integrate customer data, dynamic pricing information and other real-time data with your supply chain. The retiring of Baby Boomers and the increase of the Millennial workforce is a major reason why a lot of companies are integrating e-commerce.
Some of our clients want a permanent solution, while other clients know their business is going to change and want a solution that lasts five to ten years. This decision also can influence what functional areas you prioritize.
4. Understand the Software Tiers
- We define Tier I as systems suited for companies with $750 million or more in annual revenue. Tier I vendors target enterprise-level companies with multiple entities and complex operations.
- Upper Tier II vendors still serve companies with multiple industries and business units, but these companies are slightly smaller.
- Lower Tier II vendors play well with small- to mid-sized businesses that typically serve one industry with a single entity.
- Tier III vendors include point solutions suited for startup companies.
5. Align Your People, Processes and Technology
Another important aspect of selection and implementation is strategic alignment. A clearly defined digital strategy is essential. It’s important to have a strategic roadmap with KPIs to ensure executives and middle management are aligned around the same expectations.
People and processes also must align with the defined strategy to ensure a successful project. Successful ERP projects are those that focus on improving operating processes and helping employees develop digital competencies. All too often, companies think that technology leads the project, and that’s not necessarily the case.
Organizational Change and Business Process Management Tips
1. Focus on the Customer Experience
We typically use a top-down approach to business process management, called value chain mapping. This allows companies to see processes across functional areas and business units to eliminate redundancies, improve the customer experience and generate ROI.
Amazon is a perfect example of improving the customer experience. Unfortunately, not every organization has as much to spend on technology as Amazon, but you can certainly look at them as a model.
2. Standardize Some of Your Processes
Our clients often struggle with determining what processes to standardize and which to differentiate. All too often, companies evaluate ERP solutions based on their current state, which typically is a handful of workarounds and limitations. In cases like this, companies should consider standardizing some of their processes based on best practices.
3. Define KPIs
From an operational standpoint, it’s critical to define project goals because you need some sort of success measurement, not only during implementation, but after you’ve gone live.
4. Move Beyond a Communications Plan
The way we look at change management is we meld the traditional approaches with modern times in order to enable the digital worker. A lot of traditional change management is about communicating with employees from across the organization throughout the project.
If we go to the next slide, you’ll see what our respondents did as it relates to organizational change management activities. You’ll see that communication plans are at the top.
Integrating people and processes is challenging and requires more than a communication plan. So, in addition to helping companies develop a communication plan, we help them conduct focus groups and business readiness assessments.
ERP implementations and business transformation initiatives fundamentally change an organization’s key processes and operations. As such, companies should develop a full change management plan that views change from different perspectives such as culture, structure, workflows, processes and digital awareness.
We had a client whose executives initially said, “We don’t meet change management. Please don’t mention change management activities.” Four years later, they’re behind in their implementation, so they decide to focus on change management.
ERP Implementation Tips
1. Avoid Budget Overruns
Why did respondents’ projects have budget overruns? Some of the main contributing factors relate to a lack of planning upfront – scope expansion, underestimated consulting fees and unanticipated organizational issues. Project managers and team members need to account for all of these things before ERP evaluation.
We can’t tell you how important it is to get the proper requirements gathered as you’re documenting your current state and future state. Many companies don’t have the proper requirements, and they can’t tell the story well enough to the vendor to have the vendor properly design the system.
2. Avoid Timeline Overruns
Why did respondents go over their original timeline? The timeframe was the unrealistic, and that really goes back to not properly gathering requirements. Also, respondents experienced data issues, scope expansion and organizational change management issues.
Both timeline overruns and budget overruns can be considered an ERP implementation failure.
3. Focus on Benefits Realization
Many companies think they need all this advanced functionality in order to receive benefits. However, in our experience, as companies are implementing basic out-of-the-box functionality in phase one, they are receiving all sorts of benefits. Because of the new technology, users are figuring out how to leverage information and data differently.
An example of basic functionality that delivers benefits is workflow automation. The ability to automate processes, such as a purchase order approval, makes your organization more efficient.
After a year or two of basic functionality, our clients then start to pick and choose where they want to implement advanced functionality. That’s when they’re going to realize benefits tenfold of what they’ve already seen.
4. Focus on Change Management
The key lesson learned from these project results is to focus on change management. This is because . . .
- Employee adoption determines the success of the ERP project. In many of our software expert witness cases, we’ve noticed that this was a key ERP failure
- If team members are not engaged in the project, they find ways to work around the system. You don’t want to invest in technology, take the time to implement it and then have users do workarounds.
5. Determine Your Ideal Implementation Approach
Many companies in our study are choosing a phased approach by module. Another popular approach is the big bang approach. Companies with multiple locations that use this approach typically don’t go live with all locations at once but choose one or two locations with similar functionality. Many of these companies implement basic functionality all at once, which accounts for most, but not all of the ERP system.
There’s not one right approach. What we do with our clients is determine the best strategy based on unique factors, like culture and ERP project team dynamics.
6. Use ERP Consultants
The report indicated that most companies do use ERP consultants for ERP projects. Working with a consultant is like having a fresh pair of eyes since the consultant is a third party.
ERP consultants can walk into companies and ask, “Why is it being done this way?” Companies will often answer, “It’s just the way it’s always been done to work around certain people or give certain people certain positions.”
Many respondents did not use consultants for process and change management, which is interesting because in my career as a CEO, that’s what we usually used consultants for. In my experience, consultants were useful because they taught us “how to fish,” and left us with deliverables and documents that could enhance our team’s performance in the future.
7. Define ERP Success
How should you define success? That’s a very interesting question because there’s many different perspectives, and every organization is going to define success differently.
For executives, success if often about creating value for the customer, remaining competitive and achieving ROI. When you think about achieving ROI, you could achieve it from a financial perspective, but you can also achieve it via innovation and employee retention. Technology is just an enabler to all this.
From an end-user perspective, success might look like the ability to do your job more efficiently. Once people are trained on the systems, they realize the importance of data and the upstream and downstream effects.
For example, it’s very important for the sales team to capture the right amount of data around pricing. The proper input of this data has a ripple effect throughout the organization. If end users take the extra minute to populate more data fields, then other parts of the organization, like operations or finance, will benefit.
Webinar Questions and Answers
Once you choose a vendor, how long can you negotiate on pricing?
ERP Contract Negotiation is a service we provide to our clients. You can certainly take the time that you need to negotiate.
I always say that you really need to understand what software you’re purchasing. You want to make sure you’re getting a fair market price for that software and that functionality. Then, you need to line that up with your statement of work.
There are certainly negotiations that could be done around pricing and terms of service, but what our negotiation processes really flesh out is a complete understanding of the statement of work and how each of those functional areas are going to be implemented.
What amount of training is expected per employee?
One of the things that we help establish that differentiates us from the vendors is a training strategy. Many vendors have great training methods – they have videos, recordings and documentation, but these may not be specific to your application. For example, if you have some customizations or some user-defined fields, vendors’ training materials are not going to cover that.
We conduct assessments to understand the change readiness of the organization. These assessments tell us how much training is needed per employee. This could be anywhere from ten hours per employee to a full month’s worth of training. It depends on the culture and the aptitude of employees.
User training is not just training on the system. You also need training on the unique workflow of each employee.
Do you have experience working with nonprofit companies?
We actually have a lot of experience working with various nonprofit companies. If you want more information, feel free to give us a call. Public sector is absolutely one of our key strengths.
What does success look like at the different levels of an organization?
A business owner may say, “We implemented the system and went live in nine months as we anticipated.” However, an end user may say, “We went live in nine months, but I didn’t get all the functionality that I was promised during the sales cycle.”
Do ERP vendors handle product disassembly?
Most companies are building things, so most of ERP software solutions are not necessarily geared for disassembly. There’s all sorts of nuances that come into play. For example, when you’re disassembling and refurbishing an engine, you need to be able to schedule and forecast on what parts are going to be good, what parts need to be refurbished, what parts need to be scrapped and where else these parts can be used.
While it’s difficult for ERP systems to handle reverse billing materials because of the complexity, there’s certainly a handful of vendors that handle it out-of-the-box or with extended solutions.
What would success look like for somebody in finance and somebody in purchasing?
I would say somebody in finance wants access to real-time data. He wants to be able to look across the organization at what orders are coming in, what’s shipping out and so forth.
For a purchasing manager, success is about establishing best practices and automating business processes to make more optimal purchases. Some companies carry a high value of inventory, but they can achieve cost savings by reducing this inventory.
Some of our distribution customers carry a little bit more inventory because they want the ability to service their customers as a one-stop-shop. For example, when a national emergency arises, and their customers are asking for more than usual, that’s when they see the benefit of carrying a little bit more inventory.
Do you offer formal training for implementation teams that are about to embark on an ERP project?
The answer is yes, we do have formal training. If you go to our website, it’s called ERP University, and we can customize it for you. We can train you on anything from change management to process management to what to expect during an ERP implementation project.
Panorama’s ERP consultants can help your company set realistic expectations for its upcoming ERP project. You can gain insights from the benchmarks in our 2019 ERP Report, or you can contact us for a free consultation.