As outlined in our recent blog Top Ten ERP Predictions for 2011, we predict a few seemingly contradictory forces that will be in play as CIOs and executives grapple with their ERP system initiatives. For example, at the same time we are predicting that ERP project leaders will be focused on risk mitigation strategies, we also suggest that the number of ERP failures will increase. One might argue, however, that more effective ERP risk management strategies should reduce the number of ERP failures in the market. Unfortunately, this is not the case in today’s environment.
In order to understand how both conflicting forces can be true at the same time, it’s important to look at the stressful dynamics barreling down on CIOs and IT executives.
Forces That Conflict With One Another and Force CIOs Onto the ERP Tightrope
- Implementation budgets are tight and project resources are scarce. While executives may be thinking more about ERP implementation risk management, they are not necessarily given adequate money, time, or resources to effectively mitigate the profound risks of an ERP implementation. Layoffs have been deep and IT budgets are not yet flush with cash, so executives are essentially expected to do more with less.
- Executives are risk adverse and margins for error are extremely low. In this economic climate, executives will not do something that they do not believe delivers a clear ROI, so project activities and budget items that are not convincingly sold as such are likely to be removed from your project budget request. In addition, when there is a problem, management teams are much less likely to stand for cost overruns, operational disruptions, and other risks, leading them to pull the plug on incomplete implementations. They are also more apt to file lawsuits against their vendor where applicable.
- Employees are experiencing change fatigue and high stress. Employees and end-users have had to deal with their own stresses: layoffs of their colleagues, concerns about their own job security, and increased workloads. Throw a new ERP system on top of that and it may be enough for some to crack, or at the very least, heavily resist further changes. This underscores the critical nature of effective organizational change management and communication activities, in addition to comprehensive ERP training.
- Cost cutting mentality is killing ERP projects. The above three factors are leading companies to cut, cut, and cut some more. The economy is recovering at a painfully slow pace, so executives will continue to contain and cut costs wherever possible, including with their ERP initiatives. However, this is exactly what leads to failure. For example, cutting your organizational change management activities could knock 10-20% off your overall budget, but it will also exponentially increase your odds of failure. We are seeing an acceleration of companies with troubled projects, and this overzealous cost cutting mentality is the root cause of most of them. The irony is that in our 2010 research, we found that companies that spend the extra out-of-pocket budget to hire Panorama’s expertise actually implemented at approximately half the cost of peers that didn’t do the same.
So What’s a CIO to Do to Help Keep Balance and Avoid Falling Off the Tightrope?
First, don’t let the stress get to you or cloud your decision-making ability. Second, look for things that are guaranteed to reduce your risk of failure, such as organizational change management, independent oversight of your implementation, and comprehensive benefits realization and risk mitigation programs. Third, and most importantly, understand that you’re on a tightrope with a lot at stake and don’t make any rash decisions that could knock you out of balance.
This is where Panorama helps its clients. More organizations are reaching out to us to provide targeted services to mitigate risk, such as by providing organizational change management and training activities, assess their implementation projects against industry benchmarks and best practices, and bring expertise onto their team that will ultimately help them implement faster and cheaper than they are able to on their own.
Learn more about our ERP consulting services or attend our ERP Boot Camp to better understand how you can balance the ERP tightrope in 2010. Also, take our poll below and share your thoughts about which facets of the ERP tightrope most concern you.