We are often asked by clients why our estimates for ERP implementation durations differ so much from what they hear from sales reps. While ERP vendors can usually provide anecdotal examples of customers that have implemented ERP software in a very short time span or achieved significant business benefits from their solutions, our independent research suggests that these examples are the exception rather than the norm.
For example, our research of 1,600 ERP implementations across the globe reveals that the average ERP implementation takes 18 months. However, it is more common for software vendors to suggest that this timeframe is in the 6- to 9-month range for most companies. In addition, software vendors tout the advantages and benefits of their software, but our research shows that most organizations fail to achieve 30% of expected business benefits. So why the disconnect between sales messages and the reality of the ERP marketplace?
Part of the problem is sales reps eager to close a sale, which suggests that their motive is to downplay the required investment and risk of purchasing their solution, especially important to CEOs and CIOs in today’s uncertain economic climate. This may be understandable enough, but that doesn’t help a company get a realistic view of what it will take to reach ERP nirvana.
The even bigger problem is that software vendors and their customers do not adequately define or understand what it means to “go live” with an ERP system that delivers measurable business benefits. Instead, they often focus on how fast and/or cheap their solution can be implemented, thereby undermining the potential of the ERP software.
As outlined in the graph below, most companies narrowly define their go-live as the moment the new core, basic system is up and running. This includes leveraging core functionality of the system, pre-configured industry “best practices,” and other features that companies can leverage to get their new ERP systems up and running more quickly than otherwise possible.
However, this is just the first phase of a successful ERP implementation which delivers limited business benefits and competitive advantage. The core system achieved in Phase 1 may get you 30-50% of the potential business benefits (at best) with its pre-configured industry best practices. Most organizations fail to achieve expected business benefits, partially because they rely too heavily on standard “out-of-the-box” functionality that fails to set them apart from competitors. Most companies are not in business to be just like their industry peers and competitors – they are in business to be better, closer to their customers, and ultimately more profitable than their competitors. Merely getting to this first phase of ERP does not accomplish these goals, which explains why 72% of organizations never get past this stage.
Instead, companies need to concentrate on moving the finish line to include two more important phases. Phase 2 involves leveraging more advanced ERP modules, such as advanced forecasting, planning, supply chain management, or mobile workforce management. Even companies that purchase and go-live with these advanced modules during Phase 1 rarely fully leverage the functionality right away, because they haven’t adequately defined their corresponding business processes or sufficiently trained their people to use the improved workflows. In addition, this second phase entails identifying third-party bolt-ons, customizing where appropriate, clarifying reporting, and improving business processes to further integrate the core ERP system into the organization. This stage dramatically increases competitive edge and delivers measurable business results.
The third and final stage is to fine-tune business processes and develop an operational model that relies on superior analysis and ability to execute on more transparent business information and business processes. While most ERP systems provide more functionality, workflows, and reports than companies know what to do with, the most successful companies figure out how to sort through these complexities to focus on what will give them a competitive edge and ERP ROI. Our research shows that only 28% of organizations achieve the second or third phase of ERP competitive edge, and these are often the leaders in their respective industries.
As also noted in the above figure, Phases 2 and 3 begin to shift the focus away from software and its functionality and more toward business process re-engineering and organizational change management. By this point in the process, relatively little of ERP’s success is related to the software itself, but is instead related to how jobs are designed, how processes are defined, and how performance is measured. In addition, the truly successful ERP implementation teams incorporate Phases 2 and 3 into their first phase and focus on these key areas concurrently. On the other hand, other companies focus on Phases II and III only after realizing that the Phase I focus does not deliver the results they expected.
ERP software is a tool and enabler of competitive advantage and ROI. Merely “going live” with the software, however, will not deliver these results. Executives are at times overly concerned about risk and focus too much on getting the system up and running quickly and inexpensively rather than delivering measurable results. Only by following through with the second and third phases of an ERP implementation will your organization achieve the true business benefits and competitive edge that you are looking for. These second and third phases have very little to do with the software itself – it is more about building and leveraging business processes and workflows that allow you to analyze information and execute more effectively. When planning for your ERP implementation, it is important to align expectations accordingly and incorporate these activities into your project plan.
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