Our 2015 ERP Report shows that most ERP projects take longer than expected, cost more than expected and fail to deliver expected benefits. What do you think is the most important factor to avoid these types of ERP implementation failures? Take a moment to vote in our poll and then check back to review the overall results.
This webinar clip covers two of the top ten predictions for the ERP industry as presented by ERP experts, Eric Kimberling of Panorama and Michael Krigsman of ZDNet and CxOTalk. This is the final installment of this mini series.
According to our 2014 ERP Report: OCM, 60% of organizations experienced operational disruptions beyond one month after go-live. Did your organization experience operational disruptions at go-live, and if so, how long? Take a moment to vote in our poll and then check back to review the overall results.
To learn how organizational change management can help prevent operational disruptions at go-live, download our 2014 ERP Report: OCM.
There is a belief that a new ERP system by itself will turn around a struggling business or make a thriving business more successful. As exciting as a new ERP system can be, servers, software and hardware are expensive. Organizations need to conduct due diligence to find the correct IT strategy for their needs instead of solely focusing on their budget. An outside set of eyes can be very helpful as they are not blinded by department loyalties or corporate fiefdoms and can see the current environment for what it is. An outside agent also has ample lessons learned from other IT strategies and your company can save money and heartaches by listening to their advice.
Following are four steps for developing a winning IT strategy:
1.Find the right fit: There are a lot of IT solutions out there, and finding the correct one for your business is critical for continued growth. Cost is usually the primary metric that most companies adhere to, but there is much more to consider before pulling out the corporate credit card. Is it appropriate to host your activities in the cloud? Would you rather have your IT infrastructure on-premise? Do your employees need connectivity on the road? How long are you going to live with the IT upgrade? Are you allowing employees to bring their own devices and hook them up to your network? Do you have enough bandwidth? How big and competent is your IT staff? All of these must be considered in addition to cost.
2. Identify the benefits: A baseline of the current business processes is necessary. The IT strategy should start with the overall business strategy and how technology can make your organization efficient, increase production, reduce management costs and improve collaboration. There needs to be a clear roadmap between the current state, the IT strategy and the future state. Timing also needs to be factored into the vision of success. Typical IT upgrades are planned to last for three to five years, but this is highly dependent upon the client and their specific needs. Since IT is a rapidly changing field, the implementation should be started as soon as the IT system is agreed upon.
3. Prepare the employees: An IT strategy cannot be a lightning bolt from the executive suite without consideration for the various departments and end-users. There needs to be a deliberate change management strategy that includes, informs and provides realistic expectations. All departments must be included in the change management strategy and shown how the new IT strategy relates to company goals, how it will make end-users’ jobs easier and how and when they will be trained. Whenever Panorama proposes a new IT strategy, the end-users worry that the new IT program will be paid for by employee cuts and reduced benefits. While some jobs may be made redundant, it is important to have a theory of victory for the employees. Some jobs may be cut, but there will be new work opportunities and jobs will be created because of the new IT capability.
4. Manage the risk: Risk management – particularly with impacts to current business processes and employee expectations – need to be identified and either overcome or mitigated. It is important to have a no-nonsense look at the company and detail how the firm can handle the IT changes. An inventory of the current IT infrastructure as well as a detailed look at its strengths and drawbacks are critical as this creates connectivity within and outside of the company. One of the biggest risks is training, but if the company has created a sound IT strategy, married it to the business processes and set the stage for success with the employees, training should go swimmingly. There will always be friction to change and a sound change management plan will help ease friction and outright resistance to the training and the new IT system.
You don’t have to walk in the tall cotton alone in determining your IT strategy. Find a capable partner to help you navigate the rough patches during an IT strategy and implementation. Panorama can help you by providing critical insights on business processes, change management, risk reduction, and of course, help you determine the best IT infrastructure for your specific needs.
Some organizations jump right into ERP selection and implementation initiatives without first fully considering the strategic alternatives available to them. However, some best-in-class organizations are first defining a strategic roadmap before embarking on ERP, CRM, SCM, HCM, or other enterprise software engagements. By taking a more deliberate and measured approach, these organizations are setting themselves up for success without taking on unnecessary costs or risks.
In this clip, a part of a 60-minute recorded webinar, Eric Kimberling will discuss an overview of IT strategy options.
To watch the rest of this recorded webinar, you can register to view it on Panorama’s on-demand webinar page.
ERP implementations often lack a strategic framework, and according to our 2014 ERP Report, take longer than expected, cost more than expected and fail to deliver expected business benefits. We’ve found in our years of implementation experience that the term “strategy” is too often missing from the vernacular of CIOs and CFOs about to embark on their ERP implementation strategies.
Although not many organizations are particularly good at defining their IT strategies, this is an important step in the process of identifying the best path forward with new ERP software. Below are some of the key questions that need to be defined:
Are we more interested in a single system or best-of-breed?
Do Tier I or Tier II ERP systems make the most sense?
What type of deployment option is best for us?
What do we want to outsource vs. insource?
What is our phasing strategy?
What organizational change management strategy should we develop?
How much will we standardize business operations across our various locations and business units?
Do we want to change the software to fit our business, change our business to fit the software or a combination of both?
These are just a few of the many important strategic decisions that need to be made prior to an ERP implementation. It is far too easy to jump into an ERP project and start making decisions that are not necessarily aligned with a sound, longer-term IT strategy. Answering these and other important strategic questions can be difficult without the right expertise and mindset.
To get started, below are a few things to consider and as you and your team begin making key strategic decisions and navigating your potential IT strategy for the future:
Assessment of your current IT landscape. The first step in any effective IT strategy is to assess the strengths, weaknesses and opportunities related to your current environment. You will want to benchmark your current IT situation to other organizations and best practices to prioritize the various opportunities for improvement. For example, this assessment should evaluate your current enterprise systems, physical infrastructure, data, skills and competencies among your IT staff, and a host of other considerations. Only by knowing where you are starting from can your team define the best path to where you want to be.
Alignment of IT with your current corporate strategy. Though CIOs and IT team members are important in helping the organization accomplish its long-term objectives, too many CIOs are disconnected from their organization’s overall strategy. For example, we have seen ERP project teams deploy decentralized and customized implementation strategies across their various businesses when the organization’s stated strategic objective is to standardize and centralize the business operations. Decisions regarding your ERP implementation should always be made in the context of overall company objectives and be supported by those longer-term goals. Without that alignment, your ERP implementation is more likely to be a troubled project that fails to deliver expected business benefits.
Potential strategic scenarios. Once your current IT landscape is analyzed in the context of your organization’s longer-term objectives, it is then appropriate to identify potential strategic scenarios to support the overall vision for the company. We recently worked with a multi-billion dollar organization that evaluated several potential (and diverse) options, including outsourcing their IT department, upgrading and better integrating their current systems, replacing their current systems, and standardizing operations across their global locations. Each was a potential means to achieve their overall strategy – including strengths, weaknesses and tradeoffs for each. In order to define feasible scenarios, it helps to look at what is happening in the industry and what tactics other organizations like yours are deploying.
Business case and ROI analysis. Ultimately, the strategic scenario your team chooses will be heavily influenced by the potential costs, benefits and return on investment of each. It can be easy to make an emotionally-charged decision – such as, “Our current systems don’t work correctly, so let’s go get a new ERP system” – but these potential scenarios should be evaluated in a rational, quantitatively-focused way to ensure that emotions don’t dictate the chosen approach. These quantitative comparisons of various scenarios should also consider long-term hidden costs, such as the technical and organizational costs of maintaining the particular solution. At the end of the day, your executive team and board will want to see how the costs, benefits and ROI stack up for each potential scenario you are considering.
The three- to five-year strategic roadmap. As much as we would all like to transform and improve our businesses overnight, successful initiatives are typically more of a multi-year process. Your final output from the strategic process should be a three- to five-year roadmap outlining the implementation strategy and key milestones critical to the success of the overall transformation. It is important to remember to include the following key components in your roadmap: what types of solutions will be deployed, how the organization will need to change, expected business benefits, business process reengineering strategy and the organizational change management plan.
These and other key strategic topics are covered as part of our proprietary PERFECT Plan™ IT Strategy Methodology, which we recommend and deliver for our clients that are a bit more focused on the long-term success of their various ERP initiatives. While some organizations can certainly succeed without this important step, the odds of success are much greater with the above items in mind.
According to our 2014 ERP Report, about one third of respondents said that they were unsatisfied with their ERP project. There are many factors that may cause unsatisfactory ERP implementations. What do you think is the deadliest sin of ERP implementations that organizations should avoid in order to ensure a more successful ERP project? Take a moment to vote in our poll and then check back to review the overall results.
Determining the best ERP implementation strategy can be tricky. It sounds easy enough: define what you need, design and configure the system, run some testing, train the employees and boom – you’re in business. Most ERP vendors, system integrators and less experienced ERP consultants may make enterprise software initiatives sound this easy, but as anyone who has been involved in ERP implementations in the past can attest, this is typically not the case.
Despite the tendency of the industry to over-simplify the effort and risk associated with ERP implementations – which explains why so many of them fail – defining the best strategy for rolling out a new ERP system involves a number of variables. In addition, there is no one-size-fits-all strategy that works in every situation. The type of strategy that may not work well for one of your industry peers may work very well for you, and vice versa. Too often, organizations fall prey to the fallacy that a generic, boilerplate ERP implementation strategy and plan is going to work for them.
So how can you avoid the same mistakes when defining the best ERP implementation strategy for your organization? Here are a few things to think about when defining the implementation approach that makes the most sense for your organization:
1. Reengineer business processes or pave the cowpaths? Companies that rush into their ERP implementations without a more deliberate focus on business process reengineering are more likely to automate their already inefficient processes. The business process reengineering guru Michael Hammer popularized the notion of “paving the cowpaths” to describe this phenomenon, and many companies head down this troubled path when beginning their projects. After all, the path of least resistance is typically to keep doing things the way you always have, so spending millions of dollars on a new ERP system isn’t going to fix that without the right mindset. CIOs and project managers who are more interested in transforming and improving their business processes need to build the appropriate level of effort and focus in their project plans, or else their organizations will naturally revert to the cowpaths, no matter how hard they may try otherwise. Unfortunately, inexperienced ERP consultants and system integrators will typically underestimate the time and effort required to focus on business processes, which further complicates this issue.
2. Standardization versus autonomy. During the project planning phase, it is important to determine if and where the company will standardize business processes across the organization. Despite the internal resistance that typically rears its ugly head when the rubber meets the road, most of our clients embark on ERP implementations intending to heavily standardize across the company. Regardless of where your organization may fall on the spectrum, it is important to recognize that standardization will require more time up front in the business process reengineering and business requirements phase of the project, while companies that lean toward less standardization will require more time and resources during the design, test and training stages. This is a prime example of where a one-size-fits-all strategy won’t work – you have to tailor your strategy and corresponding plan to fit your company’s needs and priorities and build an ERP implementation plan accordingly.
3. Waterfall versus agile software development. This may sound like an overly technical concept that shouldn’t concern CIOs or others within the boardroom, but this decision will materially affect your ERP implementation strategy and plan. Traditionally, most ERP consultants and system integrators follow a waterfall approach, which entails a more sequential and formalized approached to design, build and testing. Agile development, on the other hand, entails a more iterative and less structured approach to rolling out new functionality. Waterfall approaches typically work for larger organizations or those that are looking to standardize business processes, while agile approaches can work better for smaller or more nimble organizations that aren’t as concerned about standardizing operations. Most of our clients prefer the waterfall approach, but many have found the agile approach to work as well. Either way, it is important to understand the pros, cons, risks, and tradeoffs of each approach and decide where on the spectrum your ERP implementation will fall.
These are just three important variables to define when defining your ERP implementation strategy. There are plenty of other strategic considerations that should also be defined before signing vendor contracts and beginning implementation, such as organizational change management and communications, integration, data, language, single system versus best of breed and a host of others. The three variables discussed above are a good place to start and should be further defined along with others as part of an effective ERP implementation strategy and planning process.
When choosing an ERP implementation consultant, there are many to choose from. With the various system integrators, value-added resellers, independent ERP consultants and solo 1099 consultants available in the marketplace, finding the right one can be a challenge. Given the fact that most ERP consultants contribute to ERP failures, are more concerned with the interests of the ERP vendors they partner with, and/or don’t have a robust methodology, choosing the right firm can be more complex and risky than navigating a battlefield of landmines.
Deloitte Consulting is one of the largest ERP consulting firms in the world, and as such, one of the firms most considered for companies’ ERP implementations. In our industry experience, we have found that Deloitte is especially prominent in the world of Oracle and SAP implementations. Below is a brief snapshot meant to help clients compare Deloitte to other ERP consultants (full disclaimer: although the below analysis is objective, we often compete with them for implementation business):
Strength in numbers. Deloitte is a huge consultancy, with 44,000 consultants across the world. Our larger, multi-billion-dollar and global clients tend to like the global reach of the firm. In addition, the company also provides tax, audit and a host of other complementary consulting products. While their breadth of services might suggest a lack of focus or depth in any one area – including ERP consulting – some organizations are drawn to the appeal of services.
Focus on SAP and Oracle. For companies looking for narrowly focused technical consultants to assist with their SAP or Oracle implementations, Deloitte can be a viable option. The company is a SAP Global Partner and an Oracle Diamond partner so they clearly know these two ERP software solutions fairly well. We have not come across the company when dealing with solutions such as Microsoft Dynamics, Infor or Epicor but they have pitched their system integration capabilities related to the two leading Tier I systems to our clients on a number of occasions.
Track record of high-profile ERP failures. One of the concerns with Deloitte in recent years has been its abnormally high rate of ERP failures – many of which either led to or are currently in litigation. Many high-profile organizations in both the private and public sector have run into problems with Deloitte, including firms such as Marin County, Levi Strauss, Southern California Edison, Los Angeles Unified School District, State of Florida and State of Massachusetts (click here to read a recent article about recent Deloitte ERP failures). In addition, our ERP and SAP expert witness practice has been involved in a number of other confidential litigations involving Deloitte, further underscoring the challenges the company is having with its ERP implementation client base.
Imbalanced independence and innovation model. Like many large, “big 5” consultancies and system integrators, Deloitte doesn’t position well when evaluating two important criteria for successful ERP consultants: independence and innovation. Organizations benefit from independence because it ensures their consultants aren’t peddling products or services that benefit ERP vendors over the client. Innovation benefits clients because it ensures that consultants aren’t using the same, tired processes, approaches and methodologies that have led to the extraordinarily high failure rates over the last twenty years. Deloitte’s deep partnerships with SAP and Oracle, along with their methodologies dating back to the 1990’s, suggest that they are lacking in both areas.
Just like any ERP consulting firm, Deloitte has its strengths and weaknesses and the importance of each will depend on what is important to you and your organization. When considering Deloitte compared to other ERP implementation consulting options, it is important to ask some key questions. For example, how unique are their strengths and are there other consulting firms out there that have similar advantages? How important is their spotty track record when it comes to the success of your project – and ultimately, your job stability?
There are many other questions to ask when considering alternatives to Deloitte. For example, how important is a focused, robust and award-winning methodology? Are there other firms that can provide the same strength in numbers and global reach to support your ERP initiative? Are there other firms that provide the independence and innovation required to make your ERP implementation successful? Even if you know you are going to implement SAP or Oracle, which are both in Deloitte’s wheelhouse, chances are that there are other good options on the market as well.
Managing an ERP implementation is tricky business. Most organizations who set out on this journey aren’t experienced at managing a transformation of this magnitude and complexity and aren’t even sure where to begin. The first step is to recognize this fact and to understand that establishing the proper management structure is critical to the success of the ERP implementation. Failing to do so will almost always result in a failed implementation; and it should be noted that even being able to define success or failure, let alone measure it, is a challenge if not properly managed.
So where should you begin? Get help, get help, get help! Did I say get help? Absolutely! It is paramount that you seek the expert guidance of an independent ERP consultant to plan your project. An ERP implementation may be the most important endeavor your company will ever take on – your very livelihood may depend on it so why do it alone? Seek advice from those who specialize in ERP implementations and those who have been through it before. While it may not guarantee success, it will definitely increase your odds and save thousands if not millions of dollars in the process.
Following is a typical scenario of an organization that chooses to implement ERP software without outside guidance:
The company is growing fast; its current systems can’t keep up or support future growth.
There are many disparate systems; redundant data is ramped.
Access to data is slow; reporting is backward-focused and unreliable.
The functional stakeholders look to the IT department for help.
The IT manager takes on the challenge of finding a new ERP system.
Sounds good so far, right? Yes, so far, it sounds great but this is when it starts to go downhill. The IT manager begins researching and calling ERP vendors, then quickly becomes overwhelmed with a huge array of available products and services. Which vendor is right for our business? Which products do we need? Which technology is the best fit? How do I evaluate if the ERP software is going to meet our needs? The IT manager can’t possibly know the answers to these questions without first determining strategic business objectives, documenting the key business processes, determining desired functionality, documenting business requirements, etc. – but how does the IT manager go about determining this? Who is going to help?
If the IT manager is fortunate enough to make it through the software selection process (most don’t), it’s only natural that the IT department should manage the implementation, right? WRONG! No doubt most IT managers are technically savvy enough – after all, how else could they make it as an IT manager? So let’s continue our scenario of an organization going it alone:
The IT manager does a good job of installing the ERP software but then hits a roadblock getting the functional leaders to decide how the solution should be designed.
The functional leaders are content letting the IT manager take on the task, with little support – after all, they have a business to run!
The IT team does its best to design the system based on its limited knowledge of the business.
Due to the poor communications and lack of functional area involvement, multiple phases of “rework” result.
The business executives are hesitant to support or approve the system design.
As the system is redesigned, the project is delayed and costs are escalating out of control
I’m sure you can see where this is going . . . and believe me, you don’t want to go there!
The problems of going it alone are many and always costly. In our sample scenario, we’ve only scratched the surface. Want to find out how to properly manage an ERP implementation? You know what to do . . . Get Help!
Written by Allan Bloom, Director of Client Services at Panorama Consulting Solutions.
Another year has nearly flown by already. In 2013, much in the ERP software industry stayed the same but plenty of things changed as well. In terms of things that haven’t changed in the past year, ERP failure continued rearing its unwelcome head among CIOs, CFOs and project managers. For example:
Both the states of Massachusetts and Florida recently announced high-profile failures related to their ERP and HCM systems.
US Steel spent hundreds of millions of dollars on their ERP implementation, which is now slated to run through 2016.
Panorama’s ERP expert witness practice has hit record levels of revenue and demand, which is a troubling indicator for the state of ERP implementations across the globe.
While the rate of ERP failure doesn’t seem to have subsided in 2013, there are plenty of positive and exciting changes that gained traction in the last year. For example:
As we predicted at this time last year, mobile and business intelligence are gaining steam.
SaaS and cloud solutions continue to enjoy increased adoption, although the hype has started to subside.
But that’s looking backward to what has already happened. How about next year? What does 2014 have in store for the ERP software industry? Here are our top ten predictions for the coming year:
1. ERP failures aren’t going away anytime soon. Unfortunately, and as mentioned above, ERP failures aren’t going away anytime soon. ERP implementations are simply too complex and too risky for all organizations to succeed, especially those that are overconfident in their own abilities or choose to leverage the support of subpar ERP consultants and system integrators. Our growing expert witness practice is a good indicator of ERP failure rates and we see our growth in this area accelerating, suggesting that ERP failure rates are not slowing.
2.Buyers of ERP systems are becoming more educated. The upside of ERP failures is that they tend to educate (and scare) people about to embark on their own ERP implementations. Each SAP failure or troubled Oracle ERP implementation you read about serves as a case study of what not to do. In addition, there are plenty of free or inexpensive resources available to educate on how to make your ERP implementation successful. For example, Panorama’s 2013 ERP Report and our on-demand ERP webinars are good reference points for teams wanting to educate themselves before embarking on an ERP implementation.
3. Less abdication of responsibility for ERP success. As part of their self-education, CIOs, CFOs and ERP project managers are realizing that they are ultimately responsible for the success or failure of their ERP implementations. It may sound easy enough to delegate full responsibility to your ERP consultant, ERP vendor or system integrator but your implementation will succeed only if you make the correct – and oftentimes difficult – decisions related to your business. For example, if your ERP consultant isn’t delivering results, then fire them. If you don’t fully trust your ERP vendor, look at third-party oversight options. If you don’t want a hodgepodge of different consultants working on your ERP implementation, then hire a single throat to choke. These decisions can’t be outsourced to third parties.
4. Will SAP, Oracle and Microsoft Dynamics continue holding off Tier II competitors? Our Clash of the Titans 2104 report reveals that SAP, Oracle and Microsoft Dynamics have all done a good job of reversing previous years’ loss of market share to Tier II ERP vendors, such as Infor, Epicor and IFS. For the first time in over three years, the big three vendors regained some of the market share they had lost, which we didn’t anticipate. The Tier I vendors appear to have the marketing and sales machines but plenty of Tier II vendors now have private equity backing so it could go either way. I’ll be honest, I don’t have a clear prediction on this one but it will be interesting to see play out in the coming year.
5. Continued emergence of mobility and business intelligence. As companies look to get more out of their large investments in ERP systems, more will invest in mobile solutions and business intelligence software to get their ROI. More companies will recognize that newer ERP systems will not necessarily help them make better use or sense of business information without the tools to better support decision-making among employees and key decision-makers. In addition, executive teams will be under increasing pressure in a shaky economy, which will put more pressure on their employees to provide decision-making tools and dashboards designed to support executives’ need for information, no matter where they are.
6.Convergence of ERP implementation, organizational change management and business process reengineering. It’s no longer a secret that lack of focus on business process reengineering and organizational change management is a key driver of most ERP challenges. As a result, successful organizations will realize that they need to bake these activities into their overall ERP implementation, rather than ignoring them or operating them in a silo. When choosing an ERP implementation partner, it is important to separate the ones with integrated and comprehensive implementation, business process and organizational change management methodologies. For example, Panorama’s PERFECT Path ERP Implementation Methodology fully merges these critical success factors with the more fundamental technical activities.
7. Higher failure rates of ERP vendors and consultants. I take the view that ERP implementations don’t ever fail but ERP consultants do. Up until recently, there has simply been too much money to be made and too little accountability for most ERP consultants to focus on their clients’ success. In the past, organizations had to choose ERP consultants focused on one particular software solution, which resulted in limited options, competition and accountability. Now, organizations can leverage independent ERP implementation providers to provide options to the myopically-focused technical consultants that have historically cornered the market.
8. Shakeup among ERP consultants. The ERP consulting space is slowly changing – and for the better. Implementing organizations no longer have to choose between 1) software selection firms that don’t do implementation, 2) system integrators that provide functional and technical consultants but aren’t good at project management or organizational change management, or 3) manufacturing consultants that don’t really understand ERP implementations. Good ERP consultants should be able to provide all of the above and the ones that do are more likely to succeed than those that don’t.
9. Flaws in the ERP software industry will finally be exposed. The primary reason that I started Panorama in 2005 was because I saw opportunity to provide objective guidance in a sea of imperfections and shady practices. Although I don’t consider myself a jaded person, it is somewhat disappointing to see that many of these flaws are still very much real. Whether it’s contracts that increase risk for clients or “independent” consultants that take a cut of negotiated savings with ERP vendors (leading to vendors gaming the system), there are still far more pitfalls for our clients than we would like to see. In the coming months, look to us to provide an independent inside scoop on what these risks are and how to navigate them.
10. ERP success rates will increase. Despite the gloom and doom of ERP failures, those that are successful will actually be more successful than ERP implementations of the past. In other words, there will be more of a divergence between the successful and the not-so-successful ERP implementations. The good news is that while this trend won’t completely neutralize ongoing failures, they will demonstrate that ERP success is possible when implementation best practices are followed. This trend will also reinforce the fact that cheaper is usually not better when it comes to considering various ERP implementation options.
These are just a few predictions that we anticipate for the coming year. We will start to get a sense of the accuracy of these predictions when we publish our 2014 ERP Report at the start of the year, which will quantify the trends and outcomes of the past year in more detail.
What do you think? Have we missed anything or do you have different views? Please comment below and share your predictions for the coming year as well.
Many companies have encountered speed bumps in their attempts to continue their organic growth. In order to mitigate these economic headwinds, a fair number of companies have turned to merger and acquisition activities to reignite stagnant growth caused by maturing markets and skittish customers.
While M&A activity can provide a strategic platform for future growth, it can also accelerate operational and enterprise software challenges. Even though most companies are likely to outgrow their ERP systems as they evolve over time, a merger or acquisition exacerbates and accelerates this natural occurrence. In these cases, you now have two companies that are different in many ways, including in their respective operating models and ERP systems.
These risks don’t need to be a surprise or even disruptive to a merger or acquisition. Here are a few pieces of advice to help prepare for the potential challenges of combining entities . . . and ERP systems:
Standardize business processes first. While it may be tempting to jump into the “Which software are we going to keep for the combined entity?” discussion right away, it is important not to put the cart before the horse. In order to determine which systems will best support the merged organization, it is important to understand how the business is going to run going forward. Otherwise, the decision of which systems to keep and which to retire will be driven by internal politics and instead of tangible business requirements and needs. For example, a large portion of our client base request our assistance standardizing operations and facilitating business process reengineering before we ever start evaluating or implementing specific ERP systems.
2020 ERP Report
This report summarizes our independent research into organizations' selection and implementation decisions and their project results.
Define the best ERP strategy for the new organization. To take even one step further back, it is equally important to define your overall ERP strategy going forward. How much will the two companies standardize operations? Will they remain independently operated? Will there be some areas that are shared across both organizations, such as HR or finance? These and other strategic decisions should be made well before premature discussions about ERP software.
Recognize that organizational change management will be even more difficult than with most ERP implementations. Regardless of the answers to the above two areas, we find with our recently merged clients that organizational change management is even harder than with most ERP implementations. In addition to “typical” enterprise software challenges, employees at combined entities have many unique stressors and sources of resistance, such as new roles and responsibilities, uncertainty related to job security, new reporting structures and a host of other issues that further complicate or even derail an “out-of-the-box” organizational change management initiative. An effective organizational change management program will account for these and other sources of organizational resistance.
Make the above process repeatable and scalable. It’s safe to assume this won’t be your last merger or acquisition. As a result, you should document standard business processes, develop a corporate ERP center of excellence and facilitate other activities that make merger integration much faster and more effective the next time around. Companies that employ this sort of mentality are more likely to have successful ERP implementations at their newly-acquired entities in the future.
Mergers and acquisitions are strategic maneuvers for long-term growth. However, ERP implementations are typically the last thing on executives’ minds when they head down this path. Panorama’s ERP consultants can ensure you’re prepared for the transition. We prepare you for the integration people, processes and disparate ERP systems.
SaaS and cloud ERP solutions are the highest growth segment of the ERP software industry. Companies such as Salesforce, Plex Systems, and Netsuite all continue to show robust increases in revenue while traditional, on-premise ERP systems are showing much slower rates of growth. As outlined in Panorama’s 2012 ERP Report, the market share of cloud-based ERP systems has grown from 6% to 16% in a single year. Even the traditional ERP vendors are redirecting R&D dollars to cloud and SaaS ERP solutions.
However, as is the case with any ERP and IT strategy, there are pros, cons and tradeoffs for both the on-premise and cloud ERP paths. While SaaS solutions may be a good fit for many organizations, it’s not the right solution for everyone. But if organizations do indeed determine that cloud solutions are the right fit, they need to recognize and address the risks and tradeoffs that are inherent in any strategic ERP decision. They also need to recognize some of the complexities associated with migrating from the traditional on-premise approach to the cloud.
Below are three things to consider when transitioning from on-premise to cloud ERP systems:
1. Recognize that risk will shift away from technology to the business. Industry hype would suggest that SaaS ERP systems can be implemented faster, cheaper, and easier than their on-premise counterparts. While this may be partially true for the technology iteself since there is no software to implement on-site and there is less need for a physical infrastructure to support the solution, the tradeoff is relative lack of flexibility. As a result, CIOs and CFOs are forced to spend more time addressing organizational change management and training issues since the solutions can’t be easily changed to fit business needs, increasing the pressure on the organization to change its business processes and people.
2. It’s not as easy as the industry hype might suggest. ERP implementations are difficult, costly, and potentially risky to any organization, regardless of whether you’re implementing on-premise, SaaS or cloud ERP solutions. However, CIOs often make the mistake of assuming that business processes don’t need to be redesigned, employees don’t need organizational change management, or adequate resources aren’t required to make the project successful. Mismanaged expectations are one of the root causes of ERP failures in general, but especially so with SaaS and cloud ERP implementations.
3. Be prepared to address potential integration and data issues as your organization scales for growth. The blessing and curse of SaaS and cloud solutions such as Salesforce, Workday, Netsuite, and Plex is that the technology is often used to roll out point solutions for specific functions of an organization, rather than biting off an entire enterprise-wide solution all at once. For example, many of our clients have implemented CRM systems such as Salesforce as a way to get an immediate ROI for a focused part of the organization. However, integration and data complexities can be amplified when it comes time to bolt on manufacturing, accounting or other types of enterprise software solutions. These complexities often result in fragmented systems and data with challenging integration between systems. Before implementing a SaaS or cloud solution, organizations should have a clear IT strategy and roadmap for how it will address such complexities to avoid backing itself into a corner.
While some of the above points are relevant to all types of ERP systems – whether on-premise, SaaS, and cloud systems – they are especially important for the latter two. Even SaaS and cloud ERP systems require critical success factors to be successful, such as business process management, organizational change management and strong implementation project management. CIOs and CFOs interested in migrating from on-premise to cloud or SaaS systems should be aware of these challenges.
Learn more about choosing the best-fit ERP software for your organization in our on-demand ERP webinar series. Episodes of particular interest may include Understanding the Differences Between Leading ERP Software and Tips for Selecting the Right ERP Software for Your Organization.
It’s often been said that 80% or more of ERP implementations are considered failures. In fact, one of the findings of our 2013 ERP Report is that most ERP projects take longer than expected, cost more than expected, and fail to deliver expected business benefits. In addition, in our 2013 ERP Report: Organizational Change and Business Process Management due out next week, we find that 41% of organizations experience some sort of material operational disruption at the time of their go-live.
While the fact patterns may suggest that ERP implementation challenges may be more common than any of us would like to admit, there is no clear definition of what constitutes ERP failure. One of our blogs published last week focused on how to define ERP success for your organization, so we thought it would only be fitting to explore the other side of the coin by describing what constitutes failure.
First, it helps to explain what ERP failure is not. Although cost overruns and project delays are frustrating and more common than they should be, they do not in and of themselves necessarily indicate project failure. Instead, they are more often symptomatic of unrealistic expectations. ERP vendors and system integrators often oversell and oversimplify the ERP implementation process, which commonly leads to these project overruns.
In other cases, implementation delays and budgetary overruns can be caused by poor project management, inefficient focus on organizational change management, and lack of attention to business process reengineering. In these situations, it is the actions of the implementing organizations and their ERP consultants that contribute to the delays, so it could be argued that these are failures.
However, the more cut and dry definition of ERP failure is related to overall business benefits and return on investment. Since most executives are responsible for safeguarding company assets and ensuring a positive return on investment, it is hard to argue that the executive or project team that leaves millions of dollars of unrealized benefits on the table hasn’t failed in its ERP implementation. Just as executives are typically held accountable for realizing overall corporate revenue and cost targets, so too should executive success or failure be determined by optimizing the return on investment of ERP implementations.
The even more commonly accepted (and troubling) definition of failure is related to operational disruption. In our study of nearly 200 ERP implementations across the globe, we found that 41% realize some sort of operational disruption – such as not being able to ship product or close the books – at the time of go-live. This type of business interference is much more measurable and conducive to results that can commonly be agreed upon as failure.
It is interesting to note that most operational disruption and implementation challenges are not caused by the software itself or other technical challenges. In fact, as our report to be published next week will show, most companies find this to be the relatively easy part of an implementation. It’s all the other stuff that creates problems.
For example, about three years ago, we helped a mid-sized client evaluate and implement a leading Tier II ERP system. As is the case with any rollout, there were hiccups along the way. In particular, the client’s engineers and sales reps were having trouble getting comfortable with how the product configuration processes would handle their relatively complex engineer-to-order industrial products. Our ERP consultants recommended delaying the go-live by 30 days to give the organization additional time to adapt to the new business processes, but the client instead opted for a “Hail Mary” flick of the switch. In other words, they essentially rolled the dice that this decision would not affect their business.
Unfortunately, this gamble did not pay off. The client did not build enough safety stock to account for a potential disruption to its supply chain. In addition, these critical engineering processes weren’t fully defined or understood at the time of go live, so the company experienced lost revenue of more than $2 million as a result – even though the extra 30 days would have only cost them an additional $70,000. This is just one instance of some of the mistakes and lessons we’ve seen in the industry over the years that inevitably lead to failure.
The good news is that most failures are avoidable. Organizations with the right focus on project governance, business process reengineering and organizational change management more commonly succeed in their ERP implementations, even against the backdrop of the statistics outlined above. However, they need the right expertise and methodologies to ensure that they set their projects up for success.
As end-users struggle to learn a new ERP system, frustration can be rampant, and oftentimes, this frustration is directed (rightfully or wrongfully) at the IT department. Not only do end-users sometimes resent IT but executives also tend to not have the strongest relationship with this behind-the-scenes department.
Instead of committing to an IT strategy that is best for the business as a whole, we have seen executives side with end-users and exclusively focus on their specific technology-related gripes and pains. While end-users certainly shouldn’t be overlooked during an ERP implementation, the IT department cannot be overlooked either. Both must be valued and encouraged in a manner that supports the needs of the organization and its overall business strategy.
Encouragement should not only come from executives but it should also exist between end-users and IT. Following are three tips for improving relationships between these two groups:
1.Listen to the Needs of End-users – The IT department should listen to what end-users want from an ERP system and use this knowledge to configure a system that aligns with business goals and meets employees’ expectations. When the IT department really hears and responds to the needs of employees, end-users will be more inclined to trust the advice and assistance of IT throughout the ERP implementation.
2. Appreciate the IT Department – When executives demonstrate a respect for IT, it becomes part of the organizational culture and end-users’ attitudes will reflect this. The relevancy and reliability of IT is often not wishful thinking – it is observable truth. Organizations should not view the IT department as a remote silo but as an essential component of ERP success.
3.Understand Business Relationship Management – An emerging role within organizations is that of the business relationship manager. This role was created by CIOs to address the problem of executives and end-users not appreciating the value of IT. Organizations involved in an ERP implementation should not overlook the importance of this unique role. The business relationship manager can serve as a liaison between IT and the business and can direct the IT strategy that supports overall business goals. Leveraging their knowledge in the areas of both IT and business strategy, business relationship managers can reinforce the credibility of IT staff and communicate relevant issues to end-users. Because of their unique skill set, business relationship managers are able to communicate the complexities of an ERP implementation in terms that end-users understand.
End-users and IT staff each have an important role in mending their relationship, especially if it is threatening ERP success. Appreciation from both sides goes a long way in mitigating common ERP implementation challenges, especially in regard to organizational change management. To achieve ERP success, business relationship management should be a key component of every organizational change management plan.
Hackers are not the only ones busy developing harmful, security-breaching code. Adopting the hacker-mindset, security researchers are also hard at work writing code with the intent to infiltrate ERP systems. Researchers’ efforts, however, will most likely help organizations rather than harm them.
What researchers have discovered should not go unnoticed. Relying on nothing but a basic understanding of cyber-hacking, researchers were able to develop a code capable of accessing detailed and sensitive information from a Microsoft ERP system database. The code not only accessed the database but it did so undetected.
As researchers discovered, cybercrime can often go undetected even by sophisticated anti-virus software. Unbeknownst to the organization, hackers can use their cleverly developed code to access financial management systems and any business information they can get their hands on. Analysts working with SAP systems found that hackers have no need of security credentials in order to carry out these attacks. According to the Norton Cybercrime Report, the direct cash costs of money stolen through cybercrime totaled $114 billion in 2011. The report also noted that $247 billion worth of time has been lost to the efforts of recovering from cybercrime.
One reason hackers have it so easy is that most organizations aren’t truly aware of the risks. Because of the challenges of updating customized ERP systems, many organizations skip the hassle of “patching” and updating their ERP software on a regular basis. But overlooking the importance of software upgrades and IT testing can leave organizations vulnerable to even the most rudimentary cyber attacks.
Organizations with a solid IT strategy are more prepared for these attacks. They have built a strong relationship with their ERP vendor and they are not intimated by the idea of software upgrades. A solid IT strategy can also ensure that customization only takes place in areas contributing to an organization’s competitive advantage, and less customization can reduce the pain and expense of upgrades. Because of the financial and operational risk cybercrime poses, many organizations choose to hire independent ERP consultants to develop an IT strategy that helps prevent hackers from accessing the most vital parts of their ERP system.
Minimizing risk is key to any successful ERP implementation and organizations should not overlook the threat of cybercrime. ERP vendors can provide ongoing maintenance and support but your organization’s best bet for fighting cybercrime is hiring an independent ERP consultant who recognizes the importance of contingency planning and developing a solid IT strategy.
To learn more about minimizing risk in your ERP implementation, download our 2013 ERP Report.
Most organizations realize that the cost of implementing ERP software is more than just the licensing fees. There are the annual maintenance fees, implementation services costs and of course, hardware costs.
Many companies carefully budget for the costs of the software, the services, and everything in-between, but they forget to factor in the cost of the hardware required to make it all run. Forgetting this cost can be a painful stab to your budget.
Of course, now you have the option to eliminate the hardware costs altogether by deploying ERP software “in the cloud” and paying a predictable monthly fee, but cloud ERP is not for everyone and comes with considerations of its own.
If your organization deploys an on-premise solution instead of a cloud solution, the hardware costs generally include the server and the SQL operating system. Most ERP vendors will strongly recommend that you have a dedicated server. Servers come in all price ranges – from the “Honda Civic” to the “Rolls Royce” versions – so you will need to rely on a trusted IT advisor. In most cases, you need a SQL server operating system (which might be included with your new server purchase or you may need to purchase it separately).
Also, your organization should check the system requirements for the ERP system you choose. It may turn out that other existing software/hardware needs to be upgraded as well. For example, many of our clients are finding that they need to make other infrastructure investments in order to be compatible with the new release of Microsoft Dynamics GP 2013.
If you are running any of the following, they will not be compatible with a new Dynamics GP 2013 system:
Windows server 2003 (or earlier)
SQL Server 2005 (or earlier)
Windows XP (or earlier)
Office 2007 (or earlier)
When talking about IT purchases there are so many different options available to you. Following is some information you may need to help you decide as well as some sample costs:
Microsoft Dynamics GP 2013 Infrastructure Compatibility Highlights:
No longer supported: Windows server 2003 (or earlier)
Basic: Windows Server 2008R2 (approximately $6,000 for Dell or HP)
Progressive: Windows Server 2012 (same)
No longer supported: SQL Server 2005 (or earlier)
Basic: SQL Server 2008 R2 ($1,000-2,000 depending on number of users)
Progressive: SQL Server 2012 (same)
Operating System Software:
No longer supported: Windows XP (or earlier)
Basic: Windows 7 (if an upgrade from XP, purchasing new PC is best bet)
Progressive: Windows 8 (same)
Microsoft Office Software:
No longer supported: Office 2007 (or earlier)
Basic: Office 2010 ($200 – $500 based on type of license purchased)
Progressive:Office 2013 (same)
Minimum Workstation Space Requirements:
2GB Hard disk space
32-bit ODBC DSN is required
Note: SharePoint Services 3.0 and MS Office SharePoint Server 2007 no longer supported.
If you are planning to install Microsoft Dynamics GP and need to make infrastructure upgrades, now is a perfect time to evaluate your entire IT strategy. Do you want to move to the cloud, virtualize or upgrade your workstations? Do you have enough storage space? Do you have a backup plan? What about remote access, web servers and security? These are all great questions to ask your IT provider.
You can easily get a ballpark estimate of the cost of Microsoft Dynamics GP 2013 licenses, maintenance fees and implementation costs. (In fact we offer this with our Dynamics GP Quick Quote Price Tool). Then you can review the system requirements list with your internal IT team or outsourced IT expert to make sure there are no other hidden costs to factor into your budget.
Note: The inclusion of guest posts on the Panorama website does not imply endorsement of any specific product or service. Panorama is, and always will remain, completely independent and vendor-neutral. If you are interested in guest blogging opportunities, click to read more about our submission guidelines.
The life of a CIO is anything but easy – and when you throw an ERP implementation into the mix, all bets are off. CIOs of organizations undergoing large-scale ERP implementations are required to maintain a delicate balance between their role on the executive team and their role in the IT department. This balance is often disturbed because it’s tempting to get carried away with technical issues when new and complex technology, like an ERP system, is introduced to the business.
The human side of any ERP implementation is important to the success of both a company’s organizational change management strategy as well as the success of its ERP project on a whole. To make sure everybody in the company is on the same page, it may be a good idea for the CIO to shift focus from IT strategy to business strategy and leadership – at least for the duration of the ERP implementation. This disturbs the balance yet again, but this time, it’s in the company’s favor. When employees are clear about what to expect in terms of future change, the implementing company will be well-positioned to achieve all expected business benefits from its ERP system.
Following are six ways CIOs can effectively lead large-scale ERP implementations by focusing more on the human side of IT:
Remember your role on the executive team and be sure your big-picture mindset and focus is conveyed to all employees.
Use your unique skillset and IT knowledge to position yourself as a strategic partner and help employees view IT in terms of its ability to make their jobs easier.
When speaking with your executive team, emphasize the importance of new technology from a business strategy point of view.
Seek commitment and involvement from not just the IT department but from employees across the organization.
Advocate for change by asking employees about their diverse needs and by recruiting change agents to make sure these needs are met by the new ERP system.
Trust your IT team to work hand in hand with ERP consultants to execute the technical aspects of the ERP project and delegate tasks accordingly.
To find out more about how people and processes should overshadow technology during an ERP implementation, visit our Organizational Change Management page. Also read our IT Strategy page to learn about how IT fits into the bigger picture of an organization’s success.
As details regarding Knight Capital’s dramatic ERP failure continue to emerge, it becomes clear that organizations that don’t effectively handle their ERP implementations can (and often do) end up paying a price almost beyond comprehension. For those who haven’t followed the news, Knight Capital recently lost over $400 million in a matter of minutes because of a glitch in its trading software — trading software that wasn’t fully tested and properly deployed prior to production. In addition to the immediate impact of lost cash and profits, the software failure also caused the company’s stock to drop 68-percent the day following the glitch.
Although Knight Capital is a financial services firm, and thus has the ability to lose large sums of money in short periods of time, this failure does highlight and quantify some of the potential risks of ERP software initiatives for organizations in all industries. When most organizations consider the risk and cost of an ERP failure, they typically think about relatively smaller-scale risks (e.g., going over budget or not realizing business benefits) than what Knight Capital experienced. But while large companies implementing SAP, Oracle, Microsoft Dynamics or any other ERP system may not need to worry about losing $440 million in 30 seconds as a result of their ERP failures, they do need to remember that the expense of budgetary overruns and lost business benefits alone can easily carry a multi-million dollar price tag.
When you factor in other implementation risks, such as unaccounted for assets due to the inability to accurately track data, lost customer orders because of botched inventory planning, and/or revenue shortfalls due to shipping problems, the damage caused by ERP failures increases dramatically. Both Shane Company and Lumber Liquidators, two companies that quantified the impact of their failed ERP implementations, discovered that the damage caused by their failures increased exponentially once opportunity costs and negative business impacts were taken into account. In addition, Panorama’s research shows that 54-percent of organizations have some type of material operational disruption after ERP system go live, often times resulting in millions of dollars of additional costs.
So what lessons can we learn from Knight Capital’s dramatic failure and what steps can your organization take to avoid similar challenges? There are a number of guidelines we incorporate into our implementation methodologies, which all apply whether we’re implementing SAP, Oracle, Microsoft Dynamics, Epicor, Infor or any other ERP system for our clients. Here are three things to keep in mind as you prepare to mitigate the risks of your ERP implementation:
1. Fully define and document your “to-be” business processes. Organizations and their respective ERP vendors are notorious for assuming the ERP software will tell them how to run their business. As Knight Capital found, processes that aren’t well defined and fully tested can create huge operational challenges. In order to go-live without a hitch, companies need to fully define their “to-be” business processes, including process improvements, roles and responsibilities, and the test scenarios that the team will use to ensure the processes and supporting systems actually work before going live with the changes. Also keep in mind that these fully defined and documented business processes should include touch points with activities outside the system, which ERP vendors and system integrators are well-known for overlooking.
2. Fully simulate and test your business processes prior to go-live. Business processes may look good on paper, but the operational kinks can only be worked out via multiple iterations of simulations and testing. We typically help our clients conduct a minimum of three full conference room pilot cycles per functional area, and this is after all the technical and software team members have tested the software itself. These various iterations should be used to make tweaks to the business processes, ensure process and training documentations is complete and accurate, and ensure that the business processes will actually work in a real-life operational settings. And remember that just because the techies think the enterprise software is working fine doesn’t necessarily mean that the business processes work appropriately.
3. Fully leverage outside ERP and business expertise. Although the “do-it-yourself” mentality has been proven to be flawed over the years and most organizations recognize the perils of such an approach, some companies still think they can handle their own implementation because they have a strong project manager on staff or because they have a couple of employees that have been through implementations before. Best-in-class companies, however, recognize that they need outside expertise to make their implementations successful. And this expertise should encompass not just knowledge of the ERP software itself, but strong acumen in the more important critical success factors of an implementation, such as business process management, organizational change management and complex program management. As we recently told one of our aerospace and defense clients: “Just as Panorama will never know how to make aircraft parts as well as you can, your team doesn’t know how to implement ERP systems as well as we can.”
Are you looking for ways to obliterate any return from your ERP system, confuse your employees and/or compromise your organizational health overall? Then you’re in the right place! We’ve collected the top ways to do just that! Keep reading for our tips on how to systematically — and permanently — derail ERP software usage at your organization. Trust us, once you get actualize these action steps, your organization will never be the same (and your fancy new ERP system will be about as worthwhile as a dot matrix printer)!
1. Delete every single organizational change management itemfrom the budget except for training. If you’ve told your employees about the ERP project once or even twice, then you’ve already communicated enough! Zip the lip — nobody cares.
2. Use the canned training that the ERP vendors provide. After all, who knows the software better than the vendors? Sure, it might not be customized to your company but if your employees can’t figure out what “widget” really means, then you should just give up now.
3. Be vague about accountability. It doesn’t really matter who’s using the system or how they’re using it or whether or not they’re following processes, so definitely don’t put anybody in charge of that or provide any oversight. It’s a waste of time and money.
4. Stay neutral about workarounds! If your employee is getting the job done, who cares if he or she is using Excel or a notebook on the shop floor or a stick in a cave. Don’t create problems where there are none; just let your employees use whatever they feel comfortable with and everything will be just fine.
5. Don’t abandon your legacy system. Everyone worked hard on that baby, don’t throw her out with the bath water. Keep her going and encourage dual usage so that the organization is able to enjoy the best of both worlds.
Read and commit these five steps to heart, but don’t bother telling anyone else on the team — or in the company for that matter — that this is the strategy you’ve decided on. They’ve got enough on their plates. Just keep your mouth shut, your head down and your office door closed and the storm of this ERP implementation will pass you by. And if you’d like to further guarantee an ERP failure, be sure not to download our free e-book, An Expert’s Guide to ERP Success.