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Why Do ERP Implementations So Often Hurt Bottom-line Financial Results?

If you’ve followed our blog for any significant period of time, you have probably picked up on the fact that we view ERP implementations as business initiatives rather than software or technology projects. While this concept may sound esoteric on the surface, it becomes very real when companies experience ERP failures or see their implementations negatively impact their financial results. For example, recent years have seen high-profile failures from companies such as Lumber Liquidators and Shane Company – both of which publicly stated in their quarterly financial statements that their ERP implementation woes had adversely impacted their results.

Just this week, the aerospace division of Woodward made a similar statement in its initial financial results. In the statement, the organization revealed that its revenue and profit for its fiscal third quarter would fall short of expectations, largely because of ERP implementation challenges that the company was facing. According to Woodward’s 2011 annual report, the organization had recognized $13.5 million in ERP implementation costs in that single fiscal year, not including costs that had been incurred in the first three quarters of the current fiscal year. These costs are significant for an organization with nearly $500 million in annual revenue, especially given the fact that the implementation appears to be struggling.

Woodward is not a client of ours, and I know very little about the company or which specific ERP software it is trying to implement, but our recent Clash of the Titans report shows that the leading ERP vendors – SAP, Oracle and Microsoft Dynamics – all typically take longer and cost more than expected and fail to deliver expected business benefits.  Given our research and experience with ERP implementations and our work as expert witnesses in ERP lawsuits, these problems aren’t unique to Woodward or even to the three leading ERP vendors. Most ERP implementations fail — although only a subset is publicly announced. Instead, ERP implementations face challenges that affect the bottom lines of organizations every day without the corresponding publicity that comes with an announcement such as that from Woodward.

Below are three ways that ERP implementations affect the bottom lines of organizations that fail to implement properly:

  • ERP implementations consume too much time and money. This is a two-fold problem. On the one-hand, companies frequently mismanage their projects or hire ERP consultants that are software experts but aren’t good project managers, which results in project overruns. On the other hand, companies more often than not grossly underestimate the time and money required to effectively implement their ERP systems. Both variables lead organizations to go over their pre-defined budgets, which ultimately affect the bottom-line results expected by management and shareholders. Based on experience, $13.5 million in ERP implementation costs does not seem completely out of line for a $500 million company (the average company spends approximately five-percent of their annual revenue on their ERP initiatives), but it is out of line if management and shareholders expect a much lower number.
  • ERP projects disrupt operations. Most organizations don’t have the appropriate internal expertise or bandwidth to handle the complexities and risks of an ERP implementation, so the do-it-yourself mentality of many organizations typically leads to operational disruptions during the initiative. In addition, organizations often rush their implementations to completion, leading to operational disruptions at the time of go-live. For example, our research shows that 54-percent of all ERP implementations result in a material operational disruption at the time of go-live (e.g., the inability to ship product or close the books). Obviously, these common pitfalls have wide-ranging repercussions on the bottom lines of organizations.
  • ERP implementations are harder than you think. The bottom line for most organizations is that their ERP implementations are harder than they think. This is true for a number of reasons. For example, ERP vendor sales reps and systems integrators downplay the cost, risk, and complexity of the implementations, while many companies are overly confident in their own abilities to manage the implementations. Whatever the root cause, chances are that your ERP implementation will be more difficult than you think – a statement that is backed by various studies (including our 2012 ERP Report) showing that most ERP implementations go over budget. Even though Panorama has managed close to 100 ERP implementations and our team has literally thousands of implementations under its collective belt, we still find these projects to be challenging.

The good news is that not all ERP implementations are doomed to fail or adversely affect the bottom line. When implemented effectively, ERP systems do what they are capable of doing, which is decrease costs, increase revenue, and positively affect the bottom line. However, companies need to know what they don’t know and lean on implementation experts that will not only make the technical aspects of the project successful, but also will address the more critical and more commonly overlooked aspects of ERP projects, such as organizational change management, project management and business process re-engineering. Read more about Panorama’s ERP implementation service offerings or contact us today to talk about how we can help your company realize ERP success.

The RBS Failure in Practical Terms: How to Keep Your Job After an ERP Implementation

In late June, the Royal Bank of Scotland experienced one of the biggest enterprise software failures in recent memory. As a result of their botched upgrade implementation, customers were unable to make or receive payments for several days, which resulted in significant customer service issues, to say the least. While most ERP software failures are more moderate in nature – either because they take longer than expected, cost more than expected, or fail to deliver expected business benefits – RBS demonstrates the extreme consequences of a troubled ERP implementation.

According to our 2012 ERP Report, most ERP projects have issues related to implementation cost, duration and/or actual business benefits realized. Regardless of whether an organization is implementing SAP, Oracle E-Business Suite, JD Edwards, or solutions from one of the leading Tier II ERP vendors, our research and experience shows that all ERP implementations are just as likely to hit rough patches, regardless of the specific software. These factors alone can certainly cost the job of the responsible CIO, CFO or ERP project manager, while a failure as significant as that of RBS is even more likely to do so. So what is a CIO or CFO to do to ensure that they don’t lose their jobs at the end of their grueling ERP implementation? Here are four tips to ensure that your ERP software project succeeds and your CIO, CFO or project manager aren’t fired at the end of the implementation:

1. Follow a proven ERP implementation methodology. In the case of RBS, it appears as if the implementation project team did not adequately test the system within its business processes. The most successfully implementation projects follow critical best practices that help mitigate risks such as the ones experienced by RBS. For example, our implementation projects typically involve two to three iterations of data testing and conference room pilots to avoid the pitfalls that seemed to impact RBS.

2. Business processes should rule your entire ERP implementation. In addition to testing, business processes should be the foundation of several implementation activities. For instance, organizational change management, training and benefits realization all are dependent on effective business process management, so it is important that organizations don’t simply fall into the “we’ll let the software tell us how we’re going to run our business” trap.

3. Don’t forget to address ERP implementation risk mitigation. Our research shows that 54-percent of organizations have some type of operational disruption at the time of their ERP go-live, such as an inability to ship product or service customers. Any implementing organization should have a “Plan B” in case the implementation doesn’t go as planned. For example, manufacturing companies often will ensure they have plenty of raw materials in the days and weeks leading up to the go-live in the event that they experience an operational disruption.

4. Remember that organizational change management is the #1 factor that will determine whether or not your implementation is successful. The physical ERP software is obviously important to the success of an implementation, but not nearly as successful as organizational change management. Without the right levels of buy-in, support, and understanding from key employees, even the best software in the world won’t protect organizations from the level of difficulty experienced by RBS.

ERP implementations are challenging and every so often, they lead to the disastrous results experienced by RBS, often costing someone their job(s). However, with the right methodology, focus on business processes, risk management processes, and effective organizational change management, CIOs and ERP project managers will increase their likelihoods of saving their implementations – and their jobs. Read more about preventing ERP failure in our e-book, An Expert’s Guide to ERP Success.

Recovering From ERP Bankruptcy

As a follow-up to our recent post, Avoiding Bankruptcy From an ERP Implementation: Three Dirty Secrets, we’d like to take it to the next level and discuss how an organization actually can recover from being driven into bankruptcy by an ERP failure. Indeed, it’s a worst-case scenario, but also one we’ve seen too many times to ignore. The good news is that bankruptcy, whatever its cause, doesn’t have to mean the end of the organization. Take Denver, Colorado-based jewelry retailer Shane Co., for instance. As we’ve detailed previously, the company filed for Chapter 11 bankruptcy protection in January 2009 following a failed SAP implementation. After closing three locations, it filed a plan of reorganization and eventually emerged from bankruptcy protection in December of 2010.

While we’re not privy to how Shane Co. managed its ERP failure preceding or following the bankruptcy filing, there are a number of ways that Panorama suggests companies emerge from a situation such as this:

1. Reassess the ERP software. In Shane Co.’s case, it’s arguable that SAP wasn’t the best fit for the organization. If the company is experiencing such a high level of difficulty with its ERP system that its threatening its operations on a whole, then there’s a good chance that the team did not evaluate or select the software appropriately.

2. Reorganize the ERP project. In the same way a company must reorganize its operations to emerge from a bankruptcy filing, it too must reorganize its ERP project to emerge from an ERP failure. Panorama offers the third-party, independent guidance needed to salvage an ERP implementation . . . and save a company.

3. Allocate the resources to move forward. Understandably, a company in bankruptcy is watching every penny. This doesn’t mean, however, that funding for the ERP system can be abandoned. Indeed, the company needs to hire a third-party ERP consultant to craft a comprehensive implementation and business benefits realization plan to get the project back on track. Throwing the baby out with the bathwater by renouncing the ERP system will do nothing but derail any future profitability.   

Panorama’s 360-degree approach to ERP projects means we can step in at any time during selection or implementation or following a failed or stalled selection or implementation. Click to learn more about Panorama’s ERP methodology and offerings, and don’t forget to download our recent white paper, Lessons Learned From a Government ERP Failure. Though the focus is on the public sector, the lessons learned are applicable to private organizations as well.

Avoiding Bankruptcy From an ERP Implementation: Three Dirty Secrets

An ERP implementation is an incredibly expensive, complicated and risky proposition. As Panorama has seen (and detailed) over the past several years, failed implementations can even drive companies into bankruptcy (e.g., Shane Co., American LaFrance, FoxMeyer Corp., etc.). So what are the “dirty” secrets of avoiding bankruptcy from an ERP failure? How can companies avoid the catastrophic loss of income, loss of sales, disruption of shipments or miscalculation of inventory that can lead to such disastrous circumstances?

Following are three secrets to achieving ERP success (and limiting your risk of failure – in any form):

1. Blueprint your requirements and THEN choose ERP software. Don’t choose an enterprise solution based on anything but what your company requires and how it works. Yes, SAP and Oracle are amazing systems but if they’re not a good fit for your organization, you’re going to have trouble.

2. Put your operations people in charge – not your IT people. Though ERP is often seen as an IT initiative, it is a business initiative. Its success or failure will affect every aspect of your business – so don’t put all the responsibility on your IT people. It’s their job to make the ERP system work; it’s not their job to make sure it reaps any ROI.

3. Stop pretending that organizational change management doesn’t matter. It does, much more than you might suspect. If your executives or end-users (or both) aren’t on the same page, don’t have the same clear vision and don’t have any tactics to use to achieve that vision, then your ERP implementation will probably fail. Invest the time and the resources to properly managing organizational change and you’ll drastically increase your chances of success. It really can be that simple.

These might seem a bit blunt, but after a year of having “ERP failure” as one of my Google alerts, I’m getting a little cranky about the propensity of organizations to mismanage these implementations. It’s not simple, don’t get me wrong, but managing it correctly starts with knowing what you want and what you need, what your staff wants and what it needs, and who you’re going to put in charge to make it happen.

At Panorama, we have developed methodologies to decrease risk – and increase business benefit realization – at every stage of an ERP project. It’s what we call our 360-degree approach, and it’s what’s needed to move forward with confidence. Learn more by checking out our ERP Services page or call us at 720-515-1377 to discuss your needs (and wants) in more detail.

Back in the Saddle Again: Getting Your ERP Implementation Back on Track

Unfortunately, ERP implementations still aren’t any easier than they were 15 years ago when I started in the ERP world. Despite the enterprise software industry’s best intentions to mitigate risk with cloud ERP systems, implementation accelerators, and other tools, ERP failure rates are still high and most projects still take more time and money than expected. For example, our 2012 ERP Report, which will be released next week, shows that nearly half (44-percent) of all ERP implementations fail to deliver at least half of their expected business benefits.

The even more troubling trend we’re seeing at Panorama Consulting is an acceleration of ERP failures and lawsuits. We are seeing a spike in demand for our ERP consultants to provide guidance to implementations that have gotten off track or to attorneys involved in lawsuits related to implementation failures. We have a very solid and exhaustive process for helping clients assess their implementations and create a project recovery roadmap, which clients are taking full advantage of in recent months. While this is good news for us in that there is more demand for our services than ever, it is bad news for the industry and the organizations looking to implement new enterprise software solutions. Whether it’s software from SAP, Oracle, Epicor, Infor, or any other ERP vendor, the reality is that it is still difficult to implement a new system effectively without stepping into a landmine or two along the way.

The good news is that there are ways to get an ERP implementation out of the gutter. As we’re demonstrating with three clients we’re currently working with, there are a number of things you can do to get your project back on track. Here are three tips that are likely to make a difference on your troubled ERP implementation:

1. Look to organizational change management for low-hanging fruit. While it is tempting to blame your vendor or the ERP software itself, we find that most ERP failures result from organizational change management issues. In fact, if you evaluate the organizational change, communications, and training activities that you are and aren’t doing as part of your project, you are likely to find significant deficiencies and opportunities for improvement. It’s usually people that make a project fail, not the software, so more effective organizational change management will help mitigate this challenge. We often look to areas such as organizational impact, job design, process definition, customized training, and targeted employee communications as opportunities to “fix” the people side of the ERP implementation equation. Not only is this “people side” crucially important and often overlooked, but it is typically less costly than buying an entirely new ERP system or customizing to force the software to address the organizational resistance you may be facing.

2. Revisit your implementation plan. Most ERP implementation plans are flawed from the start. Unrealistic expectations, unclearly defined milestones and resource requirements, and missing key activities are some of the common problems we see when clients ask us to get their projects back on track. Organizations too often rely on a project plan provided by their ERP vendor or system integrator, which usually focus too much on the technical components of an implementation on not enough on the business, process, and organizational aspects required to make a project successful. Implementation success is never guaranteed, but failure is guaranteed without a realistic and complete plan.

3. Know when to fold ‘em. Like Kenny Rogers once said, you’ve got to know when to hold ‘em and know when to fold ‘em. It may be time to hit the reset button on your enterprise software initiative. It may also be time to ditch an attempted ERP implementation and replace it with software that is a better fit for your organization. Or it may be a matter of some of the less drastic changes outlined above. One of the benefits of working with an independent ERP implementation consulting firm such as Panorama is that we help our clients make objective assessments of whether it’s time to head a different direction with the organization’s ERP strategy.

While a troubled ERP implementation is never fun, it is not as bad as an ERP failure and there are always ways to get your project and your team back on track. With the right expertise and toolset, your project can be recovered and even rejuvenated.

Find out more about both ERP failure and ERP success by attending my interactive webinar tomorrow, Lessons Learned from Failed ERP Implementations.

The Trickle-Down Effect of IT Failures

As a follow-up to Monday’s post about ERP failure, we decided to take a look at some surprising data about the effects of such a failure on not only the companies who experience it — but the companies on both sides of the supply chain who also can be affected. After all, we work hard every day to protect our companies and their revenue streams. It’s why we return e-mails at 11 p.m., skip vacation days to ensure critical tasks are completed and spend our downtime reading blogs like this. But, according to a recent study out of the UK, if we don’t take the steps necessary to protect our companies from the effects of an IT failure in our supply chain, then all of our hard work might be for naught. The study found that sixty-percent of companies surveyed have lost access to their IT system following an unexpected incident and that forty-percent of these incidents lasted for more than six hours. If it happens to you or an organization that you depend on, than those are hours when your operations, communications and ability to access data can all be lost. And each hour that goes by in this state gives your customers another reason to doubt your organization’s abilities. It’s a sobering thought.

Even more sobering? The idea that the data you rely on to do your work can be irretrievably lost after an IT failure. As in gone. Forever. But even with that risk looming large, Symantec’s 2011 SMB Disaster Preparedness Survey of SMBs in Asia Pacific reported that 45-percent of companies would lose at least 40-percent of their data in the event of a disaster. Forty percent! Still, only half of companies back up at least 60-percent of their data and only 21-percent back it up daily. The survey goes on to show the enormity of an IT failure’s trickle-down effect on the customers of SMBs, who report that outages at their SMB vendors cost them $45,000 a day (compared to $14,500 of losses a day at the affected company). Not surprisingly, 59-percent of SMB customers have switched SMB vendors due to their unreliable IT and ERP systems.

None of us is an island. We depend on our supply chains to keep our own businesses running smoothly. These study results should not only lead you to question the security of your own organization’s IT systems, but also the security of your partners’ IT systems. Possible questions to ask include:

  • What ERP software are you using?
  • When was the last time it was updated or replaced?
  • Are you considering an ERP implementation in the near future?
  • What are the steps you’re taking to mitigate risk of ERP implementation failure?
  • What are your disaster recovery plans?
  • How often is your data backed-up?
  • Who are you working with to ensure your operations and systems are safeguarded?
You also should take into consideration how your organization might be affected if any one of your vendors suddenly ceased to exist — for that is exactly what a worst case scenario IT failure looks like. How long would it take you to recover? On the flip-side, do you have answers in place for these questions when your customers come asking? Contact us for more information about how to create an IT strategy to safeguard your company and position it for further success.

Post-Mortem Analysis of ERP Lawsuits and Failure Points

As recently outlined in the press, two high-profile organizations have fallen victim to yet two more ERP implementation failures. SuperDry and Tesco Bank, both based in the UK, blamed their recent financial woes on disastrous ERP failures. SuperDry, a fashion retailer, was allegedly unable to stock the appropriate risk of product through its distribution chain as a result of their implementation. Similarly, Tesco Bank, a consumer bank, experienced problems with its ERP system as well, resulting in customers being locked out of their accounts for three days and profits dropping by nearly 2/3 in the first half of this year.

There is good news and bad news here. First, the bad news: unfortunately, these are just two examples of a plethora of high-profile failures in recent months and years. Lumber Liquidators, Shane Company, and Waste Management are just a few of the many organizations that suffered high-profile and well-publicized failures in recent years. The good news: most ERP implementations succeed or fail based on how organizations handle their implementations – factors completely within their control – rather than uncontrollable issues related to their chosen ERP software, ERP vendors, or system integrators.Panorama Consulting is frequently called in to provide independent expert witness testimony for some of the highest profile ERP lawsuits, many of which you have probably read about in the press. For confidentiality and court-ordered reasons, we can’t share specific information about any of the cases we’re involved with. However, in our recent ERP Boot Camp, we presented a session outlining some of the lessons learned from our extensive experience with ERP software implementations and service as an expert witness for ERP lawsuits. Below are three common trends we see in most ERP failures in lawsuits that we are asked to consult on:

Lack of clarity surrounding business processes and business requirements. Most ERP lawsuits involve situations where the client and their system integrator did not clearly define business requirements. While most ERP vendors and implementation consultants will go through a checklist of items that need to be defined in order to configure the software, this is not nearly enough to provide a comprehensive and complete view of how an organization’s business processes and workflows will look. However, clearly defined business processes are critical to keep the project on track and to ensure employees clearly understand the big-picture of how the organization’s operation will run in the future. This lack of business process clarity will typically result in over-customization, lack of understanding from employees, and configuration that is misaligned with business requirements – all of which often lead to implementation chaos and failure.

Mismanaged expectations. The first domino to fall in an ERP implementation is often mismanaged expectations. In the heat of trying to land a new client and in the midst of not clearly understanding the scope or magnitude of an implementation, ERP vendors and system integrators often underestimate the amount of time, money, and resources required to complete and implementation. To add insult to injury, organizations often rely on vendor estimates that only consider technical implementation activities and overlook other key implementation activities such as organizational change management, business blueprinting, thorough conference room pilots, business integration testing, and other critical items. Mismanaged expectations lead to underfunded and understaffed projects, which results in cutting corners and scope, snowballing and leading to failure.

Poor organizational change management. Most ERP vendors and system integrators define organizational change management as “training.” However, there are two problems here. First, vendors provide generic training that is focused on transactions rather than the big picture and are not tailored to fit the implementing company’s business processes, so this sort of canned training is typically mediocre at best. Second, training is one of several key components of an effective organizational change management program. Employee communications, change discussion guides, organizational design of roles and responsibilities, project branding, and benefits realization are just a few of the additional elements of organizational change management that will make or break your ERP implementation.

Through our years of experience in ERP implementations and consulting on ERP lawsuits, we have actually defined ten key things that go wrong in implementation failures vs. those initiatives that are successful. These are just three things to keep in mind as a starting point to not only avoid failure, but to make your ERP implementation successful. If you’d like to learn additional strategies and tactics to ensure your organization realizes all of the business benefits possible from its ERP system, check out our free ERP webinar series.

Stopping ERP System Workarounds Dead in Their Tracks

A recent study by ERP software vendor IFS found that a staggering 75-percent of respondents aged 35 and under reported that when an enterprise solution is too difficult to use, they’ll turn to a desktop spreadsheet software (i.e, Microsoft Excel) to get their work done. And the issue is not limited to just the younger generation; more than half (58-percent) of respondents aged 36 to 45 reported the same action. These findings are endemic of much larger issues, mainly that ERP systems are not functional and/or not aligned with business processes and that employees have not been adequately trained in how to use their organization’s ERP system. And the results of these workarounds can be chilling: organizations whose employees have gone “rogue” are not only failing to realize adequate returns on their costly ERP investment, but can even have their operations put at risk if the ERP system is not being used and populated the way management assumes it is. Perhaps even more disturbing? The IFS study also found that more than 65-percent of respondents aged 35 and younger consider themselves at least somewhat likely to leave an organization due to negative experiences with that organization’s enterprise software.

It’s clear that workarounds create a host of negative effects, from decreased productivity to employee attrition, so how should an organization stop it in its tracks?

1. Organizational change management . . . and lots of it. Instead of just telling your employees how they should be utilizing an ERP system to do their jobs, show them. Use a variety of training methods to show them how to perform their jobs — spreadsheet development and all — in the system. Ask for feedback, answer questions, and work one-on-one with staff to ensure the transition goes as smoothly as possible and that your employees know who to come to with questions as they arise.

2. Communicate the benefits of the ERP system. Rogue users do not only compromise the system’s value through their own actions but can undermine the benefits of the entire system (and thus the strategy of the organization) by complaining to colleagues about their problems with the software. Get everyone back on the same team by communicating the benefits of the system — and the benefits it will bring to the organization — in clear and sensible ways that have a direct impact on the end user. For instance, if you anticipate the system will allow you to increase net profits by 15-percent over ten years, explain how that translates into enhanced job security and increased opportunities.

3. Revisit user experiences with the system after the switchover. Don’t assume that when your ERP system is finally up and running that it’s time to kick back with a margarita and let the software do all the heavy lifting. An ERP implementation is a process that will last years, and your IT strategy must reflect a commitment to making it work over the long-term. Survey your employees at key intervals (three months out, six months out, etc.) to find and address workarounds and other issues as quickly as possible.

With the advent of Google Docs and other free, Internet-based applications, workarounds have become even more prevalent. To protect their health, IT systems and attractiveness to current and future employees, organizations must try to prevent workarounds by a. assuming they will occur and b. developing the necessary tactics to stop them dead in their tracks. Attend our upcoming free webinar, Managing Organizational Change Management in Your ERP Implementation, to learn more about organizational change management and how to effectively communicate with employees about the impacts of a new ERP system.

What Was the Cause of the Recent Epicor ERP Implementation Failure and Lawsuit?

A few weeks ago, ComputerWorld published an article about a recent Epicor implementation failure and lawsuit. The suit alleges that Whaley Foodservice Repairs tried and failed to implement Epicor Vantage after an extended period. One of the key difficulties with the project was that Epicor’s professional services group had estimated that the implementation would cost $190,000, while the actual implementation cost ended up exceeding $1 million by the end of the project. In addition, the company alleges that its wasn’t able to use the system as expected after two years in production, requiring additional work and costs.

The alleged failure and lawsuit underscores two widespread industry problems: misaligned expectations and inaccurate estimation methods. This problem is by no means a problem with Epicor – it is a common problem across all ERP vendors. Throughout my 15+ years consulting organizations on their ERP initiatives, I have time and time again seen companies initiate ERP software purchases and implementations without a clear or realistic understanding of what it will really take to make the project successful, while at the same time finishing on time and on budget.

When you look at the root cause of these problems, it is usually the fault of both ERP vendors and their customers. The vendors are eager to make a sale and gain a new customer, so it is in their best interest to underestimate the time, money, and resources required to effectively implement their software. In addition, vendors and system integrators typically don’t know enough about a prospect to make realistic assumptions about implementation duration and cost. On the other side of the relationship, customers often latch on to what they want to hear: that implementing their chosen vendor’s software can be done quickly, cheaply, and easily with very little to no risk. In addition, most customers don’t have the expertise to know what it takes to make an ERP implementation succeed, and most certainly don’t know what they don’t know.

Unfortunately, ERP failures and lawsuits are not uncommon. Because of our extensive experience helping clients across the globe successfully implement various ERP solutions, we are commonly engaged by attorneys to provide independent expert witness testimony for failed implementations, and we have done so on a number of the highest profile lawsuits in recent years. Based on our implementation and expert witness experience, here are three lessons from the Epicor and other ERP implementation failures:

 1. ERP vendors and system integrators typically underestimate implementation duration and cost. The first key to developing a realistic implementation project plan and budget is to understand that most vendors underestimate implementation estimates. This shortcoming isn’t necessarily intentional, but it has more to do with their understanding of client needs and incomplete project plans. There is a lot that vendors and consultants don’t know prior to an implementation, so they are in some ways shooting in the dark. In addition and more importantly, software vendors and system integrators are focused on implementing the technical components of their software, not necessarily addressing the business process and organizational aspects of the implementation. Business processes need to be defined and standardized, operational decisions need to be made, organizational change needs to be managed, and business benefits need to be realized, none of which are in the scope or estimates of most ERP vendors and implementation partners. It is up to the client to develop a master implementation plan and budget that takes both the vendor’s and internal activities into account, which typically looks much differently than a software vendor’s more one-dimensional plan and estimate.

 2. Business process definition and re-engineering is not driven by the software, vendor, or system integrator. Most software vendors and sales reps use the terms “best practices,” “industry pre-configurations,” “out of the box functionality,” and other buzzwords to sell the value of their software in helping drive business process improvements. While these concepts are true to some extent, most true business improvements and standardization decisions are going to be driven by the implementing organization. New ERP software will certainly drive improvements at the transactional and vanilla, back-office process levels, but organizations implementing the software need to clearly define and document their business blueprints so the technical consultants have a clear vision on the higher-level business processes and requirements that their software needs to support. Imagine a complex jigsaw puzzle: the new software provides the pieces of the puzzle, but the implementing organization needs to provide the picture that provides guidance on how the pieces will all fit together.

 3. Nothing matters without effective organizational change management. Business process improvements driven by the ERP software are a moot point without the organizational changes and management required to realize them. Even the most perfectly designed business processes and software won’t matter if employees within your organization can’t embrace and execute the new operational model and systems. Just as the software provides the pieces of the business process jigsaw puzzle, organizational change management provides employees with the big picture understanding of how the new software supports and enables the new business processes. In addition, organizational change brings employees from Point A to Point B, which is a critical outcome of an effective ERP implementation. Effective organizational change management plans accomplish these things via organizational impact assessments, organizational readiness reviews, customized training to fit your specific business processes, job and role design, and a host of other activities that should be executed throughout the entire ERP project lifecycle.

One of the key reasons clients hire Panorama to plan and manage their implementations is because we provide a realistic and technology-agnostic perspective on what organizations need to do to make their enterprise software initiatives more successful.  We have the experience, benchmark research, and objectivity to help clients clearly understand what is required to make their projects succeed with realistic expectations. The above three lessons are just a few that we bring to companies looking to initiate their implementations. But no matter what stage of ERP implementation your organization is in, we can help. Contact us today.

Can Traditional Project Management Keep Its Place in the IT World?

Revelations about the IT failures of the new millennium suggest not!

A recent study of over 1,400 organizations reveals some startling new facts about mega-failures in IT, including huge overruns. Whilst the study found average overrun was 27-percent, one in six organizations actually overran their budgets by 200-percent and schedules by 70-percent! That is failure on a massive scale by anyone’s standards.

In the article Why Your IT Project May be Riskier Than You Think in September’s Harvard Business Review, Bent Flyvbjerg and Alexander Budzier explain the findings from Flyvbjerg’s Oxford University study of 1,471 IT projects, costing between $167 million and $33 billion. It makes for bleak reading, particularly the wide ranging impact of such failures. The authors cite Auto Windscreens as a prime example. In 2006 the UK company, which employed 1,100 workers, went into liquidation following a botched ERP implementation.

So is the popular approach to managing IT projects inadequate for the task or is there something more sinister at play here? Traditional project management has its roots in the construction industry and it still works for a house you can see or a bridge you can walk over. But IT is rarely a tangible artifact. People have difficulty imagining what it is they are getting (or going to get) from their new CRM or ERP system. And  this lack of understanding exacerbates the problem.

Another finding is the inherent blindness to blow-out. In a similar study in Germany led by Sascha Meskendahl of the Technical University in Berlin, 67-percent of companies failed to terminate unsuccessful IT projects. This is despite gateway reviews and governance maturing with the increased adoption of the International Standard for Governance of IT: ISO 38500. There’s no question it takes courage to stop a project when vast amounts of money have already been spent. The National Health Service, for instance, has finally called it a day on its e-health system which was set to electronically revolutionize health care in the UK. But it took nine years and a staggering £11 billion of investment to arrive at their decision.

Traditional project management makes some fundamental assumptions: everyone understands the scope, sufficient reserves have been allocated in the budget for contingency and governance groups are empowered to call a halt any time along the way. And of course, the biggest assumption is that the business case is accurate, realistic and regularly reviewed. But the complexity of IT, and in particular ERP roll-outs, demand much more than this.

Flyvbjerg and Budzier’s analysis of successful projects highlights some rigid rules adhered to by organizations that manage to avoid failure. First is to stick to the basics. As any football coach will explain after a win, get the basics right on the field and the excellence will shine through. According to the authors, IT project winners succeed when they stick to the agreed schedule even when big events like an unexpected merger have the potential to lure them away from the plan. They tend to focus on the readiness to go live and measure all activity against that yardstick. They resist scope creep and break down large programs into manageable projects. Successful organizations also invest in IT experts, paying enough to retain them for the duration of the initiative.

Whilst these basic rules lie at the heart of IT success, it is clear that the mammoth failures will continue if this study’s alarming findings are not taken to heart.

The authors maintain that some fundamental questions have to be asked before the business case is approved. Can a 15- to 50-percent non-realization of benefits be accepted without too much pain? If aggregated medium-sized projects suffer a 200-percent increase in cost estimates, will the organization be able to cope with that loss? How will the organization absorb a 400-percent blow out if the improbable happens? Regrettably the improbable is occurring with alarming frequency. Additional advice includes:

  • Scenario plan for the bleakest outcome. Before the business case is built, project leaders should brainstorm some worst case scenarios. Flyvbjerg and Budzier provides ideal material to kick-off the exercise. For example: K-mart’s investment in a $1.4 billion modernization of its supply chain management was cited as one of the reasons for its bankruptcy.
  • Review your success rates. If nothing changes, then nothing changes. Often a straightforward review of past business cases will provide an accurate forecast of success rates. Calculating the margin of error in the last tranche of  business cases against the cost and duration of projects subsequently delivered can be a revelation. If there is a pattern of significant misses then something fundamental has to change.
  • Build in a blow-out budget. This is not the same as contingency planning. Contingency planning more often is focused on costing what you know may go wrong. Blow-out budgeting is more about financing for what you don’t know. It is built from the bottom up assuming a 50-percent,  a 100-percent and a 200-percent blow-out.

As the complexity of IT expands beyond the intellectual capability of all but the most agile executive then financial management and project leadership has to at least keep pace if not move faster than ever before. The stakes are too high for any organization to do otherwise. But where does this leave the project leaders of the future? For starters they must tighten scope control, tenaciously pursue benefits and inscrutably validate business cases. And most importantly, engender a culture which will accept a no-go decision without recrimination. On the dollar front, Flyvbjerg and Budzier’s advice still leaves a lot to worry about. As the world grapples with volatile economies and the ever present threat of recession, organizations simply cannot afford to take the risk.

There is one significant risk mitigation that has proved its worth and that is the appointment of a specialist ERP consultancy like Panorama. Learn more about their ERP and IT services for ERP implementations of all sizes.

 

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.

Back to School: When Will ERP Software Customers Learn to Avoid Failure?

As kids across the country begin heading their way back to school for the new academic year, CIOs and their respective organizations appear to still be getting schooled on the harsh realities of ERP implementations. In the last week, two fairly high-profile lawsuits made their way into the technology media: one involving a case against ERP software vendor Epicor and the other against Infor.

In the first case, Whaley Foodservice Repairs sued Epicor for an implementation that was delayed repeatedly, cost five times more than originally estimated, and failed to work “as advertised” after two years of use. In addition, the suit claims that Epicor’s implementation team suffered from high turnover, Whaley was forced to hire a third-party software developer to fix some of the defects, and the software was unable to provide visibility into inventory movements or handle transaction volumes.

In the second case, also publicized last week, Paragon Medical is suing Infor for a failed implementation of the company’s product lifecycle management software. Paragon was an existing user of Infor’s Visual ERP software and selected PLM8, also from Infor, to handle the document management aspects of its business. However, the suit claims that the software was not able to support the company’s business processes or requirements.

Although companies still seem to be learning the hard way, their mistakes provide some important lessons learned for the rest of us. Here are a few factors that we have often seen in our years of experience being called upon as expert witnesses during ERP lawsuits:

  • Fully understand the strengths and weaknesses of your enterprise software options. There is a dizzying array of options to choose from in the ERP software market. However, there is no perfect solution for most organizations. It is important to fully understand your business requirements in detail, as well as the strengths and weaknesses of various software options to meet those requirements. This can be accomplished through scripted demonstrations and other due diligence, but the first step is to clearly understand and articulate your requirements, as well as understand the important areas to focus on during and ERP software evaluation.
  • Have realistic expectations. It’s not realistic to expect that a software vendor is going to know as much about your business as you do, or even enough to provide an accurate estimate of the implementation duration and cost. Therefore, it is important to develop a realistic and detailed implementation project plan, resource allocations, and budget based on factors unique to your business. In the case of Whaley, the organization expected standard configuration of the software, but ended up customizing the software during implementation. We often fully blueprint a company’s future-state business processes prior to selecting a client’s software, for the simple reason that it helps uncover potential unknowns in the implementation process. This type of guidance is usually not going to be provided by a software sales rep, so you may need outside assistance from independent ERP experts such as Panorama.
  • Know what you don’t know. The above points are easier said than done, especially if you don’t have extensive ERP implementation expertise within your organization. In both lawsuits mentioned above, Whaley and Paragon appeared to have had blind spots and deficiencies in their knowledge of ERP systems. An outside opinion from independent and focused ERP consultants such as Panorama can provide the objectivity, knowledge transfer, and guidance to help identify and address your organization’s blind spots during the ERP evaluation, selection, and implementation process.

These are a few steps to help you avoid making the same mistakes that other organizations have made in their ERP failures. Learn more about ERP project success by attending our ERP Boot Camp in September. We’re holding a special Preview of our 2011 Boot Camp webinar tomorrow at 10 a.m. MT to give a taste of what to expect at the event. Attendees receive $500 off Boot Camp pricing.

Defining an IT Strategy for Your Organization

Many of our clients hire us when they know they need help selecting and implementation a new ERP system. Often times, these clients know the general direction they want to go with their enterprise initiatives and simply need help navigating the options and implementing their chosen solution. This tends to be the sweet spot of our client base.

However, we are seeing more clients come to us that aren’t even sure they want or need a new ERP system. Many of them are earlier in their planning process and are opting to take a holistic approach to evaluating their entire IT infrastructure and defining a longer-term plan to upgrade to allow them to scale for future growth and acquisitions. Because we’re an independent consulting firm, we are able to provide objective guidance on how to evaluate and determine the best path to take with the organization’s enterprise software, IT infrastructure, and IT organization, whether or not that strategy entails a new ERP system.

We address these and other issues when helping a client define their three- to five-year IT strategy. Once we understand the strategic direction of the entire company and how the executive team views IT (e.g. as a core competency vs. an undifferentiated commodity), then you will be ready to develop a strategic IT plan. Here are some of the areas to consider when defining an IT strategy for your organization:

Current enterprise applications. Enterprise and ERP software is often the biggest pain point experienced by organizations. It’s the front-facing everyday tool that is the most visible thing to employees, so they often feel the pain of any inefficiencies or misalignments. For this reason, an effective IT strategic assessment should evaluate the functional fit of the organization’s enterprise software applications, including legacy ERP, CRM, HR, and any other systems that the organization may have in place. In addition, this assessment should consider the integration (or lack thereof) between these systems.

IT organization and infrastructure. In addition to systems, an effective IT strategy should evaluate the internal IT organization and infrastructure. This portion of the assessment will typically consider things like internal IT competencies and deficiencies, the potential of consolidating IT functions and/or leveraging a shared services IT delivery model, and the physical IT infrastructure. Often times, companies identify deficiencies in these areas and identify opportunities to upgrade their physical or “soft” infrastructure.

Low-hanging fruit. During a holistic assessment of an organization’s entire IT infrastructure and systems, there are bound to be low-cost yet high-value types of improvements that can be made in the short-term to provide immediate impact. For example, opportunities to retrain employees on key processes or systems to help make them more efficient, integrate disparate systems, or tweak business systems or processes are all examples of areas of potential immediate value that we often see. These changes can often be implemented in parallel or before making larger changes, such as a new ERP system.

Business case and ROI. In order to fully flush out your three- to five-year IT strategy, you’ll want a clear understanding of the costs and benefits associated with the various strategic options available. This will also help prioritize improvement opportunities and plan the timing of each strategic initiative that your organization may undertake. This also forces a focus on accountability and benefits realization so that your organization may actually realize the expected business benefits.

Organizational change management. Once the strategic initiatives have been identified, prioritized, and rolled into the actual deployment plan, the next step is to identify how to manage the organizational changes inherent in the transitions. Employees will need to be trained on new systems, communicated and trained on new processes, and the organization will in many cases need to be redesigned to reflect required competencies and reporting relationships to support the new strategy. Regardless of the exact types of changes involved, the transition is likely to entail significant change for employees, which requires an effective organizational change management plan.

These are just a few areas of consideration to help you get started on defining your IT strategy. Once these and other critical areas are addressed, you and your team should be in a better position to define exactly where you are headed as an IT organization via a strategic roadmap.

Learn more about our IT strategy service offering online or call us at 720-515-1377 to discuss options with our ERP consultants.

The Woe of Idaho: How Ignoring End-Users Derailed an ERP Implementation

In late March, state auditors in Idaho released a damning report about a host of issues surrounding the implementation and usage of a state ERP system meant to process health care provider claims for Medicaid patients. The ERP system (which was provided by Unisys, now Molina Healthcare), went live in June of 2010 and was quickly proven unreliable. In addition to the millions spent on the ERP software and implementation, Idaho ended up advancing $117 million to help address the number of providers who had submitted claims with no resolution — money which may prove hard, or impossible, to recover in full.

According to the report, the reasons behind the failure are many: not enough planning or communication, lack of end-user input, design defects, provider enrollment issues and so forth. But what really stands out is the almost total absence of end-user testing. Indeed, the report found that “less than one-percent of total providers were selected for a pilot test” and “neither the department nor Molina know how many claims providers submitted as part of the pilot.” Though they say hindsight is always 20/20, it seems pretty clear that if the state (and Molina) had performed adequate end-user testing, they would have been alerted to problems in the claim management system and delayed roll-out until they were resolved.

So what’s the key take-away here? Ignore end-users at your own peril. This goes for testing, of course, but also for training (which, in the case of Idaho, was sporadic and mismanaged) and organizational change management. Granted, in this specific instance, the end-users were not employees of the state, so the state had less responsibility in terms of defining workflows and analyzing the impact of the new system than an organization typically would, but it had responsibility all the same. No matter who they’re employed by, end-users need training on new ERP systems, assistance assimilating to change and reassurance that someone is there to help them navigate the complexities of the new software. In Idaho’s case, that someone should have been Molina but they themselves even admitted to being “understaffed and unable to deal with the volume of provider issues.” Imagine the mutiny that would have been at hand if this had happened in a company.

The situation Idaho (and Molina) are in should serve as a wake-up call to any government organization or private entity that is in the process of implementing a new enterprise solution: your failure or success will hinge on your end-users. Involve them in every aspect of testing that you can and make certain that their training is up to par and that resources are available to help them both during and after the switchover. And whatever you do, don’t get yourself in a situation like Idaho where you’re throwing money at the problem to make it go away.

It’s painfully obvious that the state (and Molina) would have benefitted from independent oversight from a third-party such as Panorama. A third-party would have seen the glaring holes in the testing procedures and roll-out plans and stopped the implementation from moving forward until the technical glitches had been worked out and the end-users had been trained. Further, our research shows that hiring independent consultants like Panorama to manage ERP deployments significantly reduces total costs. Learn more about our ERP and IT services for both public-sector and private-sector clients.