One of the big advantages of ERP is visibility to enterprise data. Companies without ERP often times have fragmented silos with no knowledge of what is going on in other departments. For example, when a customer calls customer service to order a product, the CSR may not know when an out-of-stock item is due to be replenished. Or, product managers may not have access to pending sales of a particular product. Problems such as these tend to go away with ERP software.
The downside, however, is that increased access to information often means more employee anxiety and uncertainty. In order for organizations to realize the benefits of ERP, employees need to leverage improved processes and functionality. The best way for them to do that is to understand what is expected of them.
In our example above, what is a CSR supposed to do when a customer places an order that’s out of stock? In the old world, maybe they just transferred the customer’s call to purchasing to find out when the product was going to be ordered. Or maybe the CSR would put them on hold, call purchasing to find out the answer, and verbally give the status to the customer. But in a new system, they need to understand what this new information means and what they are expected to do with it.
A big reason for ERP implementation failure is that employees do not understand process changes such as these. Therefore, rather than utilizing generic system training, organizations need to implement a comprehensive and process-based training program that is specific to the organization. This should be an integral part of the company’s ERP organizational change management program.
This week’s ERP poll did little to settle my controversial opinion that ERP projects should focus both on as-is and to-be processes. The real problem is that the results are very different that I expected.
I originally posted the poll because over the years, many of our clients have preferred to focus only on to-be processes. However, to my delight, only 9% of poll respondents hold this view.
Instead, 34% prefer to focus on as-is processes. The exact same number of people prefer to focus on both as-is and to-be (34%). While the second statistic doesn’t surprise me, the first one does.
The results suggest that 1 in 3 projects are simply automating their as-is processes. Is this a good approach to implement ERP? Why spend that kind of money to keep doing things the way you’ve always done them? Why not use ERP as an opportunity to improve business processes and realize business benefits?
I know many companies are finely tuned machines, with very efficient processes. These types of companies may install ERP just to automate these finely tuned processes. However, my experience has shown that most companies are not fine-tuned machines and have many, many inefficiencies that can be improved. Therefore, wouldn’t it make more sense to address to-be processes to define the vision of what your company wants to look like?
Perhaps these results help explain why many ERP projects fail to deliver measurable improvements or benefits realization. Despite the fact that 34% focus on as-is processes, I still maintain that this is not a good way to realize a good return on investment on your ERP project. Focusing on to-be processes should also be considered while conducting your ERP project planning.
In any ERP implementation, it is generally understood that training is a key component of organizational change management and of the overall success of the ERP implementation. However, there is a subtle and distinct difference between training and training effectively.
ERP training programs often, and erroneously, focus on transactional training. ERP software companies and implementation teams are generally good at creating documentation and delivering training that teaches people how to complete transactions in the system. However, running a business entails much more than merely completing transactions within a software program.
Instead, ERP training programs should focus on new business processes as the foundation. In fact, ERP is relatively irrelevant to these new training programs. Granted, ERP is an enabler of new business processes, but the software should certainly not be the exclusive focus of a pre-go-live ERP training program.
Conversely, these training programs should teach employees how to perform their business processes and workflows in the new environment. It is important for ERP training programs to deliver knowledge in the context of how employees perform their day-to-day jobs, not simply how to complete transactions in a system.
For example, transactional training would focus on how to create a purchase order in a system. While this transaction is important to understand in a new system, it does not address the business rules behind the PO: who will approve it, what will happen after the PO is approved, how are orders received against the PO, etc. It is these business processes that employees need to understand, not just the transactions in the system.
ERP projects can go a long way toward making adoption easier if they focus on effective training that deliver business process and workflow training, in addition to ERP transactional training. This type of process-focused training should be a centerpiece of any ERP organizational change management program.
Most ERP project teams understand the value of training. Ensuring that employees understand how to complete transactions in a new ERP system is very important, and training in an ERP software package helps enable that level of understanding. However, much more than training is required to ensure all stakeholders have a solid understanding of the new system and how it affects them. Therefore, it is important to include a comprehensive communications plan as part of your organizational change management and ERP project planning activities.
For example, employee communications is just as important as training. Throughout the deployment, employees should be apprised of the status of the project, as well as how and when the rollout will affect them. Employees should know when they can expect to be trained, when they will be expected to convert to the new system, and what tools they will have at their disposal should they have problems or questions. Perhaps most importantly, employees from each workgroup should be informed how their business processes and day-to-day jobs will change. These types of employee communications go a long way to help alleviate the anxiety and confusion of an ERP rollout.
In addition to communicating with employees, it is important not to overlook other key stakeholders. For example, customers and vendors also need to prepared for what to expect from your ERP project, especially if you are involved with a high-visibility organization or ERP implementation. What precautions are being taken to ensure customer deliveries aren’t delayed? Are there changes to the ways orders will be processed? These are just a few examples of items that should be proactively defined and communicated with customers and employees.
Finally, but certainly not least importantly, it is important to keep your executive stakeholders informed as part of your communications plan. What is the status of the project? What are the major risks and risk mitigations in place? Where do you stand on budget vs. actual? Regular updates and meetings with key executives should also be incorporated into your project’s communications plan.
Many of the above items are handled by the project management team. However, often times these items can fall through the cracks and should be handled by the organizational change management team to ensure there is focus on these important activities. These communications are critical to an effective organizational change and ERP benefits realization plan and should be carefully considered during your ERP planning efforts.
We have published several pieces on what it takes to turn an ERP system purchase into a successful ERP implementation. However, there are several small details that our clients often forget. All of the details, although they seem minor in nature, can add up to big delays, cost overruns, and functionality gaps.
Three Important Areas to Focus on When Implementing New ERP Systems
- Reporting. Many companies assume that their chosen ERP system is going to have the reporting functionality required to meet their business requirements. The fact of the matter is that most companies spend very little time evaluating reporting capabilities when reviewing software options. The irony here, of course, is that systems are only as good as the data you can get out of them, and it can be very frustrating to management if they aren’t able to access key operating and financial information that they need. Therefore, it is very important to address reporting not only as part of the software evaluation process, but also as part of the early project planning activities. Many of our larger clients have entire teams devoted to developing reporting requirements. A project focuses on effective business reporting also enables successful ERP benefits realization.
- Business Process Development and Training. Many of our publications highlight the importance of organizational change management and training, but there is more to it than teaching employees how to use the new system. Employees also have to be educated on how new business processes will function and how their jobs will change in the new software environment. Even more importantly, ERP project teams need to map out future business processes to ensure that they have addressed gaps between the current environment and the new ERP environment. This will ensure that either processes are changed to meet the software’s functionality, or vice versa.
- Software Security. Despite the impact Sarbanes Oxley (SOX) has had on large, public, US-based companies, many companies that are required to comply with SOX still overlook the importance of defining, developing, and testing security profiles in their new ERP systems. At some point, whether it be during functional or integration test, user profiles need to be tested to ensure employees have the appropriate level of access. It is also recommended that your Internal Audit group be involved in defining and testing these security roles.
These are just a few examples of items that are important, but easy to overlook. ERP projects can be very complex, and losing sight of these details can lead to unplanned costs and time delays.
What is the Biggest ERP Challenge Your Organization Faces?
Just as reporters in the US are looking at early Election Day results this evening, I thought I would share some preliminary results from our poll. Based on respondents’ responses, lack of employee buy-in is the biggest problem facing ERP project teams. 38% found this to be the most challenging issue. A large group also found lack of ERP expertise to be the biggest problem (33%), while 19% identified a lack of project resources. Only 10% indicated that lack of project budget is their biggest problem.
Perhaps the most surprising result is related to executive buy-in. Not a single respondent identified executive support as their biggest challenge, which surprises me since I have been involved with at least a few projects where this was a huge problem. And, I suspect that a lack of executive support may be the root cause for at least some of the people that identified employee buy-in as their biggest problem.
These results underscore the importance of thorough project planning and effective organizational change management and training as part of the overall ERP preparation process. I have worked with several clients that underestimated the importance of planning and organizational change, only to find this to be the reason for lack of buy-in and ERP expertise.
Below are the detailed results. Of course, these results are preliminary, so there’s still time for you to voice your opinion.
ERP Poll Results
- Lack of project resources – 19%
- Not enough executive support – 0%
- Lack of employee buy-in – 38%
- Too small of a budget – 10%
- Lack of ERP expertise – 33%
Those of us that have been involved with ERP projects know what it’s like to experience the thrill of an ERP go-live. It’s exciting, confusing, difficult, and full of opportunity, all at the same time.
While it may be a huge step in a long battle, it is by no means a final step. It seems that many project managers use the go-live date as their primary milestone and key measure of success. However, just getting to the go-live date on-time and under budget is just one piece of the ERP benefits realization puzzle.
What about the effect the new system has on the organization? Are people using the system effectively? Is the software making the business more efficient? Is it adding value to the organization? These are many questions that go unanswered until well after go-live, which is why it is important to have a solid user support program in place to supplement your technical cutover activities.
Although pre-go-live end-user training can mitigate many of the risks that organizations face at the time of cutover, there needs to be additional reinforcement after go-live. For example, core project team members (or “superusers”) should be leveraged to provide general support and answer simple, process- and system-focused questions. Immediately after go-live, about 80% of user issues are related to lack of understanding of rather than a problem with the system, so superusers should be the first level of support.
In addition, providing additional tools, such as cheat sheets and training documentation, will make employees more comfortable with the system more quickly. Refresher training should also be provided as needed on an on-going basis.
By clearly defining your go-live and on-going support processes as part of your overall ERP planning, you will better leverage your ERP technology to realize real business benefits and ROI from your ERP project.
One of the difficult decisions of an ERP implementation is the implementation strategy: do you take the big bang approach and get it done with quickly, or do you slowly phase in new processes and technology over time?
The answer is that it depends. The appeal of the big bang implementation strategy is that it focuses the organization for an intense and relatively shorter period of time than if the project were phased. This often helps address long-term resource shortages. It also condenses the pain and difficulty of an ERP project into a shorter period of time, although the pain is typically more pronounced using this approach.
The downside of the big bang implementation approach is that the project is often rushed, details are overlooked, and changes to business processes may not be the best ones for the organization. And, as mentioned above, the pain is often more severe due to the hectic nature of this approach. More often than not, my experience has been that projects that implement an overly aggressive big bang approach are more risky and result in less satisfaction with the system’s abilities to meet important business requirements.
The other end of the spectrum is to follow a slower, phased approach. This can either by functional business area or geography. The appeal here is that is allows project teams to take their time in the planning, customization, and testing of the system while continuing with day-to-day jobs.
The downsides are that these types of phased projects often lack the urgency and focus of a big bang project. It can also lead to “change fatigue,” which can cause employees to become burned out on constant change. Instead of getting the project over with in a shorter period of time, these projects involve constant change over longer periods, which can be draining to employees.
So which approach is the best? Both approaches have their clear pros and cons. At the end of the day, it is important to find a balance between both that works best for your organization. Implementation schedules need to be aggressive, but not to the extent that they cause you to overlook important details or make sub-par decisions. It is often helpful to do the project in multiple (but aggressive) phases to help focus the organization and create a sense of urgency.
Our last post addressed the fact that our ongoing ERP Benchmarking Study reveals that 100% of participants went over budget, most of them by 10% or more. But what we didn’t address is why projects go over budget.
I recently blogged about some of the hidden costs associated with ERP, which is one big reason why companies go over budget. Simply put, they often forget to identify all the “real” costs associated with any ERP project, such as hardware, training, organizational change management, hiring temporary contractors to replace project team members, customization, etc.
However, I think the problem goes much deeper than this. Too many times, I have seen CIOs who are so in awe of the whole ERP concept that they want to implement it, no matter how much it costs or how little of an ROI it delivers. Other companies get involved in what I call the “ERP sales trap;” in other words, they let the software vendors convince them that the cost isn’t going to be as high as they might think. Other times, the project team just doesn’t know any better and they overlook costs.
Important Steps to Contain ERP Projects and Stay on Budget
- Ensure executives outside of IT are involved in the vendor evaluation and planning process. Having more executives involved will help the management team identify all the hidden costs and benefits of implementing ERP.
- Take your time during the ERP evaluation and project planning phase of the process. Too many companies rush into ERP as if the world is going to end without it, and they don’t take the time to clearly lay out their business requirements, thoroughly evaluate the various vendors, and plan for a successful project. Any company that is serious about making their ERP project successful should spend at least 3-6 months on the selection and planning process, and possibly even more for companies that take longer to make decisions or are over $200 million in revenue.
- Develop an actionable, realistic business case. A business case should be used for more than just convincing top management to approve the project. It should also be used to identify and manage operational business benefits and key performance indicators during and after the implementation.
- Develop a realistic project plan and implementation timeframe. It may seem obvious that you won’t know your true costs until you develop an implementation plan, but too many companies try developing an estimate before a plan has been identified. This is a huge recipe for a significant cost overrun.
- Be open to the fact that it might not be time for ERP. Many may find this concept blasphemous, but even companies with the most manual processes and outdated technologies may not be suited for ERP. Perhaps a better and more cost-effective solution will help, such as business process improvements, best of breed software, etc.
We’ve all heard the nightmares of companies that go millions of dollars over budget. But what is the reality of actual ERP implementation costs?
The good news is that we are in the process of conducting an ERP Benchmarking Study and we have some real data to assess rather than basing any conclusions on hearsay we read about in the media. The bad news is that the data we have collected so far isn’t very encouraging.
We have gathered and compiled results from 24 companies that have participated in the study so far. The 24 companies surveyed vary in size, industry, revenues, etc., but they did show one concerning similarity: 100% of the companies went over budget. No, this isn’t a typo. To give a better perspective of how widespread this problem seems to be, the study also reveals that 78% of the companies in the survey went over budget by at least 10%, and the average cost overrun was 23%.
To put the significance of these numbers into perspective, if a company budgeted $5 million dollars for their project, they went about $1.2 million over budget. That’s not an insignificant number, especially for a small- or mid-size company.
So what does this all mean? It could mean that the companies all under-budgeted. Or it could mean that they didn’t manage the project well. Or, maybe vendors mis-managed their side of the implementation. Of course, it could have been all of the above. We are still evaluating the results and looking at correlations and relationships in the data, so we don’t have any definitive conclusions yet. But I have my suspicions.
In the meantime, what can companies do to control their budgets and ERP costs? Some of my past posts have touched on the issue, but I will devote another entry this month to how managers can better manage their ERP project costs.
Large ERP and IT projects can be exciting: they can provide new technologies, new business processes, and endless possibilities to organizations that implement them. However, implementing the technologies and overcoming some of the organization’s political obstacles can be another story.
Large ERP projects often entail some sort of standardization of operations and business processes across multiple departments and geographies, especially if it is being used as a tool to improve efficiencies. However, managers and employees may have spent many years performing processes in their own unique ways. Therefore, they often feel that standardization takes away their sense of pride in the way they have always done things.
Large-scale, international ERP or IT implementations are the most likely to see these types of political challenges. One of our recent posts addressed the cultural and organizational change management issues associated with international IT implementations.
So what can a manager or executive do to address these politics and resistance to change?
Steps to Overcome the ERP Politics
- Involve a broad geographic and functional cross-section in the planning, process improvement, and implementation activities. This will help employees feel a sense of pride and ownerhip in the project.
- Over-communicate. Project managers should make the extra effort to communicate why the project is important to the company and how business changes will help employees. In short, employees need to understand the “what’s in it for me?” aspects of the project, as well as “what’s in it for the company?”
- Understand and acknowledge local requirements. Even if local needs are going to be overriden by global standardization, the project team should have a strong understanding of the local needs. This helps employees across the globe feel as though they are being heard. It also helps the project team understand the impacts that the new, post-ERP environment will have on the organization.
- Establish performance measures to drive accountability. Measuring and rewarding managers in areas that will be enhanced by the ERP or IT implementation is a great way to ensure they collaborate with other geographies and functions to make decisions that are best for the company. This should be part of a larger performance measurement and IT Benefits Realization strategy.
These are just a few steps that help address the politics of ERP. It is one more reason why large IT projects should not underestimate the importance of organizational change management as part of their ERP project planning efforts.
One of our recent posts highlighted the importance of assessing readiness before any ERP or large IT project. Panorama Consulting Group provides a free on-line ERP readiness assessment tool, and the preliminary results from participants so far reveal some interesting thoughts. It should be noted that the sample size is still relatively small (38 companies so far) and the initial data analysis is not yet validated in detail, but the initial benchmarks are interesting.
ERP Poll Results
- 42% of participants say that their operations are poorly integrated across office locations
- Over 50% of participants rate their current organizations poor in all the major areas we asked about: responsiveness to customers, efficiency, effectiveness, visibility to operational data, and integration between systems
- Over 90% of companies have experienced a significant organizational change (in addition to ERP) over the last 3 years
- Only 20% of participants have dedicated business process, performance measurement, or organizational change management groups in their organizations
- 55% say employees at their organizations are poor at adapting to change
- Only 15% of those planning to embark on an ERP project have completed a business case or ROI analysis
While we can begin to draw several conclusions from some of the data we’ve collected so far, the most significant observation is that organizational change management will be crucial to the success of these projects. These companies will face great obstacles during their implementations, and they will find it very difficult to deliver measurable business value without solid organizational change and benefit realization plans.
More data analysis over time will continue to shed light on organizational readiness. I’ll keep you posted on the results.
One of most important ERP project critical success factors is executive buy-in and support. But what exactly does “buy-in” mean? Approve the funds to get the project going? Or does it mean more than this? Executive buy-in needs to go beyond approving the budget to pay for the project. There needs to be an executive Steering Committee that makes key business decisions that will affect their operational model and organization. Inevitably, there are going to be significant business decisions that will need to be escalated to executive management, and executives need to be engaged in the project to help make these important decisions.
Secondly, large implementations that cross geographies often involve political battles in terms of how the business will operate in the post-implementation world. Executives often need to be the ones to resolve such issues, so their involvement is important in this regard as well. During a large IT project, they are often called upon to make tough decisions regarding changes to operating models, business processes, organizational and job changes, and other sensitive topics that will not be adequately resolved without their involvement.
Finally, ERP projects also require heavy involvement from internal employees.
Executives are the ones that can ultimately make these resources available to the project. Without executive support, it can be very difficult to procure the employee resources that are needed to make a project successful. Only by having true buy-in to the project will executives understand the importance of ensuring the right people are available to make the project successful.
In summary, expectations should be managed up front so that key project stakeholders understand that executive involvement and buy-in will need extend beyond merely approving the budget. This is a key organizational change management component of successful ERP projects.