We’ve all seen the business cases related to how ERP will save X Corporation $X millions of labor costs in just a few short years. But how real are labor cost savings in ERP implementations?
The answer is that it depends. Most companies fail to go back and measure their post-implementation business results, so it’s likely that these companies are not realizing the benefits that they projected in their business cases. After all, if it isn’t measured, people probably aren’t being accountable for improving the results.
Labor savings is probably one of the toughest costs to realize. Even if and when ERP improves business processes and makes employees’ jobs more efficient, the dollar savings don’t just magically appear. To realize the savings, you have to do more work with less people, which means reductions in the number of full-time staff. This is the hard part.
FTE reductions and the correlating cost savings don’t necessarily require mass layoffs. Companies with aging workforces typically have a high number of employees eligible for retirement. Many companies have high turnover due to employee attrition. Other organizations have opportunities for employees to fill other jobs in other departments.
When building the business case, it is important to identify how labor cost savings will be realized. Will staff be reduced by re-assigning them to job vacancies or by simply not replacing employees as they resign? Or, will your organization be more aggressive and layoff people in areas that no longer need the higher levels of staffing? Whichever approach you take, it is important to clearly understand how you will realize labor cost savings. This requires tough decisions, as well as a thorough analysis of where the exact cost savings will be achieved.
In addition to identifying and realizing the reductions in staff, it is also important to identify how remaining employees’ jobs will change. How will their workloads change? What are the expectations in their new environment? Why are the job reductions necessary? These are all questions that should be addressed as part of an effective ERP organizational change management program. Ensuring that remaining employees are clear on their roles and expectations is even more important than the cost savings that you will realize from reduced staff.
All of these items are keys to realizing real, tangible ERP business benefits and should be the part of any effective ERP benefits realization plan.