During ERP selection, companies typically see limitless possibilities in terms of potential improvements to their businesses. However, somewhere along the way, many projects fall short of expectations and the benefits of ERP underwhelm executive expectations.
In our experience, low benefits realization is often due to a failure to define expected ERP business benefits and align the company around common goals early in the project.
In other words, organizational alignment is not a priority for many companies during software selection. More often, companies are desperate to quickly find a new ERP system that addresses their pain points, so they lose sight of their business goals.
While staying focused on benefits realization is not easy, we’ve found several strategies that help companies realize significant ERP business benefits. These strategies are most effective when initiated before or during ERP selection.
2020 ERP Report
This report summarizes our independent research into organizations' selection and implementation decisions and their project results.
8 Strategies for Realizing ERP Business Benefits
1. Understand Your Current State
You can realize many benefits of ERP by addressing pain points in your current processes. This is why we help clients map their current state before beginning ERP selection.
During process mapping, it’s important to capture the right amount of detail. For example, you’ll need to document how long a current process takes in order to measure improvements post go-live.
As you identify pain points, you’ll find opportunities for improvement. This is the time to start thinking about how to both fix broken processes and innovate mediocre processes.
2. Outline Expected Benefits and ROI
When embarking on ERP projects with clients, we typically help them clarify their overall business goals, so they can determine how ERP software can support these goals. This leads to a discussion about business benefits – what benefits can technology deliver that support the company’s big picture strategy?
The only way you can answer this question with any specificity is by designing future state processes based on the improvement opportunities you identified while mapping your current state. We recommend designing future state processes based on both your business goals and your pain points.
While business process reengineering is a time- and resource-intensive undertaking, it enables you to quantify expected business benefits. For example, it enables you to quantify the time and cost difference between a current state process and a future state process.
Once you’ve estimated all expected business benefits, it’s time to document your findings. One of the most effective tools for documenting business benefits is an ERP business case. This tool is more than just a means to justify the project to executives. It also is used for setting key performance indicators (KPIs) and tracking them throughout the project and post go-live.
The first step in successful use of KPIs is to understand one core concept: every KPI is a metric but not every metric is a KPI. Essentially, KPIs are the metrics which best define the success of a process or function.
For example, we had a client that defined preventative maintenance on their critical equipment as the percentage of the following ratio: (Number of preventative hours performed per machine) / (Number of hours recommended by the manufacturer of the machine). They were shooting for a score above 95%, and they crafted a concise and meaningful KPI that would help them predict the future performance of critical machinery.
In addition to KPIs, a business case also should focus on estimated costs as well as expected ROI. While you can estimate ROI without focusing on a particular ERP vendor, many companies will re-calculate expected ROI once they’ve evaluated several enterprise systems. Ultimately, though, your ROI will depend more on your project execution than your choice of ERP vendor.
In fact, your ROI depends most heavily on the quality of your business case. The most effective business cases outline specific, measurable ways a new system will improve the business.
In contrast, we see many companies justifying their ERP purchase by pointing to issues with their legacy system, such as a lack of scalability or a decrease in vendor viability.
While these are legitimate reasons to implement a new system, they must be accompanied by more ambitious goals. You don’t just want to maintain the status quo – you want to innovate!
3. Ensure Organizational Alignment
Your company not only needs clearly defined business goals and project goals but also an understanding of how they tie together. Everyone in the company needs this understanding, especially executives.
To achieve this understanding, we recommend using your business case to gain executive buy-in, and then forming an executive steering committee. This committee should be highly involved in the project, especially when it comes to communicating project goals across the company and holding process owners accountable for achieving these goals.
When executives communicate how project goals tie into business goals, business benefits become more achievable. For example, a common, business-related reason that companies implement ERP software is to improve their data insights. When executives explain how technology can enable this business goal, your team is more likely to select the right software and migrate the right data. In addition, your employees are more likely to follow procedures that promote data accuracy.
4. Develop a Realistic Project Plan
Many companies inaccurately estimate the time, budget and resources required to effectively implement an ERP system – and so do their ERP consultants, system integrators and VARs.
The best way to avoid this pitfall is to leverage an independent consultant, such as Panorama, to help define a realistic project plan. One of the ways we help clients develop realistic project plans is by benchmarking against other companies similar to theirs.
We also ensure companies include overlooked activities in their project plans, such as change management and business process management. These activities help companies realize more business benefits.
5. Focus on Change Management
You can’t realize business benefits if end-users aren’t prepared to use the new software. This is why it’s essential to communicate with and train employees as early as possible.
We use organizational readiness assessments to help clients identify resistance to change early in the project, so they can proactively address it. The organizational readiness assessment leads to the development of a change management plan that reduces change resistance and helps employees understand how their individual processes support project goals.
6. Think Twice About Changing Your Goals
Every change order, request for customization or scope adjustment must be viewed through the lens of your project goals. If it can’t be justified within the parameters of those goals, either the goals or the request must be adjusted. In most cases, you should adjust the request.
For example, you wouldn’t want to change a goal from “Standardize all accounting and finance functions across all sites,” to “Make sure A/P can access the approved vendor lists.” After all, with all the time, money and effort that goes into implementing an ERP system, you should at least try to maximize your ROI.
When you start getting internal pressure to customize your system, let your business case and ERP project plan be your guide.
7. Continually Measure Benefits Realization
Identifying gaps between projected benefits and actual benefits throughout the project helps managers understand what they are doing well and how they can improve.
Root cause analyses can identify the causes of these benefit gaps. A common root cause is end-users using workarounds because they don’t understand the importance of using the new technology. In cases like this, follow-up end-user training and enhanced communication can bridge benefit gaps.
Many companies designate KPI owners as the people responsible for measuring benefits, identifying root causes and implementing corrective action. The ideal KPI owner is familiar with the processes being measured, has a stake in their success and has the leverage to address lagging performance. In general, department managers are the ideal candidates for overseeing performance metrics for their respective departments.
In addition to ownership at the functional level, executive ownership of aggregated KPIs at the organizational level is necessary to achieve a holistic view of performance and drive accountability.
It’s also important to measure benefits post go-live. While the ERP project team will most likely be tired and ready to move on with their lives, successful ERP projects never end.
8. Continually Improve
If your company is focusing on business process management as part of your ERP project, you likely understand the importance of continuous improvement.
Business process management is an ongoing process that continues after go-live, so your ERP system should continue to evolve, as well. This ensures long-term alignment between your people, processes and technology.
If you’ve implemented a scalable ERP solution, then long-term alignment should be achievable. However, it is not easy.
One of the ways we help clients ensure long-term alignment is by creating an ERP center of excellence focused on continuous improvement.
Now that you know how to maximize the benefits of ERP, you’re probably wondering what type of benefits you should expect. The remainder of this post will discuss some common ERP business benefits and provide advice on how to achieve them.
How ERP Software Improves Process Integration
Within any company, there are bound to be organizational silos. Whether your company has data silos or cultural silos, implementing ERP software may be one of the best ways to break through these isolating barriers. In fact, many companies pursue ERP projects to better integrate siloed functions like customer service, production, accounting and sales.
Silos often are created is when different departments and job sites use different technology and processes for inputting and analyzing data. This inconsistency creates silos of unstandardized, unreliable data.
However, implementing an integrated ERP system enables shared data from any department to be immediately synchronized across all departments and locations. For example, if the sales department signs a contract to sell 500 units, ERP software can communicate this to manufacturing ensuring inventory can be checked and the job can be scheduled.
Silos are not just a problem in terms of data, but they can also slow down an ERP project. If your company is siloed, then different departments, workgroups and locations likely will struggle with key activities, like outlining business benefits that make sense for the whole company.
Therefore, it is essential to begin breaking down organizational siloes before ERP selection. While ERP software will help further break down silos, the foundation you lay during business process management is critical.
Following are three tips for beginning to break down organizational silos:
1. Standardize Your Processes
2. Integrate Your Processes
We recommend an approach to business process management, called value stream mapping. This approach helps our clients depict the interaction between functions and eliminate non-value-added processes.
When improving your processes, you should involve employees from across departments to gain an understanding of the upstream and downstream interdependencies between processes.
3. Ensure Employee Buy-in
Employees are more likely to adopt processes that eliminate silos when they understand how these processes benefit them personally and the company overall.
Therefore, it is important to communicate to employees the value of cross-departmental collaboration. This ERP communication should be informed by a comprehensive organizational change management plan.
How ERP Software Improves Your Competitive Advantage
Most modern ERP software has innovative functionality in areas such as manufacturing, business intelligence and analytics. However, this functionality is likely to get watered down if your primary goal is to simply replace your current system.
How can you ensure you’re gaining competitive advantage from your ERP software? The answer is business process reengineering.
Business process reengineering is most effective when conducted before ERP selection. This ensures you don’t blindly adopt an ERP vendor’s industry best practices but only adopt them where they improve your competitive advantage.
In many cases, industry best practices may decrease your competitive advantage because your competitors who’ve implemented a similar system may be using the same best practices.
While improving your processes, it’s important to look for inefficiencies in your customer- and revenue-related business processes to identify opportunities to improve your competitive advantage.
Once you’ve documented your future state and gathered your ERP requirements, you can begin contacting ERP vendors. When helping clients evaluate vendors, we ensure clients have clear goals and priorities, so they know what to look for in a system.
For example, if a client knows that customer experience transformation is a priority, they’ll know to focus on ERP vendors’ CRM and advanced demand planning functionality.
If you’re hoping to improve your competitive advantage through ERP software, then it’s important to focus on CRM functionality and other functionality related to the customer experience. In fact, competitive advantage is a high-level business benefit that is typically achieved through more specific business benefits, like improving the customer experience.
How ERP Software Improves the Customer Experience
Good customer relationships don’t just happen. They are a byproduct of strategic processes at several stages of the engagement continuum. Each of these processes should be managed by an integrated ERP system.
Here are five ways an ERP system can improve the customer experience:
1. Customer Management
Managing customer relationships is a vital component of the order-to-cash process. The best way to handle customer relationships, especially for mid-size and large companies, is to look for an ERP vendor that incorporates master data management (MDM) and customer relationship management (CRM).
While the MDM and CRM can be used together, they could also be two different modules with two distinct purposes.
An MDM module can ensure consistent and reliable customer information is gathered, housed and retrievable by internal stakeholders. That information can include key pieces of data such as order history, company history, credit information, locations, key contacts, annual revenue and more. It can be thought of as a catalog of all relevant data about that customer.
The challenge many companies have when implementing an MDM module is compiling all necessary data from each customer. The information may already exist in some form but could be scattered in various locations and formats.
If information is scattered, then identifying and consolidating that information into a single resource is necessary. Once consolidated, that information is available to all internal stakeholders and modules through integration.
While MDM compiles overall data about a customer, a CRM solution enables sales staff to track prospect and customer interactions in order to identify opportunities. For companies that have more than a handful of customers, manually tracking of every interaction is nearly impossible.
Only a CRM system can consolidate trends, opportunities, preferences and financial data. This allows companies to better plan revenue projections and budgets.
Many of our clients are seeking better data insights that they can use to improve the customer experience. We often walk these clients through business process reengineering to ensure their processes are aligned with their digital strategy.
2. Order Management and Fulfillment
An order management system (OMS) allows companies to track the status of every customer order at every stage. By understanding when orders are being entered as well as how and when they will be fulfilled, a company can better manage customer relationships.
An OMS can also help a company manage different shipping options, warehousing and multiple currencies. During ERP selection, be sure to look for a system that can . . .
- Improve customer relationships – The customer experience can be greatly enhanced by enabling a better ordering process, faster delivery and more accurate invoicing. The more enhanced the experience, the more confidence customers will have when placing an order. If an issue with an order does occur, an OMS allows staff to quickly identify and correct the problem.
- Maximize working capital and cash flow – An OMS reduces errors, increases the speed of order fulfillment and enables more accurate billing. As a result, a company can experience improved cash flow and greater working capital.
- Enhance supply chain efficiency – An OMS can provide valuable insight into inventory, workflow, pricing and market trends. This can lead to greater organizational efficiency and facilitate proactive decision making. From a supply chain perspective, an OMS may help reduce costs due to leaner inventories and an understanding that products and materials can always be sourced quickly from other reliable providers.
- Improve staff management – By allowing customers to place orders online in a way that is connected to an ERP solution, the company can better manage its staff. Automating the ordering process will funnel customer requests into the operation where resources are then allocated to ensure the operation is properly staffed. Handling orders this way enables companies to better meet customer expectations.
3. Credit Management
Incorporating a credit management component into your ERP system allows for transparency, helping you adhere to an approved set of terms for each customer. Without such a credit management policy and overall credit philosophy incorporated into an integrated ERP solution, companies put themselves at greater risk by possibly extending credit terms to customers that may be unable to pay.
While many companies mistakenly place the responsibility solely on customers for unpaid debts, quite the opposite should be true. It is often the lack of a clear credit policy within a company that results in late or unpaid invoices.
In the same way that fences make for better neighbors, a clear and actionable credit policy incorporated into an ERP system makes for better customer engagements.
4. Invoicing and Accounts Receivable
When submitting invoices to customers, leveraging technology and incorporating some form of automation is preferred over manual submission. Automation allows for better tracking and helps companies get paid more efficiently.
A robust ERP solution should incorporate some form of invoice automation, ideally via a method that submits the invoice directly into the ERP software. This helps eliminate errors and delayed payments.
ERP solutions can provide comprehensive accounts receivable reporting, tracking the progress by which invoices are submitted and ultimately paid. This capability can help companies identify and eliminate possible invoicing errors well before they get to the customer.
5. Payment and Cash Application
1. Understand How Data is Shared Across the Company
If the sales and marketing departments are “out of the loop,” they are missing key metrics that can be used to engage customers and drive sales.
We recommend collaborating with key stakeholders to ensure they provide input on the data they need and can devise ways to make the most of this data.
2. Ensure Data is not Just Focused on Existing Customers but Also Potential Ones
Modern ERP systems allow you to track how potential customers are engaging with your company across a variety of platforms. Using this information, you can deduce how that engagement is leading to sales.
In an ideal world, this information wouldn’t be trapped in the marketing department but available across the company via an integrated ERP system. This data visibility would allow your company to improve processes to best meet customer needs.
3. Track and Communicate Metrics That Differentiate Your Company
It’s important to look at metrics not just in terms of how they impact your company but how they impact customers.
For example, metrics like time and cost of production or customer service response times directly impact customers. Communicating these metrics to customers should be a priority for your marketing, sales and customer service teams.
How ERP Software Improves Operational Efficiency
Many companies have a hodgepodge of inefficient business processes and legacy systems. New ERP software can often fix these problems, but only if you define and improve your processes before ERP selection.
Defining your future state – along with performance metrics and transition plans – will ensure you realize ERP benefits related to operational efficiency.
Here are just a few examples of areas where companies often increase efficiency as a result of their ERP project:
1. Data Entry
ERP software can automate data entry. This is beneficial because manually entering data not only takes copious amounts of time, but it puts companies at risk for several other inefficiencies. These include data inconsistencies, data silos and difficulty providing timely compliance reports.
2. Inventory Cycle Times
If you’re holding too much inventory, ERP software can help you more accurately predict demand. This can help maximize resources and cash flow.
3. Customer Relationship Management
When you implement an integrated ERP system, many functions are combined into one platform. This means employees spend less time researching questions for clients, less time switching between systems and less time tracking down invoices and payments.
Overall, the automation of manual tasks and the improvement of inefficient processes can result in significant labor cost savings.
In addition, efficiency can increase employee morale. While this seems ironic considering employees’ fears that they will be automated out of their jobs, it actually makes a lot of sense.
In fact, instead of reducing headcount as a result of automation, many companies reallocate employees to higher-level tasks. In other words, mundane tasks become faster and easier giving employees more time to focus on more engaging work.
While employee morale may be a bit tougher to measure than most ERP benefits, you can always measure your turnover rate and absentee rate to get an idea of employees’ work satisfaction. A reduction in both of these areas equals cost savings. This is not to mention that happy employees are more productive, leading to additional efficiency gains.
How ERP Software Improves Regulatory Compliance
While Sarbanes-Oxley (SOX) and regulatory compliance are often one of the last things on the minds of CIOs, it becomes very important when it’s time for that first audit of your business operations and systems. For this reason, it is important to design processes that promote compliance, and find an ERP system that can support these processes.
Fortunately, most ERP systems are pre-configured with best practices for the regulatory needs of a variety of industries. However, an ERP system alone will not ensure compliance. Your company also needs to focus on business process management.
Here are three tips for ensuring your ERP system meets your compliance needs:
1. Consider Compliance When Mapping Your Processes
Business processes need to be defined in a way that ensures that financial oversight, segregation of duties and other compliance needs are addressed.
We’ve seen too many companies treat SOX and regulatory compliance like an afterthought, only to have their auditors raise red flags after the system is already in production.
This challenge is further magnified by the fact that most modern ERP software solutions are very flexible and can perform business functions several different ways. Some of those processes are going to be compliant with your compliance needs, while others are not.
2. Focus on Change Management
Contrary to popular belief, ERP systems can’t always force compliance. While they can make it easier to enforce segregation of duties, financial oversight and approval workflows, they can’t close off every possible loophole.
Fortunately, there are several change management activities that can help employees understand the need for compliance and help enforce new processes.
Our clients have found their business processes to be much more efficient and compliant as a result of the change management guidance we provide.
3. Involve Your Auditors Throughout the Project
Just as executives and employees need to support the project, your internal and external auditors also need to have buy-in.
For example, auditors should validate key process controls during the testing and user acceptance phases of the project. In addition, auditors should perform a formalized compliance audit as part of a post go-live ERP benefits realization audit.
How ERP Software Improves Business Intelligence
Many ERP systems provide business intelligence by gathering data and organizing it into actionable analytics. This business intelligence can provide better insights into your company’s financial position and help you make informed decisions. Not only does this result in increased capital, but it can create a company culture of visibility and trust.
We recommend looking for business intelligence functionality that ensures data integrity and increases data visibility between departments.
How do you make the most of business intelligence? Following are five tips:
1. Develop a Data Migration Strategy
Many companies focus on simply migrating old data from their legacy systems to the new ERP system. However, it’s important to ensure that the data in the new system supports new business intelligence capabilities. This is not possible without a strong ERP data migration strategy.
Developing a data migration strategy helps you identify and locate essential data that doesn’t exist in your legacy system. For example, your legacy system may not have the historic sales information in the format required to support advanced demand planning.
2. Understand What Insights Different Stakeholders Need
When deciding what data to migrate from old systems, we recommend focusing on both business- and technology-related data.
This is important because CIOs often have a very different vision of business intelligence than other executives. While CIOs focus more on internal support types of metrics, such as average system downtime, CFOs and COOs are more concerned with inventory levels and other more business-driven metrics.
3. Focus on Business Process Reengineering
Just because business intelligence capabilities deliver more possibilities doesn’t mean the capabilities themselves will deliver the actual results. In fact, business process reengineering is the real key to driving data insights.
Business process reengineering is important because it ensures processes are designed to ensure the right data is being captured and utilized.
While real-time data can help you optimize your supply chain management, it can only do so if the right data is flowing to the right people.
4. Focus on Change Management (Again)
This bears repeating a third time because it’s that important. When it comes to business intelligence, change management is important because employees need to adopt new processes to enable new data insights.
For example, if you want data to drive better customer insights, then employees touching the customer experience need to be equipped to take advantage of these insights.
5. Carefully Evaluate ERP Vendors
It is important to understand whether your ERP system has robust business intelligence capabilities.
Some ERP vendors have light reporting capabilities that they oversell as true business intelligence tools. Other vendors have strong capabilities enabled by bolt-ons. Still, others have built-in business intelligence.
What Benefits of ERP are You Hoping to Acheive?
Most of our clients pursue ERP projects to address inefficient business processes, ineffective technologies and subpar customer service. These challenges are especially ubiquitous in companies that have experienced organic growth or growth through acquisition.
Whatever challenges your company is facing, it’s important to determine if these challenges warrant an ERP implementation. In other words, you should quantify your expected ERP business benefits to determine if they outweigh the costs. You also should set KPIs and measure the benefits of ERP throughout the project to continually ensure the project will deliver a high ROI.
Panorama’s ERP consultants can help you develop a business case, align your company around expected benefits and measure benefits realization. Request a free consultation below to learn how to maximize your ROI by ensuring a strong focus on benefits realization early in the project.