When companies decide to implement ERP software, they often jump right into ERP selection without taking the time to prepare. However, it’s important to first develop an ERP project plan based on realistic expectations.
Most vendors aren’t equipped to develop a realistic project plan because they don’t account for all the components of ERP success.
2020 ERP Report
This report summarizes our independent research into organizations' selection and implementation decisions and their project results.
This post will help you set realistic expectations for ERP selection and implementation, so you can develop an effective project plan.
The Importance of Realistic Expectations
We’ve found one of the most common causes of ERP failure is unrealistic expectations. Let’s look at a case study from an ERP lawsuit where legal counsel from one of the parties hired us to serve as a software expert witness:
The multi-billion-dollar company was sold a bill of goods that included software licenses and an implementation across more than 20 sites. They were told by their ERP vendor that by using industry pre-configurations, they could easily get their entire order-to-cash and procure-to-pay operations running on the new software in 18 months.
Even without knowing anything else about the company, you can guess that 18 months is extremely aggressive, unlikely and fraught with risk. So, how did their implementation pan out? Soon after the project commenced, the company found that many of its business requirements weren’t addressed by the off-the-shelf solution.
As a result, most of their processes required software re-configuration or customization. These activities weren’t accounted for in the original project plan. Less than a month or two into the project, it was already behind schedule.
The systems integrator also didn’t realize how significant the organizational change management needs were. This was a multi-site, multi-national company with different operations, cultures and business processes, so change management would have been essential. However, the systems integrator simply planned for a few employee newsletters and some end-user training a few weeks before each go live.
As the project wore on, milestones and expectations were missed, leading the executive steering committee to fire multiple project managers and team members. They put more pressure on the new team to complete the project on time, but they couldn’t succeed either.
In the end, the company was only able to get one pilot location live in three years (50-percent longer than expected). The processes were so broken, and employees were so poorly prepared that the company eventually abandoned the project and reverted to its legacy system.
Many companies, including this one, begin ERP implementation with the goal of selecting software that will deliver a high ROI. They soon realize the project is much more complex than they expected, and the benefits are much more elusive.
Why do Companies Have Unrealistic Expectations?
One reason for unrealistic expectations is that many companies are mainly focused on the technical aspects of implementation. If you want to achieve expected ERP business benefits, you must account for not only the technical aspects but the people and process aspects.
It’s important to watch out for a technology-focused mindset and other mindsets that lead to unrealistic expectations. For example, how many of the following statements sound familiar?
“We’ll get this implementation done in no time.”
Software vendors are notorious for over-simplifying the implementation process. Most sales reps don’t know what it takes to successfully implement software, but they do know they want to make the sale. As a result, they downplay the time, costs and risks of the project.
Make sure you’re not basing your timeline and budget on overly optimistic estimates. Instead, use benchmarks of what other companies similar to yours have achieved, which you can find in our 2019 ERP Report.
“This is going to change our whole business.”
Our research shows that only 19% of the companies that expected to realize benefits related to competitive advantage actually realized these benefits.
Realizing business benefits requires more than expecting them. They also need to be measured with metrics closely aligned with business processes.
Realistic ERP Selection Expectations
As you begin ERP selection, you’re probably wondering how long the process takes. In our experience, selection takes a minimum of fourteen weeks. Larger companies with multiple locations typically need at least sixteen weeks to select the right system.
You also may be wondering about the total cost of ownership of new ERP software. This depends on several factors, such as the number of licenses purchased and the chosen deployment model.
It’s important to note that the total cost of ownership doesn’t just refer to the cost of the software. It also includes the cost of implementation. According to our 2019 ERP Report, which included companies of all sizes, the average cost of an ERP project is about $1.3 million.
The key to setting realistic expectations for selection is understanding the activities that should happen before you even start contacting ERP vendors:
1. Ensuring Organizational Alignment
The key to a successful ERP selection is ensuring that stakeholders across your company understand and agree with the company’s strategic goals. Once you have organizational alignment, you can then consider how you might use technology to achieve business goals.
This isn’t the time to focus on specific technologies. Instead, you should focus on establishing a foundation to help you evaluate vendors based on their ability to enable your strategy.
You also need alignment around why you’re implementing new ERP software. Many companies decide to evaluate ERP systems because their current system cannot scale to support the company’s growth. However, this reason alone doesn’t justify an ERP investment. You must be able to articulate how a new ERP solution aligns with your business goals.
In many cases, ERP software will not solve your business problems. If your business processes are flawed, even the most advanced enterprise system isn’t going to help.
If you find that ERP is not the best path forward, there may be more cost-effective and lower-risk options. Consider improving your processes, redesigning your organizational structure or consolidating your global supply chain.
2. Developing a Business Case
What business benefits do you expect to realize from new ERP software? What are the expected costs? Knowing the answers to these questions is critical to justifying an ERP investment when executives ask about ROI. (You can use our ROI Calculator for a rough estimate).
To really win over executives, your business case should outline exactly how new technology will enable your company’s strategic goals. Armed with this powerful tool, you can convince executives that new technology is a wise investment.
3. Building a Selection Team
More than a quarter of respondents in our 2019 ERP Report cited resource constraints as a reason why their projects took longer than expected. In addition, more than a quarter cited these constraints as a root cause of their budget overruns. It’s likely that many companies beginning selection aren’t dedicating adequate resources to the selection process.
At this early stage, you don’t have a statement of work from a vendor, so you can’t determine all the resources you’ll need on your ERP project team. However, you do know some of the resources you’ll need. These are your selection team members. They are involved in all the activities that precede ERP selection, all the activities during selection and many of the activities throughout implementation.
4. Mitigating Change Resistance
As soon as you’ve made the decision to implement new ERP software, you need to inform employees. You may not know what specific technologies will be involved, but it’s never too soon to start communicating the goals of the upcoming project.
As simple as this sounds, all ERP communication should be strategic, so we recommend beginning to develop a change management plan before selection. By evaluating your organizational culture and employees’ openness to change, you can develop a change management plan that guides your communication.
Our clients have found that strategic communication increases employee buy in throughout the project. This is especially critical before selection. It enables employees to provide useful input, which further increases buy in.
Employee buy-in also is critical during and after implementation. In fact, companies that experience “software issues” after implementation are often just experiencing the effects of low employee buy in. Starting change management early can maximize system usage after go live, ensuring the software brings the expected business benefits.
5. Mapping Your Current State
Many companies do not have clearly defined processes, but as they begin an ERP project, they realize the necessity of business process mapping.
It’s important to map your business processes before selection because of the dangers of out-of-the-box functionality. While out-of-the-box functionality can bring efficiency, it can only do so in areas that don’t already bring your company competitive advantage.
For example, if your company has figured out a way to ensure every widget comes off the line 25 minutes before your competitor’s widgets, you should make the software fit that process.
Mapping current state processes helps you preserve your competitive advantage by documenting specific ERP requirements. While no ERP system will address every requirement, process mapping helps you prioritize these requirements.
Process mapping also helps you determine who owns processes and data, so you know who to involve in the selection process. We recommend involving stakeholders from all departments. This collaborative approach results in process improvements that align with your business goals.
6. Improving Business Processes
While some processes may only need incremental improvements, others may need a complete overhaul. In other words, they need business process reengineering.
This is an approach to business design that focuses on breaking down functional silos and providing end-to-end process understanding. It involves thinking about the purpose of each process and the hand-offs between functions.
Ultimately, this approach builds process efficiencies that will guide your ERP selection. If a system can’t support your optimized processes, then it’s not right for your company.
While business process reengineering can increase your selection timeframe, saving this activity for the implementation phase will be more time-consuming and costly.
7. Understanding Deployment Options
Lately, ERP vendors – especially Tier 1 ERP vendors – have increased their investments in cloud and SaaS ERP. As a result, many companies who’ve been partial to on-premise software are now considering moving to the cloud.
While vendors may claim they will only support cloud solutions in the future, we have found this is purely a sales tactic. Cloud ERP is more profitable for vendors, so they provide higher compensation to sales reps who successfully sell cloud technology.
The truth is, on-premise software isn’t dead. We work with several VARs and system integrators that still sell and support on-premise solutions. These solutions are viable. In fact, some have ten- to twenty-year roadmaps, which is great news for their large install bases.
If you’re considering on-premise software, it’s important to note that you don’t necessarily have to host it on premise. In fact, you can host it in the cloud, which is convenient for many resource-constrained companies that require less IT control. In contrast, complex companies that need heavy IT control, generally gravitate toward on-premise hosting.
Some companies choose cloud hosting for some but not all their business functions. This is called hybrid hosting. In these situations, companies keep their back-office functions on-premise and host functions like sales and marketing in the cloud.
Different deployment options each have their risks and benefits. Your decision should depend on your company’s unique goals.
8. Developing an IT Strategy
In addition to deployment options, there are several other IT strategy decisions to make before ERP selection.
For example, you’ll need to determine an integration strategy – do you want a single enterprise system or several best-of-breed systems? While best-of-breed ERP systems can help you build competitive advantage, they also can create technical complexities, integration challenges and data issues.
Many companies implement single ERP software solutions because they enable standardization, which can reduce change resistance. However, single ERP systems don’t allow you the flexibility to choose the best software for each of your functional areas. This means you might need more software customization, which is costly.
Before developing an IT strategy, you need to understand your company’s strategic goals. This gives you a lens through which to evaluate your current IT systems and infrastructure. Understanding your current state is essential as you’ll need to determine how new ERP software will integrate with your current IT infrastructure.
While assessing your current state, you should ask stakeholders from across the company what needs to change to enable business goals.
Focusing on strategic goals keeps you focused on the big picture. For example, when selecting best-of-breed software, one mistake many companies make is looking for software for one particular functional area without considering other areas.
While all your business functions may not be in need of improvement at this current juncture, they likely will require new technology in the future. The functional area you’re focusing on now needs technology that will align with technology you implement in the future. If you define your long-term IT strategy, you will know what to look for in a standalone CRM system or HCM system.
9. Developing a Data Migration Strategy
ERP data migration is often put off until the end of the project. After all, how hard can it be once the system is designed and tested?
Actually, it can be quite difficult. Data doesn’t always map correctly, and the system doesn’t always handle the volumes of data it needs to. In addition, decision makers aren’t always clear-headed enough at the end of a project to decide what data to move to the new system.
This is why it’s essential to develop a data migration strategy before software selection.
Realistic ERP Implementation Expectations
The first step to setting realistic expectations for an ERP implementation project is understanding the scope of change. You also should determine the role technology will play in your project.
At one end of the change spectrum, technology is used to support existing processes. At the other end of the spectrum, technology enables process redesign and supports changes to your company’s business model. In the latter case, technology is not the focus of the project. Instead, the ERP project team focuses on transitioning people and processes.
Many of our clients pursue projects focused on people and processes. Before they select ERP software, we help them define a corporate strategy. We also help them design new business processes to support this strategy.
Reengineered business processes mean new roles and responsibilities for employees. Companies at this end of the change spectrum should expect to spend a significant amount of time and money on business process management and change management.
If you’re not sure what level of change your project entails, ask yourself why you’re implementing new technology in the first place. Maybe you’re changing your business model or expanding into new markets. If so, your ERP project could be more aptly called a business transformation – an initiative that entails significant changes to people and processes.
Once you’ve determined the scope of change, how can you ensure your expectations are realistic? Following are eight best practices we use with clients:
1. Develop a Business Case
Companies use business cases to justify their ERP investments by estimating their return on investment.
If you’ve already defined your strategic goals and identified opportunities for improvement, you have a good starting point for developing a business case. Based on this information, you can estimate the cost savings you’ll see from automating a manual process and tie this back to one of your business goals. This is the type of information executives like to see when evaluating a business case.
While committing to a precise dollar amount can be risky, you can have confidence your estimates are achievable by benchmarking against projects at similar companies. Objective project audits from an independent third-party, like Panorama, also can give you confidence that your estimates are achievable.
So, what performance metrics are important to your business? These should be included in your business case and used as key performance indicators throughout the project.
2. Communicate With Executives
Presenting a business case to executives should not be the only communication you have with them throughout the project. Executives should be involved in other project activities, especially areas like change management.
Executive involvement not only increases employee buy in, but it ensures executives maintain realistic expectations. We recommend regularly meeting with executives to update them on issues that might affect expected results.
3. Don’t Believe Sales Hype
Vendor sales reps are notorious for giving anecdotal examples of the one in a hundred customers that implement in a short period of time. However, those examples are rarely relevant to your organization.
Vendors are only providing one data point out of thousands of ERP projects each year. This is hardly the type of statistically significant data you want to bet your ERP investment (and career) on.
4. Consider Internal Staffing Needs
While internal resources are critical to help with process design, system testing and a host of other activities, few vendors fully understand how many internal resources you’ll need.
As you’re building your own implementation plan, it will become clear what internal resources you need for each project phase.
5. Ensure Strong Project Governance
Implementations often take longer than expected because the implementation team isn’t leveraging effective project controls or instituting the appropriate project governance.
Customization requests, scope increases and other unexpected scenarios can cause your timeline to slip. However, project governance enables your team to quickly analyze and approve/disapprove requests.
6. Account for all Essential Activities
Many companies overlook essential activities, like business process testing. We recommend testing your business processes early to ensure they have been clearly defined in the new system.
Another activity that many companies don’t account for upfront is reviewing vendors’ statements of work. It requires time and resources to ensure estimates include essentials, such as support and maintenance fees. Analyzing estimates to ensure you’re comparing apples to apples is also time intensive. Many companies hire an independent ERP consultant to compare statements of work and negotiate with vendors.
Other activities you might overlook include:
- Distributing workshop guides to prepare employees for requirements gathering workshops
- Working with functional leads to validate requirements and schedule ERP demos
- Meeting with your vendor for an organizational design session
- Reskilling employees whose jobs will become automated
- Designing and conducting customized end-user training
- Conducting multiple iterations of conference room pilots
7. Regularly Adjust Expectations
While you may have defined initial time and cost estimates during ERP selection, these will need to be refined once you begin implementation.
As mentioned above, you will likely be faced with scope changes and other requests throughout implementation. In addition, your company will undergo normal organizational changes unrelated to the project, such as staff turnover.
Our clients often find that they need to reevaluate goals, adjust timelines or alter resource allocation to ensure future milestones are not adversely affected.
8. Don’t Forget About Post Go Live
Many implementation activities are actually ongoing activities that continue after go live. For example, the need for training does not disappear after go live. Employees often change roles and turnover is inevitable, so new employees and reassigned employees will need training.
Another reason that ongoing training is essential is that software functionality often is rolled out in phases. Many of our clients – for a variety of reasons – implement basic functionality right away and save more advanced functionality for later.
Measuring benefits realization is another activity that should continue after go live, as many benefits are not fully realized until years after implementation. It’s also important to continuously look for new ways to realize business benefits from your ERP system, even after the project is “over.”