All organizations undertake ERP implementations for essentially the same reason: they expect to achieve efficiency gains. Yet 59% of organizations that undergo an ERP implementation realize less than 50% of the expected business benefits. While the complexity and scale of ERP implementations make immediate benefits realization unlikely, many firms fail to achieve these gains even years after system go-live. This fact is often attributed to a lack of focus on defining objectives and metrics, as well as failing to establish baseline measurements against which to track progress.
So how can an organization ensure they attain the expected benefits of their ERP implementation?
The answer lies in proper use of performance metrics. Key performance indicators (KPIs) are widely considered hallmarks of a well-run business but they are also an integral part of monitoring the health of an ERP implementation. 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. KPIs are the metrics which best define the success of a process or function and must be tied to a definitive objective. As one of my colleagues puts it, a great KPI is a vector rather than a simple magnitude. Identifying the core KPIs for each department provides the proverbial finger on the pulse of each of the major functions in an organization, which in turn leads to an understanding of the well-performing and at-risk segments of an organization. In short, what gets measured gets managed.
Proper definition of objectives and KPIs are only the initial steps in an effective strategy for benefits realization. Even the perfect KPIs and corresponding objectives are meaningless without adequate ownership and accountability. Owners assume responsibility for defining objectives, formulating measurement strategies, producing baseline measurements and managing measurement schedules throughout and beyond the ERP initiative. These owners are also the driving force behind corrective action in the face of performance gaps. The ideal owner of a KPI is familiar with the processes being measured, has a stake in their success and has the leverage to attend to lagging performance.
Depending on the structure of an organization, different KPI ownership structures are possible. In some organizations, metrics from all functional areas are tracked by a single oversight functional group, which naturally assume the role of KPI owners during an implementation. Generally speaking, department managers are the ideal candidates for oversight of performance metrics for their respective departments as these individuals have an innate interest in achieving optimal performance results. In addition to ownership at the functional level, executive ownership of the aggregated KPIs at the organizational level is necessary to achieve a holistic view of performance during an ERP implementation, as well as to drive accountability. With more than a single level of oversight, functional performance gaps are more easily identified allowing lagging processes to receive their due attention.
While projected business benefits don’t magically materialize at go-live, tracking and managing process performance at both the department and organizational level empowers an organization to achieve the benefits of new ERP software, rather than passively waiting for them to materialize. When it comes to benefits realization, the adage cannot be overused – what gets measured gets managed.
Learn more by registering for our webinar, Business Process Reengineering: A Key Component of ERP ROI.