As an organisation grows, turnover increases, new business lines are established and overseas expansion appears on the agenda, it is likely that existing business systems may need to evolve to meet new control and reporting demands. Information logjams may arise, systems may no longer communicate effectively with each other, business processes may become inadequate, the supply chain may no longer function as efficiently as when there were fewer products and the relationship between raw materials, the production line, finished goods and customers was simpler. If operating overseas, then new legal and language needs may need to be addressed.
The Board of Directors may decide that conditions warrant the introduction of an Enterprise Resource Planning (ERP) system as the business progresses to the next stage. They may recognise that where, currently, a diverse mix of systems is in operation, rationalisation towards an integrated enterprise-wide solution is required if the organisation is to continue growing efficiently to achieve greater success. However, introducing ERP is fraught with difficulties and should not be undertaken lightly. ERP implementations are notorious for failing to deliver the results expected of them. They also have a tendency to take longer to complete than originally planned and cost significantly more than originally budgeted. Gartner, the IT market research organisation estimates that between 55-75% of IT projects (including ERP) fail to meet their objectives. However, in reality, most implementation projects are viewed as a failure, simply because they do not meet the unrealistic expectations originally set. Unless objectives are realistic, relevant and realisable, a higher risk of perceived failure will be built in to the implementation process from inception.
What is ERP expected to deliver?
The introduction of ERP should deliver better business management, encourage improved business processes, result in a reduction in operating costs and lower systems maintenance charges and offer a vehicle for embracing cultural shift required by an expanding organisation. It is also a statement that the organisation has attained a certain size and complexity. To succeed, ERP will need to be embraced by every part of the business. Buy-in by the organisation is a key requirement for success. ERPs are intended to improve performance by upgrading the organisation’s ability to generate timely and accurate information throughout the enterprise and its supply chain. They promise seamless integration of all information flows – financial and accounting, HR, operations, supply chain and CRM systems. They are expected to provide a unified view, encompassing all functions and departments by establishing a single enterprise-wide data centre in which all transactions are entered, recorded, processed, monitored, and reported upon. A successful ERP implementation can shorten production cycles, increase the accuracy of demand forecasts, improve customer service, reduce operating costs and may lead to a reduction in overall IT costs by eliminating redundant information and computer systems. Clearly there are considerable benefits to be had by using ERP. So why do so many ERP implementation projects end in failure and what can be done to ensure success? If the following 10 Steps are followed then the ERP implementation has every chance of achieving its goals and being successful.
Step 1. Expectations Setting
Above all else, realistic expectations must be set. Implementing ERP is a highly complex process that takes a great deal of time, costs a significant amount of money and where shortcuts cannot be taken if it is to be carried out successfully to achieve the desired result. A common error is to underestimate the anticipated time and cost required to deploy a new system and the perception of delay and overspend can potentially cause the ERP to be viewed in an unfavourable light. Projects can take considerably longer than originally planned, causing costs to escalate and be significantly higher than budgeted. The expected benefits may not be achieved due to inadequate business analysis and product selection, poor project management and inefficient delivery. Setting realistic expectations is essential so that the organisation fully recognises the implications of the path it has embarked upon and the project will not be viewed in a negative light on account of over ambitious hopes.
Step 2. Board Commitment
Commitment to change at the highest level and throughout every part of the business is essential as the introduction of ERP marks a significant stage in an organisation’s evolution. Implementing new ERP is a strategic initiative which should be fully supported at all levels to ensure it is a success. Senior Executives should demonstrate their commitment to change so that the organisation as a whole is fully united and there is support across all parts of the business. A clear and unambiguous communication from the Board to all key players that the project is to go ahead is a significant contributor to project success. Conversely, its absence is a significant contributor to project failure.
Step 3. The Project Sponsor
The role of the Sponsor is vitally important if the implementation project is to be a success. The Board of Directors will need to appoint a Sponsor who should be a Senior Executive with the power and authority needed to drive effective change across the organisation. The Sponsor will be a key participant in the change programme and must be fully involved and visible during the implementation project adding their input and ensuring that the strategic plan is followed. The Sponsor should be an excellent communicator, able to manage stake-holder expectations and with the necessary authority to take difficult decisions. Sponsors cannot stand on the sidelines, they must visibly, vocally and actively demonstrate leadership qualities, commitment to the project and support for project team members. They must quickly intervene to resolve problems and champion the project.
Step 4. Requirements Definition
The Definition of Business Requirements is important to ensure the organisation’s needs are fully understood before the solution is chosen. If this process is not carried out properly the organisation may find that the most appropriate ERP has not been selected. Selecting an inappropriate solution may lead to the need for developing customisations and workarounds which will add to cost and lengthen project timescales. More significantly, confidence in the solution will be compromised. Conducting thorough business analysis will ensure that the new system does not simply replicate old system processes but takes the opportunity to make significant improvements. The new system will provide an ideal opportunity to dramatically improve processes, stream line operations and reduce operating costs. IT infrastructure must also be assessed as the new system may have new hardware and platform implications that may lead to additional cost and longer timescales which will have to be factored in to the overall project plan.
Step 5. Package Selection
Selecting the most appropriate ERP system is essential for project success. While the Business Requirements Definition will drive the software functionality to be delivered, the organisation must also consider the financial status of the software author. Financial stability, reputation and long term product strategy will require investigation because if an ERP vendor is experiencing financial difficulty then there is the risk they may fail or be taken over and therefore the long term future of the product will be uncertain and this would present a risk. It is not uncommon for senior Executives, familiar with an ERP system from a previous role to decide to implement the same system in their new organisation without defining the functional requirements and going through a comprehensive selection process. This is to be avoided as it is unlikely the product will meet the organisation’s specific needs and there are likely to be other products available that are more
Step 6. The Project Team
The Project Sponsor should decide how the project will be run and the composition of internal versus external resources. The software vendor or a consulting partner may be selected to perform the deployment and is likely to work alongside an internal project team. There will normally be several Program Managers handling multiple project streams and internal staff may be seconded from the business or recruited on either a full time or interim basis to take part in the project. Internal and external teams must fully understand their responsibilities and there should be a strict division of labour. It is recommended that the internal team is dedicated entirely to project delivery and released from their day jobs for the duration of the project. The internal implementation team should also be recruited from across the organisation so each part of the business is represented and their interests taken into account. Internal and external teams will need to work collaboratively and avoid conflict. The existence of a blame culture is a significant contributor to project failure.
Step 7. Project Management
Effective Project Management is vital for implementation success. Realistic project timescales are the responsibility of the Project Manager and should be adhered to and any deviance from plan should be addressed immediately to ensure the correct sequence of events and the avoidance of bottlenecks. The project should be carefully defined and controlled and additional project scope (project creep) resisted (unless carefully factored in), otherwise the project will over run, cost more and lose focus. Key implementation deliverables and milestones will be needed to measure progress, identify hold ups and ensure on time delivery. A lack of checkpoints with periodic deliverables is a sign of potential trouble and although deadlines can slip for a variety of reasons, a team that repeatedly misses them demonstrates a lack of discipline which can dramatically increase project risk. With well organised project management, sufficient time should be allowed for documentation, redefining and integrating processes and systems testing before “go live”.
Step 8. Business Driver
The ERP deployment should be driven by the Business rather than the IT department. The requirements of the Business are paramount even though IT issues will need to be addressed. For a common information system to work across the organisation, every user must adopt, adhere to and support common work methods supported by the new system. Any department or business unit which fails to conform to the processes dictated by the new system will become the weak link that ultimately renders the enterprise-wide system ineffective.
Step 9. Communication
The existence of good channels of communication across the organisation will help ensure buy in and keep everyone informed and involved. There should be regular communication between HR, Finance, Supply Chain and Marketing as the new ERP may be regarded with trepidation and worry by staff who may believe their roles are threatened. It needs to be shown that the new system will result in operating efficiencies and role changes but as the driver for change is likely to be corporate growth, longer term career prospects should improve. There should be clear communication of the organisation’s strategic goals and how the deployment of ERP will meet them. Before the implementation starts, senior management must create a clear, compelling vision of how the company should operate in the future to gain the support of customers, employees, and suppliers. This vision, along with a clear picture of expectations and deliverables, must be communicated to all functions and all levels of the organisation. In most organisations, many people do not fully understand their organisation’s strategic goals and how their individual or departmental activities support those goals. Thus, it is likely that these individuals will not understand why ERP is being implemented and what critical business needs the company is trying to address. The project should embrace people throughout the organisation and all staff should recognise the benefits of the new system.
Step 10. Training
A comprehensive training program is a necessity although implementation teams are well known for underestimating the amount of user training that will be required. This may mean that the capabilities of the new system are not fully utilised and users may even revert to legacy systems if they do not have confidence in the new system. The training process should generate goodwill for the new solution and familiarity with the software will contribute to its acceptance across the business.
The desire to implement ERP indicates that an organisation has achieved a certain level of success and complexity, is expected to grow and believes that by deploying a new integrated corporate wide system further success will be achievable. If expectations for the new ERP system are correctly managed, a correctly resourced and realistic deployment project is nurtured and the principles discussed above are followed then there is every reason to expect that the deployment will be a success.