Outsourcing: Keys to a Successful ERP Implementation
What company can afford to be without timely, accurate information about its finances, customers, employees, products, suppliers and more? Enterprise resource planning (ERP) systems have surfaced as popular, leading-edge applications for the manufacturing and service industries alike because they integrate traditional, separate, functional systems into one.
Achieving the full benefits of an ERP implementation takes more than simply adding an SAP or Oracle solution to the network. In fact, without good understanding and planning, it’s easy to lose the benefits. Studies reveal that over half of ERP implementations fail to meet budget, schedule or expectations. Understanding that a successful ERP implementation is more about changing the way a company operates and does business ensures the foresight, planning, training and, above all, commitment to doing the job right.
Why is ERP so Popular?
ERP has become enormously popular because of the dramatic results it can bring, even in modestly-sized companies. The motivation to implement ERP may come from many sources, but typically involves one of two broad circumstances: a company that is anticipating change (e.g. high growth, new markets, new competition, acquisitions, etc.) or one that needs to replace legacy systems (driven recently by Y2K, in most cases).
Scalable systems are a great solution for fast-growing companies. For example, a start-up might begin at ground zero with selected financial/accounting modules – general ledger, accounts payable, etc.
Legacy systems that are out-of-date and inflexible, at risk of failure, and becoming increasingly difficult to support run the risk of interrupting business. An established company with a mix of systems environments – two mainframes with over 300 subsystems, archaic applications and platforms – has a problem finding support for applications that are highly customized or whose vendor is no longer in business. Valuable data is at risk. At the same time, the company may need to get an aggregate picture of the health of business, which is virtually impossible on the legacy system. If the existing systems can produce the data, they take too long. Few companies can afford to have decisions lag while waiting on data analysis.
Some of the hottest areas ERP systems are being implemented to support include:
- Data warehousing and decision support. Storage Consolidation and "immediate" access to data information can facilitate quick decisions, essential to reacting to changes in a faster, 24x7 business climate.
- E-commerce support. Many established bricks-and-mortar companies face challenges from efficient electronic upstarts. What company can afford to pass up this low-overhead channel with no middleman that brings the point of sale back to the original manufacturer?
- Customer support. Taking good care of existing customers has become a key point of competition, one supported by ERP’s customer relationship management (CRM), sales force automation (SFA) and other systems.
- Simplifying and consolidating complex organizations. ERP can be a way to aggregate multiple organizations, currencies, languages, etc., into a single set of books for quick consolidation.
What Makes an ERP Implementation Successful?
Several factors contribute to the success of an ERP implementation, from the very first step, commitment to and understanding of the process, to the actual implementation.
Get top-level executive commitment and set proper expectations. While evaluating their business and choosing a package are important steps, it is equally important that support for an ERP implementation come from the top office. Success depends on an executive team that understands why the company is making the investment, the reasons the company supports it, and communicates the company’s commitment to all concerned. Top-down understanding of the complexity of integrating the ERP system is critical to getting the resources needed to implement and support the system.
In getting executive support, it is vital to set proper expectations about the amount of effort and potential changes to the company involved when implementing even a standard package. Are there gaps between the business needs and what the standard package provides? How will those gaps will be filled – with a third-party product or custom-building additional functionality? What about changing the business process to adapt to the package? Once that assessment is made, it’s possible to define the overall scope of the project – what kind of functionality, for which locations and what is the must-have functionality for the first phase? The company must view the project in terms of critical functionality by laying a foundation for what will happen next and then incrementally building on that foundation. Top level involvement and big picture thinking will prevent being swayed by individual or departmental wish lists, whose late-stage changes can adversely affect the project outcome.
Evaluate business requirements and select the right ERP package. Just by asking if an ERP systems makes sense, a company has begun the vital process of evaluating and understanding the deficiencies and potential in the business. The company must examine its business drivers, sometimes easy, in the case of de-supported "dinosaur" legacy systems, and in other cases, not as clear-cut, as in a quick-growing company making calculated decisions based on forecasts.
Since few companies have the internal resources to thoroughly evaluate what they will need, most will work with an outside service firm that specializes in the system selection process. This firm will help the company determine the business requirements, take an objective look at those requirements and map them to the different ERP packages, considering costs and features, and doing side-by-side comparisons. System selection firms have a specific set of skills relevant to objectively analyzing businesses and are usually not the same as organizations that actually implement the system. These firms typically do not have full exposure to all of the ERP offerings available, and must therefore be niche-oriented by market size, industry or other category.
Some companies make a "common choice," choosing an ERP package used by a competitor or a similar company that they understand well. This can work fine if the two companies communicate and if the common choice is validated by a confirmed fit product demonstration from a vendor, which demonstrates how the company can be run on their application.
Companies that do the system selection themselves need to be certain they have the internal expertise to handle the complex analysis and decision process. If the staff has not been through a similar implementation in the past or not done so recently, an outside firm is essential for system selection, since keeping up to date and sorting through sales pitches of various ERP package vendors can be complicated and time-consuming. Companies trying to minimize the involvement of outside firms can commit themselves to evaluating their business and developing their own list of critical business requirements. Unfortunately, it is possible to spend more on the system selection process than implementation.
Dedicate and/or obtain the appropriate resources. ERP implementations are very hard to do without an outside firm. The packages are constantly evolving, making it difficult for staff to stay current, even if they’ve worked with the package before. An outside firm will bring current experience in the toolset and will provide a tremendous amount of insight about the challenges typical to the package.
An outside firm will also bring its experience in mapping business requirements into the system, working with political issues, disseminating information through people, and establishing a set of deliverables on a short-term basis (e.g. project management skills). A firm can dissect a typical nine-month implementation timeframe into short phases, with deliverables for each phase, and provide the framework to efficiently move through the implementation. Specialists who intimately know the ERP package can implement the system in a shorter timeline than it would take with less experienced staff.
While most companies choose to work with a service firm to implement the ERP system, they must still build their own infrastructure. Since the company, not the outside firm, will be working with the systems for years to come, the company’s internal team must learn all the aspects of that system to be able to support it in the long term. Many make the mistake of not building an internal staff, relying on the consultant and keeping the ERP implementation hands-off to the staff. Without a staff to support the system, the outside firm may have to stay on, which can be very expensive. If the firm is not retained and trained staff is not there to support it, the system will most likely degrade and lose its value. Building an internal team is a crucial step to assuring success.
One excellent way to assure success and express commitment is to select a core group of experts who are involved in the implementation from beginning to end. Since there is a steep learning curve, this ERP "core team" should ideally be removed from most of the day-to-day distractions in order to absorb the great amount of information. One highly successful model has the company selecting an internal staff member as the project lead, with the outside services firm acting as a co-project manager, the advisor to the company. The outside firm provides other advisors who give assistance, but not the leadership. The company’s staff "owns" the project and, as a result, is committed to its success and ongoing maintenance. In this model, a 1 to 1 ratio of consultants to core team members is ideal.
Internal implementations usually only take place if the staff includes people who have implemented this package at another location recently. But it can be difficult to determine who’s right for the job. Can a technical person with COBOL knowledge make the leap to the new technology? One reason that it’s hard to find people with experience implementing ERP systems is that they often move from such tasks into the consulting realm.
The company that has no appropriate internal resources has to be prepared to pay the kind of salaries demanded by people who are up-to-date on current systems, and former pay scales may not support these kinds of people. Many companies that easily justify the expenditure for an outside firm could hire permanent staff if they changed their pay scales.
Finally, timing may come into consideration when setting up a team. A computer manufacturer that introduces a new generation of mid-range server every year will find it dramatically easier to do an ERP implementation during "off" months, rather than just before the product release, when the expert user base is busy rolling out the product. Even with careful timing, it may be necessary to help fill the everyday roles of those expert users. Additional hiring during an ERP implementation is a reasonable expectation.
Train experts and end users. Training users in the system is essential to assuring its full value. A fairly simple and natural way to begin this is to proceed in stages. The initial orientation training involves just the core team to give them exposure to the capabilities of the product. As that core team begins to define the business requirements, gaps, configuration and data conversion requirements, etc., and potential solutions are being prototyped, the core team will begin to expose the larger user base, who might be called "part-time" team members, as they work together. This gives the larger end-user base some initial exposure.
After a simulated production test, more formal, general training can be provided to the full user base, including those who had some initial exposure. Once that production pilot is completed and a readiness approval is given, final end-user training can begin, in which everyone receives instruction in their functional areas. By exposing the core team to the full feature set, they informally discuss the global capabilities of the system with users who may, in the end, only see a small portion of the system. After the implementation, these core team members understand and own "touch points." They become responsible for a particular functional area: one for inventory, another for cost management, and another for GL and AP. The exact areas of responsibility will depend on the way the company does business and the way ERP modules are structured. Throughout the training, the consultants remain as technical resources.
Support the system after it is implemented. A successful implementation means the company can use the system soon after it goes live, self-sufficiently. Involving a core team of users from the start ensures that the system is supportable as soon as it’s turned on, and quickly meets the system’s anticipated return on investment (ROI). The return is dependent on having the appropriate resources to support the system in the long run. This simple fact may be all it takes to justify the budget for the more expensive technical staff with contemporary skills who can maintain the complex new system. When the trade-off is a more efficient business, the return is there to offset the cost. The same argument may be applied to software support or annual maintenance fees.
Companies that ignore the need for ongoing support will end up paying for it. In implementations where the system is sound but process disciplines are not enforced, the ROI on the time and investment will probably not be achieved.
Below are the basic steps organizations must consider for assuring a successful ERP implementation:
1. Get executive commitment and set expectations.
2. Understand the need and benefit of implementing (legacy/growth, etc.) and outline business requirements thoroughly.
3. Select the appropriate ERP package, if necessary, enlisting the help of a system selection firm.
4. Dedicate the resources: Make sure the budget is there. Select a "core team" to work on the implementation, and give them the time/resources to accomplish the task. Hire new staff, if necessary. And, in most cases, select an experienced service firm to help in implementation.
5. Train both experts and end users.
6. Maintain the system internally, with appropriate technical staff.
And while you are following these basic steps for success, be aware of the three most common mistakes made when implementing ERP solutions:
1. Improper expectations regarding the complexity of implementation, and as a result, an inadequate budget and insufficient staff, outside help or hiring for the effort.
2. Lack of executive commitment. Without the message and involvement that says, "We’re committed to making this succeed," the project will not be as successful.
3. Wrong firm is selected to assist. The firm hired may not be sufficiently knowledgeable in the system at a detail functional or technical level to prevent the project from floundering. Choose a firm with demonstrated success in projects with similar boundaries: budget, timeframe, resources, etc.
About the Author: Craig Miller, Vice President and Senior Consultant for ECS Integrated Technology Solutions, is an APICS CPIM with more than 13 years of diverse manufacturing, distribution and systems implementation experience, including a seven year association with Oracle Applications.