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Posts Tagged ‘Enterprise Resource Planning’

erp failure keyboard on fireRecently,  a site called Proformative.com published a brief article from someone who said they lost their job over a failed ERP implementation.  (The original post can be found here.)

The article’s author, who posted anonymously, provided a list of “what I learned from this experience” which we are compelled to reprise here.  All ERP projects have “issues.”  They’re almost always late (largely unavoidable) and usually over-budget (mostly avoidable) in our real-world experience of many years.  That being said, here’s what the poster claimed he/she learned from the experience:

  • Consider more options earlier
  • Define the expected benefits earlier and more clearly and then use as a compass going forward and a benchmark of success at the end.
  • Assume it will cost more and take longer. If it doesn’t, you’re a hero and if it does you’re realistic.
  • Rigorously avoid project creep… the scope always expanding. Avoid unnecessary customization.
  • Take in more information from others without a vested interest who have been there and done that before spending any money.
  • Admit and move on from mistakes faster.
  • Have a good/committed in-house technology partner before proceeding.
  • Review the project on a regular basis and often.
  • Plan on more testing.
  • Plan on more staff education.
  • Delegate and verify more.

 

The author notes and accepts his/her varying degrees of responsibility for some of these elements, and provides a happy ending.  After noting that s/he “learned a great deal from this experience… I was offered an assignment helping another company that is embarking on their own ERP implementation.”

 

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erp failure graphIn our prior post we described what Panorama Consulting in a recent article said were “3 Things That Will Help You Achieve ERP Success.”  They published a companion article around the same time this year in which they suggested what constitutes a failure in an ERP implementation, which we’ll highlight below.

Noting that according to a survey they recently completed over 80% of ERP projects are late, over budget or fail to deliver expected business benefits, they make the point that while these events are indeed frustrating, they don’t necessarily constitute failure.

In fact, their survey showed that ‘operational disruption’ occurred in over 40% of organizations, but that in about half of those cases, the disruption lasted only between a week and a month.  (The other half consisted of projects whose disruptive effects last several months longer.)  That’s not failure, it’s just disruption, and frankly, it’s common.  Projects are typically over sold and underestimated, and everyone gets ‘happy ears’ at the outset, so the results should come as no surprise.

The failures, in truth, are what come as a result of the disruptions, or of poor implementation planning, and for evidence of this Panorama cites a good example.  A client’s engineers and sales reps were having trouble with the product configurator in their new system, not uncommon among ETO (Engineer to Order) manufacturers.  The consultants recommended delaying the Go Live by 30 days to allow users to become more comfortable with the new processes, an unwelcome event with an estimated cost of $70,000.  Instead, the client opted for “a Hail Mary flick of the switch.”  In other words, they rolled the dice that the decision would not affect their business.

You can probably guess the outcome.  The client had not built enough safety stock to account for a potential disruption, barged ahead before critical engineering processes were fully defined, and experienced a revenue loss of over two million dollars as a result.

The good news is that most failures are avoidable.  Sure, delays are sometimes required.  Disruptions happen.  Training, implementation and configuration can take longer than expected.  But with the right focus on, and belief in, sound project management and the right expertise and methodologies, companies can succeed.  (And it helps to define success, as we noted in our prior post.)

 

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erp success graphA recent article from Panorama Consulting noted that while many, some say even most ERP projects take longer than expected, go over budget, and fail to deliver expected business benefits, research from Panorama’s “2013 ERP Report” indicates that an overwhelming 86% of surveyed firms still report being generally satisfied with their ERP implementations.

Why the dichotomy?  Well, at least partly it’s because those companies had no clear definition of success.  So once the transition pains subside, they report overall satisfaction.  Perhaps raising the bar a tad is in order, and to this end, we submit Panorama’s three key steps companies can take to ensure their ERP project teams actually achieve real success…

1.) Clearly define success.  While for many companies we see, “anything is better than what we have…” you’re not spending hundreds of thousands (or in large companies, millions) of dollars to achieve incremental success.  You’re looking for a tangible return on investment from your software.  The “business case” should be the key mechanism for both justifying the investment and for defining what constitutes success.

2.) Articulate expected process improvements.  Expected business improvements should be equally well defined and clearly articulated to the project team.  More than merely suggesting software will make things better, the process improvements should be clearly defined and documented in a way that they can actually be enabled.  For our clients, we like to define these during the initial Business Process Analysis in order to ensure they become a part of the eventual solution.  If you clearly define the ‘before’ processes and then the proposed ‘new’ processes, you stand a much better chance of actually streamlining operations.

3.) Conduct post-implementation audits.  About 90 days after implementation, conduct an audit to ensure that actual results are measured and compared to expected benefits.  Look for places where processes are breaking down, inefficient, or not delivering results.  While painful, this is often the low hanging fruit that can help justify early investment.  We often find that training is a key area that has been neglected.  Often too, we find that report creation, business intelligence, drilldowns, and all the ‘after-the-fact’ data revealed by the new system is ignored or insufficiently exploited.  The post-imp audit period is the perfect time to look for improvement in these areas.

Words to the wise…  it’s all about getting your money’s worth!

For contrast, in our next post we’ll take a quick look at what Panorama Consulting says constitutes an ‘ERP failure.’  Stay tuned…

 

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In our prior post (here) we looked at the success manufacturers told Aberdeen Research in a survey last year that they’d had in reducing costs and improving customer responsiveness as a result of implementing ERP systems.  Today as promised we’ll continue that thread with a look at their top strategic actions related to ERP.

Aberdeen notes that one of the key benefits of implementing ERP is that it makes you more efficient and disciplined in your business processes.  Their research over the past three years found that streamlining and standardizing business processes were the primary actions taken by manufacturers.  Even the lowest performers (called the ‘laggards’, representing the bottom 20% on the success ladder of ERP implementations) cited these as their key actions taken around 60% to 70% of the time .

Specifically, their number one action was labeled as “streamline and accelerate processes to improve efficiency and productivity” and a close second was “standardize business practices.”  Other actions these firms took to lower costs and improve their customer responsiveness included:

  • Optimize the use of current capacity
  • Provide visibility to business processes across functions and departments
  • Modernize technology infrastructure and applications
  • Reduce the number of disparate enterprise applications (translation: too many competing pieces of software, and way too many spreadsheets!)

Ultimately, the proof lies in the results, as voiced by the companies themselves, and they are impressive.  The companies who did best at implementing ERP achieved:

20% reduction in operating costs… 18% reduction in administrative costs… 22% reduction in inventory costs… 17% improvement in completion and on-time shipments… and 18% improvement in manufacturing schedule compliance.

Most telling of all: even the poorest results (from the bottom 30% of those surveyed on ERP success) showed at least single digit improvements (from 3% to 7%) in every one of the aforementioned areas. 

And finally, the biggest reason NOT to implement?  The perception regarding the “internal effort” to implement, particularly cited by smaller companies.  Not a surprising find among fast growing, smaller companies, one supposes.  But still, one wonders: Do they think it’s going to be somehow easier next year?

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Those of us who deploy ERP systems for a living know clearly of the disconnect that sometimes occurs between clients who wish for the world but are less anxious to acknowledge the true costs – in time and treasure – of committing to a successful deployment of a new (or upgraded) business management system.

So hearing it from another independent source can serve as a beacon to all of us about the importance of realistic expectations.

One of the books that we consider required reading around our firm (because we implement Microsoft Dynamics NAV software, among several ERP systems) is entitled “Implementing Microsoft Dynamics NAV 2009” by David Roys and Vjekoslav Babic, both expert consultants in NAV.

In their book, the authors touch on the Triangle, a concept we’ve embraced since first learning about it nearly ten years ago.  Simply put, the triangle looks like the one at the top of the page.  The idea is deceptively simple: Pick Two.

When implementing a system you can control any two sides of the triangle.  They give the analogy of building a skyscraper: You can’t build a 100 story skyscraper in three months on a $500,000 budget.  If it needs to be built in 3 months, it’s not going to be 100 stories.  If it needs to be 100 stories and finished in three months, it will cost a fortune.  It’s obvious.

And it should be no less obvious when deploying a business software solution.  You can do it fast and cheap, but it definitely will not be done well.  You can do it in stages, and have it fulfill the majority of your scope requirements and… well, it doesn’t necessarily have to cost a fortune… but it will be an investment.

As the book’s authors point out:

“Software projects often start with unrealistic expectations.  Budgets are OK, as are time constraints.  What doesn’t fit this triangle is features.  Customers want features.  They want many of them.  This is called scope creep, and it’s consistently taking projects down.”

The authors’ (and our) answer: a formal methodology for implementation.  While it’s true that such a process requires a project manager and some extra paperwork – all of which add overhead to a project’s costs – the truth is that a systematic and disciplined approach to an implementation is the very thing that makes a project predictable and manageable.

As the authors note, “The problem with projects led without a formal methodology is that they only appear cheaper at first, but they rarely finish on time, within budget, and hardly ever deliver against the expectations.”

And that’s a very poor and shortsighted way to lead a project upon which your company’s very mission usually depends.  In the end then, these ERP projects are not about technology success, they’re about business success.

 

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Panorama Consulting surveyed businesses that had implemented ERP systems (large companies for the most part, but we note that the lessons for the small to midsize business are largely the same).  In our previous six posts we detailed many of their findings.  Today we’ll wrap up this series of posts with some of their final conclusions.

First, it was heartening to note that about 80% of surveyed companies reported satisfactory results with their systems.  Now, like all surveys, we take this with just a grain of salt.  For any survey reporting a high level of success, there are probably three more that will speak to high failure rates.  We recommend you take the 80% satisfaction rate with a large grain of salt.

Second, we can safely extrapolate that: those who planned well, and laid out the business case, largely succeeded.  They knew where they were trying to go.  Those who didn’t, failed.

Third, satisfaction levels drop quickly once the nitty-gritty process of implementation is begun.  Factors including under-staffing, poor understanding of the processes involved and lack of executive buy-in are major factors here.  Often, companies were forced to change their business processes (to fit the software), rather than the other way around (which is usually, in our experience, far more successful).

Fourth, two-thirds of companies had difficulty in addressing process and organizational changes.  These changes must be managed slowly, with insight, sensitivity and creativity – a point often missed my management.

One key tenet of Panorama (and firmly held by our firm as well we might add) is that software must be changed to fit the company in those areas where such differentiation provides strategic or competitive advantage.  In fact, such differentiation, we’ve found, is often the key driver in a company’s overall margins.  It cannot be ignored.  The logical solution is to make sure the software fits into the business – and not the other way around.

Business processes should be mapped – at the outset of the project – so as to move from “as is” to “should be.”  We often call this value stream mapping, or some derivative, and it’s important that such thinking be an early stage in any ERP project.  It’s important for companies working with consultants to determine which processes can and should stay – and which should (and can) go… that’s your roadmap!

And then, finally, work with a partner (a key word here) you can trust.  After all, you’re likely to be working with them closely, for a long time.

** END NOTE: We at PSSI wrote our own white paper called “Software That Matters” in which we detail (in what were originally 11 blog posts) most of what a small to midsize business owner needs to know about selecting an appropriate ERP system, including objectives, costs and key purchase considerations.  You can get the white paper from us at our website here, or see the original posts here.

 

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We’ll do a quick recap of the key conclusions in Panorama Consulting’s survey of large firms that implemented ERP systems.  Even though their client base is large companies, we’ve noted frequently how closely the lessons and principles of those larger installations apply to our own clients in the Small to Midsize Business (SMB) market space.

We noted in our prior post that while some projects came in on-budget (or in a few cases even, under budget), many were significantly over.  Panorama had a few key conclusions about the comparison between planned vs. actual costs.

Among their key findings:

  • 29% of companies had not yet recouped their costs.  This goes back to business planning at stage one, we believe.  You can’t identify how much or when you’ll recoup costs if you don’t identify them at the beginning of the project.
  • The other 71% had recouped their costs.  Fully 50% had recouped their implementation costs within just three years.  In fact, 40% had done it in two!
  • On average, ERP projects took about 16 months to complete.  (This is fuzzy however, because much depends on how you define the project.)  38% were completed on schedule… 54% went long.
  • The majority of companies deployed on-premise solutions (about 60%)
  • About 40% of companies used software add-ons.  Remember, this is in large and expensive deployments, where 3rd party add-ins are less prevalent.  In the SMB market space, the vast majority of companies end up needing to use one or more add-ins or third party enhancements.
  • Fully 90% of companies employed some level (from light to extensive) of customizations to their ERP software.
  • Top modules implemented were: Financials; Sales distribution; Order processing; Materials management; and Human Resources.  It’s all about gaining competitive advantage by planning for, and then deploying, the right software functionality that will most enhance your company’s competitive advantage.

In our next and final post on Panorama Consulting’s survey of ERP deployments, we’ll look at their final conclusions.

 

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