3 Keys for Unlocking Value with ERP Investments

Source: CIO Journal

The faster a company implements an ERP system, the sooner it may realize the system’s business value and move on to other strategic investments.

For more than two decades, ERP systems have served as enterprises’ workhorses, automating back office functions and generally keeping day-to-day business operations running. Now many companies that implemented ERP systems in the 1990s and early 2000s are looking to upgrade, replace, or consolidate them. With economic uncertainty lingering, CIOs face pressure to make these large investments and complicated projects pay off.

A company’s ability to realize a return on an ERP implementation often hinges on its capacity to deploy the new system quickly; that is, within the time frame specified in the business case, or 18 months on average.

ERP projects that take longer than anticipated add a variety of costs including that of project team members and consultants working additional hours and, in cases where a company is replacing a legacy system, the cost of operating two systems at once.

“The maintenance and operating costs associated with running dual systems can quickly erode the benefits presented in the business case,” says Matt Miller, a senior manager with Deloitte Consulting LLP’s SAP service line.

The longer ERP projects take, the more likely they will grow mired in organizational fatigue and inertia, according to Jeff Jackson, a director with Deloitte Consulting’s SAP service line. “Eighteen-month projects that stretch out to three years impede a company’s ability to get value from the new system,” he says. “They also take funding and resources from other strategic projects.”

Moreover, sluggish ERP implementations may cause CIOs to lose credibility with senior executives, or worse; truly troubled implementations have been known to cost CIOs their jobs.

To keep ERP projects on schedule and on track to fulfill intended business objectives, companies should consider adopting the following three practices:

Start with a leader project. Leader projects help organizations define standard work processes. They don’t have to be part of the core ERP implementation, but they usually complement it. An example of a leader project could be a “Six Sigma” quality improvement initiative, or the rollout of radio frequency devices inside warehouses.

“The purpose of the leader project is to acclimate users to the idea of changing their behaviors, adapting to new processes, and learning to accommodate a new, and ultimately, more beneficial system,” says Eric Monti, a senior manager with Deloitte Consulting LLP’s SAP service line.

Leader projects may speed ERP deployments by forcing companies to understand and articulate their business processes before they even begin the ERP implementation. In so doing, leader projects can bring to light process variations among business units, regions, and/or manufacturing plants that implementation teams can subsequently take into consideration when designing the ERP system. By identifying process variations up front, leader projects may shorten the time required for ERP system design.

“If properly scoped and executed, leader projects can bring uniformity to ERP deployments, making them easier to execute,” says Miller.

Enforce standardization. Keeping ERP systems as standard as possible across deployment sites is critical to efficient implementations. The more a company tries to customize or “localize” the system for different business units or geographies, the longer activities like software configuration, custom development, testing, and training are likely to take, notes Monti.

Some localization may be required to meet country-specific fiduciary or regulatory requirements, or to accommodate variations in business processes that give different business units or regions a competitive edge. Monti and Miller suggest companies target 20 percent localization to the overall system design.

Limiting localization during the initial design phase of an ERP project presents one challenge; preventing those design decisions from getting compromised and leading to additional customization during the actual deployment is another. It requires a commitment to the initial design from project stakeholders and global business process owners, according to Miller. It may also require CIOs and other executive stakeholders to push back when users pressure implementation teams to further customize the solution.

“When companies let localization get out of hand, the cost and complexity of ERP projects rise,” says Miller. “Localization leads to higher maintenance costs that the company will pay over the ERP system’s lifetime, and those costs can eat into the business case.”

Execute the ERP project in waves. Deploy new ERP systems to deliberately chosen sites in sequenced waves. Sites can be grouped based on specified criteria such as business similarity (like business units grouped together), business risk (low-risk functionality first), or region, says Miller. The team should apply a consistent deployment approach within and across these waves.

The first wave is typically a pilot intended to validate the solution and confirm it supports day-to-day business operations. It serves to demonstrate that “yes, you can deploy ERP; yes, it can run your business; and no, it doesn’t add systemic risk as you go live,” says Miller.

The second wave builds on the first. The implementation team may opt to roll out the solution to more sites or address more complicated business processes during the second and subsequent waves, according to Miller. Monti adds that second and subsequent waves should leverage the site readiness activities, training, and testing materials used in previous waves.

“Execution in waves tends to accelerate deployments because each wave builds on the previous one, and leverages materials and deployment processes across sites,” says Miller. “In other words, companies don’t have to reinvent the wheel with each wave.”


Miller and Monti assert these three practices can go a long way toward keeping ERP projects under control and, thus, set them up to deliver the business case. Speed and efficiency are essential to containing ERP implementation costs and achieving business goals.





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