Transitioning From On-Premise to Cloud ERP Solutions
SaaS and cloud ERP solutions are the highest growth segment of the ERP software industry. Companies such as Salesforce, Plex Systems, and Netsuite all continue to show robust increases in revenue while traditional, on-premise ERP systems are showing much slower rates of growth. As outlined in Panorama’s 2012 ERP Report, the market share of cloud-based ERP systems has grown from 6% to 16% in a single year. Even the traditional ERP vendors are redirecting R&D dollars to cloud and SaaS ERP solutions.
However, as is the case with any ERP and IT strategy, there are pros, cons and tradeoffs for both the on-premise and cloud ERP paths. While SaaS solutions may be a good fit for many organizations, it’s not the right solution for everyone. But if organizations do indeed determine that cloud solutions are the right fit, they need to recognize and address the risks and tradeoffs that are inherent in any strategic ERP decision. They also need to recognize some of the complexities associated with migrating from the traditional on-premise approach to the cloud.
Below are three things to consider when transitioning from on-premise to cloud ERP systems:
1. Recognize that risk will shift away from technology to the business. Industry hype would suggest that SaaS ERP systems can be implemented faster, cheaper, and easier than their on-premise counterparts. While this may be partially true for the technology iteself since there is no software to implement on-site and there is less need for a physical infrastructure to support the solution, the tradeoff is relative lack of flexibility. As a result, CIOs and CFOs are forced to spend more time addressing organizational change management and training issues since the solutions can’t be easily changed to fit business needs, increasing the pressure on the organization to change its business processes and people.
2. It’s not as easy as the industry hype might suggest. ERP implementations are difficult, costly, and potentially risky to any organization, regardless of whether you’re implementing on-premise, SaaS or cloud ERP solutions. However, CIOs often make the mistake of assuming that business processes don’t need to be redesigned, employees don’t need organizational change management, or adequate resources aren’t required to make the project successful. Mismanaged expectations are one of the root causes of ERP failures in general, but especially so with SaaS and cloud ERP implementations.
3. Be prepared to address potential integration and data issues as your organization scales for growth. The blessing and curse of SaaS and cloud solutions such as Salesforce, Workday, Netsuite, and Plex is that the technology is often used to roll out point solutions for specific functions of an organization, rather than biting off an entire enterprise-wide solution all at once. For example, many of our clients have implemented CRM systems such as Salesforce as a way to get an immediate ROI for a focused part of the organization. However, integration and data complexities can be amplified when it comes time to bolt on manufacturing, accounting or other types of enterprise software solutions. These complexities often result in fragmented systems and data with challenging integration between systems. Before implementing a SaaS or cloud solution, organizations should have a clear IT strategy and roadmap for how it will address such complexities to avoid backing itself into a corner.
While some of the above points are relevant to all types of ERP systems – whether on-premise, SaaS, and cloud systems – they are especially important for the latter two. Even SaaS and cloud ERP systems require critical success factors to be successful, such as business process management, organizational change management and strong implementation project management. CIOs and CFOs interested in migrating from on-premise to cloud or SaaS systems should be aware of these challenges.
Learn more about choosing the best-fit ERP software for your organization in our on-demand ERP webinar series. Episodes of particular interest may include Understanding the Differences Between Leading ERP Software and Tips for Selecting the Right ERP Software for Your Organization.
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Why Can’t the Federal Government Seem to Implement ERP Systems?
ERP implementations are always difficult, and often times even more so for government organizations. An interesting recent Computer World article discusses how the Government Accountability Agency (GAO) recently uncovered the sad state of some of the US military’s ERP implementation projects. The agency issued a report that found “Many of the [ERP] projects are years behind schedule and significantly over budget, including one that is expected to rack up nearly 10 times its initial cost . . .”
Unfortunately, the U.S. Military isn’t alone. Recent articles in the IT press have outlined other failed ERP implementations, including at the City of New York and other high-profile government organizations. We regularly work with our government clients to provide independent validation and verification (IV&V) and expert witness services to their large, high-risk ERP implementations, and failures like these underscore the need for government organizations to ensure they have the right ERP implementation experience, methodologies and independent counsel to help manage a successful implementation.
Although there are general best practices that organizations should implement, regardless of whether they are in the public or commercial sectors, there are some pitfalls that Panorama’s experience with government and public-sector entities tells us are more common in those sectors. Here are three common reasons why we’ve seen federal, state and local government entities struggle with their ERP software initiatives:
1. Too much focus on minimizing short-term costs. Unfortunately, the purchasing and procurements processes in the public sector are, at times, overly driven by the desire to minimize short-term costs. Government entities and government contractors often put a very heavy weighting in their Request for Proposal (RFP) processes, much more so than the commercial sector. As a result, system integrators, ERP integrators and ERP consultants will typically lowball their proposals and cost estimates to these entities – often by compromising scope and/or quality – all in the name of providing the lowest-cost solution to their government clients. In the end, this approach inevitably results in corners being cut, lower-quality processes and minimal efforts to complete the implementation, which (ironically) increases total cost of ownership of these ERP systems in the long-term.
2. Contract structures that set up implementations for failure. Our government and public-sector clients are much more likely than their commercial counterparts to negotiate fixed-cost or not-to-exceed contract structures with their ERP vendors. Little do they realize, however, that these contract structures create perverse and unintended incentives to cut corners, minimize focus on high-value activities such as organizational change management and business process management, and rush the organization to implement before they’re ready. Fixed-cost contracts, while appealing on the surface, can be the root cause for the very ERP failures, cost overruns and lack of benefits realization that they are intended to mitigate. In addition, purchasing or procurement managers who don’t know much about successful ERP system implementations often miss the fine print in contracts and statements of work that put the onus on the government entities to handle some of the ERP critical success factors, thus increasing overall costs.
3. Inadequate attention to organizational change management. Because government entities typically change at a slower pace and have ERP systems that affect more employees than most commercial organizations, organizational change management is even more imperative. However, government entity executives often don’t have the ERP experience to understand the necessity of organizational change management and, just as importantly, what exactly organizational change management means. Providing comprehensive organizational change management goes beyond simple end-user training at the end of the implementation; it also includes organizational readiness, organizational impact assessments, business process-based training, and targeted employee communications, all of which can be perceived to increase short-term implementation costs.
While no ERP implementation is ever easy and risks can’t ever be completely avoided, avoiding the above pitfalls can be the first step to helping government ERP system initiatives to get back on track.
Learn more about how we help government entities manage their ERP implementations more effectively by reading our Government ERP Case Study and our Lessons Learned From a Government ERP Failure white paper. Feel free to contact us at 720-515-1377 if you have any specific questions about how Panorama can be of assistance in your government ERP initiative.
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The Warning Signs of ERP Consulting Fraud
For anyone that has seen an episode of the television series “House of Lies,” it paints a disturbing (yet at times entertaining) picture of the consulting industry. One episode allegedly explores the concept of shady ERP consulting practices, which is obviously of interest to Panorama since we are an ERP consulting firm. Although it may sound a bit far-fetched and the show strives for a strong shock-factor, it does underscore the potential risks of ethically questionable practices when hiring consultants to help with your ERP systems initiatives.
I have also spent time researching and reading about fraudulent activities in the industry, typically in the context of providing expert witness testimony to high-profile failures and lawsuits. In these cases, we are hired by attorneys looking for an objective and independent view of what went right or wrong in the ERP implementation in question, and unfortunately, we often find that shady consulting practices are a root cause of the failures. While the issues may not always entail something as extreme as flat-out fraud or misrepresentation, there are often signs that the consulting firm or system integrator in question did not have the client’s best interest in mind. For example, system integrators and traditional ERP consultants are notorious for peddling the products that provide them the most lucrative kick-backs or solutions that aren’t best for the client but somehow line their own pockets.
The City of New York’s well-publicized allegations of fraud against the organization’s ERP system integrator is one example of such fraud. Although the City is not a client of Panorama’s, nor are we involved in any expert witness or other consulting work for them, it is clear that fraud is a real risk in the industry. In addition, other examples are out there, including consultancies looking for “proxies” to conduct phone screenings on behalf of more junior and less-qualified consultants in order to win the business, over-billing, and receiving kick-backs for recommendations made to their clients. While these behaviors may not be the norm, there are certainly enough real-life examples to make the stomach of any CIO or CFO turn.
Most organizations do not have the internal competencies, bandwidth or methodologies to effectively manage their own ERP software initiatives and need hardworking and ethical consultants to lead the way to ERP success. So what can be done to avoid these types of problems? Here are a few tips to uncover the warning signs of ERP consulting fraud:
1. Ensure proper project governance and controls. With each and every one of our clients, our team conducts weekly project reviews to review the project plan, actual versus budget costs to date, resource requirements, critical decisions required to move the project forward, and a host of other components designed to provide proper project governance. These project controls are crucial to not only ensuring that your consultants are staying honest, but so that you have complete visibility into the progress, issues, costs, and risks of the project, along with control as to the overall direction of the project. Any organization hiring consultants should ensure that these controls are in place.
2. Assess your consultant’s ERP selection and implementation methodologies. Consultants are a lot less likely to go rogue when they have very clearly defined consulting processes, methodologies and standards in place. This goes beyond the typical ERP consultant’s PowerPoint deck outlining a fancy methodology acronym, but it includes clearly defined steps in the process that have ultimately been fine-tuned over years of experience in the ERP systems space. Whether you are evaluating or implementing ERP systems, you want to ensure that your consulting team is following a best-practice and repeatable framework to ensure you’re getting the quality of services you deserve. This is exactly what we at Panorama provide to our clients, as an example.
3. Provide checks and balances. Another crucial component to uncover and avoid potential fraud is to ensure the project is being reviewed regularly. Many of our clients, especially in the government and public sectors, hire us to provide independent verification and validation services to ensure that their technical system integrators are performing to expectations and best practices. Even for our own consulting engagements where we are providing the entire soup-to-nuts management of a client’s ERP initiative, we build in stage-gate reviews into our consulting processes, which are conducted by someone other than the day-to-day consultants on the project. This ensures that checks in balances are in place and that our clients leverage the broader experience of our entire firm.
While it is impossible to completely eliminate the risk of ERP consulting fraud, these are just a few tips to help you uncover and/or mitigate the likelihood of shady behaviors from your consultants. While good ERP consulting firms are hard to come by and are important to leverage where needed, it is just important to manage those resources just as you would your own employees.
Read more about Panorama and our ERP services and contact us at any time to discuss how we might help your organization best select, implement or realize the business benefits from its ERP system.
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The Real Role of the IT Department in an ERP Implementation
I want to lay something on the line here, right from the outset: an ERP implementation is not an IT initiative. When an organization believes that it is, and tasks the IT department with everything from software selection to implementation to training to internal communication, it is setting itself up for ERP failure. Sure, the system might get up and running. And staff might actually use it to perform some basic functions. But it will probably never provide the true operational benefits it could have and should have. And that, my friends, is ERP failure — plain and simple.
There is no arguing — nor should there be — that the IT department plays an integral role in ERP implementations. These are the men and women who are the masters of the technical side of the system, handling configuration, customization and all the other complicated stuff that the corporate suits have incredibly little to do with — and that the system can’t run without. But an IT staff, talented and knowledgable as they are, typically are not the operational experts that need to drive an ERP project. Speaking in generalities, they don’t tend to have the broad, all-encompassing vision of the business that a COO has. Further, they don’t tend to have the authority to make the millions of top-level decisions (about business process management, about standardization, about streamlining) that need to be made in order to derive ROI from an enterprise software solution. Yet they are all too frequently given the responsibilities of an enormous (and potentially thankless) job: choose, implement and oversee adoption of an entirely new way of doing business. Oh and manage the help desk too . . . you know, during “free time.”
So how should the skills of an IT department be utilized in an ERP implementation? Below is a partial list, highlighting some areas that the IT department might be able to provide invaluable insight into.
- Participating in ERP software selection, including review of the business process management and blueprint documentation
- Working with a third-party expert to map the “to be” business processes against the software to determine areas of customization
- Helping to determine what the organization will do about the gaps between its needs and the system’s capabilities
- Working with a third-party expert to implement and test the chosen system
- Creating a plan to determine how the organization will handle user and system issues after the cutover
- Participating in the determination of a legacy system phase-out approach
- Contracting with a third-party to determine a training strategy, materials, etc.
- Determining a multi-site training schedule
Of course, each organization is run differently — and has different people, with different skills, in its ranks. Some IT personnel are crackerjack whizzes at operations. And some wouldn’t know an ERP system if it sat on their lap. So view the above through the lens of what you know about your company and its people but remember: although IT employees likely are functional experts in a very important aspect of the system, they should not in charge of the project. That is a job for the executive level, and to pretend otherwise is doing a grave disservice to both the talents of the IT department and the future of the business.
Find out more about ERP implementation pain points — and critical success factors — at our webinar tomorrow, Review of Panorama’s 2012 ERP Report.
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The Key Differences Between an ERP Business Blueprint and Business Process Management
As we have pointed out in previous blogs and industry presentations, creating a business blueprint is critical to a successful ERP implementation. While most ERP software vendors, consultants, and system integrators claim to focus on business processes, most don’t do it well. In fact, a simple review of most ERP business blueprint deliverables that other system integrators and consultants have created even for some of our more complex client organizations leave much to be desired (see example below).
With that being said, our experience and research shows that a contributing factor high ERP failure rates is that lack of focus on business process management, mapping and blueprinting.
Before clarifying the difference between full-blown business process management and business blueprinting, it is first helpful to understand the importance of this critical activity. Succinctly, an organization’s business processes serve as the foundation of the entire implementation. In other words, several key activities – including training documentation, conference room pilot testing, organizational change management, system security profiles, end-user training delivery and benefits realization – all rely on clearly defined business processes. Without clearly defining business processes, organizational roles and responsibilities in the new system, and related performance metrics, organizations will undoubtedly end up with an ERP system that is misaligned with business needs and fails to deliver the expected business benefits. In other words, it’s no coincidence that most implementations fail to deliver expected business benefits (over 50% according to our 2012 ERP Report) and at the same time fail to focus on effective business process management.
Here are five things to look for when evaluating whether or not your project has the right degree of focus on business process management:
1. Software configuration checklists versus end-to-end business process workflows. The thing to remember about most ERP consultants and system integrators is that they are focused on software functionality, not your business, so most of their perspective focuses on defining what they need to know in order to configure the software appropriately. While this is certainly important to a successful implementation, it is a myopic focus that typically results in ill-defined end-to-end business processes and diluted user acceptance of the new processes. For example, we have found that most SAP system integrators’ business blueprint deliverables typically read like a high-level list of business requirements rather than a robust series of documentation that help employees understand the detailed end-to-end workflows. If this is the case for your ERP implementation, then you may want to revisit your overall business process management approach to ensure your project team has a more effective focus.
2. As-is versus to-be business processes. Although companies implement ERP software with the intent of improving and automating business processes, most end up with a product that largely “paves the cowpaths” by replicating legacy operational inefficiencies. This is the symptom of the deeper issue, which is lack of focus on defining “to-be” business processes. ERP vendors and system integrators further compound this problem by over-selling and misrepresenting things like “pre-configured solutions” and “industry best practices,” which are typically simply inventories of ways that past clients have automated their inefficient business operations. This is why organizations that are the most successful in their ERP implementations are the ones that take the time to define their to-be business processes prior to implementing new software rather than relying on the smoke and mirrors of industry best practices baked into the software, which typically don’t exist.
3. Business process mapping versus optimization and re-engineering. In addition to a focus on to-be versus as-is processes, one of the significant benefits of true business process management is the focus on improving business processes. Even among the few system integrators’ that have some level of focus on business process mapping, most hone in on simply documenting business processes rather than identifying measurable ways that these processes can be improved. Panorama’s business process management approach, on the other hand, embeds key components of lean Six Sigma and other business process improvement methodologies to ensure that clients define and implement processes that truly improve operations in a measurable way. So when evaluating your ERP project’s focus on optimizing and re-engineering business processes, look at how well your team or consulting firm incorporates solid methodologies and business experience into the project.
4. Business process implementation prior to and during the ERP system rollout. Well-defined business processes – no matter how much better they look on paper – are worthless if they are not adopted by your organization, and they won’t be adopted by your employees if you don’t take key steps to implement those new business processes. Perhaps the most flawed approach when it comes to this is to assume that simply implementing new software with better processes will result in improved business processes, which simply is not true. Employees need to be trained on new business processes, including how exactly the business processes will flow and what their role will be in the new environment, which is too much to cover in end-user training just a few weeks before go-live. For this reason, many of our clients hire us to help implement process changes and improvements in parallel — or even before — the ERP implementation. This helps spoon feed the changes to employees and enables the organization to recognize immediate business benefits even before the software is implemented.
5. Organizational roles, responsibilities and changes. New business processes and better ERP systems to support those processes are great, but it’s the people and the organization that will make those changes happen. In order for full acceptance and business benefits to take place, employees need to understand, embrace and own the business process changes, including their roles and responsibilities in the new operational model, the specific changes that they need to be aware of, and other key messages necessary from an organizational change management perspective. Unlike our competitors, Panorama bakes key organizational change management activities such as these into its business process management and approach.
At the end of the day, a business blueprint is important to an ERP implementation. In fact, it is a key deliverable of our extensive business process management services we provide to our ERP clients. However, it is only one component of a more comprehensive business process management methodology, which is one of the key reasons why most ERP consultants and system integrators have historically failed in their attempts to implement ERP software.
Learn more by attending our webinar, Business Process Management: A Critical Success Factor of ERP Implementations, on May 10 at 10 a.m. MT.
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Lessons From New York City: The Risks and Benefits of Hiring Outside ERP Consultants
The ERP consulting profession has unfortunately received a few black eyes in the 15 years that I have been in the field. During the late 1990s, consulting firms were flush with cash as their client organizations scrambled to hire them to solve the Y2K problem with new enterprise systems, which led to cost overruns, failures and inflated consulting bills. While Y2K is no longer an issue, the real problem unfortunately hasn’t subsided. Our research and expert witness experience continues to show that ERP failure rates are still as high as they’ve ever been, even among those organizations that use outside consultants.
To add insult to injury, the industry has seen some high-profile and widely publicized failures over the last few years. Waste Management, Lumber Liquidators, and a host of other implementation failures in the media highlighted how their projects failed and/or resulted in lawsuits, despite the fact that many of them looked to outside consultants to help with the implementations. These companies relied on experts, but somehow their ERP implementations went sorely over budget, took much longer than expected, and failed to deliver the business benefits they had expected. Whether implementing SAP, Oracle, Microsoft Dynamics, a Tier II ERP system, or any other enterprise application, companies seem to have trouble with their ERP initiatives, whether they use consultants or not.
New York City recently had ERP consultant troubles of its own in relation to the City’s botched implementation of its CityTime payroll and time reporting system (functionality that organizations often implement as part of their ERP or Human Capital Management [HCM] systems). After spending nearly 14 years and more than $650 million on the large-scale implementation, the City realized that their Project Manager from SAIC, its system integrator, had received $5 million in kickbacks from the City. Although the system eventually went live with over 100,000 City employees, the scandal exposed a great deal of consulting incompetency and a lack of oversight and controls, and resulted in $500 million in refunded consulting fees. As a result of this scandal, the City is going to the other extreme by minimizing its use of consultants and instead building an internal team of resources to manage the CityTime project going forward.
While the City’s unfortunate plight may be an extreme example of ERP consultants gone bad – or perhaps an entertaining episode of Showtime’s “House of Lies” show about the management consulting industry – it does expose some realities and things to consider when evaluating potential ERP consultants for your organization’s enterprise software, CRM, HCM or business intelligence software initiatives. How can organizations leverage the skills of outside consultants when the risk of failure still exists? How can executives handle the complexities of their ERP initiatives when the internal competencies aren’t there and the skills are so hard to find? What is the right balance of doing it yourself versus leaning on outside experts?
The short answer is that it is important to find the right balance. The do-it-yourself approach has been proven to fail, as has the opposite model of letting consultants run rampant with the project (and the checkbook). Below are three things to consider when assembling the internal and external teams for your ERP software initiative:
1. What project controls and governance do you have in place? As was learned in New York, nothing replaces good project governance and controls. Even with the best, smartest and most ethical consulting team in place, the project will fail if the right governance and controls aren’t established up front and monitored throughout the project. Panorama’s PERFECT Path implementation methodology, for example, includes tight project controls to help clients take ownership of, have visibility into, and control the outcome of the project, while at the same time leveraging our team’s project management expertise and proven ERP methodologies.
2. What is the right balance for you? The do-it-yourself model is clearly just as broken, if not more broken, than the “100% outsourced to consultants” ERP implementation model. Most companies need a balance somewhere between the two extremes, but they will fall in slightly different parts of the spectrum based on their unique needs. For instance, organizations with very little internal ERP knowledge and/or bandwidth to take on large, complex enterprise systems projects may err more on the side of external consulting guidance. Some companies, on the other hand, have strong project managers and employees with ERP implementation battle scars, so they may err more on the side of leveraging internal resources.
3. What value can be provided by a system integrator versus an ERP consultant? As I posted in last week’s blog Hiring a System Integrator vs. Hiring an ERP Consultant, there is a big difference between a system integrator, value-added reseller, or software consultant that focuses myopically on the technical aspects of an implementation, versus a more business-centric ERP consultant that understands project management, business process design, organizational change management, and the host of other more important activities that are critical to implementation success. This is a subtle but important distinction that should be considered when assembling your team. In my years of industry experience, I’ve found that most consultants and system integrators in the ERP space are of the more technically-focused variety, which is a big part of why the industry gets such a bad rap and served as the impetus for starting Panorama.
At the end of the day, the right ERP consultants can make your enterprise software initiatives successful. While Panorama has a very positive track record of success and very satisfied clients, most of the traditional industry players do things the way they have always been, leading to the same flawed results. Finding the right consulting team with the right methodology, business focus, and project controls can be a good way to balance the skills and competencies missing from your internal team.
If you’d like to learn more about the key differentiators between ERP failure and success, please join us for our Lessons Learned From Failed ERP Implementations webinar on April 26 at 10 a.m. MT.
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Hiring an ERP System Integrator vs. Hiring an ERP Consultant
When our mid- to large-size clients ask us to help them choose an ERP vendor, they often also ask us to help them find the best system integrator or partner to help with their ERP implementation. In some cases, our clients will choose their ERP software at least partially based on the competencies of the implementation partner that they are considering. For example, if we assume that functional fit are roughly equivalent, choosing SAP All-in-One or ECC 6.0 with a great implementation partner can be the deciding factor when compared against a mediocre Oracle E-Business Suite consulting firm, or vice versa. The same can be said when considering Microsoft Dynamics, Epicor, Infor or any other ERP system for that matter.
The bigger question is: what exactly constitutes a “good” system integrator or implementation partner? For some of our clients, it equates to local presence. To others, it has to do with the number of certifications that the average consultant has or perhaps just a general comfort level or feel they get when meeting with the company. However, we have found that many organizations choose their system integrator for the wrong reasons. While the number of installations, certifications, and referenceable customers are all important factors, they are just a handful of the many variables that should be considered. It gets down to one simple question: do you want to hire a systems integrator to help you implement software, or do you want a higher-value ERP consultant that will help you translate the implementation in a way that improves your business? Those are two very different approaches to implementing ERP systems and can be the difference between ERP success and failure.
For example, in all of our ERP expert witness and project recovery experience, ERP challenges, failures and lawsuits are rarely (if ever) caused by lack of software knowledge. While understanding the software is the price of admission in any large-scale implementation, it is hardly a differentiator and is certainly not difficult to find in the market. Instead, it is the other things that make or break a system integrator or ERP consultant’s level of success.
Below are what we consider to generally be the most important criteria when selecting an ERP system integrator, implementation partner or consulting firm:
1. Knowledge of the selected ERP system. While it may seem fairly obvious, choosing a firm that has a good understanding of the most recent version of the software is critical. The firm and/or team you are considering should have strong implementation experience and certifications related to the specific product and version that you are implementing. For example, there is a big difference between understanding how to implement Oracle E-Business Suite and having experience implementing JD Edwards, even though they are both part of the Oracle portfolio of products. Similarly, you will want to find a firm that understands how to integrate your ERP system with any third-party bolt-ons you may be considering, such as Demantra advanced planning or Business Objects business intelligence.
2. Consulting methodology and tool-set. Although the team and system integrator’s track record and experience is important, it is not nearly as important as the toolset and methodology used to implement the software. Too many system integrators focus on staffing hired guns who are gurus in their respective products, but couldn’t follow or replicate a process to save their lives. System integrators or consulting firms without methodologies typically equate to inconsistency and risk, regardless of how “experienced” the individuals are. We’ve seen some of the most talented and knowledgeable ERP consultants fail because they didn’t have a proven process that equates implementation success and benefits realization.
3. Focus on the non-technical (and more important) ERP implementation success factors. When evaluating a system integrator or consultant’s methodology, it is important to look for not only tools that pertain to how to configure the software and train the core team, but also the non-technical aspects of the implementation. It is rarely the technical activities that lead to ERP failures. Instead, failures are typically attributed to deficiencies in project management, organizational change, business process management, and organizational change management. If you see an ERP consulting or system integrator methodology that relies too much on “best practices,” “pre-configuration” and “business blueprint checklists” – and not enough on organizational change management, job design, project governance and business process management – then your system integrator is probably focused on the wrong things. Again, all the software and technical knowledge in the world won’t make a successful implementation without these more important non-technical factors.
The differences between traditional ERP system integrators and more business-focused consultants are subtle, but extremely important. Focusing too much evaluation time and importance on the former will expose your ERP implementation to significant risk, while focusing on the latter will ensure that you find a firm that will help you implement your chosen ERP system in a way that results in better user adoption, more efficient business processes and higher realized business benefits.
As part of our 360-degree service offering, Panorama can either help you find a system integrator as part of our ERP selection process, or act as your technology-agnostic implementation partner if you have already selected an ERP system. Contact us today to learn more.
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CIO and CFO Hunger Games: The Risks and Rewards of Rapid ERP Implementations
ERP implementations are a lot like the “Hunger Games” for CIOs, CFOs and other executives tasked with making their ERP projects successful. For those that aren’t familiar with the novel or movie, Hunger Games is predicated on a story where two children from each “district” of a futuristic United States are expected literally to fight to death. The children are selected at random, coached, mentored and dressed for the Hunger Games, but only one remains in the end. The home district of the surviving child is then bathed in riches and attention from the central government, making them the envy of the other districts.
It’s no exaggeration to say the Hunger Games are a lot like ERP implementations. The odds of “survival” – one in 24 – look interestingly similar to the success rates of ERP projects. And while CIOs aren’t battling to a brutal death, most are fighting not to bring their organizations to their knees during or after the implementation. They’re also fighting for their jobs. And anyone who’s ever sorted through a stack of client references can tell you that ERP vendors – like the fictional government of Panem – make no bones about trumpeting their own “winners” as some sort proof that the odds are indeed in each contestant’s favor. In fact, one of the lines repeated throughout the story is “May the odds be ever in your favor” – quite ironic and disturbing given the fact that the odds are completely stacked against them.
CIOs and CFOs are in the same boat. As we’ve outlined in our 2012 ERP Report, most ERP implementations take longer than expected, cost more than expected, and fail to deliver at least half of the expected business benefits. Despite this fact, purchasing organizations always are dazzled with the “may the odds be ever in your favor” marketing messaging around rapid implementations, low risk and easy user adoption. SAP frequently talks about industry best practices, pre-configurations, and “templates” that result in easy ECC, All-in-One, or Business One implementations. Oracle often refers to their Business Accelerators and User Productivity Kit as part of a low-cost, low-risk E-Business Suite (EBS), JD Edwards, or PeopleSoft implementation. SaaS ERP (software as a service) also provides promises of fast, cheap and easy implementations. Finally, Microsoft Dynamics, Epicor, Infor, and other Tier II solutions similarly focus on the ways that they each stack the odds of success for a rapid implementation.
However, despite the fact that most executives want rapid implementations for their organizations and ERP vendors promise as much, the data proves that most implementations are not done quickly. So where is the disconnect? The brutal Hunger Games-style reality is that these promises of implementation acceleration – while noble in their intentions – fail to deliver. At the end of the day, organizational challenges, business process breakdowns, standardization, poor project management, lack of business and technical implementation expertise, and a host of other challenges that have nothing to do with the software all combine to create implementation initiatives that take longer than expected.
Should CIOs, CFOs and ERP project managers simply throw in the towel and run for cover? Absolutely not. Instead, they should educate themselves, be realistic and ask their team some key questions. Here are three things to keep in mind when considering a rapid implementation:
1. Define what “rapid implementation” means. According to our ERP research, the average ERP implementation for an average-size company is 14 months. However, most ERP vendor proposals we review on behalf on our clients range from three to six months for small- to mid-size clients, six to nine months for mid-size clients and 12 to 18 months for larger, multi-national clients, suggesting that these proposals are clearly misaligned with reality. While most system integrators and VARs would suggest that these ranges are typical, we would suggest, based on our experience and independent research, that these numbers actually are the definition of a rapid implementation. So when reviewing an ERP vendor’s proposal, a good rule of thumb is that their proposed timeline is indeed rapid, and therefore aggressive, risky and probably unrealistic.
2. Understand the tradeoff between speed, cost and quality. It is simply impossible to drive speed while at the same time minimizing cost and maximizing quality. For that very reason, a rapid implementation suggests that you will pay for that speed with increased costs and/or lower quality. The key to ask your organization during an implementation is which of the three variables is most important to you and how much you are willing to bend on the other two. Some organizations are willing to compromise cost and quality to achieve speed, but most are not.
3. Recognize the difference between speed to implement and the speed to adopt. Implementing ERP software is relatively easy, but defining and getting the entire organization to adopt the related business processes is very difficult and the primary driver of duration, cost and risk of ERP implementations. When developing your ERP implementation plan, it is important that you not only consider the time it takes to implement the software – which could actually be done over a three-day weekend if you really needed it done fast – but also the time it takes to define new and improved business processes, make important operational decisions, change the organization and realize the business benefits that you expected from the implementation.
These three considerations will help drive your organization toward realistic expectations and a clear understanding of what you’re getting yourself into as you prepare to play the ERP implementation Hunger Games. The key is to understand what you’re about to get yourself into, plan accordingly, and hire the right experts to help you through the difficult process.
May the odds be ever in your favor. (But, if and when you realize they’re not, call Panorama.)
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Lean Six Sigma and ERP Software
In the enterprise software industry, we hear a lot of talk about how ERP software can and should improve performance, reduce costs and make businesses more efficient. Marketing hype from ERP vendors and systems integrators creates a utopian promise of efficient operations that eliminates Excel spreadsheets, manual processes and outdated legacy systems. In fact, the concept is quite attractive to most C-level executives, especially those in Lean Six Sigma organizations.
The reality, however, is that most ERP implementations fail to deliver on these promises, leading a bad taste in the mouths of most organizations that have unsuccessfully tried to leverage ERP systems to drive measurable business value. To add insult to injury, many of these same organizations take pride in their lean and sigma initiatives. The irony is that the same companies that have six sigma teams, lean processes and business process improvement centers of excellence in place are the same ones wasting time and money on ERP initiatives that don’t deliver measurable business value to the organizations. These companies that have fully mastered the science of eliminating every possible dollar and defect from their supply chains are the same ones over-spending and under-delivering on their ERP implementations.
Not only are ERP implementations difficult to manage, with most projects going over budget, taking more time than expected and/or failing to deliver expected business benefits (according to our 2012 ERP Report), but they in many cases create more waste that they eliminate. For examples, organizations have a bad habit of over-investing in shelfware – licenses and modules that will never be used – which is hardly consistent with a culture of minimizing waste and eliminating defects. In addition, many organizations waste a great deal of time, money and resources on inefficient implementation processes simply because they don’t have the expertise to correctly implement the software. These organizations may be experts in manufacturing, supply chain management or procurement, but they rarely have the expertise to effectively and objectively manage their ERP initiatives.
So is it possible to integrate Lean Six Sigma and an effective ERP implementation? Absolutely. Here are three ways that an ERP implementation can effectively contribute to an organization’s culture and discipline of Lean Six Sigma:
1. Minimize waste and non-value-add activities. Despite the fact that most organizations get bogged down in their ERP implementations and end up with less efficient business processes than they had before, it is possible to minimize waste and non-value-add activities if implemented appropriately. The first step is to develop a business transformation plan that incorporates all the critical success factors of a lean implementation, including organizational change management, effective training, business process improvement and other key elements that will enable lean business processes and efficient organizational adoption of those lean business processes. Rest assured that pre-configurations and software best practices will not get the job done from a lean six sigma perspective – instead, organizations need to do the hard work of defining how software can best support their lean processes. Most of our clients find it more valuable to leverage Panorama’s industry best practices and business process mapping, blueprinting, and improvement services than trying to go at it alone.
2. Performance measures, KPIs, and benefits realization. ERP software alone won’t drive performance – only people, business processes and performance measure will. In other words, buyer beware when you hear the common refrain that your chosen ERP software will drive performance based on its technological capabilities. Sure, it’s possible that in theory the software alone will drive performance, but the reality is that nothing will improve without a comprehensive benefits realization plan that establishes key performance indicators (KPIs), analyzes how the metrics will improve as a result of the new business processes, and assigns accountability to those employees and stakeholders that will ultimately be responsible for achieving performance. This benefits realization plan should also be tightly coupled with the established lean business processes (per the first bullet above) and the organizational change management plan in order to achieve those expected business improvements.
3. Increase quality and reduce defects. Unfortunately, most executives want to simply get their ERP software up and running without bringing the organization to its knees or losing their jobs in the process, so increasing quality and reducing defects is often the last thing on the ERP implementation team members’ minds. Teams without extensive ERP implementation expertise, or those that are myopically focused on the technical aspects of a project (as is the case with most ERP implementation partners and system integrators), will often become overwhelmed with getting a bare bones project done on time and on budget. Much like Maslow’s hierarchy of needs, less experienced and effective implementation consultants and team members will focus on survival rather than the higher levels of the hierarchy that actually deliver business improvements. As with #1 and #2 above, effective business process mapping, organizational change management and benefits realization are three components required to reach the “self-actualizing” stage of an ERP implementation.
Lean Six Sigma is a complex process requiring cultural change, discipline and a commitment to business improvement. Companies that are able to effectively implement such a mentality clearly know how to manage complex transformations, but those same organizations tend to struggle with the complexities and risk of an ERP implementation. However, by incorporating the above three components into their initiatives, organizations can better integrate Lean Six Sigma and effective ERP benefits realization into a comprehensive approach that delivers measurable business value, lean performance and increased quality into day-to-day operations.
Click on the following links to learn more about Panorama’s Six Sigma service offerings, including our Six Sigma and Value Stream Analysis and Lean Manufacturing, Six Sigma and Supply Chain Management Workshop.
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Recovering From ERP Bankruptcy
As a follow-up to our recent post, Avoiding Bankruptcy From an ERP Implementation: Three Dirty Secrets, we’d like to take it to the next level and discuss how an organization actually can recover from being driven into bankruptcy by an ERP failure. Indeed, it’s a worst-case scenario, but also one we’ve seen too many times to ignore. The good news is that bankruptcy, whatever its cause, doesn’t have to mean the end of the organization. Take Denver, Colorado-based jewelry retailer Shane Co., for instance. As we’ve detailed previously, the company filed for Chapter 11 bankruptcy protection in January 2009 following a failed SAP implementation. After closing three locations, it filed a plan of reorganization and eventually emerged from bankruptcy protection in December of 2010.
While we’re not privy to how Shane Co. managed its ERP failure preceding or following the bankruptcy filing, there are a number of ways that Panorama suggests companies emerge from a situation such as this:
1. Reassess the ERP software. In Shane Co.’s case, it’s arguable that SAP wasn’t the best fit for the organization. If the company is experiencing such a high level of difficulty with its ERP system that its threatening its operations on a whole, then there’s a good chance that the team did not evaluate or select the software appropriately.
2. Reorganize the ERP project. In the same way a company must reorganize its operations to emerge from a bankruptcy filing, it too must reorganize its ERP project to emerge from an ERP failure. Panorama offers the third-party, independent guidance needed to salvage an ERP implementation . . . and save a company.
3. Allocate the resources to move forward. Understandably, a company in bankruptcy is watching every penny. This doesn’t mean, however, that funding for the ERP system can be abandoned. Indeed, the company needs to hire a third-party ERP consultant to craft a comprehensive implementation and business benefits realization plan to get the project back on track. Throwing the baby out with the bathwater by renouncing the ERP system will do nothing but derail any future profitability.
Panorama’s 360-degree approach to ERP projects means we can step in at any time during selection or implementation or following a failed or stalled selection or implementation. Click to learn more about Panorama’s ERP methodology and offerings, and don’t forget to download our recent white paper, Lessons Learned From a Government ERP Failure. Though the focus is on the public sector, the lessons learned are applicable to private organizations as well.
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- Oracle Consultant – eBusiness Suite
- IT Manager
- Senior ERP Consultant
- SAP Consultant
- Organizational Change Management Consultant
- Senior ERP Business Analyst
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