Best Practices to Manage End-to-End Business Processes in Your ERP System
It’s no secret that most ERP systems fail to deliver the business benefits anticipated by the organizations implementing the software. More specifically, our 2012 ERP Report reveals that 50-percent of organizations fail to receive at least 50-percent of the expected business benefits from their investments in enterprise software. Adding insult to injury, and as outlined in our blog last week, is the fact that most organizations experience a misalignment between their business operations and ERP systems, which typically worsens over time as the companies go through acquisitions, international expansion, supply chain reorganizations, and other changes.
The reasons for the failures to achieve business benefits as well as operational misalignments with ERP software often point to business processes. As opposed to incorporating process best practices in their ERP systems, most ERP vendors and system integrators use the flawed practice of designing and configuring the software to handle a hodgepodge of transactional workflows in the system, most of which do not integrate in a cohesive end-to-end business process. Despite all the talk about best practices, order-to-cash and procure-to-pay business process workflows, and all the other buzz terms in this area, the ERP industry is still sorely lacking in its ability to develop, institute and manage business processes effectively as part of an ERP implementation.
So what can a company do to take more of a business-centric approach to its ERP system? Here are four best practices, proven through our years of independent experience, research, and expert witness work related to ERP lawsuits:
1. Define your ERP business blueprint. The common industry best practice favored by most system integrators, software vendors, and ERP consultants is to force the implementing organization to adopt the software by ignoring the “as is” processes and focusing on how to design the various transactions in the system. However, this methodology is flawed (as is proven by years of ERP failures), and doesn’t take into account the holistic, end-to-end business processes required to run the business. A technology-agnostic business blueprint, on the other hand, looks at the end-to-end workflows, organizational responsibilities, and metrics required to drive the business. In addition, this business blueprint approach defines how non-ERP processes and hand-offs will happen and, more importantly, focuses the implementation team’s attention on eliminating non-value-add activities and re-engineering broken business processes. The traditional and outdated approach of simply adopting the industry best-practices in the out-of-the-box software fails to address these critical issues.
2. Develop a business case and benefits realization plan. Simply put, your business processes won’t stick within the organization without the appropriately defined metrics to drive those business processes. In addition, without a benefits realization plan, expected business benefits will not be realized. It is no coincidence that most projects fail to create a full business case and benefits realization plan and most of those same projects also fail to realize the business benefits potential of their new ERP systems. In order to succeed and fully optimize your business benefits, your team will also need a comprehensive plan outlining how exactly the organization will achieve the planned business benefits. For example, the plan should include details of the specific measures used to drive business benefits, the exact business intelligence required to measure the benefits, the person(s) responsible for managing to the performance and so forth.
3. Create an organizational change management plan. Defining the software and business processes is the ante to stay in the game, but the organizational change management (OCM) component of any ERP implementation is the variable that will ultimately determine whether or not business processes “work” and whether or not people actually adopt those business processes. While most ERP system integrators and consultants think of OCM as a synonym for “training,” that is only one minor component of a successful organizational change plan. In addition to end-user training, an effective organizational change management program will include organizational impact analysis, employee communications plan, project branding, organizational readiness, and several other key components that we have proven to be the differentiators between ERP success and ERP failure.
4. Create an ERP Center of Excellence (COE). Once your ERP software is installed and “live,” it is important to manage it to mitigate the operational misalignments mentioned above. An effective COE should focus not simply on how to “fix” the software should it break or require upgrades, but more importantly, on the steps an organization can take to ensure that the software keeps up with evolving business needs and requirements. In addition, an effective COE will enable you to identify training needs, potential areas of organizational resistance, and broken business processes that can be continuously improved via better use of the ERP software. Most organizations and their system integrators define the finish line of their ERP implementations at the time of “go live,” but they should also be ensuring a framework and plan to create an organization that continuously improves its business processes and use of ERP software.
These four best practices are critical areas that we have seen in effective and successful ERP implementations, but which are typically absent in troubled or failed ERP projects. These are some of the remediations we often bring to the table when clients hire us to clean up their ERP implementations and constitute the core of the some of the best practices we implement when clients hire us to manage their implementations from the start.
For more information, download Ten Tips for a Successful ERP Implementation and join us for our upcoming webinar, Tips on How to Build a Business Blueprint for ERP Systems on March 22 at 10 a.m. MT.
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Assessing ERP System Usability and the 50/50 Rule
It’s high time that CIOs and CFOs start thinking about some of the “softer” aspects of successful ERP implementations. After years or even decades of under-investing in the people, processes and organizational components of their enterprise software initiatives, executives are rightfully coming to the conclusion that they need to give careful consideration to organizational change management and other critical, non-technical activities that most software vendors, system integrators and ERP consultants fail to provide. For example, a handful of our current clients hired us to get their projects back on track because they found that their initial implementations were far too focused on the technical aspects of the project and didn’t have nearly enough time and resources dedicated to the other, more important facets of a successful deployment. Personally, I sometimes like ERP project recoveries even more than a clean slate implementation because, by that point, clients fully understand the value of what we do as a company. But the fact remains that implementing an ERP system twice is much more expensive than simply getting it right the first time.
Look at another startling fact: ERP implementations suffer from the 50/50 rule. As we outlined in our 2012 ERP Report, just 50-percent of ERP projects analyzed achieved 50-percent or more of their expected business benefits. This is hardly a compelling reason for a CFO to invest millions of dollars in a new ERP system, and executives are starting to catch on. They are starting to realize that ERP failures and lack of business benefits doesn’t have much, if anything, to do with the software. After all, software vendors have cracked the code on making software the easy part of an ERP implementation. SAP offers customers ASAP (Accelerated SAP) and RDS (Rapid Deployment Solutions) methodologies, Oracle has a business accelerator toolset, and even the Tier II ERP vendors have developed methodologies and toolsets designed to make the ERP implementation process go smoother.
Despite these best intentions, however, most ERP projects still fail. In addition to the longer-term ramifications of the 50/50 rules on the business benefits side, our research also shows that most ERP implementations take longer and cost more than expected. In fact, the average implementation cost overrun is over 20-percent, and these metrics haven’t improved much at all since we began conducting the annual study in 2006. Even if we isolate the data related to SaaS and cloud ERP solutions, these alleged “slam-dunk projects” take longer and cost more than expected. Since SaaS ERP vendors all promise fast deployments and even quicker business benefits, surely it can’t be the software’s fault, can it?
Again, these issues have very little to do with the software. Most modern ERP software “works” and is relatively easy to deploy from a technical perspective, but none of that matters if employees and end-users don’t use and embrace the system to perform their jobs and conduct business processes. As we’ve found in our ERP implementation experience, as well as our research of enterprise software deployments across the globe, user resistance and lack of understanding is one of the root causes of most ERP failures. And one of the key factors that contribute to user resistance is the “usability” of the software.
Clients often ask us about the usability of ERP systems because it’s a vague term. When we think of usability, we generally think of user-friendliness. Pandora makes it easy to create a custom radio station, Netflix makes it easy to watch streaming video, and Twitter makes it easy to post tweets – all examples of user-friendly types of software. Similarly, when most executives think of the usability of their ERP software, they look at the surface of how easy it will be for employees to navigate the system via the user interface.
However, usability means much more than the ease of use of a GUI. Usability also relates to how well the software fits your business operations and vice versa. In other words, are your business processes easily executed in the system? Can employees perform their basic job functions without the software getting in the way of their day-to-day responsibilities? Does the software allow the company to seamlessly, efficiently and effectively run its operations? If so, then the ERP system has a high usability factor.
The problem then becomes more of a misalignment between the software and the business operations. As outlined in the graphic below, companies change over time via merger and acquisition activities, growth, international expansion, new regulations and a host of internal and external drivers of change. Unfortunately, however, most ERP systems fail to keep up with these changes, creating a misalignment over time. So after 10 to 15 years of an organization’s business operations evolving and changing over time while the ERP system remains stagnant, the organization and its employees reach a breaking point where they can’t take it anymore – the ERP system is terrible, employees hate it, and it’s time for a new system. We hear it all the time and are amazed at how often misaligned ERP systems are attributed to the software itself rather than the failure to allow the technology to keep up with the business. This misalignment ends up creating problems with the usability of the system.
So how can an organization avoid the pitfalls of poor usability? Here are three tips to proactively stay ahead of this particular challenge:
1. Ensure initial ERP system usability. When you are first evaluating potential ERP systems, you must make sure that you have clearly defined what employees will need to do with the system. In other words, how specifically will the business processes need to look and how will the software support the business? It may sound elementary, but we see far too many organizations gloss over this important step to achieving ERP usability.
2. Train the system to be usable. That is not a typo – the system needs to be trained to be usable. Once business processes are clearly defined, the system needs to be designed and configured to run the business. Far too many companies assume that they’ll just flip the switch and the software’s “best practices” and “industry pre-configurations” will magically get the job done. Make no mistake that unless you are a start-up or a very simple organization, this approach is a recipe for disaster so you’ll want to ensure that your processes define how the software will be used. Today’s enterprise solutions are far too flexible to rely solely on best practices to get the job done.
3. Assess ERP software usability along the way. Employees not only need to be trained on your organization’s specific business processes and shown how the system will support those processes, but both your staff and your processes need to be assessed prior to and periodically after go-live in order to identify and address misalignments over time. As the business changes, the software needs to change as well, and ongoing organizational assessments to evaluate the usability of the system is the only way to allow the software to keep up.
Focusing on employee and operational usability is a key to ERP success. In addition, it is a key to ensuring that the software and the business stay in sync as the company evolves over time. Not only does this focus exponentially increase the potential business benefits of the enterprise solution – effectively allowing your organization to dodge the 50/50 bullet – but it also allows you to get a much longer lifespan from your ERP system. Most of our clients replace their ERP systems after 10 to 12 years, but they don’t necessarily need to and wouldn’t have to if they maintained this level of operational and technical alignment over time. So in other words, ERP usability is a multi-million dollar proposition for most organizations.
Learn more by downloading one or more of our white papers on ERP implementation, benefits realization and user acceptance or watching our recorded ERP webinars on organizational change management and ERP failures.
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Is Your ERP Implementation Suffering From a Vitamin C Deficiency?
We often write and present about the challenges and pitfalls of ERP implementations as well as some of the best practices associated with making an ERP system work for organizations. Our clients look to us to provide the expertise, methodology, and toolset to make their ERP implementations succeed. While there are a host of things that can contribute to an ERP failure, troubled deployments often boil down to a vitamin C deficiency – lack of cash, controls and change.
Cash. As we detailed in our 2012 ERP Report, 56-percent of ERP implementations cost more than expected, and the average cost overrun is more than 20-percent. When we dived into that data and coupled it with our extensive ERP expert witness and ERP implementation experience, we found that a big driver of those cost overruns is mismanaged expectations and a lack of budget to invest in making the project succeed. Without the right experience and support, organizations most often fail to budget for “hidden costs” that software vendors and system integrators don’t advise you of, such as infrastructure upgrade costs, third-party implementation costs, customization and a variety of other items that the untrained eye won’t catch or plan for. If organizations simply budgeted an appropriate amount for their ERP software, this 56-percent metric would likely decrease dramatically.
Controls. ERP implementations can get out of control very quickly if they are not managed appropriately. An experienced ERP project manager should be able to provide project governance and controls to ensure that a project stays on track, in scope, on budget, and on time. For example, we work with our clients to manage a robust project governance framework surrounding escalation and decision processes related to customization requests. Every ERP implementation will include internal stakeholders that want to customize something in the software, so it is very important to have the controls in place to ensure that only customizations that are absolutely necessary to the operations are made. Organizations that over-customize their software typically begin with the “we’re not going to customize a single thing” mantra, but most lose that discipline as the project wears on.
Change. One of the biggest failure points for each and every ERP failure and lawsuit that we’ve been asked to advise on as part of our ERP expert witness work is a lack of organizational change management. It’s amazing how many CIOs and CFOs think that organizational change entails delivering some canned end-user training right before go-live and calling it good. This is a strategy that literally never works. Successful organizations instead implement much more effective organizational change management activities, such as process-based training that is tailored to the unique operations of the organization, change discussions, change impact analyses, employee communications, stakeholder alignment activities, benefits realization processes, and a host of other activities. Organizational change may seem like an optional or expensive investment, but in the end, it will always be less expensive in the long-term to invest heavily in organizational change to ensure that your organization and operations effectively adopts the software.
With these types of vitamin C deficiencies, organizations are very likely to suffer ERP failure. Our experience and research proves that effective organizations address these three areas well. Contact us today to learn more about how Panorama can help your organization achieve all of the benefits possible from its ERP system.
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Lessons Learned From a Government ERP Failure
Anyone who follows ERP industry news knows that ERP implementations fail at high rates in both the private, commercial sector and the public, government sector. As recently discussed in Panorama’s 2012 ERP Report, not only do the majority of organizations across all industry verticals spend more time and money than initially forecasted but, adding insult, also fail to realize the business benefits that they anticipated. And, when they fail — they fail big and they fail hard, with both the ERP vendors and the implementing organizations often taking a beating in the court of public perception. This is especially true when failures happen in government agencies, who need to justify their failed actions, huge expenditures and mismanaged processes to the taxpaying public footing the bill.
What many don’t realize is that while ERP failures may, on the surface, appear to be caused by different issues and problems, they share many of the same themes. And this goes for both companies and governmental organizations. While the structure and oversight of the ERP implementation often differ between the two sectors, the root causes of failure are distressingly similar. In Panorama’s ERP expert witness work analyzing extreme ERP failures, we often have been struck by the similarities across all ERP missteps and mistakes. Three of the common ERP failure factors are:
1. Lack of due diligence during the ERP software evaluation and decision phase. Neither government agencies nor commercial companies operate in a vacuum. When it comes to ERP software purchases, both are subjected to the same hype, pressures and sales cycles as the other. And both often find themselves in the mindset of either “We MUST have a SAP / Oracle / Microsoft Dynamics ERP system because they’re big and expensive and important and so are we” or “We MUST have a SAP / Oracle / Microsoft Dynamics ERP system because that’s what company/agency X down the street has and they’re so much more educated about this stuff that we are.” Not to pick on the Tier I systems, but for companies who don’t do their due diligence and just assume that a big, complicated ERP solution is the answer to all their woes — the failures come fast and easy. It’s like thinking the only options for college are Harvard, Oxford and Georgetown. All great schools, but if they don’t fit a student’s particular needs or desires, then they’re the wrong choice. And an expensive one at that.
2. Poor business requirements and system design. Organizations that fail to properly define their business requirements via business blueprinting up front often end up with a “moving target” of an ERP system. By that I mean it is shot at and battered by a cavalcade of ever-shifting requirements as the project progresses. These inadequately defined requirements also lead to inaccurate or incomplete assumptions about scope, cost, time and resource requirements, causing blown budgets and deadlines and heightening the risk for massive ERP failure. These deficiencies also tend to lead to software designs that are misaligned with the organization’s operational needs. Takeaway? Get your requirements done early and done right.
3. Inadequate project planning and controls. It’s no secret that the key to ERP success is strong project management, planning, governance and controls. When these dominoes start falling, the success of the project is in great peril. One example we’ve seen in our expert witness work is improperly formalized change control and sign-off processes when team members decide that the scope or software must be changed to meet certain requirements. This bloat quickly can lead to scope creep and inadequately managed timeframes, both precursors to ERP failure. The way to remedy this is through careful definition and validation of project plans and mindful oversight of the project timeline, scope and resources throughout the implementation.
The bulk of this blog post has been adapted from our Lessons Learned From a Government ERP Failure white paper released today. Even if you don’t work for a governmental agency, the points made are universal across ERP implementations and should be considered and discussed prior to beginning the project. Like all of our publications, the white paper is free for download (with registration). Learn more by downloading Lessons Learned From a Government ERP Failure today.
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Are ERP Systems Really Dead?
A recent article published by Tien Tzuo on the CIO Network blog on Forbes’ website suggests that ERP is dead. While it was a well-written article and isn’t necessarily inconsistent with what many other analysts have stated over the last three to five years, I’m still not buying it and still don’t see ERP software going anywhere anytime soon.
Just as a full disclaimer, just as the author of the above referenced article used to be a key employee at Salesforce and may be a bit biased toward cloud and SaaS solutions, Panorama provides ERP consulting solutions and the argument could be made that my biases lean toward traditional ERP. However, at the risk of sounding flippant, I really don’t care what happens to ERP software. It could all migrate to SaaS, the cloud, best of breed solutions, or stay exactly as it is today for all I care. Because we are an independent, technology-agnostic firm, any of those potential industry outcomes will still result in huge opportunities for us to add value to our clients and will do very little to nothing to jeopardize our business model.
With that in mind, I am still not at all convinced that ERP is dead. Let’s set aside all the fears and phobias executives have about cloud ERP software, because those will eventually go away. CIOs will soon realize that most cloud providers can provide more stable and secure solutions than any internal IT organization. However, even after neutralizing those unfounded fears, there are a number of more concerning and real flaws with the assumption that the cloud is going to push ERP systems to a slow and painful death:
This story is a rerun from the ‘90s. I love watching reruns of Seinfeld and Frasier just as much as the next guy, but I know how all those episodes end because I’ve seen them before. During the same era that I was infatuated with Jennifer Aniston on Friends, I was also hearing early in my consulting career that a new “ASP” (application service provider) model was about to kill traditional ERP. It was a pretty compelling story then, but the reality is that ASP – just like SaaS and cloud solutions today – had significant limitations that prevented widespread adoption. For example, lack of flexibility and lack of integration were two big limitations that the ASP model shares with SaaS and cloud ERP. Many companies that did migrate to the ASP model ended up needing to revert back to traditional ERP systems to standardize and integrate their operations better. The side exhibit in this blog visualizes the fact that just as the political pendulum will always swing back and forth between conservative and liberal ideologies, the ERP industry will always swing back and forth between traditional, single ERP systems and SaaS/best-of-breed/cloud/ASP models.
Most companies are still buying ERP. As our 2012 ERP Report, which was published earlier this year, shows, only a small fraction of companies are using SaaS or cloud solutions. It makes sense for smaller or less complex businesses to leverage SaaS technologies for their relatively vanilla business needs, but these solutions simply aren’t ready for the needs of larger organizations. To Tzuo’s credit, his article does accurately convey the fact that most CIOs are looking for alternate deployment options, such as subscription-based pricing and/or ERP systems hosted in the cloud. These are two very real and very viable alternatives for CIOs, but neither movement requires ERP to die. All can peacefully co-exist and provide the best of all worlds to customers.
Business software is not the same as a consumer using Pandora or Facebook. The author suggests that the consumer movement to web-based solutions like Pandora, Spotify and Facebook is proof of the allegedly inevitable enterprise movement to subscription-based and SaaS ERP models like Salesforce and Netsuite. However, this comparison is like comparing apples to oranges – the needs of a consumer posting a Facebook status update is much less complex than an aerospace and defense contractor that has to manage the millions of parts, people, tasks and resources required to build a satellite or aircraft. So while they may be perfect for simple transactions like streaming music, SaaS ERP solutions are nowhere close to being able to handle the types of complexity inherent in most global businesses and supply chains.
Although I’m not at all convinced that ERP is dead, I do agree that ERP is changing and will look very different in five to ten years. Business intelligence, mobile solutions, social media integration, subscription-based pricing models, and private clouds are all exciting new changes to ERP systems. Companies are also getting smarter about how they implement ERP systems – for example, they know not to bite off more than they can chew and they understand they have multiple deployment options. However, SaaS and subscription-based solutions are just one of a portfolio of options available to CFOs and CIOs, and traditional ERP systems will continue to be a viable option for a number of organizations now and in the future. Some of the risks of each are illustrated below:
At the end of the day, the argument over SaaS vs. cloud vs. traditional ERP is simply noise that masks a bigger and deeper problem: most enterprise software initiatives fail. Call it what you want and use all the cool technologies that you want, but your project will still fail if you don’t address the real differentiator between software success and failure, which is more related to business processes and organizational change than it is to software. The sexiest and slickest SaaS software in the world doesn’t matter one bit until those bigger issues are addressed. I can’t predict the future and I don’t bet, but if I could or did, I would put big money on that problem not being automated in my lifetime. So instead of discussing whether or not ERP is going to die, we should be asking: “Are enterprise software implementations ever going to stop failing?”
For further discussion of this topic, please join me for tomorrow’s interactive webinar, Cloud vs. Traditional ERP: Which is for You?
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ERP Software Licensing: Common Gotchas to Look Out For
Purchasing ERP software has become easier and more flexible over the last several years. The advent of public and private clouds, SaaS ERP software, on-demand offerings, and hybrid deployments all provide more options to executives looking to deploy new ERP systems in their organizations. This is good news to most CIOs and CFOs.
The bad news, however, is that comparing options and navigating through the related contract and licensing scenarios add a layer of complexity that most buyers of ERP software don’t have experience with. For example, when evaluating between a SaaS ERP system and an on-premise one, cost and contract structures are entirely different, which can be difficult for less experienced buyers to understand. This difficulty can lead to bad decisions and higher costs for organizations, which we see too often in our industry.
Here are three common “gotchas” to watch for when evaluating and purchasing ERP software licenses for your organization:
Getting Over-Licensed on Your ERP Software. One common pitfall is purchasing more software than you need, whether it be in terms of unnecessary modules, too many users, or other instances of “shelfware” which can be the equivalent of throwing away money. For example, we recently worked with a mid-size manufacturing company that estimated it had purchased $600,000 of shelfware licenses that were not going to be used by the company anytime in the near future. It’s always easier to add to your purchase over time, but nearly impossible to scale back on licenses that you’ve already committed too. Even if your ERP vendor is offering you a “once-in-a-lifetime” deal on software licenses in order to meet quarter- or year-end numbers, you are more likely to more than compensate for the alleged savings by over-purchasing software that you don’t necessarily need.
Failure to Consider to Total Cost of Ownership of Your ERP Software. Licenses are typically just one aspect of the total cost of ownership (TCO) of your ERP software purchase and account for less than 25-percent of TCO according to our research of nearly 2,000 ERP implementations across the globe. Most organizations fail to consider the remaining 75-percent of total outlay, such as hardware costs, internal and external project resources, integration and customization, and other hidden costs. Executives should have a clear picture of the TCO for their purchases – not just their direct software license costs – and this understanding should be applied to negotiate contract terms accordingly. In addition, the TCO should be quantified for at least seven years, which can paint an entirely different picture than if you simply consider the first year or two (think: SaaS vs. on-premise ERP systems). For example, SaaS ERP systems often entail additional vendor costs, such as storage or transactional volume fees, in addition to other non-vendor fees associated with deploying the software.
Negotiate a Long-Term License Deal. Rather than focusing solely on the immediate purchase, it is more important to view the acquisition of ERP software as a long-term deal. Since most implementations take between one and two years (longer for larger organizations) and another one to two years to realize the benefit from these implementations, it rarely makes sense to front-load license contracts to acquire the software all at once. Instead, companies should purchase what they need when they need it and pre-negotiate the price on future purchases to avoid unanticipated license cost increases. For example, we typically negotiate deals for our clients allowing them to purchase additional licenses, modules, or users at pre-defined costs for three years or more, while at the same time minimizing their up-front capital outlays.
Negotiating ERP software licenses and contracts is part art, part science, and requires a solid understanding and breadth of experience. We have helped more than 100 organizations negotiate software license contracts of all types over the years and have amassed experience that most CIOs and CFOs simply do not have. However, with the right expertise and guidance, executives can effectively negotiate long-term deals that make sense to their organizations and consider the various complexities, nuances, and constantly changing realities of ERP software contracts.
To find out how exactly Panorama’s services can save your organization time, money and headaches, check out our ERP vendor and contract negotiation services or contact our team of independent ERP experts today.
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The Times They Are a-Changin’: Assessing the Viability of ERP Vendors
When guiding our clients through the ERP selection process, we often hear executives say that they are concerned about the viability of their ERP vendors. Even after we’ve confirmed that a product is the best functional fit, made sure it meets the business requirements of the organization, and negotiated a great contract for our clients, the viability of ERP software vendors is often the last unresolved concern for client CFOs and CIOs. After all, it is the job of executives to mitigate risk and ensure the long-term success of their organizations, so it only makes sense that the last thing they would want is a recently purchased ERP system to be discontinued or not supported as a result of an acquisition.
ERP software vendor viability has become even more relevant with the recent merger and acquisition activity in the enterprise software market. For example, Infor recently acquired Lawson, Epicor and Activant were acquired as part of a private equity buyout, and JD Edwards and PeopleSoft were both acquired by Oracle several years ago. Some of the leading ERP vendors, including Oracle, Infor, and SAP, have been extremely aggressive in acquiring other ERP software solutions, as well as best of breed points solutions, to augment their core solution offerings. With each of these acquisitions comes uncertainty – will the new parent company continue providing maintenance and support? Will it invest in future enhancements? Or will it force a costly and risky migration to another product?
These are all valid questions and concerns. And although it is impossible to predict the future, there are common signs that could give some insight into whether or not a company is on the chopping block. Here are three things to look for when determining whether or not an ERP vendor is ripe for an acquisition:
Product roadmap. Companies typically stop investing R&D in their product if they are looking to sell in the near future. For example, we have been hearing from some of Oracle’s competitors for the last several years that the company was going to stop supporting JD Edwards as part of their acquisition of the product. However, this still has yet to happen. In fact, some of our team members just last week attended the JD Edwards Summit near Denver and learned about the company’s roadmap for the product through 2026. Companies with no clear roadmap are much more likely to be sold and/or discontinued as part of an acquisition than vendors like JD Edwards who have a clear vision for their future.
Current R&D investments in the product. Another telling sign is the current and recent investment in the ERP software in question. If the product has become stagnant and it becomes apparent that R&D spending is on the decline, this could mean that the product is on the chopping block. Again using JD Edwards as an example, the company recently launched a cutting-edge user interface and mobility solution as part of its core offering – hardly the sign of a product about to be discontinued, despite the fact that a larger company acquired the product. If, on the other hand, the software is still using dated technology, isn’t keeping up with the competition, or doesn’t have a decent size R&D budget, chances are more likely that it is (or will be) a target for another company.
Organizational viability and stability. A third sign to watch for is organizational stability and viability. In other words, does the company look and act like a company that is growing for the future, or one that is trying to maximize short-term results to get a higher valuation in a potential takeover? For example, we had a strong opinion nearly three years ago that Epicor was positioning itself for an acquisition, simply because of the way the company was acting. Although it had just replaced its flagship Vantage product with Epicor 9, it was aggressively cutting professional services staff, offshoring much of its development work to Mexico, and even making cuts within its sales organization. These are typically not indicators of a company that is looking to remain independent in the short-term, which eventually proved to be the case with Epicor.
While it is not always a bad thing for an ERP vendor to be acquired, it is important to understand and mitigate the risks associated with a takeover. An acquisition could mean more R&D muscle behind a product or additional technical strength, or it could result in discontinuation of the product and a forced migration to the parent company’s flagship product. In either case, it creates a level of uncertainty that makes most executives nervous. The associated risks can be managed by ensuring a solid contract with clear SLAs.
For more information about specific companies, access our database of ERP vendor profiles or read the ERP Industry News section of our website.
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2012 ERP Report: ERP Implementation Budget and Duration Overruns are Down, but Companies Still Spend More Than Expected
Today is one of the biggest days of the year in the enterprise software industry, as the latest iteration of Panorama’s highly anticipated annual ERP Report is published (download the 2012 ERP Report). The independent study examines the results from a range of organizational sizes and industries ranging from smaller companies to global, multi-billion dollar organizations. The study also looks at ERP implementations from vendors ranging from SAP, Oracle and Microsoft Dynamics to Tier II solutions like Epicor, Infor and a variety of others. This year’s study of nearly 300 ERP implementations across the world demonstrates some of the same themes we’ve seen in years past: most projects not only cost more and take longer than expected but also fail to deliver anticipated business benefits.
However, there is good news in the report as well: the percentage of companies going over budget and taking longer than expected decreased compared to previous years. For example, 56-percent of organizations in this year’s study went over budget, compared to 74-percent in our 2011 ERP Report. In addition, 54-percent of organizations went over schedule, compared to 61-percent in 2011. While the numbers still highlight the challenges and risks that most organizations face, they also show that companies are starting to do some things better than they have in the past.
The bad news, on the other hand, is that of those organizations that go over budget, it is by a significant amount. This year’s study shows that that companies that blow project budgets do so by an average of 25-percent, hardly a immaterial number for most CFOs. In addition, 29-percent of the respondents indicated that they have yet to realize a payback on their ERP investments, another metric likely to make CFOs and other executives think long and hard about how they can better mitigate risk on their ERP implementations going forward. Finally, and perhaps most concerning, is that two out of three organizations indicated significant pain in changing their business processes and organizations to accommodate their new ERP systems; 63-percent said that this aspect of their implementation was either difficult or very difficult, suggesting that ERP projects are still by no means a cakewalk.
So why the change in this year’s numbers over last year’s? First, companies are less bootstrapped with their IT budgets than they were in years past. CFOs and CIOs aren’t forced as often to shave implementation budgets to the bone and cut corners as they were during tougher economic times. With more realistic estimates and expectations, organizations aren’t quite as likely to blow their budgets and project plans. However, as mentioned above, when organizations do go over budget, they do by a significant amount, suggesting more of a dichotomy between those that tightly manage scope and budget and those that don’t. In addition, even though companies are finishing on time and on budget slightly more than they have in years past, they still struggle with business process, organizational changes, and benefits realization, suggesting that they are not getting all they could out of their new ERP systems.
This year’s numbers suggest that there are still significant challenges in the marketplace, but they provide a thread of optimism that more companies are figuring out how to manage their ERP initiatives more effectively. Learn more by downloading our 2012 ERP Report and joining me at our free webinar, Review of Panorama’s 2012 ERP Report tomorrow at 10 a.m. MST.
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Back in the Saddle Again: Getting Your ERP Implementation Back on Track
Unfortunately, ERP implementations still aren’t any easier than they were 15 years ago when I started in the ERP world. Despite the enterprise software industry’s best intentions to mitigate risk with cloud ERP systems, implementation accelerators, and other tools, ERP failure rates are still high and most projects still take more time and money than expected. For example, our 2012 ERP Report, which will be released next week, shows that nearly half (44-percent) of all ERP implementations fail to deliver at least half of their expected business benefits.
The even more troubling trend we’re seeing at Panorama Consulting is an acceleration of ERP failures and lawsuits. We are seeing a spike in demand for our ERP consultants to provide guidance to implementations that have gotten off track or to attorneys involved in lawsuits related to implementation failures. We have a very solid and exhaustive process for helping clients assess their implementations and create a project recovery roadmap, which clients are taking full advantage of in recent months. While this is good news for us in that there is more demand for our services than ever, it is bad news for the industry and the organizations looking to implement new enterprise software solutions. Whether it’s software from SAP, Oracle, Epicor, Infor, or any other ERP vendor, the reality is that it is still difficult to implement a new system effectively without stepping into a landmine or two along the way.
The good news is that there are ways to get an ERP implementation out of the gutter. As we’re demonstrating with three clients we’re currently working with, there are a number of things you can do to get your project back on track. Here are three tips that are likely to make a difference on your troubled ERP implementation:
1. Look to organizational change management for low-hanging fruit. While it is tempting to blame your vendor or the ERP software itself, we find that most ERP failures result from organizational change management issues. In fact, if you evaluate the organizational change, communications, and training activities that you are and aren’t doing as part of your project, you are likely to find significant deficiencies and opportunities for improvement. It’s usually people that make a project fail, not the software, so more effective organizational change management will help mitigate this challenge. We often look to areas such as organizational impact, job design, process definition, customized training, and targeted employee communications as opportunities to “fix” the people side of the ERP implementation equation. Not only is this “people side” crucially important and often overlooked, but it is typically less costly than buying an entirely new ERP system or customizing to force the software to address the organizational resistance you may be facing.
2. Revisit your implementation plan. Most ERP implementation plans are flawed from the start. Unrealistic expectations, unclearly defined milestones and resource requirements, and missing key activities are some of the common problems we see when clients ask us to get their projects back on track. Organizations too often rely on a project plan provided by their ERP vendor or system integrator, which usually focus too much on the technical components of an implementation on not enough on the business, process, and organizational aspects required to make a project successful. Implementation success is never guaranteed, but failure is guaranteed without a realistic and complete plan.
3. Know when to fold ‘em. Like Kenny Rogers once said, you’ve got to know when to hold ‘em and know when to fold ‘em. It may be time to hit the reset button on your enterprise software initiative. It may also be time to ditch an attempted ERP implementation and replace it with software that is a better fit for your organization. Or it may be a matter of some of the less drastic changes outlined above. One of the benefits of working with an independent ERP implementation consulting firm such as Panorama is that we help our clients make objective assessments of whether it’s time to head a different direction with the organization’s ERP strategy.
While a troubled ERP implementation is never fun, it is not as bad as an ERP failure and there are always ways to get your project and your team back on track. With the right expertise and toolset, your project can be recovered and even rejuvenated.
Find out more about both ERP failure and ERP success by attending my interactive webinar tomorrow, Lessons Learned from Failed ERP Implementations.
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What You Should Know About ERP Systems and SOX Compliance
Nearly a decade after the implementation of the Sarbanes-Oxley Act (SOX) at publicly traded US-based companies, the verdict is still out on whether or not the law has had a material impact on fraud, breakdown in internal controls, and other problems that the regulation is intended to address. Regardless, SOX is a reality that impacts many organizations in many ways, including how they implement their enterprise applications. Even in cases where a company is not required to be SOX compliant, there are other regulations and internal controls that ERP systems need to address.
When helping our international client base through their ERP implementations, internal controls and regulatory compliance is one of the necessary evils of ERP success. Processes need to be designed in a way that meets regulatory compliance, systems need to be configured to support those processes, and people need to be trained to execute on those compliant processes. In addition, CIOs and CFOs need to institute a framework to ensure that the implemented solution meets SOX and other regulatory requirements after go-live and on an ongoing basis.
Here are three things to consider during an ERP implementation when it comes to SOX, internal controls, and regulatory requirements:
1. Compliance begins during the business blueprint phase of an ERP implementation. While SOX and regulatory compliance may seem like a mysterious finance, CFO or Internal Audit function, compliance begins when creating the business blueprint for your ERP system. Business processes need to be defined in a way that ensures that the segregation of duties, oversight, and other compliance needs are addressed. The designed business processes need to be validated before the blueprint is finalized and before the technical team begins their software configuration. We’ve seen too many companies treat SOX and regulatory compliance like an afterthought, only to have their internal or external auditors raise red flags too late (e.g., after the system was in production or when they failed their first post-go-live audit). This challenge is further magnified by the fact that most modern ERP systems are very flexible and can perform business functions a number of different ways – some of those processes are going to be compliant with your internal our regulatory compliance needs, while others will not. We build this internal compliance, SOX and regulatory review into our ERP business blueprinting methodology for our clients.
2. Organizational change management solidifies SOX and regulatory compliance. Contrary to popular belief, ERP systems can’t always force compliance. They can make it easier to enforce segregation of duties, financial oversight, and approval workflows, but they can’t close off every possible loophole or process breakdown. Organizational change management and employee training is the key not only to ERP success in general but also to getting an ERP implementation to full compliance. These activities help employees understand the need for compliance, clarify the expected business processes, and hold them accountable for executing against those processes and workflows. All the generic software training in the world won’t help create this understanding, but effective organizational change management will. Our clients have found their business processes to be much more efficient, effective and compliant as a result of the organizational change management framework we provide as part of our ERP implementation methodology, toolset and expertise.
3. Include your internal or external auditors throughout the entire ERP implementation project. Just as your executives and employees need to have buy-in into the project, your internal and external auditors also need to support the changes resulting from your new ERP software. As mentioned above, internal audits and controls should be built in to your implementation during the business blueprint phase, but you should also include a number of touch-points in other phases of the project as well. For example, key regulatory and SOX requirements should be defined during your ERP evaluation and selection to ensure you have chosen a system that addresses your needs. In addition, key process controls should be validated during the system design, software testing, user acceptance, and integration testing phases of the ERP implementation. In addition, a formalized compliance audit should be performed as part of a post-implementation benefits realization audit as well.
While Sarbanes-Oxley and regulatory compliance are often one of the last things on the minds of CIOs and relatively low on the list of reasons why organizations typically choose new ERP systems, it becomes very important when it’s time for that first internal and external audit of your business operations and systems. For this reason, it is important to bake these processes into your entire ERP selection and implementation lifecycle to ensure that your organization gets regulatory issues right the first time. It is typically much less costly to invest the time and resources up front rather than finding out after it’s too late.
To find out more about ERP success (and ERP failure), check out our free on-demand webinar series. Subjects include “Tips for Selecting the Right ERP Software for Your Organization,” “Tips on How to Build a Business Blueprint for ERP Systems,” and “Lessons Learned from Failed ERP Implementations.”
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- Oracle Consultant – eBusiness Suite
- IT Manager
- Senior ERP Consultant
- SAP Consultant
- Organizational Change Management Consultant
- Senior ERP Business Analyst
- Business Analyst Intern
- Marketing Assistant