Let’s face it: the complexities, risks and pitfalls of ERP implementations can challenge even the most seasoned professionals. In fact, and as underscored in our 2012 ERP Report (Panorama’s study of hundreds of ERP initiatives across the globe), most ERP implementations cost more than expected, take longer than expected and fail to deliver the business benefits anticipated by the implementing organization – all of which suggests that true ERP success eludes many – if not most – organizations. At the same time most ERP projects are struggling to deliver measurable business results, business intelligence software is becoming a hot commodity in the market, suggesting a contradiction in executive priorities and focus.
This begs an important question: what exactly does ERP success really mean? After all, when helping our clients evaluate, select and implement their ERP systems, our goal is not to simply implement on time and on budget, but to deliver measurable business value to their organizations by improving their operations in tangible ways. While this sounds good in theory, it will simply never happen without measuring actual performance.
It is sad to say but key performance indicators (KPIs) are rarely used in an effective way during ERP implementations. Knowing this, Panorama’s team of ERP experts always push our clients to adopt performance measures that will help track implementation success and post-implementation results. We also use KPIs as a baseline for communications and executive alignment exercises. They are an important tool to get everyone on the same page with regards to what they want out of the organization, how they’re going to get it and when they should expect it.
Below are just a few of the implementation KPIs we incorporate into our client engagements:
- Implementation duration
- Implementation cost versus budget
- Organizational readiness
- Implementation risk factor
While these metrics can be a good indicator of early ERP success, they simply scratch the surface of what can and should be measured during and after implementation. To augment the above, we work with our clients to implement a host of KPIs designed to measure operational effectiveness and efficiency before and after an ERP implementation. We consider good KPIs to be a key differentiator between best-in-class ERP implementations and ERP failures but unfortunately, many organizations either choose to ignore these types of metrics because they are so overwhelmed with getting their ERP systems up and running or simply can’t access the necessary data in their existing legacy systems to provide a meaningful comparison. Worse still are the companies who have the time and data but simply don’t recognize the importance of using KPIs to make sure they’re realizing benefits from their ERP systems. The average organization invests four-percent of its annual revenue in ERP software but without metrics, it can’t and won’t benchmark, improve or realize the full potential of its investment.
Below are just a few of the KPIs that we help our clients institute as part of their ERP, CRM and business intelligence systems implementations:
- Inventory costs/turns
- Return rate
- Order fulfillment rates
- Average days receivable outstanding
- Time from order to shipment
- Revenue per account
- Profit per account/business unit/location
- Average daily calls per customer service rep
- Demand forecast accuracy
While most of our clients have different lists of KPIs based on their industry and business objectives, they commonly identify dozens of similar metrics used to drive better performance with their ERP systems. In addition, most leverage a mix of labor and non-labor metrics, base them on their specific business processes, and use them to drive business process and system improvements.
In addition to the points mentioned above, KPIs can be extremely valuable during implementation as they help ERP project teams prioritize implementation phasing strategies, rationalize potential customization costs and define business intelligence and reporting requirements. When used effectively, KPIs act as a guiding framework during implementation and prompt measurable business improvements after implementation. These metrics can be especially powerful when integrated with organizational change management activities, as our clients have found to be the case with our PERFECT Change™ methodology.
So what is the best way to get started developing an effective KPI and business intelligence strategy to augment your ERP initiative? Our team has developed a standard list of metrics for each of the major industry verticals we work in, such as manufacturing, distribution, oil and gas, professional services and government / public sector. These provide a best practice starting point to accelerate the process of defining the KPIs most relevant to each client, which are then be prioritized based on input from business process reengineering activities and the client’s overall executive strategy. As you might imagine, this method is a cost- and time-effective way to institute KPIs and business intelligence into an ERP initiative without having to recreate the wheel or risk developing KPIs that are misaligned with your business processes, ERP system or business intelligence capabilities.
Real Business Intelligence: The Roles of KPIs in ERP Success,