During ERP selection, companies typically see limitless possibilities in terms of potential improvements for their businesses. However, somewhere along the way, many projects fall short of expectations and ERP business benefits underwhelm executive expectations.
Most of the 2019 ERP Report depicts that many companies reported low benefits realization for benefits related to reporting, competitive advantage and technology enhancements.
In our experience, low benefits realization is often due to a failure to define expected benefits and align the company around common goals early in the project. In other words, organizational alignment is not a priority for many companies during software selection. More often, companies are desperate to quickly find a new ERP system that addresses their pain points, so they lose sight of their business goals.
While staying focused on benefits realization is not easy, we’ve found several strategies that help companies realize significant benefits from their ERP projects. These strategies are most effective when initiated before or during ERP selection.
Understand Your Current State
You can realize many business benefits by addressing pain points in your current processes. This is why we help clients map their current state before beginning ERP selection.
During process mapping, it’s important to capture the right amount of detail. For example, you’ll need to document how long a current process takes to measure improvements post-go-live.
As you identify pain points, you’ll find opportunities for improvement. This is the time to start thinking about how to both fix broken processes and innovate mediocre processes.
Outline Expected Benefits and ROI
When embarking on ERP projects with clients, we typically help them clarify their overall business goals, so they can determine how ERP software can support these goals. This leads to a discussion about business benefits – what benefits can technology deliver that support the company’s big-picture strategy?
The only way you can answer this question with any specificity is by designing future state processes based on the improvement opportunities you identified while mapping your current state. We recommend designing future state processes based on both your business goals and your pain points.
While business process re-engineering is a time- and resource-intensive undertaking, it enables you to quantify expected business benefits. For example, it enables you to quantify the time and cost difference between a current state process and a future state process.
Once you’ve estimated all expected business benefits, it’s time to document your findings. One of the most effective tools for documenting business benefits is an ERP business case. This tool is more than just a means to justify the project to executives. It also is used for setting key performance indicators (KPIs) and tracking them throughout the project and post-go-live.
The first step in the successful use of KPIs is to understand one core concept: every KPI is a metric but not every metric is a KPI. Essentially, KPIs are the metrics which best define the success of a process or function.
In addition to KPIs, a business case also should focus on estimated costs as well as expected ROI. While you can estimate ROI without focusing on a particular ERP vendor, many companies will re-calculate expected ROI once they’ve evaluated several enterprise systems. Ultimately, though, your ROI will depend more on your project execution than your choice of ERP vendor.
Your ROI depends most heavily on the quality of your business case. The most effective business cases outline specific, measurable ways a new system will improve the business.
In contrast, we see many companies justifying their ERP purchase by pointing to issues with their legacy system, such as a lack of scalability or a decrease in vendor viability.
While these are legitimate reasons to implement a new system, they must be accompanied by more ambitious goals. You don’t just want to maintain the situation – you want to innovate!
Ensure Organizational Alignment
Your company not only needs clearly defined business goals and project goals but also an understanding of how they tie together. Everyone in the company needs this understanding, especially executives.
To achieve this understanding, we recommend using your business case to gain executive buy-in, and then forming an executive steering committee. This committee should be highly involved in the project, especially when it comes to communicating project goals across the company and holding process owners accountable for achieving these goals.
When executives communicate how project goals tie into business goals, business benefits become more achievable. For example, a common, business-related reason that companies implement ERP software is to improve their data insights. When executives explain how technology can enable this business goal, your team is more likely to select the right software and migrate the right data. Besides, your employees are more likely to follow procedures that promote data accuracy.
Develop a Realistic Project Plan
One of the key lessons from our dozens of software expert witness cases is that unrealistic expectations often is one of the main causes of low benefits realization and failures.
Many companies inaccurately estimate the time, budget and resources required to effectively implement an ERP system – and so do their ERP consultants, system integrators and value-added resellers(VARs).
The best way to avoid this pitfall is to leverage an independent consultant, such as Panorama, to help define a realistic project plan. One of the ways we help clients develop realistic project plans is by bench-marking against other companies similar to theirs.
We also ensure companies include overlooked activities in their project plans, such as change management and Business process re-engineering. These activities help companies realize more business benefits.
Focus on Change Management
You can’t realize business benefits if end-users aren’t prepared to use the new software. This is why it’s essential to communicate with and train employees as early as possible.
We use organizational readiness assessments to help clients identify resistance to change early in the project, so they can proactively address it. The organizational readiness assessment leads to the development of a change management plan that reduces change resistance and helps employees understand how their processes support project goals.
Think Twice About Changing Your Goals
Every change order, request for customization or scope adjustment must be viewed through the lens of your project goals. If it can’t be justified within the parameters of those goals, either the goals or the request must be adjusted. In most cases, you should adjust the request.
For example, you wouldn’t want to change a goal from “Standardize all accounting and finance functions across all sites,” to “Make sure A/P can access the approved vendor lists.” After all, with all the time, money and effort that goes into implementing an ERP system, you should at least try to maximize your ROI.
When you start getting internal pressure to customize your system, let your business case and ERP project Plan be your guide.
Continually Measure Benefits Realization
Identifying gaps between projected benefits and actual benefits throughout the project helps managers understand what they are doing well and how they can improve.
Root cause analysis can identify the causes of these benefit gaps. A common root cause is end-users using workarounds because they don’t understand the importance of using new technology. In cases like this, follow-up end-user training and enhanced communication can bridge benefit gaps.
Many companies designate KPI owners as the people responsible for measuring benefits, identifying root causes and implementing corrective action. The ideal KPI owner is familiar with the processes being measured, has a stake in their success and has the leverage to address lagging performance. In general, department managers are the ideal candidates for overseeing performance metrics for their respective departments.
In addition to ownership at the functional level, executive ownership of aggregated KPIs at the organizational level is necessary to achieve a holistic view of performance and drive accountability.
It’s also important to measure benefits post-go-live. While the ERP Project team will most likely be tired and ready to move on with their lives, successful ERP projects never end.
If your company is focusing on business process management as part of your ERP project, you likely understand the importance of continuous improvement.
Business process management is an ongoing process that continues after go-live, so your ERP system should continue to evolve, as well. This ensures long-term alignment between your people, processes and technology.
If you’ve implemented a scalable ERP solution, then long-term alignment should be achievable. However, it is not easy.
One of the ways we help clients ensure long-term alignment is by creating an ERP centre of excellence focused on continuous improvement.
Now that you know how to maximize benefits realization, you’re probably wondering what type of benefits you should expect. Keep following on our publications to have a clear understanding of some common ERP business benefits and advice on how to achieve them from your preferred Consultants..
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