Over the past decade Enterprise Systems or commonly known as ERP have become ubiquitous in most large companies. Such as been the rapid growth of ERP since the late nineties that some of the companies which develop and sell these Enterprise Application packages also happen to be among the largest software companies based on annual revenue and they seem to be continually growing. Today Enterprise Systems not only include software which enables your organization to perform business operations but the packages also incorporate a large amount of industry specific business functionalities which will ensure that you do not have to do too many customizations to make the package suitable to your business operations. This verticalisation helps organizations adopt the system faster and too a large extent help provide growing organizations by provide a framework of processes for their business.
One of the distinct advantage of using an Enterprise System is that provides an integrated solution for the entire business. Typically organizations which adopted to Information technology early in the cycle would have taken the best of breed solutions for specific business needs like accounting or inventory management which although addresses the needs of the particular processes cannot communicate with systems working on some other process in the same organization. Thus the organization is saddled with multiple and disparate systems. Larger organizations who adopted to information technology initially had complex blocks of software built for their own specific needs, this was with an understanding that the process would not change so build a software to suit the process. Not only have these custom-built applications become difficult to manage but they also pose unique challenges in terms of upgrade or adaptation to the latest technology standards. A ERP on the other hand not only provides a full integrated solution for all aspects of business it also comes with its framework of upgrades to changing technology. These upgrade paths are usually defined by the Enterprise Systems vendor.
The other distinct advantage of an ERP package is that most of the standard business functionalities and operating processes are built into the software code, thus reducing the time required to understand process related issues of software implementation and also providing the organization with a standard framework of processes to use which enable the organization to adopt industry best practices faster. But this advantage of ERP is where some of the problems of the ERP initiatives also begin.
It is important for the organization leadership to understand that the ERP package is not just about automating business functions, but it is also going to force its own logic on the business. This could have consequences ranging from resistance by functional managers who have carefully developed a particular process over a few years now being asked to change it to disastrous results of the organization not being able to use the implemented Enterprise System because of its inability to change its process or adopt to the process built into the software. Since the system offers a standardize process for doing business and most organizations in the same industry and in the similar product usually use the same Enterprise system, how do you maintain your strategic differentiation. What will happen to all the carefully built processes which were nurtured and secretly guarded to give your company a competitive advantage one the Enterprise System is implemented.
From the perspective of the organizations leadership it has to be understood that ERP implementation is not a technology initiative but a strategic initiative which will change the way the organization does its business. As a corollary it is also important that the ERP implementation initiative has Executive Sponsorship at the Senior Management level and has the involvement of the business unit heads, it should not be an initiative to be undertaken by the IT Team of the company.
The few important questions that immediately come up are:
What are the senior management folks or the business unit heads expected to contribute in the ERP implementation initiative?
Are Executives required to only sponsor budgets and review progress or is there a more useful utilization of Executive time to ensure the success of the ERP intiative?
What specific decisions or processes help in the ensuring the right decisions are taken for the success of the intiative?
The rest of the article discusses areas which the Executive sponsor need to be involved in to ensure that the ERP initiative is on the right track
ERP Readiness Assessment:
The ERP readiness assessment process is aimed understanding the readiness of the organization to undertake an ERP implementation initiative. As stressed earlier this is not a technical evaluation of the organizations readiness although some aspects are assessed. This assessment approaches ERP as a strategic initiative.
The initial ERP readiness assessment has to use both qualitative information about the organisation on overall dimensions which affect all sections of the organisation and its stakeholders. The qualitative information pertaining helps evaluate the readiness of an organisation to go in for a full fledged ERP implementation and understand the various gaps which need to be fixed before the organisation embarks on the ERP initiative. Some of the dimensions which need to be taken into account are:
1. Organisational Vision
2. Structure,Hierachy and Work Culture
3. Current Business Processes and Process maturity
4. Goals and objectives of using IT
5. Current state of IT Infrastructure
This initial assessment need not touch upon any of the specific functional areas like Finance & Accounting or Sales & Receivables as the objective is not to get information on how the specific process is managed and it need not specifically look which type of technology or Package has to be used for ERP implementation. This kind of assessment, conducted internally or through an external consultant, is useful for mid-market growing organisations that need to assess their internal readiness for a successful ERP implementation and want to analyse the gaps in their approach towards an ERP initiative as against the present condition of their organisation. The recommendation could be looking for specific criteria in the ERP implementation or could also be a decision to hold the ERP implementation till some organisational initiatives are implemented.
The Go-Ahead decision on the ERP initiative
Once you have assessed the readiness of your organization to accept an full fledged ERP initiative it is time to make the crucial decision on going ahead with an ERP initiative. In mid-sized organizations since the ownership patterns are typically different as compared to large global corporations, the decisions can be expected to be much quicker. The decision of the Executive Team to Go-Ahead with the ERP implementation should include the following criterion.
Spend on ERP & IT Initiatives
The ERP implementation will be the critical part of the all IT initiatives in your organization. Typically for mid-sized businesses an IT spend of anything above 1% of annual revenues would be considered progressive. For the financial year you are implementing the ERP pacakage you may have budget a higher amount of upto 3% of your annual revenue. This is a crucial decision and the involvement of the CFO/Head of Finance therefore becomes important.
Processes which will be included in the ERP Initiative
This requires a critical evaluation of what is core to the business and inter-dependencies of the processes. Whether the processes are already covered by another legacy application is a consideration. Understanding which processes will be covered by the ERP initiative also help in the package and vendor evaluation which we will discuss in the next stage.
Change Impact
Whether you are using an IT application currently or not it is a fact that the ERP implementation is going to change the way the business is being done. The most critical impact will be on the processes being covered by the ERP. A typical way of communicating the change impact and getting buy in for the change processes is to involve the managers handling the key business process. But in many cases managers themselves may not be the actual users of the system and therefore the involvement of key users of the system post-implementation is critical. The other aspect of the change impact will be the implications of de-staffing or redeployment of staff in key processes.
Organising the Internal Team for the initiative
It is normal for the ERP implementation to be sponsored by an executive member at the CxO level of the organization and be lead by the senior IT manager. But in addition to the sponsor and the project lead, a large team needs to be constituted to ensure the implementation covers every aspect of the organizations business. Key members of this team would be the Senior Accountants who would bring in their perspective not only costs but also of how various processes and any changes in them impact the financials of the company and the HR Manager who needs to be in the know of the required organizational changes and re-structuring, motivating key managers and staff to be a part of ERP implementation either full time or as an additional responsibility is another reason.
Managers handling key functional areas or business processes are essential members of the team. One of the issues faced will be that the managers in particular functional area are not often the people using the system and can therefore contribute little to the initiative. It is advisable to hand-pick key staff who have a very good understanding of the processes and have suitable adaptability to technology to be a part of the full time team, they would often look at the inclusion in the team as a reward.
ROI Assessment
ROI of ERP is a very tricky task which most IT managers and ERP vendors tend to skirt. In some of the larger organization the view that is gaining ground today is that ERP is an essential part of the organization infrastructure cost and therefore there is no reason for assessing ROI, just like you do not assess ROI of the building and facilities used by your company. The reason why ROI is tricky and difficult , are because a large number of intangible benefits gained through streamlined processes , better availability of information and competitive advantages are hard to assess, the data required would take months to gather. The Costs which need to be considered in the ROI assessment are not just the license costs and implementation costs for the system, but also cost of training, opportunity cost of internal team and costs in support. The revenue advantages gained could be directly quantifiable based on reduction in cost or improvement in productivity, like reduction in staff or elimination of paper work which is easily measured or could be seen in terms of improved opportunities for future accrual, like better time to market for products or improvement in manufacturing practices.
Risks:
It needs to be understood that the ERP is going to change the way of doing business and therefore the risks are not technology risks but business risks. They could disrupt the operations and cost considerable dollars in loss of time and opportunity. The executive team has to have before them the assessment of risks along with the planned risk mitigation strategies. This could cover organizational issues like re-training of staff for the new system, re-structuring the organization due the anticipated changes in process or ensure availability and uptime of mission critical systems.
Package Evaluation and Selection:
The success of the ERP implementation in the short term and for the future depends largely on the selection of the Enterprise Systems packages to be used. While it is always an attractive proposition to go in for the best brand names in the Enterprise Systems space ,the decision has to be made based on the suitability of the package for your business and your strategic objectives.
Some of the questions which need to be answered are
Does the financial strength and long term goals of the Enterprise Systems Vendor match your companys expectation?
This is important from the perspective of the vendor being around for some time in the future to support the package implemented and also the problems in upgrade and migration it would cause if the ERP vendor were not in position to support the system or worse still sell off to another Enterprise Systems company.
How easy is the system to use?
This has an impact on the acceptance of the system by employees and the cost of training.
What are the functionalities and features the product has to offer?
This is where you need to do a detailed analysis of what the product offers against what you need for your organization.
Ease of customization?
One size does not fit all and same is true for processes. So although standard processes can be used, to achieve distinct advantage it is necessary for these processes to be customized for the business, the software package should provide the ability to customize and tweak the package to suit your business.
What is the cost of acquisition, implementation, support and upgrade?
What are the past implementations of this technology?
What space of technology do they work in?
Do they use the latest standards in technology like Web Services, SOAP etc
If you are beginning from a scratch, the package evaluation process is not only critical to the entire implementation but also the foundation for the rest of the ERP implementation initiative. It requires not only careful planning and research but may need extensive professional help from outside consultants specializing in this area. Depending on the size of the organization and the nature of the final deliverable ranging from just documentation of evaluation criteria to actually selecting and buying the right Enterprise System, the process could take anywhere between 6 weeks to 6 months.
Implementation Partner selection process:
The selection of the vendor could be performed in tandem or later than the package selection process. It could be recommended by the package vendor or be based on your own independent evaluation. In certain case the implementation partner can be selected first based on their expertise and breadth of knowledge in Enterprise Systems and be involved in the process of package selection.
Some of the important aspects which need to be considered in addition to their cost and the experience in implementing Enterprise Systems are:
What is their experience in your vertical or line of business, will they have the ability to understand your business issues?
What are the profiles of consultants, analysts or technical specialists who they are ready to offer for your implementation?
What are the range of services and nature of the services offered by the implementation partner?
What has been their past track record in project delivery?
What kind of warranties, risk mitigation plans and business continuity assurances do they offer?
Going through a proper readiness assessment, having taken the right decision and having selected the Enterprise System and the implementation partner. The organization is now on the right track to start the ERP implementation. Time and patience are required to make the right decisions and the Executive time should be willing to expend both if the ERP implementation has to be successful.
Vijay V Bhat works with one of India's leading technology consulting companies. He also has experience in the managerial sphere of manufacturing organisations in India. Writing is a hobby and a passion. He has also taught Engineering and Management subjects in India intermittently in different phases of his career.