Building an ERP Organizational Change Management Strategy Eric Kimberling Panorama Consulting Group
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1 Building an ERP Organizational Change Management Strategy Eric Kimberling Panorama Consulting Group 2007 Panorama Consulting Group. All rights reserved.
2 What We ll Cover Introduction Overview of ERP Organizational Change Management Key ERP project change management activities 10 steps to effective ERP organizational change Expected results of ERP organizational change Lessons from the front-lines Wrap-up 1
3 Introduction ERP projects require large investments in time and money to implement The average cost to upgrade to a new version of ERP is $1.5 million 57% of companies running ERP are not convinced they are realizing a positive ROI after nearly three years of operating on the new system In a recent 2006 study, 78% of ERP projects were 10% or more over budget Difficulty optimizing business benefits equates to a low ROI 2
4 Why Do Companies Fail to Realize an ROI on ERP? Lack of business rationale for implementing Inadequate executive buy-in Failure to consider key business requirements during vendor selection process Too little focus on optimizing business processes Poor project management and project cost controls Lack of focus on Organizational Change Management (OCM), communications, and training Failure to measure performance/roi and to conduct post-implementation audit Most of the above failure points are directly or indirectly related to organizational change management 3
5 In This Session Understand key sources of employee resistance to ERP implementations Learn the three most effective ways to enable ERP changes among employees Comprehend the ways to leverage organizational change to effectively implement ERP business process changes Ensure your organization s employees and stakeholders are ready for ERP 4
6 What We ll Cover Introduction Overview of ERP Organizational Change Management Key ERP project change management activities 10 steps to effective ERP organizational change Expected results of ERP organizational change Lessons from the front-lines Wrap-up 5
7 Benefits Realization Pyramid: Focus on Business Processes Business processes serve as the foundation for technology improvements enabled by Organizational Change Management End result is optimized business benefits and a strong project ROI 6
8 OCM Throughout the ERP Lifecycle During ERP project planning and Blueprint: Assess organizational readiness to identify areas of resistance Define workflows in the context of specific roles and business workflows, not just at the ERP transactional level Begin defining changes to employees During implementation: General project communications to employees Define gaps between the current environment and the future ERP world Discuss impending changes to each major functional area, department, and/or geographical location Training Post-implementation: Identify pain points and barriers to effective benefits realization Conduct refresher training as needed 7
9 OCM During Blueprint and Realization OCM is not merely training that occurs before go-live The foundation for OCM is established during Blueprint and Realization Assess organizational readiness Identify process and organizational gaps defined during Blueprint Begin communications early in the project Facilitate change discussions with each impacted group long before training begins These activities will be covered in more detail later in the presentation 8
10 The Technology- vs. Business-Focused ERP Project Implementation Approach Designing the System Technology-Focused Approach Slam in the system Define technical requirements Business-Focused Approach Implement quickly, but with minimal business disruption and maximum business impact Define business process requirements Training Measures of Success Organizational Change Management System transaction training Minimize technical bugs Train to use system Process and workflow training, emphasizing the system as an enabler of those processes Minimize disruptions to business operations and maximize impact on measurable business benefits Build a variety of employee buy-ins, communications, and learning tools Recommended Approach 9
11 The Technology- vs. Business-Focused ERP Project (cont.) 1. Plan 2. Design 3. Build 4. Test 5. Go-Live 6. Post Go-Live Audit Current Environment Legacy or old ERP system Inefficient processes Siloed workflows and data Key ERP Migration Success Factors Effective Project Management Business Process Definition Employee Job/Role Definition Overcome Resistance to Change Regular Communication with Employees, Customers, and Vendors Employee Training: Workflowand Job-Focused Benefits Realization and Performance Measurement Future ERP Environment Integrated ERP solution More efficient processes Standardized workflows Centralized data 10
12 Organizational Change Management Drives Benefits Organizations typically see an initial drop in productivity after a major IT implementation P e r f o r m a n c e M a x im iz e P re - IT IM P L E M E N T A T IO N P o s t - IM P L E M E N T A T IO N M in im iz e F e b ru a ry M a rc h A p ril M a y J u n e J u ly 11
13 What We ll Cover Introduction Overview of ERP Organizational Change Management Key ERP project change management activities 10 steps to effective ERP organizational change Expected results of ERP organizational change Lessons from the front-lines Wrap-up 12
14 Three Steps to Enable Organizational and Process Change 1. Define gaps early in the ERP project Focus on how people s day-to-day processes and jobs will change 2. Involve the appropriate people in identifying gaps Include ERP experts and business users 3. Get into the operational details Changes are more meaningful in the context of how employees perform their jobs Don t be too soft or high-level: fully understand the process changes Be pragmatic 13
15 Key Change Management Project Activities Organizational Change Management is a key enabler of ensuring ERP Benefits Realization Begin change management activities during design, then build and continue through post go-live Many post-implementation root causes and corrective actions involve Organizational Change Management issues: Lack of employee buy-in Lack of accountability Need to redesign job roles and descriptions Alignment of KPIs to performance evaluations and overall job expectations 14
16 Key Change Management Project Activities (cont.) Focus on removing the obstacles to change identified in the organizational assessment Identify issues that can be addressed via Organizational Change Management May require longer-term cultural changes that will not be affected overnight Share key communication messages with employees throughout the project Purpose for implementing ERP Project milestones and status Post go-live performance vs. targets 15
17 Organizational Change Management Drives Benefits The goals of ERP change management are to: Minimize the drop in productivity immediately after go-live Maximize the increase in productivity after users get through the learning curve of new technology Decrease general learning curve for ERP functionality The Organizational Change Management aspects of ERP Benefits Realization address these goals: Ensures employees are using the system as intended, which improves overall company performance Creates a level of comfort and understanding of how ERP should work 16
18 What We ll Cover Introduction Overview of ERP Organizational Change Management Key ERP project change management activities 10 steps to effective ERP organizational change Expected results of ERP organizational change Lessons from the front-lines Wrap-up 17
19 10 Steps to Effective ERP Organizational Change 1. Define corporate Key Performance Indicators (KPIs) 2. Perform change readiness assessment 3. Model high-level business processes 4. Develop operational KPIs 5. Model detailed business processes 6. Develop group/departmental KPIs 7. Develop end-user training and support 8. Conduct post-implementation benefits measurement 9. Perform root cause analysis of benefit gaps 10. Implement corrective action 18
20 ERP Benefits Realization Timeline ERP Design/Build Go-live 1. Corporate KPIs 2. Change Readiness assessment 3. High-level processes 4. Operational KPIs 5. Detailed processes 6. Group/departmental KPIs 7. End-user training and support 8. Benefits measurement 9. Root cause analysis of benefit gaps Change Management and Communications 10. Corrective action 19
21 Step 1: Define Corporate KPIs Focus initially on high-level, corporate-wide benefits Link closely to business case justification and dollar savings Use to drive accountability for business improvements to lower levels of your organization Establish baseline performance levels and post go-live targets Typically performed by business or financial analyst, along with ERP Project Manager This step is critical to driving accountability for the ERP project down to lower levels in your organization 20
22 Step 1: Define Corporate KPIs (cont.) Begin with a laundry list of potential KPIs, then work with key business owners to prioritize and arrive at a final list Align closely with corporate strategy Examples of corporate KPIs: Annual revenue growth Return on working capital Revenue per employee KPIs to avoid: Those that are too broad Those that don t tie to your strategy Those that can t be affected by most employees 21
23 Step 2: Perform Change Readiness Assessment Evaluate the readiness of the organization to adapt to ERP Conducted by Organizational Change Management or training employees and consultants Use a variety of tools Internet-based survey distributed to employees affected by ERP Focus groups of representatives from all major departments/areas affected by ERP 22
24 Step 2: Perform Change Readiness Assessment (cont.) Use results to identify key areas of resistance and change obstacles Low employee morale Distrust of management Lack of employee involvement in ERP project and/or key business initiatives Recent struggles with changed or failed IT projects Poor inter-company communication Develop organizational change plan to mitigate resistance 23
25 Step 2: Sample Change Readiness Questions Survey questions based on a 1-5 scale How well informed are you of the ERP project? How well do you understand why we are implementing ERP? Do you enjoy working at this company? How well do you feel management communicates with employees? How well-defined are people s roles and responsibilities at this company? How do you rate employees accountability and work ethic? How well have employees adapted to change in the past? 24
26 Step 2: Sample Change Readiness Questions (cont.) Open-ended survey questions What do you like most about working here? What do you like least about working here? What key things would you like to see from an ERP system? What other comments do you have about working here? 25
27 Step 3: Model High-Level Business Processes Document enterprise-wide business processes and pain points Level 1 to Level 2 detail (high-level) Focus on process inputs, outputs, and KPIs Identify touch-points with people and the ERP system Prioritize importance of functional processes Provide hard copies of draft process documentation for employees to mark-up and make comments on Visio is a good tool to use Simple and easy to distribute and share 26
28 Step 3: Model High-Level Business Processes (cont.) Focus on as-is, while highlighting opportunities to improve existing processes Helps the organization understand how business really works Gaps and opportunities for improvement become more apparent Allows the project team to define how broken processes can be improved using ERP Allows the change management team to better understand how people s jobs will change in the post-erp environment Focusing on as-is is the fastest and most effective way to define high-level processes and corresponding gaps to to-be ERP environment 27
29 Example: Document Current Processes Landscape, Ornamental Pruning and Shadetree SW Start Print out date driven work order Promise job Determine crew type and equipment needs Date driven work order Man Schedule Work Man Customer Notification Man Enter into route book Man Order go to field routing book Work performed Calculate labor hours and leave invoice with customer Return to office and calculate cost, labor hours, materials cost and production cost Goes to Rep for review Keyed complete into Swingleware w/changes if any Overnight process updates Accounts Receivable Page 9 Will not happen until verified 28
30 Example: Identify Pain Points from the Processes Printing work orders prior to scheduling work results in frequent changes to job and cost Manual work order to complete maintenance, such as changing prices and/or work order line items High volume of work orders manually keyed Manual process for creating and tracking yard checks Manual process of assigning crews and trucks to work orders Manual process for creating, managing, and routing storm damage orders Imperfect sequence and routing of jobs Difficult visibility to work in progress, especially décor Paper process for scheduling and routing work orders 29
31 Example: Identify KPIs Related to Processes Average crew travel time Average number of jobs per crew, per day Order completion time Percent of jobs completed on time Daily dollar average of work complete 30
32 Example: Business Process Gaps vs. Changes with ERP Routing department will be required to use ERP to route daily work orders Crews will be required to use mobile devices to capture work order detail in the field Customer service representatives will have electronic visibility to work order and customer status Sales reps will have access to automated electronic product and pricing information 31
33 Step 4: Develop Operational KPIs Translate high-level KPIs from Step 1 into manageable chunks that can be influenced by lower-level employees Used to drive accountability for business improvements to all levels of your organization Operational measures that are assigned to mid-level managers and front-line employees Establish baseline performance levels and post go-live targets The most successful performance measures are visible to and easily influenced by employees 32
34 Examples of KPIs at the Operational Level Less effective operational KPIs: Business unit profitability Total labor costs Total end-to-end product design cycle time More effective operational KPIs: Average number of new product designs per employee per month Inventory turns by warehouse location Number of new product introductions per year 33
35 Align Operational KPIs to Lower Levels Corporate KPIs Tied directly to corporate-level goals Sample KPIs Wholesale sales and profit Retail sales and profit Product development time to market Business Unit KPIs Business Unit KPIs Sales and profit by region Sourcing costs Number of product introductions per year $ Savings Measured Results Departmental KPIs Metrics Departmental KPIs Average inventory costs Number of new product designs completed per year Inventory accuracy ROI Individual KPIs Individual KPIs Average inventory cost by location Number of new designs per employee 34
36 KPIs Enable Other Change Initiatives Business Case, KPIs, and ROI Process Benefits Improved process cycle times Lower labor costs Higher efficiency Sarbanes Oxley compliance Capital and Infrastructure Benefits Reduced inventory cost Lower IT infrastructure costs Decreased A/R levels Increased A/P levels Executive Alignment Goals and objectives, project sponsorship Process Improvement Average cycle times, average labor costs Org. Design Individual job roles, MBOs, performance evaluations, individual scorecards IT Configuration Process workflow modification, report designs, analytics 35
37 Step 5: Model Detailed Business Processes Translate high-level processes from Step 3 into operational business processes by work group Focus on departmental pain points and opportunities for improvement Identify more detail around interactions between people and systems Follow the same steps outlined in Step 3, but at a more detailed level Should get to level 2 or 3 detail (fairly granular, but one step above the transactional level) This step is often not performed adequately or not performed at all. To realize full benefits, don t skip this step! 36
38 Step 6: Develop Group/Departmental KPIs Translate operational KPIs into actionable, measurable metrics at the work group level Ensures alignment all the way back to business case and corporate KPIs Better defines how lower-level employees are expected to contribute to streamlined business processes and ERP benefits Creates strong sense of ownership and accountability among employees Assign responsibility for each KPI to a business owner Trace back each KPI to a specific ERP report that will be used to generate actual performance data 37
39 Step 6: Develop Group/Departmental KPIs (cont.) Commonly used ERP reports for measuring group/ departmental KPIs Total sales by department Profit center P&L profitability Cost center cost summary Inventory value reports 38
40 Align Group/Departmental KPIs to Lower Levels Corporate KPIs Tied directly to corporate-level goals Sample KPIs Wholesale sales and profit Retail sales and profit Product development time to market Business Unit KPIs Business Unit KPIs Sales and profit by region Sourcing costs Number of product introductions per year $ Savings Measured Results Departmental KPIs Metrics Departmental KPIs Average inventory costs Number of new product designs completed per year Inventory accuracy ROI Individual KPIs Individual KPIs Average inventory cost by location Number of new designs per employee 39
41 Step 7: Develop End-User Training and Support Focus on ERP system functionality that affects employees day-to-day jobs Target training as much as possible Focus material on overall business process, not just mechanics of how to use the system Provide big-picture context of how individual processes affect other downstream processes and data within ERP Define ERP transactions in the context of how employees will perform their jobs and business processes day-to-day Try not to overwhelm employees with too much information that does not directly relate to their job 40
42 Step 7: Develop End-User Training and Support (cont.) Leverage a variety of training and support tools Formal, classroom training Computer-Based Training (CBT) courses Online help and reference Employees that can act as super users for their functional areas Provide employees with adequate ongoing training and support, even after go-live 41
43 Key to Success: Measure Performance After Go-Live ERP Design/Build Go-live 1. Corporate KPIs 2. OCM assessment 3. High-level processes 4. Operational KPIs 5. Detailed processes 6. Group/department KPIs 7. End-user training and support 8. Benefits measurement 9. Root cause analysis of benefit gaps Change Management and Communications 10. Corrective action 42
44 August 21, 2001 October 12, 2001 Total Reduction # of # of Items Amount Items Amount Unapplied Cash (RUs) 5,371 $7,098,791 3,188 $4,431,536 RUs since - - 8/20/ ,511,956 Unapplied Cash Prior to 8/20/01 5,371 $7,098,791 2,443 $2,919,580 2,928 $4,179,211 Key to Success: Measure Performance After Go-Live (cont.) System Go-live Benefits Measurement Balanced scorecards, reports NSFs Voids Svc Pmts & Deposits Root Cause Analysis of Benefit Gaps Fishbone diagrams, activitybased costing, process analysis Improper Unresolved Why in use of void items not 2451? indicators Invalid BAN written-off in timely fashion Market to market Timing Posts in transfers require differences multiple times JE to clear in TLG Entered in Posts in TLG, but not in Inconsistent use Compass, Compass of void indicators not in TLG GL Account 2451 is not System Lack of limitations reconciled unique Lack of Inadequate documented Tuxedo is not identifier training processes understood Improper Unclear how to use Inappropriate account Bus Obj reports user access mapping Reliability Lack of Lack of oftuxedo clear program mgmt data ownership to coordinate transfer Lack of sufficient systems reporting to explain releases Differing balance in 2451 Technology perceptions Communication in CA & IT Implement Corrective Action Process improvement plans, org. realignment, job redesign The purpose of this report is to summarize the findings and recommendations resulting from the Unapplied Cash Project undertaken by The North Highland Company from August 21, 2001 to October 16, This report contains the following sections: Project Goals Overall Project Status Approach and Work Performed Project Findings and Recommendations Conclusion Project Goals To significantly reduce the amount of unapplied cash and other open credits in a 6-8 week timeframe. To identify the root causes of the unapplied cash build-up. To analyze and implement solutions to prevent recurring problems. Overall Project Status The following table shows the number and dollar amount of unapplied cash transactions (RUs) measured at the beginning and ending dates of the project, backing out unapplied cash since 8/20/01: Over the 2-month project period, unapplied cash measured by number of RUs and dollar amount was reduced 55% and 59%, respectively. Cost / Benefit Review If the unapplied cash had been resolved through a collection agency, the cost of the reduction would have been $417,921 (10% discovery fee * the unapplied cash reduction). The North Highland invoiced amount for the project will be. This represents a savings of $ compared to sending the items to a collection agency. Benefits Realization 43
45 Step 8: Conduct Post-Implementation Benefits Measurement Shortly after go-live, project team should measure performance using KPIs established in Steps 1, 4, and 6 Begin approximately three months after go-live Measure results quarterly to monitor longer-term trends and improvements Compare actual performance to baseline performance and established goals and targets Measure baseline performance prior to go-live Base targets on industry benchmarks and/or trend targets 44
46 Step 8: Conduct Post-Implementation Benefits Measurement (cont.) KPI business owners should generate actual performance data to further drive ownership Provide tools for business owners to generate reports and/or access performance data themselves ERP reports, Crystal Reports, and so on Collect overall performance data into a corporate dashboard Manual, data warehouse, or business intelligence software ERP s Business Warehouse (BW) module provides good functionality for tracking actual performance KPIs 45
47 Step 8: Conduct Post-Implementation Benefits Measurement (cont.) Identify gaps between target and actual performance Provides foundation for root cause analysis in Step 9 Identifies longer-term trends in performance data Helps communicate opportunities for improvement to employees Emphasizes importance of results to employees 46
48 Step 9: Perform Root Cause Analysis of Benefit Gaps Identify reasons for under-performance against KPIs Conduct analysis using a variety of tools Process workshops Interviews and focus groups with key employees within affected department or functional group Look for common causes of under-performance Employees not fully understanding how to use ERP properly Users reverting to manual or pre-erp processes Breakdowns between inter-departmental process hand-offs 47
49 Step 9: Perform Root Cause Analysis of Benefit Gaps (cont.) Most problems are related to people or business processes Not the ERP software Leverage commonly used tools for root cause analysis Fishbone diagrams Pareto charts Other Six Sigma tools 48
50 Sample Root Cause Analysis Diagram NSFs Voids Svc Pmts & Deposits Unresolved items not written-off in timely fashion Why in 2451? Timing differences Improper use of void indicators Invalid BAN Posts in multiple times in TLG Market to market transfers require JE to clear Entered in TLG, but not in Compass Tuxedo is not understood Lack of program mgmt to coordinate systems releases System limitations Inappropriate user access Technology Inconsistent use of void indicators Lack of unique identifier Improper account mapping Reliability oftuxedo data transfer Differing perceptions in CA & IT Lack of documented processes Lack of clear ownership Communication Posts in Compass, not in TLG Lack of sufficient reporting to explain balance in 2451 Inadequate training Unclear how to use Bus Obj reports GL Account 2451 is not reconciled 49
51 Step 10: Implement Corrective Action Identify and implement activities that correct process breakdowns based on root cause analysis Changes to business processes Additional refresher training and support Executive involvement and escalation where necessary Other Organizational Change Management activities Better communication of business processes Clarification of performance expectations 50
52 Step 10: Implement Corrective Action (cont.) Prioritize root causes and potential solutions based on problem s degree of severity and solution s associated cost and effort to implement Focus on low-hanging fruit Initial actions typically relate to providing refresher training or fixing broken processes Focus on no more than improvement areas per quarter Project team should caution against spreading resources too thin 51
53 Step 10: Implement Corrective Action (cont.) Team should develop process improvement plans for top problems and solutions Separate plan for each problem/solution Each plan should contain its own activity owners, milestones, and resources Outcome of this step is a series of small project plans that are managed as any other business or IT project 52
54 What We ll Cover Introduction Overview of ERP Organizational Change Management Key ERP project change management activities 10 steps to effective ERP organizational change Expected results of ERP organizational change Lessons from the front-lines Wrap-up 53
55 Expected Results of ERP Organizational Change Increased efficiency and effectiveness Better alignment of ERP project with strategic goals and objectives Increased buy-in, support, and ownership for ERP project Tangible evidence and documentation of streamlined business processes Benefits should exceed the cost of implementation 54
56 Expected Results of ERP Organizational Change (cont.) Reduced project risk Aligned business and technical activities Effective identification and correction of potential obstacles to realizing ERP benefits More thorough understanding of under-performance and lessons learned Improved justification for future IT project approvals Improved quality and continuity through ERP project lifecycle 55
57 What We ll Cover Introduction Overview of ERP Organizational Change Management Key ERP project change management activities 10 steps to effective ERP organizational change Expected results of ERP organizational change Lessons from the front-lines Wrap-up 56
58 Case Study: ERP Organizational Change in Action ABC Utilities was facing employee resistance from its ERP project after go-live Unionized and tenured workforce Command-and-control management style Expected benefits were not being realized Process breakdowns were common 57
59 Case Study: ERP Organizational Change in Action (cont.) Implemented key activities to increase acceptance of system Regular measures against KPI targets Became part of manager scorecards KPIs included many that were directly affected by effective use of ERP Instituted regular post-implementation audit of ERP benefits Refresher training helped employees better use ERP to perform processes Increased benefits from less than 20% to over 80% of expected benefits within six months 58
60 Common Challenges in Realizing ERP Benefits Unrealistic business benefits and performance targets Should be aggressive, but not unattainable Set goals to stretch performance and results without setting up employees for failure Involve employees in identifying and quantifying benefits to ensure appropriate buy-in Not enough alignment between ERP and the business Use ERP functionality to enable reporting and business processes Use ERP to drive business processes where possible Lack of executive support and buy-in Begin executive involvement early and continue long after the project is over 59
61 Common Challenges in Realizing ERP Benefits (cont.) Losing focus of business improvement Avoid getting too caught up in the mechanics of ERP Focus on ERP functionality that will add measurable value to your business For example, use ERP Workflow to streamline approval processes Losing control of overall ERP project costs Treat project budget line items as you would business KPIs Use as a tool to prioritize and control items that will inflate project costs Cost is the denominator of the ROI equation, so treat project cost KPIs the same as business benefit KPIs 60
62 Common Challenges in Realizing ERP Benefits (cont.) Culture that is not conducive to change Distrust of senior management History of unaccountability, lack of performance measurement Lack of employee buy-in and support of initiatives in the past History of failure with IT implementations Use Organizational Readiness Assessment as a tool to identify cultural barriers, and implement activities to change Lack of enterprise-wide business process mindset Companies often operate in silos Need to take more company-wide view of business processes Identify processes that will benefit the company as a whole, not just departments or individuals with the most political power 61
63 What We ll Cover Introduction Overview of ERP Organizational Change Management Key ERP project change management activities 10 steps to effective ERP organizational change Expected results of ERP organizational change Lessons from the front-lines Wrap-up 62
64 Resources Gartner research Benchmark studies and analysis related to ERP and ERP projects ITtoolbox ERP Knowledge Center, including white papers, blogs, and online discussions regarding ERP best practices Panorama consulting benchmark study Share ERP project results against industry best-in-class performance Sample process gap analysis and process team templates on your Take-Home CD 63
65 7 Key Points to Take Home Organizational change management consists of more than training and communications Begin your organizational change program with an organizational readiness assessment to identify resistance to change Focus on defining business process workflows, as well as the impact on people s jobs Incorporate change management activities into your overall project plan early 64
66 7 Key Points to Take Home (cont.) Assign ownership of KPIs to managers and employees to drive benefits to lower levels of the company Conduct a post-implementation audit to see where you stand Implement corrective action to ease employees transition and to address benefit shortfalls 65
67 Your Turn! Questions? How to contact me: Eric Kimberling 66
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