Business Software Enterprise Resource Planning. White Paper. Critical success factors for an ERP-implementation. Barbara De Vos

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1 Business Software Enterprise Resource Planning White Paper Critical success factors for an ERP-implementation Barbara De Vos

2 Introduction To become and remain a successful organization in our fast-changing and competitive marketplace, companies have to continue investing in software that fits in closely with their corporate objectives. Very often, ERP software (Enterprise Resource Planning) forms the backbone of such investments. ERP systems not only support business processes, but they also harmonize them. Implementing an ERP package generally has a tangible impact on the entire organization and should not be underestimated in terms of investment budget. Which is why it is vitally important that the implementation of an ERP system runs successfully and supports the objectives it is intended to. There are usually various reasons for a company to implement an ERP solution. Figure 1 shows the main benefits of an ERP investment. It demonstrates that an ERP solution leads in the first place to better availability of information, higher productivity, greater interaction between departments, improved availability of data and a reduction in double data-entry. Figure 1 Benefits gained No benefits gained Lower IT costs Shorter throughput times Better interaction with the client Lower operating costs Better interaction with the supplier Control over compliance with procedures and rules Better-supported decisions Less duplicated work Greater reliability of data More interaction Increased productivity Availability of information

3 In an ideal world, businesses should recoup their investments in ERP through a rise in productivity and efficiency, enhanced customer service and, in a number of cases, a reduction in the number of FTEs (Full-Time Equivalents). Yet it appears that a great many companies are still failing to earn back their investments sufficiently investments that often run higher than originally expected. At least as many companies are unable to confirm whether or not they have been successful in their set-up because they do not have a business case to compare their actual results achieved with. Various surveys, conducted with organizations such as Value Chain, Aberdeen Group and Panorama Consulting, show that ERP implementations often do not achieve the required results, because their business processes are not sufficiently well supported and the scheduled implementation time and proposed budget are significantly exceeded. Figure 2 Overall satisfaction with ERP implementations Overall implementation experience Acceptance by staff Implementation costs Quantity of customization required Ability to gear with business requirements Very happy Happy Neutral Not so happy Unhappy Ease of use Implementation service from the third party Implementation service from the software provider Overall functionality of the software Flexibility in adapting the software Source: Panorama Consulting

4 In reality, only three-quarters of companies are able to report measurable results from their ERP implementation. Of these, 60% say that more than half of the expected results were in fact achieved. Only one-quarter were of the opinion that the ERP solution met half or more of their expectations. Figure 2 outlines the picture of overall satisfaction with ERP implementations. It shows that one ERP implementation differs from another and that the additional costs and time taken by many implementations made an insufficient contribution to a better end result. This white paper contains the latest insights into the critical success factors resulting in a successful and satisfactory ERP implementation. In other words: an implementation that comes in within the planned time frame and budget, is totally in line with your organization's expectations, and for which the complexity before, during and after is reduced to the absolute minimum.

5 Success factors for a successful ERP implementation Make the impact that the project has on your corporate aims clear and measurable The aim of a successful ERP implementation is to support corporate objectives seamlessly. This means that it is extremely important to define these objectives from the outset and to set KPIs (Key Performance Indicators) that make these aims measurable. An implementation also often consists of a number of partprocesses. Having a clear understanding of the impact that these part-processes will have on your corporate objectives will help in setting strategic priorities. Good insight into what processes have an impact on which corporate objectives, and setting the KPIs that measure success give you an objective picture of the success of your project. That may sound obvious, but it s not so clear-cut for many companies. Again, research shows that the overall level of satisfaction with an ERP implementation varies sharply and is often based on subjective evaluation criteria. The relief felt at the time of going live is often so great that the feeling of satisfaction that reigns at that particular moment is actually not based on objective evaluation criteria. Companies that did not set measurable criteria beforehand are usually unable to test the actual results of the project against anything. Recent research from Panorama Consulting (2013 ERP Report) shows that an average of 30% of respondents actually have a clear view of the results. By establishing the expected impact of the part-projects in advance and making them measurable, management is able to gain the necessary insight that enables it to assess the ERP project objectively and make adjustments if necessary in good time.

6 Opt for a best-practice solution tailored to what your company does From the success factor first mentioned for a successful ERP implementation, it can be seen that every ERP project must provide seamless support for your corporate objectives. This means that it is essential to know which processes have an effect on what corporate aims. If the business-critical processes are defined, you will also know where the organization has to place its focus. Many ERP consultants traditionally start from the proverbial blank sheet of paper. They start with analyses of the current as is situation and come up with the ideal to be situation for the future. This process often requires a significant investment in time and consequently also both an internal and external budget. This new to be situation then has to be translated into technology and so companies go looking for a package that fits in with that vision as closely as possible. In most cases, the provider develops a solution that is based on a significant amount of customization over and above the standard package. It has to be said that customization usually gives the impression that a solution is being created that entirely meets the requirements of your organization. However, it is also a good deal more expensive than a standard package, both in the short and the long term. The reasons for this are the specific analyses and development costs, as well as the support needed in the long term. Then, when the technology evolves, the customization also has to migrate to new versions. Also, post-handover support costs far more, because your provider has to maintain the knowledge of your specific customization. A survey by Panorama Consulting shows that only half of respondents are happy with the standard software functionality. So a great deal of customization is often needed to achieve a solution that provides satisfaction. But a high level of customization again leads to dissatisfied customers.

7 Under 30% say that they are unhappy to very unhappy with it, especially on account of the cost involved. However, the majority of the processes that support the business in your organization are not so very different from the ones in other companies that have a similar business. Consequently, for these types of uniform processes, you are probably better off opting for the tried-and-tested best practices within your sector, rather than trying to reinvent the wheel yourself. This is guaranteed to save you lots of internal as is and to be analysis time. You can then map out where your organization wants to be genuinely unique. It is only these gaps that result in specific customization for your organization. The question that you have to keep asking yourself is whether best-practice processes need to be adapted to your requirements which itself boils down to customization or whether of you would do better to adjust your own way of working based on the industry standard. Figure 3 Reasons for investing in ERP According to Panorama Consulting, there is in fact a growing trend towards standardization. Hence some of the major drivers for investing in an ERP solution lie in optimizing and standardizing operating processes and performance. To improve operating performance To replace an old ERP or legacy system To integrate systems better across various locations To prepare the company for growth To serve customers better To ensure uniform reporting of/compliance with processes and rules To simplify the task of employees To standardize overall company operations To reduce working capital Because other companies have ERP Source: Panorama Consulting Other

8 The Aberdeen Group also supports the message that operational excellence is an important business driver for investing in ERP software. This is the case both in terms of the standard processes for the sector and for the level of flexibility needed to adjust processes to new market needs and trends. So the thing to do is go looking for a software solution that features best-practice processes and which provides added, forward-looking value to your business activity. Within your sector there are undoubtedly ERP providers that have already often assisted companies facing similar challenges to yours. If they have a number of references in your sector, they most probably have the best-practice experience you are looking for. Some of them may even have developed best practices themselves in conjunction with industry specialists or a client steering group. If they have also been translated into market-specific solutions, this is a sound platform to start from.

9 Invest in a solution focused on the future These days, the one constant is change. A survey conducted by the Aberdeen Group in September 2012 showed that the major ERP investment drivers lie not only in the lack of required functionality, but also in the difficulty of adapting the ERP solution to changing trends in business and technology. However, in an economy like ours, which is evolving so quickly, is it vitally important for your ERP solution to be capable of growing in line with these developments. So make sure that your provider is able to offer a solution that allows you to evolve along with the latest trends. Figure 4 Standard packages evolve very quickly. This means you will have to upgrade virtually every 2 years to be able to use features that support the latest trends. Many ERP providers start from standard packages that are then configured to suit your sector. They often supplement the package with addons for items that are sector-specific, but which don t come with the standard package. Make sure that you feel comfortable about migrating without having to keep making significant investments to make your specific situation fit in with the latest technological version and the latest features. Why is your current ERP solution being replaced? Lack of functionality 58% Out-of-date basic technology or infrastructure of the ERP system 52% Difficulty in adapting the ERP solution to suit changes in the business 27% Costs for maintenance and support Lack of support from the ERP provider 14% 20% Source: Aberdeen Group, September 2012

10 Consider a preliminary study to define the FIT/GAP of your preferred package An ERP implementation involves a significant investment budget for a company, not just in terms of outgoings to an external provider, but also in terms of workload on your own organization. So make sure that you make the right choice. However, the selection process is often no easy matter. Different providers claim to have the most suitable solution for your organization and can reel off a whole series of references. It is also very difficult during those limited contact times with your provider to get a genuinely clear picture of the solution that will ultimately be rolled out in your organization. It often appears that there is a major difference between your expectations as an organization and what your provider thinks it is required to deliver. Preliminary studies can certainly provide an answer to this. By way of a small number of conversations, your provider can define the size of the fit that its standard solution will provide and approximately how much customization it believes is required for your organization (the gaps ). The nearer your organization can stay to the standard, the more accurately your provider will be able to assess your project during the preliminary study. Your target should be a minimum 80% fit. Support from management in this area is vitally important so that decisions can be taken based on best practices and not too much on what the user is accustomed to. The big advantage of the best practice approach, compared with the blank sheet approach, is that now only the differences have to be assessed. Because the provider has already implemented the standard version several times, it can submit a proven assessment that can always be adjusted. Blank sheet assessments will certainly be just as accurate, but are very much dependent on the experience of the consultants.

11 Even a very experienced consultant can only assess something that is specific for one client to the best of his ability. A preliminary study should give you a more accurate picture of a number of important elements in the project, including the project price, lead time and interaction with your organization. Your preferred provider will also have had the opportunity to ask the necessary, crucial questions of your organization. In this phase, you can always decide not to go ahead with the project, or go looking for another provider. If you decide to get the project underway, the preliminary study can be used to fine-tune the project analysis and often to speed it up. So you will certainly gain by it. Project proposals based on specifications do not offer the option whereby the provider is required to interpret the more limited information available to the best of its ability and hence do its best to make an assessment. Also, potential providers will be required to translate the to be situation developed by your organization into technology, with all of the disadvantages already described as a result.

12 Focus on and invest in change management Change management is an essential part of an ERP implementation and yet often too little attention is paid to it. It becomes even more important when departing from the standard best-practice processes for the industry. Key users need to be designated in the various departments who have the authority to represent their department. They also need to have sufficient standing in the organization to be able to taken on a leadership role within the department. These individuals must not only be the first point of contact for the department during and after implementation, but they will also need to work proactively on end-user adoption. In the end, your own organization will have to carry the project forward as much as possible. There are still too many ICT projects that are not successful because only a limited part of the organization uses the full potential and added value that the solution brings. The provider will have to apply the appropriate implementation methodology. As part of initial workshops, it will go through the best-practice processes with the key users. The emphasis here is more on the processes themselves than on the applications and the program windows. For each step in the process, it needs to be demonstrated how things will work in the future, but the aim in particular is to keep sight of the big picture. The consultants will have to keep a close eye on things to ensure that the standard is adhered to as much as possible. Only those things that have not been provided for yet are crucial for smooth operations and need to pointed out for customization the so-called gaps. These gaps must then be discussed with management. They need to be visualized so that a clear picture can be gained of what they imply and what the impact would be in terms of investment in the short or longer term. The major advantages of this approach lie in particular in the added business value, the less extensive customization budget and the fact that the system is better geared to future developments. However, this does not take away the fact that the organization will need to adjust much more than is the case with a traditional ERP implementation approach.

13 This means that the involvement and commitment of management is all the greater. The new package will be adjusted far less to users. Instead, users will have to adjust to the best practices for the sector and management must get this message across energetically and promote it actively across the whole organization. Change management is an ongoing process, from day one until long after the official go live date for the project. All too often, company managers think that interaction with their organization is limited to the analysis and test phase and that in between the provider carries out the programming. Very close interaction with the key users at each stage of the project is essential for keeping everything within the scheduled timing and planned budget. As with the implementation, subsequent support also needs to be based on the processes put in place for your organization. This gives staff more insight into the whole chain before they take on the issue on their own. Making these processes available in a central and easily accessible location is highly recommended. It would also be preferable only to include those processes that are relevant for each user.

14 Look at your ERP project as part of a total solution for your business activity Processes regularly stray outside the boundaries of a specific technology skills area such as ERP. For example, they may also need components of CRM (Customer Relationship Management). This might include a selling process that starts in a sales department and a CRM package and that ends as an order in your ERP system. You also run your business using BI tools that create a clear picture based on information from sources including Finance, ERP and CRM. And what about the latest developments in unstructured data and processes? Think about all of the challenges involved with The New Way of Working : people from various locations who want to work on a document at the same time while communicating about it online and possibly also want to involve an SME (Subject Matter Expert) from the organization in the discussions and in creating the documents. It is important for rapidly developing technological capabilities to be placed in a business perspective at all times. Matters that may mean added value for the challenges of a specific sector should be included in a total solution for your industry or industry blueprint. All too often part-projects are initiated separate to one another. For example, items such as customization are developed in an ERP package that could be dealt with as standard by a CRM package, or vice versa. Then, in a subsequent project on other technological skills areas, it is often noticed that some things would actually be better in the other package, with overlapping investments as a result. An industry blueprint is an integrated total solution customized for your industry that has clearly defined which capabilities will be included with what package and in which the business and not the technology is central.

15 However, there are few providers who develop integrated solutions across a range of technological skills. The result of this is often that the ultimate total solution costs much more than if the part-projects had been started up with the total solution in mind. So be sure to ask your provider what its total vision is in terms of a solution for your sector and what experience it has in that area. That way you also find out where the possible future expertise limitations may lie for which you may have to approach another provider over time.

16 Summary An ERP implementation changes companies and business processes fundamentally. Consequently, its impact is significant. The various surveys that we have quoted show that companies tend to underestimate their approach to these lengthy projects. Hence also the negative tone and horror stories about costs getting out of control, functionalities that don t work and much more of the same. This white paper provides you with some guidelines for taking a new approach by which your ERP project will become far more predictable and you will be able to achieve and evaluate your business objectives with greater certainty. By applying the following rules and insights, you will well on the way to achieving a successful ERP implementation: Map out the strategic objectives of your organization with the processes that capitalize on them and define KPIs that make your level of success measurable; Start out with a best-practice solution for your business activity. Not just those areas where you are unique. Your organization is not much more different from other organizations with a comparable type of business than you might have thought in the first instance; Make sure that the solution you are investing in is able to grow along with new trends; both trends within your own business and technological trends; Consider a preliminary study by the provider of the package that according to your initial insights is tailored most to your company s business before actually initiating a project. It will give you a more realistic and better insight into your project; Step away from lengthy as is analysis processes to to be. And, in particular, invest in change management to achieve a standard for your business activity ;

17 View your ERP project as part of a total solution for your business activity. CRM, Business Intelligence and other solutions relating to non-structured processes will always lead to projects in your organization. Make sure to make as few overlapping investments as possible. This White Paper was produced with the cooperation of RealDolmen and To-Increase