Enterprise resource planning (ERP) software is a reality for most large organizations. Some two-thirds of the Global 2000 use ERP software from one or more of the leading vendors (SAP, Oracle, Microsoft, etc.), directly touching more than one billion of their employees, suppliers and customers.
Yet, despite this seeming omnipresence, for a great many organizations, the ERP journey has so far been rather bleak: massive investments, huge delays, limited measurable value. In fact, across major ERP-enabled programs undertaken between 1995 and 2010, more than half have been self-described as unsuccessful and nearly one-third have been outright cancelled within their first 18 months.
The ERP Franchise—More Than One Billion Served and Still Growing
Regardless of the headlines, large-scale ERP has made a very noticeable comeback—a Release 2.0 of sorts—with a significant number of major organizations (armed with program budgets in the hundreds of millions of dollars) once again revisiting ERP.
To be successful in this new round of large-scale ERP programs, organizations need to adopt a very different approach—one built around three key principles:
- Adopt a far more sophisticated view of value—where it resides, how it’s created and how to un-trap it.
- Recognize that speed for its own sake is futile—more important is focusing on achieving the organization’s right pace.
- Take a different view on managing risk—focusing on how best to increase the certainty of outcomes and not merely aim to reduce their uncertainty.
A More Sophisticated View of Value
Despite huge investments, only one in five organizations claim to have seen measurable financial benefits from ERP. Part of the problem resides in how many organizations approach major investments to begin with. The obligatory business case is all too often regarded as a mechanism for receiving funding approval, and once it is obtained, the business case is placed on a shelf and forgotten.
A smaller number of more mature organizations have indeed put tremendous effort into constructing the more robust value case—comprised of an evolving portfolio of value-defined initiatives with very complex cost modeling and benefits calculation. This effort seems to be the right starting point, but the value case begins to unravel when it comes to actual process and solution design, and when direct value linkages become quite hard to prove.
The reality is that the major value drivers behind ERP to date are more easily tied to fundamental business-led initiatives, such as a change in the go-to-market strategy, a move to shared services or changes to how the supply chain is managed. The ongoing debate is usually around whether or not these had been truly ERP-enabled (read: ERP required), or if the business could have pursued these initiatives independently of ERP.
Ultimately, the value from ERP comes from how well it achieves a particular end-to-end business outcome. And from an outcome perspective, value is driven by a combination of four basic levers:
- Automation: the elimination of manual tasks.
- Simplification: the elimination of non-value-added steps.
- Standardization: a decrease in variability.
- Innovation: the creation of an entirely new way of doing things.
The key to unlocking ERP’s wide-scale, systemic value is to find a way to tie these levers to the underlying process flows, procedures and individual transactions. Process owners and their teams are charged with continuously identifying and delivering measured improvements in outcomes, with technology as a constant enabler.
The Right Pace
One of the key reasons ERP programs get into trouble is that the organization tries to pick up speed and implement too quickly. Such bad pacing has been a root cause for numerous re-plans and re-starts.
Initially, there is great enthusiasm to get on with the program and to be seen as making headway. But rapidly, teams mistake activity and endeavor for progress. A false sense of self-confidence—a “this isn’t all that hard” mindset—begins to set in and teams start to move faster. Then complexity hits and things begin to spin out of control.
Avoiding such crashes early on requires four basic guardrails:
- Hurry up and wait. Slow down at the beginning of the program to think through how things are going to work. Resist the urge to mobilize too quickly, particularly in bringing on resources. Rely instead on a small, core team.
- Create slack and consume it. The program should embrace opportunities to accelerate, but it should use that acceleration to generate pockets of slack. Unlike contingency—another term for poor planning—the existence of slack is rarely made public outside leadership. It should be reserved to deal with unexpected challenges and it should be spent, not saved.
- Understand the ability of the athlete. An organization is rarely in as good a shape as a world-class athlete. It may be able to visualize with an athlete’s precision the steps it should be taking, but it is unlikely that it can perform them without significant practice. It is, therefore, critical to be realistic about what to expect and to plan for a lengthy period of initial training.
- Know and respect the threshold for change. An organization can absorb only so much in one go. Implementing a major new information technology (IT) system, while moving to shared services and simultaneously launching a new global product is a great deal to take on. Each organization—in fact, each individual—has a threshold for change that must be understood and managed.
Organizations that establish the right pace get to their destination far sooner than those that don’t—and typically arrive in one piece.
Traditionally, large-scale ERP programs have been pretty good at managing risk. They usually can identify a risk, create a log entry and define an action plus an owner, along with a resolution or review date. They can then accurately pinpoint the exact moment at which the assigned owner failed to take the required action that would have prevented things going horribly wrong—once it already has!
So if companies understand risk and understand risk management, why do things still end up so dreadfully pear-shaped?
The issue is that companies fail to address the opposite side of risk, which is certainty. Traditional approaches to managing risk focus too much time and effort on inspecting and documenting key issues and concerns, and far less on architecting the mechanisms that prevent these risks from actually appearing in the first place.
From day one, companies need to embrace an approach to mistake-proofing and guardrailing program outcomes, and ingrain the approach into all aspects. When they combine this approach with the more traditional, inspection-based risk management, they can significantly deliver on increased certainty.
Beyond ERP 2.0
A well-known CEO was once quoted as saying, “You do ERP, concrete it over and hope you never have to dig it up.” However, constant innovation—mobility, cloud, software as a service (SaaS), social media, big data—combined with new entrants, continue to drive ERP’s evolution and lead to digging things up.
Whether yours is an organization that’s contemplating a large-scale, ERP-enabled initiative has completed one or is still somewhere midflight—it’s likely that it is among the 85 percent of organizations that significantly increase investment in ERP through 2020.
It is equally likely that you continue to ask questions, such as:
- Why is it so hard to get a simple report?
- Why is it so difficult to add a new product or change pricing?
- Why is it so difficult to know how much inventory we actually have on hand?
Until organizations that have embraced ERP can stop asking such questions, the second round of ERP is going to continue—and value, pace and certainty are going to remain tantamount to success.
Brian Dunn is a partner at the strategic IT practice of A.T. Kearney, a global management consulting firm. He can be reached at firstname.lastname@example.org.