Taking a best practice approach to a new or existing ERP system can be easier said than done, says Lesley Meall, FSN contributing editor.
Suspension of disbelief is something we learn at a very early age; it’s a vital component in our childhood games and essential to our enjoyment of the world of fiction. “Why sometimes, I’ve believed six impossible things before breakfast,” Alice in Wonderland tells the March Hare (and there are days when I think I know exactly how she felt); but back in the real world there are limits to our credulity. Aren’t there? Perhaps; perhaps not.
According to recent research findings from the consultancy Computer Economics, businesses are once more investing in Enterprise Resource Planning (ERP) Systems. When it surveyed around 210 IT organisations between January and April 2010, in Technology Trends 2010/2011: Adoption and Economic Experiences for 19 IT Initiatives, it found (among other things) that: “About two-thirds of all organisations in the study have ERP systems and about half of the organisations are investing in these systems, either by expanding the capabilities of systems that are already in place [on which more, later] or implementing an ERP system for the first time.”
Now the sample may necessarily have been self-selecting, and the results may say more about ‘IT organisations’ than about businesses in general, but as Computer Economics isn’t alone in reporting increased ERP uptake, this may actually say more about economic conditions. “A significant benefit of ERP systems is that they can help forecast inventory needs to better match supply with demand and manage inventory costs,” observes Eric Kimberling, president of Panorama Consulting, and “in today’s turbulent economic environment, this business benefit of enterprise software is particularly pronounced.”
A cynic might feel forced to point at the eternal spring of hope shimmering on the horizon. After all, the relatively brief history of the ERP is littered with disappointments and failures: 41 per cent of ERP projects do not deliver even 50 per cent of the anticipated benefits; 22 per cent fail to deliver any business benefits at all; 40 per cent of ERP projects create operational disruptions when they go live (and there are plenty more statistics where these came from). So medium sized entities now thinking of joining the dance will want to avoid the mistakes of their global forbears: learning from the lessons of the past and incorporating best practices into their selection, implementation and exploitation of ERP systems.
But where to begin? By thinking long and hard about what you are trying to achieve. “Effective ERP solution selection and deployment relies heavily on comprehensive assessment of specific business needs,” points out Michael Dortch, director of research at Focus, and “decision makers considering or pursuing ERP must begin by assessing these carefully.” What does the enterprise want or need to change or improve? Can technology facilitate or support this change, and if so, which technology will be most effective? Do not just presume that an “Everything Replacement Project” will provide all, or even any of the answers.
Down the rabbit hole
A detailed business requirements list for an ERP can run to thousands of items, so (with or without the assistance of a consultant) it is important to know which of these can deliver a quantifiable return-on-investment. Can you establish a direct link between the expected ROI and results that will actually be achieved in the specific work environments where the ERP will be deployed? Detailed analysis may reveal that standardising and streamlining your business processes results in a more impressive ROI than using a new computer system to shape those changes. (You may not actually need an ERP.)
And if you do need one, which approach is most likely to deliver the ERP that best meets your needs? Once upon a time, a request for proposal (RFP) was standard practice, but things change, and according to Jim Shepherd, senior VP of research at AMR Research (now part of Gartner), this is no longer considered the most effective method. “The vendors tend to say yes to all of the questions anyway,” he quipps. So AMR advises buyers to create a “short list” of key issues and concerns relating to existing systems, things they can’t do now or want to do in the future, noting anything that is unique to their business - and then ask a handful of vendors how they would meet the challenge.
“There’s no way to really check all the functionality in an ERP system,” observes Shepherd, as it’s it is just “too complex and too comprehensive”, so focus on the processes that differentiate your business or your industry, and don’t get too hung up on common areas of functionality. Most ERP systems have been around for decades, and you can probably rely on them to provide the basic funtionality you require in areas such as finance and human capital management; but when you are contemplating your ‘unique’ needs, do be aware of how much these can impact on the cost (and potential success) of an ERP project.
Customisation inflates the cost of an ERP, and any deviation from the ‘vanilla’ standard will add layers of complexity to the implementation and its future maintenance. As Forrester analyst George Lawrie notes in his 2009 research report on squeezing more value from IT investments: “There is a huge challenge to upgrading to the latest vendor release” within companies that have made “significant changes” to their core ERP systems. The process of replicating those changes in a new product release can pale by comparison with the challenge of finding a “body of experts” that appreciate both the business reasons for those changes and the potential offered by the new capabilities in the latest release.
All of which goes some way towards explaining why there are so many ‘old’ versions of ERP systems out there, and why some enterprises decide to minimise the problem (in the short term and the longer term) by opting for mid-market ERPs that have already been tailored to meet the needs of their particular mid-market specialisation. Lawson M3, for example, focuses on product-centric manufacturing and distribution enterprises, while Lawson S3 is designed for industries that focus on the areas of sourcing, staffing and services.
Building established best practice into your ERP implementation can also improve its chances of success, but this is also not without challenges. ERP vendors have been known to interpret the way one of their biggest clients does business and then make it the pre-configured solution for a particular industry, and the best practice for one company in a sector isn’t necessarily the best practice for another. If, as Kimberling observes, “best practices can be heavily dependant on a company’s business model, competitive advantages, and other considerations,” how can a company leverage best practice and still address their unique needs?
“Standardise processes that are not differentiators for your business,” suggests Kimberling. If something isn’t providing a competitive advantage to your business you need to be pragmatic about its future; the extensive functionality of mature ERP systems means that they probably have functionality that can provide standardised processes with proven efficiencies. But while this may be fine for areas such as accounts payable, accounts receivable, and fixed assets, don’t lose sight of the areas where you may have nothing to gain by leveraging generic functionality, such as product configuration, process manufacturing, or other functions that are “competitive or unique to your business”.
Through the looking glass
For those with ERP installations already in place, there are other ways of exploiting best practice, and making sure that your investment provides the most bang for each buck, as Cindy Jutras, VP, research fellow and group director for enterprise applications at Aberdeen Group explains. “In 2009 Aberdeen found top performers implemented 16 per cent more functionality within the modules of ERP and were 63 per cent more likely to have implemented other applications that extend or complement the functionality of ERP,” she reports, with consequent reductions in administrative costs, inventory, and schedule compliance.
Aberdeen found that just making better use of basic ERP functionality can have a marked impact on performance and profit, and although its analysis benchmarked manufacturing users, this is where the historical roots of ERP lie (and the sector does have the highest adoption rates), so it may be reasonable to argue, as Jutras does, that “other industries need to look to manufacturing for best practices in utilising ERP”. And if you want to, you can currently learn more about this without paying for the privilege, by downloading an Aberdeen report on benchmarking your ERP (courtesy of Infor) or reading the research previews Aberdeen is currently offering as free downloads on its website.
Unfortunately for some, making better use of basic ERP functionality may demand a system upgrade, and a willingness to deal with the associated financial and operational consequences. As FSN has previously highlighted, developments such as role-based templates and Web 2.0 technologies such as Instant Messaging and mashups can potentially do wonders for enterprise productivity. At the moment, they can only be exploited by those with the latest and greatest ERP versions, and it remains to be seen which of today’s innovations become tomorrow’s best practices. But new and existing ERP users would do well to keep a watchful eye. “Curiouser and curiouser”, as Alice would say.
