Strategy Clinic: Can ERP products really pay their way?

The major enterprise resource planning suppliers tell me a return on investment can be realised within a matter of month. Is this...

The major enterprise resource planning suppliers tell me a return on investment can be realised within a matter of month. Is this right?

ERP projects

For every spiel I get from the major enterprise resource planning suppliers about how a return on investment can be realised within a matter of months, there seems to be a user with a story about how ERP technologies failed them. The truth must be out there, but I don't know where to find it! Can ERP products really pay their way? How can I see the wood for the trees?

Allow plenty of time for planning

Professor Dan Remenyi 

While it's true that some ERP projects have been unmitigated disasters, others have been unqualified successes. So what's different about ERP projects? In truth not much, except that they are normally much bigger in scope than traditional IS projects, with more at stake.

How do you make big expensive projects work? It's crucial to allow plenty of time for planning, for getting buy-in from user-owners of the system and for making sure that you have all the skills needed to make the new software work is crucial.

You must also ensure your organisation takes risk management seriously as a comprehensive programme of identifying and managing risk can really make a big difference to being able to control a large ERP project. The truth is that ERP is not a poisoned chalice, but that if this sort of project is rushed it could well blow up in your face. There are several different approaches to risk management, one of which has been published in the Computer Weekly/Butterworth Heinemann IT Professional Book Series, entitled Stop IT Failure through Risk Management.


Business-driven approach is vital

Professor John Ward, Professor of Strategic Information Systems, Cranfield School of Management 

Successful ERP implementation requires a business driven approach, thorough understanding of how the business currently works, extensive change planning with an initial focus on a limited number of critical issues - and, of course, a successful IT implementation!

All studies of ERP reiterate that ERP implementations are business (not software or IT) projects and this explains many of the failures. They often require an in-depth review of how the business works before you can understand the business changes essential to obtaining the benefits from the new software package.

It also requires a team effort, and many studies suggest that the constitution of the ERP planning and implementation team is one of the critical success factors.

In addition, our recent study and one by Deloitte Consulting suggest a two-phase approach to ERP implementation. The first phase should focus on a limited number of issues - normally removing business problems by integration through ERP. The second phase, to exploit the capability now in place, involves further business change to optimise the key business processes - those on which organisational success depends. ERP is a long-term investment in a new business model and involves considerable organisational learning as well as coherently planned change management.


No easy way to measure pay back

Tim Yeomans, Andersen 

Many organisations implementing a major ERP for the first believe that it will be the panacea for improved business processes and reduced costs. But when the reality dawns, as the implementation date approaches with costs rising and delays in go-live pending, the truth begins to bite. The staff that will use the system are not able or willing to embrace the cultural change that the ERP software requires and the consultants have seemingly misled management on the true costs and benefits.

The facts are that there will be a few very bad and failed ERP implementations, a few very successful implementations, and many in between. For the many in the middle, the budget has normally been used and the board calls a halt to further substantial investment. They are often unwilling to embrace the need for substantial additional investment to optimise the ERP system.

This additional investment covers areas such as performance tuning of the infrastructure, the development ofe-business opportunities, the enhancement of reporting through data warehouses and executive information systems and business process refinements. The problem is that there is no easy way to measure payback, performance and shareholder value.

Implementing an ERP is not an exact science, but a program of cultural change which some organisations are unwilling to see through to a logical conclusion.


Control is the name of the game

Roger Rawlinson, head of e-business technologies at NCC Services

There are many ERP success stories. Those companies that did get it right are reaping the benefits of e-commerce front ends.

To succeed, I would suggest you start by clearly defining your business requirements. Then approach the market to identify what is available to fit these needs. Invite suppliers to answer a simple questionnaire. Those that fit the bill can then be sent a full statement of requirements.

To follow up, pay a visit to the reference sites. This will enable you to establish whether similar requirements are actually being met in similar environments.

Robust project management is of upmost importance. You need a sound contract, acceptance criteria, strong project organisation and realistic timescales. Many high-profile failures can be put down to poor specification, unrealistic timescales and no user buy-in. It is vital the senior management realise that their commitment and time is essential to the project's success. By constantly revisiting your original requirements, you will be able to see whether they are being met. It is also vital that, throughout the process of the procurement, you maintain control.

next week

My board is enamoured with the concept of open source software, and as a result there's pressure upon me to invest in it. However, staff are concerned that they will lose touch with the skills they need to survive and compete in the jobs market if we go down this software path. What should I do?

E-mail us your questions or your own personal solutions to this or next week's problem.



Read more on IT risk management