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Strong management key to avoiding ERP implementation failure

ERP implementation failure is common, according to the experts from Panorama Consulting. Their ERP Boot Camp offered tips on how to keep a project on track and justify benefits.

To avoid ERP implementation failure, ERP projects must have strong project management in place. This was the message delivered at a three-day ERP Boot Camp sponsored by Panorama Consulting Solutions, a consultancy based in Denver.

Panorama's research indicated ERP implementation failure is fairly common, because a large percentage of ERP implementations are prone to cost and length overruns, and lack of return on expected benefits. The cost can be prohibitive, and, in some cases, it can lead to extremely costly litigation. This often has led Panorama to be called in as expert witnesses when the organizations and their software vendors can't reconcile their differences, and end up in court, according to Bill Baumann, Panorama's director of expert witnesses.

Although most failed ERP implementations don't get that far, companies need to handle their ERP project well from the start to be successful. "Organizational change management is the single most common issue in expert-witness areas where ERP implementations fail," Baumann said. 

Define goals for ERP implementation

The first step is to define goals, which can help an organization clearly establish the purpose of an ERP implementation. It's not adequate to focus only on technical goals, Baumann explained. "We tell our clients this over and over: This is a business project, not an IT project that helps process things more quickly."

Once goals are set, you need to clearly define all business processes, and involve key stakeholders and employees in the process. Not involving all the key employees in the requirements-defining process can lead to them rejecting the system.

The next step is to select the right software, which Baumann said is not to be taken lightly, and is not always as obvious as it sounds. "People make crazy decisions about software based on things like it's the system all the competition uses or someone's brother-in-law loves it," Baumann said.

One of the most dangerous traps that companies fall into is not having realistic expectations about what the software can do, and much of this can be traced to effective sales techniques by the vendors, Baumann said. "Always remember that the salesman's job is to sell you their software, not necessarily to get you the best solution for your situation."

Involve users in the process

Involving employees and key users is critical. "You can't ignore the people side, and you have to make sure that people are trained and business processes are well-defined," Baumann explained. "Everyone is affected and must be involved. The people [who] are actually doing the work have to tell you what their processes are and where their pain points are."

He said you need to allay fears that employees may have about the new system fundamentally changing their work routines, or even eliminating their jobs. The most effective ERP implementations have heavy user input throughout the entire process, including evaluation and selection, process definition and workflow design, testing and go-live support.

The end of an ERP project is never really the end -- even when you reach the go-live event -- and you need to understand the benefits of the ERP implementation. Measurement is the key here.

"It doesn't happen by magic. You have to monitor and measure all the way," Baumann said. "If you don't measure it, you won't achieve it."

Minimize risk with QA and IVV

Successfully selecting the right software is the key to realizing the benefits of an ERP implementation and avoiding ERP implementation failure. Panorama recommended building in quality assurance (QA) and independent validation and verification (IVV) processes.

"The purpose of this is to minimize risk," said Richard Armitage, Panorama's manager of client services. "You can't always avoid something bad happening, but it's much better if you can manage the negative implications."

Early detection and resolution of problems are critical to QA and IVV, Armitage explained, citing the "1-10-100" approach. This means it can cost $1 to fix a problem found early in an implementation, $10 sometime during the process and $100 if it's detected at the end of the implementation.

QA prevents mistakes in the implementation process and is guided by two principles: The product should suit its intended purpose, and mistakes should be eliminated by doing things right the first time.

IVV puts into place an independent and objective structure that monitors the management of the ERP project, and makes sure it complies with specified requirements during development, Armitage said. This independent voice is the difference between IVV and QA, which usually falls under the scope of the project managers.

IVV involves two processes: validation and verification. Validation confirms the system is meeting the needs users defined before the project began. It ensures the right system is being implemented. Verification measures the quality of the work and the deliverables, essentially ensuring the system is being built right.

By bringing in an outside IVV team, you add upfront cost to the project, but it is well worth it, according to Armitage. "Time is freed up for people to run their business, rather than getting bogged down in the project," he said. "Even though there may be some resistance because it's an additional cost, IVV pays for itself by keeping a project on target and building only what you need to build."

Justify benefits for executive buy-in

Any ERP project has to justify its costs, and the best way to measure and report these is with a benefits realization plan, according to January Paulk, Panorama's director of organizational change and business process management services.

"Many companies don't know how, or don't take the time to develop a good benefits realization plan," she said. "You have to look at all the different benefits realized, and they're not all related to costs."

Continuous monitoring, measurement and improvement are the basis of a good benefits realization plan. Benefits are measured through key performance indicators, specific metrics that are aligned with a business objective and assess the effectiveness of a function or process.  Benefits fall into the categories of labor and nonlabor. Labor benefits are cost savings that result from the ERP system's reduction of time that employees spend on activities that take them away from their regular productive duties. Nonlabor benefits are hard cost savings that result from replacing legacy systems, reducing materials used or other tangible gains.

Ultimately, the benefits realization plan must prove to executives that the ERP implementation is worth the investment.

"Executives always want to know, 'Did we achieve it? Is there a tangible benefit?' It's not good if you can't take it back to them in measurable results," Paulk said. "It doesn't even have to be overwhelming, but you have to give executives some kind of proof that there are benefits achieved."

Next Steps

Before implementing, understand ERP components.

Managing change is the key to successful ERP implementations.

Two-tier ERP may be needed when implementing manufacturing ERP.

Dig Deeper on ERP software selection and implementation