Monday, June 3, 2013

ERP Failures and Your Job

Thanks to a friend of mine I was able to read a blog post this week by a CFO who says they lost their job, because of an Enterprise Resource Planning (ERP) failure.  Someone has to be responsible and if this person actually lost their job due to a failed implementation, I am sorry for that company.  I do care for the person in general, I do not know them personally, but he/she is probably lucky to be out of that company. 



The buck certainly has to stop somewhere, but can the failure in something as involved as an ERP implementation really one person’s fault? 

I think not.  Falling on the sword is something characters did in times past.  The CFO should have looked at the numbers.  There is an initial investment and annual maintenance fees.  This should be known before signing.  The ERP solution should have had some examples of typical Return on Investment (ROI) and certainly he/she should have looked at the Total Cost of Ownership (TCO).  You might not know all of the details, but for the most part this is pretty straight forward analysis.  It is what a CFO should do.

My guess is that there was a communication issue and there was not a realistic budget put together for the implementation.  Hardware is straight forward and so is software licensing.  What is difficult to pin point is the amount of time it should take versus how much time it actually takes to transition from an old system to a new one.  A “slick” Salesrep might brush this aside.  From experience we know it is appropriate to double the hardware and software for the implementation. 

Correct, implementation is typically half the cost of a new solution.

I have had an actual, real conversation with a business owner where they tried to convert systems in the past on-their-own and have suffered miserably, took way too much time, invested too much money, and have sworn they would never do that again.  The next sentence had to do with the budgeting numbers proposed as being too high.  The software, he commented, was already written, the hardware he acknowledged was what it was and probably had margin imbedded in it, so that should be negotiable too.  However, the implementation number just seemed too high.  Really?  What happened when “you” tried to do this on your own in the past? 

Yes, the software is already written.  You are not paying for what has been written.  You are investing in an organization that is maintaining the software and constantly making improvements for the way businesses are changing.  We use new technology all the time.  First punch cards, then magnetic media, then modems, fax machines, Electronic data exchange, the Internet.  All in an effort to provide better customer service. 

Why, because the competition is already doing that and your customers expect more.

Yes, the hardware has some margin in it.  “Your” business buys stuff, processes it, marks it up, and sells it for a profit.  ERP solution providers do the same thing.  Most are not greedy, margins are slim on equipment, but they are in the business of being in business.  As a business owner that should be understood.  Yes, question the number, check the Internet, and ask others if the numbers are reasonable.  It is okay for a company to make a profit.  Granted it should not be their whole year’s make up, but it is not unreasonable for them to make money.


Would you want the number to sound optimistic and then have overruns?  At that point you are so far into the process you may not feel like you have any options.  You have come so far, right?  It should only take a little more.  They thought your people would be more involved and that is what they based their number on.  They made assumptions and so did you.

There are two camps and most companies fall somewhere in between.  On one side, a company has little monetary resources, but is able to take their time, rekey information, practice, practice and practice.  When the conversion time comes, it is almost a non conversion, because they have already been using the system.  This works, significantly lengthens the ROI time, but it works, because the people are working the system.

In the other camp the company has monetary resources, but little time.  Caution, this sounds great, but think about the last time someone forced you to do what you always have done in some other way.  Did you care?  Still, this does work, but the investment can be significant.  You are typically hiring others to do the heavy lifting and they are absorbing the learning curve. 

The in between balance of investing enough monetarily and investing in your people is the better choice. 

The exact balance is more art than science and some care is needed here.  Ask the vendor if they have worked with other businesses like yours or similar to yours and where improvement could have been made.  Be sure to ask for references.  Nothing is perfect and you should not look for it, but you can educate yourself on common pitfalls and either avoid them or lessen the impact knowing you are going to hit them too.

There has to be a realistic budget and a look at the resources available. 

One challenge here is that the economy has been so tough lately that a lot of people are already doing two or three jobs and do not have a lot of spare time.  You might need temporary help in the interim.  Not a bad idea, just make sure that the knowledge curve absorbed does not go out the door when they are done.

Anyone could write days worth of material here, the point to acknowledge is that it will take both time and money to have a successful conversion and this is not an area where you should cut too much.  You will need a dedicated project manager with experience to guide you through the process.  Your fee includes this person’s time.  They are knowledgeable and their experience invaluable. 

You might want to compromise in what software you purchase.  Most ERP solutions are based on modules.  You may not be able to implement all of them all at once anyway.  So pick what you need and weigh the others.  Some ERP vendors offer discounts to get everything all at once, but again, this is an area where you actually have control.  You know your budget, be open and honest.  Let the provider help you.  They may come up with ideas you never thought about.

The article I read asked readers about their thoughts.  A lot of good answers came up.  Below is a partial list that you may find helpful.  Contact us for more details.

Define the expected benefits earlier and more clearly and then use as a compass going forward and a benchmark of success at the end.

Assume it will cost more and take longer.  If it doesn't, you're a hero and if it does you're realistic.

Rigorously avoid project creep.  Otherwise the scope will always expand.

Avoid unnecessary customization.

Admit and move on from mistakes faster.

Review the project on a regular basis and often.

Plan on more testing.

Plan on more staff education.

Delegate and verify more.

Don't try to replicate everything from a legacy system.

An ounce of package selection will save you more than a pound of implementation

Focus on business goals and not systems to start.

Document business processes.

Do not accept non-involvement.

Think about systems strategically.

Build a change management process into your approach.

Get all stakeholders in the room early to identify the requirements.

Understand that being part of the core implementation team should be considered a full time job.

Everyone needs to understand it is a project that will involve the entire organization.

One thing most companies learn from trial and error it that while the ERP vendor should provide a project manager, they too should have a trusted advisor.  They need an advocate that can help guide them and prepare them for the bumpy ride ahead.  ERP transitions are like a heart transplant.  Done right and a long life awaits.  Done wrong and you never feel right again.

Contact us today to see how we can help.  That is what we do.   Dolvin Consulting works with companies just like yours to help them find and implement solutions for real world challenges.


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