ERP implementations continue to cause major headaches for companies worldwide – including, but not limited to, the change management requirements that many organizations gloss over. We sat down to discuss these issues with two of our experts. Ronan O’Shea, Protiviti’s Global ERP Solutions Leader, has 25 years of experience in IT risk management, program management and systems strategy, design, build and implementation. Kathie Topel, Associate Director, is a visionary leader with more than 20 years in business transformation, innovative strategy, organizational change management, process design and efficiency and technology solutions. This is Part 1 of our conversation.
Are ERP transformation programs primarily IT projects, or business transformation initiatives?
Ronan: It’s hard to imagine a project more “IT” than an ERP upgrade or replacement. ERP systems are the core technology at the heart of the enterprise. That said, an ERP transformation approached solely as a “technology” project will behave like an IT project, by which I mean it may run into business process and user buy-in conflicts. To be successful, an ERP transformation must be driven by business concerns and leadership drawn from the business side.
Kathie: I agree. Change has to start at the top, but to be effective, it must be driven, as well, by demand from middle management and the front line. Yes, there is an IT component, but real transformation hinges on the work streams that depend on that technology, and the people and processes responsible for inputs and outcomes.
How should companies measure the success of an ERP transformation?
Kathie: Start with a vision of how a new ERP system is going to improve specific business processes and outcomes. From there, it is easier to establish metrics and document actual results against desired outcomes. The metrics should encompass more than just a financial or budgetary component. They should measure people engagement, customer satisfaction, process performance, and progress toward the desired future state – the goal of the transformation. Leadership needs to monitor those metrics. They must be very transparent and aligned with business processes, so that the effort that goes into reporting is also useful in day-to-day business decision-making.
Ronan: A lot of companies measure project success by time and budget. I’ve looked at hundreds of ERP implementations and found that more than 60% were late and more than 70% were over budget. That’s not a good track record. I would argue, however, that a better measure of success would be business outcomes. In that vein, project leaders need to identify specific performance objectives for the project to address and measure the extent to which those objectives are achieved and sustained post-implementation.
What are some main reasons that ERP transformation efforts fail, and how can organizations avoid them?
Ronan: The biggest challenge in an ERP implementation is that they are very complex, and this is the kind of milestone project that most executives will encounter once, maybe twice in a career. That means key executives and members of the project team are venturing into unknown territory. Add to that the fact that the typical implementation might include eight to 10 different teams from different business units who aren’t accustomed to working together. And there are usually three to 10 different external partners who are completely foreign to the company’s processes and culture. It can be overwhelming.
Fortunately, there are four things organizations can do to keep things from going off the rails: 1) ensure that the project is design-based and focused on business processes, data and people, not just technology; 2) provide good governance, including clear goals, metrics and accountabilities from the outset; 3) gather and cleanse data early to prevent surprises and costly delays on deadline; and 4) communicate – not only upward to leadership, but throughout the organization, to increase buy-in and foster a culture of change.
Kathie: One of the biggest mistakes is failure to establish a change management strategy for the transformation in the earliest stages of the project. It should be initiated prior to even defining the requirements and selecting the ERP package. A change readiness assessment is also important to ensure the organization is in the best possible position for success. Often ERP transformations will fail, not because of anything that happened during the implementation, but because there was a fundamental flaw in the foundation that went undetected.
Ronan mentioned communication. That is absolutely critical. Successful ERP transformations require strong communication road maps for engaging the entire organization in the transformation process, even if that means, in some cases, just making everyone aware of the importance and magnitude of what’s going on and why it is important.
The final thing is to select some key change champions who can help support the implementation by socializing the change throughout the organization down to the front lines. They really become the eyes and ears of what’s really happening in the farther reaches of the organization and are able to bring that feedback back to the organization.
In Part 2, we will drill down a little more into some of the concepts introduced here, such as design challenges and misconceptions and successful change management practices. Subscribe to receive Part 2 of this conversation, as well as other future posts, straight into your inbox.