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Unlocking Business Value with Your ERP Implementation
By: Ocie Anderson, PMP, Director of Consulting Services at Navigator
The achievement of value should be at the forefront of implementation decisions. It is not customizations that cause ERP projects to fail, but the lack of defined value that should determine if the customization is needed. So in this article I would like to take a step further in discussing how to unlock value in an ERP implementation.
Value on an ERP project comes from improving capabilities and becoming more efficient. Taking the time to define the areas where the business should focus will ensure that the right capabilities are implemented for a better impact to the business. These six steps provide a path for defining value and infusing value through the implementation stages.
1. Determine the Business Value Drivers
The first step to unlocking value in an ERP implementation is to understand what value means to your business. It’s important to understand what the operating metrics are that drive your business, which areas of the operation are lagging, and what business improvements can be made to improve those operating metrics. Finally, brainstorm about how ERP can be an enabler of those business improvements. For example, if revenue growth is a driver of your business and you determine that getting the right products, in the right quantities, to the right locations is a lagging area of your business, you may want to increase capabilities in forecasting and demand planning as part of your ERP implementation. Or perhaps you will want to invest in improvements to transportation and logistics. During this step you will start to determine how transformative your ERP project should be.
2. Set the Strategy and Direction
Set the strategy and direction by identifying the areas where you would like to improve the business. Focus on the business drivers and lagging areas identified above. Rank and prioritize each improvement area according to the value that they would bring to the organization. Then, evaluate each for inclusion into the project. For some improvements, the cost may be too high for the incremental value they would deliver.
Once the final set of improvement areas are confirmed as part of the scope, resources should be aligned and these Strategic Areas of Improvement should be included as part of the project charter. Providing a streamlined list of improvement areas will help to keep the teams focused. This list will define which processes the teams spend the majority of their time. The processes from other areas will largely be carry-over from the current state with incremental improvements afforded mostly by the new software.
Side note: How transformative will your ERP implementation project be? Are you in need of a technical upgrade or a complete re-implementation? These two types require a vastly different scope (and type) of resources. Most companies fall somewhere along the spectrum between the two, requiring more than a pure technical replacement, but something less than complete business transformation.
3. Determine the Business Requirements
You can spend an eternity documenting business requirements. In order to unlock the value in your implementation, spend more time on the processes related to the Strategic Areas of Improvement than on all of your other processes. Engage consultants and solution vendors in the areas you want to improve and gain an understanding of industry trends, innovations, and possible solutions. Depending on the need, the requirements may drive you towards one ERP solution or another. There may be bolt-on applications needed. You may also find that your improvement areas require process, organization, or personnel changes, in addition to (or in lieu of) ERP, in order to enable the improvement.
4. Design Business Processes to Meet the Requirements
Not all processes are equal. If you are expending an extended amount of time developing new processes for Accounts Payable, you should step back and reassess which areas are truly important. Just as with business requirements, the value lies with developing business processes for Strategic Areas of Improvement. While Accounts Payable is important, there are only so many ways to process a payment, most ERP packages are accommodating to the various standard processes, and there are very few industries where processing AP differently provides a competitive advantage.
For the key processes leverage best practices and subject matter experts while seeking out new and innovative approaches. Confirm that the processes are designed to meet the requirements of the business as defined in the previous step. If there are changes to those requirements, you should flow back up the chain to confirm that strategy and direction, as well as business value, remains aligned. This helps to continue the infusion of value in the project.
5. Select, Design and Configure/Build the Solution to the New Processes
Most companies have selected an ERP solution based on high-level business requirements long before the detailed process design work has been completed. They hope that what was understood regarding the solution capability aligns with the needs of the detailed process. Oftentimes it does, sometimes it does not. When it doesn’t this inevitably leads to the question of where or not to customize.
Building customizations has a bad reputation in ERP. They are costly to develop, challenging to test, and difficult to maintain through upgrade cycles. They are usually not supported by the ERP vendors. Most cloud-based ERP solutions offer few to no options for customizations. If one chooses not to customize, the alternative is to change the business process to a more standard or “best practice” process. Given the cost and complexity that come with customizations, this seems like it would be a logical solution.
Where value attainment is concerned, a customization should override a change in business process.
In order to attain value, the ERP solution should be built to enable the business process. But as stated earlier, not all processes are equal. The key words here of course are value attainment. What is it worth to customize the software if you are able to build a solution, which meets the business process, to fulfill a requirement that enables a strategic improvement to a metric that drives business value? Figure this out and it’s an easy calculation to make on the ROI of a customization. If your process delivers true value, it will be worth the customization. If it does not, the customization should be eliminated.
Side note: You can minimize the need (and the risks) of customizations by doing more detailed process work prior to selecting an ERP solution.
6. Implement and Train Users to New Processes and Solution
If you want to unlock business value from ERP, you not only need the tools, you need the people to use them properly. People need to understand what is changing but more importantly they need to understand WHY it’s changing. If they know why, they can better see their role in enabling the strategic direction of the company. That’s important. Once they know what is changing and why they need to know how to do their job in the new way. Comprehensive training is needed to provide employees with the knowledge and skills to use the new processes and solutions that lead to improvements in the areas that drive value for the business.