An Expert’s Guide to ERP Success

By Eric Kimberling, Managing Partner Panorama Consulting Solutions

with the technology and with the overall strategy. it is difficult to swallow the thought of a $5 million to $40 million-plus IT investment without knowing what the exact benefits payback will be. significant investment in information technology (IT) is becoming an important source of competitive advantage and operational efficiency. Companies spend tens of millions of dollars at a time to implement revealed that 50-percent of organizations failed to realize at least half of their expected business benefits. To many CFOs and other managers. It also illustrates how most of the © Copyright 2012 Eric Kimberling. but very rarely is any type of follow-up analysis done to determine what the actual benefits of the implemented technologies are. An understanding of the topics presented will ensure that managers grasp the organizational challenges of benefits realization. many companies fail to realize the full benefit of these technologies. Given the millions of dollars that many companies spend on IT projects annually. organizational change management and performance measurement.Denver. an organization’s employees are ultimately the ones that determine the benefits and overall success of an implementation. However. many companies fail to realize the full benefit potential that these types of systems afford. . Only by understanding these concepts and tools will managers be able to drive their organizations to high performance and maximum operational efficiency. Often times. these figures can be disturbing to management and shareholders. organizational inefficiencies and hype are all common catalysts for the introduction of new technologies. After all. This situation presents good news and bad news for CIOs. our 2012 ERP Report (available online at panoramaconsulting. Microsoft Dynamics or other large ERP or CRM technologies in hopes of achieving dramatic improvements in their organizational efficiency. Cost pressures. Despite the compelling reasons for information technology. However. Many of the drivers of – and obstacles to – technological benefits are related to the alignment of staff with each other. how to leverage their people to achieve the benefits promised by technologies. This chapter discusses the obstacles and drivers of technology benefits realization and focuses on how managers can optimize the potential of their existing ERP systems. IT and corporate managers are able to maximize the potential benefits of any particular system. and how to maximize the return on IT investments within their organizations. the good news is that realizing ERP benefits is and should be easier than implementing the software. Many companies develop business cases to justify IT investments to gain budgetary approval. By focusing on using ERP as a tool to achieve business objectives.Chapter 7. during the quests to successfully implement these complex enterprise-wide technologies. All Rights Reserved. CO 80209 720-515-1377 Panorama-Consulting. A comprehensive benefits realization program is needed as a part of every IT implementation to ensure that business benefits are maximized. Realizing Benefits and ROI In today’s increasingly competitive business environment. the ERP software gets blamed for inefficiencies or process breakdowns but the reality is that realizing benefits of technology often has very little to do with the software itself. The bad news here is that not all managers understand the primary drivers of technology benefits realization or how to overcome the many obstacles to full benefit achievement. Oracle. In fact. The Need for Benefits Realization There are a number of reasons that companies implement cutting-edge technologies as part of their IT strategies. it is Page 1 of 14 3773 Cherry Creek North Drive .Suite 720 . failure to realize ERP benefits is not the fault of the software but rather the lack of focus on business processes. While many IT projects are positioned to deliver non-quantifiable strategic benefits.

As opposed to business cases and cost-benefit analyses. Clearly. organizational change management and process modeling. and utilizes tools to ensure that the true benefits potential of projects are attained. measuring and ensuring the business benefits achievable through technology. there needs to be additional reinforcement after go-live. Benefits realization is a comprehensive and integrated approach that focuses on realizing business value. An effective benefits realization approach consists of a number of activities beginning at project inception and continuing through implementation. performance metrics. it is recommended that managers focus on the largest gaps rather than try to change each and Page 2 of 14 3773 Cherry Creek North Drive . even if the implementation was flawlessly executed. (Please refer to Chapter Six for additional information about organizational change management. These activities include the following: Development of Business Case. go-live is merely the first step in the long journey to improving business operations through technology. there are a number of compelling reasons to incorporate a benefits realization approach into any IT implementation project.Suite 720 . CO 80209 720-515-1377 Panorama-Consulting. Although pre-go-live training can mitigate many of the risks that organizations face at the time of cutover. After go-live. Corporate Metrics and Benchmarks One of the first activities to occur as part of an IT project is the financial justification of the necessary technology © Copyright 2012 Eric Kimberling. Before. What Is Benefits Realization? Benefits realization is a comprehensive project approach that focuses on identifying. benefits realization supplements the technical aspects of an implementation with the business side of the equation to ensure that potential benefits come to fruition. it is imperative to assess the company’s culture early in the project to identify cultural areas that will need to be addressed.and system-focused questions. All Rights Reserved. there may be areas that need improvement to enable the large-scale changes required of the project. In short. process. The process of realizing business benefits from an ERP system does not end at go-live. It is important to identify and quantify the potential benefits of the project and compare those to the projected costs associated with the proposed information technology. during and after the go-live. a third-party organization should examine your company to make sure the business processes are going well and reengineer them for improvement where needed.) Cultural Change Based on the results of the cultural assessment. measures benefits after implementation. and this area should be addressed early in a project since implementing cultural changes are longterm in nature. Organizational Change Management Cultural Assessment Since most enterprise solution implementations involve large-scale change in terms of end-users learning new technologies and processes. and it combines elements of a cost-benefit analysis. Given the challenging nature of cultural change at many companies. Core Team members (or “super-users”) should be leveraged to provide general support and answer simple.Denver. Instead. benefits realization breaks down high-level benefits into manageable chunks. Cultural obstacles can significantly undermine the success of a project. As mentioned previously.difficult to justify current and future IT spending without a more disciplined approach to such investment decisions. Are people using the system effectively? Is the software making the business more efficient? Is it adding value to the organization? Is the ERP system keeping pace with increased sales or expanded markets? An organization also must ensure it has a solid user-support program in place to supplement the technical cutover activities. a business also should examine the effect the new system has on the organization. .

it’s time to implement the necessary changes. Detailed Process Design Once the high-level process modeling is complete. All Rights Reserved. detailed process design activities often help direct training courses used during the technology rollout to end-users.Suite 720 . responsibilities and individual © Copyright 2012 Eric Kimberling. business processes need to be modeled and improved to increase efficiency and to make certain that technology is not merely used to “pave the cowpaths.” Development of Operational and Departmental Metrics and Benchmarks While most business cases effectively develop high-level projected business benefits for an implementation. Many training programs underestimate how much impact the technology has on the daily experience of an end-user.Denver. (Also of note is that because process modeling often is performed independently of key software development activities. (which identifies who will do what type of work at a high level and how that work will be completed). This should be done through a variety of channels and should be targeted for each audience. job descriptions. Page 3 of 14 3773 Cherry Creek North Drive . Organizational Job Design Implementation Once the organization and related jobs have been designed. In order to realize the full benefits of technologies. Processes and Benchmarks While operational and departmental metrics are useful to hold managers accountable for their contributions to the potential benefits of technology. Many companies effectively model their high-level processes. Communications To ensure acceptance of the new technologies.) Individual Metrics. . Therefore. reporting relationships. individual metrics must be used so that employees understand how their personal performance contributes to the success of the project. it is perhaps even more important to translate those metrics into operational numbers that department managers and other middle managers can be held accountable for. it is often not performed adequately or not performed at all. those ideas must be implemented and tracked to ensure that the changes become a part of the new organization. Often new IT systems require change – such as shifts in workloads or responsibilities – and this type of change needs to be identified early in the project.every aspect of culture that needs to be addressed. End-User Training Using the detailed process models developed above. it is important to take the process modeling to the next level and develop more detailed models to ensure that individuals are able to clearly understand their roles. CO 80209 720-515-1377 Panorama-Consulting. and work accountabilities all need to be evaluated and redesigned to support new technologies. the business case must be translated to target levels of performance at the departmental level. but they more often than not fail to develop detailed processes to identify and document how individuals will complete their work with the new technologies. it is important to effectively communicate changes to endusers. Simply documenting how jobs and structures will change as a result of new technologies is not enough. Detailed processes also help ensure use cases and other technical activities are closely aligned with the overall business strategy. Business Process Reengineering While this may seem intuitive to most. it is important to then develop end-user training that not only helps end-users understand the new technology but also how to apply it to their new processes and job functions. High-level benefits are useless if they are not developed in a way in which individual managers can be measured. Organizational Job Design and Planning Just as processes need to be evaluated and changed to enable forthcoming technologies.

which is one primary reason for including this type of approach as part of a project plan. Benefits Measurement Here is where the real value of benefits realization comes into play.Suite 720 . in the case of not having a thorough process understanding of how an end-user’s work contributes to downstream activities. Implementation of Corrective Action Once the root cause of benefit gaps have been ascertained. However. Many of these activities are included to some degree as part of overall project plans. there are several other reasons that justify the need for these activities: Reduces Project Risk Benefits realization focuses on ensuring that the full benefits of technologies are achieved. however. It is imperative to compare actual results to projected departmental and individual results in order to identify any potential benefits gaps. it is then time to implement activities to address the root cause analysis for the problem areas. pre-implementation activities all focus on establishing the foundation for realizing benefits by addressing process and organizational change management issues that would otherwise undermine a project’s success. CO 80209 720-515-1377 Panorama-Consulting. it becomes imperative to understand why certain gaps exist. A root cause analysis lends understanding to why people are not becoming more productive with the new technology and helps clarify the reasons for the gaps. resulting in workarounds and lack of use. The Value of Benefits Realization Why should a company implement this type of benefits realization approach? This chapter identifies some of the challenges organizations face in terms of measuring benefits. Unfortunately. In addition. A common example of a root cause of less than 100percent benefits realization is that end-users understand how to use the technology but not the importance of doing so. The challenging aspect. Root Cause Analysis of Benefit Gaps Following the post-implementation measurement. and conducting traditional change management and end-user training is not enough to ensure that people are motivated to make the project succeed. the approach is focused on achieving quantifiable business value.Denver.Reward Design and Implementation Unfortunately. which reduces the risk of the project failing. establishing metrics and targets to identify potential benefit areas. it may be appropriate to develop and conduct follow-up training. Page 4 of 14 3773 Cherry Creek North Drive . . Benefits realization in and of itself does not offer any groundbreaking activities that have never been done before. but a comprehensive benefits realization approach does. no matter how well managers have incorporated the activities discussed above into their project plans. designing new processes. Companies must also incorporate reward systems to ensure alignment between individual performance and project benefits achievement. is ensuring that all of these activities are implemented effectively and in alignment with the technical aspects of the project. there are almost always areas in which full benefits are not initially achieved. The activities prior to implementation are intended to establish a foundation for benefits realization potential. Establishing new key performance indicators (KPIs) as part of an annual review process is an effective way of ensuring this level of © Copyright 2012 Eric Kimberling. most companies do not measure actual benefits after implementation. For instance. It also enables managers to understand what they are doing well and ensure that they continue to realize the benefits in these areas. In short. As mentioned. while post-implementation activities are intended to measure and ensure that the benefits come to fruition. All Rights Reserved.

As a result of this misstep. CFOs and other financial managers who approve such expenditures are much more likely to give the green light when they can analyze and compare the exact costs and benefits of previous projects. end-users are even more dissatisfied (39-percent) with their enterprise software solutions. Among companies that have recently implemented enterprise software initiatives. identifies benefits relates to end-user and executive satisfaction. metrics and organizational structures are designed to support the technical aspects of the project and vice versa. This data underscores some of the key contributors to ERP software satisfaction and ROI: 1. Clearly. Given the above discussion of current IT challenges. and what should be improved in the future. Provides Better Justification for Future IT Project Approvals IT managers are far more likely to gain funding for future projects when they can point to the actual financial results of previous projects. The most successful projects have a core group of individuals that perform all of the benefits realization activities discussed above with involvement from other subject matter experts as needed. Provides More Thorough Understanding of “Lessons Learned” Since a benefits realization approach measures results. ERP Software End-Users Can't Get No Satisfaction One of the more interesting metrics buried in our 2010 ERP Report (available online at panoramaconsulting. business and technical activities are done in isolation of one another and are significantly misaligned. 32-percent of executives are dissatisfied with their ERP software. More often than not. Because companies invest such large amounts of time and money in their ERP software. Business activities such as organizational change management and process reengineering are often disconnected when instead they should be very closely aligned. it is clear that there is a need to ensure that companies more fully realize the potential benefits of technology. Companies too often pick the wrong software. Investing millions of dollars in new technology without a compelling justification and validation of this justification is simply not acceptable anymore. Proactively Identifies and Addresses Obstacles to Realizing Benefits Since this approach focuses on measuring actual results and addressing benefit © Copyright 2012 Eric Kimberling. . Many companies in the study underestimated the need for a thorough ERP software selection process. and implements corrective action to address the gaps. Perhaps not surprisingly. jobs.Creates Close Alignment Between Business and Technical Activities This approach ensures that processes. This apparent knowledge and financial discipline also lends a great deal of credibility to key decisionmakers. managers will ensure that their projects are rolled out successfully and that they turn out to be wise investment decisions for the company. All Rights Reserved. By understanding and integrating a comprehensive benefits realization approach into IT implementations. there are a number of ways that an effective benefits realization approach can create value for IT managers and companies in general. it is quite interesting that there is only a two out of three chance that they'll like what they end up with. what went well. CO 80209 720-515-1377 Panorama-Consulting. According to the study. It is Page 5 of 14 3773 Cherry Creek North Drive .Denver. it inherently ensures that potential obstacles are identified and addressed early in the post-implementation project life cycle. organizations often choose and implement solutions that are not good fits for their unique business requirements. we found that an underwhelming number are at least somewhat satisfied with the end result.Suite 720 . it serves as a wealth of knowledge for future IT projects in terms of what the project struggled with.

This phase dramatically increases competitive edge and delivers measurable business results. or mobile workforce management.simply not possible to be satisfied with software that doesn't fit your needs.9-percent of annual revenue in their ERP software. and improving business processes to further integrate the core ERP system into the organization. 4. Reporting and business intelligence.Suite 720 . . this is just the first phase of a successful ERP implementation. However. As we have found in our research and experience. The fact that executives are too often dissatisfied with their enterprise software investments. Instead. Executive expectations are often misaligned with ERP © Copyright 2012 Eric Kimberling. While most ERP systems provide more functionality. Merely getting to this first phase of ERP implementation does not accomplish these goals. The next phase of an ERP implementation should involve leveraging more sophisticated ERP modules. preconfigured industry “best practices. supply chain management. clarifying reporting. The third and final stage is to fine-tune business processes and develop an operational model that relies on superior analysis and the ability to achieve more transparent business information and business processes. In addition. even though they typically are infrequent users of the system. All Rights Reserved. it better be worth it.” and other features to get their new ERP systems active more quickly than otherwise possible. companies narrowly define their go-live as the moment the new core. Even companies that purchase and go-live with these advanced modules during the first phase of implementation rarely leverage the full functionality right away because they haven't adequately defined their corresponding business processes or sufficiently trained their employees to use the improved workflows. efficient and productive in the new system. One of the biggest problems in ERP software benefits realization is that software vendors and their customers do not adequately define or understand what it means to “go live” with an ERP system that delivers measurable business benefits. which explains why 72-percent of organizations never get past this stage. and reports than companies know what to do Page 6 of 14 3773 Cherry Creek North Drive .to 50-percent of the potential business benefits (at best) with pre-configured industry best practices. Most organizations fail to achieve expected business benefits. Employees are often left behind. This issue is even more pronounced in today's climate of uncertainty. Implementations generally take longer and cost more than expected. However. suggests that their desires for more visibility and transparency in their organizations are not being addressed. such as advanced forecasting. they often focus on how fast and/or cheap their solution can be implemented. companies need to concentrate on moving the finish line to include two more important phases. closer to their customers. which are usually afterthoughts delayed until the last weeks of an implementation. planning. basic system is up and running. When an executive sees that his or her organization has just sunk an average of 6. This includes leveraging core functionality of the system. customizing where appropriate. layoffs and declining employee morale. and executives will only be satisfied when they see clear and tangible paybacks on those investments. CO 80209 720-515-1377 Panorama-Consulting.Denver. The core system may get an organization 30. thereby undermining the benefits potential of the ERP system. ERP implementations too often go over-budget and miss milestones. 3. and ultimately more profitable than their competitors. 2. often determine executive satisfaction. Best-in-class enterprise software initiatives include effective organizational change management activities to ensure employees are comfortable. companies that neglect this important activity are more likely to have dissatisfied employees. Most companies are not in business to be just like their industry peers and competitors – they are in business to be better. Instead. partially because they rely to heavily on standard “out-of-the-box” functionality that fails to set them apart from competitors. this second phase entails identifying third-party bolt-ons. workflows.

but is instead related to how jobs are designed. Benefits Realization Tools While benefits realization focuses on an integrated set of © Copyright 2012 Eric Kimberling. but the most effective approach used by Panorama’s clients has been to use a best-of-breed model as a starting point and then tailor it to fit a company’s unique operating conditions. This matrix can then be used to compare required skills to actual skills. Consulting and benchmarking firms are often invaluable sources of data regarding the impact of IT on actual performance and metrics. ERP software is a tool and enabler of competitive advantage and ROI but simply “going live” with the software will not deliver these results. it is useful to examine industry benchmarks to gain a more accurate understanding of the potential benefits of technologies. Skills Gap Matrices As part of the job and organizational design activities. which can subsequently act as a catalyst for developing training requirements. relatively little of ERP's success is related to the software itself.Denver. This approach is both more accelerated and more time. it is helpful to develop a matrix that identifies the required skill set for each major job type as a result of the new technologies and processes. the most successful companies figure out how to sort through these complexities to focus on what will give them a competitive edge and ROI. When planning for an ERP implementation. It is worth noting that the truly successful ERP implementation teams incorporate all phases into their first phase and focus on these key areas concurrently. . In addition. which identifies the actual impacts of the change on different functional areas and enables these areas to be addressed as part of the IT project. how processes are defined and how performance is measured. CO 80209 720-515-1377 Panorama-Consulting. Only by following through with the second and third phases of an ERP implementation will an organization achieve the true business benefits and competitive edge it is seeking. Executives are at times overly concerned about risk and focus too much on getting the system up and running quickly and inexpensively rather than delivering measurable results. it is important to align expectations accordingly and incorporate these activities into the project plan. and these are often the leaders in their respective industries.and cost-effective than undergoing complete business process reengineering from scratch.Suite 720 . By this point in the process. there will be significant end-user resistance to the associated changes. it also entails a number of tools that can be used to effectively perform the tasks: Business Case and Metrics Traditional financial and cost-benefit analysis is a useful tool for outlining and documenting the high-level benefits to be achieved by the proposed technology.with. Process Modeling Tools There are a number of approaches that can be used to model and document processes. Other companies focus on the second and third only after realizing that the first phase did not deliver the expected results. All Rights Reserved. The second and third phases of a successful implementation begin to shift the focus away from software and its functionality and more toward business process reengineering and organizational change management. Organizational Change Management Tools In order to measure a company’s cultural gaps. These second and third phases have very little to do with the software itself – they are more about building and leveraging business processes and workflows that allow companies to analyze information and execute more effectively. It is important to capture both technical skills as well as business process Page 7 of 14 3773 Cherry Creek North Drive . Our research shows that only 28-percent of organizations achieve the second or third phase of ERP competitive edge. If the large gaps continue after go-live. it is helpful to conduct an Organizational Change Impact Assessment.

The key is to minimize this drop and help employees to eventually be more productive than they were before the ERP implementation. By working with employees to identify process pain points and following this up with root cause analyses. Post-implementation audits should explore areas where employees are under-trained or could benefit from ongoing training. It is also important to evaluate every major job area that will be impacted by the upcoming changes. Post-Implementation Audit Focus Areas • Baseline and post-implementation performance measures. However. Identify opportunities to improve business processes. For example. Just because you have implemented ERP doesn’t mean that your business processes are going to be perfect. it is the experiences after the system is implemented that achieves or derails the success of the system. All Rights Reserved. This will help identify areas of under-performance and opportunities for ongoing improvement. No matter how well you’ve prepared and trained your employees. These scorecards serve as an effective communication vehicle to disseminate performance results throughout a company. It is equally – if not more – important to identify the changes that are necessary to arrive at the “to be” process and organizational states and to develop corresponding change implementation plans to make the changes actually happen. most companies fail to conduct a post-implementation audit to see how their ERP systems are fitting in with the business. It is important to establish baseline performance levels and compare those to the performance levels after go-live. you will identify opportunities to improve your processes and make them more efficient and © Copyright 2012 Eric Kimberling. the only way to understand the level of ERP business benefits is to measure performance before and after go-live.Denver. Inevitably. how might you change the role of customer service representatives to ensure they use the new technologies? Will you need to work with HR and/or labor unions to implement the job changes? How will you introduce the new rewards and measurements aligned with the project? These are the types of questions that need to be answered and addressed with specific timelines and ownership for each task. Every ERP project should have a solid business case well before the system is selected or implemented. there will be ongoing changes and adjustments to optimize the way the system is operating and to improve the way it supports your business so conducting a post-go-live audit is very important. If anything. it is useful to develop scorecards to track actual benefits performance after go. • • Page 8 of 14 3773 Cherry Creek North Drive . This will help optimize the business benefits of the ERP system in the longer-term. there will be a decrease in productivity immediately after go-live. ERP Post-Implementation Audits It’s easy to forget that successful ERP implementations don’t end at go-live. However.skills in these matrices. Benefits Realization Scorecards Once projected organizational and individual target performance metrics have been Process and Organizational Change Implementation Plans While organizational design and process models are nice to conceptualize and document at a high level. CO 80209 720-515-1377 Panorama-Consulting. . There are always going to be process inefficiencies and breakdowns that can be improved. the work must not end there.Suite 720 . Identify additional training opportunities.

Establishing ERP and IT Performance Measures To truly realize the benefits of ERP. which can be difficult to track against and drive employee accountability. they also should be given support to help identify root causes of anticipated benefits that are not realized. This is a tangible benefit. The advent of Six Sigma and Activity Based Management has encouraged many companies to go overboard with expensive and time-consuming data collection efforts that are not costjustified and lack focus. For example..Denver. CO 80209 720-515-1377 Panorama-Consulting. reduced headcount. Ideally. the only way to achieve the ROI defined in a business case is to cascade target improvements and accountability out of the boardroom and down to the lower levels of your organization. The problem with these high-level measures is that the associated benefits do not transpire unless the metrics are pushed from the executive down to the operational levels of the organization. this process is easier said than done. in our experience most companies don’t adequately address performance measurement. post-implementation audits or benefits realization as part of their ERP projects. Let’s use sales order processing time as an example. In addition. On the other end of the spectrum. many performance measurement and management programs fail because of their complexity and cost. the operational managers that will ultimately be accountable for project results on the business side should be involved in helping define the business case and potential savings of an ERP system. etc. This may very well be an accurate quantification of the benefits. Most business cases for large investments such as IT projects or mergers focus only on high-level measures.Suite 720 . In order for a performance management approach to succeed. The same should be done for the directors in charge of other areas of the business until the full $1 million savings target is assigned to the appropriate people.). The only problem with performance management programs is that most companies fail to implement them correctly. that person should be given a specific target to contribute to this $1 million savings so that he or she is held partially accountable for the project’s overall ROI. In short. Performance measures at an operational level help drive accountability and visibility to achieve the benefits outlined in the business case. While performance management is extremely beneficial. They also help drive overall ERP benefits realization. reduced inventory. but the benefits will not be realized unless they are brought to a more operational level that will drive accountability and visibility to the benefits.g. effective communication is crucial. a business case for a large IT project may indicate that headcount can be reduced by 10-percent across the company because of increased efficiencies enabled by an ERP system. reduced sales order processing time. which is the centerpiece of an effective ERP benefits realization program. Perhaps it was determined that an ERP system could potentially reduce sales order processing by 30-percent and create an annual savings of $1 million via reduced headcount company-wide. . Obviously. but it means nothing to the mid-level operational managers of a global conglomerate that need to contribute to this benefit. So if you have a Director of Sales and Marketing in charge of Europe. ERP Performance Measures and KPIs: Finding the Right Balance With that being said. This will help ensure buy-in to the established © Copyright 2012 Eric Kimberling. All Rights Reserved. In light of today’s pressures to reduce short-term costs Page 9 of 14 3773 Cherry Creek North Drive . This requires a more detailed analysis of processes to understand with more accuracy where exactly the process inefficiencies lie and where the benefits will be achieved. organizations must develop performance measures at an operational level. there is a point of diminishing returns when organizations go too far in their efforts. Most business cases include high-level corporate performance measures that define potential areas of an IT or ERP project’s business benefits (e.

This requires tough decisions. organizations have to reduce full-time staff and do more work with less people. FTE reductions and the correlating cost savings don’t necessarily require mass layoffs. After all. Ensuring that remaining employees are clear on their roles and expectations is even more important than the cost savings realized from reduced staff. it is far more cost-effective to focus performance measurement efforts on the areas that will produce the most significant results. Companies with aging workforces typically have a high number of employees eligible for retirement. 69-percent of companies spend at least 15Page 10 of 14 3773 Cherry Creek North Drive . Labor savings is one of the toughest costs to realize. To be successful in their performance management pursuits. they’ll give you a huge discount on the list price of the software when they sell it to you.Suite 720 . This is where they’ll fight the hardest. Even if and when ERP improves business processes and makes employees’ jobs more efficient. according to a recent survey on Panorama’s website. They simply do not budge on annual maintenance fees. In fact. Does ERP Really Lead to Labor Cost Savings? We’ve all seen the business cases related to how ERP will save X Corporation $X millions of labor costs in just a few short years. To realize the savings. This is the hard part. In addition to identifying and realizing the reductions in staff. Some organizations have opportunities for employees to fill jobs in other departments. it is important to clearly understand how it will realize labor cost savings. but just try to negotiate the price of maintenance.and headcounts. . managers need to maintain a balance between “operationalizing” performance measures and keeping the approach simple. This is their cash cow. Many companies have significant turnover due to employee attrition. as well as a thorough analysis of where the exact cost savings will be achieved. if it isn’t measured. managers need not measure and overanalyze every minute aspect of their operations to achieve significant improvements.” Most companies fail to go back and measure their post-implementation business results. it is important to identify how remaining employees’ jobs will change. This balanced approach will ensure a proper focus on business areas that can provide measurable improvements without spreading costs and resources too thin. it is important to identify how labor cost savings will be realized. But how real are labor cost savings in ERP implementations? The answer is. When building the business case. Companies typically spend 15. This ultimately helps lead to effective ERP benefits realization and a healthy ROI. Good luck getting any discount 20-percent of their software license fees on maintenance and support each year. “It depends. people probably aren’t being held accountable for the results. will the organization be more aggressive and institute layoffs? Whichever approach the company takes. Achieving Benefits the Wrong Way: Things to Consider Before You Cancel Your Annual Maintenance Contract ERP software companies make their money charging their customers maintenance © Copyright 2012 Eric Kimberling. so it’s likely that these companies are not realizing the benefits that they projected in their business cases. Will staff be reduced by reassigning them to job vacancies or simply by not replacing employees as they resign? Or. All Rights Reserved. CO 80209 720-515-1377 Panorama-Consulting. the dollar savings don’t just magically appear. Sure. How will their workloads change? What are the expectations in their new environment? Why are the job reductions necessary? These are all questions that should be addressed as part of an effective organizational change management program.

if they do. 3. fixes or regulatory updates. If you go with a third-party provider. eight-percent indicate that they are no longer paying support for their systems. invoice or even run a report. Because upgrades and support stop when the maintenance contract is canceled. Given the ten. © Copyright 2012 Eric Kimberling. Because of the first two reasons. there are some risks to consider before canceling your ERP software maintenance contract. Once you cancel your maintenance contract.Suite 720 . Inability to upgrade your software. Canceling maintenance may seem like a cost savings but expect the ERP vendor to play hardball with you should you need any upgrades. This misalignment may accelerate the need to completely replace your ERP system. This one is not nearly as good as it seems. 2. expect to see that 18-percent fee structure become 25-percent or more. Business operations become frozen in 15-year average lifespan of ERP investments. Panorama experts strongly suggest that you do this only if your system is completely stable. Can you assume all the risks that are associated with having no maintenance and no parachute to fall back on should something happen? You may be the corporate hero when the savings appear. Code becomes out of date and difficult to manage and sometimes it takes reworking a large chunk of the proprietary code to make it right. ERP vendors spend significant sums of money on R&D to improve their software functionality incorporating best practices from their client bases. As a result. but third-party vendors do not have access to the ERP vendor’s proprietary source code. You will no longer have any access to these things and your ERP vendor will not be sympathetic in any way. you’ll find your ERP vendor no longer cares about fixing it for you. (And. clean the moss off your server. so there may be opportunity costs and lost business benefits associated with canceling a maintenance contract. and think hard about coming up with another option for cutting costs. they’re relatively cheap. license costs are often eclipsed by maintenance costs in the long-term. provide a lot of services and have customer support analysts and developers to make modifications and troubleshoot. Page 11 of 14 3773 Cherry Creek North Drive . but you will also be the fall guy when your ERP software is unable to ship. If this is acceptable to you. then go for it. And don’t expect your vendor to welcome you back into the fold once you leave. On the other hand. users are more likely to become frustrated with the system and start adopting their own business processes outside the ERP system. business needs are likely to become misaligned with the functionality of the software. What about third-party providers? Sure. Here are three reasons to think carefully: 1. your organization generally will be ineligible for automatic upgrades. they can get very difficult to maintain over time. The provider may be able to code a workaround. Proliferation of workarounds.percent per year for ERP support and maintenance. All Rights Reserved. but if you have more than a handful of these.Denver. knowledge base or system architects. . remember that the must find a reputable and forthright third-party provider and make sure you follow the rules of your license agreement. you don’t plan to upgrade in the future and you have no regulatory changes to be made. Take some time to sit for a minute. Panorama’s recommendation comes down to this: If you cancel maintenance. Should you find a bug in your ERP system after contract cancellation that only the vendor’s developers can fix. You’ve affectively chosen to severe all ties with the vendor and you need to realize the vendor will view it as such. do so knowing that you’ll be on your own. CO 80209 720-515-1377 Panorama-Consulting. So it's understandable that companies would want to reduce these costs. Your ERP vendor will simply not respond to your requests for help.) The key to this question is risk. it becomes very unlikely that an organization will be able to change the system to keep up with its own evolution. which can be more costly than the savings achieved from the cancellation. This will generally decrease user satisfaction with the system and undermine business benefits.

Upstate quickly realized that there was an enormous resistance to (and lack of buy-in surrounding) the planned ERP project. Its employees were unionized. and Measure Not only did Upstate have a command-and-control culture that would be difficult to overcome. Since this culture was rooted in over 100 years of doing business. the team identified high-impact organizational change management activities that leveraged the ERP project as a catalyst for initiating change to the corporate culture. as well as to identify potential resistance to change. Measure. Upstate and its consulting team developed a high-level scorecard based on corporate objectives. In addition. Upstate and it’s team of consultants conducted an organizational readiness assessment to assess the current level of buy-in to the project. As a result. they were “operationalized” by assigning executives and mid-level managers responsibility for the measures needed to build out the metrics. This ensured that managers had ownership of performance targets that would enable ERP benefits and also allowed them to share in the success of the project.S. It seemed that the resistance to change displayed by Upstate employees was merely a symptom of a much deeper problem: over its very long history. the company’s culture had fostered a command-and-control environment with very little respect for employee input. These measures were then incorporated into the company’s annual performance review. CO 80209 720-515-1377 Panorama-Consulting. The Importance of Organizational Change Management Early in the project. minimization of customer outage time and improvement of customer response times. including reduction in SGA. .000 customers in the northeastern U. The culture would not be changed overnight or even in the two years it took to implement the ERP system.Denver. First. it is helpful to look at a mid-size gas and electric utility company that employed these tactics to optimize their benefits. this was a very difficult task.Case Study: ERP Benefits Realization in Action In order to better understand the value that an ERP benefits realization plan can add to your organization. Therefore. services 300. This particular company. executive stakeholders focused on developing a network of “change agents” and subject matter experts with heaving involvement in key project activities.Suite 720 . Once these high-level metrics were © Copyright 2012 Eric Kimberling. For example. the team also conducted training classes to teach managers how to delegate and empower employees to make critical business decisions. Measure. paper-based processes. However. and invested over $10 million in a leading ERP package to replace their mostly manual. All Rights Reserved. that there are many obstacles in the path to ERP benefits realization. so the team had a natural fear of measuring against key metrics Page 12 of 14 3773 Cherry Creek North Drive . it deployed a comprehensive performance measurement and management program based on the balanced scorecard. it also had no history of measuring performance or holding managers accountable for achieving business metrics. it became clear that Upstate would need to implement activities to begin overhauling its corporate culture to encourage more employee involvement in decision-making. salary and adjustment process. The team realized that this too had to change if it was going to realize tangible and measurable improvements as a result of the ERP project. even though it would automate and streamline many of the complex manual processes they were performing. very tenured and extremely uninterested in switching to a new system. as most organizations do. Upstate quickly realized. which we will call Upstate Gas and Electric. The Importance of the Post-Implementation Audit Upstate had high hopes for its ERP project.

However. Page 13 of 14 3773 Cherry Creek North Drive . However. By understanding and integrating a comprehensive benefits realization approach into ERP implementations. the team also understood that the only way it was going to actually realize the benefits and improvements was to measure and make adjustments where needed. The company’s next step was to conduct a series of focus groups and work sessions to identify the root causes for why the other 80-percent of benefits were not being realized. Often times there is a disconnect between the dollar savings quantified in ERP business cases and the operational metrics and targets. The initial results were discouraging: three months after the go-live of the first module (work management). companies try to implement ERP without involving key stakeholders and employees in the decision-making and implementation process. Within another three months. While there is value in defining and documenting current state processes. that figure was close to 85-percent. Second. All Rights Reserved. Too often. Unfortunately. Upstate implemented corrective action to improve its performance. the real focus should be on future state processes. Additional Lessons Learned from the Front Lines of ERP Projects While the above case study highlights just a few of the key aspects of Upstate Gas and Electric’s ERP benefits realization program. First. • Organizations should be realistic in projecting ERP benefits. Upstate was realizing over 60-percent of its projected improvements to its business. It also found that markups of work drawings from the field were not being sent back to the office for updates in the system. it is clear that there is a need to ensure that companies more fully realize the benefits of this rewarding technology. Upstate only had realized approximately 20-percent of its projected benefits. it is important that there is an apples-to-apples linkage between the two.after the go-live. investing millions of dollars in technology without a compelling justification and validation is just not acceptable. While it is easier said than done. • • • Given the nature and risk of ERP © Copyright 2012 Eric Kimberling. it redefined the business process for field drawing markups to ensure that office staff received them quickly. Upstate made the common mistake of being too aggressive in defining improvements they expected to see. the good news was that corporate leadership knew it had a long way to go and was prepared to keep pushing. As a result. CO 80209 720-515-1377 Panorama-Consulting. which was a key process breakdown that the system itself couldn’t fix.Denver. These two activities alone had an immediate impact on business benefits and within three months. Don’t get too caught up in “as-is” processes. It quickly found that users did not fully understand how to use the system and were reverting back to their manual processes. it provided refresher training and additional online documentation for employees to make them more comfortable with the system. Benefit projections should be challenging but not impossible. the project also resulted in a host of additional lessons learned. managers will ensure that their projects are rolled out successfully and that the projects translate to wise investment decisions for the company. Many ERP project teams have found it useful to begin the analysis with high-level current state documentation to better understand pain points and benefit opportunities.Suite 720 . which made them very difficult to achieve. Ensure involvement and representation from all key areas of the business. then spend a majority of time on how the processes will look in the future in the new environment. . Upstate learned early in its project that it needed to involve employees to begin changing its rigid cultural history. Link the business case to the operational metrics.

Page 14 of 14 3773 Cherry Creek North Drive . Coors. Eric holds an MBA from Daniels College of Business at the University of Denver. Eric’s background includes extensive ERP software selection. Eric Kimberling realized the need for an independent consulting firm that really understands both ERP and the business benefits it can © Copyright 2012 Eric Kimberling. and Six Sigma. and ERP implementation project management experience. Eric has also helped clients with business process re-engineering. In addition to extensive ERP experience. merger and acquisition integration.Suite 720 .Denver. including Kodak. Samsonite. and Lucent Technologies to name a few. Duke Energy. All Rights Reserved. Eric has helped dozens of high-profile and global companies with their ERP initiatives. Throughout his career. . CO 80209 720-515-1377 Panorama-Consulting. ERP organizational change. strategic planning. He currently serves as managing partner of Panorama Consulting Solutions. the world’s leading independent ERP consultant. Eric began his career as an ERP organizational change management consultant and eventually broadened his background to include implementation project management and software selection.About the Author After 15 years of ERP consulting at large firms including PricewaterhouseCoopers and SchlumbergerSema.