ERP Myths: Simple Truths

that Management Needs

to Know
A wealth of knowledge has accumulated about
enterprise resource planning systems. However,
many myths have also emerged—and little has
been done to debunk them. Until now.

ERP Myths: Simple Truths that Management Needs to Know 1

Careers and fortunes have been built and lost because of enterprise resource planning (ERP)
systems, and in the process, some reliable advice has emerged on how best to address the
challenges and capture the benefits of a standardized system. These teachings and best
practices synthesize fact-based experiences from countless implementations and provide clear
guidance on how to succeed (see sidebar: Ten ERP Best Practices).

However, as knowledge has grown so too have the ERP misconceptions, which often reflect
trade-offs and constraints that applied in the early days of ERP systems or stem from fallacies
perpetrated by overzealous software vendors and systems integrators. Many of these myths
persist today and often dissuade potential purchasers of ERP systems, despite significant
investments and innovative products.

The following are six ERP myths generally accepted as fact. We highlight the myth, offer
a challenge (myth buster) to the generally accepted fact, and recommend actions that will
help ensure a successful ERP implementation.

Myth 1:
ERP Systems Are Expensive and Take
a Long Time to Implement
ERP projects are notorious for their huge capital investment requirements and multi-year
schedules. As experienced managers know, time and cost are inextricably linked in project
delivery and are functions of scope, technical complexity, and resources. Yet time and again,
companies set an overly ambitious scope, over-engineer the solution, or select the wrong
systems integrator. Such missteps are often the result of attempts to make the business case
more attractive, to get stakeholders on board by promising additional functionality, or simply
to get started quickly. Consequently, the ERP investment grows, requires more resources, and
takes longer to deliver.

Ten ERP Best Practices

1. Develop and maintain over-engineering the solution, 7. Partner with an experienced,

a robust business case to
focus on business benefits,
identify priorities, and
determine scope.
2. Appoint a credible and active
project sponsor, and target a
24-hour decision turnaround.
3. Engage the business and agree
on a detailed specification of
business requirements.
Maintain stakeholder support
with regular communications.
4. Reduce complexity by
simplifying business
processes, avoid
and minimize customizations
by using standard out-of-the-
box functionality.
5. Develop an implementation
roadmap that delivers quick
wins, and minimize the scope
of the initial release.
6. Attract the best people
to the project team, align
roles to development goals,
and set incentives that are
tied to project outcomes.
Plan succession on
multi-year projects.
reliable system integrator with
strong ERP product knowledge
and industry familiarity.
8. Focus on the user experience,
user capabilities, and the
change process.
9. Keep documentation to
a minimum. Use prototypes
to communicate and confirm
the solution.
10. Increase certainty through
a pilot, and apply lessons
learned to improve solution fit
and deployment approach.

ERP Myths: Simple Truths that Management Needs to Know 2

One of the arguments for using an off-the-shelf ERP system instead of a homegrown one is that
the software only requires configuration. Because software licensing costs about one tenth of
the total implementation, most spending is in fees to a systems integrator to tailor the standard
system to the company’s requirements. Yet even an off-the-shelf system requires work, from
aligning cross-functional and multi-stakeholder requirements, and managing the change in user
roles and work activities, to migrating data, documenting the solution, and integrating the
system into the existing technical environment. But the main task is to configure the “vanilla”
system, and this requires strong product knowledge and implementation experience—skills
typically sourced from a third-party specialist.

Myth buster: Configuring an ERP system takes only one to two days if clear and agreed-upon
business requirements are in place.

From the setup of the enterprise structure in the system to establishing module-specific
parameters in the ERP database tables, configuration can be swift—just one to two days—
assuming specific business requirements have been articulated and agreement with all
stakeholders has been reached (see figure 1). This timeline also assumes zero coding that
otherwise needs months-long software development, and support of a skilled configuration
consultant. Testing the system and training users is important and adds extra lead time,
although these activities unfortunately often get economized as the project progresses.

Figure 1
An ERP implementation project can be streamlined

Effort Illustrative

Time
Project Blueprint Realization Final preparation Go-live
preparation (30%) (40%) (15%) and support
(5%) (10%)

Overall Decision making Management Documentation Change management Solution build Testing

Management Documentation Decision making Solution build Testing Change management

(15%) (15%) (20%) (25%) (15%) (10%)

• Planning • Project • Requirements • Environment • Integration • Organizational

• Coordination • Design validation • Solution design, • Technical communications
• Reporting • User • Escalation process configuration, • User acceptance • User training
(issues and risks) and development
• Internal • Technical
communications • Reviews, sign-offs • Security,
• Operations authorization
• Human resources

Potential to streamline

Notes: ERP is enterprise resource planning; all percentages represent overall implementation effort
Source: A.T. Kearney analysis

ERP Myths: Simple Truths that Management Needs to Know 3

Management and decision making can consume up to 30 percent of time and effort
on a project, and although necessary, these activities can be streamlined. For example, we
fast-tracked the ERP implementation at a leading European retailer by establishing a planning
and design phase in which stakeholders made all essential policy, operating model, and
deployment decisions in advance.

Documentation is not a feature of an agile implementation, and although essential for

regulatory and support reasons, it often becomes an unnecessary burden and an end in itself.
For example, one ERP implementation project produced more than 750 deliverables. Each
had undergone rigorous approval processes, yet only 30 were either relevant or usable a year
after implementation. Although such inefficiencies cannot be completely eliminated, they
can be reduced by understanding where additional project time is incurred and then taking
appropriate actions.

Actions

Don’t just look at the usual cost-reduction methods such as negotiating with systems
integrators to drop their rates or to offshore more resources. Instead, break down the under-
lying work structure. Challenge the scope and complexity of the first system release, and ask
why certain bells and whistles are needed and what is sufficient to get the job done efficiently.

Also, it is wise to confirm the expertise of the systems integrator’s resources, and align the
commercial strategy to the delivery strategy as well as establish a lean management style
that can make the right decisions quickly (and use prototypes to minimize documentation).
Above all, be clear about what the system is supposed to do, and make sure everyone
involved understands and agrees on the requirements.

Myth 2:
ERP Projects Deliver Business Benefits
Two interrelated—and entirely misplaced—ideas are behind this myth: the first that ERP
is a project, the second that an ERP system delivers benefits. ERP is not a one-time project.
It is a platform for continuous improvement that requires a sustainable change in mindset,
behaviors, and ways of working.

During an ERP project, teams from departments that seldom interact work together to define
processes and resolve information dependencies. These diverse players establish a common
language, break down functional silos, and create a culture that is responsive to change. When
the system goes live, business processes are simplified and integrated, and islands of
automation are all but gone. System users are part of a continual workflow up and down the
supply chain, and enterprise-wide information is available to support analytical and fact-based
decision making.

Unfortunately, the go-live phase is often followed by “go-leave.” The project team is dissolved,
and the stars of the show go back to their day jobs or leave the organization to seek new
opportunities. When the period of vast insights, momentum, and change ends the ability to
leverage the opportunities diminishes. The ERP system becomes just another IT application
depreciating on the asset register.

ERP Myths: Simple Truths that Management Needs to Know 4

Myth buster: Benefits are derived because of the ERP system, not from it.

An ERP investment is founded on business returns that outweigh implementation costs.

Simply put, ERP does not print money—it only tells you where to find it.

ERP is a platform for future initiatives that improves business practices and reduces
inefficiencies. At the same time, it is necessary to develop user capabilities to sustain the
change and safeguard data quality. IT-related savings can accrue from a system replacement,
whether from consolidating applications and lowering the total cost of ownership or rationalizing
IT resources. Intangible benefits result from improved compliance and customer satisfaction.
In most cases, however, IT housekeeping is not enough to warrant an ERP investment. This is
where the business case becomes especially important to clarify and quantify sources of value
in a structured way.

A rudimentary view of benefits only considers automation and simplification-related

savings—that is, those that stem from reduced headcount, increased productivity, and cost
savings. A more rigorous approach includes innovation-related savings from new ways
of working, new user capabilities, and improved information management (see figure 2).
One of our clients charted more than 100 change initiatives enabled by a new ERP system,
accounting for nearly 70 percent of the overall ERP value case.

Figure 2
Improvements go beyond costs to include innovation-related savings Illustrative

Benefits

Benefit factor
~10 times

Increasing benefits Analytics

• Improved data quality
• Streamlined operations
• Enhanced reporting

~2.5 times

~1 times
Integration
• Decreased headcount
Insights • Increased productivity
• Improved processes • Reduced costs
• Redesigned organization
• Aligned with strategy
Time
Pre-implementation Implementation Post-implementation

Source: A.T. Kearney analysis

ERP Myths: Simple Truths that Management Needs to Know 5

Actions

Focus on benefits that are ERP-enabled and not just inherent to the system, and detail these
in project charters. Implement from a benefits standpoint using the business case—not just as
a means to get a green light but also as a document that informs decisions on scope and release
priorities. Assign benefits to owners, tie these benefits to performance objectives and incentives,
and hold owners accountable for realizing them. And don’t stop once the system is live. Form
a smaller, high-caliber team to identify new opportunities for improving the business.

Myth 3:
Smaller Business Units Need a Different ERP System
In an ideal world, a single corporate-wide ERP system supports all business units, geographies,
and back-office functions. In the real world, however, companies are littered with multiple ERP
systems that are specific to a location, business line, or even a business function. To make
matters worse, these systems can include different versions of the same ERP suite or a mix
of ERP systems from different vendors.

Modern ERP systems are designed to be versatile: They are built on industry best practices and
can satisfy a broad spectrum of business requirements. Too often, the ideal is compromised for
expediency and then paid for later. The reason: it is harder to build and deploy a single ERP
template solution, more painful to secure and sustain the commitment of a diverse stakeholder
community, and more challenging to harmonize processes and data standards.

In looking at the installed base, many industry analysts have wrongly concluded that a singular
approach to ERP is impossible—it’s rarely achieved so why not just settle for multiple ERP
systems from the outset. For example, an ERP system used in a company’s larger business units
is not viable for its smaller units because of barriers that require a different ERP solution. We
often hear problems about affordability, specifically that recharged implementation costs and
ERP running costs are prohibitive and that smaller sites did not get to provide input, which leads
to a poor fit and gaps that take time, resources, and money to close. Many companies face
additional hurdles, including fears about losing autonomy, complaints about inflexibility to suit
the work environments of smaller sites, benefits that are not compelling enough to justify the
necessary time and resources, and criticisms about smaller sites’ needs getting low priority.

Myth buster: A single ERP solution can be implemented across an entire company—
if management can endure a little short-term pain.

An argument can be made for not using a common ERP system on the grounds of scope, but
this argument is shaky at best. Indeed, having more than one ERP system risks investing twice
what is needed, duplicating support costs, causing more information fragmentation, and
increasing IT complexity.

Assessing the needs of smaller country-based units usually reveals that their requirements are
similar to the rest of the business. So exclusion is seldom justified. Still, specific challenges
must be overcome, and smaller units will require special treatment to address restrictions in
size and organizational significance. Companies can and do implement template ERP solutions
across all their sites and reap enormous benefits in standardization and business integration.

ERP Myths: Simple Truths that Management Needs to Know 6

Tough decisions and governance are required—and some pain is involved—but the vision and
associated benefits of a single enterprise template can be achieved.

Actions

Evaluate the merits of a one-size-fits-all approach against the needs of each business group. Not
all business units operate in the same markets or have the same business processes, in which case
a single ERP solution makes little sense. A differentiated ERP approach can also be appropriate in
other circumstances, such as a stepping stone to an eventual enterprise-wide solution. An
informed ERP strategy must be able to answer three questions:

• How similar are the organization’s business practices, and to what extent
should they be connected?

• Is a common ERP system the only way to realize potential organization-wide synergies?

• Can stakeholders agree to work together in the near term?

If a single ERP solution is appropriate, then proven techniques can overcome the challenges
that smaller sites face (see figure 3).

Figure 3
Challenges and mitigation techniques for small or single sites

Challenge Mitigation techniques

• Fund from central budget and charge costs based on share of benefits
Affordability • Subsidize smaller projects via surcharges on larger sites (or budget relief)

• Share benefits with smaller sites

Business case • Fund local infrastructure refresh projects

• Close gaps and consider compensatory measures

Business fit • Fund and support change management initiatives

• Develop a case for change, that highlights local benefits

Cultural fit • Appoint local change agents and establish local change infrastructure

• Develop alternative “position to role” concepts

Organizational fit • Share workloads across sites

• Support local implementation teams

Project support • Mix large and small sites in the same deployment wave

• Design solution with a high-level of automation

Usability • Support users and encourage new behaviors

Source: A.T. Kearney analysis

ERP Myths: Simple Truths that Management Needs to Know 7

Myth 4:
An ERP System Enables Enterprise Resource Planning
Why has such an important enabler of business operations and such a successful software
concept generated so much misunderstanding? To some extent, ERP has been a victim of its
own success. There will always be advocates of best-of-breed applications who favor modular
applications and claim ERP is “bloatware” run amok. Several high-profile implementation
disasters have also tarnished the ERP image.

However, the main cause for these misconceptions is the name: Enterprise resource planning is
a misnomer. IT analysts coined the term in the early 1990s, mistakenly seeing ERP as an offshoot
of manufacturing resource planning (MRP). But ERP systems could hardly be more inaccurately
named: The systems are not necessarily deployed throughout an entire enterprise, have little
concept of resources, and feature only minimal planning functionality.

As ERP knowledge has grown, so

too have the misconceptions, which
often reflect constraints that applied
in the early days of ERP systems.
Myth buster: Other types of systems along with ERP can be necessary to address all
business requirements.

As ERP vendors strengthened their core product, they developed complementary, function-
specific solutions to sit alongside ERP. Today, leading ERP vendors also provide software for
customer relationship management, business intelligence, supply chain planning, master
data management, and product lifecycle management. These and other software integrate
fully with the core ERP system but can run as standalones.

Actions

When selecting an ERP system, be clear about business requirements and use a selection process
that considers functional fit and ease of integration with the company’s legacy applications. Don’t
over-engineer the initial implementation with all the new modules; instead, devise a roadmap of
future releases to introduce additional functionality and related systems over time. And never
judge software by its label.

Myth 5:
“Standardized Processes” Means One Way of Working
Standardization is one of the central reasons for implementing an ERP system: to establish
common ways of working that permit comparability and interoperability. Standardization is
a means to simplify processes, eliminate inefficiencies and unneeded variability, and reduce

ERP Myths: Simple Truths that Management Needs to Know 8

operating costs. Outputs become more consistent and repeatable and there are fewer errors.
As a technology standard, ERP defines the enterprise architecture and data model, and for
users, ERP provides a common language, work environment, and transferable skill set. Yet,
the quest to standardize is often a major challenge for project teams, can alienate business
stakeholders, and can result in an inappropriate solution or one that users fail to accept.

Myth buster: Standardization simply means fewer alternatives.

Standardization does not mean singularity. ERP systems are incredibly versatile and highly
flexible—they do not constrain business processing. Order types, planning strategies, and
number ranges are used in the same ERP solution to cater to a variety of business scenarios.
What’s particularly vital to standardization is knowing how much uniformity is needed and
recognizing that most benefits are derived from process simplification.

Ultimately, the extent to which various process models are supported is a function of user
capabilities. If users understand the business process and can fluidly switch to a different
workflow, managers can minimize the impact on lead times, quality, and cost. However, if the
goal of an ERP implementation is to outsource the back office, then new users will need more
time to become proficient.

Actions

Take a pragmatic approach to standardization. Use the ERP implementation as an opportunity

to simplify processes and move toward best practices. Take into account users’ capabilities and
the extent to which they can realistically tolerate variability. Avoid trying to cram everything into
a singular model. Even if initial resistance is overcome, a breakdown could occur later on. Invest
in a process to transfer knowledge to users and to improve their understanding of the content
needed in their jobs. Incorporating ERP training into new-hire orientation programs will ensure
that competency levels are embedded and sustained.

Myth 6:
ERP is an IT System that Belongs in the IT Department
An ERP system once implemented is woven deeply into the fabric of business operations.
As a packaged system, ERP minimizes the need for extensive technical input and elevates
attention to what the application does, rather than its technology. ERP is frequently dismissed
as just another IT system that gets relegated to the IT department, which shifts the focus from
value creation to cost management.

Myth buster: ERP is a business asset that requires business ownership and input.

An ERP project should be run as a business initiative, sponsored by the business, and staffed with
the organization’s best people—and that philosophy should remain even after implementation.
Successful organizations recognize ERP’s potential and migrate the project into a more
permanent entity—a center of excellence or competency center—to sustain the change and
maximize the investment. These centers can become vehicles for educating the firm’s future
business leaders, arming them with a cross-functional, process-centric understanding of the
company’s operations. Simply put, dismissing ERP as an IT system and relegating it to the IT
department prevents the insights, controls, and efficiencies that ERP offers.

ERP Myths: Simple Truths that Management Needs to Know 9

Actions

Make ERP an integral part of the business, working in conjunction with the IT department
or a third-party service provider. Establish a center of excellence or a competency center
to manage the ERP system and oversee its evolution. Engage the larger business on
improvement opportunities enabled by the system, and partner with them to ensure that
the ERP system reflects ongoing business requirements.

ERP is not a one-time project. It is

a platform for continuous improvement
that requires a change in mindset,
behaviors, and ways of working.

Challenge Conventional Thinking

Few business applications have attracted as much management attention over the years as ERP
systems, and the line between fact and fiction or myth and best practice can be difficult to
discern. In today’s mature ERP market, buyers must take control of their journey by specifying
requirements, managing for value, and making ERP a platform for continuous improvement.
Forward-thinking companies understand what it takes—and what it doesn’t take—to implement
an ERP system successfully. Those that challenge conventional thinking can gain immediate
impact and long-term value.

Authors

Stephen Ardill, partner, Dubai Farhan Mirza, principal, Dubai

stephen.ardill@atkearney.com farhan.mirza@atkearney.com

The authors wish to thank Hannan Ikram for his help in writing this paper.

ERP Myths: Simple Truths that Management Needs to Know 10

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