Why Modernize Your ERP System?
There might not be a need. Since it is one of the largest expenses your company will undertake, and, more importantly, it will impact customer performance and profitability (positively or negatively), there is no reason to jump into the deep end of the pool before understanding the value to your growth and success. Upgrading your ERP system is not for the faint of heart as it will consume resources (financial and people), and 80% of ERP upgrades fail to achieve the intended results. Thus, you must ensure you will be part of the 20%!
With that said, if you do not have a modern ERP system, you will constantly struggle to meet customer expectations, grow profitability, and achieve cash flow goals. Our clients with old systems try to incorporate add-on software, but it becomes a house of cards. Orders slip through the cracks. Duplicate transactions confuse and annoy employees. Archaic screens discourage teams. Key business nuances cannot be incorporated into the system. And down-the-line impacts are lost.
Additionally, archaic systems typically cannot support modern customer expectations (e-commerce, CRM, business intelligence, AI, etc.), and so clients create work arounds to try to meet the needs. Soon, there are elaborate subsystems required to support the business, and the solutions are not scalable.
Although in every client situation we found opportunities to better utilize the system, the effort required to limp along with an old ERP system and avoid the upgrade will not be worth the value over the medium to long-term. Instead, focus attention on when to upgrade and plan your upgrade to ensure success.
Why ERP Upgrades Fail
Most ERP upgrade projects fail. The most frequent reason cited is lack of training; however, we find that is RARELY the cause. The root cause is that the people do not know how to use the system to perform the business processes required to achieve the day-to-day business objectives For example, the ERP team might have provided training on how the system plans production; however, the planner does not know how to use the system to get production schedules for what he/she knows is required to meet the #1 customer’s needs and/or how to get the schedule to show the correct number of pieces per day (instead of showing an unrealistic output that would require double the resources he/she knows is available).
Unfortunately, the ERP team typically says, “Use the best practice process. You are being resistant to change.” And the planner says, “The ERP system is not working, but provides no details as to what is wrong.”. Neither side is happy with the other, and the planner puts together a work around, and the ERP team requests a change consultant. It is no wonder 80% of implementations fail.
What can you do to turn failure on its head?
The good news is that it is not difficult to know what to do to succeed with ERP upgrades. The bad news is that companies don’t want to accept what needs to be done to succeed. The critical priorities are as follows:
- ERP Software Selection: Focus upfront to make sure you select the best-fit system for your business requirements. For example, if your business requirements dictate a job shop software, your options will be limited. If you need a configurator or service module, your options will be further limited for the best software to support your needs. Focus on business requirements, and especially those requirements that differentiate the company in the marketplace or those that are unique to your industry. Our clients have found that the best way to be software agnostic and not get sucked into a slick sales presentation is to bring on neutral experts to focus on requirements, fit, and facts, and they arm the team with pitfalls to avoid.
- ERP Selection example: For example, a manufacturing client was hesitant to spend the money on consultants to perform an ERP selection. Their CPA convinced them to give it a go. After working with them for several months, we agreed on the best fit software and partner; however, the client decided to postpone the ERP upgrade for a few years. The CPA provided feedback that even though they didn’t follow the recommendations, the client felt like the process itself was well worth the investment because they understood what was needed to be successful and could prepare to ensure success. Fast-forward a few years, and they did just that. We went through a new selection process as requirements change, ERP software capabilities change, ERP positioning changes, and suppliers areas of focus and expertise change. We selected a new best fit software and partner, and they were prepared for the ERP journey.
- ERP Supplier selection: Just as important as the system is the selection of your implementation partner. Plans rarely fail in formulation. They fail in execution. This means that the partner you choose has to fill in gaps of your weaknesses, supplement your strengths, and align with your path forward (agile vs process-oriented, focused on quick wins or looking at the long term, knows how to work with small and medium size company resources or is focused on larger company issues, focused on saving money or return on investment). In the ERP software selection example, the supplier of choice from the first selection process evolved with changing market conditions and no longer focused on medium size clients in their sweet spot. Thus, a different partner made more sense.
- ERP Team: As difficult as it is, you need to put your best and brightest on your ERP team. This team will be designing processes, working through roadblocks, driving change, providing training, listening to feedback, and will drive your success or failure. You will have to invest in people, ensure career paths for top talent, and provide tools, support and supplemental resources to ensure success.
- Project Management: The fundamentals or project management and change management are bedrock to ERP success. These are not rocket science yet essential to success.
- Business/ Systems Analysis: Beyond being proficient in project management, you will need business process and system analysis capabilities. You need to visualize down-the-line impacts, pivot as appropriate, know when to keep looking for ways to resolve issues and when to stop at success (and not pursue perfection). Incorporating cross-functional business process expertise is critical as the connections between processes and modules will make or break success. Unfortunately, ERP partners typically have experts in each module. This leaves a gap in cross-module processes. Supplement with these experts if you want to succeed.
- Pilot: Design a pilot to test the end-to-end life cycle of your processes. The most successful clients utilize an agile approach to pilot a segment of the business or a sub-process, incorporate changes and expand your pilot. This iterative approach will rapidly incorporate business feedback instead of waiting until the end to see if everything works as desired. By then, no one wants to be the one to postpone the go-live, and so critical updates will not be uncovered.
- Testing & Cutover: Each ERP supplier will have proven implementation processes. Unfortunately, methodologies are only as good as the people executing them. Don’t skimp where it counts. Resolve key issues before they impact customers and daily profitability. You’ll need strong organization and orchestration to coordinate successfully.
- Ongoing Support: Planning a week of go-live support will not cut it. If the supplier has one foot out the door because they have committed to another project so that they can fund operations, they will not be focused on what your team needs to succeed.
A Final Thought
Do not leave your ERP upgrade to your IT team, your CFO, or an ERP leader. It is a transformative process to build scalability and sustainability into your business processes. You will need a visionary. You will need leaders to drive change. Not change for the sake of change or to implement best practices. Instead, you will need to drive change and improvement to your business processes. Last but not least, execution, collaboration and partnership will be key to success.
If you are interested in discussing whether you need an ERP upgrade or you are interested in discussing an unbiased ERP selection, review our ERP resources and/or contact us to discuss your situation.
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