What They Don't Tell You About ERP

What don't they tell you about ERP? Turns out there's plenty left unsaid.

There's actually an 80% marketwide failure rate measured by cost overrun, time to go-live and expected functionality - granted, getting the system up a month later isn't the end of the world, but a 2x budget overrun is no laughing matter. 

CIO's have also expressed disappointment in having sufficient budget to finish the rollouts successfully. Unmanaged, unrealistic expectations can turn a great project into a perception of failure that's just as discouraging as some of the more disastrous flops. 

What else don't they tell you? While ERP vendors trumpet the successful companies using their software, success depends more on your internal team than any other single factor. While the vendor sales team and software consulting team have their own incentives, there can be hidden disincentives within the internal staff that doom a project before it even starts. Understanding your team and their incentives is key to ERP success.

What else don't they tell you?  Demos are great, if your business is in a demo environment. Unfortunately, most companies run in the real world where things are a bit messier. Focusing on a tightly defined and carefully analyzed Requirements gathering project can at least focus the demo on critical features. 

Another crucial aspect is business analysis - with an eye on how ERP can cut transactional costs - and from there, developing a business case with defined payback, breakeven cash flow and cost analysis.  All of this pre-supposes your on-staff analysts have relevant ERP experience to understand time-saving automation features and can estimate without overstating expected results. 

Competitive pricing, with a careful eye on upfront costs and implementation estimates, also creates a stumbling block. In an effort to win the deal, vendors offer to offload implementation tasks to the company employees - exactly how the staff will suddenly develop ERP implementation skills while simultaneously figuring out how to get their regular daily workload done in half the time is again, unspoken. While everyone is happy with a lower upfront cost estimate, it almost bakes a cost overrun into the project from the start and constrains the project managers in the end. 

What Else is unsaid? 

In summary, building a careful Requirements process along with cost analysis of what it's costing us without ERP sounds like a fairly major step for some companies - but here's where it pays off. Creating small project goals, a cut in paperwork and duplicate data entry, increasing sales, accuracy in inventory - all of this adds up to value the project appropriately. 

Cost/Revenue Modeling details how other ERP users have cut costs and increased revenue opportunities using the same ERP platform. While the model may well change in out years, it at least outlines one path to achieve payback for the ERP project. Done right, you can also build consensus within the company for the new ERP undertaking and actually incentivize the users toward success. 

One caveat - software vendors often tout best performance results and customers of course, on average, experience average returns.  'Sales increased 11% with our ERP!' This may be true for a similar company - but it's also likely the very top result in the category. A more careful approach says 'If company A improved Sales by 11 points, we can surely count on a 3% bump.' Again, you're managing expectations. Don't forget to factor in learning curves - it may take several months before the users are up to speed on the new ERP tool - perhaps 3 months for accounting, maybe 6 or 7 months for the warehouse guys - and it ramps up over time. A realistic, achievable goal serves a couple of purposes. 1) Most ERP projects don't set or measure to goals - and a goal unstated is a goal unachieved in most cases - so setting the goal puts you ahead of most ERP implementations. 2) Setting lower goals can still justify sufficient budget and company focus on the project - and should the team over-perform - there's enough glory to go around. 

This article is excerpted from a recent ERPodcast, Episode 27 What They Don't Tell You About ERP (but you'll soon find out). You can listen Here or Subscribe on Apple Podcasts, Android Google Podcasts.