Over the past decade, businesses generated an unprecedented quantity of patents, products, and profit models. This trend of consistent expansion is accelerating—2015 being one of the most innovative years in history. In order to thrive in this age of explosive growth and competition, businesses must maximize resource efficiency. And, to do this, they must have tools that are in line with the pace of the 21st century marketplace.
Arguably the most important of these tools is an Enterprise Resource Planning (ERP) software package. Industry leaders consider ERP software the cornerstone of their company’s organizational and operational efficiency. Yet, some business owners and executives consider ERP software cost-prohibitive due to the often-times shocking cost of adopting and implementing an ERP package. However, businesses can avoid many unnecessary costs, and significantly reduce their bottom line, by following a series of steps.
- How do you Choose the Right ERP?
- How do I Prepare my Team for an ERP Implementation?
- How do I Prepare my Company for an ERP Implementation?
- What Will Happen to my IT Infrastructure?
- What Should I Expect from ERP Training?
- How Should I Choose a Go-Live Date?
- How do I Prepare my Managers for an ERP Implementation?
- How Much Should my Company Try to Implement at Once?
1. How Do you Choose the Right ERP?
ERP implementation is a capital investment, and when businesses make good capital investments, they realize returns that make the initial costs worthwhile.
Just as a business would carefully consider and prepare for any other large capital investment, it is critical to understand and plan for the acquisition of a new ERP software.
Some businesses err by only considering the software’s features prior to making an investment in ERP software. While considering features is important, it is not the first or even the most important step.
Before studying and analyzing the software packages, the company must study and analyze itself.
- What is the company’s volume of transactions?
- What are the customers’ biggest frustrations?
- What is the industry norm for floor production times?
- Is the company using the most optimal equipment?
- How can the company improve lead times?
- What compliance standards is the company required to meet?
- What is the organization’s turnover rate?
- Has the company conducted a detailed SWOT analysis?
- What is the timeline for the project?
- What is the budget?
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These are just a few of the many questions that must be answered before starting the search for an ERP package. Companies of all sizes can benefit from getting into the ERP wagon. One of our customers runs a $5 million company by himself. He got an ERP package with 10 user licenses, which allowed him to refrain from hiring any more personnel until it was absolutely necessary. Today, he runs one of the leanest businesses with the greatest amount of profit per employee I have ever witnessed.
So it is not a matter of size.
A company might have great sales, stellar production efficiency, and unmatched customer service, but they have no handle on their inventory, forecasting, or procurement.
Without knowing these specific strengths and weaknesses, the company has no way of knowing specifically what they need out of an ERP platform.
Likewise, if a company does not understand its competitor’s innovative competitive advantages, they may not be equipped to make a proper ERP selection (one with enough features and automation to keep up with industry trends and norms).
Often times, companies decide to implement an ERP software before considering the specific needs of the business.
When companies do this, they are often confused at the differences between the half-dozen or so packages that they discover from a web search.
Without a clear understanding of the specific needs, strengths, weaknesses, threats, and opportunities, the company risks making a poor investment that will not generate the desired returns, and may actually end up costing the company in the long term.
When companies choose a software that is not ideally suited for their business operations, they end up paying to reprogram the software to accommodate their unique needs.
Businesses are often dismayed at the costs of reprogramming an ERP software that does not have the necessary features ‘out of the box’. In many cases, businesses can completely eliminate custom programming costs by performing adequate research on their own business prior to adopting an ERP package.
Often times, software and consulting firms offer a preliminary engagement package that involves an in-depth needs analysis of the operations and business practices.
Although this comes at a cost, this step helps the customer and vendor ensure that the company’s operational needs are met, and the project is planned and implemented effectively the first time around, thus eliminating additional costs in the long run.
For any investment or purchase, it is always important to define the budget before initiating any purchases.
When businesses keep the budget ambiguous, they risk ‘cost creep’ on implementation expenses or cost-features negotiations that often devolve into positional bargaining between parties.
Both parties benefit when the budget is legitimately defined and expectations are clearly communicated. Imagine shopping at a grocery store without knowing how much money is in your pocket. Regardless of whether or not you or the grocery knows how much money is in your pocket, you will leave with only the amount of groceries for which you had money.
The same logic applies in an ERP implementation. If you do not define the budget, you may leave the implementation with some features you don’t need while other legitimate needs may be missed because they were not prioritized.
Defining the budget must be connected to the businesses’ self-study.
A properly defined budget, and keen awareness of the business’s needs, will help to keep costs down by providing an ongoing line of accountability to the stakeholders of the project.
For example, if an implementation were halfway completed, but the project budget is at 75% capacity, key stakeholders will likely pay much closer attention to project expenditures such as custom programming, meetings, or project management.
As important as it is to define a budget internally, it is equally important to agree on that budget with your software provider/vendor. Most software and consulting firms track budget as a key performance indicator.
By defining the number with the vendor, it helps to harness accountability—as they will likely determine their success in part based on not exceeding the budget of the project.
2. How do I Prepare my Team for an ERP Implementation?
Although most ERP packages are implemented by a team of project managers and consultants, there is a large amount of responsibility, duties, and workload that must be carried out by the client company.
Most implementation firms will always offer to fulfill and execute all the work involved with an implementation, but this only adds hours and cost to the project.
With the proper team in place, you can use internal resources from each department to fulfill tasks such as data gathering, data scrubbing, data conversion, SOP definition, testing, etc. Assigning the task of data extraction, scrubbing, and migration alone can eliminate a significant amount of hours and cost from the overall project.
Additionally, having internal team members perform some of the work involved in the implementation will also serve as practice and training for the end users—which will ultimately result in cost savings for support during and after the implementation.
Due to their robust nature, ERP implementations require a large amount of input and commitment from everyone (especially department heads) in the organization.
The team must specifically plan for additional resources (e.g. time, costs, personnel etc.) that are directly tied to the ERP implementation.
These resources will ensure that the team is successful in day-to-day implementation assignments while not compromising standard operating procedures, and will prevent costly issues like overtime, re-work, and setbacks to the timeline.
Most companies form a team involving roles for each core area of their business such as project manager, accounting, logistics, purchasing, etc. Teams that are organized have better interfacing between the consultants and the team.
Without a properly structured implementation team, bottlenecks, duplication of work, and other communication obstacles arise, usually resulting in cost increases.
One role that can be created specifically for the implementation is the super user role.
This team member, usually a manager or key employee, will be involved in every step of the implementation. Additionally, the super-user will usually undergo extra training sessions in order to develop them into a subject matter expert in the ERP.
Throughout the implementation, the company will be expected to perform parallel testing and hands-on practice inside the software. If the company is equipped with a super-user, many of the questions, support, re-training, and other miscellaneous implementation tasks that usually deplete budget hours can be resolved internally.
But how do you choose a super-user?
Your super-user should have a thorough knowledge of your business processes. It can be a manager but it doesn’t have too. Someone who has a 360 degree vision and understanding of the company such as a production or procurement employee could be a great super-user. He will also be a tech-savvy person, that can quickly jump into a new software and understand the overall mechanic behind it. Lastly, if your super-user understands your business and is good with technology, but does not approve of the ERP project, he could sabotage it from the inside and push it to fail.
If you’ve already chosen your ERP, think about the acquisition process. Who was employee overly excited about the new software? Is one person tech-savvy, with a good understanding of your processes, and committed to the success of the implementation? Congratulations, you found your super-user!
3. How do I Prepare my Company for an ERP Implementation?
ERP systems streamline organizational processes, automate communication across organizational levels, increase operational efficiency, increase transparency, forecast cost and profit projections, and optimize resources.
All of these functions provide value to the company, and will inevitably make standard operating procedure less resource intensive. The residual resource (i.e. cost savings) from the efficiency provided by ERP software can then be used to expand the business, enhance the product, or provide value-added services to customers.
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To fully maximize the return on cost savings, companies should re-evaluate their operating procedures after implementation, and establish new practices and procedures to fully accommodate the new software.
The majority of companies that realize cost savings on ERP projects are eager to change, in terms of culture, people, and processes. Unfortunately, many companies don’t see the cost savings because of the fatal ideology and mindset of ‘because we have always done it that way’ leads to a change in the software, rather than the process.
Most ERP vendors do not include customizations or program changes in their original proposals. Therefore, any change that involves unforeseen programming will ultimately result in a budget overage.
During the pre-implementation planning stage, when the company defines its business process requirements, a good practice is to come up with a list of ‘must haves’ vs ‘nice to haves’ pertaining to software logic, features, and functionality.
Decide up front what the ‘showstoppers’ are for the company’s operational needs. If the company has performed thorough and ample research in this process, any customizations that are absolutely necessary to the project will be shared and negotiated with the ERP provider in the budgeting and negotiating phase.
An indirect risk of customizations during the implementation is that it creates a moving target for both the end users and the consultant/project manager.
If this becomes a pattern throughout the project, it is inevitable that the timeline and project scope will be compromised, triggering the need for more man hours and another dip into the budget.
If a company has chosen the right partner, their consultant should be able to provide ample work-arounds or alternatives utilizing existing functionality in order to deter the need for customizations.
4. What Will Happen to my IT Infrastructure?
As processes change and innovation increases, companies implementing new ERP systems must devote a portion of their budgets to IT infrastructure.
Although some of the hardware must inevitably be kept in-house (barcode scanners, label printers, workstations, tablets, etc.), many companies are taking advantage of cloud computing, which can dramatically decrease the cost of hardware, personnel, and infrastructure. In fact, statistics from a 2015 survey show that 90% of companies have moved to the cloud in some capacity.
An ERP, if utilized properly, will generate and require data for every facet of a company’s activity.
By housing this data in the cloud, the liability of upkeep, maintenance, virus protection, upgrades, and backups is transferred to the ERP hosting provider.
Taking advantage of hosted solutions provided by companies like Rackspace, Amazon, or DigitalOcean will allow the organizations to not only leverage the most innovative technology, but also dramatically cut the costs associated with hosting a new ERP software platform.
Traditionally, in house IT departments are responsible for an array of timely duties including database tune-ups, load balancing, backups, virus protections, upgrades, and many other system improvement tasks.
Headaches and time that would have been spent babysitting, implementing, and troubleshooting the IT infrastructure can be dedicated to more mission-critical duties that contribute to not only the success of the ERP implementation, but the company in general.
5. What Should I Expect from ERP Training?
The foundation and success of the entire ERP implementation rest on the end users’ ability to use and navigate the software as it was intended.
This not only qualifies user training as one of the most imperative steps in the implementation but also one of the biggest cost implications.
ERP firms commonly set aside a specific percentage of the project’s budgeted hours towards training.
Depending on the ERP being implemented, courses are usually broken out based on modules, and are either priced per course or per user. Although most implementations may include some padding for re-training, it is likely that any formal training courses that are requested a second time will be billed against the project, thus adding to the original cost forecast for the training portion of the project.
These unnecessary cost increases can be prevented through preparation, accountability, discipline, and cooperation from the stakeholders and end users of the organization.
Assuming the project manager and implementation lead/super-user have agreed upon a granular and detailed project plan, there is usually ample time to prepare for software training courses.
It is imperative to request and familiarize the team of trainees with detailed training agendas prior to training. This practice allows for end users to brainstorm topics, determine any missing processes/objectives, and populate lists of questions specifically related to their use of the software.
Pointing out unique business situations and processes (and how they will be executed in the software), and initiating conversations between the trainer and other end users will allow the team to come up with proper solutions both in process and software functionality. If these types of procedural and situational inquiries aren’t addressed in training, they will come up after the ERP has gone live, resulting in an influx of preventable support costs.
Another crucial part of the team’s preparation will be to acclimate the end users with the software itself. Most ERP providers will issue licenses and user credentials in the first month of an implementation. This lead time allows trainees to begin logging into the system and exploring screens and modules that may associate with their day to day operational procedures and responsibilities.
Getting to know the ‘lay of the land’ will allow users time to adjust to the general look and feel of the software.
Often times, if end users are seeing the software for the first time during training, their attention is easily diverted to simply analyzing the graphics, nomenclatures, and all around design of the software itself—which usually results in a lack of retention in the core subject matter.
One proactive measure the company can take in order to prevent retraining is to demand mandatory attendance for all assigned courses/sessions.
As previously discussed, during the implementation, resources and team members experience the burden of a second workload on top of their tumultuous day to day schedule.
It is very easy for a resource to justify skipping out on a training class, or stepping away and leaving a course in order to put out a fire or deal with an operational need. Although exceptional circumstances may demand this type of behavior, upper-management and key stakeholders overseeing the implementation must make it abundantly clear to all resources that training course attendance is required.
If a company makes new hires, or does require some re-training during the final months of an implementation, a properly groomed super user should be able to cover most of the subject matter at that point.
Although the actual training is an integral part of an end user’s adoption and acquirement of the software, documentation will go a long way in preventing avoidable support calls and inquiries—which can add very quickly to the overall cost of an implementation.
Most ERP providers can provide customers with generic documentation for at least the basic modules of the platform.
While generic documentation will help, end users will experience more significant benefits from documentation that represents the activities and functions performed on a daily basis within the company.
6. How Should I Choose a Go-Live Date?
Panorama Consulting – an independent ERP consulting service – revealed the average duration of an ERP implementation is 14.3 months.
Likewise, the study revealed 75 percent of implementation projects exceeded their initial estimated timeline.
No matter the vendor/package, there is almost always an inevitable correlation between the timeline and cost of an implementation.
If the company has properly defined the goals around timing and longevity of the implementation and conveyed these figures to the firm, a final go-live date can be set to steer the entire project.
One measure that can be taken to ensure the project and its stakeholders remain on pace is a detailed, granular project plan.
Although project management in general is sometimes notorious for being a waste of time and budget, if performed properly it can actually help drastically reduce costs to the overall implementation.
An effective project plan will include not only detailed tasks/executions required to complete the implementation, but also supplemental dates, assignees, due dates, predecessors, completion percentages, and remarks sections.
If every task required of the implementation has an owner, and a commitment date, it is much easier to promote accountability for all stakeholders.
Psychologically, when a resource sees their name next to a commitment, they are much more likely to fulfill the responsibility, as opposed to seeing the task simply assigned to the project in general (without a particular member of the team being responsible).
Commitment times and due dates will help to organize the schedules and workloads of both the implementation consultants/project managers, and the internal resources involved in the implementation.
Without due dates, resources (and even consultants) are more likely to delay or procrastinate in their project assignments until ‘crunch time’. This type of behavior usually results in an overall bottleneck in the project, an extension of the final go-live date, and increased project costs.
As the timeline changes and grows during the implementation, the project becomes more susceptible to cost drivers and risks.
In the software world (from a retention and education standpoint), it is best to take the ‘strike while the iron is hot’ approach.
In an extended project, much of the training and knowledge transferred during the initial courses will be diluted and eventually forgotten, which will require additional hours and capital in the form of re-training and extra courses.
Another unforeseen effect of extending the timeline of a project is the implications of seasonal trends and how they correlate with resource availability, time restraints, cash flow, and other key factors that can smother the success of an implementation.
Take for instance a project that is slated for an April go live.
In the initial planning phases, research and collaborative discussions established that April was the month with the least operational volume. Thus, resources and stakeholders would be able to roll out the new ERP during months that were more forgiving in terms of chaos, time, and volume of business.
The risk of a problematic, both in cost and morale, go-live is much greater in this month than the original April target.
7. How do I Prepare my Managers for an ERP Implementation?
The implementation of an ERP requires feedback, cooperation, and buy-in from the entire company.
Unfortunately, whether it is derived from reluctance to change, fear of job security, or other common emotions that arise from a project of this nature, some team members are not as supportive and enthusiastic about implementations as others.
In fact, it is not uncommon to have employees completely revolt (be it directly or passively) against the implementation.
In the industry, these resources have been playfully coined as saboteurs, project terrorists, or troublemakers.
A strong force that can help to eradicate the project of these negative forces is leadership and executive buy-in of the project.
Similar to most team-oriented environments, employees involved in an ERP implementation will look to leadership and management when forming their personal attitudes and opinions of the project.
In most cases, team members will emulate their manager’s actions and attitudes towards a project in terms of support, buy-in, enthusiasm, cooperation, and optimism.
The practice of ‘top-down positivity’ helps spread confidence, willingness, acceptance, and energy across the entire organization—which are all catalysts for a successful implementation.
On the contrary, the same holds true for the effects of negativity from upper management – they will spread like wildfire, and most likely much quicker than anything on the positive side of the spectrum.
Although this may not directly add cost to the project, the indirect effects of low morale, lack of commitment, and an overall pessimistic attitude can result in additional costs.
For instance, in a supply chain management ERP implementation there are many departments that must work hand in hand to provide proper data, derive operating procedures, assist in training, perform parallel testing, and roll out the software.
Each department acts as a very unique puzzle piece that is imperative to the overall synergy and proper functioning of the software and operation as a whole.
Let’s assume one of these departments, shipping/logistics, is governed by a veteran manager who does not support the implementation and change.
In order to prove his point and display his disdain for the new initiative, he will do whatever he can to stall, disprove, and prevent the project from success. In this case, the resources within this department have also begun to mimic the negative attitude concerning the project.
Throughout the implementation, assignments, data requests, meeting invites, training sessions, and other elements of the project requiring cooperation are ignored and even in some cases rejected by the members of the department, including the manager.
Due to the collaborative nature of the implementation, the company cannot move through the project because of ‘one bad apple’.
This bottleneck and behavior eventually leads to an extension of the go-live date, insufficient data, untested processes and procedures, and a possibly cancerous attitude in the company—all of which culminate into excessive costs and overrun budgets.
The best approach executive leadership can take when announcing or introducing an ERP implantation is one that conveys “We are getting on this bus. You can either hop on and enjoy the ride, or you will be left behind.”
8. How Much Should My Company Try to Implement at Once?
As organizations make their transition into the age of innovation, many companies make a significant technological jump once the decision has been made to upgrade and automate.
Due to factors such as cost, time, manpower, and complacency, most organizations taking on new innovative initiatives are converting from extremely antiquated business practices and procedures.
The ‘if it ain’t broke’ mentality has encouraged practices like tracking production and inventory on hand-written documents, deriving forecasting and procurement data reactively based on assumptions and opinions (rather than true facts and figures), and analyzing company key performance indicators through manually created and maintained spreadsheets.
Over time, teams get acclimated and comfortable with these behaviors, which prolongs and widens the gap between the innovative stage of the company and its competitors. Thus, once the company finally decides to upgrade, through the adoption of an ERP for example, they most likely want to change almost everything.
Although it is important for an organization to automate and improve all areas of their business, it is important to remember the amount of work and effort required to properly implement a platform as extensive as an ERP.
If too much is taken on during an ERP implementation, there are several risks that not only jeopardize the project, but the organization as a whole.
Most ERP packages are broken up into modules.
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Whether the ERP provider charges by the module, or by the work involved to set up, configure and train on these modules, there is always a cost associated with each module.
Taking on more modules than necessary will result in drowning of project resources and time, extended project timelines, and possible decrease in training retention—all of which are exorbitant costs which will quickly deplete the budget.
Through close communication with the ERP provider in the initial planning phase of the project, you can develop a project plan that will help deter some of these risks, and the costs associated with them.
When first meeting as a company to analyze your company needs, qualify the benefits of each of the modules, and only plan to implement the ones that truly deliver value.
If the list of modules is still somewhat considerable in length and time, a phased project approach will be necessary.
In a phased rollout, rather than implementing all of the desired modules in one single instance, small groups of modules and processes are implemented at a time.
This approach provides cost benefits including more time for users to adapt to the system as they go (avoiding re-training and inflated support costs).
This approach can also develop super users for later phases (as the users implement phase I, their expertise can be harnessed in the setup and implementation of later phases).
Additionally, by utilizing a phased approach, the company mitigates the risk of possible go-live disasters.
Due to the integrated nature of a fully implemented ERP, any failure in any portion of the software could affect other modules and processes.
If the implantation is all encompassing, there is an added pressure for users and stakeholders to be 100% prepared in all areas of the platform.
If the company has ‘bitten off more than they could chew’, the threat of a go-live rollback (reverting back to the legacy system and planning another go live in the future) becomes much greater.
Rolling back a go-live has immense monetary consequences—loss of implementation hours, loss of business and production do to shut downs, overtime costs from manpower, and additional costs from legacy platforms.
These consequences will inevitably destroy any hopes to stay within the budget of the implementation. While phasing an implementation out may give the initial impression of added costs, it will most likely eliminate disastrous episodes and costs like these.
While ERP implementations can be intimidating to an organization on many levels, the apprehensions based on finances and costs can be removed by adhering to a proactive approach that follows some of the key areas discussed above. With the proper planning and attention to these traditional blind spots of an implementation, any organization will not only dramatically decrease the overall cost of implementation, but also likely ensure a successful go live and deployment of the new platform.
We put together an ERP Selection Kit comprised of four white papers to help you find the perfect Software based on your Industry, company size and many more factors. It will show you the modules you should look for and help you calculate your Return-On-Investment (ROI).
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