Key Factors for Success of ERP Implementations
ERP Implementations are generally time consuming and expensive - more so if the implementation involves multiple geographies with different languages, different business processes, legal requirements and accounting norms. Companies typically go for ERP implementations with the aim of integrating disparate systems spread across different business functions so that the top management can get an integrated view of the operations of the organization. Optimal usage of an ERP system also leads to reduction in operational costs and supports strategic planning.
Let us look at some important factors that an organization should consider for successful ERP implementation.
1. Determine if it is worthwhile to invest in a new ERP system: Most organizations would have an existing system that they use to support their current business operations- it could be a mainframe based application, a homegrown ERP or a part manual and part automated system. Once an ERP system is implemented, the business is bound to adapt to it. Therefore it is necessary that the ERP application leads to efficiency in existing business operations.
Sometimes business users are so used to working with the old system that they find it difficult to adapt. For example in many Japanese production systems, material replenishment is inherently linked to their production systems - if a material runs out of stock, users typically use a Kanban card for signaling material shortage requests to their supplier. Though an ERP system can replicate the same functionality, business users who are used to the manual system for several years may not see need for investment in a new system.
Before an organization makes the choice of an ERP, it should carefully evaluate the extent to which its current processes in all areas - human resources, planning, order management, procurement, financial reporting and customer management can be mapped in the ERP. The extent and ease by which customizations can be developed in the ERP is also an important factor. The organizations' capacity to expand and grow should be enhanced & not limited by the ERP application they decide to choose.
2. Do the necessary groundwork: The most important activity in this stage should be to identify the "pain points" of using the existing system. The pain points can be analyzed from two perspectives - one is improving the underlying efficiency of the current business processes and the other would be to look at the difficulties that end-users face in using the existing system(s).
When the intended cost of investment in a new system is very high, it would make sense to do a pilot implementation in one business unit/geography and gradually roll-out the implementation to other geographies in a phased manner.
3 Define Scope & get buy-in from all important stakeholders: In a large organization, application development and IT decisions are typically made by a dedicated IT/implementation department. When it comes to making the important decision of implementing an ERP, it is necessary that business analysts and end users are involved during the decision making and implementation process at all times.
When the ERP vendor is mapping business processes for a department, business analysts and end-users from multiple departments should be involved. For example when the forecasting process is being mapped to the system and decisions regarding level of forecast are being made, the order management and procurement department should also be involved to decide if granular or aggregate forecasting is required.
Similarly the organization may currently have different existing external systems for forecasting, manufacturing execution, shipping etc. It may make sense to do away with some of these external systems and replicate the functionality in the ERP. Some external systems might be difficult to replace and so it will be necessary to pull/push data from the ERP to them. These kind of decisions should have buy-in from all concerned stakeholders so that there is no conflict in expectation.
Key decisions may be necessary during an implementation process such as:
(i) Do we change a business process to implement it on the ERP or continue using an external system with the existing business process and develop interfaces to integrate the system with the ERP
(ii) What is the cost-benefit of buying an add-on reporting application with rich graphical features vis-a-vis developing custom reports in the ERP
(iii) Do we require suppliers to change their systems to meet the file format data requirements in the ERP or allow them access to the new ERP system through a user interface
The implementation decision should be driven from the top management so that budgets, timelines and strategic program direction can be controlled centrally. Middle management and business leads should also pass on inputs to the top management at key checkpoints in the process so that key decisions as those listed above can be taken quickly.
4. Setup a Project/Program Management Office involving all IT partners:The ERP project should be aligned with the organization's strategic business and IT roadmap. The Executive sponsor should ensure organization leadership support throughout the project and bridge the gap between the ERP project management team and top leadership for funding and resources. There should be explicit project management efforts for "Risk Management" in the ERP implementation and “change control” before, during and post implementation.
If there are multiple parties involved because of integration needs between the ERP and different systems, the communication matrix & the responsibility of each vendor should be clearly defined so that any integration issues can be quickly resolved. Design and development standards for development of custom features should be defined before the start of the project so that uniformity is maintained.
5. Define parameters for measuring success of the implementation: Since IT funding in most companies is borne by income generated out of the business, it is imperative that business users and the management is able to see tangible benefits of implementing an ERP. These measures should be defined as a goal before the implementation journey is undertaken so that there is no conflict in expectation. Some sample benefits could be:
- Reduce Order processing time by 15%
- Eliminate all errors in the forecasting process
- 10% reduction in safety stock inventory
- $500 million growth in margins (resulting from operational efficiency) over the next 3 years
- Have the ability to generate financial reporting in multiple currencies through the ERP
The top management should also promote more and more usage of the ERP by introducing - competition between different business units/ divisions (the same can be measured on different KPIs – for example %receipts created against ASN, %purchases against global blanket agreements for the procurement function). The designated KPIs for each business function should be evaluated and published in a monthly scorecard.
6. Define a timeline and stick to it: ERP implementations can at times go through schedule delays because of systemic issues or difficulty in implementing a desired functionality in the base ERP (resulting in the need for a complex customization), conflict in functionality desired across cross functional modules, delays in solving technical issues because of new technology etc.
It is necessary therefore, to classify requirements from the business into different categories such as critical, important but not critical & nice to have. In case there are schedule delays, the requirements that can be deferred should be moved to the next release so that the “core” implementation does not result in delays.
7. Keep future growth strategies in mind: Organizations with inorganic growth strategies could consider an ERP with the consideration that it should be scalable, flexible & easy to roll out from the acquired entities. Otherwise, it should have ease of integration with the acquired entity’s systems to leverage on economies of scale and also information efficiency for the key decision makers in the senior management.
The factors listed above, is by no means exhaustive. I welcome your opinion on what other factors organizations should look at, to ensure that failures in ERP implementation do not happen.
Update at - http://infosysblogs.com/oracle/2008/11/key_factors_for_success_of_erp_2.html#more
Comments
I agreee with above points. We also need to look at the implementation strategy - big bang or in phases. We need to evaluate which strategy to use based on individual project requirements.
Posted by: K N Harilal | October 31, 2008 12:19 PM
Another key success factor, which is generally forgotten, is Training. Many projects fail in the end due to lack of proper user training. Because it’s the training which ensure that users at levels in the organization are comfortable and ready to use the new system without any fear.
Posted by: rakesh Jindal | October 31, 2008 12:59 PM
Another key factor to success is to decide the location from where the project should be executed. Like it will not be a good idea to execute a project for company based in Brazil from India as unlike US, language is a major barrier in getting the requirements.
Posted by: Prashant | October 31, 2008 06:01 PM
Business Users should own the system. They should feed correct data in system to get correct information so that correct decision could be taken.
Posted by: Ashish Garg | October 31, 2008 08:34 PM
Very good notes. A project culture and climate needs to be established which is conducive to a win win philosophy. Containment measures for risks also need to be in place before embarking on the implementation.
Posted by: Ravi Sharraf | November 1, 2008 02:27 AM
My experience also says that the selection of resources is also very critical.
Posted by: Ashish | November 1, 2008 02:05 PM
Very well captured key factors for a successful implementation. Commitment from business process owners and their good level of understanding to new ERP is very important. I agree, gathering right requirements and blend of right resources is vital for success.
Posted by: Rajeev | November 4, 2008 07:38 PM
I found the article useful and informative.Could you write about any experience that we have had in evaluating whether an organisation should adopt a ERP system in the face of resistance from the IT group that draws its importance from maintaining and enhancing a legacy system ? Who are the stakeholders in these large implementations ?
Posted by: Anand S | November 5, 2008 11:50 PM
Anand, For the case you described, the existing IT group might fear that the new ERP system might take away their importance and level of control.
In some ERP implementations, people resistance issues can take more time to resolve than technical and functional issues.
To prevent this from happening, ensure that the executive sponsor and heads from key business functions take the IT group into confidence and ensure that they are active participants throughout the implementation journey so that they gradually are able to shed their inhibition.
At the end of the day, the decision whether the organization should switch from an existing stable system to a new ERP, would depend on the post-implementation projected bottomline and the business benefits that the new system would bring.
Posted by: Samir Das | November 6, 2008 02:34 PM
Excellent Samir
I have seen projects fail when they do not comply to your point 3
"Define Scope & get buy-in from all important stakeholders"
Well done.
Posted by: Anil Passi | November 6, 2008 04:30 PM
Nicely captured important factors for a successful implementation. Even I believe that defining the scope is one of the most important part.
Posted by: Prathamesh | November 7, 2008 03:14 AM
Good thoughts. With the kind of investment an organization incurs for ERP implementation, it makes sense to look at these factors to avoid chances of failure
Posted by: Sumit Makkar | November 7, 2008 02:15 PM
Samir… excellent thoughts and good work.
I would read point #4 (Setup a Project/Program Management Office involving all IT partners) as a big challenge. It is very difficult for the project managers to create practical project plans, define requirements/expectations from each stakeholder, execute change management and maintain enthusiasm of senior management in an ERP adoption project.
Posted by: V Kohli | November 9, 2008 04:43 AM
Hi Samir, Interesting article to read through.
What metrics do we have to effectively measure success of Implementation.?
I will say most challenging point in implementing ERP solution in an organization would be to convince Existing Users about Advantage & plus points from existing system. I feel To change users mindset is biggest challenge !
Good reading overall...
Posted by: Ramneesh Trehan | November 9, 2008 06:30 AM
On Scope Finalization... wanted to add a good quote I read somewhere......
'.. implementing a software requirement/scope & walking on WATER is pretty easy .. if both are FROZEN ..'
Posted by: Ramneesh Trehan | November 9, 2008 06:34 AM
Ramneesh,
There is no standard benchmark or widely accepted technique to measure success of an ERP implementation project. You can read Venu Kotamraju's blog titled 'Earned Value Management for ERP Implementations' to understand how earned value management can be used to measure success of ERP implementations.
http://infosysblogs.com/oracle/2008/10/earned_value_management_for_er.html#more
It could take upto 2-3 years for the implementing organization to realize significant returns on its ERP implementation project. Some possible immediate benefits post-implementation, would be increase in operational efficiency, faster response times & an enhanced reporting mechanism providing an integrated view of the enterprise to the top management.
I have listed some representative long-term benefits in point 5 of my blog.
Posted by: Samir Das | November 9, 2008 06:18 PM
Points nicely knitted together for ERP implementation. Very helpful & learning notes for folks who are new/having less experience in IT.
Keep up the good work Samir.
Posted by: Ashish Soni | November 10, 2008 06:04 AM
This is a very good article to understand the key points that need to be taken care of while implementing the ERP. Samir, I like your point #3 very much because most of the time we end up in the dark if we have not defined our scope of implementation properly and have not included all the parties while defining the scope and road map of implementation.
Posted by: Raj | November 10, 2008 11:28 AM
A well thought article indeed!!
This article describes core key success factors of a implementation
Posted by: Vivek Rastogi | November 10, 2008 01:45 PM
These are excellent points for successful implementation of ERP in an organization. With these, another important key factor is to focus on people involved in implementation like they should have good business knowledge and understanding of ERP.
Posted by: Monika | November 12, 2008 06:28 AM
Very well written article.
I would like to add few thing to this discussion.
Toward the first point about "investing in ERP": One of the key criteria for selecting a new ERP should be its implementability in similar industry, best is to look at the competitors ERP implementation. Every ERP has at least one or more strong point, we need to evaluate those strong functionality in terms of suitability of package to our industry.
Technology/Architecture of ERP should also be evaluated: We need to see that we are not investing in a obsolete architecture when everybody is now focussing on SOA or interoperability. Building new Interfaces to external and internal systems are OK, but ERP should be able to comply to most common interface standards.
Managing the expectation of client at the onset of implementation: We need to realistically set the expectations of client, we need to always keep in mind that ERPs are transaction processing system and it can only be as intelligent as its captured data. Client should not be made to believe that it is solution to all his problem, rather it is one of the tool to resolve problems related to information capturing, evaluation and sharing. It is always a good idea to parallely (or one step in advance) execute a change management project owned and run by client or business consultants where the ERP vendor Project Managers are equal party.
Posted by: Kamlesh | November 18, 2008 04:14 AM
Hi Samir,
It's an interesting article to read. One unavoidable part of ERP implementation is customization. I have seen customizations creating mess in the system. So at the time of rollout only the show stopper customizations should be included, rest should go phase wise.
Posted by: Subir | November 23, 2008 04:52 PM
This is a very useful article succintly presenting most of the generic success factors in an ERP implementation. In my opinion, point no 5 is specially important (defining parameters for measuring success). This set of parameters not only keeps the implementation effort goal oriented, but also helps in conducting a meaningful post-implementation audit and improvement throughout the usage life cycle of the ERP. Thanks Samir.
Posted by: Debjit Banerjee | November 25, 2008 04:08 PM
Resources particularly functional consultants must be experienced.
Communication between top management process users of client and functional consultants at everytime is must.
Sometimes, in small/medium organizations, mostly important decisions are taken by the finance department, which is totally reversed in the case of your point #3.
Posted by: Rajendra Birnale | November 30, 2008 07:12 AM
Well written article. At the same time the commitment and smooth coordination from all parties is the key to the success of ERP project. The commitments come from the understanding of how ERP can benefit each functional department. For example, if the warehouse staff isn't completely sold on the inventory control module's benefits, they may not input the kind of usage data that is essential to the project's success.
Posted by: Project Management Templates | September 23, 2009 10:24 AM