The 1990s have seen an explosion in the number of companies implementing Enterprise Application Systems (EAS) or Enterprise Resource Planning (ERP) applications. The market is currently dominated by SAP and the major players - Oracle, Baan, PeopleSoft - along with several challengers for these top spots. These systems are intended to provide end-to-end support for all activities in a company's value chain, and result in a common systems platform from which a company can manage its business operations.
Introducing these systems into an organisation, however, is not an inexpensive exercise. Traditional benchmarks often suggest a ratio of package implementation costs to software costs of approximately 3:1. Yet it is not unusual for large-scale ERP projects to cost tens of millions of dollars.
Naturally CEOs are asking: "How do I make sure that the implementation is successful, and what do I really get for this investment?"Successful implementation requires a rigorous approach to project execution.
Projects of this nature are too large and too mission-critical for ad hoc management techniques to be applied. Formal project plans, agreed milestones, approved budgets, signed-off designs, formal issue management and resolution approaches, full-time project team representation and complete management commitment are essential to achieving project objectives.
Achieving the benefits from investing in ERP/EAS applications, though, requires more than just a well-executed project.
ERP/EAS projects are typically justified in terms of operational improvements including reduced inventory, improved purchasing patterns, more efficient production processes, and reduced time in delivering products to customers.
These benefits deliver immediate bottom line impact.
In practice, however, benefits are often diluted as a result of organisational barriers, be they political, cultural or structural.
The workforce resists the change that is imposed upon them. Implementation time frames are often excessively long, due to lack of internal focus or skill.
Benefits take longer to realise than originally estimated. Often, CEOs and other senior executives, sold on unrealistic benefit statements, become dissatisfied with the return on their investment. Despite spending millions of dollars, they still do not have any better information for strategic decision-making.
Providing improved decision support capability is really a case of identifying the information needed for strategic decision-making, and ensuring that this information is captured at the source. Unfortunately the very executives that cry out for this information often do not understand the drivers that create value in their company. It is important to recognise this and to plan to involve these executives early in the implementation process, to define the decision support framework. Design the Executive Information System as a core component of the implementation, not as an add-on at the end.
Overcoming barriers to change is a more difficult task. There is no substitute for introducing a comprehensive change program that must be designed and managed as an integral part of the implementation project. This program must focus on cultural change, which is more than simply equipping the workforce to perform new tasks. And it must ensure that the organisation is well prepared to receive the systems that are about to be deployed.
Introducing a performance monitoring system is also essential. Once the systems are rolled out, it is important to measure the benefits that occur from the introduction of the new systems, and compare these actual benefits to the original plans. Where variances occur, adjustments to systems and processes can be made in a timely manner.
With a well-managed implementation project, and a commitment to managing change in a way which maximises the performance of the workforce, there is a strong chance that the introduction of the new systems will be successful. However, to maximise the benefits of investing in EAS/ERP systems, there must be a fundamental rethink in the processes which underlie the systems.
Most important of all is the need to recognise that the introduction of a shiny new EAS architecture is not an end to itself. These applications are simply enablers of change, and the real reason for embarking on the projects is to support a fundamental improvement in the way in which the business operates. An organisation must clearly understand the reasons why it needs to transform itself, then drive the transformation process through radical change to its organisation and processes. Only then can EAS/ERP applications deliver true value.
Bradley Freeman is a principal with AT Kearney
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