Panorama Consulting Group LLC

ERP Assessment and Software Selection Framework

2006-09-23T18:06:00.000-06:00

We recently posted a white paper about best practices in ERP assessments and software selection. After reading the white paper, many readers sent emails asking for more detail on how one might go about the whole ERP selection process.

As a result, we have made a summary example of our typical ERP assessment and selection approach available to the ERP community. Click here to view the summary overview of the tasks and deliverables we typically recommend and deliver when we help clients through the ERP selection process.

Eric Kimberling
Panorama Consulting Group

Do Small Businesses Need ERP?

2006-09-23T18:04:00.000-06:00

Ever since the early 1990s, Fortune 500 companies across the world have been on the ERP bandwagon. With millions of dollars required to implement and well-publicized coverage of ERP failures, many wonder if ERP is worth the cost and risk to small businesses.

The topic of small businesses and ERP has been of interest to me, especially lately. Approximately 75% of our new clients and prospects interested in having us conduct an ERP assessment and vendor selection are companies with annual revenues under $100 million. In fact, one of our recent contract signings for this type of work is for a company with annual revenue of $15 million. Ten years ago, this type of small business interest in ERP was very uncommon.

The key things driving small businesses to ERP seems to be 1) growth of the small business sector, and 2) more focus on the small business market from ERP software vendors. Most of our small business clients are considering or implementing ERP because of their rapid growth and the corresponding strain it puts on their legacy systems. In addition, large ERP vendors that typically focused solely on the Fortune 500 market are now developing lower-cost solutions with more appropriate functionality for smaller businesses.

A third and final possible reason is because many niche ERP players have entered the marketplace to provide functional solutions for specific industries. Open technologies such as .net have reduced barriers to entry into the ERP market, so many smaller, industry-specific niche players are able to fill the voids left by the big ERP comapnies at a lower cost.

Although this increasing focus on small business is good for companies with limited capital budgets, it also poses additional risks. Now, there are more choices than ever, and some vendors' products are much more proven than others. So small businesses should be especially thorough when evaluating and selecting an ERP package. They should engage in a vendor selection process that ensures they choose a solid software package that provides a strong ROI to the company.

Eric Kimberling
Panorama Consulting Group LLC

Fixing a Failed ERP Implementation

2006-09-23T18:02:00.000-06:00

Most of my entries in this blog have focused on proactive measures that can be taken to ensure ERP or IT success. However, what happens if you're already in the middle of a failed ERP implementation?

The good news is that troubled IT implementations can be fixed, even if they are way over budget, behind schedule, and creating great organizational strain. In these types of instances, I often advise clients to reposition their projects as business improvement projects rather than IT projects.

At this point, you have forget about ERP. During or after a failed implementation, the software is likely creating huge difficulties. Just the mere mention of the letters E, R, and P probably cause employees to cringe, so it's important to focus less on ERP per se and more on how you are going to fix your business operations. With this change in mindset, you use ERP only as necessary to make business improvements to get your organization back on track.

Here is an approach I suggest to get a failed implementation moving in the right direction again:

1) Assess each area and department of the business that ERP is affecting. What are your key performance measures (order fill rate, time to close books, order accuracy, etc.)? Where are your biggest operational pain points? This will require you to reach out to key business stakeholders to get them involved, if they aren't already.

2) Develop two-tiers of potential solutions: stop-gap / "quick fix" solutions and long-term solutions. Determine the costs and time required to implement each of the options.

3) Prioritize your problem / solution combinations to arrive at the top 5-10 areas where you will realize the most immediate business impact at the lowest cost (low hanging fruit). Many of these solutions may or may not involve ERP functionality. It may require more training of the system, configuring the system to support new solutions. My experience has shown that business
processes and organizational change management are the most common problem areas in failed ERP projects, so many of your solutions may not even involve changing the system or implementing new functionality.

4) Begin implementing these low-hanging fruit solutions. The goal should be to build organizational momentum and confidence with these "quick wins."

5) Once you get some quick wins in place with the shorter-term solutions, begin prioritizing and implementing your long-term, more permanent fixes the same way you did with your short-term problems.

6) Begin implementing long-term solutions as time and resources allow.

By following this approach, you will better position your organization to make your troubled implementation a success and optimize the business benefits of ERP.

Eric Kimberling
Panorama Consulting Group LLC

To-Be or Not To-Be: When and How to Design Business Processes for your IT or ERP Project

2006-09-23T17:58:00.000-06:00

One of the most contentious issues in the world of ERP and IT is how much attention to give to as-is and to-be business processes.

Opinions on the issue run the whole spectrum on how this should be addressed; some people feel that companies should let their ERP systems dictate what new processes will be, while others feel that as-is and to-be processes should be documented and analyzed in detail before selecting IT software. Many people, including myself, feel that the approach should fall somewhere in between.

It is helpful to break down the issues and look at each individual aspect of business processes to decide which approach is best for your company and your IT or ERP implementation.

As-Is Processes
This is one of the more controversial aspects of ERP projects. In my experiences with clients implementing ERP, IT, or any other large business change initiative, there needs to be a decent amount of attention devoted to defining current business reasons. The benefits of doing so are three-fold:

1) It helps get alignment and understanding among various business units and geographies on how things currently operate. More often than not, especially in very large organizations, many managers and key stakeholders do not have a big-picture view of what other parts of the organization are doing. Documenting as-is business processes helps develop clarity on what is working well and what is broken with the current business processes.

2) It helps define how employees are doing their work now, which will help define the gaps between the current and future states. This is critical when it comes to organizational change management and training initiatives later on in the project.

3) It helps determine the key operational pain points, and therefore the to-be processes and business requirements during the software selection process.

This is not to say, however, that companies should spend an excessive amount of time documenting or over-analyzing current processes. At a minimum, organizations should develop level 1 detail around their current processes.

To-Be Processes
This area is very important as well. In order to develop the appropriate business requirements and select the software that is most effective for your business, you need to understand how you want your business processes to look in the future. Doing so provides four key benefits:

1) It helps you define your future operational model and business processes independent of software. This allows you to think out of the box and look for opportunities to score big wins by leveraging IT as a tool to enable measurable business improvements. If you skip this step, you are more likely to be influenced by sales messages instead of functional fit.

2) In conjunction with the as-is processes, it helps you identify the gaps between the current and future jobs, roles, and responsibilities. This is critical from an organizational change management perspective.

3) It helps define key performance indicators to help drive business improvements and accountability. With new processes come new responsibilities and opportunities for improvement, so you need performance measures to enable this.

4) It helps prioritize customization, integration, and report-writing needs after the software is selected. Without this understanding of where you want your organization to go from an operational perspective, it is very difficult to determine where customization and additional development is appropriate.

In short, I have found it helpful to view the business process aspects of your IT projects independent of the software itself. Your future strategic direction and business processes should drive the IT project, not the other way around.

Eric Kimberling
Panorama Consulting Group LLC

Planning for IT and ERP Success

2006-09-23T17:53:00.000-06:00

Ensuring a smooth ERP migration is complex, and every implementation entails a certain level of business and technical risk. There are a number of factors that affect an implementation's level of risk, including the number of sites that you are going live with, how many legacy systems are being replaced, and how many users will be affected.

In general, the variables that are most likely to reduce the business risk of your migration include:

1) Phased instead "big bang" approach to migration - cutting over your systems all at once generally increases your risk, particularly on large projects across multiple geographies/countries.
2) Sufficient Training - the better training you provide users, the less problems you will see.
3) Legacy System Planning - what are you going to do with your systems after go-live? Will you run them in parallel for a short-period until you know the new ERP system is functional? If so, have you budgeted these costs in your ROI? Failure to answer these questions before go-live will create significant problems at cutover.
4) Thorough Testing - Unit and integration testing is very important; you significantly reduce your implementation risk if you have thoroughly tested the solution with real data and real user profiles before go-live.
5) Provide Plenty of IT Support - expect more support center call volume and staff accordingly during go-live. You will also want to make sure you have clearly defined escalation procedures in place for ERP issues that your support staff isn't able to handle.
6) Develop a Contingency Plan - what will you do if your system does go down? Do you have manual processes you can revert to if needed? By expecting the worst case scenario, even though it is unlikely, you will reduce the risk of a massive business failure.

It all boils down to ERP risk mitigation, and the addressing the above issues will help minimize the level of risk exposed to your business. It is important to ensure that your project plan, budget, and staffing all consider these items.

Eric Kimberling
Panorama Consulting Group LLC

Aligning ERP & IT with Your Overall Business Strategy

2006-09-05T18:20:00.000-06:00

One of our recent blog entries discussed how to define to-be processes as part of a successful IT implementation. Based on this entry, one reader questioned whether or not this is feasible if the IT project is not aligned with overall business strategy.

This reader is aboslutely right: aligning an ERP implementation with a company's overall business strategy is a difficult and often overlooked component of a successful project. I think the main thing needed is to take a top-down approach to defining business processes and then ultimately arriving at an ERP solution that fits the overall business.

In other words, before you can configure a system to enable your desired to-be processes, you need to define what these to-be processes look like. In order to understand your to-be processes, you need to know your operational strategy. And before defining your operational strategy, you need to define your overall corporate strategy and objectives.

So this is why the appropriate approach to ensure a successful ERP project that is aligned with the overall corporate and operational strategy is to:

1) Define your corporate strategy and objectives. I typically look at a 3-5 year horizon when helping clients through the process. I also challenge them to answer the question: "where do you want the company to be in 5 years?" Also, "what operational strategy is required to enable this higher-level corporate strategy?"

2) Once you have clearly articulated the company strategy, then you need to
define your "to-be" business processes that will enable this corporate and
operational strategy.

3) Then, establish the performance measures at the corporate, operational, and
business process levels. These measures should help you identify how
successful you have been in executing against your defined strategy. They
should also align with reports that come out of your ERP system.

4) Finally, you can begin designing, configuring, and testing the system to ensure that it is aligned with #1-3.

The unfortunate thing is that most companies start with #4 and skip steps 1-3.
By following all four, however, companies can be better prepared to ensure ERP
alignment with overall company strategy.

Eric Kimberling
Panorama Consulting Group LLC

Does It Matter Which ERP Vendor You Choose?

2006-04-03T13:44:00.000-06:00

If you've been following the ERP market lately, you have probably seen SAP's assertion that companies that run SAP are 32% more profitable than those that don't. On the other hand, another recent study from The Hackett Group found that there is no correlation between performance and world-class performance.

So what's the real story? In my opinion, these conflicting statistics suggest two things. First, the ERP market is competitive and cutthroat. Second, it raises the question of whether it is the ERP technology itself or other factors that increases performance.

Based on my experience, the specific ERP tool is just one piece of the business performance puzzle. How you design your business processes, how well you establish KPIs and measure performance, how you design your organization and employee roles, and how well you train employees to use the new system are just a few aspects that can have a huge impact on the success of your ERP implementation.

In addition, I question the validity of both studies mentioned above. For example, the SAP study compared SAP companies to non-SAP companies, not to companies running competing ERP systems. So perhaps a majority of the comparison companies weren't running any type of ERP package, so it would be expected that the SAP companies would perform higher. But could it be that Oracle or Microsoft customers were 40% or 50% more profitable than the others? Or, could it be that companies that are more profitable choose SAP because they have the resources available to invest in such a large project?

As for the Hackett Group study, I'm not sure what they mean by "world-class performance." It sounds great, but what does it mean? In addition, their study was focused on the performance of finance organizations within the companies studied rather than the performance of all the functional departments.

However, all of this is not to say that the ERP software itself is not important. Obviously, you want to select software that best fits your business requirements and operational model. But the key is that ERP is simply an enabler, and not the sole reason, of increased business performance.

The main conclusion here is that ERP vendor selection is an important activity. However, it is just one component of successful ERP projects and should be combined with an ERP Business Benefits Realization program to ensure business value and ROI are achieved from the implementation.

Eric Kimberling
Panorama Consulting Group LLC

ERP Readiness Benchmarks: Do Companies Know What They're Getting Themselves Into?

2006-03-16T10:13:00.000-07:00

One of our recent posts highlighted the importance of assessing readiness before any ERP or large IT project. Panorama Consulting Group provides a free on-line ERP readiness assessment tool, and the preliminary results from participants so far reveal some interesting thoughts.

It should be noted that the sample size is still relatively small (38 companies so far) and the initial data analysis is not yet validated in detail, but the initial benchmarks are interesting. For example:

1) 42% of participants say that their operations are poorly integrated across office locations
2) Over 50% of participants rate their current organizations poor in all the major areas we asked about: responsiveness to customers, efficiency, effectiveness, visibility to operational data, and integration between systems
3) Over 90% of companies have experienced a significant organizational change (in addition to ERP) over the last 3 years
4) Only 20% of participants have dedicated business process, performance measurement, or organizational change management groups in their organizations
5) 55% say employees at their organizations are poor at adapting to change
6) Only 15% of those planning to embark on an ERP project have completed a business case or ROI analysis

While we can begin to draw several conclusions from some of the data we've collected so far, the most significant observation is that organizational change management will be crucial to the success of these projects. These companies will face great obstacles during their implementations, and they will find it very difficult to deliver measurable business value without solid organizational change and benefit realization plans.

More data analysis over time will continue to shed light on organizational readiness. I'll keep you posted on the results. In the meantime, feel free to complete the assessment and receive a complimentary readiness analysis by clicking here.

Panorama Consulting Group LLC

ERP Readiness Assessment Tool

2006-03-05T14:29:00.000-07:00

If you were interested in our recent post regarding ERP readiness, there is now an online ERP readiness assessment tool that will help assess your organization's current level of business preparation for an ERP or large IT project. ERP readiness is the first step of an overall ERP Benefits Realization program and it also assists in ERP project risk management and mitigation.

Click here to take the online assessment, which is a brief series of questions designed to assess fundamental aspects that should be in place for any ERP or IT project.

Eric Kimberling
Panorama Consulting Group LLC

Integrating Six Sigma and ERP

2006-02-12T22:49:00.000-07:00

I recently came across a good question on how to integrate Six Sigma with an ERP project. Using an ERP financials implementation as an example, there are three key items to keep in mind to link your Six Sigma and ERP initiatives:

First, to integrate Six Sigma with your ERP Financials, it will be important for you to define your business processes for key financial processes, such as period-end close, A/P, A/R, consolidation, reporting, etc. These processes should be documented in detail (at least level 2/3), along with the inputs, outputs, and employee responsible for each process.

Second, it is important to define what the key performance measures are for each of the sub-processes you define. For example, measures such as number of business days required to close the books, number of adjustments, A/R days outstanding, etc. will help you measure the efficiency and quality of your processes. These measures should also map and align with higher-level corporate goals and performance measures.

Finally, once you have defined the key business processes in detail along with their related performance measures, it is important to ensure your ERP reporting is aligned accordingly. If your performance measures are not easily attained from within your ERP's business analytics, then you may have to measure using report-writers, other systems, or manual processes. Either way, you will need to define the process for collecting performance measure data on a regular basis to measure process and performance quality.

www.panorama-consulting.com

The Hidden Costs of ERP

2006-02-12T14:53:00.000-07:00

A common problem with many ERP implementations is inaccurately projecting total project costs. In order to achieve a high ROI on projects, costs need to be controlled and constantly compared to benefits. Some of the common indirect or hidden or costs of ERP projects include:

Internal company resources to make decisions on ERP requirements, help with system design, and perform testing. Aside from a full-time core team, most ERP projects require the involvement of 3-5 part-time subject matter experts for each full-time core team member.
Internal or external resources to manage data conversion, interface development, and report generation
Employees to support communications, training material development, and training deployment activities
Time that senior management is involved in decision-making and conflict resolution
Design of business processes, particularly if the project involves a large, multi-national company with fragmented operations
"Backfilling" project team members with contract or other employees that manage day-to-day activities while the team members are working on the implementation project
Travel and expenses for team members, particularly if dealing with a global project. Project budgets should assume at least 15% of total consulting costs for travel, then double this amount to account for internal project team travel.

Obviously, these are not all the costs associated with an ERP project, but they are the ones that are most likely to be overlooked during the budgeting and planning process. These costs should be included in the ERP business case and budgeting process.

www.panorama-consulting.com/BenefitsRealization.html

Assessing ERP Readiness

2006-01-31T19:03:00.000-07:00

Determining an organization's ERP readiness for an ERP or large IT implementation is often one of the most difficult parts of moving forward with such a large undertaking. It is easy to get caught up in all the potential benefits of ERP and forget that there are some fundamental business issues to consider before proceeding. For example, to determine your organization's ERP business readiness, it is useful to ask the following questions:

How standardized are your current business processes across the globe?
Does your company currently have an internal organizational design, business process, and/or communications group?
How much turmoil has your company faced in the last 3 years (e.g. layoffs, other large IT projects, management shakeups, etc.)?
What level of executive sponsorship do you currently have in your organization?
How many internal resources do you have committed to help with the project, including to address the business process aspects?
Do you have a documented business case, assumptions, and ROI?
Have you established project and business measures for success?
Is your company culture conducive to accept such a large change initiative?
Does your company operate as a single company across the globe, or more as a siloed group of organizations?
Do you have a detailed budget, including line items for miscellaneous and unanticipated expenses?
Most importantly, what is your motive for implementing ERP?

While your answers to these questions may vary, they will inevitably impact your level of project and business risk. They will also determine what additional mitigation efforts you may need to take. These are all factors that need to be considered as part of an overall ERP readiness assessment.

I am in the process of developing an ERP business readiness and risk assessment checklist. Check back here or on our web-site in the near future to take a look.

www.panorama-consulting.com

Organizational Change Management in a Global Environment

2006-01-27T17:49:00.000-07:00

Whether trying to standardize global business operations or implementing Enterprise Resource Planning (ERP) software in multiple countries, corporate executives face the issue of managing organizational change in an international environment. For any large change initiative, organizational change management is a challenging and difficult issue to address; however, with the addition of additional variables such as differing cultures, values, and languages in the international arena, the difficulty substantially increases.

When introducing organizational changes at an international level, there are several factors to consider:

Language Barriers. While most managerial types in countries outside the US speak English of some sort, not all front-line employees speak English or speak it well. Therefore, getting key messages across regarding organizational or process changes is a delicate and complex issue. It often involves translating messages into their native languages and reiterating the same message via different channels depending on the culture of the audience (e.g. email, phone conferences, meetings, etc.) .
Culture and Values. Not all people in the world value or are motivated by the same things as Americans. Many western European countries value history, tradition, and work-life balance, while many developing Asian countries value hard work, entrepreneurship, and teamwork. Managing change in these very different environments requires differing approaches and messages.
Propensity for Change. More established and developed countries have business operations that have worked well for a long time, while many developing countries have less mature operational models. Therefore, it is often common to see more resistance to change in developed countries versus those that are still emerging. For example, a small company in India that is struggling to keep up with new demand with a very limited staff and manual processes may be more welcoming of an operational improvement than a large office in the UK that has refined its operational model and implemented automated processes over a long period of time. On the other hand, the small office in India may be much less available to assist with a change effort due to a lack of employee bandwidth.
Consideration of Local Requirements. Global changes that are pushed to the local level by corporate headquarters often do not adequately consider local needs and requirements. Each country has its own regulatory, resource, and employee constraints, so it is important to plan accordingly when implementing the changes. Obviously, completely localizing a global initiative defeats the purpose of having a single global change, but no solution is going to work for 100% of the world, no matter how well-designed it may be.
Varying Degrees of Understanding of Best Practices. Employees in different countries have different levels of understanding of business and technical best practices and methodologies, which may affect the amount of change management required to "sell" the ideas to affected employees. Employees in eastern Europe are often less likely than Americans to understand the value and benefits of Six Sigma or business process management methodologies, which increases change management effort.
Buy-in Is Important. This is true for even domestic change, but it is even more true for global initiatives. Involving affected employees across the globe early in the process will help identify and address some of the issues mentioned above. It also helps overcome potential pockets of resistance by ensuring that employees across the globe are involved in the decision-making and planning surrounding the particular change.

By incorporating these aspects into an overall project and organizational change management plan, executives are much more likely to ensure that their respective change initiatives are embraced across the globe. This ultimately leads to increased business performance on a global scale.

www.panorama-consulting.com

ERP Vendor Selection : Choosing Software that is Right for your Company

2006-01-07T06:30:00.000-07:00

ERP vendor selection can be a daunting task, and one that is often not given the appropriate attention. CIOs or other executives in charge of making such major decisions often make decisions based on perception or faulty information. For example, the business media often highlights companies that experience failure implementing a specific package. However, information such as this does not necessarily reflect what is appropriate or inappropriate for your specific company.

In choosing an ERP or IT software package, executives need to make decisions based on objective and unbiased information rather than gut feel or limited information. In particular, companies should consider the following:

Why Do you Want to Implement ERP? Unfortunately, this question is the toughest to ask once you're already on the ERP bandwagon. Many times, ERP is not going to solve your business problems. If your business strategies or key business processes are flawed, even the most advanced IT system is not going to help. Before making a decision as large as implementing a system that will cost millions and affect your entire company, it's important to have a clear understanding of what you want to accomplish by taking on this challenge. There may be more cost-effective and lower-risk options such as improving processes, redesigning your organizational structure, consolidating your global supply chain, or implementing a performance management system.
What are your Business Requirements? Once you have decided that ERP is the route you need to take, it is important to begin by looking at your desired operational model and using that as a starting point in determining which software to implement. Executives should define and document key business requirements for any package they may select. This includes not only nice-to-haves, but also requirements that are "deal-breakers" if the software is unable to accommodate. And executives should also use ERP business requirements as an opportunity to improve current operations, efficiency, and effectiveness. The last thing a company should do is implement software to automate the same flawed business processes.
What is your Business Case? This is where many companies fall flat. Even if you complete the first two items discussed above, it is important to understand and document what your costs will be, as well as your anticipated business benefits. This is important in gaining approval from other executives or your Board of Directors, and it is also helps ensure that you realize the potential benefits of implementing the software. All costs, including hidden costs such as internal project resources, data conversion, and lost productivity immediately following go-live, should be included in the business case and ROI calculation. And benefits should be reasonable and not overly aggressive. Ultimately, your business case should be a tool to manage business costs and benefits going forward, not just as a sales tool to justify a decision that's already been made. And if the resulting ROI does not make sense or meet minimum investment criteria for your company, then it's probably not a good idea to undertake the project.
Who will Be Your Implementation Partner? Have you thoroughly assessed all of your options in evaluating potential external implementation teams? Software companies aren't always the best at implementing their software. You can often find third-party vendors and consultants that can implement ERP more successfully or at a lower cost.
Do You Have Enough Resources to Commit to the Project? Even if ERP is perfect for your company and you have chosen the perfect software, things will head south very quickly if you don't have enough money or employees to dedicate to the project. It doesn't matter if you have assembled the best team of consultants and implementation partners; it's your employees that will ultimately make the project succeed.
What's the Contingency Plan? No matter how well-run your project is, you should be prepared for failure. We've all read of the technical glitches that shut down shipping at Fortune 500 companies for weeks at a time, so it's best to acknowledge that something bad could happen. If the project does fail or if the software is not implemented correctly, what is the backup plan? Will users be able to access legacy systems? Will certain processes be performed manually until the system is up? Dramatic failures are not common, but they do happen on occasion, so companies should be prepared for the "what-ifs."

www.panorama-consulting.com

Finding the Right Balance in Performance Measurement and Management

2005-12-26T15:51:00.000-07:00

A recent study by Meta Group reveals that approximately 80% Performance Metric Systems fail or are discontinued within two years. With all the buzz around measurement programs such as Six Sigma, Benchmarking, and Activity Based Management, this statistic is pretty surprising.

But first, what is performance management? In short, it is a way to measure and benchmark performance to identify areas for continuous improvement. It is also a powerful tool to ensure benefits realization and return on investment for large capital investments such as IT projects or acquisitions.

The only problem with Performance Management programs, however, is that most companies fail to implement them correctly. Most business cases for large investments such as IT projects or mergers focus only on high-level measures, which can be difficult to track against and drive employee accountability.

For example, a business case for a large IT project may indicate that headcount can be reduced by 10% across the company because of increased efficiencies. This may very well be an accurate quantification of the benefits, but the benefits will not be realized unless they are cascaded to a more operational level that will drive accountability and visibility to the benefits. This requires a more detailed analysis of processes to understand with more accuracy where exactly the process inefficiencies lie and where the benefits will be achieved.

On the other end of the spectrum, many performance measurement and management programs fail because of their complexity and cost. The advent of Six Sigma and Activity Based Management has encouraged many companies to go overboard with costly and time-consuming data collection efforts that are not cost justified and lack focus. While performance management is extremely beneficial, there is a point of diminishing returns when organizations go too far in their efforts. In light of today's pressures to reduce short-term costs and headcounts, it is far more cost effective to focus performance measurement efforts on the areas that will produce the most significant results; managers need not measure and overanalyze every minute aspect of their operations to achieve a significant improvement in results.

To be successful in their performance management pursuits, managers need to maintain a balance between "operationalizing" performance measures and keeping the approach simple. This balanced approach will ensure a proper focus on areas that can provide measurable improvements without spreading costs and resources too thin.

www.panorama-consulting.com

Establishing ERP and IT Performance Measures

2005-12-13T16:18:00.000-07:00

Our last posting gave on overview of how to build and ERP or IT business case. That is one big step toward achieving a healthy Return on Investment for the millions of dollars required to implement any large system. However, to truly realize the benefits of ERP, you have to go one step further and develop performance measures at an operational level.

Most business cases develop high-level corporate performance measures that define potential areas of an IT or ERP project's business benefit. Examples include reduced inventory, reduced sales order processing time, reduced headcount, etc. The problem with these high-level measures is that the associated benefits will not transpire unless the metrics are pushed from the executive down to the operational levels of the organization. This helps drive accountability and visibility to achieve the benefits outlined in the business case.

Let's use reduced sales order processing time as an example. Perhaps it was determined that an ERP system could potentially reduce sales order processing by 30% and an annual savings of $1 million in reduced headcount company-wide. This is a tangible benefit, but it means nothing to mid-level operational managers of a global conglomerate that will need to contribute to this benefit. So if you have a Director of Sales and Marketing in charge of Western Europe, that person should be given a specific target to contribute to this $1 million savings so they are held partially accountable for the project's overall ROI. The same should be done for the directors in charge of other areas of the business until the full $1 million savings target is assigned to the appropriate people.

Obviously, this process is easier said than done. In order for this performance management approach to succeed, effective communications along the way will be crucial. Ideally, these operational managers that will ultimately be accountable for project results on the business side should be involved in helping define the business case and potential savings of an ERP system. In addition, they should also be given support to help identify root causes of anticipated benefits that are not realized. This will help ensure buy-in to the established targets.

In short, the only way to achieve the ROI defined in a business case is to cascade target improvements and accountability out of the boardroom down to lower levels of your organization.

www.panorama-consulting.com

Building an IT or ERP Business Case

2005-12-09T13:20:00.000-07:00

One of the biggest selling points that ERP or IT software vendors use is that implementing their product can result in a short payback period with a healthy Return on Investment (ROI). While there is some truth to this possibility, such an ROI is only achieved if you develop a realistic business case.

Here are some commonly overlooked aspects of developing a solid business case that will drive measurable business results:

Identify Hidden Costs. Many costs associated with a large IT or ERP implementation are obvious. For example, software licenses, implementation services, and data conversion are all direct costs that make it into most business cases. However, there are others that are not so obvious, such as internal resources required to support the project team, costs to backfill the day-to-day work of project team members, process improvement, training, and organizational change management. All of these costs should be included to accurately reflect the true project costs.
Document the Costs of Benefits. In many cases, technology makes a company more efficient, which may ultimately result in a headcount reduction. However, there are costs associated with reducing staff, such as severance. In addition, there is usually a short-term decrease in efficiency as employees learn the new system, even though there are usually long-term benefits associated with making employees more efficient and effective. These costs should be quantified in a business case as well.
Track Benefits After Implementation. Developing a business case is only half the battle; tracking and realizing business benefits is the other half. Prior to go-live, it is important to develop lower-level operational measures that directly relate to the dollars identified in the business case. These measures should then be assigned "owners" within the company who will be responsible for monitoring and tracking actual results. Then, after go-live, actual business benefits should be measured and compared to the business case on a regular basis to identify areas for improvement.

Obviously, there are many other aspects to developing a business case. By avoiding these common pitfalls, however, you are much more likely to have an air-tight business case that drives measurable business results.

www.panorama-consulting.com

How To Ensure ERP Success

2005-12-07T10:57:00.000-07:00

The world of technology and business consulting is tainted by horror stories of ERP projects gone wrong. Companies such as Hershey's have had widely publicized lawsuits against ERP software vendors because of their failed implementations. In some extreme cases, these companies sue because they couldn't ship product or their entire business shut down because the software did not work correctly.

So how does one ensure ERP success? Many assume success or failure is the fault of the software you purchase, but in reality, 95% of a project's success or failure is in the hands of the company implementing the software, not the software vendor.

Here are just a few ERP implementation critical success factors that we have seen:

Focus on business processes and requirements first. Too often, companies get tied up in the technical capabilities or platforms that a particular software supports. None of this really matters. What really matters is how you want your business operations to run and what your key business requirements are. Once you have this defined, you can more effectively choose the software that fits your unique business needs.
Focus on achieving a healthy Return on Investment, including post-implementation. This requires doing more than just developing a high-level business case to get approval from upper management or your board of directors. It also entails establishing key performance measures, setting baselines and targets for those measures, and tracking performance after go-live. This is the only way to truly realize the benefit potential of ERP.
Strong project management and resource commitment. At the end of the day, your company owns the success or failure of a large ERP project, so you should manage it accordingly. This includes ensuring you have a strong project manager and your "A-players" from the business to support and participate in the project.
Commitment from company executives. Any project without support from it's top-management will fail. Support from a CIO or IT Director is fine, but it's not enough. No matter how well-run a project is, problems arise (such as conflicting business needs), so the CEO and your entire C-level staff needs to be on board to drive some of these
Take time to plan up front. An ERP vendor's motive is to close a deal as soon as possible. Yours should be to make sure it gets done right. Too often, companies jump right in to a project without validating the software vendor's understanding of business requirements or their project plan. The more time you spend ensuring these things are done right at the beginning of the project, the less time you'll spend fixing problems later on.
Ensure adequate training and change management. ERP systems involve big change for people, and the system will not do you any good if people do not understand how to use it effectively. Therefore, spending time on money on training, change management, job design, etc. is crucial to any ERP project.
Make sure you understand why you're implementing ERP. This is probably the most important one. It's easy to see that many big companies are running SAP or Oracle and maybe you should too, but it's harder to consider that maybe you don't need an ERP system at all. Perhaps process improvement, organizational redesign, or targeted best-of-breed technology will meet your business objectives at a lower cost. By clearly understanding your business objectives and what you're trying to accomplish with an ERP system, you will be able to make a more appropriate decision on which route to take, which may or may not involve ERP.

www.panorama-consulting.com

Aggressive Business Strategies in Industry Downturns

2005-12-04T20:59:00.000-07:00

It's no secret that US auto manufacturers are struggling lately. As consumers shy away from gas-guzzling SUVs and seem unwilling to buy new cars without steep discounts, Ford and GM have both seen their sales and market shares slip significantly this year. US sales at GM were down 7.5% in November 2005 compared to that same month a year ago, and Ford's decline was an even more staggering 15%. As a result of these sales declines, Ford and GM have both announced additional plant closings and layoffs over the last two weeks.

Then there's Toyota. Because of less reliance on SUVs and more innovative product development like the Scion and hybrid sedans, they are bucking the industry trend and actually growing sales in a tough climate. At the same time, they announced a few weeks back that they will increase their capacity in the US and hire additional manufacturing workers.

This is a good example of a strong industry player exploiting the overall weakness of competitors by getting more aggressive to take market share while others may be on the defensive. It's an entirely different way of thinking about business strategy that will most likely put Toyota in a better position once the overall industry rebounds. Executives at Toyota are aiming to become the world's #1 auto manufacturer in terms of sales volume by 2007, and this aggressive strategy puts them in a better position to achieve that goal.

www.panorama-consulting.com

Redefining the Playing Field as a Business Strategy

2005-11-29T18:23:00.000-07:00

It's a tough business climate right now, especially if you're facing global competition or in a mature industry. Although the economy is still in the middle of a four-year term of growth, consumer spending is slowing, competition is increasing, and many industries are struggling.

But what about companies that are reinventing their slow-growth and hyper-competitive industries? The grocery industry is one example. While traditional grocers such as Safeway and King Soopers are struggling to survive, new-era competitors like Whole Foods and Wild Oats are growing at an astonishing pace. So what gives?

Simply put, instead of running business as usual, these competitors have redefined the rules of their industries. While Safeway has for years focused on the middle-market grocery segment, companies like Wal-Mart have beat them by continuously wringing costs out of their supply chains and passing those savings on to customers. So the traditional grocers can no longer compete on price, given that they have less efficient supply chains and more costly union labor.

Newer grocers such as Whole Foods and Wild Oats, on the other hand, are developing a new industry playing field. Instead of competing on price, they are competing on product differentiation (natural foods), targeting a more profitable segment (affluent baby-boomers), and providing better service (through a satisfied non-union workforce). Whole Foods and Wild Oats are growing at an extremely high rate, while companies like Safeway continue to struggle.

These same trends can be seen in other mature industries. Southwest and JetBlue redefined the stodgy airline industry by providing no frills, good service, and low cost to customers. In music, Apple essentially commoditized music by making it a loss leader for its more profitable iPod MP3 hardware. And they are trying to do the same for television by offering downloads of popular TV shows at a low cost.

In all of these cases, the leaders in the industry are not playing the game the way it has always been played. They are creating their own game.

www.panorama-consulting.com

Everything Changes - Organizational Change Management in IT / ERP Implementations

2005-11-29T10:02:00.000-07:00

Organizational change management is one of the most overlooked areas of large IT or ERP implementations. Several published studies cite this oversight as one of the most common causes of IT project failures.

So what does a large IT or business improvement project need to do from an organizational change perspective? Many of the more successful projects will focus on spending more on training, while others may focus more on communicating business changes through a formal communications plan.

A better way to think of organizational change management is as a comprehensive benefits realization program. Instead of thinking of change management in the traditional sense, such as focusing on formalizing communications, training, or organizational design, an alternate approach is to think of it as one of several mechanisms that can be used to drive tangible business value and optimize the potential benefits of the IT or business change you are implementing.

This shift away from using organizational change as a means to an end accomplishes several things. First, and probably most importantly, it focuses your project and business resources on activities that will improve the business from a quantifiable Return on Investment (ROI) perspective. For example, a large consumer products company implementing SAP determined that it was going to achieve most of its tangible business value from three major areas in the business: Finance, Global Purchasing, and IT. So rather than reorganize the entire company's job and work roles as a result of the SAP project, it focused on those three areas where it had identified 80% of the ROI in its business case.

In addition to the tighter focus on ROI, a comprehensive benefits realization approach also focuses on activities that will drive true business value, regardless of whether or not those activities are related to change management. For example, it allows you to discover business processes that are inefficient by measuring process results. By measuring processes against benchmarks and identifying areas with the most room for improvement, a benefits realization approach allows managers to continuously improve results after the IT or business implementation. It focuses attention on measurable continuous improvement rather than conducting change management just for the sake of it.

In other words, it is helpful to treat organizational change as one of many possible enablers of business change rather than a final solution. Focusing on ROI and business value allows you to implement organizational change activities that add tangible value and minimize time and money spent on those that do not.

www.panorama-consulting.com

Merger Integration: Is AT&T / SBC Combo a Case Study in How to Get It Right?

2005-11-28T10:29:00.000-07:00

Why is it that most mergers don't work? Depending on which study you read, it is estimated that anywhere from 50-80% of mergers and acquisitions do not deliver the results that companies expect. Reasons for these failures range from cultural mismatches to a lack of post-merger integration of strategies and operations.

One recent merger that may make sense financially is SBC's acquisition of AT&T. Last week, the Wall Street Journal reported that the combined company will rename itself AT&T and focus its strategy on selling bundled video, data, wireless, and phone services over a single network. The company is also going to offer a new form of television with 1,000+ channels and targeted advertising (similar to what Google provides on the internet). This is something that the companies could not have achieved effectively before the merger, and it is a good example of a merged company leveraging its combined strengths and assets to deliver a more ambitious and aggressive business strategy.

Obviously, it is still to be seen whether or not this strategy will work and whether or not this will be enough to reverse AT&T's recent misfortunes. The company estimates that only 23% of its revenue will come from its traditional land-line phone business, so in a sense, this combination and strategy may be more of a game of survival than strategic brilliance. However, it is a good example of what companies often fail to do during their merger integrations: combine business operations, including operational and technical infrastructures, to achieve synergies and economies of scale.

Hopefully they will also get some of the other merger integration critical success factors right along the way, such as integrating corporate cultures, optimizing and streamlining business processes to reduce costs and overlap, and developing an organizational design that more effectively leverages the strengths of the people of the two companies. If they can get most of these things right, chances are that SBC and AT&T shareholders will be better off than before the merger.

Eric Kimberling