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Why Manufacturers need to get ERP right: ERP Success vs. ERP Horror

As manufacturers grow and mature, many need to replace specialized and stand-alone software systems

With a comprehensive ERP solution that can help transform and control all business processes, you’ll be on a better path

Modern ERP is more usable and powerful than ever. Implementation projects can be faster and less challenging than they used to be. Some ERP solutions are modular, allowing implementers to prioritize the functionality that meets the most urgent business requirements. The technical, process, and industry expertise you need to pull off an ERP project with flying colors is readily available and may well be at an unprecedented level of excellence. Still, some manufacturers’ ERP deployments underperform or fail, at times in dramatic flameouts that disrupt careers and burn through large budgets without much to show for it. Yours does not need to be among them. Let’s take a look at why some ERP efforts fall short and how you can ensure the success of your own ERP endeavor.

UNDERSTANDING POSSIBLE ERP RISKS AND ERRORS

Manufacturers consider ERP systems at certain typical junctures. For example, decision-making has become too difficult, because reliable information is not readily available. Or, they want to eliminate business-group silos and connect processes in a consolidated, efficient flow for better control and enhanced productivity. Sometimes, large trading partners urge an organization to upgrade its technology so they can more easily exchange data and documentation with it, using ERP as a collaborative platform. Creating a carefully considered list of goals and desired often becomes the catalyst to initiating an ERP search and vendor selection.

Eventually, most ERP searches result in an implementation. For an experienced consultant, the ensuing sequence will look familiar, but for most people in the company, it’s an event that happens only once or twice in their careers. Many will find it challenging to anticipate the unknowns and take the right steps to devise an implementation project that has a high likelihood of success.

When deployment and user adoption go well, an ERP solution can serve you for many years, driving operational efficiency while providing a necessary foundation for scalability and growth. If the results are underwhelming, at some point business or IT leadership will spearhead the drive for a change–especially if the ERP system lacks the power and flexibility to let business groups or IT move the business forward. The company might then choose another solution from another provider, replacing the initial system. Doing so tends to be expensive, and it can be as risky as the initial deployment.

THE LONELINESS OF THE ERP IMPLEMENTER

Even seasoned IT managers may participate in just a small handful of ERP implementations during decades of professional accomplishment. It may be so long between these projects that the technology itself and best deployment practices are different each time. However, IT managers’ input is usually considered crucial because they are often given the responsibility for both delivering the ERP solution and achieving the outcomes business leadership hopes to realize with it. People in nontechnical roles, on the other hand, are generally considered users who do the best they can with the tools at hand. Unless they are in decision-making roles and shape business processes, their opinions could become so diluted that their chances of influencing ERP-related planning and outcomes are negligible.

The relative scarcity of ERP expertise outside of consultancies and solution providers where team members truly understand the technology means that the air gets thin when companies aim to select, evaluate, implement, and generate desirable outcomes from an ERP solution that meets their needs.

Decision-makers may not always find the most valuable consultants and resources when they look for guidance and expertise, and much published best-practice recommendations sound numbingly alike. It can be surprisingly easy for ERP adopters and implementers to fall prey to the illusion that they can do better than other companies simply because of the sound judgment that stands them in good stead elsewhere in their business.

Many ERP endeavors fail all together, don’t generate the hoped-for results, dramatically run over budget and schedules, or fail to find user acceptance. The latest annual overview of the state of ERP projects in companies worldwide by Panorama Consulting, a highly respected organization in the industry, highlights some of the problems in ERP projects.

As Panorama finds, only 36 percent of the respondents did not exceed their budgets for ERP deployments. Forty-four percent produced just half or less of the desired outcomes from implementing an ERP solution. Especially considering the availability of efficient, cloud-based, modular deployment options, it may seem surprising that only 42 percent of the respondents in Panorama’s 2018 survey indicated that their ERP project was a success–a significant decline from the year before, when 82 percent of them stated that their projects were successful.

Customer Scenario #1

COMEBACK FROM FAILURE WITH A STANDARD SOLUTION

The manufacturing company had for years been using an older version of its ERP system. The solution was highly customized. Over time, it took even more effort to keep customizations reliable and current with changing business requirements. The integrations with business systems that exchanged data with ERP had to be just as carefully managed and, from time to time, rebuilt. Employees were comfortable with navigating and using the system. However, the user interface eventually no longer reflected modern software with intuitive, accessible functionality that can simplify frequent tasks. The ERP system was part of the company’s business culture, but executives felt that its value was steadily diminishing. As far as they were concerned, ERP had turned into a failure that needed to be corrected.

When the company invited Sikich to analyze its ERP environment and propose a new solution, we developed a streamlined approach. We suggested replacing the failing ERP software with its extensive customizations with standard functionality that included manufacturing and distribution features which provided almost everything the business needed. The few remaining customizations after the ERP re-engineering were small and are not going to incur significant costs and overhead for IT managers. We also found standard integrations to connect the new ERP system with the company’s other business-critical software. Today, ERP users in this manufacturing organization work in a comfortable, easy-to-navigate software environment that is consistent with what they see in their productivity tools or in their mobile apps. Help desk calls and training requirements are at their lowest point in many years. Some influential ERP users who were still very comfortable with the previous system have become the most effective advocates for the new, simpler, more powerful ERP.

Our collaboration with this client also created a practical roadmap for evolving ERP in the cloud as the company grows and changes.

LESS CHANGE MANAGEMENT, MORE CUSTOMIZATION

Panorama mostly leaves it to readers to infer the connections between its survey findings, but provides some insight into why manufacturers’ ERP efforts underperform at such substantial rates. For one thing, ERP solutions–although highly configurable–can become over-engineered with customizations that make them more expensive, less manageable, and more challenging to adjust to changing business requirements unless an experienced ERP implementation team can shepherd the process and set up an efficient, business-driven management structure for the entire ERP lifecycle. Whereas the average level of customization was 16 percent of an ERP system in 2017, it increased to 27 percent in 2018.

Companies also overlook the importance of change management in the context of their ERP projects. Almost a third of the respondents told Panorama that change management was not a priority consideration for them, and only 13 percent describe themselves as intensely focused on it.

Even given these disappointing findings, ERP adopters seem to find fault with their own efforts, not so much with their vendors. Counterintuitively, 52 percent stated that they were very satisfied with their ERP providers.

Throughout the history of ERP, from the large, complex, expensive enterprise solutions of the late 20th century to today’s modular, cloud-based, highly usable products, you could find ERP horror stories of projects gone terribly wrong without looking too hard. As recently as 2016, Gartner analysts predicted that, by 2018, 80 percent of enterprises would lack the capability to deliver on their ERP strategy, and 90 percent would lack the kind of effective application integration strategy that helps generate beneficial outcomes from technology environments with ERP at their core.

At Sikich, we often hear from companies whose ERP projects failed, or where it has become utterly challenging to ever get to the go-live goal. It still happens that implementations take more than a year and still generate only a small percentage of the hoped-for outcomes. At times, an implementation is so disruptive that many users never quite accept the system and instead rely on their legacy software tools and find creative workarounds to avoid ERP. In other companies it can take years longer than expected before they see any ROI from their ERP investment.

We also learn about deployments that are never effectively completed, and are eventually abandoned when a company starts over with another solution. These projects can be difficult to turn around when companies’ budgets are exhausted and people in the business groups are finding other ways to get their jobs done. Sometimes it takes turnover in key roles or a period of cooling off before an organization is ready to bring ERP back to life.

Level of ERP Customization

16%
2017

27%
2018

Customer Scenario #2

ENABLING GROWTH WITH THE RIGHT SOLUTION and right FIT for ERP Success

A distributor of agricultural products sought Sikich out when its ERP system was not meeting expectations. The company had a long-standing relationship with a technology provider that implemented and supported the solution, but now was ready to stop the engagement. It wasn’t just the ERP solution that did not meet the organization’s needs, but also the third-party warehouse management and distribution software that had been purchased at the same time and integrated with ERP. Company representatives felt that they had received misguided recommendations from a technology partner without a good understanding of their business.When we learned more about this company’s ERP project, we realized that the implementing ERP partner had never made the effort to review and document the business processes that the ERP needed to facilitate. Neither the company nor the vendor had incorporated process improvements into the ERP deployment. Instead, the status quo of the business was simply translated into the ERP environment.With this client, Sikich started over, but it wasn’t a disruptive process because the customer’s pains and requirements were clear and immediately actionable. We helped the stakeholders take an inventory of the business processes along with practical opportunities for improvement, which they prioritized for the implementation. We also assisted them in selecting a combination of ERP and industry solutions that closely fit the way the business groups worked. The outcome is an ERP platform on which the business can run with great efficiency and manage its growth along with the critical relationships with trading partners and customers

READYING FOR ERP SUCCESS

Several conditions need to be in place before you can confidently move forward and realistically expect that your ERP project will go well and produce the results the business is looking for. Seasoned IT and business leaders and smart teams of people disregard these common-sense recommendations frequently, starting with the need to identify an ERP partner you can truly work with.

HIRE THE BEST PARTNER THAT FITS WITH YOUR ORGANIZATION

Selecting and implementing an ERP solution demands expertise that most manufacturers do not own. When you know that your organization needs to implement its first ERP system or replace an older solution, you should start looking for a technology partner to help you identify the right solution and deploy it. No matter whether you follow a structured process, for example, with a formal request for proposal (RFP) or set up a committee of people to research and review vendors and solutions more informally, you are going to come across a bewildering variety of possible ERP providers and consultants. They include systems integrators and implementers that work with one or several leading ERP solutions and software companies that implement and integrate an ERP system with their own industry or process solutions.

Can you measure expertise?

At a minimum, an ERP partner you consider should have an understanding of your industry and business model. There are several ways to verify this: you can review the potential partner’s list of customers, see what the buzz about the company is on industry review sites and in social media, read what employees publish and in what speaking engagements they participate, and engage the partner’s representatives in conversation with your stakeholders. What sometimes works best is to share your main concerns, pains, or goals, and then let the consultants talk. You can likely get a good sense of their capabilities and how they like to work.

This part of the search process is not unlike a job interview, which also means lots of people will have opinions about it. It’s good if you establish a sort of inventory or score card to avoid that individual impressions or the first or last interview carry the day. You want to list professional accomplishments, industry qualifications, and whatever else matters to your team, plus everything we discuss in this section.

How do you verify a team match?

In the early conversations with your potential ERP partner, you soon become aware of the company’s style and culture in the way people respond to your questions, how they interact with your team members, or in which terms they discuss their work. Team members’ observations and questions like the following become important:

  • Do the partner company’s representatives use a lot of industry jargon, or do they speak in terms you find meaningful?
  • How do they react when your CIO or VP of finance has a concern, compared to an ERP user in customer service?
  • Do they get back to you promptly, or make you wait? And, when they promise something by a certain time, do they come through?
  • Does the company’s view of the industry, the markets, or the role of technology in business match or complement your own?
  • Is the company culture collaborative, collegial, and customer-focused, and are employees happy?
  • Do the professed and practiced values of the potential partner appear to align with yours?
  • What is the overall chemistry like? How do you and you colleagues feel after a meeting with this company?

Your team’s observations and impressions may be somewhat intangible and difficult to describe, but they are nonetheless extremely important. You need to find a match your ERP team can be comfortable with while performing a complex project with ambitious goals. If you underestimate the importance of culture, communication styles, and chemistry, you will likely have a difficult time collaborating and reaching project milestones even with the most technically qualified partner you can find.

What kind of access do you receive?

It’s important who you meet. Many ERP implementers and consultancies will make an executive available to meet with your own execs and take a leadership role on your account. However, it still often happens that the company’s sales representatives are your main contacts until you sign a contract. At that point, they pass you off to the service organization and a completely new group of people. You may then find gaps in understanding commitments and deliverables even if everything was written down, and there may also be a sort of relational cooling you did not expect.

You can greatly reduce your risk and increase your comfort level with a consulting organization if you have a chance to meet the service and project execution team early on. At Sikich, the people who will be working with and for you are part of the process starting with the first meeting.

Do customer references matter?

If an ERP consultancy makes customer references available, you need to use your best judgment. Is the company merely closing a gap in its marketing communications or does it truly offer valid proof of its capabilities? Written pieces can be very tightly controlled for their messaging and may come from a different phase in the life of a company. But if you can talk to a customer without a company representative being present, doing so may be helpful depending on the degree of truthful openness you encounter.

Stories of ERP Failure that were completely preventable

Negative ROI X 5

A disastrous implentation in a high-tech company cost $160 million in lost revenue and order backlogs, five times as much as the ERP system

Sales & Stocks down, Suits up
An overly ambitious and complex manufacturing ERP effort caused $100 million in lost sales, a 20 percent cut in stock values, and a handful of class-action lawsuits
$100 MILLION TO GET OUT
A trash hauling and recycling company spent over $100 million with its ERP provider to resolve a failing implementation
SHAREHOLDER REVOLT
A company spent over $20 million on ERP and other new systems. The shareholders weren’t happy. The projects were nixed
STUDENTS ADRIFT
27,000 students couldn’t find their classes, and many of them were unable to collect financial aid, when ERP did not perform well
P&L IN THE DARK
A retail ERP implementation lasted over six years and left the customer unable to create profit-and-loss statements for 18 months
REGULATORY PENALTIES
A poorly prepared data migration in a telecom company meant some customer accounts didn’t make it into the new software. Their payments weren’t credited. The regulator imposed millions in fines
SUPPLY CHAIN CRASH
Another retail ERP project was so riddled with bad data the entire supply chain collapsed
DATA BREACH
ERP implementers in a utility did not safeguard customer data, inadvertently disclosing confidential information on the company’s IT infrastructure

UNDERSTAND PROCESSES AND IMPROVEMENT OPPORTUNITIES

ERP can be transformative when it provides the scalability, performance, and functionality to help a company realize its strategy. To achieve the best outcomes, you should take stock of your business processes before you embark on an implementation and document desirable improvements that are in the company’s best interest, even if it takes ERP to fully realize them. You will curtail the effectiveness of your new ERP system if you simply transfer your existing processes and role into a different technology environment. Consultancies like Sikich can help you survey your processes and identify opportunities and actions for making them easier, faster, or more productive. The more of that you can accomplish before deploying your ERP solution, the more effective your ERP system can be at enabling the company to thrive.

By the time we propose actual solutions, clients have typically done all they can to optimize their processes. However, they are often biased by viewing their business and its technology from their specific perspective, which may not be comprehensive. It’s part of our job to keep your strategic objectives present and fully realize them. Our expertise enables us to translate requirements into a recommended ERP system that meets your immediate and anticipated needs without requiring extensive, expensive customization or adjustment of your practices.

At that final decision point for a certain solution, we also have a good idea of how well the new ERP software will fit into your company’s technology environment. We always and as much as we can take advantage of standard software functionality, because it delivers configured best practices, minimizes complexity, and can save you years of mounting expenses and IT labor. Modern ERP systems, sometimes in integration with industry or business process solutions by providers of record, can meet the lion’s share of most company’s business requirements before any changes are made to the standard. You should have to rely on coding only to bridge any unacceptable functionality gaps.

Customer Scenario #3

POWER COMPANY STEAMS AHEADAFTER A TURNAROUND IN THE CLOUD

Almost two thirds of the designer, distributor and services provider for backup power solutions company’s employees work in the field, where they help customers meet their backup power needs. It made sense for the company to transition away from its on-premise ERP system, developed in-house years ago, and consider a business management solution in the cloud, where users could access information and processes anytime, anywhere, through the browser on their devices.

Having reviewed available solutions and their vendors, the company chose NetSuite. The solution offered all the functionality it needed to run and grow its business. It was built on proven, widely deployed cloud technology. It also offered powerful support for advanced mobility.

Unfortunately, it chose an implementation partner who was not able to set up the company structure, reporting segments, and business forms in such a way that the company could smoothly manage growth through acquisitions. Also, the average time to invoice a job was a lengthy 17 days. Finally, the SuiteApp field service functionality was not the right fit for their needs.

It was time for a complete turnaround. The company connected with Sikich, whose cloud and business experts met with the company to understand its requirements and goals for the business and its technology.

Sikich performed a successful re-implementation of NetSuite. Following the project, which was completed in less than three months, it was able to use NetSuite OneWorld to manage and report on its acquisitions and their outcomes for the business. Invoicing for completed jobs can now be done on the same day, which means payments come in much soone

GET THE RIGHT EXECS AND TEAM MEMBERS INVOLVED

For your ERP consultant to propose an effective solution, organizing your team with the right people is critical. When ERP is going to be at the core of your operations, the input of employees who know the company’s processes needs to be considered as you get ready to select and deploy the best available solution. Executives are often unfamiliar with process specifics that can be different from company to company. Lacking this qualified guidance may result in an ERP system that does not work the way your company does. Users, in that case, will have to unhappily compromise each time they interact with it unless you take corrective actions, which could result in rework or major configuration changes. The more actively key people from the business groups are engaged, the easier will it be to ensure user adoption of the new ERP system.

You also need committed executive sponsorship throughout the duration of your ERP project. At Sikich, we know what a difference strong executive sponsorship can make in the success of an ERP deployment. For that reason, we help companies understand and define the role and what it needs to accomplish. Too many companies think about this critical contributor in a minimalist fashion. The executive sponsor can make or break the success of the ERP deployment. This role is more than a contract-signing figurehead who writes an email to the company about what to expect or with praise for the team that got the work done. The sponsoring exec needs to be an ambassador for the project, evangelize it in the context of the company’s strategy and goals, and communicate its milestones, expected changes, and desired outcomes to the organization. The executive sponsor takes responsibility for her company’s contributions to keeping the project on track, negotiates adjustments in schedules, budgets, or functionality, and readies people for the changes and improvements they can look forward to with their new ERP solution.

What sometimes works best is to shrare your main concerns, pains, or goals, and then let the consultants talk. You can likely get a good sense of their capabilities and how they like to work.

Main Reasons Why ERP Goes Bad
  • Process and requirements are not understood
  • Attempting too much
  • No real executive sponsorship
  • Bad partner match

DEFINE THE PROJECT

A well-prepared statement of work (SOW) protects the interests of your company and its ERP partner. While Sikich SOWs may be more detailed than those you might see from other consultancies. they are an important aspect of achieving the outcomes you want, on time, and within your budget. They define the accountabilities, milestones, and project participants. In most companies, it’s not realistic to cram the entire list of desirable outcomes and improvements planned for ERP into a single phase of the implementation project. In the SOW, we list the priorities we define together with you, along with such details as the functionality we implement, the integrations and data migrations we perform, reporting you are going to see, the testing that is going to take place, how user adoption will be assessed, and much more. Modern, cloud-based ERP can be implemented in a modular manner, activating in the initial project phase the functionalities that address the most urgent business requirements. Your SOW should be fully descriptive of the capabilities your users can expect at what moment in the course of the implementation.

ENSURE THE FLOW OF INFORMATION

Data migrations and integrations place the new ERP solution in its environment. Often, companies and their ERP consultants treat migrations and integrations, along with any required data cleansing, as technical details that should be handled by IT. However, if business users help define what migrations and integrations need to accomplish and who needs to take advantage of data flows at what point in a process, they can make a big difference in the usability and business enablement of the ERP system. In realizing migrations and integrations, one can often choose from proven, configurable, standardized solutions–or rely on customization. The outcomes are similar to what you tend to see in a software deployment, where customizations can greatly increase costs and complexities for IT managers, the longer they are in use. It’s often best if your ERP consultant works with you to help you understand the available options for integrations and migrations in your ERP environment, so you can make a sound decision. Consultant expertise can also help you determine what preparation and data clean-up you should perform to make the next steps efficient and reliable.

DRIVE CHANGE BY TELLING A NEW COMPANY STORY

Sometimes, company executives who expect that people will resist change are reluctant to communicate more than the project essentials to employees in an effort to minimize disruption. However, they sometimes miss an opportunity to get everybody to support the project. When people don’t understand why the company undertakes an ERP project and what they can expect from it, they can’t easily take ownership and support it. You should also prepare employees for improvement to expect in how they perform their jobs.

At an individual level, the ERP system that helps you foster innovation or operate with greater productivity has the potential of making peoples’ lives easier and helping them boost their personal performance and contribution to the company’s goals. Outside of the tangibles of the ERP deployment, this may also be a great time to refresh the company’s vision and mission in the minds of employees and strengthen everybody’s understanding of how the company delivers value and supports customers. If you want to transition into a more customer-focused and competitive organization, rallying around a successful ERP project can be an effective way to initiate the cultural and process changes that may entail.

For these reasons, your ERP effort should include a communication plan that helps you prepare and enable the kind of change that’s best for the company, supported by employees who understand and welcome the improvements they may experience in their role and workflows. It can help you overcome project fatigue and translate your strategic vision into implementation milestones and employee participation in adopting, learning, and improving the new ERP platform. Sikich teams, who have seen hundreds of ERP projects through to completion, often share blueprints and formats for newsletters and other team communications, and help clients determine what to communicate at what point and in which manner.

Get an ERP Success recovery plan in place