Lessons Learned in Implementing an ERP System
In my experience, anytime an organization is planning to spend from $100K to more than $1M it is imperative that the CFO have the best possible plan to ensure success. Success means faster, more reliable reporting, improved workflow and efficiency, and scalable systems to facilitate organizational growth. Failure, on the other hand, can lead to a detrimental financial impact; can limit careers for those involved in the implementation; and, strategically puts the organization in peril – failure is unacceptable. In this article I will provide a checklist that aims to help the CFO minimize risk and maximize success when making a large organizational investment.
Software Selection – Surprisingly, companies will select software that is not the best fit for their organization. They will not talk to their industry peers, or the controller or CFO may follow the same process they used in a previous position (i.e., with a different organization). Potentially worse, they may issue an RFP (Request for Proposal), leading them down a path driven by a software sales vendor.
Executive Support – The implementation of an ERP system is a “life changing” event for a company. Such an event needs the highest level of support to have a chance of success. Ideally, the CFO, COO and CIO need to be the executive sponsors. The most successful implementations I’ve seen have linked significant incentive compensation of the key project sponsor and leaders to project success. Too many times a middle management employee is tasked with the “IT” project; and these individuals typically do not have the cross organizational visibility or authority to ensure success.
Defining the Project – Far too many companies look at an ERP implementation as an “IT” project instead of a business transformation event. Involving key operational, financial and IT staff will help make certain the project will deliver the required process value to ensure success. While an IT driven project may “go live”, the acceptance by users is poor and usually results in more modern technology delivering the same old information, following the same old practice. In what I would term failed implementations, the company modifies the ERP system to follow existing, outdated business processes, thereby driving up cost and failing to take advantage of key design features of the ERP application. I would also argue that if your CIO agrees to implement an ERP system without business involvement you likely have the wrong CIO.
Planning – ERP events in large part will succeed or fail at the project outset. A detailed understanding of the current business process, condition of the legacy system database, and vision of the future state of the business process are key elements that must be captured in the project plan. Once a cross functional business team has established a plan, demand transparency and frequent milestone reports from the implementation partner to monitor and control progress. Do not assume your implementation partner or project manager have this under control. In one project I inherited, the project manager had made a spreadsheet error that went undetected, causing months’ worth of under-reported hours and significant cost overruns. The key here is to have controls in place over your project plan in order to review what is actually completed versus what your partner reports as completed. Conceptually, an ERP project is no different than a construction project. The key is to have qualified, independent staff checking the progress against the reported progress.
Human Capital – Most important of all is the people working on this business changing event. Focus first on internal staff. Executive support and key individuals within the business must make a minimum of one year commitment to the project. Incentive “handcuffs” help lock in staff until project completion. Identification of people experienced with the selected ERP system is important for project success. In certain areas of the U.S., particularly Texas, the energy industry has hired all the top talent so be prepared to pay above market rates to attract the talent you need. The second key is selecting the ERP business partner (vendor). Conduct deep reference checking and try to use your network to investigate partner clients. Ask for a list of implementations from the past two years, including information about which partner staff worked on each implementation. Try to identify and get a contractual commitment from your partner to dedicate staff to your implementation. Larger ERP vendors often have different teams that work sales vs. delivery of your project. The larger implementation partners will bring staff from across the country, which means you need to factor in travel expenses. If forced to use staff from outside your geographic area, then lock in expense to fee ratios, fixed per diem, bi-weekly travel or renting an apartment to reduce lodging cost. There is nothing worse for a CFO than to look out the window on Monday morning and see five consultants each drive up in five different large rental cars.
I hope this checklist serves as a helpful overview of some of the more important considerations required of a CFO when embarking on the challenging, time intensive and expensive endeavor that is an ERP implementation. More to come in future articles.
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