Getting ERP right

Legacy and home-grown ICT applications still abound. Today, however, many of the reasons for implementing them in the first place no longer hold true.

Slow, expensive to maintain and lacking the functionality needed to meet new business needs, organisations are turning to enterprise resource planning (ERP) solutions to enhance business performance and remain competitive.

However, as large corporates have discovered, implementing an ERP solution effectively - which means ensuring it delivers the planned benefits - can be a difficult undertaking if attention is not paid to key factors.

Legacy systems are primarily specialised standalone systems that have become outdated. At the time of their implementation, organisations usually felt their operations and processes too unique to leave to the mercies of best-of-breed solutions, or available best-of-breed solutions did not meet cost/functionality/benefit ratios. Today, however, these factors no longer hold true as business requirements have become more complex.

In addition to new financial and governance requirements, many of these businesses have grown and the industries in which they function have changed. Increased business complexity demands enhanced management capabilities and changing industry dynamics means greater agility is required to remain competitive. Management thus requires fast access to integrated data to gain an overview of business performance and make informed decisions.

A number of large corporates are in exactly this position. Legacy financial systems no longer meet the company`s growing needs. With business requirements changing, an intense focus on reducing the cost of operations and increasing regulatory demands, a more sophisticated, flexible enterprise backbone solution is required that has the breadth of functionality needed to allow for growth.

There are many good arguments for implementing an ERP solution. It allows the organisation to better integrate its data, which improves management decision-making and enables better performance management. It also removes the high cost of maintaining legacy systems, replacing them with a more efficient solution, greater functionality and a lower total cost of ownership. However, achieving these benefits depends on a functional implementation. This, in turn, relies on getting the primary planning, implementation and roll-out of the solution to the organisation right.

People, processes and systems must all be geared to ensure the solution works practically and delivers the benefits it is supposed to.

A full analysis of the organisation`s position is essential. Look at your people, skills, finances and information requirements. What do you get from your legacy systems, how long does it take to acquire that information and what is the shortfall? A key decision is whether you need to replace your legacy systems or find a way to integrate them or interface them to the ERP solution. Since 80% of legacy systems cannot integrate, most organisations replace them where possible.

For corporates that want to improve their asset utilisation, drive efficient planning and procurement, optimise manufacturing processes, streamline service and repair operations, reduce costs throughout the supply chain and improve compliance with financial, regulatory and BEE governance frameworks, an ERP system is ideal.

ERP systems also provide the companies with a platform for compliance to governance frameworks such as Sarbanes-Oxley, GAAP, US GAAP and BEE Procurement Governance.

Once you know what you want to achieve and have chosen the ERP suite, the most critical decisions are selecting a suitable implementation partner and drawing up a contract that will ensure the ERP solution provider, the implementation partner and the business know exactly what is expected of them.

Delivery targets needs to be identified and agreed upon, penalties and incentives need to be put in place, sign-off clauses must be stipulated to ensure delivery targets are met to the satisfaction of all parties, and adequate resources from the solution provider, the implementation partner and the business must be defined. The latter is vital. There must be ongoing interaction between the business and the implementation partner to ensure accurate and effective development of the solution, knowledge transfer and training.

A needs analysis must be done and this requires input from the business. Everyone in the organisation - starting with the executive and moving down into line management and administration - must contribute to the development of solution specifications. Continuous evaluation is also essential to ensure a fit with the organisation. If the practical needs of the business are not met, no benefits will be achieved.

Where insufficient resources are allocated to ensure knowledge transfer and training, the business usually relies heavily on the implementation partner to implement the system. This can lead to employees, who are familiar with the older system, resisting change and `sabotaging` the new system. Without the correct assignation of responsibility and accountability within the customer`s employee base, the solution provider can begin to look incompetent. Change management is thus important throughout the project - especially during the implementation phase.

There are four critical factors that must be taken into account during the change management process. They are:

* The values of the people in the organisation and their alignment with the values generated by the system;
* The relationship between the implementation project team, the solution provider and employees;
* The contributions that employees can make to the development and the implementation of the system; and
* The business environment, including culture, reward structures, systems and processes, and the direction, strategies and goals of the organisation.

It is important that the solution provider has a vested interest in the success of the implementation and be proactive. It is easy to implement a solution, less so to do it successfully. Ideally, the solution provider will support business processes and participate on the project steering committee. This will enable a transparent relationship to develop - one where areas of concern and excellence can be discussed and opportunities can be identified.

Implementing an ERP solution is a considerable investment in time and money. A full implementation, which will include HR, finances, supply chain, etc, can take from 18 to 36 months. This is a long period of time which exhausts staff and can lead to change fatigue. Expectations of all stakeholders - investors, management, the organisational project team, the solution provider and staff need to be carefully managed.

To ease the situation, organisations can take a modular approach, identifying where the greatest benefits to the business can be achieved in the shortest amount of time. For many companies, this is in the areas of finance and payroll.

The benefits include faster and better decision-making that results from an integrated system, better efficiencies in the supply chain and faster turn-around on accounts payable. Staff performance also improves with greater accuracy and increased productivity. In addition, electronic payments and Internet enablement allow clients and suppliers to directly access information, improving relationships with creditors and debtors and `smoothing` the process.

From making the decision to sign-off, the implementation of the finance modules of an ERP solution can take from nine to 15 months, depending on complexity and the size of the organisation. Return on investment (ROI) for smaller companies in such an implementation is usually achieved in 36 to 48 months. ROI is always hard to determine, however. Benchmarking key performance factors prior to implementation will assist. However, this will depend on whether the ERP suite is adequately leveraged within the organisation to achieve the desired benefits.

Implementing an ERP solution is not a flippant undertaking but it needn`t be difficult or burdensome. Planning, communication and a commitment to change at all levels of the organisation will ensure a smooth and constructive transformation of business practices, boosting management capabilities and business performance, and delivering long-term value.