10 Commandments of ERP implementation

The Third Generation of Internet business is fast approaching. Lost are the good old days -- the mid-'90s, to be precise, when ERP was a corporate-wide mantra for instant nirvana. It's come a long way since then.

The Third Generation of Internet business is fast approaching. Lost are the good old days -- the mid-'90s, to be precise, when ERP was a corporate-wide mantra for instant nirvana. It's come a long way since then. Although the basic definition still holds true for ERP systems, today, the definition is expanding.

Since ERP, traditionally, was only for organizing the internal processes of a corporate, and now everything is becoming Web-enabled, any discussion on ERP will necessarily move over to e-Solutions for the extended enterprise and e-Biz!

Some fundamental issues in the mid-'90s regarding ERP implementation have been:

  • There were no clear user expectations.
  • ERP became a revenue stream for expensive management consultants who said they'd teach the company how to use ERP and manage itself better.
  • Many people also looked at ERP as a one-shot project that would suddenly ramp up, construct and quickly finish.

"Each organization must define its expectations from ERP", says Mr Sanjay Agarwala, Chief Manager, ASP Business, ESS Solutions. "Having once defined the goal, the choice of the road becomes infinitely easier. It also becomes possible to measure whether, with each additional step, one's inching towards the goal or not.¡¨

Some feel the correct perspective would be that ERP is a necessary, but not sufficient, condition for corporates to achieve their business goals, says Mr R. Vishvanathan, ERP Specialist, IBM Global Services (India) Pvt. Ltd.

"ERP is a necessary tool for any organization that wishes to align its business systems around its strategies. However, it has to be understood that, while ERP would definitely position an organization to take the first steps towards this desired state, there would be other initiatives, like SCM, CRM, PDM, KM, BI, Work Flow or e-Integration, that'll take it to even higher levels," Mr Vishvanathan adds.

10 commandments of ERP implementation
Is ERP dead?

The term, ERP, usually, describes the product offerings of many large applications software vendors, focusing primarily on the manufacturing industry.

ERP implies that a vendor's applications portfolio can support the business requirements across the bulk of a customer's enterprise, including areas like financial management, inventory, customer service, distribution, manufacturing, human resources, and payroll.

Software vendors have used different strategies to expand their product offerings as they moved toward ERP. SAP, or Systime JD Edwards have built their products largely through internal development. Others, like Oracle Corp. and PeopleSoft Inc., have moved toward ERP through acquisition and strategic alliances.

Speculation has been rife for some time now that the large ERP vendors may be riding down the crest of ERP popularity. Some of the leaders, like SAP, have even begun repositioning drives to brand themselves as an 'e-Solutions providing company'.

"It's all about marketing, all about hype - any industry rides on hype!" says Dr Ramesh Subramaniam, Sr Vice-President, Systime Computer Systems (India) Ltd, Indian partner of JD Edwards. "ERP used to be the buzzword about four years ago; it used to be very fashionable to talk about ERP, just like it's now savvy to talk about e-Commerce, m-Commerce, or Collaborative Commerce.

"When people say ERP is dead, it's not! Any kind of a computing environment requires ERP, without which you can't have software services. But, four years ago, a lot of vendors promised the moon -- but the actual performance belied a lot of expectations that were raised. The ERP segment is growing at about 25-30 per cent in India and will continue to do so," he adds.

10 commandments of ERP implementation
Are customers happy?

Are applets, objects and point solutions ¡V smaller components of systems functionality that can be assembled in puzzle-like fashion ¡V slotted to carve out a dominant piece of the applications software market?

The customer's ability to migrate more effectively to new releases and consolidate the technical skills required to maintain the applications portfolio are attractive attributes of an ERP solution. In reality, though, how many customers have actually implemented and reaped the benefits of an ERP solution? The answer is far less than most might think.

Most companies, even those recently implementing software from the large ERP vendors, still find themselves with major business processes supported by other means. While ERP applications help, they are infrequently the total solution, as we have discussed at the beginning to this piece.

Within the manufacturing industry, for instance, extensions to ERP software from vendors often include areas like payroll, time and attendance, shop-floor control, advanced planning, decision support, transportation, warehouse management, promotions, maintenance, service and warranty, call center and field sales force automation and management.

As ERP vendors move into newer industry segments, the list of extensions can grow even longer.

10 commandments of ERP implementation
ERP market dynamics -- Drivers, trends, issues

The ERP market has largely been driven by strategic, tactical and operational business goals of profitability, RoI, efficiency and transparency, control and communication.

In the years of development of the ERP segment, businesses have also been witness to several global upheavals. With it, they have moved up the learning curve, earned a better relationship with vendors and have also come up with new aspirations.

At the same time, several issues continue to hog the minds of users from the early days of ERP. Some of the major factors that may influence future developments in this market are:

  • Total cost of ownership (TCO): This has emerged as a major concern for MIS departments, as well as senior managements. Systems that reduce migration/ upgradation costs, are open and allow seamless interoperability would be in a position to capture large customer base.
  • Licensing schemes: The cost of obtaining incremental licenses of an ERP client is considered large by most users. However, they absorb the same in anticipation of sufficient paybacks. But, following large-scale consolidation of industries, IT -- and, as a result, ERP -- could be among the segments to be hit by the cost-pruning of industries.
  • Skilled professionals: Mismatch in the demand-supply of ERP professionals has served to ensure that ERP services remain a preserve of a select group of software solutions providers. This scarcity-led demand is leading users to shell out large premiums for services.
  • Open systems: Some of the earlier ERP products failed to deliver their promise of improvement in functional expertise and efficiency. This has prompted companies to re-think their ERP implementation plans.
  • Lack of adjunct software: While the traditional areas of ERP support, like SCM, manufacturing, financial and HR, have been able to achieve considerable maturity in terms of solutions meeting expectations, many other incidental and direct areas have been slow to develop. These areas include business intelligence, process design and product data management among others.
  • Business contract assurances for business goal Realization, Integration, Extension, Reliable Operation and Continuous Change. Some of the major trends that are expected to influence definitions of emerging ERP technologies, practices and services include:
    • Increased customization at minimum costs;
    • Reduced implementation period
    • Seamless integration of enterprise systems and applications resulting in integration of supply chain, data warehousing, intranets, e-Commerce systems, product management and designing, manufacturing and analytical tools.

  • Small and medium enterprises (SMEs): This segment is being seen as being at the threshold of large investments in enterprise systems. They have witnessed a boost in productivity and RoI of large corporations and are prompted to implement similar systems. However, at the same time, decisions in SMEs are, typically, taken at the senior management level, considered more purchase savvy and value-conscious than large corporations. This could introduce a paradigm shift in the way ERP technologies are enhanced and offered to a customer as a quality turnkey solution at a reduced price.
  • Market structure: The increasing specialization would, in turn, lead to a shift in market structure, with greater significance attached to channel and implementation partners, and the product owner acting as a technology supplier and mentor.
  • Future business: Nearly 60 per cent of the global ERP business is expected to come from existing ERP customers. The remaining 40 per cent volumes would be derived from new customers.
  • New opportunity industries: Retail, healthcare, aerospace, construction, media, real estate, public sector, utilities, telecom, railways and airlines are the leading opportunity industries.

Some of the application areas that have conventionally formed the core of ERP suites are:

  • Supply Chain Management -- Extended supply chain applications optimize the complex demand and fulfillment transactions of large corporations. Supply chain applications ideally allow an enterprise to integrate the entire supply chain into a seamless and optimized information infrastructure. The entire organization becomes a fast-reacting, customer-focused enterprise.

    * HR Management
    * Manufacturing
    * Financials
    * Inventory Control

10 commandments of ERP implementation
The new scenario

The convergence between Information Technology, Telecommunications and Entertainment has been facilitated by the explosive growth in Internet and the adoption of IP-based protocols. These have led to converting everything into digital streams (zeroes and ones), which opens up a new world of opportunities, limited only by creativity, which was not possible with the twin systems of analog and digital.

Integrating e-Commerce

Another opportunity for ERP vendors is to extend the definition of the enterprise. Many vendors are expanding the borders of the enterprise by integrating e-commerce technology into their core applications. Purchasing applications are being extended to link to suppliers through e-Commerce technology.

Customer-Centric Business

While the Internet has sent shock waves throughout the business community, the major seismic shifts are yet to come, according to an in-depth Intel Corporation study on the matter.

The coming upheaval in business will come from demands for customer integration and the business agility needed to respond. The ability to feed corporate and individual customers detailed, personalized data will separate the real e-Biz from purveyors of e-Brochures. E-Biz is headed towards nothing less than full customer empowerment through full automation of most business interactions.

Businesses will shift from attracting customers to Websites to using the Internet as a tool to give customers the information they want, wherever, whenever and however they want it.

10 commandments of ERP implementation
Integrating ERP

Most corporates are still in the stage of defining their e-biz strategies. They are also simultaneously trying to get their vendors/customers to be net savvy.

They're also trying to stabilize their in house systems. The following needs to be considered before an enterprise "jumps" on to the "e-biz" bandwagon:
a) The corporate should have a stable integrated transaction system running withing the enterprise;
b) It should have a clear-cut plan on what they want to put on the net;
c) It should have customers and vendor compatible with the technologies they are proposing to get into;
d) One of the major risks is that security of enterprise data is limited to the security features of the Net.

One of the most important factors in preparing for a seamless transition to Third Generation E-Biz (where it handles real-time interaction on the customer's side, updating customer software automatically over the Net) which is required, feels Intel, is a very stable integrated ERP system running. In addition, they should initially get into the Net by connecting few vendors and customers on a 'query'-based mode and then transition into a transaction mode for selected vendors and customers.

10 commandments of ERP implementation
ERP implementation

The failure of ERPs can be analyzed by going through 'The Ten Commandments' and understanding how many of them were broken during the ERP journey.

  • Commandment 1: Don't start without clear objectives for ERP: a very large proportion of ERP projects just kept meandering over its implementation cycle because there was no clear articulation of why the organization wanted to implement such a system.
  • Commandment 2: Link business strategy with package selection and implementation. The classic chicken and egg puzzle in ERP was, 'Should we select the ERP first, and then use the processes and capabilities within the ERP to redesign the organization's processes, or should we redesign the processes first, and then look for an appropriate package to enable them?

    Obviously, there are some major issues associated with either approach and the optimal method is to "envision" broadly the future method of work and then find a package to support this envisioned method. After having selected the package, the details on the envisioned process can be worked out. This approach called PEBT, or Package-Enabled Business Transformation is the best approach to address the chicken and egg issue.

  • Commandment 3: Avoid extended BPR before package implementation: The philosophy of PEBT is that one should not do a detailed BPR before the package is selected, because not only is it expensive and time-consuming, but it also has the risk that there may be no package to enable them.

  • Commandment 4: Focus on "vital" processes, so as not to compromise in core areas: having said that BPR isn't necessary before ERP and that there has to be a high level of envisioning, it's important to understand what processes are vital and what aren't.
  • Commandment 5: Address the business system elements holistically: it's not sufficient to only address processes and IT during ERP - one has to look for what changes would be required in organization structure, skills, employee KRA and evaluation, policies relative to suppliers, customers, employees, business partners and so forth.
  • Commandment 6: Focus on change management from the initial phases of the initiative: the flouting of this commandment can have the most disastrous results, and this happens to be one single most significant reason for failed ERPs.
  • Commandment 7: Prepare a strong business case to propel from the "death zone": a time comes in every project called the "death zone", which typically happens after the euphoria associated with the starting of a prestigious project gets over after the first few months.

    All people, right from management to the implementation team, realize the amount of work required, and people start getting jittery. At that time, the fence-sitters in the ERP decision process start questioning the project, itself, and the project environment can very rapidly deteriorate in this fragile period. This can be addressed by having a business case that correctly estimates all costs and efforts of implementation and also estimates the benefits that will accrue, and when.

  • Commandment 8: Adopt a tailored methodology to suit every situation. Every organization implementing ERP is in a unique situation, depending upon factors like status of ERP selection, objectives for ERP (replacing existing systems, automation or transformation) and complexity (which depends upon the number of sites, culture, industry and others). Naturally, there's no "one-size-fits-all" when it comes to ERP implementation methodology.
  • Commandment 9: Use tools and techniques that ensure reuse of accumulated learning: with the exception of the first movers in the ERP space, others who implemented ERP had an opportunity to use tools and techniques learnt during the earlier implementation. Such devices serve to reduce the risks and costs of ERP.
  • Commandment 10: Apply exacting criteria in choosing the implementation team: while many organizations did spend a lot of effort in selecting the ERP carefully, not enough care was taken in selection of the implementation team - both internal and external consultants. -

    Courtesy: IBM India