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ERP Benefits Realization: What It Takes To See Results

The Issue: Fewer than 20% of companies recently surveyed have the three critical elements necessary to ensure that their Enterprise Resource Planning (ERP) projects further the company’s top business transformation goals.Information Technology (IT) groups continue to struggle to prove the value of their massive investments in ERP, but they have already lost the fight because if you are still trying to show the value, it’s already lost credibility in the eyes of chief executives.
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Written by Bill Swanton on

The Issue: Fewer than 20% of companies recently surveyed have the three critical elements necessary to ensure that their Enterprise Resource Planning (ERP) projects further the company’s top business transformation goals.

Information Technology (IT) groups continue to struggle to prove the value of their massive investments in ERP, but they have already lost the fight because if you are still trying to show the value, it’s already lost credibility in the eyes of chief executives. With 57% of companies rating themselves fair to poor in measuring IT costs and benefits, it’s no wonder that their leadership doesn’t see the link between IT spending and corporate goals.

Past spending is a sunk cost; now’s the time to plan for the future

Are your proposed ERP projects critical to changing the competitive posture of your company? Do they address a strategic goal of the company articulated by top management, or are they a random list of departmental requests? Do they just shave a few costs here and there--or worse, do they only address IT issues?

The most successful companies shared three key attributes:

A clear corporate vision emphasizing consistency and cooperation among business units

The value of a global ERP implementation comes from taking advantage of common customers, suppliers, materials, and business processes around the world. Companies need to change their past practices and execute consistently across business units to see the benefit. Executive management at the most successful companies we spoke to articulate a few simple, easily understood transformational goals for the company; goals that changed the company’s competitive posture. These common goals permeate the case for each business and IT project, establishing priorities and resolving differences of opinion. The CxOs saw ERP as a change agent and emphasized a “One Company” approach to ensure cooperation among business units.

One corollary: Decentralized companies and those that emphasized Profit & Loss (P&L) responsibility as their primary measurement of business units take longer to achieve and are half as likely to exceed their Return on Investment (ROI) expectations. Companies using a Balanced Scorecard to measure business unit leaders fared much better.

A dedicated group harmonizing and improving business processes

Getting business units to agree on common business processes is difficult for most IT or ERP project teams. Continuous improvement requires ongoing analysis in light of changing market conditions and a steady stream of improvement projects. We found 41% of companies with a dedicated process improvement group were highly satisfied with their ERP projects, compared to 27% of those that did not.

The best results, however, were reserved for companies in which the process improvement group was led by a senior executive, reporting to the C-level. Sometimes called Chief Process Improvement Officers (CPIOs), their seniority and access to top management gives them the clout to effect lasting change. The difference? 60% of this group is highly satisfied with their results.

A central financial analyst presenting a credible and transparent accounting of the costs and the business value realized

Executive management is skeptical of ERP and its benefits because they are hard to find in the income statement and balance sheet. A few companies are solving this problem by appointing a dedicated financial analyst to bring rigor to benefits accounting. These analysts do the following:

  • Help establish the business case, metrics, and sources of benefits data for proposed projects
  • Measure the business benefit by project, business process, and organization, eliminating double counting by separate project teams
  • Report the results widely, giving executive visibility and creating some peer pressure for everyone to contribute
How do you know its working? Companies told us that a few quarters of credible benefits accounting changed the question from “Is ERP giving value?” to “What new projects can we start to get more?” You now have the executive leadership and credibility to drive ERP benefits to the next level.

Recommendations

Unless you are in one of a lucky minority of companies that has all three in place, you need to understand what can be accomplished and what will be difficult to achieve. To improve your success, consider the following:

  • Link the company’s stated goals to the business process changes required to achieve them and the role ERP can play in facilitating and enforcing the change. This is the foundation for getting all of the elements in place. Lobby for permanent organizations to lead the ongoing change from the business and IT side, emphasizing IT’s role in program management.
  • Establish the financial analyst position to track benefits long term. It can be in one of a number of organizations but must have consistency and credibility across projects and the years of improvement effort ahead.
  • If your management has no transformation vision and is focused on narrow cost cutting, consider redirecting your efforts to projects likely to be successful. Such companies in our study were far more likely to tackle safe projects, such as technical upgrades or small, quick payback departmental projects. They showed incremental value but never made a big difference in the bottom line.
AMR Research originally published this article on 22 March 2004.

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