Ready, Fire, Aim: A Failure of ERP Readiness Starts at the Top

Despite the growing maturity of ERP consulting services, clients that adopt ERP or extend an existing ERP footprint continue to make the same mistakes that were made 10 years ago. Thus, they fail to gain intended business benefits while spending more than planned. At the heart of the matter is a chronic lack of knowledge and commitment on the part of senior management and business managers as a whole.

META Trend: During 2004/05, post-"go live" ERP organizations will focus on total cost of ownership, value delivery, usability, continuous business improvement, and targeted extensions (e.g., supplier relationship management, channel management). ERP vendors will offer enhanced post-implementation services to maturing ERP customers. During 2004-07, ERP vendors will redouble their efforts to penetrate the midmarket, competing more aggressively with Microsoft and a shrinking set of small ERP vendors. By 2007, ERP vendors will embrace Web services to support inter-enterprise integration.

In a recent META Group study of 94 firms on the verge of implementing ERP software, respondent self-assessment reveals that less than 30% of executive management has the requisite ERP knowledge and commitment. Readiness on the part of IT groups was self-assessed at 63%, while end users log in at 9% readiness (see Figure 1).

The same study respondents chose the following three factors (among 12) as most pressing when launching an ERP implementation (on a scale from 1 [not important] to 5 [very important]):

• Implementation cost and duration: 4.4
• Organization transition complexity: 4.3
• Business operations/IT alignment: 4.1

Therefore, a major disconnect exists, since the two last concerns are clearly undermined by a lack of organizational readiness.

These same respondents place “provides tangible knowledge transfer to client staff“ third on a list of 17 ideal characteristics of a systems integrator, indicating an intense awareness of the need for more ERP knowledge. However, knowledge transfer is too often geared only to two constituent groups in a client enterprise: 1) the implementation team, which receives product training (primarily software configuration); and 2) end users, who receive training in the deployment of configured software.

Senior management and across-the-board business managers are not adequately included in the knowledge transfer equation and continue to view an ERP implementation as an IT project rather than the enterprisewide business endeavor that it is.

When performing ERP readiness assessments for clients, we observe the following incorrect presumptions:

• Senior managers presume that company vision and strategy relative to ERP are understood by all business entities.
• Business staff assigned to ERP implementations - usually for the business process design (blueprint) phase - presume that their role in the project ends at the point of “go-live,” if not before.
• All groups presume that the ERP installation will be maintained by the IT organization after go-live.
• IT managers presume that organizational change management applies only to the business units and not to their organization as well.
• Business staff not involved in the implementation project presume that only end users will be affected once go-live occurs.

The consequences of poor readiness, coupled with these erroneous presumptions, are borne out in subsequent implementation projects. In this same study, we asked 152 respondents from the installed base to list the key mistakes made in the course of the project and who they blamed for those mistakes (see Figure 2).

The following top three mistakes are all direct results of the previously listed erroneous presumptions:

• There was no quantifiable measurement of benefits (40.8%): With each passing year, this mistake receives a higher citation after implementation as business leaders ask, post-go-live, what they got in return for their investment. The continuing failure to measure benefit leaves a firm rudderless as ERP extensions and improvements become difficult to fund if previous investments have not been justified. (In a related 2003 study, only 16% of 204 firms polled could produce viable business benefit measures.)
• We had insufficient knowledge transfer (38.8%): While respondents spread the blame for this failure (34% themselves, 20% their vendor, 36% their systems integrator), we find that underfunding projects is at the heart of the matter since 35% of these respondents also cite a “shortchanging of end-user training”.
• After go-live, we broke up the implementation team (36.2%): This mistake is the result of a core management misunderstanding of an ERP endeavor by which business staff that was assigned to the project disappears after go-live on the presumption that ongoing ERP is “an IT issue.” Fully 82% of the firms making this mistake blame themselves, and the percentage of firms citing this mistake rises from 32% in the first year of implementation to 47% by the third year after go-live - indicating that the negative effects of losing business/IT alignment continue to grow with time.

The following two key elements of long-term ERP success must be addressed before an ERP implementation is launched:

• Long-term business and IT alignment must be established and maintained: The lifespan of an ERP implementation will normally exceed 20 years, and in that time client organizations will continue to improve business processes and thus change/reconfigure the software in support of those changes. The IT organization is seldom equipped to drive business process change, and business resources must be the full-time driver, even after go-live.
• Senior management must become more enlightened and engaged regarding the whole of an ERP endeavor: While training for project teams and end users is a staple of all ERP implementation methodologies, too little attention is paid by senior executives after the decision to acquire and implement the software. Senior and line managers need to be better educated regarding organizational change management, which is the measurement imperative.

While senior management commitment to an ERP endeavor must include both sufficient funding and executive sponsorship, it is imperative that such sponsorship be more enlightened about ERP issues before the implementation commences to ensure that paramount business issues do not become lost in the fog of an IT shuffle.

Bottom Line: Firms embarking on ERP endeavors often lack readiness for them across the entire organization, most pointedly in regard to senior management.

Business Impact: A lack of ERP knowledge and commitment undermines the efficacy and progress of an ERP implementation and threatens the realization of intended business benefits.

META Group originally published this article on 14 April 2004.