Despite the fact that ERP solutions are intended to improve business performance quickly and efficiently, through the provision of critical information, they generally do not have a good track record. In his research paper “Causes influencing the effectiveness of the post-implementation ERP system” (subscription required), CS Yu came to the conclusion that 40% of all ERP implementations or extensions perform below expectations and 20% are eventually scrapped as complete failures. The latter figure could even be as high as 50%, depending on how ‘failure’ is defined.
This does not sound encouraging for executives who are about to embark on the search for an ERP solution, nor does it bode well for the many ERP solutions available for the picking.
In my experience the problem tends to lie with unrealistic expectations that are created by the manner in which executives often think about ERP.
Decision-makers have compelling reasons to think about ERP. Their need may be to acquire their first ERP solution; or they may think about buying a new ERP system because their existing one is not working for them as the business evolves. Technically the existing ERP system may be obsolete or on its way to becoming obsolete. There may be an organisational reason: a new business venture, takeover or merger that may place new demands on the organisation’s information needs.
ERP solutions are no longer considered a luxury that may offer the competitive edge. To the contrary; it is now a distinct competitive disadvantage if an organisation’s ERP system does not function efficiently and effectively; delivering the information the business leader needs in the format they want it in.
To get the ideal ERP solution and to truly optimize the potential of it requires a clear strategy on how to select it, with distinct policy guidelines and direction.
The question “What do you want from the solution?” must be answered fully and in exact, measurable terms. This applies to both deliverables as well as time and format requirements. All solutions under consideration must be subjected to exactly the same tests and needs analysis. Management needs to define what strategic business objective will be served and how ERP will contribute to this objective. It also needs to clearly define both the process of implementation as well as the operation of the system once it is in place. This includes delegating clear levels of authority to the right people and departments to take responsibility for its implementation and operation.
In addition, the entire process, from inception to its final conclusion, must be measured and monitored closely on clear criteria and standards for success. Deviations must be addressed with urgency and resolved as soon as they arise.
Although ERP is strategic by nature, organisations often have difficulty quantifying the benefits. Several benefits such as improved alignment of operations with the business strategy; reduced business risk; improved financial management and corporate governance; and increased visibility of information appear non-quantifiable. However, with the right expertise and support almost anything can be quantified, albeit in more subjective terms.
In forthcoming blogs, we will look at the right people to take responsibility for the implementation of your ERP solution.
For more information, download "Thinking about ERP".
CS Yu, 'Causes influencing the effectiveness of the post-implementation ERP system', Industrial Management & Data Systems, vol. 105, no. 1, 2000, pp. 115-132.