Why ERP Systems Struggle to Deliver Business Value
Managing value expected from an ERP project is actually quite simple and can start with a basic piece of paper listing the project’s business goals.
By Ralph Billington
Enterprise Resource Planning projects are notorious for failing to deliver anticipated business value. The lack of results is driven in large part by skewed business cases without any link between activity and value delivered to the business. This leads to a situation where all the value levers that are discussed at the conceptual stage of a project are forgotten when the teams involved execute the contract and manage the project. It’s almost as if the reason for doing the project in the first place no longer matters.
One problem is that the approach most enterprises take to selecting an ERP package and planning a deployment is inherently flawed. The fact is, most ERP packages are adequate for almost any solution, regardless of the specific ERP package deployed. However, selection decisions are often based on the past experience of the integrators and the leverage they hold through existing assets and leveragable templates and pre-configured elements. More specifically, clients often ask the same folks who will be engaged to do the deployment to recommend what should be deployed and how. The recommenders, in other words, have a clear vested interest in a particular outcome, and have already established themselves through advising on all aspects of the solution. This is not always in the client’s best interest.
This often leads to over-selling of a particular package’s capabilities and business impact of the program, coupled with a glossing over of business and process challenges that need to be addressed for those benefits to be realized. Extravagant claims are made during the sales cycle, specifically around the capabilities of “industry pre-configured solutions.” Buyers are attracted by the notion of ease of deployment and will naturally tend to select the solution that appears to be ready to go out of the box. But after the contract is awarded, the client typically learns that everything is not ready to go out of the box and, in fact, significant customization is required. Significant cost overruns and lack of ROI follow suit.
The other major reason that ERP systems fail to deliver business value is that teams tend to focus on timelines, budget, schedules and “go-live” deliverables. Specific metrics for business benefits, meanwhile, are conspicuously absent. Project Management Offices (PMOs) are generally effective at managing a project to be on time and on budget. Teams detail and justify each and every component of cost, effort and timeline, while the “reward” or value component is only loosely defined with little if any linkage to program manageable activity. So, ironically, the component of the program that should be the top priority gets the least attention.
Conventional wisdom has it that ERP systems fall short because the complexity of the projects makes value leakage inevitable. There’s no way, the thinking goes, to track all the granular details and cause/effect linkages that must be measured to determine value contribution. In fact, however, the opposite is true–managing value is actually quite simple. The starting point can be no more than a piece of paper listing the project’s business goals. The goals can be broken down to value contributors on one side and the activities needed to achieve those goals on the other. Using this simple document or “value map,” teams can align activity to value levers with the appropriate accountability. This can happen as early as when development of the business case commences. So, when a firm or an individual states, “This is what can be achieved,” it becomes easy to ask “how?” and for those hows to be documented and then aligned to project plans and activity.
By starting the process early, programs can avoid the fate of going live, only to have the business realize after the fact that the value anticipated by the system hasn’t been achieved. A value map, along with a project plan, uses various milestones to keep stakeholders aware and accountable to the value as it is created and released to the business. Because missed milestones are easy to see, when they don’t happen the unpleasant surprises at the end of the project can be avoided.
Value mapping offers a powerful–and better yet, simple and easy–mechanism to manage programs. Six key steps are outlined below:
Step 1. Involve the primary stakeholders in the business case development in a way that holds them accountable to determine business objectives.
Step 2. Ensure the business case is based on stakeholder commitment to potential savings drivers and socialized objectives.
Step 3. Have each stakeholder sign their thread through the project linking business case goal to value lever and mechanism that will drive savings/improvement.
Step 4. Develop a value map as a part of the contracting process and execute as an exhibit to the contract.
Step 5. Align and link the value map with the project plan before the project starts and socialize the value map at the project kick-off.
Step 6. Use the value map with the project plan to manage the project.
Ralph Billington is a managing director with Alsbridge, a global consulting and outsourcing advisory firm.