At the end of the animated movie Finding Nemo these last lines:
“We did it!”
This is how people can feel after implementing an ERP system. After a long project, your organization is finally working with an Enterprise Resource Planning (ERP) system that allows the company to automate and integrate the majority of its business processes, share common data across all functions, and produce and access information in real time. The truth is that living is not the end. Instead, going live is the end of the beginning of a program toward improvement, innovation, and agility.
Long term ERP project
Companies should avoid short-term focus on what it means to have an ERP project “complete”. A classic report from Deloitte Consulting discussed how the ERP-enabled transformation is happening over a long period (ERP-enabled second wave: Maximizing the value of ERP-enabled processes). It is important to understand that an ERP project is an ongoing program to maximize and maintain the full benefits of the ERP system. The most significant benefits are likely to be realized sometime after the start date. In order to reach this stage, executive decision makers and their organizations must work to ensure that the underlying drivers, system, process, and people come together to operate the new system and implement the new processes.
After startup, there is a stability period of a few months during which bugs are fixed and efficiency is increased. Once that is over, the process phase begins. Success or failure is determined during this stage, and there are strategies that line managers must follow to ensure that the business benefits and enabling strategic objectives of ERP are sustainable and optimized.
During this stage, three common problems can occur. These problems start the day the ERP system goes live and don’t go away.
- Application erosion
Application Erosion, coined in 2001, describes how the value of an ERP system declines over time. The system has not changed but system usage has decreased.
A lot of the reasons for app wear are related to people. Employees only use features they are familiar with from regular use. Newcomers are taught only a subset of what the organization started with. When an ERP project is small, there are ‘super users’. These people know the system well, are advocates of its use and are the ones to “go” to other employees for answers. However, as time goes on, these employees are getting older, so there is a need for a new generation of power users.
A business will perform better if the three dimensions of business processes, people, and systems are in balance. It’s like eating a meal at a three-legged table. If not all legs are equal in length, it is possible to eat but it requires more energy and the chance of spillage is high. In the case of unbalanced dimensions, the work can work but requires more energy to maintain and the risk of error is much greater.
An imbalance can occur when an organization turns to advanced business processes and tries to run on a system that is unable to support those processes. Or, an Enterprise Resource Planning (ERP) system is implemented but the organization fails to train its employees or to hire sufficiently qualified people to operate the system.
Deterioration occurs when a balanced state of systems, business processes and the organization of people are disrupted by an event and then over time the unused potential deteriorates to a new level as the three dimensions balance again.
The driver of the initial deterioration may be completely outside the control of the company. For example, the resignation of a key person can destabilize the functional organization of a business, requiring adjustments to business processes and possibly requiring changes in the system to enable those left behind to deal with the new situation. Often new business processes will not operate as they did before the main individual leaves and the system may operate in a less than optimal manner. Another example is when a large customer suddenly requests a change in the way their orders are handled. This change in business processes may require changes to the enterprise resource planning (ERP) system that manages sales orders and product data which in turn requires additional staff to handle changing business processes.
Maintenance strategy for ERP system operation
To prevent these problems from occurring requires a clear and defined strategy to enable organizations to maintain the business benefits of an ERP system. For all these problems, if you do nothing, they will appear. And if your organization suffers from it today, you need a plan to restore that value.
- The old saying “use it or lose it” applies to ERP systems. Jobs that are not used frequently tend to be forgotten. Retrain existing users to prevent them from forgetting functions they don’t use frequently.
- Employee turnover has an effect. Unless there is a formal training program for new users, it is often the existing users who train the new users. Even with the best of intentions, current users may only know 70-80% of what they know. So the knowledge of the first generation drops by 100% to 70-80% for the second generation and 50-65% for the third. To prevent application erosion, invest in a formal training program for new users.
- Make sure to keep the system running at an adequate level. Software and hardware upgrades must be kept up to date and there must be adequate funding and technical staff.
- For business operations, the maintenance strategy should require that business processes be reviewed regularly for suitability and to ensure that business process documents are used and updated.
The goal is for all three dimensions to be balanced. To achieve this, the organization must have:
- Business processes that achieve business objectives but are not unnecessarily complex,
- A system that supports business operations and reduces additional or more complex functions,
- Enough skilled people to run your operations with your system.
Instead of an intermittent change of ERP implementation, this phase emphasizes the kaizen concept of continuous improvement.
Getting the full value out of an ERP system
The Deloitte Consulting study stated that after running their ERP implementation for a while, companies may embark on a synthesis/synergy period in which further improvements in business processes and complementary added solutions are sought. These changes may not be extensive, but they are still intermittent. They are not risk free and will create some instability before stabilizing. If there was an uneasy situation before you started, you’re going to have a problem.
Companies need a maintenance strategy to guard against problems of wear, imbalance and deterioration. After the efforts of an ERP project, you may want to consider the extra time, effort, and money for an improvement strategy. However, following a period of stability, organizations are better served by focusing on a strategy to keep the three aspects of people, business processes and ERP system in balance. In the long run, you need a period of operation and improvement.
A company considered “complete” as direct can end up disappointed. On the other hand, if it takes a longer view and sees the live broadcast as a major milestone towards greater benefits from a longer, more ambitious journey, the outcome could be quite different.