| Key No 1 - Charting the course of success for your | | | | Management. Since 1994 it has consistently been |
| technology investment | | | | issue #1 or #2. |
| Is your current ERP system is lacking in functionality? | | | | Nonetheless, it has proved to be an elusive target. |
| Does it limit your ability to respond quickly to | | | | Luftman and Kempaiah suggest a number of reasons |
| customers' requests? Where are you placed in | | | | for this, including that, while IT might be aligned with |
| comparison with your competitors, and does your | | | | the business, business is rarely aligned with IT. They |
| existing system help you or hinder you in meeting | | | | also add that organisations have often looked for a |
| industry best practice or benchmarks? Are you | | | | 'silver bullet', whether technological solution or |
| simply unhappy with your current supplier and their | | | | improved communications, as well as improved |
| ability to respond to your requirements, let alone | | | | governance to identify and prioritise projects, |
| those of your customers? | | | | resources and risks. Another reason they suggest for |
| Whatever the case, you are unlikely to stand alone in | | | | missing the alignment target has been the lack of an |
| these areas - many companies have faced similar | | | | effective tool to gauge the maturity of IT-business |
| issues with their ERP systems, so no user is likely to | | | | alignment. |
| be unique. There are common drivers you can | | | | On this last point, they suggest a set of six |
| consider in your deliberations over a replacement ERP | | | | components that indicate (if not mandate) alignment |
| system, and these include the measures you use to | | | | maturity: Communications - exchange of ideas, |
| chart the success of your technology investment, | | | | knowledge and information between IT and business; |
| the major issues you need to address and the | | | | Value - balanced measurements to demonstrate the |
| consideration of how much pain you are willing to put | | | | contributions of information technology and the IT |
| up with to achieve your ultimate goal. | | | | organisation in terms that both business and IT |
| According to Aberdeen Group's 2007 ERP in | | | | understand; |
| Manufacturing Benchmark Report, 328 companies out | | | | - Governance - who has authority to make IT |
| of 1245 companies surveyed were planning to | | | | decisions and set IT priorities; |
| replace their current ERP systems at one or more | | | | - Partnership - including IT's role in defining business |
| locations within the next three years. In other words, | | | | strategies, the degree of trust and how each |
| at any one time, a quarter of companies are looking | | | | perceives the other's contribution; |
| to replace their existing ERP systems. | | | | - Scope and architecture - IT's provision of flexible |
| In the past, enterprise resource planning has garnered | | | | infrastructure, evaluation of emerging technologies, |
| a mixed reputation. While there are fundamental | | | | driving business process change, and delivery of |
| reasons and obvious benefits for going down the | | | | customised solutions internally and externally; and |
| ERP path, many have feared - rightly or wrongly - | | | | - Skills - HR practices of hiring and retention, |
| that ERP entailed major organisational disruption if not | | | | encouragement of innovation, developing individuals' |
| re-engineering, at high cost and high risk. | | | | skills, and the organisation's readiness for change, |
| Aberdeen Group reports ("When Replacing ERP - Size | | | | capability to learn and ability to leverage new ideas. |
| Matters", June 2007) the primary driver for large | | | | Interestingly, they say that "business executives |
| companies is consolidation and rationalisation | | | | score alignment maturity higher than IT executives". |
| strategies. An underlying issue, considering the | | | | In other words, it is the IT side of the business that |
| proliferation of ERP and other enterprise applications, | | | | feels most that alignment is not being achieved. |
| is the need for integration. For mid-sized and small | | | | Whether your organisation complies with these |
| companies, on the other hand, the concerns are | | | | suggestions - and it should be added that sometimes |
| more with gaining functionality and integration. These | | | | these factors can be seen as reflections of alignment |
| sized firms are also more heavily concerned with | | | | maturity as opposed to stepping-stones for achieving |
| updating their outdated user interfaces, an important | | | | that heightened state - any IT implementation, |
| factor in raising employee productivity and | | | | especially one as significant as ERP, should keep all of |
| efficiencies. | | | | these factors top of mind. |
| Other issues include requirements of expansion, | | | | Supply chain criteria |
| pressure from trading partners, compliance with | | | | Many ERP systems are implemented as part of the |
| regulation and even disastrous events, but overall | | | | supply chain process of an organisation. Here, again, |
| companies looking at ERP implementations are | | | | the above success markers are relevant, but Tim |
| primarily seeking "low cost options that minimise risk". | | | | Payne of Gartner ("Supply chain and IT strategies |
| Risk and cost in combination imply a concern for | | | | must align around five key themes", August 2007) |
| return on investment, but Aberdeen's surveys show | | | | suggests that "enterprises should focus on five |
| that fewer than 25 per cent of respondents | | | | technology areas - business process agility, data |
| consistently estimate ROI to cost estimate ERP | | | | management, analytics and performance |
| projects, and 20 per cent or less measure the actual | | | | management, collaboration, and sensory networks - |
| post-implementation costs and gains to calculate ROI. | | | | as the sources of technology-enabled supply chain |
| In contrast, "best in class companies are on average | | | | innovation". |
| 88 per cent more likely to estimate ROI before | | | | Payne says "focusing on these technology areas will |
| initiating projects and are 130 per cent more likely to | | | | give the IT organisation more credibility as an ongoing |
| measure ROI after project completion. As a result, | | | | participant in the dialogue [with the supply chain |
| these best performing companies produce, on | | | | organisation]". He goes on to recommend: |
| average, 93 per cent more improvement across a | | | | - Periodic demonstrations of new technology |
| variety of metrics such as cost reductions, schedule | | | | capabilities, coupled with the co-development of |
| performance, headcount reduction or redeployment | | | | supply chain initiatives, as new capabilities arise in |
| and quality improvements." | | | | these areas; |
| The reality is that minimising risk with an ERP | | | | - Developing a plan for incorporating new |
| implementation is an achievable result and, by | | | | infrastructure components that are needed to |
| minimising risk, costs should also be kept under | | | | support innovation areas; and |
| control. By following a formal process of charting the | | | | - Evaluating the supply chain IT strategies and SCM |
| reasons for your implementation, assessing the | | | | vendor-sourcing criteria with the supply chain |
| various offerings from your current supplier and, | | | | organisation for conformance and alignment based on |
| importantly, from suppliers who might be new to | | | | the five key themes and related discussions, |
| you, and checking off against the various criteria for | | | | adjusting IT and sourcing strategies to address |
| selection, an ERP implementation need not be a | | | | perceived gaps. All well and good. But, despite the |
| nightmare; in fact, it could prove to be the instigator | | | | best planning and setting of firm criteria, there is |
| of quantifiable benefits for all concerned. | | | | always the issue of compromise - that such an |
| Specific success markers | | | | important and far-reaching a system as an ERP will |
| Getting down to brass tacks, there are a number of | | | | not perfectly match your organisational set-up. The |
| key aspects of an ERP system that need to be | | | | Aberdeen report suggests that "if your business |
| addressed, both prior to any decision to move to | | | | processes were developed over time - in an |
| such a system and certainly as part of selection | | | | unstructured way - the possibility exists that no ERP |
| criteria. Near the top of the list is total cost of | | | | system will match exactly. Search out ERP solution |
| ownership, which incorporates: | | | | providers with customers in your industry, evaluate |
| - Software and implementation costs; | | | | the fit, and balance the need to adapt your business |
| - Costs associated with any interfaces or system | | | | processes to conform with the software against |
| modifications; | | | | aligning the software to your processes. While some |
| - All costs associated with system communications; | | | | customisation of software may be necessary, (only |
| - Costs associated with employing additional or | | | | 11 per cent of respondents have zero customisation) |
| specialised staff; and | | | | it adds expense and effort to the initial |
| - Annual costs for system upgrades and helpline | | | | implementation, and the complexity of future |
| support. Other specific areas of consideration that will | | | | upgrades." |
| impact on the success or otherwise of your ERP | | | | In other words, if you bend a little to accommodate |
| program include: | | | | the ERP, while still maintaining your markers of |
| - Functionality; | | | | success, you will find that the ultimate payback is a |
| - Ease of use; | | | | system that works well with an organisation in sync |
| - Integration capabilities; | | | | with itself. |
| - Ease and speed of implementation; | | | | It is important overall, therefore, to look at all |
| - Ability to tailor functionality without programming; | | | | options, and that includes a range of suppliers, to |
| and | | | | assess the issues, drivers and pain points that you |
| - Software licence price. Added to this, or | | | | may have been facing in the past, and that you |
| overarching these considerations, is return on | | | | might be looking to deal with or, hopefully, avoid in |
| investment. Whether and how quickly you achieve | | | | the future to ensure the best fit for your |
| this is dependent on many factors, not least the | | | | organisation. |
| rigour and realism applied to the assessment of | | | | The next article in this series will look at "Managing |
| current circumstances and the contribution made by | | | | the total cost of ownership - What you need to |
| the ERP system as outlined in initial business cases. | | | | know". |
| An article as far back as the European Journal of | | | | References: |
| Information Systems in 1996 reported on a survey | | | | - Jutras, C., and Barnett, R., "The total cost of ERP |
| of the 200 largest UK companies that found that 47 | | | | ownership in large companies", Aberdeen Group, July |
| per cent openly admitted to overstating the benefits | | | | 2008 |
| to get approval for IT investments. | | | | - Jutras, C., and Dalle Tezze, H., "When replacing ERP |
| But wishful thinking and creative accounting aside, | | | | - size matters", Aberdeen Group, June 2007 |
| these are all relevant considerations. (And in future | | | | - Jutras, C., Trost, J., and Dalle Tezze, H., "Taking the |
| articles, covering total cost of ownership, selection | | | | ERP plunge for the first time", July 2007 |
| criteria, best and worst practices, and maximising | | | | - IBS, "5 things you should know about total cost of |
| ROI, we will look at them in more detail.) But it should | | | | ownership (TCO) for ERP systems", IBS Australia, |
| be noted that the level and mix of these factors and | | | | March 2008 |
| how successfully they are achieved is specific to | | | | - IBS, "6 essential considerations when selecting an |
| individual sets of circumstances, including size and | | | | ERP system", IBS Australia, February 2008 |
| type of organisation, intended purpose, individual | | | | - Luftman, J., and Kempaiah, R., "An update on |
| business priorities and, of course, budget. | | | | business-IT alignment: 'A line' has been drawn", MIS |
| The big picture | | | | Quarterly Executive, Vol 6 No 3, September 2007 |
| The overriding consideration that affects all | | | | - Payne, T., "Supply chain and IT strategies must align |
| organisations, large or small, regardless of industry | | | | around five key themes", Gartner Research, August |
| sector or even of budget, is alignment with the | | | | 2007 |
| business objectives of your organisation. | | | | - Ward, J., Daniel, E., and Peppard, J., "Building better |
| Jerry Luftman and Rajkumar Kempaiah of the | | | | business cases for IT investments", MIS Quarterly |
| Stevens Institute of Technology suggest ("An | | | | Executive, Vol 7 No 1, March 2008 |
| update on business-IT alignment", September 2007) | | | | - Ward, J., Taylor, P., and Bond, P., "Evaluation and |
| that the issue of achieving IT-business alignment was | | | | realization of IS/IT benefits: an empirical study of |
| first documented in the late 1970s and was in the | | | | current practice", European Journal of Information |
| top 10 IT management issues from 1980 through | | | | Systems (4), 1996, pp 214-225 (as cited in Ward et |
| 1994, as reported by the Society for Information | | | | al, 2008). |