When it comes to enterprise resource planning (ERP), there is no endgame.
Just ask the folks at The California State University (CSU). Recently, the school attempted to implement the largest software project ever undertaken in a U.S. post-secondary institution. The project, dubbed the Common Management System (CMS), is a new centralized computer system intended to integrate and streamline a range of software applications – some dating back to the 1970’s – within CSU’s headquarters and its 23 campuses into one PeopleSoft human resource and financials, and services solution. According to CSU spokesperson Colleen Bentley-Adler, CSU’s goal with the Common Management Systems project – established in 1998 – is to provide “efficient, effective, high-quality service” to students, faculty, and staff. By 2006, Adler noted campuses across CSU will be able to perform and support administrative functions with a common set of best practices, using a shared common integrated application.
But according to a recent state audit, CSU is spending more than it had planned.
The initial estimated US$450 million cost has ballooned to just over $660 million on the new centralized computer systems. The audit noted that during its ERP implementation, CSU failed to establish a “clear business case” and neglected to take into account maintenance, operations and implementation costs. The president of the system’s statewide faculty union had even called for a moratorium on the project.
But despite all, Bentley-Adler maintains that the CMS project is meeting expectations and is still on track.
CSU’s situation shouldn’t be taken just as a cautionary tale. Few organizations could even dream of implementing an ERP installation at such a grand level, but the example to note is that even for those ERP implementations that are wholly realized and manage to achieve tangible benefits, there is barely time for organizations to rest on their laurels. A tweak here, a tinker there, a new technology here, Web services there. Something new is always required.
And it seems more and more Canadian enterprises are recognizing this.
What is it really about?
In light of this revelation, there is even hope for enterprises whose ERP systems have descended into a mess of ill-fitting technologies and business processes. Horror stories abound of enterprises that didn’t quite get it right, veering far off the path of proper ERP implementation. In fact the industry is littered with failed
implementations. But how is a failure defined? Saying an implementation is a “failure” is blind to the fact that ERP is more than just software.
Simply put, ERP forecasts supply and demand. That’s all. Repeat again: ERP is not about software. It’s important that everyone in the enterprise gestalt – the CEO, CIO or business execs right down to project and IT managers – is an integral part of a successful implementation.
Want to establish effective planning, scheduling and forecasting? ERP is the best way to go. Just be prepared for a never-ending task. “A lot of companies selected ERP, went down an integration path and then stopped either for pain threshold, or the cost or it not delivering,” noted Keith Beard, an analyst for Fujitsu Consulting.
The most common mistake, noted Beard, is buying ERP solutions based on “top of mind” popular name brands and then realizing that some of these modules don’t deliver. The result is cost overruns trying to modify modules that weren’t meant to be modified. In such cases, everybody is disappointed with the end result, Beard said.
It can be argued, partly due to the tightening of IT budgets post-“dot-com bust,” that enterprises have cancelled their subscriptions to the Big Bang, rip-and-replace view of ERP implementation. No longer wooed by big vendor marketing, it has dawned on organizations that a proper ERP implementation shines the spotlight on the human side of the equation. Enterprises should ensure that they have a firm foundation for the business transformation and change – it’s not just about implementing a software product, noted Fujitsu Consulting analyst Nancy Crump. “It’s about the business transformation, change management and the business process that go along with that.”
No matter the scope of the IT environment, properly managed ERP systems are a long way from a fast turnaround. According to a recent report by Stamford, Conn.-based Meta Group Inc., on average, ERP implementations ding large organizations for approximately one per cent of annual revenues. The average timeframe is around 20 months to fully implement. The survey, which polled more than 200 enterprises with annual revenues over US$1 billion, reveals that 70 per cent of these ERP costs were for labour. Meta also found ERP implementations take an average of 27 months before companies become conscious of any benefits.
But ROI isn’t always the defining issue, according to Rob Raponi at Oracle Corp. While the first wave of ERP is over, companies can focus on tweaking the environment with tools such as business intelligence, analytical and reporting software. Particularly with Canadian enterprises, which by and large tend to be more global, outward-looking entities, there always has been an ongoing process of shoring up the IT architecture, Raponi said.
And ERP isn’t just for large corporations. Big vendors such as SAP AG, Oracle, and PeopleSoft Inc. and smaller ones like Chantilly, Va.-based Icode Inc. have turned their attention to the burgeoning midsized market. Icode recently developed an ERP solution specifically designed for the small- to medium-sized space. Automated ERP is still not a common thing for a lot of small businesses, said Bijal Mehta, Icode co-founder and CEO. The integration of e-commerce into ERP is very much a hot future, Mehta noted.
Manuel Joaquim, a controller for an Ottawa-based aircraft sales and services firm V. Kelner Group Inc., noted that the company recently rolled out a software solution to integrate accounting with the current ability to track machine parts through the inventory system.
The measure of success, according to Joaquim, an Icode customer, is calculated in terms of cost savings and productivity. “(But) it’s never finished. That’s one thing that I’ve learned,” Joaquim said. “I can’t see us ever getting to the point where we say this is the platform we want and we want nothing to change. There is a constant tinkering, constant discovery of new ways to use the program and new ways that we haven’t used before.”
ERP is never over
The notion that implementation never ends is not necessarily a bad thing, noted Scott Lutz, director of product marketing, ERP & Services at J.D. Edwards. Where enterprises go wrong is not having a rock-solid set of business goals and objectives, thus allowing projects to run amok. If there is no solid business case, the implementation will not meet expectations – that’s the bottom line, Scott said. It’s also critically important the ERP deliver absolute value to the enterprise.
Beard at Fujitsu Consulting noted that successfully implemented ERP should see real benefits within the first fiscal year. “It’s critically important to have one view of the enterprise, particularly to have an end-to-end view of what you do. If success hasn’t been achieved within this timeframe, it’s likely a lack of re-engineering of processes,” Beard said.
The most important thing to know, Joaquim said, “is how exactly you use your existing system and what it is that you’re looking to get out of any new system. You really can’t do an implementation until you know what it is that you currently have and know what you’re looking for.” Enterprises have to be able to effectively communicate to the vendor what exactly you expect the new system to do, he added.
“Really think through how (the organization) is able to adapt the existing approach to [new ideas], then know where you are, know where you’re going and make sure the vendor has a good understanding of what it is that you’re trying to achieve,” Joaquim said.
In terms of a timeframe for achieving real benefits from the technology, Beard noted that enterprises should strive for the end of one fiscal year. And it also depends on the customer, Oracle’s Raponi adds. “I would say most clients are looking at a two-year payback.”
It’s pretty tough to screw up ERP these days, noted SAP customer Paul Kurchina at TransAlta, a Calgary-based power generation and wholesale marketing company. “If you do, you have some serious change management issues in your company,” Kurchna said. TransAlta went live with an SAP suite in 1996. “It’s not finished, just as your business is never finished. It evolves as your business needs evolve” he said.
“Someone within the organization may have past perceptions based on dated information…that ERP implementations ran in the multi-millions and took over a year, but the reality is that you can…get immediate value.”
Make sure everyone involved has a firm understanding that it is not just about implementing a software product. It’s about business transformation, change management and the business process that go along with that, said Nancy Crump of Fujitsu Consulting.
“The most important thing to know is how exactly you use your existing system and what is it that you’re looking to get out of any new system,” Joaquim said. “You really can’t do an implementation until you know what it is that you currently have…how the system works now and…what exactly that you expect the new system to do.”
Back to The California State University. Though a recent state audit concluded that the university system failed to spell out in advance what it wanted from the new system, Bentley-Adler said CSU is back on track. Another CMS implementation “wave” is currently underway and the school is spending additional millions to train its staff toward its goal of an effective single database. Mistakes were made but, above all, the most important thing to have is patience, Bentley-Adler said.