Enterprise resource planning (ERP) implementation: requires more planning and budgeting than for a wedding. And just like marriage, without proper preparation and planning, it often ends in failure. Whether you’re an ERP software veteran upgrading your current system or a newcomer in the world of ERP implementations, it’s no question that the process is intense. Fear not — this article walks you through the ins and outs of implementation, including steps to take, how to avoid failure and insights from industry thought leaders.
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What is ERP Implementation?
Let’s back it up for a moment and first explain what exactly an ERP system implementation is. It’s the process of gathering your business’ requirements, software selection, deploying the system, migrating data, training users, going live and managing support. It is the steps required to integrate an ERP system to your organization’s processes.
An organization may want to implement an ERP system for a variety of reasons, such as streamlining operations, reducing manual labor, improving customer satisfaction or unionizing business processes. Some of the industries that use ERP software are retail, manufacturing, distribution, pharmaceutical, technology, aerospace and defense, hospitality and construction.
Before we dive into the process, we need to confront an unfortunate fact: implementation of ERP systems often fail outright, go over budget or don’t meet the proposed ROI. In fact, 55 to 75 percent of ERP projects fail to meet their objectives. On top of the obvious disappointment, an ERP implementation failure can have a devastating effect on a company.
David Dozer, Chief Technology Officer at Blaze IT, talks about ERP implementation failures:
It seems like ERP failures are the hot topic right now in this space. Maybe that’s because they used to get swept under the rug, or maybe it’s just because there is more transparency in the industry now. The reason for failures is almost always due to a breakdown in the people part of the process. Sometimes the software really isn’t a fit, but that can be traced back to the sales process and unrealistic expectations being set. Other times the project is rushed to meet an arbitrary deadline and corners are cut. And then sometimes end-users aren’t trained appropriately. The root of failures can be traced back to some sort of mismanagement of the process. That’s why it’s important to have a third-party project manager as well as stakeholders from the business and the implementation partner.”
Dozer’s claims here lead us to another point, which is that failures can usually be traced back to a mistake. Unfortunately, there are many potential mistakes to be made.
Dozer explains what he thinks are the most common mistakes:
One of the largest mistakes I’ve seen ties back to the old joke that if you want something fast, cheap and high quality that you can realistically only get 2 out of the 3. That doesn’t stop people from wanting all three, and it doesn’t stop some system integrators from touting that they can deliver on all three. And what this really boils down to is the mistake of mismanaged expectations. Everyone needs to know going into the project knowing realistically how long it will take and what the cost to do it right is going to be.
The second biggest mistake is not taking ownership of the ERP system. I’ve seen businesses who when talking to the consultants will use the terminology ‘your software.’ It’s important to realize early on that when you purchase an ERP system, you need to own it as yours. It’s a set of tools that allow you to achieve what you want to accomplish. As long as the perception is that someone else is “in charge” of it then it will never be successful, and adoption will be low.”
On top of mismanaged expectations and lack of ownership, there are plenty of other potential mistakes we could add, but it’s more productive to talk about how to get ahead of them. Here’s a couple of ways to do that:
- Accept the up-front investment of time and money
- Include the end-users every step of the way
- Carefully gather your requirements, be selective with vendors and opt for an industry-specific solution (if applicable)
- Hope for the best and plan for the worst, especially in the areas of budgeting and maintenance
- Create a strong change management plan
- Communicate across all departments
- Ensure you have the support of the executive team
- Remain dedicated to leveraging your ERP system; don’t fall back on old business processes
Now that we’ve got the bad news out of the way, let’s dive into the steps involved in the ERP implementation process.
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Software Selection Process
The first step of the process is ERP software selection. To start, you need to establish why you need an ERP system and what your business goals in adopting the system are; this is otherwise known as requirements gathering. Though software selection technically comes before the implementation process begins, these objectives play an integral role and will form the rest of your ERP implementation process. Don’t take it lightly!
Our requirements templates can help you determine what you’re looking for in an ERP system and in turn, what software features to look for in a vendor. On top of features, you need to consider deployment method, or whether you want a cloud-based or on-premise system.
If you decide to go with a cloud-based ERP, that will change (and usually, simplify) the rest of the implementation process. A cloud-based ERP typically provides fewer customization options and has a lesser initial cost because they’re billed on a subscription basis.
David Haimes, Senior Director at the Oracle Cloud Applications Research and Development Organization, explains how cloud implementations are unique:
The cloud has changed ERP implementations. There is no software to install, maintain or upgrade. It is simply a subscription and then the vendor will manage everything, including regular free updates containing new features and innovations. As such an implementation is no longer a one-off “big bang” project, but a continual process of evaluating the new features available, adopting them in your organization to realize value and open up new opportunities.”
The best organizations are continually improving their business processes and operational excellence by adopting the very latest technologies such as AI, Machine Learning or Blockchain which are delivered in business flows in the software and do not require data scientists,
technology experts or more hardware to run on.
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Assemble Team and Create a Plan
Now it’s time for some project management tasks. The implementation plan is the most important part of the process and requires great attention to detail. As for the implementation team, you should exercise just as much care in selecting the members. Here are some examples of roles to be filled:
- Project manager
- The executive sponsor
- Implementation partner
- Functional team members from your organization’s IT, finance and manufacturing departments
- Data Scientist, if necessary
- Project stakeholders
The implementation team should have members from across your organization, making sure to include all departments that will be involved or using the software. It’s very important to include end-users.
Now that you’ve assembled your team, you can design your change management plan. In addition, you’ll want to create a timeline for your ERP implementation, which can take anywhere from a couple of months to a couple of years to complete.
Your change management plan should account for tasks such as data migration, system testing, cost forecasting, end-user training and measuring ROI when the project is finished. It should also set guidelines for communication, how to handle system downtimes or any other foreseeable issue that comes as a result of managing a transition at your organization.
Laurie McCabe, Cofounder and Partner at SMB Group, offers her insight on how to create a successful implementation plan:
Make sure you have a very clear contractual agreement with the vendor so you understand what your contract includes in terms of solutions and support — and what it doesn’t. Know how long implementations similar to your own take so that you’ll create a realistic timeline. Determine your top goals, and stay on track to get the solution fully operational to address these first, instead of trying to cover too much ground at once. Get input from the people that are going to be using the solution early on the process. Identify the most important KPIs for these areas upfront, and create the reports you need to measure how well you’re doing as the company becomes productive with the system. At the same time, you should also develop a roadmap for the next set of priorities and make sure that as you roll out new functionality, it works well with what you’ve already deployed.”
This is a great overview of items to consider when creating your implementation plan. Next, we’re going to get a little more technical.
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Another choice you need to make at this point is whether you’d like to do an agile or waterfall method for the implementation. You can compare the two methods here. Below, Dozer explains why he favors the traditional waterfall approach:
One of the recent trends is the touting of using Agile for the implementation of ERP. In my career, I’ve worked on hundreds of ERP implementations. But I also spent time as the Product Manager for a tier 2 ERP, and in my time there I worked with the development team to switch from a traditional waterfall methodology to using Agile. So I have some experience in both arenas.
My concern with this trend in the implementation space is that it’s being thrown around more as a buzzword and marketing tactic by firms to try to give the illusion that it’s going to make the process easier than it really is. And I feel like that is just setting businesses up for failure.
Implementing a new ERP is comparable to building a house. You need to have a floorplan, then dig a hole, pour a foundation, frame it, run electrical etc… Implementing an ERP isn’t any different. I don’t see telling a homebuyer to set a minimal viable product for the move-in date and then you’ll try to work in any smaller features as time permits. You shouldn’t do that with an ERP implementation either. If something like having all your product routings set up for manufacturing is important, then it’s important and needs to be done. That’s not to say that Kanban or SCRUM can’t be used as tools to implement ERP, but that’s not 100% agile. On the other hand, post-go-live I think Agile is a creative way to manage your continuous improvement initiatives as it is flexible and lets you work in new features and functionality when it makes the most sense.”
We’ve compared ERP implementation to planning a wedding and Dozer has compared it to building a house. Notice a theme yet? A well-thought-out plan is critical for success, but our next step, budgeting, is of equal importance.
It’s time to confront the dreaded question: how much does an ERP cost? According to a 2019 ERP Project Report, the average budget per user is $7,200.
However, ERP implementations are famous for going over budget. To prevent going over-budget, When you arrive at a number you’re comfortable with, it’s wise to go a little bit higher. That’s because ERP implementations are at risk of a myriad of hidden or unforeseen costs, such as maintenance issues or overtime pay for employees.
McCabe provides some examples of common hidden costs that you could run into:
Sometimes people do a good job of accounting for all of the hard costs associated with deploying ERP, but neglect or underestimate the soft costs — such as the time and resources involved in determining if how you need to change your existing business processes to get the best outcomes with the new solutions and training to get users productive on the new system. Unfortunately, there are also too many instances where ERP buyers believe that functionality that they thought were included in the contract turn out not to be.”
But hidden costs aren’t the sole culprit for exceeding your ERP implementation budget.
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Lisa Anderson, Founder and President at LMA Consulting Group, explains the importance of setting a healthy budget.
Undoubtedly, 90% [or more] of ERP projects go over budget. I always warn clients of the assumptions that go into the ERP budget because it is the assumptions that change … We estimate at least 20% more conservatively than the most conservative estimate, and it is typically still challenging to stick to the budget.
The problem is whether the client is willing to accept what will occur upfront. Thus, we have the conservations upfront and recommend budgets but inevitably, if the client budgets less than recommended, they will call later with these concerns.
Beyond the scope of what the client thinks they will do versus the ERP supplier, the other items that pop up include additional time spent on data, reviewing design decisions (setups/ configurations for how they will work best to deliver key business requirements) and additional process support (aligning the people, process and systems).
Unfortunately, some clients do not think they can afford to invest in process support upfront; however, they end up investing more by not planning for this upfront. It is a tough situation because it is an expensive proposition; however, since it will dictate your business success for years to come, we recommend taking the conservative approach and invest additional upfront so that you are one of the select few to succeed.”
Take it from the experts: when it comes to your ERP implementation budget, you should hope for the best and plan for the worst.
Congratulations! You’ve made it to the data migration step. It’s finally time to put that carefully devised ERP implementation plan into action.
Data is the backbone of every ERP system. With that being said, data migration requires you to be meticulous. Mistakes made at this point can lead to serious consequences down the road of your implementation or post-go-live. For example, data issues can lead to misinformation concerning your available inventory. Incorrect inventory data can disrupt your supply chain, decrease your customer satisfaction and more.
The data migration period is often when implementations fail or go over budget. In fact, Shelly Gore, CEO and Co-founder at A Bigger View, says data migration is one of those pesky ‘hidden costs’.
“The biggest ‘hidden costs’ I have seen in ERP projects is underestimated the need for data clean up and transformation. Too often an organization will try to make their new ERP system fit their old data and processes. Be brave and archive as much as possible to avoid this cost.”
As Gore mentioned, you should do a ‘spring cleaning’ of your data to get rid of duplicates and any information you don’t need anymore. Data clean up and migration is known to be a mundane task that can become very complicated. Oftentimes, organizations hire a data scientist or a professional to assist in the process – especially when they don’t have an IT team or they know their data is a mess.
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At this point in the implementation process, it’s time to start training the end-users (if you haven’t already).
We’re going to caution you on implementation failure one last time; if users aren’t properly trained on how to use the system, the whole project and your efforts will have been pointless. Poor training will likely lead to a delayed implementation failure that slowly reveals itself over time, with users never becoming fully adept to the system.The same risks are posed for those who don’t continue training post-live; ERP software is complex, and any system upgrades will certainly require additional education.
Anderson emphasizes the importance of holistic user training:
One of the most important items to consider is whether your users understand how the system fits in with their day-to-day tasks. Going live is much more than knowing how to enter a purchase order or a sales order. Instead, it is knowing how to handle daily situations that arise . . . In many situations, so much money is spent that the project team strongarms users by saying they are “resistant to change” or that they must follow “best practice” when the reality is that they don’t understand how they will perform a vital part of their responsibilities. Then on go-live, it all blows up because the user was right.”
Unfortunately, user training isn’t usually straightforward. Customized, role-based training that works with the individuals’ learning needs is the best way to ensure that users will truly understand how to leverage your ERP system. This requires some evaluation of the end-users to properly execute.
There are several different courses you could take in your training method. Many software vendors offer training programs, from in-person sessions to e-learning webinars. If offered, training programs can be an additional cost or an included tool. This is something that you should discuss with potential vendors during your software selection process.
Alternatively, you could take the train-the-trainer route, but Anderson says it won’t work as a standalone training method:
. . . If you are assuming that your core team will follow a train-the-trainer approach, it is probably unrealistic. Although every project team wants to use train-the-trainer, it isn’t a realistic goal for 100% of the process. The devil is in the details, and they will require additional deep dives to determine how to use the system to meet the specific business requirements. In our ERP selection projects, we refuse to estimate with 100% train-the-trainer because we know it is unrealistic . . .”
In summary, a combination of various methods is the most effective and convenient approach to end-user training. You’ll need to assess your organization to decide what that combination will be.
System Testing and Go-Live
It’s finally the day we’ve all been waiting for: your new ERP system is going live! Nevertheless, try not to get ahead of yourself, and resist the temptation to rush through this step. We still have a little more work to do.
You need to plan for system testing to run through before and after the official launch. You’ll also need to prepare your organization for system downtime. Remember: you won’t have any working software during the go-live transition.
The system test should make you feel confident that the software’s interfaces and functionalities are responsive, able to process your company data and ultimately perform according to your requirements. You should test the system using real-life scenarios, and ensure that your integrations connect properly. Don’t forget to include the end-users in this step.
When it comes to the official launch or system deployment, you have a couple of methods to choose from. The most popular are big bang and phased approaches. Consistent with other guidance in this article, it’s advised to take the phased approach, which allows you to deploy the system one step at a time.
Gore asserts that point, “An ERP plan should be phased wherever possible. Too often there is an assumption that one big cutover is necessary — like a light switch turning on. It is much better to have small, measurable successes that build confidence within the organization for next steps.”
Not so fast – the ERP implementation process doesn’t end when the system is live. Yes, you now have a functioning ERP system, but you should confirm that it’s working. Post-Go-Live tasks, such as the following, can ensure you’ve completed a successful implementation.
- Analyzing the ROI
- Evaluating employee productivity
- Checking client satisfaction
Aside from measuring the impact of your project, another post-go-live responsibility is managing maintenance and ongoing training. These tasks are instrumental in the long-term success of your ERP implementation.
Here’s some good closing news: 95% of businesses improve some or all of their processes after their ERP implementation. If you’ve made it this far, it’s highly likely that your hard work will pay off!
ERP Research and Reports
ERP implementations are a challenge that every company has their own unique experience with, but the universal first step is to gather your requirements. After that, you can use this article, with its advice from experts, mistakes to avoid and proposed steps as a guide for your journey — we hope it’ll help you!
What can you share about your own ERP implementation? Please write a comment below!
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