Critical Success Factors

Critical Issues Affecting an Implementation

Bingi, Godla & Sharma
Information Management Systems
Summer 1998

Facts
ERP S/W market - fastest growing market
in the s/w industry
Companies spend hundreds of millions of
dollars and years to implement
Implementation calls for massive change
which needs to be carefully managed
Once implemented very difficult to undo
the changes brought about by ERP

ERP S/W is like cement you

can pour it to look like anything
you want, but once it dries,
youre stuck with it

Failures
Foxmeyer Drug
A $5 million drug distributor
Went bankrupt and filed a case against SAP

Unisource Worldwide, Inc

A $7 billion distributor of paper products
Lost $168 million due to abandoned nationwide
implementation of SAP

Dow Chemical
Spent half a million dollars and 7 years implementing
SAP R/2
Abandoned and implemented SAP R/3

Therefore
Implementation has to be a careful
exercise in
Strategic thinking
Precision planning
Negotiations with departments and divisions

Before implementation, some issues to be

carefully considered to ensure smooth
rollout and realisation of benefits

Critical Issues

Top Management Commitment

Reengineering
Integration
ERP Consultants
Implementation time
Implementation costs
ERP Vendors
Selecting the right employees
Training the employees
Employee morale

Top Management Commitment

ERP implementation calls for repositioning the
company and transforming business practices.
Management commitment a must
Management must ask
Does ERP strengthen the companys competitive
position?
Would it erode companys competitive position?
How will it affect organisational structure and culture?
What is its scope-a few functional units or the entire
organisation?
Any alternatives to meet companys needs?
If a multinational company, should rollout be regional
or global?

Top Management Commitment

Management should be involved every
step of the way
Should never be left to the technology
department
Management should not only fund but
take the lead in change management
Success hinges on strong management
commitment

Reengineering
Implementation involves reengineering
ERP comes with best practices
Cost and benefits of aligning with ERP model high
especially if rollout is global

Difficult to get everyone to agree to the same

process
Some processes unique and need to be
preserved and ERP customised to meet the need
Hydro Agri North America Inc. implemented SAP R/3
in 1994 - struggling as some unique processes lost
Decided to either build a new front end or use a
different package

Reengineering
Research shows that even the best
package meets only 70% of the needs of
a company
Rest
Change to conform to ERP
Customise to suit your needs
High customisation, high costs of maintenance and
upgradation

Be unconcerned

Integration
Ideal situation
Single ERP from one vendor for whole
organisation
Common view and ease of maintenance

Reality
No single application meets all requirements
Companies to use specialised software products to
meet their unique needs Bolt-ons
Bolt-Ons Additions to ERP offered by third-party
vendors for specialized functionality
May choose to implement all modules from one
vendor or select modules from different vendors
and integrate (best of breed)

Single Vendor versus Best of Breed

Best of Breed Select modules from different
ERP vendors (as well as non-ERP systems) that
meet specific needs in each area and integrate
Would have once been impossible, but vendors
are developing excellent integration solutions
Weakness Time consuming to develop and
update
Strength Strategic value

Integration
Bolt-ons and home grown solutions to be integrated to
ERP suite where ERP behaves like the backbone.
Third party s/w middleware used to integrate these
bolt-ons
Unfortunately middleware available only for some
popular packages
So companies develop their own interface for these applications
Problems with maintenance and upgrades and can be very costly

Recommendation
When going in for bolt-ons consult ERP vendor for certified third
party vendors
This guarantees maintenance and upgrade support

ERP Consultants
Shortage of skilled and competent people
Main challenge
Finding the right people
Multiskilled implementation demands many skills
Functional
Technical
Interpersonal

Keeping them till the implementation is done

Lack of good people
Fee charged very high
Average annual salary for a SAP consultant
UK:?
USA: ?
India: ?

Implementation Time
Implementation can be attempted in one of many
methods
Phase-in
ERP systems can be purchased in modules which can be
implemented independent of each other

Big Bang

Time could be between 6 weeks to 6 years

Depends on
Number of modules being implemented
Scope of the implementation (different functional units
or across multiple units spread out globally)
Level/extent of customisation
More customisation, more time, more cost

Number of interfaces with other applications

Implementation Time
Reduction in implementation time possible
Use plain vanilla option
Get into the mould provided by the ERP system
May or may not match business requirements

Reduce the number of bolt-on applications

Main focus of vendors today

Implementation Costs
Costs here depend on
Degree of customisation
Time
Cost of consultants

To reduce costs
In-house SAP trained technologists
Good choice
But after training difficult to retain them
Good retention strategies to be put in place

ERP Vendors
Choice of vendor to be made with inputs from top
management
Management should check

Financial status
Market focus of vendor
Track record with customers
Vision for the future
Product features/suitability
Service partners
Availability of same version of s/w in all countries and
presence of vendor and skilled manpower in other
countries ( in case of global roll out)

Selecting the Right Employees

Often companies dont realise the impact of
choosing internal people with the right skill set
Core team should consist of best people
Should be experts in companys processes and aware
of best business practices in the industry
Should have a good understanding of the overall
needs of the company and guide the project efforts in
the right direction
Lack of this, major reason for failure

Selecting the Right Employees

Most consulting firms provide guidelines
on selection of internal resources
Should be undertaken as a serious
exercise by companies
Due to complexities in the day to day
running of the organisation, functional
departments may not wish to part with
their best resources for the ERP project
But needed considering the critical step ERP
implementation is for the organisations future

Training Employees
Major challenge
People-a hidden cost
Without training 30-40% of front-line workers will
not be able to handle the new system
With ERP, each person will be playing a more
important decision making role than earlier
Some decisions being made by managers, now
made by front line staff
Role needs to be clearly understood
Need to understand how their data affects the rest of
the company

Training Employees
Not as easy as training in Excel
Errors have a cascading effect and cannot be
easily corrected
ERP calls for rigorous training as systems highly
complex
Needs to be continuous rather than one time
Ideal to call a trainer who
Understands working of the system and the roles of
workers and teaches how to do business with ERP
Helps employees to understand their new roles and
overcome phobias if any

Employee morale
ERP implementation calls for long working hours
20 hours a day, seven days a week including holidays
Experience gained invaluable

25 to 50% time spent on regular job duties

Very stressful
Some things would help
Need for leadership from top management
Caring attitude from project managers
Field trips etc.

Post Implementation
Not time for organisations to sit back and
relax
Time now to carefully monitor the working
of the ERP system and document the
benefits
Look for
Improved morale of the workforce
This cascades into increased productivity and better
customer response

Better ROI
Well managed ERP ROI as high as 200%
Poorly managed ERP project ROI as low as 25%

Coming up Next

ERP Lifecycle
Project and Change Management
ERP and Related Technologies
Current and Future Trends
ERP and SMEs