ERP IMPLEMENTATION CHALLENGES

This report studies the different challenges posed during ERP implementation and attempts to come up with an ERP implementation roadmap which can address the challenges. It also discusses when it is better for businesses not to consider ERP as a solution to their integration problems.

How businesses can overcome ERP challenges

Author Arnab Dey | Nupur Pachauri

Table of Contents
1 2 3 Introduction ............................................................................................................................................................... 3 Need of ERP in todays Business........................................................................................................................... 3 ERP implementation concerns & challenges....................................................................................................... 4 3.1 3.2 3.3 3.4 4 Management Commitment ........................................................................................................................... 4 ERP Integration ................................................................................................................................................ 4 Implementation Time & Costs ..................................................................................................................... 5 Business process Reengineering .................................................................................................................. 5

ERP implementation Roadmap .............................................................................................................................. 5 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 Define organization objectives ..................................................................................................................... 8 Business process Study .................................................................................................................................. 8 Need Analysis ................................................................................................................................................... 8 Selecting & Assessing the ERP software .................................................................................................... 8 GAP Analysis .................................................................................................................................................... 9 Business process reengineering ................................................................................................................... 9 System Design .................................................................................................................................................. 9 Defining the implementation team .............................................................................................................. 9 Identifying and creating data ......................................................................................................................... 9 Infrastructure preparation............................................................................................................................. 9 ERP Software deployment ........................................................................................................................... 10 Testing.............................................................................................................................................................. 10 Training ............................................................................................................................................................ 10 Post Implementation ..................................................................................................................................... 10

Examples of ERP Implementation failures ......................................................................................................... 11 5.1 5.2 Nike .................................................................................................................................................................. 11 Hershey............................................................................................................................................................ 11

ERP Implementation Challenges

6 7

ERP Is it always beneficial? ................................................................................................................................ 12 References ................................................................................................................................................................ 13

ERP Implementation Challenges

1 Introduction
An ERP package is so complex and vast that it takes several years and millions of dollars to roll it out. It also requires many far-flung outposts of a company to follow exactly the same business processes. In fact, implementing any integrated ERP solution is not as much a technological exercise but an "organizational revolution." Extensive preparation before implementation is the key to success. Implementations carried out without patience and careful planning will turn out to be corporate root canals, not competitive advantage. Several issues must be addressed when dealing with a vast ERP system. This report discusses the various issues faced during ERP implementation.

2 Need of ERP in todays Business

ERP programs have become hugely popular due to the increasing trend towards globalization, mergers and acquisitions, short product life cycles, and the fear of looming disasters from aging legacy systems. To be successful, a global enterprise must have accurate real-time information to control and coordinate the resources. ERP systems have the capability to integrate far-flung locations of a company along with their supply-chain activities. This integration allows sharing of information in a standard format across the organizations, crossing geographical and cultural boundaries. Achieving synergy post mergers & acquisitions is a big challenge for todays organizations. To achieve synergy across national boundaries and product lines, the businesses must implement a set of standard business applications and consistent data across all business units. ERP packages are extremely useful in integrating a global company and provide a "common language" throughout the company. ERP solutions also play an important role in helping companies get rid of their legacy systems.

ERP Implementation Challenges

3 ERP implementation concerns & challenges

A study across various organizations that have tried to implement ERP but could not make it a successful venture shows that the failures arise out of some typical group of factors. This section explores the major concerns affecting the ERP implementation process in detail and serves as a basic foundation to build an effective implementation roadmap.

3.1 Management Commitment

The biggest mistake that organizations make is when they fail to understand the business implication of ERP and hand over the entire implementation responsibility to technology department. The top management often thinks that their only responsibility is to fund the project. They fail to understand that implementing an ERP system is not a matter of changing software systems; rather it is a matter of repositioning the company and transforming the business practices. ERP implementation is about people, not processes or technology. An organization goes through a major transformation; many parts of the business that used to work in silos now have to be tightly integrated for ERP to work effectively. Top management fails to lead this initiative as a major change, which requires them to constantly monitor the progress of the project and provide direction to the implementation teams.

3.2 ERP Integration

There is a strong trend towards a single ERP solution for an entire company. Most companies feel that having a single vendor means a "common view" necessary to serve their customers efficiently and the ease of maintaining the system in future. Unfortunately, no single application can do everything a company needs. Business should decide the degree of integration that it desires from the ERP into its existing systems. This becomes a critical factor since the choice of implementing a tighter integration over normal integration will impact the way in which business operates. E.g. Before integration, the functional departments used work in silos and were slow to experience the consequences of the mistakes other departments committed. The information flow was rather slow, and the departments that made the mistakes had ample time to correct them before the errors started affecting the other departments. However, with tight integration the ripple effect of mistakes made in one part of the business unit passes onto the other departments in real time. Also, the original mistakes get magnified as they flow through the value chain of the company.

ERP Implementation Challenges

3.3 Implementation Time & Costs

The flexibility with ERP systems is that they come in modules which organizations the choice to implement it as they need. Todays ERP systems like SAP R/3 provide a gamut of customizations to meet the needs of the business. However there is a flipside to this choice of fully customizing the ERP solution for the organization. The more customization needed, the longer it will take to roll the software out and the more it will cost to keep it up-to-date. The length of time could be cut down by keeping the system "plain vanilla" and reducing the number of bolt-on application packages that require custom interfaces with the ERP system. The downside to this "plain vanilla" approach is conforming to the system's mold, which may or may not completely match the requirements of the business. Hence it becomes an important decision to define the tradeoff between the degree of customization and costs at the beginning of the project. Any miscalculation at this stage will leads to huge cost overruns.

3.4 Business process Reengineering

Most of the ERP systems are built around the best practices that are followed in the industry. Implementing an ERP system involves reengineering the existing business processes to the best business process standard. One major benefit of ERP comes from reengineering the company's existing way of doing business. All the processes in a company must conform to the ERP model. The cost and benefits of aligning with an ERP model could be very high. Sometimes business processes are so unique that they need to be preserved, and appropriate steps need to be taken to customize those business processes. It is very critical to decide the degree of reengineering that the organization is willing to do. Overengineering may lead to disruption in business as usual and under-engineering will not allow harnessing the full power of ERP.

4 ERP implementation Roadmap

A successful implementation of an ERP system can provide a gamut of benefits to the organization by standardizing the process and improve operational efficiency. However implementing ERP is often accompanied with many challenges, most of which can be attributed to lack of clear understanding of the existing business processes and improper definition of business needs. To avoid such issues during implementation is becomes imperative to define a robust ERP implementation roadmap which details all the steps required for a successful implementation. It will be 5

ERP Implementation Challenges

shown later that all the ERP implementation failures in todays business are due to lack of emphasis given to one or more of the steps in the implementation roadmap. To navigate through the long and intricate process of ERP implementation, the below navigation stages are defined

ERP Implementation Challenges

These high level structured stages are further expanded into more controllable discrete actions steps called the life cycle stages of ERP implementation.

ERP Implementation Challenges

The following are the steps involved in completing the lifecycle.

4.1 Define organization objectives

The first step is to define the company objective, targets and making these known and recognized throughout the entire company. It is also important to define the manner in which the company management is involved in the project and the speed of decision making. Due to enormous impact on the competitive advantage of the company, top management must consider the strategic implications of implementing an ERP solution. Below are some of the questions which can help the management team to define the objectives. 1. Does the ERP system strengthen the company's competitive position? 2. How might ERP erode the company's competitive position? 3. How does ERP affect the organizational structure and the culture? 4. Scope of the ERP implementation, a few functional units or the entire organization? 5. What are the alternatives that meet the company's needs better than an ERP system? 6. For multinational companies Is it would be better to roll the system out globally or restrict it to certain regional units? A well-defined, well-communicated organizational objective and the commitment from top management is the foundation for a successful implementation.

4.2 Business process Study

In this stage the company studies the existing business processes and tries to find the link between them. Objective of all the major processes are clearly defined by the existing operations team, which leads to the creation of process maps for the entire business.

4.3 Need Analysis

This stage helps the organization to understand the need of ERP software and what benefits the new system can bring. Cost benefit analysis is also performed to check the feasibility of ERP implementation.

4.4 Selecting & Assessing the ERP software

Based on the outputs from the previous stage of analyzing needs, budget, features and service levels a bunch of ERP software packages are selected. A team of Experts with specialized knowledge in their respective field is asked to make the study on the basis of various parameters. Each expert will not only test and certify if the package is apt for the range of application in their field but also confirm the level of

ERP Implementation Challenges

coordination, i.e synergy that the software will help to achieve in working with other departments.

4.5 GAP Analysis

It provides the difference between the requirements of the company and the standard capabilities offered by the ERP software. Once the GAPs are identified decisions are taken fill the gaps. Two choices can arise during this analysis; one is business process reengineering where we restructure the business process in order to align with the existing functionality of the native ERP software. Other is to make alterations in the features provided by the ERP software to match the existing business process. A appropriate cost benefit analysis is performed for each decision set to find the most feasible solution to fill each gap.

4.6 Business process reengineering

This is characterized by the changes in business process required to map to the functionalities of the native ERP software.

4.7 System Design

This step requires lot of meticulous planning and deliberate action. Here the aspects of the ERP software is tweaked and changed in order to match the business processes which are not feasible to reengineer.

4.8 Defining the implementation team

At this stage the implementation team is defined which will carry on with the full implementation of the ERP software. Project timelines, roles and responsibilities are defined here. This team holds the key to successful implementation and hence must be chosen carefully.

4.9 Identifying and creating data

The master data is identified, and is created as the company databases are moved to the new system. This is a crucial stage which requires careful handling because it can cause data errors in later stage. Decision is taken to migrate or not the archive data.

4.10 Infrastructure preparation

All the IT infrastructure and hardware required for the implementation is arranged and sanity check is performed

ERP Implementation Challenges

4.11 ERP Software deployment

During this phase the software is implemented, module wise across all the departments.

4.12 Testing
The ERP software is tested for the integrity, scalability and robustness with the new data. System is also subjected to stress testing that ensures proper usage and justifies the cost incurred.

4.13 Training
The employees in the organization are trained to make use of the system in the day to day and regular basis so as to make sure that it becomes a part of the system in the organization. Users are trained on the functionalities of the new ERP system. Detailed documentation and help files are shared in this stage.

4.14 Post Implementation

The process of implementation will be useful only when there is regular follow up and proper instruction flow thereafter and through the lifetime of ERP. This will include all efforts and steps taken to update and attain better benefits once the system is implemented. Hence an organization has to perform ERP implementation safely and correctly.

ERP Implementation Challenges

10

5 Examples of ERP Implementation failures

5.1 Nike
In 2000, Nike made a bold move by coming up with a risky and difficult strategy of creating a single, giant, integrated database within its SAP ERP system for every employee in each department in North America and EMEA. This meant getting everyone to agree on business practices and common data definitions before the software went in production. The glitch faced during the ERP implementation project was while implementing and integrating i2 Demand-pulling software, which cost Nike more than $100 million in lost sales, depressed its stock price by 20 percent, and triggered a flurry of class-action lawsuits. Reasons for failure:1) Absence of Business Process Study: There was a huge discrepancy between the concept behind the demand-planning software and Nikes Business Model and processes. 2) Ineffective Testing: The implemented system was too slow and the components did not integrate too well. 3) Inadequate Training: Nikes planners, the end-users of the system, were inadequately trained in how to use the system before it went live The software problem was closely tied to a core business process, i.e. factory orders. The glitch, which was created due to not following the roadmap, as suggested in the report, sent a ripple through product delivery system that eventually grew into a wave crashing on the balance sheet.

5.2 Hershey
When Hershey decided to upgrade its Information systems to SAP R/3 4.6, the company and its executives did not realize the problems they would face with its new order-taking and distribution computer system - a $112 million combination of software from ERP maker SAP, CRM provider Siebel and supply chain software from Manugistics. This issue kept Hershey from delivering $100 million worth of Kisses and Jolly Ranchers for Halloween in 1999, when the problem started. Eventually, Hershey sought help from Accenture and SAP to help its IT teams to complete the R/3 implementation. Back in 1999, of course, it was a terrifying new prospect for investors to consider: Could a failed computer project take down a Fortune 500 company? Hersheys stock price fell more than 8 percent on

ERP Implementation Challenges

11

that September day, and the computer system mystery made the front page of The Wall Street Journal. Reasons for failure:System Design and testing failure: The ERP system was not designed to take high load, and it went live right about the time when orders were pouring in for Halloween. The system could not handle such high load of data and thus, the orders could not be fulfilled.

6 ERP Is it always beneficial?

As discussed above, a successful implementation of ERP can be achieved by following the suggested roadmap. However, ERP implementation failures do not always stem from not following the roadmap. Sometimes there can be cases wherein implementing ERP might not be a good idea in the first place itself. Few cases, where implementing ERP might not be beneficial, are discussed below1. Business Processes and ERP solution cannot be synced In certain situations, the modules and Business Processes of a company are so uniquely designed that it becomes difficult to tweak either the existing processes or the standard ERP solution to sync with each other. In such a case, ERP implementation can be disastrous. 2. ERP will not result in desired output The purpose behind ERP implementation should be clear before proceeding with the project. It is possible that ERP is being implemented for a company with the aim to reduce cost, but to make that implementation work, the company might have to change many other dependent entities within the company. The cost of this change might be higher than what is expected to be saved by ERP implementation. In such a case, cost reduction logic does not work for ERP implementation. 3. Modules and Processes cannot be integrated The customer requesting for ERP implementation might not enjoy tighter control in each of its functions or departments. ERP results in integrated and transparent system, which can conflict with the way of working of the target company. In such a case, not only does implementation become difficult, but employees also will not be keen to learn the new processes. 4. External parties are not willing to adapt Most of the companies have collaborations with external parties (vendors, customers, process partners, etc) which might not be willing to adapt to the new system or which might have

ERP Implementation Challenges

12

conflicting policies and processes. In such a case, decision to implement ERP will not be feasible.

7 References
http://carl.sandiego.edu/gba573/ Appleton, E., "How to Survive ERP," Datamation, October 9, 1998. Davenport, T., "Putting the Enterprise into the Enterprise System," Harvard Business Review, July August 1998, Vol. 76, No. 4, pp. 121-131. Edwards, J., "Expanding the Boundaries of ERP," CIO, July 1, 1998. Stedman, C., "Global ERP Rollouts Present Cross-Border Problems," Computerworld, Vol. 32, No. 47, November 1998, p. 10. Sweat, J., "ERP -- Enterprise Application Suites are Becoming a Focal Point of Business and Technology Planning, InformationWeek, No. 704, October 26, 1998. www.cio.com

ERP Implementation Challenges

13