Improving Your Bottom Line Boosting profits with the right ERP and CRM tools

No Decision – May You Forever R.I.P. (Part 2)

In the last issue, we discussed an extremely costly syndrome that plagues many businesses, namely that of projects that get launched with great intentions and then quietly run out of steam without producing tangible results or meeting stated objectives.   I see this frequently with regard to ERP or IT projects.

Fortunately, there is plenty that can be done to avoid this wasted effort.  However it requires a significant undertaking, careful analysis, clarity and organizational resolve to see it through.  It requires lots of short and long term assumptions, as well as countless questions to be answered.  When completed and properly documented, it results in a comprehensive business case for the project.   This document is a critical tool used to justify the long term investment of organizational assets (people, time, money) to select and successfully implement an ERP system.  It also serves as the foundational rock to guide and encourage the organization to continue pressing forward through the murky process.

Several suggested steps for a successful ERP software selection process are outlined below.  Notice I said successful ERP software selection as opposed to successful ERP software review.  After all we are focusing on ways to complete the project rather than getting halfway through and aborting it.

1.  Determine to Justify.  The first thing you’re probably asking yourself is whether the formal business case justification exercise is really necessary.  After all, isn’t it common knowledge throughout the organization that the existing system is dysfunctional?  If so, then why waste time documenting what is already known?  Can’t we just get on with it and begin the shopping process?  Sure you can, but in all likelihood you will end up regretting it.  The reason is that you do not have a clear business imperative to proceed.  What I mean by that is that you must understand the short and long term business reasons for embarking on the project.  This will likely include the strategic objectives and vision of the company ownership and stakeholders.  You should also consider the organization’s track record on difficult projects, and what other competing short and long term priorities might exist.  In addition, you will need to identify the goals and benefits to be achieved, the measures to be used, and the problems to be overcome.

Conversely, if you are simply focused on certain functions that need improvement, you are looking at this more as a computer or IT project, as opposed to a critical business project.  If it’s cast primarily as an IT project, your bullets will not be nearly potent enough to slay the dragons that lie on the ERP system path.  Those dragons frequently come in the form of undesirable trade –offs, higher than anticipated costs, ambiguity and unclear outcomes. 

Having a well organized and clearly documented business case will provide strong support from management and employees when the going gets tough.  Without it you are merely relying on hope and faith to carry the day.  Based on my experience, I can tell you that faith can go out the window when the challenges start mounting.   The difficulty and risk involved in an ERP project is significant, and therefore in order to assume that risk, there must be clear and compelling reason to do so, and more importantly organizational resolve from top to bottom to succeed. 

2.  Quantify the Need for Change.  Now that you have determined the value of a thorough business case justification project, the question is how to do it.  At its most fundamental level, you are attempting to quantify the value of the benefits to be gained, versus the cost to attain those benefits.  You are examining these benefits and costs  over the perceived life of the ERP system, bearing in mind the timing of when specific costs and benefits are likely to occur.

It is admittedly difficult to determine concrete value from a new ERP system implementation.  But far better to do it now, rather than after the money is spent.  Credibility must be a critical overarching objective in the finished document.  This requires soliciting feedback from several key people and departments, while frequently erring on the conservative side in your estimates.  

Most organizations can readily identify functions in their existing ERP system that are not working well.  However, a deeper inspection will frequently reveal several events occurring in the organization that may be symptoms of a bigger problem.  For example, you may discover a chain of events similar to that illustrated below.

     profits are down

         → sales are down

               → orders are not being fulfilled

                    → excessive stock outs

                         → excessive inventory obsolescence

                              → poor demand and supply chain visibility

                                   → wrong inventory items being replenished ↑

You can see from this example that even though there are a variety of problem events taking place, the likely root cause is that the organization has poor insight relative to their demand and supply.  So they are essentially operating blind in the replenishment area and ordering too much of what they don’t need and too little of what they do.  If they could address that single issue, a number of other issues would disappear or become less of a problem. 

Make a list of all your events and then determine which seemingly unrelated events are in fact actions or reactions to another event in your list.  Being able to address and manage the root cause event more effectively with a new ERP system should yield a cascade of financial value. 

In the next issue we will look at ways to quantify the tangible and intangible financial values and benefits of your project as well as the myriad of costs that will need to be borne.