June 28, 2011 by Jonathan Gross
Canadian manufacturers and distributors are increasingly turning to ERP to help them improve their fortunes, especially in the face of low-cost foreign competition and the high Canadian dollar. Many hope that ERP – or enterprise resource planning – software will help them become more efficient, productive and profitable. Unfortunately, too many companies learn that the path to ERP-driven value is more like a labyrinth.
Together with Manufacturing AUTOMATION, we surveyed 74 Canadian manufacturers and distributors with the goal of uncovering common, key drivers of ERP success. We defined ERP success relative to implementation, because a solid implementation is the launching point of ERP-driven value. To meet our definition of success, an ERP implementation must have been delivered on time, within five percent of budget, and to a level satisfactory to all stakeholders.
Surprisingly, only 18 percent of the respondents’ implementation projects qualified as successful. These companies, the Best-in-Class, are as diverse as Canada itself. Some are discrete manufacturers; others are process manufacturers. They include multi-site companies that employ up to 500 people, and single-site companies that employ fewer than 25 people. More than 5,000 kilometres of geography separates the furthest companies.
Notwithstanding their diversity, the Best-in-Class companies shared certain common approaches or tactics to their ERP projects – ones that weren’t shared by the rest of the field. It is this collection of tactics, rather than any one in particular, that allowed the Best-in-Class companies to deliver successful ERP projects. They collectively represent the critical drivers of ERP success.
We will be detailing all of the tactics, with analysis, in the full version of our 2011 Benchmark Study: ERP in Canadian Manufacturing and Distribution. Since the study won’t be released until July of 2011, I’m giving you a sneak peek into some of the key drivers.
ERP SUCCESS: The importance of starting off on the right foot
The results of the survey clearly suggest that ERP success starts at selection (even though selection doesn’t factor into our assessment of ERP success). Poorly executed selection will probably prevent a company from achieving ERP success. In our study, there was no single case where a company went on to achieve implementation success following a failed selection endeavour. Meanwhile, only 32 percent of all selection projects succeeded. So, it seems that 68 percent of the companies’ implementation projects were destined to fail before implementation had even started.
ERP SELECTION: Success demands more than mere software evaluation
What do companies have to do to drive ERP selection success? First, they need to understand that they’re selecting more than mere software. Those who limit selection efforts to the software itself are setting themselves up for failure. The companies that only assessed software functionality succeeded at selection a mere 14 percent of the time. And, in no case did any of those companies go on to achieve overall ERP success.
Software functionality is but one piece of a much larger puzzle. ERP success also depends on the quality of implementation, support and product development (among other things). Best-in-Class companies understood this and were 36.5 percent more likely to evaluate vendors across other dimensions.
The key take-away is that companies can greatly increase their prospects of success if they evaluate all of the various components of their purchase. For example, if a company is buying an on-premise solution, it might want to evaluate software functionality, implementation services, vendor support and the development path, at a minimum. If a company is buying a SaaS or hosted solution, it might want to add security and reliability to the evaluation mix.
Here’s a final note relating to selection: Companies need to set appropriate time expectations. Effective due diligence can take several months. Seventy-five percent of Best-in-Class companies took seven months or more to complete their selection projects. In my experience, this is a pretty reasonable period, particularly for mid-sized and large organizations. Smaller companies with simpler businesses, though, should be able to complete selection within shorter timeframes.
ERP IMPLEMENTATION: Define, target and drive success
If selection is about analysis, implementation is about execution. To execute well, companies need to identify their targets, set their sights on those targets and hit them dead-on.
The first step is to define what the ultimate target – i.e., overall project success – looks like. Best-in-Class companies do this far better: 75 percent of these companies – compared to roughly 25 percent of the rest of the field – used objective metrics to define a successful outcome.
These companies, however, don’t just stop once they’ve defined ultimate success. They embed a culture of success and measurement into all facets of their projects. For example, 75 percent of Best-in-Class companies – compared to just 43 percent of the rest of the field – allocated measurable success factors to each project phase. They were always striving for success, and they always knew whether they were on target. And, to the extent that they deviated from their charted course, they were in good positions to take corrective action to get back on track.
For the Best-in-Class, success involved more than just targeting projected outcomes; it also involved significant risk mitigation. These companies were more thorough, risk averse and controlling than the rest of the field. For example, they were far more likely to put their new systems and business processes through rigorous testing before going live. A full 100 percent of these companies tested all or almost all of the new business processes in the new systems. In contrast, 50 percent of the rest of the field did little or no testing. So, while the Best-in-Class knew that their systems would allow them to ship product, 50 percent of the rest of the field gambled that their systems would allow them to do so.
Testing is only one component of what separates successful implementation projects from the others. Team formation, training and project sponsorship are examples of other key drivers of ERP success. Stay tuned for our full report, 2011 Benchmark Study: ERP in Canadian Manufacturing and Distribution, to be released in July. We will be covering each and every one of the key drivers. We’ll also be providing analysis and case studies.
In the meantime, remember that ERP success is within the reach of all Canadian manufacturers and distributors. To get there, you need to zero in on success and never let it out of your sights.
Jonathan Gross is vice-president of Pemeco, Inc., a consulting firm specializing in ERP selection and implementation. He can be reached at firstname.lastname@example.org. He regularly comments on ERP trends for Manufacturing AUTOMATION.