For many companies, an ERP implementation will be among the most expensive, disruptive, and risky projects they will ever undertake.
ERP software projects are costly investments that often take years to pay back. And, for an ERP implementation to be successful, a company has to commit its best and brightest to the project for 50% to 75% of their working time. For single-site mid-sized businesses, an ERP project can span five to ten months. For larger enterprises, implementations can span years.
Why Executive Sponsorship is Crucial to Your Company’s ERP Project
Many business executives aren’t prepared to assign their key functional people to an ERP project. Also, many aren’t prepared to dedicate much of their own time and effort to one.
Meanwhile, insufficient commitment can be a recipe for failure with potentially catastrophic results. According to a 2011 Harvard Business Review study of 1,500 IT projects, 17% are black swan failures with an average cost overrun of $167 million and an average schedule overrun of 70%.
A separate study from the University of Colorado at Boulder concludes that “[c]ommitment from the executive level is arguably the most important factor in information systems planning and implementation”.
So, why do so many fail treat ERP projects with the care they need? Perhaps it’s because they view ERP implementation as an IT project, and not as the business transformation project that it is.
For an ERP implementation to deliver a positive return on investment (ROI), a company must commit to making significant changes to the way it does business. Making these changes will drive efficiencies, improvements in supply-demand balance, and better decision-making.
To achieve these results, companies must change both their business processes and the organizational structures that both support and enable those processes. Transformation also requires a company’s people to upgrade their skills, shift roles, learn new systems, and follow new processes.
Once executives view ERP projects as central to business transformation, they can prioritize the project as a leading business initiative. They also are more willing to commit the significant human capital and budgetary resources that are needed to successfully implement ERP.
If executives don’t prioritize the ERP implementation, they’ll likely lose control of the project.
ERP Success Step 1: Ensure the Executive Team Is On Board with the Business Transformation
With an understanding that an ERP project drives business transformation, controlling shareholders and boards -of -directors should evaluate their company’s executive leadership. It’s crucial to ensure that the executive team fully supports this transformation.
Is the executive team stable? Is it the right group to build a new foundation that will support the company over the next 10 to 20 years? If not, key stakeholders should put a solid executive team in place before starting an ERP project.
The corporate governance group must also have confidence in the executive team’s strategic plan and supporting business models. These models will guide how the implementation teams design the system, business processes, and organizational structures.
To summarize, before ERP implementation, it’s critical for the company to have a stable executive team with a strong strategic roadmap.
ERP Success Step 2: Align the Implementation with the Business Strategy
Once the executive team is on board, the next step is to align the ERP implementation project with the corporate strategy. This step is typically performed during the project planning phase through a formal project chartering and scoping exercise. In the scope management plan, team breaks down strategic project business targets into measurable success factors (MSFs). The teams ultimately measure project performance against these MSFs.
For example, a company might have a customer-service related strategic target to achieve an 80% next-day delivery target. The associated, measurable success factors might relate to forecast accuracy, 95%+ inventory accuracy, 75%+ order management automation, and ‘x’ picks per hour. On implementation, these measurable success factors inform departmental design, business process designs, data structure, and systems designs.
To summarize, an ERP project must align with the business goals to be successful and to drive efficiencies across the corporation.
The Vital Role of the Executive Team During an ERP Implementation
Given the tight link between strategy, operations, and systems, executive leadership has an important role to play on implementation. They need to steer the project to ensure that it remains aligned with business goals. They also need to control the project through the active management of scope, risk, budget, and schedule. They do this as part of their role on an formal ERP project steering committee. Among other things, this committee should have regular meetings to review the project’s actual performance against budgets, estimates-to-complete, risks, and change requests.
In the long run, ERP project success will be judged according to whether it catalyzed or impeded business transformation. A stable, supportive executive steering committee is arguably the leading critical success factor.
But even with a strong steering committee, an ERP project remains exposed to risk.
Download The CIO’s Guide to Preventing ERP Implementation Failure to learn about six more vital success factors.