09 November 2009

The New ERP - Part 2

So, what's wrong with traditional approaches to ERP? Why do so many ERP implementations lead to disappointing results? Why do so many companies spend so much money on new technologies and then end up reaping so little return on their investment?

Failure No. 1: Not achieving the planned return on investment (ROI)
It remains today a regrettable fact that many small to mid-sized companies considering new technologies have only the vaguest of notions about the ROI that their new investment should deliver. This is not to say that executives and managers haven't thought out ROI, or even that they may not have already "pinned a number" on the ROI that they'd like to see from the expenditure of their time, energy and money.

What they do not know -- far too frequently -- is precisely how the new technology will deliver results. They have not tied the expected results to specific improvements in Throughput, specific reductions in Investment, or specific savings in Operating Expenses. Rather, there appears to be a general consensus among executives and managers -- despite considerable evidence to the contrary -- that investments in information technologies (IT) sort of auto-magically deliver a return on investment (ROI). That, somehow, IT and automation investments bear an inherent capacity to make the company better and more profitable.

Over the more than 25 years that I have been working with IT from both sides of the desk -- as an executive and as a consultant -- there have been fewer than a handful of companies with which I have worked that actually calculated an ROI for their investment in technology. Fewer still had any measurable objectives for specific IT investments beyond some number clearly picked from the air like "increase revenues by 5%" or "cut manufacturing costs by 7%." Almost none of these firms could tie specific technology functional deployments to the expected ROI.

Given these facts, it is no wonder that traditional ERP (Everything Replacement Project) fails to deliver ROI. The executives and managers deploying the new ERP have not based their ROI expectations on much more than "gut feelings" and some vague sense that having more data will make them better managers.

Failure No. 2: "Go-live" delayed inordinately
Substantial delays to "go-live" in Everything Replacement Projects (traditional ERP) are generally attributable to one or more of the following factors:
  • Poor decisions related to customizations or modifications -- when they are selected; how the program code is designed, developed and managed; and the methods chosen for testing and deployment

  • Executive management's improper view of the goals and objectives of a valid ERP project -- thus leading to out-of-control scope creep, usually with absolutely no correlation to project ROI

  • The organization being overwhelmed by an Everything Replacement Project -- rather than being focused on leveraging specific technologies for the benefit of the "system" (i.e., the organization) as a whole
[To be continued]

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