09 February 2010

The New ERP – Part 40

We are continuing our discussion of Sue Bergamo's article entitled "Is Your Implementation in Trouble?" Bergamo listed seven "high level categories [in troubled ERP implementations]…. in the order from the highest to lowest number of responses" from her informal LinkedIn survey. Here is her list:

  1. A misconception of business expectations
  2. The lack of top level leadership involvement in the project
  3. Business processes were not correctly redefined and continued to be inefficient
  4. The impact of the organizational change was not addressed properly and caused a major upheaval in the company
  5. The vendor wasn't managed correctly and over-promised, then under delivered [sic]
  6. Project management was weak and over-customizations lead to increased scope and time
  7. The integration of diverse applications was harder than anyone expected
    (Bergamo 2010)
In the process of our reveiw we are drilling-down on Bergamo's symptoms list and setting them in the context of the New ERP – Extended Readiness for Profit while contrasting them with traditional ERP – Everything Replacement Projects to see if using the New ERP approach would have mitigated the failures.

5. The vendor wasn't managed correctly and over-promised, then under delivered
This exposes another important advantage of the New ERP – Extended Readiness for Profit over traditional ERP – Everything Replacement Projects: namely, that the New ERP takes several specific steps to minimize such an occurrence –

Traditional ERP – Everything Replacement Project
The New ERP – Extended Readiness for Profit
Since the vendor in a traditional ERP project is going to touch so many facets and functions in the enterprise, this fact allows the vendor great latitude to make promises about the benefits and gains to be made without ever declaring the specifics about those gains. The benefits to the organization are frequently stated so broadly as to remain essentially without a corresponding metric for evaluation.The New ERP, in contrast, requires that the executive and management team of the organization determine in advance the three critical matters we have already mentioned several times:

  1. What needs to change – That is, to identify what very specific functions in the enterprise are keeping the firm from achieving its goal of making more money tomorrow than it is making today.
  2. What the change should look like – The management team must determine in advance what the changes in the specific functions (identified in item 1 above) should look like in order to assure that, after the change is made, the enterprise will, in fact – or with a very high probability – make more money tomorrow than it is making today. This should be measurable in some manner. We have previously used the example (see earlier portions in this series) of an increase in the number of orders that could be picked, packed and shipped with the same number of personnel working in the warehouse.
  3. How to effect the change – This is the one area in which the technology vendor may play a part. They may offer suggestions about which technologies to apply and how these technologies should deployed to achieve the greatest effect.

Note that if this approach is taken, the management team of the buying organization is setting the specific performance standards expected. This leaves little room for the vendor to exercise his "bragging rights" and thus "over-promise." The vendor either can meet (or exceed) the stated standard or performance, or it cannot. It is as simple as that.
In most cases where traditional ERP is undertaken, there is no up-front establishment of performance standards with the vendor. And, of course, in the absence of a specific and measurable standard, how can one effectively "manage" the vendor. By what measure are you managing them?

If the traditional "project success" standards are applied (i.e., on-time, within the budget, and of acceptable quality) then, I suppose, you can count your project a success. However, if that "success" does not result in your company's ability to make more money tomorrow than it is making today – if there is no measurable R.O.I. (return on investment), then that is a hollow victory indeed.
Since the New ERP
begins with the executive management team establishing and articulating clearly to the vendors the measurable results expected from them, then "good management" of the vendors means achieving those results that have been predetermined to deliver increased Throughput, reduced Inventories or demands for new investment, and/or lower Operating Expenses while sustaining significant growth.

Such an approach greatly reduces the likelihood that a vendor will be incorrectly managed.
Most traditional ERP projects include "demonstrations" of the software. In many cases, such demonstrations are even carefully scripted. However, if you look at the section of this series that references product demonstrations, you will see that product demonstrations rarely constitute proof of concept tightly focused around metrics correlated to critical functionality.On the other hand, the New ERP required participating vendors provide, not only proof of concept, but also a budget to achieve that proof of concept in the production environment. Furthermore, that budget is compared by your executive management team with the estimated benefits (changes in Throughput and Operating Expenses) to help assure that the projects planned ROI is likely to be attained as a result.


This side-by-side comparison of traditional ERP with the New ERP should make it abundantly clear that the "incorrectly managed vendor" failing is far less likely to occur when organizations adopt the New ERP as their method for evaluating both improvement projects and the vendors they hire to supply and implement technologies for them.

[To be continued]

©2010 Richard D. Cushing

Works Cited

Bergamo, Sue. CIO Update: Is Your ERP Implementation in Trouble? Feb 01, 2010. http://www.cioupdate.com/features/article.php/3862056/Is-Your-ERP-Implementation-in-Trouble.htm (accessed Feb 02, 2010).


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