Manage-Wise

Handling ERP’s cultural issues

The spate of mergers and acquisitions in many industries over the last decade has made the integration problem even more vexing. Taking a hard look at your company’s unique culture—before you choose your system—is the first step toward preventing resistance in the ranks.

• View ERP implementation as a business initiative, not as an IT initiative. Educate and engage senior management as early as possible.
• Don’t let technical problems dominate the project’s time. Create a dedicated staff position for change management. Use your best and the brightest on the change team.
• Articulate expectations before implementation. What will the project’s stakeholders say are the attributes of the new environment in a year? Where are the gaps in the plan? What conflicts of opinion exist today?
• Avoid political infighting between previously isolated divisions. Managers from various business units must have a clear understanding of the reasons behind the change. What’s in it for them? Write a change-management document that includes communication strategy and core business principles of the company.
• Encourage users to change their job roles. If employees are already overworked, eliminate any non-essential tasks the system may require. Develop incentive programmes to motivate change and incorporate them into performance reviews.
• Don’t change too much at once. Major change requires an evolutionary approach. Don’t overwhelm your organisation with a system that has more functionality than you absolutely need. Consider a phase rollout and shoot for short wins to generate momentum during the project.
• Communicate with stakeholders, develop relationships, foster collaboration, strive for simplicity. Sounds pretty basic, right? Not really. ERP is a long-term commitment that requires long-term support. Training and education shouldn’t end after the system has gone live. While there is no ‘right’ way to implement ERP, the core ingredient of every project—and the toughest to do well—is active and engaged leadership. Someone from the top—whether it’s the CIO, COO, CFO or CEO—must own the role of ‘change champion’ for the life of the project. The most important step you can take as the leader of an ERP project is to plan for culture change well before the implementation begins. The second step is to act on those plans with a dedicated change-management programme.
• Consultants believe the evolutionary change in business from ERP will not occur until organisations begin to reorganise their businesses around processes, which means pitching the old organisation chart and starting a new. But remember, there are people behind that organisation chart. It’s much easier to reprogram a robotic piece of equipment. It’s not going to talk back to you.

Indirect benefits

It would be difficult to point to an ERP technology that generates no indirect returns. In fact, the results from some of case studies that Nucleus Research has conducted over time reveal that, on an average, indirect return account for 50 percent of ROI technology.

An indirect benefit is a return that cannot be directly observed but is nonetheless realised as opposed to direct benefits like reduced headcount or increased sales that are more easily quantified. Worker productivity is the best example of an indirect from technology; greater efficiency doesn’t always lead to the removal of an existing expense item but is realised in the sense that it enables employees to perform their jobs better and faster.

Quantifying indirect returns requires a structured approach and the application of some basic but important concepts like productivity-correction factors and the transfer of time. Because quantifying indirect returns often requires educated assumptions, testing the validity of your estimates against a sample population is always recommended. Further, projecting a best-case and a worst-case scenario based on most conservative and least conservative estimates helps add another layer of confidence to the ROI range.

Driving factors for indirect benefits

If you are trying to estimate the proportion of indirect benefits from a proposed implementation, you should consider three key factors: the kind of technology in question, the areas to which you plan to apply the technology, and your current IT environment and assets.

Companies should consider three key factors when estimating the proportion of indirect benefits from a deployment: the technology itself, the way it is being applied, and the organisation’s existing IT environment.

The technology

While all technologies deliver indirect value, some solutions tend to generate more indirect than direct returns. The following are a few examples.

• ERP and supply chain: Supply chain planning, forecasting, and other logistical applications are most commonly implemented to boost such metrics as inventory and transportation expenses. These systems can certainly improve productivity, but the lion’s share of the payback usually lies in such direct returns as reduced costs in inventory or transportation logistics.
• Collaboration and portals: E-mail, groupware, and portal applications are designed primarily to simplify interaction among workers and normally have the biggest impact on worker productivity by reducing the time it takes to share information, coordinate meetings, and execute other group-oriented tasks.
• Content management: Content and document management systems generate many indirect returns, such as faster filing and decreased retrieval times through search, version control, and audittrail functions. Nucleus’s benchmark study on document management found that 84 percent of companies interviewed had seen measurable improvements in user productivity, whereas less than half the sample had recorded savings in direct cost.
• A technology for collaboration is likelier to bring a higher percentage of indirect returns than, say, a supply chain system. The difference lies in the way the technology impacts operations; groupware will impact employee efficiency first, whereas supply chain will likely generate directly measurable results, such as reduced inventory costs.

Application of the technology

The technology is not the sole factor dictating the extent of indirect returns a company can expect.

The specific way in which the company chooses to deploy the technology and the areas of operations the company targets will also influence the impact on the individual company’s bottom line. Here are two cases in point:

A business intelligence dashboard could generate more indirect or direct benefits, depending on how it is deployed. Time saving will be the primary benefit of a finance dashboard deployed to analysts needing quicker access to weekly metrics.

Deploying the same dashboard to a logistics manager promises direct cost savings if it allows the manager to better monitor, and control transportation and freight costs.

Excerpt from ‘ERP in Practice’ by Jagan Nathan Vaman. Reproduced with permission © 2007, Tata McGraw-Hill Publishing Company Limited. Price: Rs 495. E-mail: vishwanath_mum@tatamcgraw-hill.com