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Catching the Second Wave

Catching the Second Wave

A study by Deloitte Consulting confirms that going live with an ERP project is not the end. Rather it is the "end of the beginning" of a journey toward improvement, innovation and agility. It's true going live with enterprise resource planning (ERP) can positively rejuvenate some companies as shareholders, employees and customers exploit new powers to deliver business value. But other companies find the implementation marathon exhausts and debilitates them, leaving their people complaining about a failure to achieve business benefits and filled with uncertainty both about their company's direction and their own future. Horror stories about failed ERP rollouts, high system prices and the slow pace of implementation abound. Systems can cost the earth, moon and stars and take forever to install. Even a medium-sized installation can soak up tens of millions of dollars and require years of tweaking before benefits emerge. And too many users find ERP applications falling well short of expectations. An IDC survey conducted early this year found 11 per cent of enterprises were actively dissatisfied with their solution, and 48 per cent had yet to assess, or were non-committal or actively unhappy.

Yet that leaves 52 per cent of those surveyed satisfied or extremely satisfied with their ERP investment. What accounts for the wide discrepancy in the experience of those looking to automate and integrate business processes, share common data and practices across the enterprise and produce and access information in a real-time environment? Some analysts say, at least in part, the success of the project can depend on the expectations companies bring to ERP. "If you have an expectation of implementing an ERP solution to give you a competitive advantage you are doing it for the wrong reason," says Deloitte Consulting Australian and New Zealand ICS Baan Practice manager Tony Lucas. If many of the companies that spent millions on ERP hold the same competitive position today they held before, it's because their competition has been making a similar investment, Lucas says. All installing ERP did was to give them competitive parity, not competitive advantage. Lucas believes some companies have lost sight of the fact that it is the way the information made available through ERP will be used to make business decisions that will provide competitive advantage, not the rollout itself. "What the ERP solution is going to do is give you information, better visibility of what you are doing for a customer, in regards to what you are selling and the profitability of that customer," he says.

It Ain't Over Yet

Equally faulty is the expectation that going live will be the end of a process that will bring benefits in its own right. When US researcher Benchmarking Partners interviewed 164 individuals at 62 Fortune 500 companies from manufacturing and consumer businesses in the US summer of 1998 for Deloitte Consulting, it discovered that despite conventional wisdom, going live with ERP is never the end. "Rather, going live is the end of the beginning of a journey towards improvement, innovation and agility," says the Deloitte report, ERP's Second Wave: Maximising the Value of ERP-Enabled Processes. Companies must continue to address people, processes, and technology and strategy changes beyond the ERP "go-live" date in order to realise the full benefits of an ERP system. The study uncovered at least two distinct waves of ERP-enabled enterprise transformation. The first wave refers to the changes to an organisation that include a company going live with ERP. The second wave refers to the actions that are taken after going live that help organisations achieve the full capabilities and benefits of ERP-enabled processes. And the Deloitte report notes second wave is a cross-service line initiative, leveraging a host of talents and perspectives from across the company. "Deloitte Consulting's view of the second wave is that companies -- far from being 'done' at go-live -- must continue to address a universe of people, process, technology and strategy changes if they're to realise the full benefits of ERP-enabled processes. As experience shows, full benefits come only with continued focus and effort after going live."The Deloitte report notes that companies should anticipate a temporary dip in performance after going live, accepting that it takes time and focus to realise the full benefits of an ERP implementation and that the sheer magnitude of the change, especially in how people do their jobs, can be dramatic. AMP would understand that advice implicitly as it implements human resource and financial applications in an ERP environment. In the financial arena AMP has already replaced nine different financial systems within AMP Australia and New Zealand, with another six to go. Later this year it will be doing similar work in the UK, where the company has significant brand names. As AMP undergoes a period of rapid growth through acquisition, it expects to go through a lengthy period of consolidation of its ERP investment "Our challenge from both human resource and financials is to consolidate all the back office-type functionality and the human resource management throughout the AMP group on an international scale," AMP World Class Financials program director Philip Tedmanson says. "These things don't happen overnight obviously, but at the same time each of these businesses is challenged to meet its profit objectives." Deloitte's Lucas believes most sites that have gone live in Australia to date have focused in the first instance on the need to replace existing systems with ERP and with getting a transaction processing system in place. "Whilst they would have achieved benefits out of doing so, they are looking to go further," he says. "Baan's target methodology has taken a view very much of installing something quickly, to get some initial benefit to the organisation, then go through a number of optimisation phases. There are a number of Baan sites in that boat," he says. "The Baan strategy of acquiring a number of best-of-breed solutions they are now incorporating into their ERP backbone supports the findings we have coming out of that Second Wave report, in that one of the things organisations are certainly looking at doing is incorporating additional functionality."A Winning Punt Newly-privatised NSW betting and gaming company TAB Limited went live with its SAP R/3 system a week after its listing on the Australian Stock Exchange. The system -- financials, control, sales distribution, project systems and materials management -- was the organisation's first packaged software solution after many years of in-house development. TAB chief financial executive Gordon Watson claims he was able to provide management with a list of significant improvements resulting from the new system within weeks of going live with R/3.

"These included some very tangible successes, including total integration between all modules resulting in the elimination of [more than] 50 standing journals and the reduction in production time of monthly reports for the CEO and board from seven to four working days," Watson says. "Other improvements included on-line reporting, eradicating the expense of hard copy distribution, accurate project costing and better stock control thanks to automated MRP-based planning methodology."But Watson insists going live was never seen as the end of the game. "We continue to refine things. As people got used to the SAP system, they started to refine what they got out of the system and to streamline their requirements and tried to get a better fit to what they wanted." TAB looks to a continual process of such adjustments into the future, he says.

The Good Oil

Likewise oil and gas explorer, developer and producer Woodside Petroleum established an internal project to design an SAP R/3-based Integrated Business Information System (IBIS) because it desired significant changes to business processes, particularly in the areas of procurement and finance. IBIS manager Peter Leigh says Woodside had built on the work done in the first phase by implementing new human resources and payroll processes using SAP R/3's HR and payroll capability. "The company has been constantly growing. We are relying on R/3 to provide the systems and processes that can support these business and operational complexities as we grow," Leigh says. "Woodside expects to grow and expand and change, and in growing and expanding we will need to continue to look at our processes. We, like most oil companies, are looking at ways of doing our business better, so we are looking at our processes again to see if there are ways to improve them further. We just see it as part of trying to continuously improve the way we do business," he explains.

The Deloitte report notes companies that are achieving ROI take a long-term view of ERP that accepts going live as "a major milestone towards the ultimate benefits of a longer, more ambitious journey". "ERP-enabled processes are designed to evolve -- to live in time and to grow in power for those organisations that take the time and effort required to grow with them. Above all, the rewards go to those who venture into the wave where the greater benefits lie -- not the first wave of going live, but the post-implementation second wave."Customer Care The Deloitte report says companies must aim to leverage the ERP investment "towards greater growth, agility, profitability and that energised state we call 'kinetic' -- a state in which whole organisations can turn on a dime to meet unique customer demands." As users strive to maximise the benefits by moving on post-implementation into areas where they can exploit the fuller benefits and capabilities of ERP, some vendors are targeting strategic business analysis as a new frontier and way of achieving such customer responsiveness.

PeopleSoft, for instance, has started selling parts of its Enterprise Performance Management analysis suite. It has also announced plans to market a balanced scorecard application and additional applications for analysing human resources and simulating how business decisions will affect profits. The company also has a focus on technology assisted selling. "When we analysed the future directions for the market, we saw customers were going to be far more demanding, and organisations were going to be far more responsive to customer's needs, and the technology will play a big part in that," says PeopleSoft Asia Pacific vice president and general manager Murray Creighton. "That's why we developed our systems around real-time planning and optimisation tools and applications." That means being smarter about keeping trend and demographic information like buying patterns, postcode and salary alongside the traditional data like customer number and product number, he says.

The Invisible Competitor

When companies put in ERP systems to make themselves more effective in distribution, marketing and customer service, often all they did was to automate existing processes, says Oracle marketing manager Frank Prestipino.

Business process re-engineering became fashionable without actually delivering flexibility, because in the final analysis the software dictated how the company would operate. And much of the data the process gave customers was historical. "By the time a decision maker in the company got the data to go forward and look into the future, [the decision] had to be based on historical trends and analysis rather than an understanding of what the organisation needed to do in the future," he says. Prestipino argues that ERP will become more useful -- and more crucial -- as the activities of competitors become harder to observe in an era where disparate companies team up to deliver new Web-enabled benefits and products. "My statement to you is that in the new millennium, in the 21st century, you are not going to be able to see your competitors. They are going to be silent and invisible," he says. "In the past, if I took my binoculars and looked out the window, I could see my competitor. I could understand it. I could see its trucks, I could see its products on the shelves, I could understand its strategy."According to Prestipino, customers that can observe their competitors can make decisions on the basis of those observations. However, if Amazon.com and Kellogg get together to offer product through a third party on the Internet, their activities become less visible and their competitors will be forced to look to new ways to offer value to their customers. "Where am I now going to add value to my customers? It has to be as a company," Prestipino says. In the hypothetical case of a partnership between Amazon.com and Kellogg, ERP in the back end understands a customer has purchased a book on health at Amazon.com, places an order for the book, and also triggers an order for a packing slip at Kellogg. Kellogg's ERP system recognises this as an order from Amazon and packs their sample product and a club membership to send to the customer. "The customer gets a CD and a book and a pamphlet, and ERP did all the back end," Prestipino says. "ERP told someone in the warehouse to pick that book; it also transmitted the message to Kellogg to expect to receive a book and to put this product in a special sample packaging. ERP also added them to the user group list on a mailing list. That is 21st century ERP," he says.

In the meantime, companies like AMP are looking to achieve other benefits.

Tedmanson says simply replacing something like 25 different financial systems on different platforms with different teams and different infrastructure, along with Y2K cost avoidance, has almost made the company business case positive.

But it is the future work of implementing shared service functionality to bring the focus and energies of disparate teams into a common solution that will really give the company payback, he says. "The world's most powerful supercomputer is the human brain. One of the objectives, and the Holy Grail of the technology industry, is to get cooperative processing. When we actually think about the teams of people throughout the enterprise as having supercomputers, the most powerful supercomputers, and getting them all working as one large team, all moving forward in the same direction, that will achieve growth and performance improvement." Tedmanson is confident the intangible benefits of ERP will far exceed any that can be quantified and put down in a business case. "I think the cultural bits of helping to bring together a large organisation -- particularly one that's gone through acquisitions -- and getting everyone to speak in the same language and act as a large team will be a good enabler to create that team spirit," he says.

Reality Check

While companies consolidate the existing benefits of ERP and look to achieve more in the future, David Ballantyne, a senior lecturer in marketing at Monash University, issues a warning. One key problem with ERP, he suspects, is its rigidity and the fact that once companies lock in, it is going to be expensive to get out. "This happened with the first wave of computer technology. Banks moved their mechanised ledgers to computer technology holus bolus, and only escaped from that 40 years later, Ballantyne says. "The same is happening here [with ERP], because the [companies] that are moving are trying to catch up a step [with competitors]. Inevitably they are not smart enough. They don't know what they 'do';. they know more about their customers than they know about [their] organisation, since there is no self-reflection in Australian business by and large. "So they'll be dumping stuff into SAP systems -- and it will be better, no doubt about it -- but it will give efficiency gains but not necessarily effectiveness gains. [Organisations] will raise their productivity for a while, but then there will be something about it that won't make sense in the future, because they will have just taken their current system into a more cost-efficient environment but it's a lock in," he says.

Ballantyne believes organisations would be better off developing a participative work culture where they share information and management with their staff before implementing ERP. "Unless [companies] are participative in their management style, they don't have the kind of [flexible], flowing sense of their knowledge. It's all locked up into tiny boxes and controlled by senior managers so [staff] can't ever know anything in a dynamic sense," he says.

Next month CIO will continue with its "ERP: Critical Issues" series, with a look at strategies for connecting ERP and bolt-on applications.

Top 10 Findings

1. Going live is not the end of the journey.

2. ERP delivers significant tactical bottom-line strategic benefits.

3. ERP also yields significant returns from unexpected benefits -- streamlined processes, improved visibility and enhanced cooperation.

4. Companies should anticipate a temporary dip in performance after going live.

5. There are three distinct stages in each wave after going live -- stabilise, synthesise, synergise.

6. ERP enables better, faster decisions by unleashing the power of the integrated enterprise.

7. ERP provides a backbone to further extend functionality through bolt-ons and other solutions.

8. Issues and obstacles show dramatic shifts in emphasis after going live.

9. An ERP implementation is, at its core, a people project.

10. Successful companies have demonstrated 12 best practices for accelerating, maximising and sustaining the benefits of the ERP journey (see "Just Keep Going").

Source: Deloitte Consulting "ERP's Second Wave"Just Keep Going Best practices sustain the journey -- and deliver the benefits 1. Focus on the capabilities and benefits, not just going live.

2. Align the organisation on the true destination.

3. Achieve balanced people, process and technology changes across all areas.

4. Use the business case as a management tool.

5. Apply planning and program management practices throughout the program cycle life.

6. Transition project roles to a way of life.

7. Build and leverage process expertise.

8. Extend capabilities beyond the ERP foundation.

9. Promote post-implementation commonality.

10. Teach the organisation to use new capabilities.

11. Assign clear ownership of benefits.

12. Define metrics and manage to them.

Source: Deloitte Consulting "ERP's Second Wave"

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