CFO eBook How to get off to a good start and avoid the challenges other ERP-implementers have faced. Making Your ERP Project A Success MAKING YOUR ERP PROJECT A SUCCESS Making Your ERP Project a Success is published by CFO Publishing LLC, 51 Sleeper Street, Boston, MA 02210. Mary Beth Findlay and Sarah Johnson edited this collection, with assistance from Jenna Howarth. Copyright © 2013 CFO Publishing, LLC. All rights reserved. No part of this book may be reproduced, copied, transmitted, or stored in any form, by any means, without the prior written permission of CFO Publishing, LLC. ISBN 978-1-938742-42-2 MAKING YOUR ERP PROJECT A SUCCESS TABLE OF CONTENTS NO ONE SAID IT WOULD BE EASY5 FIRST, WHAT NOT TO DO … 7 HOW TO GET ERP RIGHT 9 TAKE A PROJECT-BASED APPROACH 11 YOUR ERP ALLY–THE CIO13 4 CFO PUBLISHING NO ONE SAID IT WOULD BE EASY NO ONE SAID IT WOULD BE EASY E RP solutions get a bad rap that’s not always warranted. Any major software implementation comes with its own set of challenges and grumbles by those who are leading the change and have to get others to follow suit. However, from the beginning of their existence, enterprise resource planning systems have been known to cripple some companies during the implementation and post-implementation process, consume the precious time of employees, and burn personal bridges between managers. Over the past four years, companies that have gone through ERP implementations have spent just over an average of 16 months working on it. Just over 59 percent of those projects have exceeded their planned budgets, according to survey data compiled by Panorama Consulting Solutions. Beyond the extra time and money, poorly done ERP implementations can leave a company’s willing buyers in the lurch, unable to purchase what they came to a website to buy. In worst-case scenarios, it has led to restatements, apologies, confusion, even firings of top executives. Okay so there have been some problems. However, when done correctly—with proper planning, due diligence, and eyes-wide-open decision-making, ERP can provide an enormous payoff. It can help companies make connections and realize the integration of its most valuable asset: its data. And it can actually make one of the main tasks of the CFO’s job—finding operational efficiencies—easier. person or one department, and it will affect you and your organization. Be the one who asks the right questions, and make sure all the questions are getting asked—and early. Don’t be afraid to ask the same question over and over until you finally understand the answer. Guess Who Owns It? Whether you oversee IT or work parallel with your CIO, you as the CFO need to take some ownership of the ERP project. It’s too big for one CFO PUBLISHING 5 MAKING YOUR ERP PROJECT A SUCCESS For example, look past the marketing hype, and question what vendors are promising. Get at what your company is signing up for. Is the vendor asking a lot of questions of you as well? Are the salespeople truly trying to understand your business and your needs and goals? Despite any hopeful rumors you may hear from your colleagues, there is no one-size-fits-all version of ERP. This is a not-so secret fact that trips up implementations; there will be some customization involved and there will be adjustments that need to be made by various people at the company. Prepare yourself and prepare the employees who will be involved (however far down the road in the implementation process), and you’ll all be better off. “We need to spend more time getting people up to speed about the advantages of new technologies, and make sure they see the value before they can accept the change,” said Michael Smiley, CFO of Zebra Technologies, which sells bar code readers to manufacturers. Without universal adoption of a new Despite any hopeful rumors you may hear from your colleagues, there is no one-size-fits-all version of ERP. This is a not-so secret fact that trips up implementations; there will be some customization involved and there will be adjustments that need to be made. technology, said Smiley during a CFO conference, you get some people using the tools, some not, and the result is a “kludgy” process that defeats the purpose of the change. He should know: his company spent more than four years implementing an ERP system. The upside of those who have come before you? You get to learn from their mistakes, and that’s how we’ve put this CFO eBook together—to give you what you need to know to have a successful ERP project. A CIO once told one of our writers, “ERP projects are won or lost at the beginning.” 6 CFO PUBLISHING So, take ownership from the beginning—at least partially—and get the right headstart, with the right people, smart planning, and of course the right product and partners. Spell out the expectations, the plan of attack, and line up the resources. And wear your risk manager hat to lay out any what-if snags that could slow down or hinder the project— and current operations—along the way. You may not be able to think of everything, but you will be preparing your company for a successful system. FIRST, WHAT NOT TO DO... FIRST, WHAT NOT TO DO... B ecause ERP profoundly affects the business, and because you’re responsible for the business, do you want to be engaged with or removed from ERP projects? For CFOs, there are two answers. Only one is right. In 2011, a midmarket medical-supply company asked Heller Search Associates, a CIO and senior executive search firm, to recruit a new CIO. The incumbent had done a wonderful job in her two years in the post, according to the CFO, but, sadly, she was retiring. Earlier in the year, this CIO had launched a single-instance, global enterprise-resource planning implementation that seemed to be going quite well. All the new CIO would have to do is guide this wellmanaged program to its graceful completion, with a go-live date set for that September. The firm recruited the new CIO, and guess what he discovered during his first few weeks on the job? The ERP project had run amok. When asked what the three greatest problems were, he said: “The systems integrator had dropped the ball on project planning, the development organization had done sub par work on configuration, and the business teams were not prepared for how a new ERP system would impact their work.” This would make any reasonable person think: “So, just minor issues like project management, technology, and people. What’s the problem?” Turns out, the company had to fire the systems integrator, go back to the well for nearly double the budget, and set the go-live date back for a full year. Essentially, the company had to start over from CFO PUBLISHING 7 MAKING YOUR ERP PROJECT A SUCCESS Can you keep up with tech trends? See what’s coming by reading Ten ITEnabled Business Trends for the Decade Ahead. scratch, and the CFO ended up in the unenviable position of having to report all of this to the board. The now-retired CIO had reported to him. The CFO was accountable. This story, unhappily, is far from unique. It happens all the time. Most likely, it has happened to you. What could the CFO have done to prevent this disaster? “Hire a better CIO” is not the answer. Good CIOs have presided over failed ERP implementations because their executive peers had not done their part in making the project a success. ERP implementations have a profound impact on the way a business runs, and the degree and quality of business engagement is a critical part of their success or failure. If the business isn’t involved, the ERP will fail, and the CFO—along with everyone else—will suffer. Working on the assumption that you do not like to suffer, here are the five common ERP mistakes to avoid. Unbelievably, companies often select ERP packages that are not commonly used in their industries. In addition to looking for the right balance of reliability and flexibility, the ERP vendor you choose should have a long list of happy customers in the same industry as your own. 1. Select the wrong product. Unbelievably, companies often select ERP packages that are not commonly used in their industries. In addition to looking for the right balance of reliability and flexibility, the ERP vendor you choose should have a long list of happy customers in the same industry as your own. 8 CFO PUBLISHING 2. Locate program leadership too low in the organization. ERP is a game-changing project that requires leadership in the upper echelons. ERP program leaders have been known to be hired by management teams who then want to shove those leaders three rungs below the executive committee. At the mid-management level, these directors do not have either the visibility or influence to lead. Consequently, the program suffers. 3. Assume that ERP is an IT project. ERP is not an IT project. It is a business project, and it requires more than business sponsorship. It requires business leadership, not to mention resources, commitment, and engagement. If your CIO is the only executive giving ERP project updates, you are headed for trouble. And if your CIO agrees to launch an ERP project without a true and committed executive partner from the business, you have the wrong CIO. 4. Ignore the talent question. Ask yourself, Can your company effectively recruit a pool of talent that has experience in your specific ERP package? Can you pay them enough? Can you attract them to your company and your neck of the woods? I have seen companies push back their ERP launch date because recruiting those rare birds with the right blend of industry, technology, and leadership experience is much harder than they anticipated. 5. Underestimate how long an ERP will take. It is rare for a company to complete an ERP implementation (or upgrade) in the time they budget at the start. Whatever assumptions you start out with, be sure to build in a cushion because, if history is a guide, you are bound to need more time. Remember the medical-supply company CFO? Now picture him having to stand in front of his board, having to explain why his previous reports on the progress of the ERP fell so far off the mark. Would you care to stand in his shoes? HOW TO GET ERP RIGHT HOW TO GET ERP RIGHT W e asked chief information officers— all of whom have presided over ERP systems at multiple points in their careers—to come up with one critical success factor for an ERP project. They had trouble knocking the list down to just one, but in the end they persevered. What follows are contributions from several CIOs. 1. Understand the benefits. “You should not define an ERP’s success by whether it’s delivered on time or on budget,” says one CIO from a global manufacturing company. “You need to focus on the benefits of the implementation and whether those benefits are realized after go-live. All too often, companies spend huge amounts of money and then forget about the payback.” 3. Don’t underestimate the importance of master data governance. Data, data, everywhere, but not a drop that’s clean. “It sounds so mundane,” says another CIO, “but master data governance is critical to driving ongoing value from a global ERP.” Some companies spend a lot of time and money aligning processes, but not enough on cleansing and managing the data. “It is all about the data,” says another CIO. “Bad data equals bad ERP results.” 2. Don’t clip the tail of the project. Many companies fail to include “leave behind” resources—both in IT and in the business—when they plan their ERP implementations. “With ERP, processes change, things are different, and the senior who knew his way around the campus [in the old system] is now a freshman who needs a lot of support and guidance,” says a CIO. “You must allocate resources to focus on process and system improvements as the implementation team moves on to another site. Businesspeople on the implementation team are always in a rush to return to their ‘old’ jobs, but when that happens, there’s no one left to make the new system better.” Or as another CIO put it, “Go-live is the start, not the end, of a true implementation if you want to achieve the positive outcomes you’re after.” CFO PUBLISHING 9 MAKING YOUR ERP PROJECT A SUCCESS How strong is your tech bench? Read The IT Talent Problem. 4. Prepare for the dip. The best-laid schemes of mice and men, as Robert Burns knew, “gang aft agley,” which, if you’re not familiar with Scottish dialect, means your business is bound to suffer a bit during the afterglow of a go-live, bringing, as he wrote, “grief and pain for promised joy.” Rather than be taken by surprise, why not plan for it? “Despite best efforts, there will typically be a business-performance dip in the first month or two post-go-live as the business learns to operate within the new model,” says a CIO. “Having well-thought-out contingencies and a ‘hypercare’ support model in place will minimize the dip and ensure that the organization exits from that dip as rapidly as possible.” 5. Don’t overload the ERP. “Perhaps the most critical thing for a CFO to understand is that ERP programs are like replacing the wiring in your house,” says Mamasource CEO Marc West, who has spent time in CIO, COO, and CEO positions. “You already have the house [your business and its operations] but you are threading in a new core element. Make sure you don’t overload the job with a bunch of wonderful, amazing, bright shiny new things. Be sure that your business today can run against current performance metrics before you add in process reengineering, new features, and deep analytics.” Finally, when an ERP program starts to buckle, everyone loves to throw mud on IT’s door. The wise CFO doesn’t join the angry mob. As Don Ford, who runs ERP for Amtrak, puts it, “The CFO must continue to cheerlead and drive changes from the beginning of the project until the end. They must be willing to walk the talk or everybody in the organization will see right through the façade.” 10 CFO PUBLISHING TAKE A PROJECT-BASED APPROACH TAKE A PROJECT-BASED APPROACH E RP can take awhile and test the patience of any senior executive. While speed shouldn’t be your main goal for any IT project, it would be silly to pretend it’s not high on the list. Some just can’t look past it. Former CFO and current consultant Jack Bergstrand believes speed trumps everything when it comes to making fundamental changes to a business, including technology solutions. Now the CEO of a firm called Brand Velocity, which helps companies in reinvention mode accelerate their time frames, Bergstrand draws on his past experience in various executive roles (including CFO of Coca-Cola Beverages Ltd. in Canada and vice president of business systems for The Coca-Cola Co.) where he oversaw major implementations and restructuring. What he’s learned (outlined in an edited interview below) is worthwhile information for anyone looking for an ERP system or in the midst of an implementation. very careful in how you go about the restructuring. At Coca-Cola, there was a lot of duplication in the [SAP and IT] camps, but also a lot of knowledge. In your book Reinvent Your Enterprise, you wrote that many companies fail to realize the difference between information and knowledge. What did you mean by that? To address a problem, you [need to] bring in people who have different information and skills. That’s what creates knowledge: it’s more of a social activity than an information-systems activity. What is the key to doing major IT restructuring well? It’s having a clear vision of what you’re going to do—and not do. When SAP went live, I was asked to combine the SAP and IT organizations, which were separate. There are really two ways to do that. One is that you take SAP and move it under IT, which seems reasonable. Unfortunately, what often happens is that although implementing a new ERP system is a major investment, when you go live, a majority of your transactions and talent is [still] dedicated to legacy systems. If you just keep the IT structure in place and throw on the new ERP system as a wing on the house, then you’re probably not going to get the most out of the investment. The other way is to build a new foundation for the house, keeping a very consistent vision for what the structure is going to be and why. But you have to be CFO PUBLISHING 11 MAKING YOUR ERP PROJECT A SUCCESS When done right, ERP could help your workingcapital efforts. Review current working-capital performance at large U.S. companies in Still Not Working. A lot of companies go down the wrong path by competing on analytics, where data is seen as the Holy Grail. Let’s say you’re changing your supply chain. Information isn’t going to drive that change. What will drive that change is a social construction that puts together people who oversee distribution, manufacturing, IT, sales and marketing, and finance. A lot of technology projects—about 70%—fail to deliver what was intended. It’s usually not the technology itself that fails, but rather the way people work together to move from point A to point B. Your firm’s Website says, “Velocity is what we stand for, by being experts in accelerating organizational results.” Why the focus on speed? Because the competitive world is continuing to accelerate. To keep up or move up, you’ve got to be fast. Where success or failure happens is in the ability to make a change. Changes require projects, which need to be accelerated. We often come in on large technology-project failures, where it’s important to get stuff done very quickly. Say you’ve got a major software project that’s costing $100 million. The normal way of looking at that is to say, it’s $100 million, so we’ve got to make sure we get it right, so let’s take plenty of time. But it’s not really a $100 million project; it’s a $100,000-per-day project. And what’s happening per day is that people are busy making trade-offs, they’re going to meetings, there are too many decision makers; all of those things bog you down. You end up doing the wrong things for the right reasons. So how do you achieve acceleration? We start with a sort of Myers-Briggs approach, using a tool we created to understand what’s driving the individual, the team, and the company. Normally all of that is invisible, because it’s in people’s heads. Once it is made visible, it’s much easier to put together a game plan for doing the project in an accelerated way. Normally when you get a project team together, people start to fight, because they’re all different. 12 CFO PUBLISHING Maybe what drives you is analysis, and what drives me is relationships. If there isn’t a framework that puts us on the same page, I’m going to battle you on the weaknesses of the analytical approach, and you’re going to battle me on the weaknesses of schmoozing too much. Finally, people give up fighting and really become a team, but it takes a lot of time. The process of understanding up front that all this storming will be going on, and building a project methodology that incorporates where you’re going and why, what you’re going to do and when, and who’s responsible for what, results in much faster projects at lower costs. What other major IT challenges do companies face? One of the biggest is around governance. You’ve got a lot of people fighting for priorities, and a lot of internal energy is absorbed in trying to get projects on the table. A lot of times IT organizations try to please as many people as they can, so they do more things but do them slower, even the most important ones. Then nobody’s happy. In the IT world, you hear a lot about aligning with the business. That’s a fundamental problem, because IT needs to be integrated with the business, not aligned. There’s a big difference [between the two]. Integration requires trade-offs: one system is chosen over another, and therefore one person loses to another. Alignment is often just about trying to make people happy. With ERP projects, it’s not uncommon to have more than 100 people in steering committees and subcommittees. That never works. It gets bogged down until somebody says “enough,” and then it takes more of a turnaround mind-set. Then people aren’t aligned anymore; they are integrated, and making decisions faster and getting stuff done. YOUR ERP ALLY—THE CIO YOUR ERP ALLY— THE CIO W hether a CFO oversees IT or not, the CIO role plays a critical factor in the finance organization’s happiness and ability to get things done. But the CIO role is often the most difficult to understand and keep a handle on, since it changes so often and partly because other executives (ahem, CFOs) don’t always necessarily understand the work that CIOs do. You may finally understand software-as-a-service, for example, but may still be baffled by platform-as-aservice. Adding to the issue, of course, is the fact that IT is so expensive. You approve a $50 million IT budget and then wait . . . and wait . . . and wait for the return on that investment. To improve your chances of having successful implementations down the road, think of the possibilities for the type of CIO you want. Better to identify the right kind of leader and groom him or her than to do a rip and replace at the 11th hour. Do you have the right person to lead your company’s ERP effort? Need a smoother relationship with your CIO? Consider Can We Talk? CFO PUBLISHING 13 MAKING YOUR ERP PROJECT A SUCCESS Chief Improvement Officer Chief Innovation Officer With their program management and change leadership responsibilities, CIOs are ripe for the role of enterprise continuous improvement champion. As more IT functions are outsourced, and business leaders get more comfortable reaching to the cloud for their technology solutions, the CIO will be released from overseeing IT operations and free to make business processes across the company faster, better, and cheaper. In a number of companies, CIOs are raising their hand to add continuous improvement to their plate. If you don’t have an enterprise continuous improvement champion, you really should. And you should consider your CIO for the job. CIOs have been driving productivity for decades. They got on the map, way back when, by making the business more efficient by automating some basic manual processes. Then they began delivering communication systems, like e-mail, which made everyone more productive. With ERP, CIOs moved into the arena of business process change (and began devouring large chunks of enterprise revenue). Along the way, they also made good use of outsourcing for increased productivity and cost savings. Chief Intelligence Officer In this version of the CIO role, the “I” stands for the transformation of business information into actionable business intelligence. Wayne Shurts, former CIO of Supervalu, a $38 billion grocery company, developed a solution for improving sales and “freshness” in his stores’ produce departments. He supplied sales data to store managers so that they could allocate shelf space accordingly. What kind of technology did he use? RFID? Smartphones? Nope. “Sticky tape,” he said. Many CIOs have evolved beyond the “I have a technology hammer, so everything is a technology nail” mindset and now see their role as serving up information to solve business problems. Sometimes the right business-intelligence solution has no technology component at all. Sources for Making Sure Your ERP Project is a Success: “CFOs Will Determine the Future of the CIO,” Martha Heller, CFO.com, February 28, 2012. Copyright 2012 © Martha Heller. “Five Big Ways Your ERP Can Go Wrong,” Martha Heller, CFO.com, June 12, 2012. Copyright 2012 © Martha Heller. “Five Big Ways Your ERP Could Go Right,” Martha Heller, CFO.com, July 20, 2012. Copyright 2012 © Martha Heller. “IT’s Need for Speed,” David McCann, CFO.com, April 14, 2010. Copyright 2010 © CFO Publishing LLC. “Look Out, CFOs! The Future of Finance Is Changing,” Taylor Provost, CFO.com, October 4, 2012. Copyright 2012 © CFO Publishing LLC. 14 CFO PUBLISHING