Making the ERP transition

A guide for CFO’s and decision makers struggling with the growing pains of successful NZ businesses.

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Contents

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What’s holding you back from upgrading your ERP system?

How to approach an ERP project

How to get your business ready for an ERP implementation

Chapter 1

Chapter 2

Chapter 3

Summary

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What’s holding you back from upgrading your ERP system?

For CFO’s and decision makers of growing Kiwi businesses, the advantages that modern ERP solutions provide are well understood – an integrated view of the entire business being a key promise an ERP is expected to deliver on. In fact, if you’re reading this guide, it’s highly likely you’ve been out to the market before now to find a new ERP solution for your business, but may have resisted the change.

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Needless to say, a good ERP system can be the lifeblood of your company. There comes a time when the cost of maintaining legacy systems becomes a burden; support from the software provider ends; or your business is spending a lot of effort trying to develop customised fixes or workarounds to resolve issues and get visibility across disparate systems.Yet it appears many businesses are very patient. In fact, recent Forrester research shows that approximately half of ERP customers’ existing systems are two versions behind the current release, which may be four years old or more.*1

So why do so many businesses resist the need to implement a new ERP system?

Despite the compounding pain points of legacy systems for the business, most companies defer the decision to change until ‘absolutely necessary’ - or in the worst case scenario, until a crisis dictates that change.

The reality is that embarking on a new ERP system implementation is a major organisational undertaking. It affects every aspect of the business – taking time, training and causing interruption to people’s jobs – and all this needs to fit around ‘business as usual’. Of course there’s the cost, not to mention the disruption that can inevitably occur when employees have to change the way they do things.

Many argue that there is never going to be a ‘perfect’ time to implement, but from our experience working with many New Zealand businesses facing the challenges of growth, we have found there is a right time. And that time has nothing to do with how much pain legacy systems are causing, or any desire to delay the pain of change.

Read on to find out what determines the time’s right to make the transition to a new ERP system and how to prepare your business so you can hit the ground running when that (inevitable) day arrives.

*1 ERP Customers Demand Better Flexibility, Cost Transparency, and Mobility, Forrester Research

Half of ERP customers’ systems are two versions behind the current release, which may be four years old or more*.

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Chapter 1

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There are many drivers and reasons for ERP change within a business, all of which may be different for each stakeholder in the company. In fact, stakeholder buy-in is often one of the biggest obstacles businesses face in the ERP transition journey.

In this section we explore the typical drivers and compounding reasons that usually propel organisations to seek change, as well as the final ‘clincher’ that gets the project (and vendor) across the line.

Chapter 1

When is the right time for a new ERP System?

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Change ‘from above’ is a common driver behind businesses embarking on the ERP transition journey. The CEO or board’s desire to deliver their vision is being impeded by a lack of visibility over numbers due to disparate systems or issues with legacy systems.

‘New blood’ or ‘new skin in the game’ drives momentum, focus and the funding needed to drive the project forward.

There’s nothing like strong growth to compel a company to invest in better business systems and revisit projects that may have lacked hard reasons for change in the past.

Demand from board or CEO level

Change in ownership / acquisition or investment

New markets / new customers

Drivers for change

Chapter 1

Chances are that there are more efficient ways to accomplish many of your business tasks. Technology moves fast and the loss of efficient processes is a hidden cost. An outdated system, or a collection of different software packages redirects your resources into maintenance and annual intervention instead of allowing you to focus that money and energy on solving real problems. This is especially true when core processes are managed on spreadsheets.

If increasing maintenance costs and limited-user license fees are adding up as the team’s headcount grows, you may be dealing with a system that doesn’t scale well. Your enterprise systems should support and streamline your team’s growth, not hinder it or generate more work.

Small inefficiencies are adding up

Business needs are outgrowing system capability

Reasons for change

‘Reasons’ differ from ‘drivers’. Drivers are forces that propel a project forward, whereas reasons are the compounding pain points that add up, causing frustration to the point where there is significant pressure to make a decision for change. See if these reasons sound familiar…

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Customer needs aren’t being met

Workplace dynamics are changing

You don’t have access to real-time information

Customers, suppliers, and partners expect direct access to billing, shipping, and inventory data. They don’t want to call someone to get this information and you don’t want to generate unnecessary customer service calls. Many older systems weren’t designed for external user access and tend to be less customer-service oriented.*2 If you’re not providing that business value, your competitors might have an edge on you.

Today’s businesses often have employees or whole branches working in remote locations. A business model that depends on a centralised office may simply not be practical anymore. If most of your workforce is working remotely or on-the-go, your old system may not have the mobility functionality to keep up. And if your company hit a sudden demand or opportunity to expand, would your ERP system be able to scale?

If you have to dig for up-to-date information, critical decision-making will be slowed and the capacity to problem-solve effectively will be impaired. You need to know what parts of your business are working and what aren’t—and you need to know fast. Again, spreadsheets are a favourite way for many businesses to carry out analysis, but how can you possibly get a real time view or be fully-confident in your data if everything must be manually consolidated? Especially if it is on many different spreadsheet versions.

Tax rules and other industry compliance regulations change frequently. For many businesses, compliance demands are constantly shifting and legacy ERP solutions simply weren’t built for agile business movements.

Your ERP isn’t keeping up with changing regulations

*2 http://www.acumatica.com/7-signs-time-to-change-your-erp-system/

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Dear to a CFO’s heart is total cost of ownership (TCO). Chances are your legacy systems give you a picture of the hard costs, such as software license fees, but you lack visibility of the soft costs which are not readily quantifiable - the cost to the organisation of productivity and time. In hard costs alone, a new ERP system will typically appear to be the more expensive option, however, as you evaluate the total cost of your system, you may find that a new system is worth the investment due to sheer productivity gains, time savings, and increased revenue opportunities.

Another option is the Software as a Service (SaaS) model. Instead of a large upfront investment, costs are spread across the lifetime of the contract. This not only means you’re able to avoid the upfront CAPEX hardware and infrastructure costs but you are also able to take advantage of subscription pricing and pay a monthly rate per user with the flexibility to budget IT costs under OPEX.

If any (or all!) of these pain points of an ageing legacy system sound familiar, it may be high-time to consider making a change. But there’s one more vital ingredient missing….

Total Cost of Ownership is blowing out

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Deal maker or deal breaker? How to get the project across the line.

Through our experience working with NZ companies across different sectors and industries, despite all the very compelling drivers and reasons for change outlined in the previous chapter, it will never be the ‘right time’ for a business to start down the ERP implementation path without one key thing – stakeholder goal alignment.

The reason most ERP implementation projects are derailed is because the business lacks a clear vision and goals for the future, which has full stakeholder buy in.

For example, despite a CEO driving change, if the COO isn’t onboard with

Observation: Despite all the complaining, don’t underestimate the level of comfort that legacy systems provide people, departments and decision makers — and sometimes this comfort is sought at the expense of increased relevant functionality and technology.

the change, has conflicting goals or his/her needs aren’t being met, the project will stall.

Getting the project across the line involves many players company-wide. Each department will have their own motivations and reasons for selecting a certain solution or blocking change entirely.

It’s essential that there is a ‘meeting of minds’ and that all stakeholders agree on the direction and growth plan for the future. It’s this that will ultimately determine the requirements of the new ERP system – not the pain points of the legacy system or the individual motivations of key stakeholders.

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ERP is a transformational business initiative that should provide your company with competitive advantages, so the decision shouldn’t be taken lightly or made with incomplete information.

There are many factors that go into the decision-making process when choosing an ERP vendor. Since it is a costly and time-consuming process, it’s essential you make the right choice by evaluating the key functionality that will provide your business with the greatest competitive advantage in the future.

How to approach an ERP project

Chapter 2

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Best-of-breed or single integrated ERP solution?

ERP burst on the IT scene in the 1990s and brought with it a debate within companies, implementation consultants, and vendors, one that you will likely engage in within your own company: Should an organisation pursue a single integrated ERP or implement multiple best-of-breed solutions?

The debate begins with the premise that no ERP product will satisfy 100 per cent of an organisation’s business process needs. Best-of-breed solutions are typically designed to only do one or two things, but in a way that can meet highly specialised requirements.

A single ERP solution ensures that business processes are tightly integrated and that data exists in only one place to be used for transaction, execution and analysis. Best-of-breed solutions on the other hand, may split processes between

software modules, requiring duplicate transaction entry and the development of interfaces to keep multiple databases in sync.A single-vendor solution delivers new software functionality by upgrading to software releases as they are available. As best of breed is a combination of multi-vendors, this strategy may complicate the implementation of new software releases, which can delay or limit the availability of necessary new functionalities. A multi-vendor solution also adds to the cost of development and maintenance of interfaces.

So how do you know which path is right for your business? This is a philosophical question you’ll need discuss within your organisation, and which the next sections in this guide will attempt to address.

Best of breed or integrated ERP solution?

Find out

Chapter 2

Which one is right for your business.

Define your competitive advantage

Wait. Compromise?

Before you begin weighing up vendor options, the most important first step in selecting an ERP system begins with defining your competitive advantage.

What will put your company ahead of your competitors?

Most ERP solutions cater to ‘business-as-usual’ demands well – but getting your ‘accounts receivable’ talking to your

Regardless of whether ‘best-of-breed’ or ‘integrated solution’ is right for your business, it is unlikely that any solution will meet your current and future requirements completely.

You will need to face the fact that there will have to be compromises on some things – but your decision about what functions you’re prepared to compromise on, should be based on your competitive advantage. Consider this: if an integrated ERP system

can meet 80 per cent of the needs of your business, where does your competitive advantage or value proposition lie? Is it within that 80 percent or does it fall outside in the 20 percent? If the latter, you may want to consider a best-of-breed approach. Or, consider customising your ERP system or integrating a third party solution to fill that gap.

‘accounts payable’ more efficiently is unlikely to allow your business to leapfrog its competitors.

Will your offering provide a strategic advantage through more efficient processes? If so, this function should be the top priority in the ERP vendor selection process, as it is the one factor you cannot afford to compromise on.

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Leave no (internal)stone unturned

When it comes to defining your requirements for an ERP system, now is the time to be meticulous. Minimise risk by conducting in-depth discovery within your organisation to determine what your business truly needs from an ERP system – now and in the future.

Perform an analysis on your business processes and take honest stock of the ways your business could and should change, as well as the ways ERP capabilities can improve business performance.

Gather copies of key documents such as invoices, key reports, and spreadsheets that are used to manage important operational processes for analysis and locate specification and process documents if they exist.

Hard evidence of your business processes is great, however often times business know-how is not on paper, but rather in the heads of senior team members or key staff

who have been with the business for some time. Consult with your department heads and senior-level executives to understand the disciplines around different company activities — why are employees trained a certain way, and is it the most efficient way of doing the job? Are your procedures up to date? Are there processes that could be automated? Are personnel spending too much time processing orders? Does your sales force and customer service personnel have real-time access to customer information?

Team discussions like this will help you identify which of your businesses pain points need to be addressed immediately and which ones you can live with. It will also give you better insight into who is doing what, and how married they are to their current processes, procedures and practices, which will help with change management in the future.

Chapter 2

Work with vendors to see how their solutions can help your business

Use the information you’ve obtained from your own business requirements analysis and research to help you get relevant, informative answers from potential vendors. This makes it very easy to determine whether a vendor fits your needs.

Discuss your current processes and system with vendors and compare that to how you’d ideally like your ERP solution

to run. Taking into account the 80:20 ratio, how does their solution stand up to your goals? Make sure that the vendor’s product works with any legacy systems you have identified as being irreplaceable. Verify that the vendor completely understands your business needs and check whether or not they have experience in your industry, which increases the likelihood of a smooth transition, and ask for references.

Preliminary vendor research

Armed with your specific business requirements, you can perform preliminary research to see which ERP system meets your needs. Contact ERP vendors for in-depth information and seek informed opinions from colleagues who use ERP software systems. Also consider ERP consultants as an additional resources to find the right fit for your business.

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Demos and proof of concept

Find out if the software will be implemented in phases. It has been reported that 61 per cent of ERP executions are prolonged longer than expected.*3 Implementing ERP software in stages will enable you to address key pain points in order of priority without disturbing the flow of the business. It will also allow training to occur in separate stages, allowing most of the company to function as usual as one area or department is focusing on learning how to use and manage the ERP.

How will the vendor handle malfunctions and service interruptions? If the vendor provides comprehensive troubleshooting guidance, the company’s IT department can often resolve problems without waiting for support from the vendor.

After you’ve narrowed down your list, request demos from vendors you are considering. It’s very important to see an ERP system in action, and a reputable vendor won’t have any trouble arranging a thorough demonstration. In addition to demos, request documentation that showcases how the ERP system will meet your business needs.

Lastly, ask a consultant to come on-site to look at your current processes, help you refine business requirements and determine how your end results can be achieved. A good vendor will not flinch at the chance to spend time with you to understand your business.

*3 http://panorama-consulting.com/resource-center/erp-industry-reports/

61 per cent of ERP executions are prolonged longer than expected*.

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Chapter 2

Do your financial due diligence

Evaluate the capabilities and cost of an ERP system against your business processes and needs, your organisation’s budget and the projected savings to ensure that the ERP system will benefit your business financially, and that it is financially viable at this time. Budgeting concerns and expenses ultimately determine the long-term viability of an ERP system.

Consider what the true cost of ownership of implementing an ERP project will be. Will fees be one-time or recurring? If recurring, will they be annual or monthly fees? What are the costs of deploying the solution on-premises versus in the cloud? Also consider whether the vendor will provide support and training during and after the installation, which may affect your costs.

Be prepared to invest in testing

After a long decision process, followed by a long vendor selection process, followed by a long implementation period – not to mention a huge financial investment - many businesses are tempted to (and too often do) scrimp on the testing phases before key live releases.

If you can, plan and budget for thorough testing from the outset. Systems full of bugs in the real world are not tolerated well by customers or suppliers. Don’t be tempted to use your internal people to test – a proper testing process involves a specialist third party who will pick up issues your internal people become ‘blind’ to because they are so familiar with the project.

Applying these approaches will allow you to more easily find and select your ideal ERP system and vendor. While it may be time-consuming and labor-intensive, your meticulous ERP selection process will pay off.

Best of breed or integrated ERP solution?

Find out

Which one is right for your business.

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Chapter 3

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The decision making phase of any ERP selection process can be long and drawn out. But that doesn’t mean that your business shouldn’t begin preparing ahead of time. In fact, there are some key actions your business can take to prepare in advance of a final decision, which will make the implementation and transition faster and less expensive when the deal is done.

How to get your business ready for an ERP implementation

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The executive sponsor is a member of senior management, and the spearhead of the project. The sponsor should provide high-level guidance to the rest of the team to ensure the ERP system is achieving business goals once it goes live and acts as the advocate at the executive level to ensure the project has senior management buy-in and support and is adequately resourced by the business.

The project manager will primarily manage, plan, control and coordinate the project from the business’ perspective with the objective to complete project on time and within the budget. He or she should be a senior or middle manager who has experience with several different functional areas. Other tasks might include scheduling, planning and conducting meetings, identifying problems and tracking the project’s progress.

Executive sponsor Project manager

Pick your (governance) team

The ERP project will affect every functional area of the business, and that means everyone from senior leadership to middle management and staff-level employees will be involved throughout the implementation at some point.

The first thing a business should do in preparation is establish an internal team that will have the influence and authority to get company buy in and get the job done.Your project steering team might look like this:

Chapter 3

The internal IT manager is responsible for coordinating all IT-related activities between the business and the ERP vendor, as well as any third-party staff. Daily tasks of the IT manager involve developing plans, supporting team activities, and acquiring resources.

IT manager

The user team fills out the rest of the staff in charge of the implementation, and will feature users with a mix of authority, company knowledge and experience. The team should also include people from every functional area to be affected by the ERP system, such as manufacturing, sales, finance, engineering, etc. The user team will work with the vendor to find the best way to use the software to support business objectives.

The user team

Tip for success: Once you’ve identified your key people who will be steering the ERP project, consider who will be doing their day-to-day jobs while the implementation is in process. If your key employees and business experts are going to be tied up half the time on the project, it may be in your best interest to backfill these positions — and don’t forget to factor temporary pay for any external hires as an internal cost.

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Dirty data in. Dirty data out

Data quality is a big issue for most companies who have grown and evolved with a ‘mash up’ of systems. The task of cleaning data must be done before implementation of any new system. Get a head start and engage your team on a data clean up project as soon as possible – it’s time consuming and not something that can be left to the last minute.

A company-wide data clean project will likely involve the following steps:

• Like many steps in the ERP implementation journey, start from the top by getting executive sponsorship.

• Once you’ve received signoff, perform a data audit and ensure you group and missing, mislabeled or mismatched information into their respective categories.

Take the time to develop a good plan

Most organisations take the ‘less talking more walking’ approach and try to move through the planning process as fast as possible. But the truth is, extra time planning could be the difference between a smooth process and one that is hampered by avoidable mistakes. A good rule of thumb is to allocate one week of planning for every month of estimated deployment time.

• After identifying your issues, create a plan to clean up your information that endures consistency throughout – start with your most important areas.

• Commence data cleaning – but make sure you always back everything up! And don’t hesitate to contact external consultants or technical experts if needed.

• Implement and enforce steps and protocols to maintain your database. Assign roles, have back up and keep your staff in the know.

Chapter 3

IT stand by

Document - everything!

Having your IT infrastructure set up and ready to support your new system is vital. Engage your IT team to get your network set up ready for the implementation, make sure backups and storage are in place and find out if there are any specific hardware specifications required for successful implementation. If your ERP vendor provides a Cloud based solution, this is not such a concern — Cloud vendors should provide all back ups and risk management with their solution.

Get each division of your company to document their processes - and not just pull out specifications that are outdated and no longer relevant. Talk to each division head to find out what they know that your written processes can’t tell you. Especially if your company has been around a while, there may be many processes and procedures that your senior team or long-standing employees know or have implemented that have not been formally documented. These unwritten processes could very well be your barriers to change.

Tip: Never assume anything! If a particular feature you’re expecting is not included in documentation supplied by your vendor, then it probably isn’t going to be delivered. Check all documents contain the right level of detail and cover all the expected deliverables. external hires as an internal cost.

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Establish metrics to measure success

Define your critical KPIs at the beginning of the project - if you don’t, it will be impossible to tell if the implementation actually achieved the desired goals. All stakeholders should know exactly what the expectations are for the project and use those as a guide during the process to ensure everything is proceeding accordingly. Business leaders will later be able to use those metrics to gauge ROI and determine whether or not the new system was a success.

Additionally, it is important to identify the business risks of switching over to a new ERP system. Establish what needs to be working on day one of going live and what can be refined later down the track. By de-risking your project you will be able to avoid the ‘operational fatigue’ that can wear down your employees and key team members with a never-ending project.

An ERP implementation project takes careful planning and time to execute. To accelerate the implementation process, make sure your project is scoped appropriately and consider working with an experienced, knowledgeable ERP expert.

Chapter 3

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10 things required for a successful ERP implementation

Checklist

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Stakeholder goal alignment and agreement on where the business is going

Core areas of competitive advantage have been identified

The business understands and accepts that compromises will have to be made

The right team has been appointed – governance and the right senior level sponsor

Key resources have been back-filled so they can give the right amount of attention and time to the project

Data is clean and IT infrastructure is ready ahead of time

Vendor documentation is thorough – no assumptions

Risks have been identified and there is a good cutover plan

Testing has been planned into the project

Current processes have been documented

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The right time for a growing business to make the switch to a new ‘central nervous system’ is when stakeholder goals are aligned. Despite all the complaining about legacy systems, all the RFP processes and all the valid reasons in the world, unless the business has a clear plan for the future, any ERP project will be difficult to get across the line.

But the good news is that you can get your business prepared in the meantime. In fact,

the preparation process may provide the foundation for discussion that can lead to stakeholder goal alignment.

We hope this guide has provided useful insights, suggestions and strategies to help you achieve alignment in your growing business, so that you can experience the benefits of a modern, efficient ERP backbone for success.

Summary

All businesses at one time or another have to weigh up the costs and benefits of retaining legacy systems against the costs and benefits of selecting and implementing new ones.

Best of breed or integrated ERP solution?

Find out

Which one is right for your business.

If you’re considering an ERP upgrade, we’ve created a questionnaire to help you evaluate what type of solution is right for your business.

Please note that the information provided in this guide is of a general nature and should not be construed, or relied on as suitable for your specific situation.

© 2016 Soltius NZ Ltd

www.soltius.co.nz