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T H I N K I N G A B O U T E R P


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Thinking about ERP

The Executives guide to setting strategyor selecting, implementing and operating ERP

Third Edition

A SYSPRO/iPlan Collaboration

Abr Pienaar

Johan du ToitAltrina ViljoenWessel Wessels

(iPlan Industrial Engineers on behal o SYSPRO Ltd.)

SimplifyingSuccessyour


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Thinking about ERP:The Executives guide to setting strategy or selecting, implementing and operating ERP

By:Abr Pienaar, Johan du Toit, Altrina Viljoen, Wessel Wessels

iPlan Industrial Engineers

Published 2008 SYSPRO Ltd

This document is a copyright work and is protected by local copyright, civil and criminal law and international treaty.

No part o this book may be copied, photocopied or reproduced in any orm or by any means without permission in writing rom SYSPRO Ltd. SYSPRO is atrademark o SYSPRO Ltd. All other trademarks, service marks, products or services are trademarks or registered trademarks o their respective holders.

SYSPRO Ltd. reserves the right to alter the contents o this book without prior notice.

DisclaimerEvery eort has been made to ensure that the contents o this book are actual and correct. However, this does not mean that the book is ree rom error. Inaddition, this book is intended as an introduction to the concepts and tenets o the subject matter and should be used as such. This publication is designedto provide general inormation regarding the subject matter covered. Each business is unique; laws and practices oten vary rom country to country and

are subject to change. Because each actual situation is dierent, specic advice tailored to the particular circumstances should be obtained rom a quali-ed expert. SYSPRO Ltd in no way accepts responsibility or any damage or loss incurred due to decisions and actions that are taken based on this book. The

authors and publisher specically disclaim any liability resulting rom the use or application o the inormation contained in this book, and the inormation isnot intended to serve as legal advice related to individual situations.


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Table o Contents

Chapter One Why think about ERP at all? 1

Chapter Two The degrees o reedom ramework 9

Chapter Three Think strategically when selecting an ERP system 25

Chapter Four Thinking through ERP implementation strategies 49

Chapter Five Operating ERP to realize benets 65

The bottom line: Dierent strategies or dierent objectives 75

Reerences 76


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SYSPRO develops business sotware that provides complete control over theplanning and management o all acets o business including accounting,

manuacturing and distribution operations in an extensive range o industries.Weve been doing it or more than 30 years in over 60 countries.

www.syspro.com


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Foreword

Throughout my career in the ERP industry, I have been ortunate enoughto develop some insights into the challenges that organizations ace inimplementing large-scale business solutions.

For many years I have ound it hugely benecial to call in iPlan to helporganizations optimize the potential o their ERP sotware. These highly-skilled proessionals have extensive, in-depth experience o ERP imple-mentation projects and understand the ull impact o ERP as well as its strategic importance tothe organization.

As a result, iPlan is able to communicate the crucial decision points o an ERP project to theexecutive decision-maker, helping him or her tackle problems and align the ERP project strat-egy with the business strategy.

This book is the powerul culmination o the experience iPlan has gained through intensive in-volvement in many ERP implementation projects. iPlan understands typical recurring problemssuch as ailure to get senior management buy-in, resistance to change across the business, anda lack o clarity around project objectives.

By talking directly to the decision-maker, this book shows organizations how to drive the imple-mentation rom the top and ocus on key perormance measures. Through clearly deningwhat the ERP project is meant to achieve, organizations can pursue their strategic objectives.

I you do nothing else beore starting your ERP project, read this book it will make all thedierence.

Meryl MalcomessMarketing DirectorSYSPRO Ltd.


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About this book

The premise o this book is straightorward:

The business objective you are trying to achieve determines the strategy you should ollowwhen selecting, implementing and operating ERP.

This book was written due to the above premise not being standard practice. Most oten, busi-ness objectives do not play much o a practical role in the ERP selection process. Executivesmerely instruct their people to pick the best system that will work or their business and doesnot cost too much. ERP implementation projects are more oten managed on the basis o

what the ERP implementation partner company knows, than by what the client requires. Oncethe system is up and running, executives just want ERP to keep working.

On the other hand, once one accepts that the business objective sets the ramework or ERP,the ocus shits to thinking about how to ensure that this objective will actually be achieved andhow the business benets will be realized; considering the investment in time, eort and moneythat ERP requires.

We aim this book directly at the executive level o the organization. The intended reader is the

chie executive, or a trusted executive who is tasked by the chie executive to make the stra-tegic decisions about ERP in their organization beore it commits to a course o action. This is ause it or lose it opportunity: Once ERP systems are selected and implementation partners ap-pointed, the execution o ERP projects is (and should be) run by proessionals with knowledgeand expertise o ERP computer systems, business process design and the like. How they do itshould be controlled by a clear strategy established upront and rmly anchored in the busi-ness objective.

This is not a particularly dicult or arduous task or the executive decision-maker - our targetaudience. In this book, we present an objective-driven way or executives to think about ERPand set a strategy that eliminates much o the conusion oten associated with the selectionprocess when acquiring an ERP system. It also drastically reduces the risk and wrenching dislo-cations that accompany some implementations and signicantly increases the probability ooperating ERP in a way that will achieve the business objective and bring business benets.

The layout o this book ollows the same mode o thinking. In the rst chapter, we ocus on thebusiness objective and the business benets that we propose the executive decision-maker

should use as the anchor when thinking about ERP. In chapter two we present a useul clas-sication mechanism, the Degrees o Freedom Framework, to quickly position any particularorganizations ERP ambitions in one o our classes depending on their business objective. Di-erent strategies or selecting, implementing and operating ERP ollow directly rom this clas-sication and we devote chapters three, our and ve respectively to each. We recommendthat all the chapters o the book are read in sequence by any executive decision-maker whois thinking about ERP.



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Doing the work o executing the strategy the tactics is not covered in this book. We believethat once the strategy has been set, exploitation o the vast amount o literature available atthe tactical level becomes more manageable. We present some specic collateral material at

the website address: www.iplan.co.za/thinkingabouterp which serves as a companion to thisbook. More guides, as well as acknowledgement o sources, are reerenced at the end o thebook.

This book was commissioned by SYSPRO, an ERP solution provider, and was written by a numbero individuals rom iPlan, a consulting rm. The concepts described draw on the IntellectualProperty (IP) o iPlan; which retains ownership o such IP and the copyright thereto. The opinionsexpressed by the authors in the book do not necessarily refect the position o SYSPRO.

Abr Pienaar, Johan du Toit, Altrina Viljoen, Wessel Wessel, April 2008


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Chapter One: Why think about ERP at all?

Enterprise Resource Planning, commonly called ERP, reers to the computer system that anorganization uses or business processes such as taking customer orders, scheduling operations,and keeping inventory records and nancial data.

On the one hand, then, ERP is just a computer system; albeit nowadays a very complex andsophisticated one. On the other hand, ERP has demonstrated that it can drive huge improve-ments in the eectiveness o any organization. In the last three or our decades the world hasmoved rom nobody using ERP the concept did not exist beore the large-scale deploymento computer systems to manage business data to virtually every organization larger than a

ew people using some or other orm o ERP. Now, at the end o the rst decade o the twenty-rst century, ERP is no longer a competitive advantage; it is a competitive disadvantage i yourorganizations ERP system does not operate eciently and eectively.

So our assumption at the start o this book is that you, the executive decision-maker, have a compelling reason to think about ERP. You may be thinking about buying anew ERP system because the one you have is not working; or is not working well enough orwhat you want to achieve; or will eventually no longer support the way your organization is

evolving. There may be a technical reason: or example, your current ERP system may be ob-solete; going to become obsolete; or you need to pre-empt a ailing system. There may bean organizational reason: such as a new business venture or an existing business unit splittingo rom a larger corporation and you need to think about whether to continue using the ERPsystem o the larger corporation or to select a dierent ERP system or the new entity to use.Buying a new ERP system may not be relevant in your situation but you may be aced with theimplementation o a previously acquired system or re-implementation o a new version o thesame system.

Yet, despite all these very compelling reasons why organizations select, implement and operateERP; the track record is not good. Yu 1 , one o many researchers reaching similar conclusions,ound that 40% o all ERP implementations or extensions perorm below expectations and that20% are scrapped as complete ailures. Depending on the denition o ailures, the latter gurecould be as high as 50%.

Given that ERP systems are expensive big ticket items to buy and/or implement and that theirimplementation and running touch every aspect o the business that is their purpose, aterall the probability o ailure suggested by the research is distressingly high.

1CS Yu, Causes infuencing the eectiveness o the post-implementation ERP system, Industrial Management &Data Systems, vol. 105, no. 1, 2000, pp. 115-132.

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Our own experience has been that sometimes the problem lies in the expectations and evenin the denition o ailure (as noted by Yu). In a large number o cases we have ound businessexecutives unable to answer what we believe is a undamental question: What are you trying

to achieve with ERP and why do you want to do it?

So we propose that beore spending money on ERP, the executive decision-makerthink through and answer the ollowing questions:

1. What strategic business objective will be served with ERP?2. What, how much and when will ERP contribute to this particular objective?3. How do the answers to these two questions infuence what ERP system to select,

how to go about ERP implementation and how to operate the ERP system once it islive?

This rst chapter in the book is aimed at helping you, the executive decision-maker, think throughthe rst two questions. The third question is what the rest o the book is about.

Beore discussing how ERP can support your business objective, we briefy discuss some relevantaspects o ERP itsel.

ERPProessional organizations such as CSCMP 2 , APICS 3 and Gartner 4 all have ormal ERP deni-tions; most o which emphasize the inormation technology (IT) platorm. In this book, however,we oer the ollowing strategic denition o ERP:

ERP systems automate and integrate most o the core business processes requiring people inorganizations to manipulate large amounts o data.

The words automate and integrate are the key strategic perspectives. By automatingaspects o business processes, ERP makes them more ecient, less prone to error, and aster. Italso rees up people rom mundane tasks such as manipulating data. Thereore, it is usually bet-ter to run a particular business process with ERP than without it; and more so as the amount odata manipulation increases.

By integrating disparate business processes, ERP ensures coherence and avoids duplication,discontinuity and people working at cross purposes in dierent parts o the organization. Thisrequires ERP in any one business process to unction in a way that contributes to, not detracts

rom, the unctioning o all the other business processes. The cumulative positive eect whenbusiness processes integrate well is overall superior perormance by the organization.

Business processesIn our strategic denition o ERP, we stress that ERP automates and integrates business processes.The reason why an executive decision-maker is thinking about ERP should thereore be because


2The Council or Supply Chain Management Proessionals (CSCMP), Supply Chain and Logistics Terms and

Conditions, http://cscmp.org, 2006.3 The American Production and Inventory Control Society (APICS), APICS Dictionary - Twelth Edition, 2008.4

Gartner Research, The Gartner Glossary o Inormation Acronyms and Terms, http://www.gartner.com/6_help/glossary/, 2004

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he or she believes that better automation and/or better integration o business processes willcontribute to the achievement o the organizations business objectives.

A business process is dened asa set o logically related tasks or activities perormed to achievea defned business outcome5.Examples include the receiving o customer orders, invoicing oshipped products, updating employee inormation, and setting a marketing budget. Businessprocesses occur at all levels o an organizations activities and include events that are visibleto customers as well as activities that take place in the back oce. Business processes can bedescribed as how we do what we do.

Note the we. Business processes always include people who oversee the logically relatedtasks in a business process or actually perorm them; or example, an accounts clerk who calcu-lates the amount on an invoice. ERP systems automate many o these tasks; or example, wherethe computer perorms the actual calculation o the invoice amount. This rees up a personrom having to do the work and that means that one can get the same amount o work donewith ewer people, or one can redeploy people to do more meaningul work. In the invoiceexample, the accounts clerk could, or instance, be more protably employed ollowing up lateinvoice payments with customers than doing calculations that a computer is able to do asterand more accurately.

By automating business processes, ERP takes care o mundane and routine work where it isimportant that things happen ast, consistently and correctly every time. This automation allowspeople to ocus on exceptions and out-o-the-ordinary circumstances, and to manage largerchunks o work.

All business processes work with data. For example, in a customer order, the data is the identi-cation o the product, the quantity ordered, the price to be paid, and the delivery date. Datacan exist in a variety o orms: as memories stored in a persons mind; as written or typed texton pieces o paper; as electronic data stored in a computers database.

ERP systems integrate business processes by providing data to each business process as andwhen necessary and storing the data in the computer database at other times. The ERPsystem also ensures that the data being manipulated in one business process is available toall other business processes. This is a more ecient and reliable way or an organization tomanage business process data than to rely on a person verbally communicating what is in hisor her mind and to hope that the data in the persons mind is correct or to rely on pieces opaper that are copied and recopied and sent around and may get lost or drit out o date and

relevance.

By integrating business processes and maintaining data, ERP keeps things synchronized.

Better and biggerERP does not just automate by doing the same thing in the same way a person would havedone it. Once you have a computer system as part o the business process, it becomes pos-sible to achieve the same business outcome by ollowing a completely dierent route than youwould have without the computer.

5The American Production and Inventory Control Society (APICS), APICS Dictionary.

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Planning and scheduling, or example, is an extremely complex and data-intensive businessprocess. It is virtually impossible to manually do this well except in some very simple and low-activity level situations. ERP systems provide computer-based algorithms which automate much

o the planning processes. Using a modern ERP system, a single planner nowadays can planand schedule airly extensive operations. Furthermore, the planner does the planning betterthan a group o people on their own would have been able to do, since the computer-assistedplanner is using a dierent, superior business process.

Over the past three or our decades, ERPs integration reach has steadily increased. In theseventies, Material Requirements Planning (MRP) integrated production schedules, inventoryrecords and purchasing processes. By the eighties, Manuacturing Resource Planning (MRPII)systems integrated virtually all the manuacturing resources o a company, including work or-ders and sales orders. In the nineties, the integration reach encompassed so many businessprocesses in so many dierent types o organizations (not just manuacturing) that the termEnterprise Resource Planning (ERP) came into general usage. Nowadays the ERP system is typi-cally seen as the backbone which integrates the core business processes o the organization.Additionally, it provides the hooks or other systems, including systems rom other organizationsupstream and downstream in the supply chain, to integrate business processes.

This may all be very interesting, but what is the relevance or you and your organization?

1. What strategic business objective will be served with ERP?I you dont know the what and the why o your proposed ERP initiative, you are likely towander down an inappropriate road o selecting, implementing and operating ERP. You mayblunder upon success, but you are more likely to be dissatised with the results.

This is the task o strategy: to unambiguously and up-ront dene the objective, to decide onthe approach that will be used, to assemble the resources, and to establish the measures ordetermining success or ailure.

Success, o course, depends on what one is trying to achieve.

In modern organizations, especially those with many people or with geographically dispersedareas o activity, it is becoming increasingly dicult to have a clear and all-encompassing viewo the current status o the organization and how things are tracking against its goals and ob-

jectives. The increase in reach and the ability to provide inormation immediately on requesthave made ERP systems a source o inormation which is truly strategic. ERP systems have the

ability to accumulate, structure and present dierent views o organizational activities that be-stow the ability to gain specic insights and provide relevant and comprehensive inormation ina timely manner. This can be used to promote innovation, improve customer service, streamlineoperations, reduce operating costs, enable better decisions and quickly expose opportunitiesand threats. In short, ERP systems improve the ability o organizations to know whats going onand to better control what must happen next.

Sometimes an organization will embark on an ERP selection and implementation project be-cause it wants to keep what it already has: an ERP system which supports the organizations

goals and objectives. We oten nd that buyers o new ERP systems are companies which have


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come to completely rely on ERP to keep control o organizational activities, but need to changesystems because their current system is becoming a liability instead o an enabler. This may bebecause the current system is lagging behind in technology, may be ailing, is too expensive,

may no longer support the evolving organization, or needs to be completely re-implementedto refect a new way o working.

The precise business objective that will be served by ERP may dier rom situation to situation,but in all cases this objective should be well understood and clearly communicated. We be-lieve this is one o your tasks as the executive decision-maker.

2. What, how much and when will ERP contribute to the business objective?The widespread implementation o ERP across the world attests to the benets that organiza-tions derive rom these systems. But ERP costs money usually a lot. These costs are or the initialacquisition o an ERP system, the implementation project and the continuous operation o thesystem. Is it worth it?

Making a specic, quantiable case or selecting, implementing and operating ERP in a par-ticular situation has proven to be quite challenging; no doubt due to the strategic nature o ERPand the diculty in quantiying the benets. To illustrate: some typical non-quantiable benetsinclude:

n Improved alignment o business operations with the business strategy n Reduced business risk n Improved nancial management and corporate governance n Increased inormation visibility

The traditional approach used by organizations which are considering spending a large amounto money requires business benets to be quantied in monetary value and compared to thecosts. Trying to quantiy the non-quantiable benets o ERP, however, requires calculations andextrapolations that oten result in endless circles o debates about questionable assumptionsand hypotheses. Sometimes a benets case is compiled during the initial stages o an ERP proj-ect, but once completed it is almost impossible to isolate the benets and occasionally eventhe costs related to ERP or beore-and-ater type comparisons.

None o these diculties lets one o the hook: rstly to justiy the capital and operating ex-penses o ERP and, secondly, to relate the ERP strategy to the business objective and businessbenets. In act, it makes it even more imperative that the determination o the value to bederived rom ERP comes rom an authoritive individual who, on behal o his or her organization,

determines the why o ERP. SYSPRO reers to this individual as the Seeker o Value; we includethis role in the tasks o the executive decision-maker.

Our experience has been that it is less critical that the benets be quantiable than that theybe clear. We thus recommend that the executive decision-maker ocuses on clariying the busi-ness benets o ERP or the organization in a ormal, unambiguous manner by listing them in asigned-o document called a Case or Change or similar. This document should describe whatthe proposed change in the ERP landscape entails; why the organization is going to make thischange; what the expected benets are; and what the change is expected to cost.

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We also rmly believe that this is the task o the executive decision-maker; it should not bedelegated, subcontracted or outsourced. This is where you answer the question raised earlier:

What are you trying to achieve with ERP and why do you want to do it? We recommend thatyou think through and document in the Case or Change the value ERP will deliver by consider-ing questions such as the ollowing: n Which specic business objective or objectives are you pursuing with ERP? n Can you quantiy even i just approximately the contribution that ERP will make in

achieving the above business objective? n Will it be impossible or signicantly more dicult to achieve this objective without ERP? n Does ERP have to work perectly to achieve the business objective or is there a good

enough level? What would such a level be? n Can you calibrate the contribution o ERP; that is, quantiy how many more business

benets will be achieved or every increase in how well ERP works or you? n Is there a time-critical aspect; in other words, is the business benet o ERP more

signicant i available prior to a certain date or event?

Some o the answers will be less quantiable than others. We have ound a practical approachis to go ahead and compile dierent sets o benets in the Case or Change: quantiable andnon-quantiable. Furthermore, we suggest that or both o these categories, approximations

are in order as long as they are veriable. Any ERP business case that stands or alls on small di-erences in the benets to be gained and thereore requires very precise analysis is too riskyto approve anyway.

The collateral material available or download on the companion website to this book containsa guideline or the classication o ERP benets 6.

When considering the veriability o business benets rom ERP, we recommend the thinkingo Eli Goldratt, rst published in his 1984 book The Goal 7 and subsequently developed in his

Theory o Constraints. His argument is that a business benet is only real i it does at least oneo three things: n Increases throughput (the rate at which the business generates money) n Reduces inventory (the money tied up in business operations) n Reduces operating expenses

Thinking along these lines, even a quantiable benet such as reducing the time it takes tocapture a sales order is only a real benet i, or example, the actual salary bill o the sales

sta is reduced because ewer people are needed (a reduction in operating expense), or imore sales orders are captured and delivered by the same number o people (an increase inthroughput). I the reduction in time to capture sales orders only results in reducing the salessta requirement by hal a person, who is then idle or the other hal o the time because therearent any additional orders to capture, this benet is not real.

The Goldratt approach is useul because it orces you to think about the link between the ERPinitiative and the business bottom line, even i the bottom-line benet will only be realized in theuture.


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6 AJ du Toit & WH Wessels Enabling your ERP decision, iPlan Industrial Engineers, www.iplan.co.za/thinkingabouterp,2007.

7EM Goldratt & J Cox, The Goal: A Process o Ongoing Improvement, North River Press, New York, 1984.



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Consider the case o an international organization with a worldwide distribution and retail net-work: A ew years ago this organization was suering rom excess inventory and was only mar-

ginally protable. A project was launched to investigate whether improved systems would beo help in turning the situation around. Ater running a our-month limited pilot, the organizationused Goldratts thinking to distinguish between those business benets that would address itsproblem directly and those which were considered intangible benets.

It became clear that a new system would enable the organization to be more sophisticatedin its orecasting and replenishment planning, and that this would indeed have a direct andquantiable impact in the orm o reduced inventory holdings. Improved planning would alsoincrease customer services and thereby reduce lost sales, a quantiable impact on through-put.

Although the business realized that the new system would be more ecient and technically su-perior to the existing systems, and thus would make inormation more readily available aroundthe world to acilitate decision-making, none o these benets could be quantied within theTheory o Constraints model and were thereore not used in the justication o the project.

Summary

We strongly recommend that beore spending any signicant time, eort or money on ERP, theexecutive decision-maker should think through the key challenge o this chapter: What are youtrying to achieve with ERP and why do you want to do it?

Specically, we propose that you break this question down into the business objective andbusiness benets parts respectively: 1. What strategic business objective will be served with ERP?

2. What, how much and when will ERP contribute to this particular objective?

The answers to these two questions should drive the strategy or selecting, implementing andoperating ERP successully. In the next chapter we present a practical ramework to help youthink through the relevant aspects.

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Chapter Two: The Degrees o Freedom Framework

People with long and deep experience o ERP are usually able to predict with a air amounto accuracy whether a planned ERP project will succeed or ail ater only a short conversationwith the executive decision-maker. The obvious conclusion is that these experts, perhaps some-what intuitively, determine whether the proposed approach is likely to work or not without get-ting into the details. Simply put, their ERP strategy sets an organization up or success or ailureeven beore tactical plans are made.

This chapter describes a ramework that links the business objective you are pursuing with yourERP initiative to the type o ERP project that will be required.

The need to think dierentlyConsider the ollowing two cases:

n In its Arica operations, a global company with a reputation or best practices andoperational eciency had 24 dierent business improvement projects under way. Mostly,these were specic attempts to elevate the operational practices within the Aricanoperations to the same level as their rst world counterparts. Each individual project triedto bring about a particular change in a particular business process without consideringthe technology required, the implications on the people and the cumulative eect o allthe other projects to bring about changes in all o the Arican operations. At the time wesaw this situation, almost all o the projects were overdue on their promised delivery dates,had exceeded their budgets, and had very little practical eect on the actualoperations.

n A multi-national corporation used a top-end ERP solution in all o its in-countryoperations, making it a leader in its industry rom an ERP perspective. However, the SouthArican operations individual shop foor personnel had abandoned day-to-day use o

the ERP system in avor o stand-alone individual spreadsheets and planning tables. Thespreadsheets enabled the shop foor personnel to manipulate schedules more easily toachieve output targets and maximize workshop productivity in a static businessenvironment where cost reduction was the main driver. In 2007, however, the demand sideo the business changed rapidly and aster than the inormally developed spreadsheetscould handle. Because it had lost the ability to use the ERP system eectively to align thesupply side to customer requirements, the company had no working system to cope withthis change.

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We believe a common theme in the previous two cases is that o a narrow-minded ocus. Busi-ness Process Re-engineering (BPR) projects sometimes ocus on changing business processeswith scant regard or the capabilities o the systems that will automate and integrate the pro-

cesses or the abilities o the people who must work the changed processes. Oten the long-termimplications are neglected: ERP project teams, or example, can become so enamored withthe unctional capabilities o the computer system that they lose sight o the act that whenthe experts leave ater implementation, ordinary people will have to use the system. Sometimesunctionality is implemented or its own sake; only aterwards do people start wondering whatuse the impressive technology will be in achieving their business objectives.

What is required is to think through the changes that BPR and ERP projects precipitate, both thedesired changes and the consequential ones.

The Dimensions o Change ModelIn our work with business process change projects and ERP imple-mentations, we have developed a way o thinking about theseand other changes that an organization must make as it evolvesand improves.

Specically, we ound it useully simple to describe what hap-

pens when a business change is implemented in terms o threeaspects: n The business processes that determine how the organiza-

tion does its work n The people who do the work and the way they are unc-

tionally organized in departments and business units n The systems that automate and integrate individual steps and data in the process

Practically, we use the analogy o a three-dimensional Cartesian

space which we call the Dimensions o Change Model8 tomap the changes to systems, changes to the way people are or-ganized into unctions, and changes to the business processes, asdisplacement rom the origin along the three axes. In this model,the status prior to the change is at the intersection point o theaxes (point 0,0,0) and the change will end up at some point char-acterized by the coordinates (x,y,z).

As an example, consider a change to a system in use in a par-ticular company that is designed to make the system run betterwithout necessarily trying to optimize related business processesor rationalize the people and organizational unctions involved. Nevertheless, there will usuallybe some eect on the business processes and the people organization. For example, theremay be changes in the procedures ollowed (business process change) and thereore at leastsome training will be required (people organization change) as the system changes are imple-mented.

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8AJ du Toit, Managing Discontinuous Change, iPlan Industrial Engineers, www.iplan.co.za/thinkingabouterp, 2007.



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The net eect o this change is represented in the Dimensions o Change Model with asignicant displacement along the systems axis but also with smaller displacements along thebusiness processes and people organization axes.

Classiying changeOne way to classiy change is to distinguish between continuous improvement and discontinu-ous change.

Continuous improvementreers to the never-ending eorts to improve the way the organizationworks. This is an integral part o the job description o any manager. These types o changes aremost eective when implemented incrementally over time, stabilizing the gains achieved atereach small step. Funding or improvements comes rom the organizations operational budgetand the people making the changes do so as part o their normal work.

Occasionally a business change requires a one-step, beore-and-ater type change be-cause it may be impossible, impractical or simply inadvisable to do it gradually. Typically, such adiscontinuous change, as it is known in organizational theory 9, is managed as a project with adened objective (the step change), a beginning (the beore) and an end (the ater).

Discontinuous change projects may be small or large. A large-scale discontinuous change

project requently cuts across many unctional parts o the organization, requires expertise andresources not normally present among permanent sta, and is unded via a specic projectbudget.

ERP as discontinuous changeA key insight or the executive decision-maker is that you should think about selecting and/orimplementing ERP as a large-scale discontinuous changeproject. The implications are impor-tant:

n All three dimensions o change systems, business processes and people organized intounctions are always present in any ERP project although the relative importance oeach o the three may vary, as we shall discuss shortly

n An ERP project demands the rigor o large-scale project management methods andtechniques: a project plan, a project budget, a project leader, a steering committee,ocused resources and so on

n Whats it worth? The amount o time, energy and money that the business is willing toinvest in the ERP project should be determined by the value ERP will contribute to the

business objective. The executive decision-maker who reads this book will already havethought about this aspect in chapter one

(Operating an ERP system requires a mixture o continuous improvement and discontinuouschange strategies. For now we will ocus on how the executive decision-maker should thinkabout selecting and implementing ERP, but return to the strategic thinking required or operat-ing ERP in chapter ve.)

9For example chapter one o the book Leading Organizational Transormation by D Nadler, RB Shaw & E Waltonet al, 1994.

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Not all changes are equalThere is a dierence between the change that is the purpose o the whole exercise or ex-ample: We want to change the ERP system in our company and the consequential changes

or example: We have to change this particular business process because the new systemdoes not allow us to work in the way we used to work with the old system.

Every change o any kind, however, costs something and carries risk o some kind. An executivedecision-maker thinking careully about the many changes involved in ERP would naturally ar-rive at a strategy that limits the consequential changes to only those which are really necessary.By denition, you are only making those changes because you have to. Thereore you shouldnot justiy them in terms o business benets and you should denitely limit their scope.

On the other hand, the desired change is the one that you are making in pursuit o the busi-ness objective and it is this change that is going to deliver the business benets. The executivedecision-makers thinking should thus lead to a strategy which allows in act encourages thereedom to make the scope o the desired change as large as is justiable by the benets.

To summarize: ERP projects are large-scale discontinuous change projects which always havechanges along all three o the axes o the Dimensions o Change Model. However, dependingon the business objective you are trying to achieve with ERP and rom which the business ben-

ets will fow, your strategy should be to encourage reedom o change along some o theseaxes and limit the amount o change along the others.

The Degrees o Freedom FrameworkAgain we use an analogy to simpliy the above reasoning to a model that the executive de-cision-maker can use to set strategy; the concept o degrees o reedom rom the world ophysics.

The simplest explanation o degrees o reedom in physics is that an item is said to have adegree o reedom or each independent movement that is allowed. For example: A train isallowed reedom to move in only one physical dimension and is constrained in the other two.Its controls are intended to manage movement in the one dimension, orward or backwards,and no other. A train cannot turn let or right nor can it go up or down. A car has the reedomto move in two dimensions and has controls to manage that reedom o movement. An air-crat has the reedom to move in all three physical dimensions and has the complex controlsrequired to manage that movement.

In our Degrees o Freedom Framework10

we consider discontinuous change projects wherethe business objective demands a change in only one o the dimensions o change but withconsequential changes in the other two a One Degree o Freedom project.

The earlier example in the section on the dimensions o change is a good illustration o a OneDegree o Freedom change. In that example, we described a company which is making achange to its system in order to make it run better. It is not trying to optimize business processesor to rationalize the organization. It is, however, orced to make changes in the proceduresollowed (business process change) and thereore at least some training is required (people

organization change) as the system change is implemented. Using the Dimensions o Change

12

10AJ du Toit, Managing Discontinuous Change, iPlan Industrial Engineers, www.iplan.co.za/thinkingabouterp,

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Model and the Degrees o Freedom Framework in combination, we illustrate that there is dis-placement along all three axes o the dimensions o change but only one o these, the systemsaxis, is shown in orange as a reedom to change axis.

There are other classes o projects where the objective o thechange requires a strategy to allow as much reedom to changein two o the dimensions o change simultaneously as is necessaryto achieve the objective (a Two Degrees o Freedom project) oreven all three axes (a Three Degrees o Freedom project).

For example, an executive decision-maker who is looking or anew, superior ERP system that will allow him to implement com-pletely new business processes because he wants to target anew market sector, is thinking about a Two Degree o Freedom

project. He should allow reedom o change along the businessprocesses axis as well as the systems axis to achieve his goals.However, the changes required rom his people and his organiza-tion and there will be changes along this third axis should belimited to what is strictly necessary.

We illustrate this case with a graphic that captures the essence o what this executive decision-

maker has already decided the Degrees o Freedom Framework classication shown as twoorange axes beore even considering the magnitude o the changes in any o the dimensions no change arrow yet.

Classes o ERP ProjectThis book is about ERP and so we limit our discussion to large-scale discontinuous change projects where the systems axis withERP always represents one o the Degrees o Freedom. The ques-

tion or the executive decision-maker is whether you think thatthis is the sole extent o the desired change (ERP) and whetherone or both o the other dimensions o change should also beree to change in pursuit o the business objective. Depending onthe answer, we classiy ERP projects into one o our classes:

1. In a One Degree o Freedom ERP project, the ocusis solely on changing the ERP system. Other considerationsare secondary: business process changes will only be done

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because the system change demands it; not the other way round. Similarly, people will betrained or changed to operate the system; the system will not be tailored to achievepeople and/or organizational objectives.

The reason or the change project is that there are benets to be gained rom changing thesystem (or negatives avoided, or example averting a ailure o the current system). The magni-tude o those system benets determines what system to buy and how to implement it.

In this book we use the shorthand notation 1DFto describe a One Degree o Freedom ERPproject.

2.A Two Degree o Freedom ERP projectallows the reedom to change simultaneously. in two

o the three dimensions o change. For the executive decision-maker thinking about ERP, one othose changes will always be to change the ERP system. The other will be to either change thebusiness processes simultaneously or to change the people organization simultaneously withthe ERP system. This leads to two distinct classes:

2a. In a Two Degrees o Freedom ERP and Business Processesproject, the objective o the discontinuous change andthe benets to be derived is to change the business

processes as well as the ERP system. Again, changes topeople and organization are secondary and will be madeto t the new process requirements and system demands.

However, sometimes the system will be changed to suit the newbusiness processes and sometimes the new business processeswill be adapted to t the system this will be determined by thebenets to be gained in terms o the business objective.

A typical example is where a company wants to change the way it operates (business pro-cesses change) but is unable to do so with the current system. Consequently, it embarks on aroute to change the system in order to change the business processes and launch a project todo both simultaneously.

In this book we use the shorthand notation 2DF(BP)to describe a Two Degrees o Freedom ERPand Business Processes project.

2b. In a Two Degrees of Freedom ERP and People Organizationproject, the objective o the discontinuous change and thebenets to be derived is to change the people organizationas well as the ERP system. Changes to business processes aresecondary and will only be made to t the new organizationaland system demands.

A typical example is where a company centralizes ordecentralizes a unction such as purchasing or nance and

requires a new system or drastic changes to the current ERP

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system to do so. In this book we use the shorthand notation 2DF(PO) to describe a TwoDegrees o Freedom ERP and People Organization project.

3.A Three Degrees o Freedom ERP project is where the statedintent is to change everything simultaneously: the peopleorganization; the way business is conducted; and thesystem or doing so.

Examples are a start-up venture or where a business unit, ormer-ly part o a large corporation, is set up as an independent busi-ness with its own system, new organizational unctions that dierrom what came beore and new business processes coming into

orce simultaneously.

In this book we use the shorthand notation 3DF to describe a Three Degrees o Freedom ERPproject.

Success or ailureEarlier, in chapter one, we suggested that one o the tasks when setting strategy is to establishthe measures or determining success or ailure unambiguously and up-ront.

The Degrees o Freedom Framework points the executive decision-maker looking or success orailure rmly along the axis or axes that determine the degrees o reedom and implies that theother axes dont matter when passing judgment on success or ailure.

For example, the company that launches an ERP project as a One Degree o Freedom proj-ect replace the ERP system and ends up being worse o in terms o ERP but achievesother benets at least we beneted rom a streamlined organization has ailed as ar as itschange project is concerned.

The magnitude o changeI change along one o the axes o the Dimensions o ChangeModel does notrepresent a degree o reedom, this does not im-ply that the consequential changes will be insignicant. In act, itis quite common that such consequential changes are large andsignicant, as the graphic on the right illustrates.

In this One Degree o Freedom project, the ERP system changerequires large-scale changes in the business processes eventhough that is not the strategic intent. The executive decision-maker should also not look or business benets in the new busi-ness processes (in this example) nor should you measure successor the project in terms o business process changes. It is not whatyou set out to do.

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ComplexityNaturally, every case will have nuances that make it unique. Furthermore, a One Degree oFreedom ERP project in a small company and a One Degree o Freedom ERP project in a large

business are very dierent projects. Every ERP project aims at its own unique set o changes;both desired and consequential, or each o the three dimensions. These are, however, mostlyconsiderations o the magnitudeo the change.

From the viewpoint o setting strategy, on the other hand, complexityis what matters. A simpleclassication such as the Degrees o Freedom Framework enables the executive decision-mak-er to quickly link the business objective and the benets to be gained to the complexity levelo the proposed change. Thus we propose that you, as the executive decision-maker, rst thinkthrough the classication o your ERP project in terms o the Degrees o Freedom Framework

and then think through the magnitude implications, including the magnitude o the conse-quential changes that will not be the primary driver o business benets.

A Two Degrees o Freedom project is more complex than a One Degree o Freedom projectand a three Degrees o Freedom project is the most complex o all. However, our experienceis that this increase in complexity is commonly underestimated. We talk about an increase incomplexity o an order o magnitude or every increase in the Degrees o Freedom.

Since complexity in large-scale discontinuous change projects equates to risk, the executivedecision-maker is well advised to careully consider the objective o the change and the ben-ets to be gained; and rom this optimize the number o degrees o reedom. We cringe whenwe encounter an executive with a cowboy attitude expressed something like: While werechanging the ERP system, we might as well change everything else at the same time.

Multiple stepsA discontinuous business change is not about continuously tweaking and improving things; it isa radical step-change typically structured as a project with dedicated resources and denite

start and end dates. Most importantly, a discontinuous change has a specied end-state: whatthings will look like once the objective has been reached. However, it is entirely easible to reachthe aimed-or end-state with consecutive projects.

Say the business objective calls or reedom to change in two dimensions to reach the speciedend-state. The organization may ollow a strategy o launching a single Two Degree o Freedomproject to achieve the specied end state in a single step. Alternatively, it may ollow a strategyto reach the specied end-state in two steps with two separate, consecutive One Degree o

Freedom projects, rst to make the desired changes in one dimension while limiting the othersand then to make the desired changes in the second dimension while again limiting the others.

The above are very dierent change strategies (a single Two Degrees o Freedom project ortwo One Degree o Freedom projects) and the implications should be careully considered.Even ater the organization decides to ollow a two-step strategy, there are strategic choiceswith important consequences to be made. For example, a business that wants to change busi-ness processes and the ERP system may elect to either rst change the business processes andthen aterwards implement ERP or, alternatively, they may rst implement ERP and then ater-

wards change the business processes.

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A ast-moving consumer goods company we worked with shortly ater the turn o the centurywas questioning the appropriateness o its ERP solution. The company had implemented its ERPsystem more accurately described as an MRPII system in 1989 and was unsure whether it

would be able to support its anticipated growth and expansion in the new decade.

The initial evaluation showed that the old system had, in act, not supported the whole busi-ness or some time, causing a multitude o stand-alone, custom-developed systems being usedthroughout the company in addition to the MRPII system. This assessment came at a time whenthere were a number o business initiatives coming to ruition: International markets, new busi-ness acquisitions and the expansion o product lines all contributed to an environment that waschanging drastically and would continue to change or the oreseeable uture.

The executive team rapidly agreed that to sustain its growth and exploit its expansion oppor-tunities, the business needed a ar superior ERP system. The question was whether to implementa new ERP system while simultaneously launching the new initiatives, beore launching thoseinitiatives or aterwards.

The company eventually decided to ocus on the implementation o a new ERP solution ora nine-month period, with the primary objective o replacing the platorm or current opera-tions. The project became a ocused ERP-only project, with One Degree o Freedom along the

systems axis. All planned organizational and process change initiatives were postponed untilater the successul completion o the ERP solution.

As it turned out, the ERP implementation was completed on time, to specication and withinthe original budget. This was the companys measure o success.

From the start, the executive team acknowledged that extensive business benets would comerom initiatives that would ollow the ERP implementation, but that a new ERP system was a pre-requisite or those initiatives.

The latter also came to pass and the company subsequently increased its product range andinternational markets with very meaningul rewards.

From business objective to degrees o reedomThe useulness o the Degrees o Freedom Framework is that the strategic thinking in a One De-gree o Freedom large-scale discontinuous change project diers radically rom a Two Degreeo Freedom large-scale discontinuous change project, even i the ERP aspect is the same in

both projects. First classiying your ERP project is thus a practical and ast way to lay the ounda-tion o the ERP strategy.

A very large proportion o ERP implementations start out with organizations saying that all theywant to do is to replace their current system. As long as they stick with that objective, this trans-lates easily into a One Degree o Freedom ERP project (1DF).

A more complex objective would be to reduce inventory. The global distribution and retailorganization discussed in chapter one started evaluating technology solutions to address its

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problem o excess and obsolete inventory. In this case, merely implementing the technologywould not have delivered the desired results. The technology was required to redesign thecompanys inventory planning and control processes, introduce a centralized planning de-

partment and change the supply chain rom a pull to a push environment. Up-ront it wasrealized that to achieve all o these objectives, new processes and organizational structureswould be required along with the new technology; in other words a Three Degrees o Freedominitiative (3DF).

Another requently occurring situation is when an organization wants to adopt a more sophis-ticated technique or method o operation, or example by introducing advanced planningcapability. A company may decide that it requires a more sophisticated method o planningand scheduling but then realize that this would only be possible with the introduction o new

technology. This business objective translates into a Two Degrees o Freedom ERP and BusinessProcesses project 2DF(BP): to implement the new technology and simultaneously adopt newmethods and techniques.

A key insight or you, the executive decision-maker, is that i the answer to our chapter onequestion: What are you trying to achieve with ERP and why do you want to do it? changes, thedegrees o reedom classication may change accordingly and, i that happens, your wholestrategy should change with it. Failure to consider a shit in strategic objectives in terms o the

implications or the Degrees o Freedom Framework can have a devastating eect.

An international corporation recently bought out a local company and decided that all op-erations should run on the same ERP platorm that the parent company (overseas) uses. An ERPreplacement project a One Degree o Freedom ERP project was launched.

As the project progressed, it became clear that the ERP project could also be the vehicle orthe organization to consolidate some o its operations, ensure that the newly-acquired divisionworked to international standards and could, in act, also reduce the headcount within the

organization. As the opportunities became visible, they were made part o the ERP project in aclassic example o scope creep. However, project management still maintained that the proj-ect was an ERP replacement project and tried to stick to that objective. In the end the projectexceeded its time-line by 50% and the project budget by 100%.

Scope creep happens in all ERP projects and is always an issue. There is a world o dierence,though, between scope creep that changes the degrees o reedom o the project, as in thecase described above, and scope creep that extends along a current Degree o Freedom axis,as in the ollowing case.

A One Degree o Freedom ERP project that we worked on required a complete change in theERP system to incorporate many o the stand-alone systems that had evolved over time. Manysystems were evaluated and one was selected to replace all o the separate stand-alone sys-tems that were targeted or replacement. Ater selection, it was discovered that this particularERP system could in act also replace the bar code reading system which had not been in-cluded in the original planning. But a case was made that it would be protable to include barcode reading into the ERP project. The change in scope was approved, the budget and time

line or the project were adjusted appropriately, and rom there things proceeded well.

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Risk and rewardThinking through the business objective will lead the executive decision-maker to adegree o reedom classication or your proposed ERP project. Beore locking in on a specic

project approach, though, you may well consider the risks and rewards; dierent or each type oproject:

1DF: A One-Degree-o-Freedom ERP projectChanging the ERP system is the ocus o a One Degree o Free-dom ERP project and all other changes, in business processes, inpeople and in organizational unctions, are consequential.

The business benets or this class o project come rom the new

ERP system.

Avoiding the cost o a ailing system is a airly common businessbenet or a One Degree o Freedom ERP project. We know acompany whose current ERP system is no longer supported bythe original vendor, and there is now only one local person whocan provide eective support. Should anything happen to her,the system will eventually ail and the damage would be considerable. Avoiding this eventuality

is the primary reason or the companys planned ERP project.

Similar cost avoidance benets come rom the case where the hardware platorm o a com-pany is changed and the old ERP system will not run on the new platorm without signicantand costly adaptations that probably will not work very well. Better to replace the ERP system.We saw many such examples in the move to Windows-based systems in the previous decade.

A similar argument is oten presented in cases where the change is not rom one ERP system toanother but rom a conglomerate o disparate systems to a single ERP system. The benets case

lies in avoiding the instability and ongoing eorts and costs o integrating systems such as Proj-ect Management, Quality Assurance (QA), Customer Relationship Management (CRM), and soorth. Much o the drive in the nineties to move rom MRPII, the precursor to ERP, was based onthe argument that a single backbone system was much more ecient.

There are usually direct cost benets that accompany the implementation o new ERP systemsas well. These derive rom newer technology delivering better eciencies: doing the samethings better, aster and with ewer resources.

The key advantage o a One Degree o Freedom ERP project is that it is, relatively speaking, alow-risk project that can be done ast. Youre replacing the ERP system and trying to minimizethe impact on the business processes, the people and the organization. I something goeswrong, you can oten keep the old system going or a little longer. We even know o caseswhere the organization went back onto the old ERP system when they were unhappy with thenew system ater go-live.

But there is no such thing as a ree lunch. You, as the executive decision-maker, should be

aware o the many disadvantages to setting up the ERP project as a One Degree o Freedom

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ERP project beore rmly committing to this strategy. The key disadvantage is best expressedin the homily: I you keep on doing more or less the same things in more or less the sameway, you will keep on getting more or less the same results. Neither signicant business process

improvements nor major people and organizational improvements are going to happen in a OneDegree o Freedom ERP project, even though you will pay or and install the technology tomake these possible.

For example, a company implemented a new ERP system that included an automatedCongurator module, yet the relevant business process continued to employ manpower tomanually rewrite sales orders onto manuacturing bill o material congurations because thatwas the way it used to be done.

We requently see companies issue a directive that the ERP system will be implemented withminimum deviation rom the standard settings. This is an extreme case o a One Degreeo Freedom ERP project that oers an ecient solution which can be quickly implemented.However, the ull benets o ERP may never be realized with this approach and it could happenthat, ater implementing ERP, you have to re-engineer the business processes anyway to makethem actually achieve their intended business outcomes.

Two or more consecutive One Degree o Freedom projects

Because o the order o magnitude increase in complexity rom a One Degree o FreedomERP project to a Two Degrees o Freedom project, a common strategy is to rather have twoconsecutive One Degree o Freedom projects, as noted previously under Multiple steps. Inthe case o the ast-moving consumer goods company example related in that earlier discus-sion, the executive decision-maker judged the risk and the organizations low ability to absorbchange to be such that he elected to play it sae and ollow a strategy o consecutive projects.

There are, however, many cases where the strategy ollowed by this company would notbe the best one, or even the low-risk one. The advantage o attempting only a single One

Degree o Freedom change at a time is that it is less disruptive. The obvious disadvantage is thatit takes much longer to complete two consecutive projects than a single Two Degree o Freedomproject. There are other not-so-obvious disadvantages, mostly dependent on which comes frst,

I you elect to rst implement ERP based on your current business processes and then later oncome back to launch a business process improvement project, you may be very restricted inwhat you can do. It has been said that ERP systems are like cement: fexible at rst, but rigidaterwards. Coming back to re-engineer business processes ater the ERP implementation mayrequire so many changes to ERP that you end up doing everything over again. In eect, youthen have a One Degree o Freedom ERP project ollowed by a Two Degree o Freedom ERPproject. In the second project you incur most o the costs and risks you would have had anywayby opting or the Two Degree o Freedom ERP project rom the start.

There is also the risk that, once the organization realizes the magnitude o the work that still hasto be done ater implementing ERP based on the current processes, it loses heart and the abilityto summon the energy and resources to go back into large-scale discontinuous change mode.So it just stops right there, the business objectives in the business processes dimension are never

realized and although the new ERP system seems to work we hear descriptions o the projectsuch as not very successul; did not meet our objectives; or even an expensive mistake.

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I you ollow the opposite strategy o rst redesigning the business processes and then subse-quently turning your attention to ERP, the end result may not be the best you could do or themoney you eventually spend since you would not know what to design into the processes in the

rst project. The business process design project would operate in a vacuum and requently theERP project needs to come back to business process design in any case.

There is no correct answer. You need to think careully through your business objective and thebusiness benets to be gained or your organization, consider the risks and the time lines; andthen decide on an appropriate course o action.

2DF(BP): A Two Degrees o Freedom ERP and Business Processes projectOur earlier classication o all ERP projects into one o our cat-

egories according to the Degrees o Freedom Framework doesnot allow or relative importance between the axes. In practice,i your business objective and the business benets come romchanging both the business processes and the ERP system, it isusually the business process change that is in the driving seat.

Some o the advantages o a One Degree o Freedom ERP proj-ect also hold or this one, since you are still replacing the ERP sys-

tem and can look orward to better eciencies and thus lowercosts. However, the risk prole o a Two Degree o Freedom ERPand Business Processes project is completely dierent rom a OneDegree o Freedom ERP project. Here the whole objective is to change the way the organiza-tion operates. Typically, there will be a single go-live day on which lots o things change simulta-neously new system, new processes which requires newly trained people as well. I all goeswell, the business benets will come; i they dont you may actually be worse o. It is not uncom-mon in this situation that some new business processes simply dont work on go-live.

The much higher risk o a Two Degrees o Freedom ERP and Business Processes project can bemanaged, but the way to do it is to take much longer to ensure that you get it right beore go-live; to have many more resources on the project to design and veriy and test the new businessprocesses; and the executive decision-maker needs to be much closer to the project. Apartrom taking longer and being more work, this class o project costs much, much more.

However, the advantages can be huge. With the reedom to design new business processes toimprove the business and the intent to implement a system that will support those new process-es, a Two Degrees o Freedom ERP and Business Processes project is oten a bootstrap projectthat elevates everything about an organization to a signicantly more proessional level. Com-panies use this opportunity to throw out antiquated business processes, they implement bestpractices that bring them into world-class, they launch Lean Manuacturing, Activity-BasedCosting and Advanced Planning and Scheduling initiatives in short, they re-invent and re-position themselves in a major way.

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2DF(PO): A Two Degrees o Freedom ERP and People Organization projectJust as in the previous class o ERP project, in a Two Degree oFreedom ERP and People Organization project the ERP system

tends to bow to the people and organizational objectives. Thesignicant determinant o the complexity o this class o project isusually the scope o the organizational changes. A Two DegreesO Freedom ERP and People Organization project that aectsonly a ew unctions in the organization is very dierent rom aTwo Degrees o Freedom ERP and People Organization projectwhere the whole organization is changed as part o the project.

At the lower end o complexity are changes that aect only one

or a ew o the unctions in the organization. In an earlier descrip-tion we noted an organization that centralizes or decentralizes its purchasing unction as anexample o a Two Degree o Freedom ERP and People Organization project. Another commonoccurrence where only one or a ew unctions are involved is a shared services unction tocentrally manage a corporations nancial operations.

At the other end o the scale o complexity lie projects that signicantly aect most o the orga-nizational unctions. Complexity goes hand-in-hand with risk; the more individual organizational

unctions involved in the ERP project, the higher the risk.

In all Two Degree o Freedom ERP and People Organization projects, though, the primary risk ispeople-related, which in practical terms means that sot issues like resistance to change andemotional reactions are likely to challenge your ability to achieve benets rom the organiza-tional change.

3DF: A Three Degrees o Freedom ERP projectIn a Three Degree o Freedom ERP project you want to change

everything simultaneously.

By this time, the executive decision-maker should have no troubleextrapolating rom our previous discussions and realize that this isa very high-risk project where things can go wrong in three dier-ent directions all at once.

So why would you do it?

The answer is because the business objective demands it. It could be, or example, that toachieve the business objective a radical departure rom the previous business processes andpeople organization is required which may necessitate a re-conguration or even re-imple-mentation o the ERP system or possibly even a completely new system. I the business objectivecannot tolerate the time lag it would take to work through sequential projects or the nature othe change is such that you simply cannot make the change in a step-wise manner, you havea Three Degrees o Freedom change on your hands.

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Occasionally, a Three Degrees o Freedom ERP project creates a new entity, complete withmany new people organized in a new way, new business processes and yes, a new or drasticallychanged ERP system to support everything. This new entity may be part o an existing organiza-tion or a stand-alone business unit but usually in this situation you dont have many options: itseither three degrees or nothing. You start the new company or you dont; you carve the newbusiness out o the existing corporation or you dont; you set up the new, separate business unitdierent rom all the others or you dont. I you decide to do it, you are aced with a Three De-grees o Freedom ERP project.

And although or the purposes o this book we call this a Three Degrees o Freedom ERP project,as in the previous two cases the ERP is likely to be slightly subservient to the other two axes. Onlyslightly, because a Three Degrees o Freedom ERP project that ails is oten catastrophic the

business unit goes down with it while on the other hand the ERP system your new business unituses, or example, can be the advantage you are looking or with the establishment o a newentity.

This is all very exciting and challenging and the enthusiasm that usually goes with a Three De-grees o Freedom ERP project carries organizations through the many challenges that such acomplex large-scale discontinuous change project entails. Everybody is part o something newand everybody participates. Executives are hands-on and the ocus is directly on what needsto be done. The risks are there, but apathy and push-back are usually absent.

What next?We propose in this book that your business objective and the contribution o ERP to that busi-ness objective place the proposed ERP initiative in one o the our classes in the Degrees oFreedom Framework. The executive decision-maker who answered the chapter one question:What are you trying to achieve with ERP and why do you want to do it? should by now havepositioned his or her project rmly in one o those our classes, should understand the benetsand risks and should be ready to think about strategy.

In the next chapters we examine how this classication enables you to quickly arrive at appro-priate strategies or selecting, implementing and operating ERP successully.

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Chapter Three: Think strategically when selecting an ERP system

The executive decision-maker who is thinking about ERP has to consider the implementationand eventual operation o the system when selecting a particular ERP system. For this reason,we use the lie cycle approach to guide your thinking; specically the ollowing three lie cyclephases:

The Selection Phaseis where you choose an ERP system rom amongst the available options.

The Implementation Phase is where you make the ERP system work as intended. It is wherechange happens, including termination o the current systems and, i applicable, the currentbusiness processes and/or people and unctional organization prole.

The Operation Phase in the lie cycle reers to the ongoing running o ERP in pursuit o the

business objective.

Because o their implications or strategy, there are some home truths about the relationshipsbetween the three phases that the executive decision-maker may want to think through: Onlytheoperationphasedeliversbusinessbenets.Theothertwocosttime,effortand

money, usually with little or no return in those phases Much of the ability of ERP to deliver business benets in the operation phase is

determined by how well the previous two phases proceed Oftherst twophases, the implementationphaseusually takesthelongest,costs the

most and has the most disruptive infuence on the organization. However, the better theselection phase has been executed, the easier it is to keep time, cost and disruption inthe implementation phase under control

Although the selectionphase is shorterand in itself does notusuallycostmuch, thedecisions made here and especially how they are made have proound implicationsin later phases

This book is about strategy, and no other point we are trying to make is as important as theone that there has to bea strategy. Without careully setting strategy, an organization will justblunder into selecting some ERP system that may or may not be appropriate, launch animplementation project with little ability to tie the money and time spent to the eventualresults achieved, and end up operating a system because its there, not because it particularlyadds any value. This book is about helping you, the executive decision-maker, establish the ERPobjective and set strategy or each phase in the lie cycle.

With a clear strategy, much o the work in the later phases can be comortably delegatedor even outsourced to proessionals with knowledge and expertise o ERP computer systems,

business process design and organizational structuring. I how the proessionals run those

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Selection Implementation Operation



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phases is not controlled by a strategy established up-ront, own agendas and special interestseasily surace later on and can cause the ERP project to drit o on a tangent.

In this chapter we present appropriate strategies to ollow when selecting an ERP system. Inthe next two chapters, we present appropriate strategies to ollow in the implementation andoperation phases respectively.

The content o chapters three through ve are organized around the ollowing headings:

First we discuss the Strategic Considerations applicable to all ERP projects that you, theexecutive decision-maker, should keep your eye on as opposed to tactical level items thatcan be delegated once the strategy is in place.

Subsequently we discuss under the same headings as the Stra-tegic Considerations issues unique to a One Degree o FreedomERP project with consequent recommendation o an appropriate

strategy or you, the executive decision-maker, to think through.

You should read through this section even i you have alreadydetermined that your project is one o the other cases in theDegrees o Freedom Framework because - in this book all caseso change have ERP along the systems axis as one o the degreeso reedom and the strategic issues discussed are applicable toall cases in one way or another.

We next discuss the same Strategic Considerations as appli-cable to a Two Degrees o Freedom ERP and Business Processesproject. Where the recommended strategy is the same as or aOne Degree o Freedom ERP project, we just say so instead orepeating the whole explanation. The really important parts othe discussion are where the dierence between this and theprevious class o ERP project lead us to recommend completelydierent strategies.

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Similarly, or a Two Degrees o Freedom ERP and People Organiza-tion project we present our recommended strategy in terms ohow it diers rom the other cases. The line o thinking is, in mostcases, very similar to that or the other Two Degrees o Freedomclass o project but, because the important dierences lie alongthe people organization axis, the accent shits to human resource(HR) strategies.

A Three Degrees o Freedom ERP project in one sense shouldencompass everything that the other classes o projectscontain. However, the very nature o doing everythingsimultaneously demands a strategy that is dierent rom the sumo the parts. We discuss the impact on the Strategic Consider-ations o such an all-encompassing project.

The objective is to enable you, the executive decision-maker, to arrive at the end o chapterve with an appropriate strategy or selecting your ERP system, project managing the imple-mentation and operating ERP immediately ater implementation.When we say selecting an ERP system, we oten mean buying a brand-new new ERP system.

Occasionally, however, an organization is aced with selecting an ERP system rom amongstalternatives which do not include spending money on acquiring a new system. One such ex-ample would be a subsidiary company in a group that owns bulk licenses or two or more ERPsystems or two or more variants o the same system. We consider these as special cases o thegeneral approach discussed in this chapter: that o deciding on which o the many dierentERP systems in existence the organization will spend its money.

Strategic Considerations or the ERP Selection PhaseThe role o the executive decision-maker in setting strategy or selecting an ERP system revolvesaround the process o selection, not the selection itsel. What system is eventually chosen inthe selection phase is not as important as who selects the system and how it is selected romamongst the alternatives.

Although selecting an appropriate system does not in itsel guarantee a successul outcometo the project, the organization which has condence in its decision is much more likely to suc-ceed. That condence is built by ollowing a structured and ormal approach.

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With d d d il i ERP l ti t th ld h tt



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With a ew decades o successes and ailures in ERP selection to go on, the world has prettymuch accepted that the ollowing are critical characteristics o a successul selection strategy(see some o our reerences 11, 12 ).

A. Clear and unambiguous decision-making authorityThe selection and implementation o an ERP system is a major project and should be under-taken as a strategic initiative. Most organizations will only purchase a completely new ERP sys-tem once every decade or longer. The selection should be managed with no ambiguity in thedecision-making authority, especially when the nal decision has to be made and there aredierences o opinion. It is important to speciy the decision-making authorities o the projectmanager, the executive decision-maker and the chie executive i this is someone other thanthe executive decision-maker.

The appointment o a project manager is an important strategic level decision. For all but thesmallest One Degree o Freedom ERP projects, this is a ull-time assignment or a knowledge-able person. Frequently, organizations nd it dicult to dedicate an appropriate sta memberull time to this role and thereore look outside the rm to contract a consultant to lead theirERP selection process. This has proven quite eective, provided the executive decision-makerdirectly addresses the potential or conficts o interest.

The most common and, in our opinion, dangerous confict o interest occurs where the externaladvisor leading an organization through an ERP purchasing decision works or a company thatalso sells ERP systems. Even i the individual tries to remain independent, the pressure to steer theclient toward buying a system that is sold by his or her colleagues is enormous. No organizationshould allow itsel to end up in this situation because you will never be sure whether the recom-mended system is best or you or best or the consultants bosses.

An organization requiring outside help to select an ERP system is ar better o making use oone o the many independent organizations or individuals who oer advice without having a

vested interest in which system you buy.

The activities o the project manager should naturally be overseen by an accountable personor body within the organization. This is a specic task carried out by you, the executive decision-maker, or more commonly, a Steering Committee comprising key members o the executiveteam o the organization and chaired by the executive decision-maker.

The dierent accountabilities and decision-making authorities are described below.The project manager is required to: n Manage the activities involved in selecting an ERP system n Manage the scope o the selection project n Manage conficts that may arise n Maintain communication at all levels inside and outside the project team n Make the decisions delegated to his or her level and escalate those that require Steering

Committee resolution

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11

D das Neves, D Fenn, & P Sulcas, Selection o enterprise resource planning (ERP) systems, South Arican Journalor Business Management, Vol. 35, 2004.

12 JB Yang, CT Wu, & CH Tsai, Selection o an ERP system or a construction rm in Taiwan: A case study, Automationin Construction, Vol. 16, 2007.


The highest level o authority or the project resides with the Steering Committee chaired by the


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The highest level o authority or the project resides with the Steering Committee chaired by theexecutive decision-maker. The Steering Committee is required to: n Commit the project resources, both in terms o money and personnel n Monitor the selection projects progress n Empower the project team and specically the project manager to make decisions n Veriy the elimination o alternatives rom the list o systems being considered n Perorm the nal selection o an ERP system based on the recommendations o the

project team

With ERP systems as costly as they are, the Steering Committee decision is usually only nal onceit is ratied by an authority even higher than the chie executive; namely the board o the com-pany, the head oce o a subsidiary or a similar governing body.

B. User participation and buy-inThe trap to avoid when buying ERP is to place the selection o the ERP system exclusively in thedomain o the Inormation Technology (IT) Department.

The essence o ERP is that it automates and integrates all o the core business processes in theorganization. Thereore the selection o a new ERP system should be perormed by a team opeople representing all the unctions working with those core business processes.

It is not easible to have a separate individual rom each business unction on the selectionteam, so practical ways have to be ound to satisy adequate representation and to ensurethat the team speaks on behal o the users. Usually, this selection team contains both techni-cal (as in inormation technology or IT) people and representatives rom the unctional areas.There may also be outside consultants who contribute specic skills and insights apart romthe project manager, who may also be an outsider as discussed above.

The representatives rom the unctional areas are called process owners since they are ac-

countable or and authorized to sign o on the ability o the new ERP system to support thebusiness process design or each o their areas (procurement, sales, nance, planning, manu-acturing and so on). Process owners are required to: n Provide unctional knowledge n Contribute to the design o business processes where applicable n Assist in the compilation o documentation n Ensure integration between unctional areas

C. Business process defnition o requirementsWhat the organization wants to do with the ERP system is o course paramount in the selectiono an ERP system. A document called User Requirements or similar is used to drive the selectionprocess.

The User Requirements document should be based on a description o the business process-es. There are various models and techniques that guide business process modeling. (SCOR13 and

ARIS14 are requently mentioned; there are others.) The outcome o the modeling a man-ual called a Business Process Blueprint is a description o the sequence o events, the

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13Supply-Chain Operations Reerence-model (SCOR), Supply-Chain Council, www.supply-chain.org.

14 ARIS Reerence Model, IDS Scheer, www.ids-scheer.com.

organizational unctions involved and the data and system elements usually in the orm o a



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organizational unctions involved and the data and system elements, usually in the orm o afow diagram plus narratives.The gure below is an

thinking about erp h-res[1]

Documents