Even though ERP technology has come a long way in the three decades since SAP first debuted, ERP transformations continue to be complex undertakings that, more often than not, tend to fall short of expectations. In fact, recent surveys of organizations undertaking ERP transformations suggest that:
- Nearly half of all ERP transformations either fail to deliver the expected benefits or cause serious operational disruptions once the system is deployed
- More than 50% of ERP projects exceed time and budget targets
- An estimated 2/3 of ERP transformations end up with a negative ROI
- Roughly 3/4 of companies are dissatisfied with their ERP solutions after they are implemented
Despite this bleak prognosis, companies are still expected to spend almost $100 billion this year for ERP software and services. As such, this apparent disconnect begs the obvious question: if ERP projects are such risky propositions, why are companies nonetheless continuing to invest in them? Moreover, are there steps you can take to improve your odds of a successful project?
The answer to both questions lies in setting realistic expectations at the outset of a transformation program. After all, project costs, budgets, and ROI are all financial projections based upon a myriad of assumptions, so if your assumptions are overly optimistic, your targets will likewise be too aggressive and possibly even misleading.
Given the fact that ERP programs are at least an order of magnitude more complex and more costly than any “standard” project in your IT portfolio, trying to establish your measures of ERP success based upon your past experience is only going to set you up for failure on multiple levels. And that’s where a “Phase 0” initiative can help.
The Right Time
Sometimes referred to as an “Initiate” or “Envision” phase, a “Phase 0” initiative is typically 2-3 months in duration where a company seeks to answer the following questions:
- Where are we going and why are we taking on this project?
- How are we going to achieve our project goals and desired outcomes?
- What are the anticipated benefits of successfully completing this project?
- What are the known risks?
- What are the “showstopper” decisions that this project will have to address?
For those familiar with project charters, these are essentially the same questions that a charter typically addresses; furthermore, when you look at the methodologies that Systems Integrators (SIs) bring to the table, the project charter is typically one of the key deliverables that you receive prior to beginning design work.
Thus, given this apparent overlap in terms of both content and delivery, many companies question the value of adding a “Phase 0” to an already expensive initiative. It can seem like you are adding unnecessary time and expense, especially when leveraging the standard “Launch” or “Prepare” phase of most SI methodologies appears to get you to the same place.
The question of whether it makes sense to engage in a “Phase 0” project, though, is more a matter of timing than it is of content. Because even though you will eventually address these questions in your project charter, it might be too late: you already have signed contracts with your SI and ERP provider, the budget for the project has been locked in, and expectations around the business case have been established and socialized.
As such, any big “surprises” have the potential to throw the project into chaos, and a “Phase 0” helps to ensure that your fundamental assumptions are properly vetted and considered as part of your estimates. Plus, a “Phase 0” helps you establish your estimates before you get board approval and sign a statement of work, rather than having to scramble after the project is already underway.
Moreover, to select the right SI in the first place, you need to establish a shared understanding of the answers to these questions with your key stakeholders. Executives, business leads, and IT all need to be on the same page with regards to expected benefits, costs, and the transformation roadmap so that you can effectively assess potential SIs based upon how well they will complement your internal team and help to drive the desired outcomes.
Simply put, each SI has their own strengths and weaknesses, and you won’t be able to evaluate them objectively until you understand your own. Thus, by engaging in a “Phase 0” prior to issuing an RFP for your implementation partner, you’ll not only be better prepared once the “main event” actually starts, but you’ll ensure a more effective and productive RFP process as you vet potential partners. The outputs of a “Phase 0” help to bridge the gap between strategy and execution earlier in the process, providing you with an actionable roadmap of key decisions & estimating assumptions that drives alignment of the proposals received from the participants in the RFP process.
The Right Perspective
While intentionally wrestling with key aspects of your ERP transformation earlier in your journey may be a necessary step for some companies, it is clearly not sufficient to guarantee a better outcome than simply waiting for the project to officially launch. To help guarantee that the decisions made during your “Phase 0” will endure once the project gets underway, there are several factors to consider:
Look towards the Future
You may know your business and where you want to take it, but you may not have visibility into market trends or business capabilities that might be required to compete 3-5 years in the future. This is where the SI you select to help with your “Phase 0” can add significant value by providing thought leadership, insights, and education.
Keep your eye on the present
Don’t underestimate the impact that your current application landscape could have upon your deployment plan, especially if you are considering a phased deployment. Failure to consider interim state solutions or required upgrades to the application ecosystem as part of your cost estimate will only guarantee that your estimates are wrong.
There is always a tendency to think “best case” when developing estimates, but the reality is that your solution won’t be as standard as you hoped, your data will not be as clean as you think, and change management will be harder than you expect. Challenge your assumptions and benchmark your estimates against an independent source to help validate your results.
Keep your options open
As you start to crystallize key aspects of your transformation, you want to avoid losing leverage with your ERP provider as well as getting “locked in” to your “Phase 0” SI as the implementation partner. Having a well-planned and executed vendor engagement strategy is key to preserving your negotiation leverage throughout the “Phase 0” process.
The Right Team
Finally, the effectiveness of any “Phase 0” initiative is just as dependent upon the participation of key stakeholders as the ERP implementation itself. There are no shortcuts to success, and to get high quality results from a “Phase 0”, you need to engage all of your key internal stakeholders, including:
- Business architects and process owners
- Technology architects and application owners
- Security & infrastructure experts
This mix not only brings a cross-functional as well as an inter-organizational perspective to the major questions and decisions that need to be addressed, but also helps to ensure that the outputs of the process satisfy the needs of your entire organization.
That being said, the final piece to the puzzle is selecting the right SI to guide you through the process. Their primary roles are those of facilitator and subject matter experts, but equally important is selecting a strategic partner who has the credibility to challenge your assumptions and expose potential biases. If all you get is the former, you could end up with a plan that is overly aggressive and optimistic…which sets you up for failure. Conversely, a partner that lacks the confidence of either your board or internal stakeholders will set you on a path where assumptions are constantly questioned and revisited throughout the implementation…also setting you up for failure.
The success of your ERP transformation ultimately comes down to the quality and speed at which you are able to make decisions throughout the project. Even seemingly “simple” decisions can be multi-faceted and be dependent on other aspects of the program, especially decisions that have been made concerning scope, costs, and timelines. Getting these fundamental targets wrong will inevitably hamstring the project, either prompting you to make risky decisions out of necessity rather than choice, or forcing you to accept costly delays which frustrate all of your stakeholders.
A thorough, intentional “Phase 0” can help mitigate the likelihood of setting targets and expectations that are based on invalid or optimistic assumptions. By engaging your key stakeholders and encouraging open dialogue up front, you increase the likelihood of making informed decisions which will impact every subsequent decision that you make on your transformation journey.
UpperEdge can support you in your Phase 0 preparations by helping you define the scope of work, selecting an appropriate SI, establishing a vendor engagement strategy to maximize the value you extract from your system integrators and software providers while simultaneously preserving your leverage. If you are considering a “Phase 0” let us show you how we can help.