Many organizations approach ERP Transformation as an IT Project. It is planned and managed from a technical perspective; It is believed that it is easier to do so. The rational is “It’s our provider’s new solution” or “Its something we need to do for the new license” or “We need to do it to keep the ERP in support” etc. Unfortunately, the experience of the transformation is often described as frustrating, lengthy, costly, disappointing etc. The value generated is small, sometimes nonexistent or diminished in nature due to the time taken in execution when compared to the original intent. Folks involved in this transformation tend to forget that it is not just an IT project but in fact it is a business transformation project.
Business transformation projects start at a value perspective. The key questions are where the value resides and how can we optimize the value. Utilizing this approach allows organizations to reduce the complexity and increase the flexibility of their ERP landscape. This allows allows the organization to embark on a journey of digital transformation. To build a cognitive enterprise it is necessary to adopt digital technologies into all areas of the business to improve the core operations as well as the customer experience.
Next gen ERP platforms can deliver powerful capabilities as they leverage technologies like AI and are very modular in their approach to processes. Yet organizations often implement these next gen ERP platforms in a way that maintains the complexity and rigidity of the previous systems. It should be no surprise that the outcome of such an ERP transformation is considered to be disappointing and costly. The Value based approach helps avoid this pitfall. There are two basic steps that need to be taken in this approach.
First is to identify the value drivers. Where and what process the new ERP solution would be the enabler for observable and quantifiable returns while acting as an accelerator and enabler for the broader digital transformation.
Second is to deploy the new solution in a modular and flexible way that allows the organization to keep the core lean yet enhance the right places and add new capabilities as needed. This allows value realization quickly and visibly. Using this agile approach helps generate buy-in and helps continued funding for the larger digital transformation.
Making all this work requires strong governance, robust organizational change management practices and transparency.
This approach in practice has four pillars. Let’s look at each of them |  |
Value Driver
Value will be driven by different approaches in different organizations. They could be broadly classified as
· Harmonization – Deliver a common set of processes and data model throughout the business. This helps reduce complexity. Typically, it is possible to get 20% to 25% of value through harmonization.
· Standardization – A move away from customized features back to the out-of-the-box functionality afforded by a Next gen ERP solution. The improved out-of-the-box functionality generally will serve well and will allow the organization to avoid customization. Typically, it is possible to get 10% to 20% of value through standardization.
· Innovation – Next gen ERP platforms offer an array of new functionality which includes Cloud Integration, AI and ML for data analysis and upgraded integration capabilities in name a few. These capabilities can help organizations digitize and reimagine the ways of working. When done skillfully this can drive 20% to 30% value realization.
· Differentiation – there are different ways to drive customization; deploying an add-on, developing a specific AI, digital or analytics use case. The approach needed is to ensure that the investment and effort is put only in an area where the organization can get measurable result that differentiates it in the market it operates. This has the potential to dive up to 40% of value realization.
The exact fit of approach is not easy to decide. It needs close collaboration between IT and Business.
Value Creation
Deployment of the ERP solution and approach decided is what will allow for Value creation. The deployment must be part of and connected to the larger ecosystem in use. It should be linked closely and seamlessly with other initiatives. Organizations need to think holistically and end to end; this is where the utility of an Enterprise Architecture framework is best seen. Value creation needs agility and flexibility which means that the organization should be able to enhance the ERP solution in the right place and the right time with the right speed. Organizations would be well placed if they also understand that on-demand access to business data (all and any kind of business data) helps in making decisions and the right choices. The ERP solution is in essence a core component of the data architecture. |  |
Value Delivery
ERP deployments are not fast; yet no organization can wait for years to get the value. It is best to approach ERP deployments as a series of value delivery instead of a big bang final delivery. At each milestone there is a return on investment; possibly just a part of the total value but enough to build support and funding for the next phase of transformation. The modular nature of next gen ERP systems allows for value delivery based on business functions. Organizations need to adapt and realize that the traditional approach of long timelines is something that is not necessary. |  |
Value Assurance
To be able to be successful at this journey it is necessary to provide a framework for success. Some best practices will go a long way to ensure this. A strong governance is needed from design to rollout. A program management office will play a key role here. The PMO needs to foster collaboration between IT and business, provide transparency and should be involved in rapid decision making. Utilizing Agile ways of working becomes essential. |  |
ERP transformation is often about replacement and very few organizations look at it as an opportunity for innovation. That said successful organizations are always on the lookout for ways of innovating their business. It is all about value creation; this same approach when used with ERP transformation results in value creation in areas that the organization did not think possible. The value creation can also be achieved quickly. The journey when described would then use better adjectives.
Cirvesh Daga
Very well articulated Cirvesh!
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