Unless you've been as out-of-touch as the Mars Polar Lander, you're doubtlessly aware that the ERP industry hasn't been performing like the marvel it was first made out to be.
First came the ERP vendors' pre-Y2K plunging sales revenues and falling stock values. Second came the realization that all that hard work implementing an ERP system didn't actually guarantee business benefits—or even a positive payback. Take Meta Group's damning finding, for instance: The average ERP implementation takes 23 months, has a total cost of ownership of $15 million and rewards (so to speak) the business with an average negative net present value of $1.5 million. And the news gets worse.
An alarmingly long list of top-drawer integrators have fallen flat on their faces. Compared to these disasters, merely spending a lot of money on an ERP implementation that achieves very little is a consummation devoutly to be wished.
Hershey, Pa.-based Hershey Foods, for example, issued two profit warnings in as many months in the run-up to last Christmas. Why? Massive distribution problems following a flawed implementation of SAP's R/3 ERP system, which affected shipments to stores in the peak Halloween and pre-Christmas sales periods. In a booming stock market, Hershey shares ended the year down 27 percent from its year's high.
And Hershey wasn't alone in its misery. In November 1999, domestic appliance manufacturer Whirlpool of Benton Harbor, Mich., also blamed shipping delays on difficulties associated with its SAP R/3 implementation. Like Hershey, Whirlpool's share price dove south on the news, falling from well over $70 to below $60. While these two have (so far) been the highest-profile implementation debacles, companies as diverse as Scottsdale, Ariz.-based trash processor Allied Waste Industries; Newark, Del.-based high-tech fabric maker W.L. Gore & Associates; and industrial supplies distributor W.W. Grainger of Lake Forest, Ill., have all reported serious difficulties.
And if "serious difficulties" sounds bad, rest assured it can get much, much worse. After Carrollton, Texas-based pharmaceutical distributor FoxMeyer Drug actually collapsed following an SAP R/3 implementation, its bankruptcy trustees filed a $500 million lawsuit in 1998 against the German ERP giant, and another $500 million suit against co-implementer Andersen Consulting. (Both cases were unresolved at the time of writing.)
So what's going on? The good news—if that's the right word—is that most experts agree that such failures are not systemic. "Very rarely are there instances when it's the ERP system itself—the actual software—that fails," says Jim Shepherd, senior vice president of research at Boston-based AMR Research. Public pronouncements by both SAP and Hershey, he notes, have acknowledged that the software does what it is supposed to and that no big fixes or patches are planned. What's more, he adds, the prudent observer will differentiate between real implementation failures and not-so-real failures. "Blaming the failure on a system implementation has become a convenient excuse for companies that have missed their quarter-end [earnings] target."
As for blame, it is evenly spread. SAP implementations are no more likely to go down the tubes than ERP systems from other vendors: W.L. Gore's system, for example, came from Pleasanton, Calif.-based PeopleSoft. "When an ERP project unravels, or is seen not to perform well, one of the suppliers is usually chosen as the culprit," says David Duray, London-based global partner responsible for the SAP implementation business at PricewaterhouseCoopers. "In my experience, this is usually more of a political decision than a proper problem-source identification exercise—and SAP, over the last few years, has been a popular target."
Furthermore, adds Roger Phillips, an IT analyst at specialist investment bank Granville in London, which tracks the global ERP market, there is no evidence that geography is a significant differentiator in the success stakes. Disasters, he believes, "simply go with the ERP territory." There are, he says, "no cultural or managerial foibles that make American ERP implementations any more predisposed to disasters than any other country's implementations."
So what does lie behind ERP disasters? And behind the rather longer list of costly-but-underwhelming implementations typified by that now-infamous Meta Group report? Increasingly, experts reckon that they've found the smoking gun: poor training. Not the technical training of the core team of people who are installing the software, but the education of the broad user community of managers and employees who are supposed to actually run the business with it.
So Much Training, So Little Benefit
As few as 10 percent to 15 percent of ERP implementations have a smooth introduction that delivers the anticipated benefits, says A. Blanton Godfrey, chairman and CEO of the Juran Institute, a Wilton, Conn.-based consultancy. The remainder either experience teething problems or a significant shortfall in delivered benefits—with a full 30 percent of companies receiving what he calls "a nasty surprise." It's not a disaster of Hershey or Whirlpool dimensions, but it's still a kick in the teeth. The fascinating variable to look at, according to Godfrey, is what characterizes the lucky 10 percent to 15 percent. It's not luck; it's better training.
In one sense, this isn't new. Everyone knows that training is important. Especially the ERP software vendors themselves, who earn handy revenues from design-once, recycle-many-times training courses. And most especially third-party training vendors, the bulk of whose livelihoods come from running courses on how to operate an ERP vendor's system. And just look at the mind-blowing variety of training formats available: web-based virtual classrooms, computer-based training, knowledge warehouses, video courses, self-study books, pop-up help screens... an almost endless menu to suit almost every need and budget.
The provision of all that training, points out Cushing Anderson, a senior research analyst with Framingham, Mass.-based IDC (a CIO sister company), has become a giant business in its own right. Revenues for web-based ERP training in the United States alone were $915 million in 1998, projected to grow to $2.8 billion in 2003. The logic is inexorable, he says: "The better the training, the faster you'll see the business metrics move in the direction you're looking for."
But the consensus that's emerging is that the training that matters isn't techy, "this field shows this; this button does that" training. In fact, what we normally call training is increasingly being shown to be relatively worthless. What's called for, it seems, is an ability to figure out the underlying flow of information through the business itself. The traditional view of training may blind the unwary to its significance and to the tightly woven links that exist between training, change management and staff adequacy.
The Why Versus the How
The first problem is that word: training. It conjures up images of dogs jumping through hoops. This is not helpful. "I separate training into two parts—education and training," says John Conklin, vice president and CIO of World Kitchen (formerly Corning Consumer Products Co., manufacturer of Pyrex and Corningware) of Elmira, N.Y. "Education is all the why, who and where issues," Conklin says. "Training is the how part of the equation." And of the two, he says, "education is the bigger piece of the puzzle. If people don't go through this education, you won't have their hearts and you won't have their minds."
There's a tendency for companies to fall into the trap of putting employees through training programs that are too software-specific—an easy mistake to make, but one that ignores the fact that ERP systems are designed to operate by (literally) codifying a set of business processes. "No matter what application an organization is implementing, they are usually better at the keystroke and transaction training than they are at the business-and-people processes education," says IDC's Anderson.
And providing that education can be tricky. When St. Louis-based Purina Mills implemented SAP R/3 in its 55 plants, the commercial animal-feed producer outsourced the training task to a third party, says Operations Control Director Steve Hunt. In-house resource constraints were a factor, says Hunt—the company wanted its best people implementing, not training. But also, he says, "We assumed that a third party training partner would add valuable insight into training techniques that had already been proven in their previous implementations."
The result was an awkward first day, which, Hunt recalls, "saw end users at the very first break on the very first day of training stating that they were going home unless someone came into the classroom to help them translate the material." The problem? "A complete system change is like learning a language," explains Hunt. "In the beginning, you need to translate the new language into the old in order to understand the meaning. In this case, our trainers couldn't provide that translation, as they didn't understand our processes—for example, they could demonstrate how to enter a goods receipt, but they couldn't explain when you should do it, or how to find the right purchase order to apply it to."
In the end, says Hunt, it became clear that the training company just wasn't up to the job. "We asked them to leave at the end of the first week." Rather than opt for another third-party provider, Hunt and his team spent six months constructing a course that they could deliver themselves—and did so, in a complete reversal of the original strategy.
What Hunt and Purina Mills discovered was that what their employees really wanted and needed to learn about was the whys, wheres and whos of the business process not the hows of the ERP system.
"Companies often mistakenly regard SAP implementation as a purely technical issue," affirms Byron Fiman, principal and cofounder of Implementation Management Associates, a Brighton, Colo.-based change management consultancy. "In fact, at least half the issues in ERP disasters are not technical but people related and culture related." In terms of getting things right, he adds, "the soft stuff is really the hard stuff."
And even if a Hershey- or Whirlpool-style disaster doesn't loom, a failure to deliver benefits is all too likely. "The screens are up, but nothing has changed: the cycle times are the same, customer satisfaction metrics don't shift and the costs remain the same," Fiman says. The problem is that too many companies pay lip service to the education part of the pre-ERP change management process. "Every SAP implementation partner says that training is important, but it's often one of the first things to go when the talks about pricing get tough."
Millions for Software, Pennies for Understanding
Too many companies treat training as a check-the-box activity," says Dan Klein, vice president of education services at PeopleSoft. "The resulting mind-set: 'Did you train the users?' 'Yup, we trained the users.'"
Just as common, training typically occurs at the end of the implementation cycle, when activities are often running late and being compressed. So training, too, gets squashed in as a last-minute activity. "One of my favorite questions," Klein says, "when speaking at user seminars is to ask, 'How many people would go about their training differently on their next implementation?' Seventy-five percent of the people put their hands up and say that next time they'd allow more time for it, and that they'd tailor it more around their own business processes."
A typical result of such skimping, says David Beresford, executive director of one of Europe's premier SAP rescue services, systems implementation consultancy Diagonal, of Farnham, England, is that users often fail to appreciate the consequences of their actions—with disastrous results. Informal practices that worked just fine in the era of paper procedures or standalone legacy systems can have catastrophic effects on an integrated ERP environment.
"The classic example is the sales order process," says Beresford. "In the past, people could put in the wrong price, the wrong customer, the wrong delivery point—and somehow, the business coped. Now, surprise, surprise, they don't get their invoice paid. And it's even worse if the wrong product is entered. What people need to understand is that the sales orders are now automatically linked to the manufacturing and accounting functions."
They didn't understand this at A-dec, a privately held dental equipment manufacturer headquartered in Newberg, Ore., which went live with a Baan system in 1997. "We made the mistake of teaching everybody how to do their job but nothing else," says Director of IS and CIO Keith Bearden. "Everybody knew the keystrokes to do their job, but that was all. They didn't understand the ERP process, the degree of integration and the importance of data being right. A clerk would enter an order incorrectly and manufacturing would start making it. Changes to sales orders after we'd started manufacturing were a real problem."