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.”
Six months later, Bearden threw in the towel and conceded that users needed better training. But how? Baan ran a course, but it lasted a week, cost $5,000 per head and, Bearden decided, wasn’t about A-dec’s business processes. So the company decided to develop a course itself, using instructing staff from Portland State University’s business school. “Folks from the university came to the business, talked to people about how we operated and worked with a team from inside A-dec to develop the course and then give it,” says Bearden. In all, some 450 employees went through the one-day course during the summer and early fall of 1998.
“The human-factor side of ERP—understanding the relationship between the people in receiving, shipping, manufacturing and the customer—is crucially important,” adds Johnnie Foster, vice president and CIO of St. Louis-based specialty chemical manufacturer Solutia. The timetable for Solutia’s own SAP R/3 implementation, which concluded in May 1999, he adds, was driven both by the need to achieve Y2K compliance as well as separate from former parent Monsanto. “Now we’re going back, taking it to another level and getting people to better understand their role in the process: This is what you’re doing, this is why you’re doing it and here’s how it impacts other people,” he says.
The Black Hole of Middle Management
Without understanding the whys of the process, decisions that would make sense in a pre-ERP environment quickly turn sour—particularly when those decisions are made by middle managers whose day-to-day tasks revolve not around the computer screen but the directing of people who sit at the computer. “We call it the black hole of middle management,” says Implementation Management Associates’ Fiman. The problem that he identifies is one of cultural inertia. “Companies have confused culture with wallet cards,” he says, referring to the printed crib sheets on which businesses set out their value statements and mission statements in a handy-but-forgettable format.The result? Managers who talk the talk but walk any which way they choose.
Consequently, when companies hit Hershey-style problems, there’s an instinctive middle management reaction to ship products to customers rather than lose sales even if that means circumventing the system, says David Dobrin, chief business architect at Benchmarking Partners in Cambridge, Mass. And, says Dobrin, that’s just about the worst thing you can do. Not only does the order still sit in the system, ostensibly unfulfilled, but the actual inventory is now out of whack with the inventory logged in the system. And without the shipment going through the system, it’s hard to raise an invoice. “The ship-it-anyway syndrome is definitely a lack of understanding,” slams Dobrin. “People need to know what an incredibly stupid idea that is.”
Training in how to operate the system will not, however, help the middle manager see down the road far enough to decide to forgo the short-term benefit of shipping product come what may. Only a broader-based, holistic education in the company’s ERP-mediated business processes will do that.
But if end-user and middle-management training is so important, why isn’t it given more priority? One answer, perversely, is that it is being given more priority—now. “Companies have begun to wake up to the fact that training is a key requirement,” says Patrick Newton, former CEO and president of third-party training company DA Consulting Group of Houston. Training as a proportion of overall budgeted project costs was typically around 5 percent as recently as two years ago, he notes, citing analysts’ published estimates. Now, he says, the figure has more than doubled, to around 11 percent of project budget.
While that is reassuring news, the analysts are less sanguine. “Very wide ranges make industry averages meaningless,” observes Debra Hofman, managing director of Benchmarking Partners, whose own study found that even though training averaged 8 percent of total project cost, the actual costs of training ranged anywhere from 1 percent to 30 percent. CIOs who aim for the average figure (and nearly every CIO interviewed for this story could instantly cite what percentage of their company’s implementation costs were dedicated to training) may therefore be running the risk of undershooting the target requirement.
Senior Doesn’t Mean Smarter
And therein lies another problem. ERP training needs to embrace senior management—and early on in the process, when budgets and timescales are still fluid, argues AMR Research’s Shepherd. “Senior managers often don’t particularly want to be told that there’s a high level of risk and that there’s a great deal of expenditure involved in minimizing it,” he maintains. “It’s just not a message they want to hear.” The result is an invidious conspiracy of silence. “The people with the message don’t want to tell it, and the people to whom it should be told don’t want to hear it.”
In particular, he worries, the senior and middle management of American companies don’t have the extensive operating background of, say, their German counterparts. “Unlike in German companies, where managers have engineering degrees and shop floor experience, too many American managers have management degrees and have come from business school straight into a management role,” says Sheperd.
The result? A critical blind spot when it comes to understanding how their brand-new systems actually operate in the lives of their employees and on the shop floor. But with awful examples like Hershey and Whirlpool to focus their thoughts, companies may be expected to give some hard thought to eliminating that blind spot.
It’s either that, or that light you see at the end of the implementation tunnel will probably turn out to be that of an oncoming train. And you know how that story ends.