All indications are that 2021 will be a banner year for ERP systems. Enterprises are emerging from the pandemic, dusting off digital transformation plans that might have been sitting on the shelf for a while, and moving aggressively to rebuild, reinvent, and reimagine their organizations.
“The COVID-19 pandemic has become the ERP market tipping point,” says IDC analyst Mickey North Rizza, “quickly educating organizations on the need to digitize the business with modern cloud ERP systems.”
The global ERP software market is forecast to grow at around 7% this year, with new spending driven by increased adoption from midsize organizations, particularly those moving to SaaS-based ERP.
But before you jump into an ERP project, it’s best to be aware of the pitfalls enterprises have encountered before you. Following are the most common mistakes organizations make when they implement ERP for the first time, upgrade an existing ERP system, switch from one vendor to another, or migrate an on-prem system to the cloud.
1. Not putting business in the driver’s seat
If your ERP project is led by IT, you’re doing it wrong.
IT execs might be pushing for an ERP upgrade because the current version is no longer supported by the vendor, or they might want to move to a SaaS offering because it will reduce capital expenses and save on staff required to monitor and maintain on-prem hardware. But an ERP project should never be led by technologists; it should always be led by the business.
The strategic goal of an ERP project should be to help drive innovation that creates new revenue opportunities for the company. That means getting business leaders involved early in the process and encouraging them to identify pain points, to prioritize areas where key processes could be improved, and to create blue-sky wish lists. IT leaders might not be able to fulfill all of those wishes, but they certainly will be able to address many of them with ERP technology.
“The mistake that some have made going down this route is to assume it’s just another IT project. It’s not. The most successful implementations have tended to be as an integral part of wider business change programs,” says Mark Vivian, CEO of Claremont, an Oracle managed services provider (MSP).
2. Not spending enough times in the planning stage
Taking inefficient, complex business processes and shifting them to a new platform, either on-prem or in the cloud, would be a major mistake. An ERP project is about change; it’s about optimizing, automating, and streamlining business processes.
Jim Martindale, CEO of Navint, an IT services management company that specializes in ERP and CRM implementations, says organizations need to take this opportunity to analyze their end-to-end business architecture and re-engineer processes to create a seamless integration from the customer to the back office.
A new ERP system might end up changing how related processes operate, and organizations need to figure all that out in advance. You don’t want to complete an ERP project and then have business users complaining that everything looks different, that data is being presented in a confusing way, and that productivity is being affected.
3. Spending too much time in the planning stage
“Fast, not perfect,” is the approach that Forrester analyst Liz Herbert recommends for an organization considering an ERP project. She has seen companies make a list of every feature and function that they would need and spend far too much time looking for a solution that checks all the boxes.
It’s important to plan, but it’s also important to recognize that conditions on the ground change quickly, and you can’t plan for everything. Don’t go overboard with the planning phase to the extent that it stifles progress. If the planning stage takes too long, then the company will be losing out on all of the opportunities and benefits that an ERP upgrade can deliver, while competitors are gaining an advantage.
4. Not taking a best-of-breed approach
When sending out RFPs for a new ERP system, it’s highly likely that each vendor will respond by claiming to have a module for virtually every function you’ve ever thought of, and some you haven’t. This can lead to the temptation to consider scrapping existing point products that might be doing a great job. Or if the ERP vendor claims to be able to perform CRM functions, there might be a temptation to dump the current CRM software as a way to consolidate onto one platform and save money.
This would be a mistake, says Michael Larner, principal analyst at ABI Research, because each ERP platform has strengths and weaknesses when it comes to individual modules. Beware of vendors who try to be all things to all people, he says.
The danger is that the new ERP modules might not deliver all of the functionality that you’re looking for. “There’s a reason people buy dedicated tools,” says Larner, who recommends that organizations do a thorough feature-by-feature analysis of what the vendor is promising, and take a best-of-breed approach.
5. Not having a comprehensive data strategy
“So goes the data, so goes the project,” says Navint’s Martindale.
For a successful ERP project, an organization needs to conduct an assessment of how legacy data is being stored, how it can be aggregated, unlocked, and aligned with the new ERP system. The organization also needs to figure out how it plans to integrate data from ERP, CRM, and other systems in order to provide a complete view of business processes.
Data also plays a key role in the testing and implementation phase, says Martindale. The old “garbage in, garbage out” adage applies here; organizations need to scrub and rationalize their data so that real-world data from sources such as open work orders and open balances can be used while testing, tuning, and optimizing the system.
“People look at ERP as data in a big black box; they don’t think through how to use that data to move the business forward,” says Adam Crigger, president of Preferred Strategies. It’s not just the content of the data, it’s also the format in which the data is presented to employees. Organizations need to think about ways that the data can be transformed into easily consumable formats using visualization and business intelligence (BI) technology.
6. Overpromising results from data analytics
One of the most important business payoffs from an ERP upgrade is the ability to analyze data with machine learning and AI systems to elicit game-changing business insights. But AI has been overpromising for years, and organizations should have a clear-eyed understanding of what AI can deliver and what it can’t.
ABI’s Larner cautions that machine learning systems are good at dealing with incremental changes in the operating environment, but aren’t as useful when there’s a monumental change, such as the supply chain interruptions organizations experienced at the outset of the pandemic.
Larner recommends that companies in certain industries should go beyond what machine learning can offer and investigate digital twin technology, which enables organizations to conduct what-if exercises and simulations that can provide alternative courses of action in the event of a major business disruption.
7. Not developing a cloud strategy
There’s no question that cloud is the future of ERP, so an upgrade cycle is the perfect time to consider migrating applications to the cloud or moving specific functions to SaaS.
“Given the benefits of cloud technology, for the majority it would be a mistake not to seriously consider moving away from on premise or dedicated hosting, and to consider redeploying their existing on-premise product on a public infrastructure cloud or a more specialist community cloud. This is a trend we’ve seen in recent years. It satisfies the ‘cloud first’ strategy, and allows adopters to reap the potential benefits of flexibility, security, performance, and cost reduction that this can bring,” says Claremont’s Vivian.
But simply “lifting and shifting” legacy apps to the cloud represents a missed opportunity, particularly in today’s hybrid cloud environment where business processes are likely running everywhere. Companies need to perform an inventory of their applications estate and determine which apps should be refactored and rewritten for the cloud, which are appropriate for SaaS, and which need to remain on-prem for either security, regulatory, or some other reason.
8. Not identifying areas that require customization
The clear trend in ERP is toward standardization rather than customization, says Preferred Strategies’ Crigger. If an organization can get to 80% standardization, that still leaves 20% of business processes that need to be customized. At that point, companies need to make some hard choices; do we go through the pain of customization or do we change the process? Those types of decision points need to be identified and dealt with.
Martindale refers to this as the “fit gap” problem. He says there will always be gaps between what the vendor promises to deliver and the organization’s needs. Understanding those gaps enables companies to make informed purchase decisions and avoid disappointment down the road.
He recommends that the first option should be altering the business process to avoid customization, if at all possible.
9. Neglecting the end user
It’s critical to include business leaders in the planning process, but it’s equally important to keep the entire company aware of the fact that an ERP upgrade is in the works and that it might impact how they do their job.
You never want a situation where, at the beginning of the deployment phase, IT leaders are explaining the rollout to end users and someone says, “Why are we doing this?” “Why do I have to learn a whole new system.” “Is this going to slow me down and make my life more difficult?”
Beyond simply keeping the end user in the loop, an ERP project is an opportunity to transform the ways that employees experience and interact with business processes, says Forrester’s Herbert.
Imagine how much more excited employees will be, or put another way, how much potential pushback could be reduced, if the ERP project also includes low-cost, no-code opportunities for employees to help develop their own workflows and processes.
Or if they can, as part of the new system, use augmented reality or virtual reality goggles to create hands-free experiences. Or being able to use speech commands rather than having to type something out. Herbert says that “there are so many new experiences that are possible” and organizations shouldn’t be skittish about deploying them.
10. Not budgeting enough for the project
As with any IT endeavor, an ERP project is likely to cost more than you initially budgeted for. So, organizations should make sure that business leaders have allocated sufficient money for the upgrade — and are aware of the likelihood that IT will be coming back asking for more.
For example, companies often underestimate the total cost of a cloud migration because they don’t always factor in increased connectivity costs and unexpected costs for moving data back and forth between the cloud and the data center.
Then there are training and staffing issues associated with a major ERP upgrade. Many companies come to the realization that they don’t have the in-house expertise to pull off a major ERP project and turn to a third-party IT services company to help plan and implement the new system.
In many cases, the relationship becomes permanent, and the IT services provider takes over monitoring and maintenance functions, which creates an additional, ongoing expense.