“In a survey of 1,322 global organizations who had implemented ERP in the previous three years, only 21% of respondents said that they had realized 50% or more of the expected benefits.” (Source: Lumenia).
Total Cost of Ownership (TCO) and Return On Investment (ROI) are the outdated, traditional indicators of ERP success. These metrics have been turned on their heads with the new Cloud ERP subscription based model. Even with cost reduction, the subscription model does not solve the issue of unrealized business value.
It begs the question when will Vendors and the System Implementation (SI) Partners provide a more equitable risk/reward agreement via a business value based pricing model? In the current Vendor-SI-Customer model, the customer assumes the majority of the business risk(s) & cost(s). Given that the Cloud ERP market is still open for domination, customers should consider a business value based agreement where all parties share in the rewards and risks associated with a transition to an ERP cloud subscription service.
Paradigm Shift from Vendor SLA Compliance to Business Value Realization
The traditional “On-Time, On-Budget” KPIs have no direct impact on Business Value Realization (BVR). The KPIs are more of a Vendor-Service Provider metric to demonstrate that the Vendor-SI Partner completed the delivery of services. This approach assumes that the Vendor-SI Partner knows “exactly” what the customer needs for BVR. Also consider that the “On-Time, On-Budget” metrics is more aligned with a commodity-based service. As a customer, do you want a commodity-based implementation approach or a custom customer-based approach for your Cloud ERP transition?
With current subscription and professional services contracts, there are no financial incentives to ensure all stakeholders focus on the true objective of value realization.
Building a Business Value Based Agreement
The first and most important step in aligning partner(s) focus on BVR is developing a Statement Of Work (SOW), Service Delivery Agreement (SDA) that focuses on attaining business value. Consider the following example:
Business Value Realization (BVR) is a mutual responsibility between the Customer, the Vendor, and the SI Partner. This agreement does not infer that the Customer will get the cheapest price for an ERP transition to the Cloud. In fact, this agreement will cost the Customer more than a “commodity-approach” ERP transition to the Cloud. “You get what you pay for.” Contrary to marketing hype, there is nothing inherently “intuitive” about the Cloud model. The implementation effort is the same to the SI Partner.
Smart Transition to a Business Value Realization Agreement Model
Every ERP Cloud Vendor and SI Partner will say that their #1 priority is your company’s business success. Yet, this is not always true “in the heat of the battle”. Customers also need to step up their investment and capacity for change with this agreement approach.
I cannot count the number of times where customers did not know what they purchased or they did not purchase every individual product to support their business process(es). Keep the focus on business results, not product(s) and feature(s). Second, ERP service training must be available and easily accessible across multiple delivery platforms. Vendors should also make formal training as cheap as possible. Consider the following quote:
“Untrained (or under trained) users may end up needing three to six times as much support as end-users who have been trained.” ERP: Tools, Techniques, and Applications, Carol Ptak, Eli Schragenheim.
ERP Vendors, it is as simple as this. Either you take a smaller profit hit now by providing free formal training or you will pay in buckets of operational support costs down the road. In the next illustration, we will discuss key responsibilities and maturity activities for SI Partners.
In my humble opinion, SI Partners have two key responsibilities for competent delivery of ERP implementation services: (a) maximize the value of the Cloud ERP service purchased and (b) complete knowledge transfer for Customer enablement. It is also important that the Customer defines an accurate KPI baseline on existing business activities in order to compare against business results experienced in new Cloud ERP service. SI Partners should be able to assist and guide Customers in this exercise.
Now, let’s have a practical discussion regarding the customer’s responsibilities:
Customers have to align their expectations to their executive’s decision to move to an ERP Public Cloud service. There are non-competitive business activities and reporting that should be eliminated. ERP software changes will accelerate by a factor of 5 in an ERP Public Cloud delivery model. Either you can make an investment in Organizational Change Management (I recommend Prosci (ADKAR) or your company can expect to maintain/grow their IT budgets given all the ERP extensions they have to test and maintain with every service update.
Money Talks – Consider Retentions to Promote Shared Success
The traditional approach of using go-live as the key event for ERP service delivery is not an effective indicator for business value realization. Is the event a prerequisite? – Absolutely! In a previous post I discussed how true business value realization is not possible until you are past the stabilization phase. I would recommend that you create retention of 25% for both professional services fees and vendor subscriptions to promote focus and delivery from every provider until business value is realized.
Gartner estimates that companies are achieving only 43% of their technology investments’ full potential value.
In my humble opinion, an overriding driver for this gap is the traditional approaches Vendors, SI Partners, and Customers are clinging to in driving business value from technology. ROIs and TCOs are extremely high level estimates based on a huge number of assumptions and constraints that are not fully defined in the sales cycle. ERP Cloud vendors and SI Partners are more concerned with transaction efficiency and commodity repetitiveness versus unique customer business success. A Business Value Realization agreement is not easier, or cheaper and will require a greater investment from all three players.
Don’t expect any ERP Cloud Vendors or SI Partners adopt this approach any time soon given where we are at in the Cloud ERP market cycle:
As the market reaches its apex and competition continues to grow, disruptive agreements based on BVR will become a strategic competitive advantage. Customer will make a decision on whether they want a Vendor or a Partner. ERP Cloud Vendors are transactional and replaceable. ERP Cloud Partners are long-term relationships critical to your success.