ERP Utilization Series: Business Value Realization

Implementing a Cloud ERP solution does not guarantee business value, regardless of the Cloud ERP provider (vendor).  There are countless examples of customers that have not experienced the expected business value articulated in the sales cycle.  Why is this? 

  1. Cloud ERP software could not deliver on the business benefits promised.
  2. Customers could not adapt to the delivered public Cloud ERP delivery model.
  3. System Implementation (SI) partner could not implement Cloud ERP correctly or SI partner could not enable the customer to support their Cloud ERP solution.

Naturally, when things go wrong every stakeholder will point the finger at each other.  As each stakeholder has a share in the success of a Cloud ERP implementation, so is there a share of responsibility in the failure of realizing business value from a Cloud ERP implementation. 

A common theme I’ve observed in my ERP implementation experience is the lack of defining business value goals to be managed during the ERP implementation cycle.  The majority of time, business value goals are assumed as a “natural” result from the project.  Many consider business value an area that is managed after the initial implementation.  The inherent flaw in this approach is that the cost to manage business value is greater when the Cloud ERP solution is live.  This statement is a corollary to the rule that fixing bugs in design is 15x less than the cost of fixing bugs in production.

For example, let’s say you want to consolidate individual functions into a shared service model to leverage economies of scale and promote greater process efficiency (business value). However, this transition is not easy given that the implemented enterprise configuration only considered a “point-in-time” structure. Addressing the functional configuration limitation in production requires greater effort/discipline in a public Cloud ERP model versus an on-premise model (no more direct SQL updates in a public Cloud production environment).

I recommend that business value is front and center throughout the implementation and that business value is the ultimate indicator of Cloud ERP implementation success.  Unfortunately, the majority of Cloud ERP implementation methodologies are based on “traditional” approaches of on-time, on-budget and in-scope. 

What is Business Value Realization?

Do you know how many definitions there are for business value realization?  The number is far more than I can count!  I pride myself at being a pragmatist versus a theorist.  Therefore, the definition must support a repeatable and realistic process given the reality of resource constraints.  I am not arrogant enough to say that I have it all figured out, but the following is my working theory as I interact with ERP customers:

Business value realization is the observed evidence that the customer experiences either as a positive or a negative impact on business process execution.  Consider the following points:

  • Business value is in the eye of the customer.  I humbly believe that the vendor and the SI Partner are responsible in assisting the customer to see the business value created. Simple cost reduction does not equate to business value. 
  • From the customer perspective, business value unnoticed is business value unrealized.   Education is a key requirement in business value realization.
  • Without a baseline, how can one quantify the business value realized? As the Cloud ERP market continues to become more competitive, realized business value will become a competitive differentiation for Cloud ERP vendors. 

Now that we have defined the problem, let’s spend some time discussing how to best address business value realization during the implementation.

Business Value Realization Framework during the ERP Implementation

I have done an exhausted search of business value realization frameworks.  The majority of the frameworks do not address the implementation phase of an ERP solution.  I contend that these approaches should be updated given the apparent level of dependencies that business process execution has with technology today’s environment.  I’ve only found one framework that addressed business value realization during the implementation.

This is a great framework from an IT perspective from the academic world.  I would recommend the above framework to any IT leader looking to create more of an advisory service versus being a traditional service provider (IT should move up the value chain).   In general, I agree with the Lean Six Sigma approach to focus first on process efficiency then process effectiveness for most revenue-supporting and compliance processes.   However, for revenue generating processes, it may be best to focus on process effectiveness first to create market share/disruptance before focusing on process efficiency.

Now, allow me to provide a more detailed framework for business value realization during an ERP implementation.

Performance metrics including KPIs are the definitive “evidence” that the ERP implementation added business value.  Therefore, it is very important that you take a baseline or “snapshot” of your business KPIs before and after the ERP implementation to measure the business value.   My recommendation is to capture the baseline business KPIs during the sales cycle.  Hint: Leverage the ERP vendor to assist you in defining the specific business value you will experience with the purchase of their ERP software.

As you progress thru the Cloud ERP implementation, broad vision and objective(s) becomes specific siloed tasks.   It is important that you reassess your project progress to the agreed upon vision and objective(s).  An iterative approach is best to ensure that you have to opportunity to perform course corrections during the implementations versus more costly corrections after the implementation.

Capturing the post KPIs should be done after stabilization.  The duration of the stabilization phase depends on several factors that I addressed in a previous blog.  Once you have captured the performance metrics and KPIs, you should be able to provide an accurate picture of success and improvement gaps. 

Summary

Going live is only the beginning to business value realization.  Second, traditional ERP implementation project metrics (On-time, In-Scope, and On-budget) only have an indirect relationship on business value.  Generating business value is the primary objective of an ERP implementation, not just moving to the cloud or replacing an outdated system.  Business value must be an iterative and recurring theme in your Cloud ERP implementation approach.

Business value must be a continuous focus for all key stakeholders.  Failure to do so will result in a longer period to business value realization.

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Reverse Engineer to Business Requirements

A critical activity for any ERP implementation is gathering business requirements.  The purpose of business requirements is to define the needs that will enable business activities to generate business results.   The traditional school of thought is that if we capture all the requirements then we assume that we will develop a solution that will produce the desirable results.  I believe that experience has taught us that the above assumption is not correct. 

Business modeling associating business activities with business results
Results-Oriented View of Business Activities

Let’s use the above illustration to elaborate on a few observations based upon my experience: 

  • Customer’s existing business models will have both value-add and non-value-add business activities.
  • Customer’s existing business models may produce undesirable business results.

 A concern with traditional requirements gathering techniques is that non-value-add requirements are carried throughout the requirements management process.   This results in wasted effort, loss of focus on the critical requirements, and informally creates the expectation that the new ERP system will replicate existing functionality.   A majority of non-value-add requirements are a result of current technology or organization limitation.  This is not a criticism but rather a reality we all (Customers, IT, Implementation Partner) must address as part of an ERP implementation.

START WITH THE END IN MIND

Let’s consider something unconventional and trace desirable business results back to business activities and the individual needs (requirements) for each business activity.

Business requirements support business activities which support business results
Results-Oriented View of Business Requirements

Starting with the desired business results ensures that we drive to only those requirements that directly support true business value.  First, it is an exercise that really puts into perspective the purpose of a business model (results).  This exercise is not only useful to the project team but also the business stakeholders.  Second, it is an approach that can help you justify why certain existing business activities are not being carried forward in the new business solution.  Third, taking a business results oriented approach enables your project team to be more successful at focusing on the right business requirements and not wasting time on capturing requirements for non-value-add activities. 

SUMMARY

Often we spend too much time and effort focusing on gathering requirements that do not support key business results and then gloss over the key business activities because of implementation time constraints.  Prioritizing business results is an activity that we need to initiate before gather requirements, not during fit/gap when expectations are harder to manage and negotiate.

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