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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Is Cloud Ringing the Death Toll for ERP?

Cloud computing is here to stay, but what does that mean for those who sell and implement ERP solutions today?

First, it means that there is a new way in which business software solutions are being purchased and consumed, and that means resellers need to pay close attention to the way they run their business. Secondly, it means that if ERP companies wish to remain in the game, they need to make some significant changes.

Cloud on its own doesn’t affect the validity of ERP. Businesses still require management software to help them run their organization effectively. What Cloud does do however, is level the playing field and make ERP solutions more accessible to the consumer. That means publishers and resellers need to pay attention.

New Cloud companies are popping up every day, and while laggards scramble to bring their on-premise solutions to the Cloud, these born in the Cloud players are discovering faster, easier, and less expensive ways to deliver ERP. Complex, highly customized and bulky solutions which come with a hefty price tag and a collection of features and functionality not required by the end-user are quickly being replaced by pay as you go solutions. Customer expectations are also changing; soon no one will be willing to accept that ERP requires a huge capital expenditure and lifelong commitment without first researching alternatives in the cloud.

 

Cloud ERP Product Cycle
Product Lifecycle for Cloud ERP Offering

 

While Cloud ERP is still an emerging market, it is fair to say that we’re moving beyond the early adopter stage. We’ve crossed the chasm, and are quickly headed towards the early majority market. Within the next 2 years we can expect to see a majority of ERP purchases made in the cloud.  In our opinion, Cloud ERP will not be an initial threat to a vendor’s existing up-market ERP customer base.  This market is highly saturated (+90%) and today we do not see a compelling value proposition for large customers to move completely to the Cloud.  We do see opportunities where Fortune 500 ERP customers may be interested in implementing edge software products in the cloud (ex. travel & expense, self-service, tax calculation and compliance, etc) as part of a hybrid deployment model.  Where we do see a threat/challenge to on-premise ERP is in the SMB arena – especially for new customers.  This market continues to be a strategic growth area for ERP and customers have a greater flexibility to leverage a SaaS or Cloud model.

The Fate of ERP

While it doesn’t appear that the fate of on-premise ERP solutions is entirely bleak, there will certainly be a marked shift towards Cloud based ones. In fact, the resellers can already feel this happening.  There are fewer people out there looking for business management systems in general, and in a time of economic uncertainty and tight budgets, the appeal of an operating expense and a per-seat price is more than appealing. Customers are becoming more likely to change their processes to align with the functions of a less expensive Cloud based solution, than to go through the process of building one which is fully customized. What’s more, people are less likely to pay the large price tag most often associated with ERP services, instead preferring a solution in which they can turn off functions (thus reducing costs) at their leisure. 

So no, Cloud isn’t exactly ringing the death toll for ERP solutions, but it is changing them. ERP will always be required by many types of organizations, but on-premise ERP may in fact not survive this shift long-term. If traditional ERP companies hope to survive the transition they need to be proactive about developing their Cloud solutions, and that means more than throwing up a landing page and calling yourself a Cloud player.

So what do you do?

If you’re an on-premise ERP reseller with no Cloud transition plan, you better get started. That means developing a team to strategize taking your solution to the cloud, putting the necessary resources behind it, and understanding why some customers have an inherent fear of the Cloud. If you’re already developing your Cloud solution, then keep at it and make sure you’re not just focusing on the solution, but on the marketing and sales as well. And if you’re already well entrenched with an ERP solution in the Cloud, then you should get ready to defend your competitive position because you won’t be alone for long.

ERP Deployment Types
ERP Deployment Types

 

Additionally, if you’re a company seeking out a new ERP system, you should carefully consider the benefits of using a Cloud solution. While we’re only entering the early majority market, Cloud computing is the wave of the future. As consumption models go, Cloud works for a majority of businesses today, and the list continues to grow. If you’re looking to move some of your capital expenses into operating expenses, and looking for a better way to manage your business, ERP in the Cloud might just be for you.

Guest blog by Jason Carroll with contributions from Brett Beaubouef

Jason is an industry analyst for Software ThinkTank.  Software ThinkTank is an online resource that helps businesses keep up-to-date with the latest trends, technology innovations and business solutions through a range of articles, case studies, guides and tools. Visit SoftwareThinkTank.com for more information.

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