Preparing for ERP – Part 1: Why do you need a new ERP system?

If you’re about to start an ERP selection project there are two questions that should be easy to answer:

• Why are you doing this?

• What are you hoping to achieve?

Every project should have clarity on these points, but what should this look like for an ERP project?

Part 1 of this blog looks at the motivations for embarking on an ERP project, while part 2 considers the benefits.

Alignment with business strategy

Any systems investment should support the business strategy, so the first topic to think about is “where is the business going?”

Plans for Growth/Acquisition

What is the projected growth profile for the company over the next three to five years? Will it be organic growth at a similar rate to recent performance, or is the pace of growth likely to change? Are new acquisitions in the works, and what will this mean to the scale of the business? Is the company expanding operations or sales activities into new locations?

The ability to scale and to support users and operations in new locations is fundamental to any successful systems strategy. Failing to think ahead can lead to an inability to meet the organisations’ performance expectations, unnecessarily complex applications landscape and infrastructure, and increased IT running costs.

Plans for Diversification

Will the nature of goods and services stay the same or change? For manufacturers this may mean the servitisation of existing products. For service-based organisations it could mean increasing the use of digital technologies to support customer interactions. For any enterprise it could cover the changes involving the insourcing or outsourcing of activities.

This is important because systems that are a perfect fit now may not be such a good choice when assessed against the organisation’s main activities in three, four of five years’ time.

Plans for Organisational Change

What else is on the agenda that could affect a business systems or digital transformation strategy? For organisations that have grown via merger or acquisition the question of process harmonisation is often on the agenda. Larger enterprises may be looking for opportunities to implement new centralised functions or shared services.

The change management implications of implementing harmonised processes, centralised functions or shared services needs to be factored into the business systems strategy. Cost savings resulting from restructuring or improved efficiencies may be a significant driver in their own right and often dictate deployment priorities.

The common theme here is ‘thinking ahead.’ Don’t get caught out by failing to consider foreseeable future developments when planning your digital transformation or business systems strategy. Of course for every organisation there will be other specific objectives, such as reducing costs, enabling more efficient business processes, and making better use of people’s time, with more time spent on analysis and value adding activity.

Risk mitigation

It’s all very well to think about where the business is going, but for most organisations there may well be risks around the current systems and these may need to be addressed. The risks to examine here are those that potentially drive significant business risks, such as a risk to the ability to trade, or a risk of reputational damage, or a risk of serious errors leading to financial loss.

Some typical risks would include things like:

• Aging systems, at end of life, or running on on-premises infrastructure that’s at or nearing end of life
• Over-reliance on Excel. This is on the list for almost every organisation Lumenia has ever worked with. Eliminating risks associated with running business critical processes on spreadsheets that are error prone, drive duplication of data, and inhibit reporting.
• Over-reliance on key individuals – often seen in tandem with an over-reliance on Excel. Sometimes it’s where there are bespoke applications, perhaps in-house developed, or maybe from a small software development partner, with just one individual who knows how it works. This is very common in our experience.
• Poorly controlled business processes. Many organisations face risks due to poor processes where errors could potentially be costly or risk damaging relationships with customers

These are some reasons why you might be considering an ERP transformation project, but there may be others relevant for your organisation. The key point is to be clear on the motivations as these can help give your project direction and build internal support and buy-in, which are critical success factors. In part 2 of this post (Preparing for ERP - What are you hoping to achieve?) we consider the potential benefits which should further support the project.

This blog was written by Consulting Manager John Donagher of Lumenia. If you would like further information please send an e-mail to John Donagher.