Companies spend millions of dollars on their ERP initiatives in order to extract the potential functionality of the software they implement. Hence, before aligning the senior management to commit to resources and funding required for Cloud ERP implementations, it is imperative to establish and define the exact time required, the cost factor as well as the expected return on investment of Cloud ERP implementations.
ERP systems are a major investment and hence the choice to implement a new system is usually supported by a careful examination of cost, payback time period and the estimated benefits. Before heading on to a project of this magnitude, every executive wants to know only one thing, that is what is the expected Return on Investment?
A successful business strategy plan, when implementing Cloud ERP for your business, should ideally determine and address the following:
- Understanding the intricate details of the exercise, reason for implementation and the projected outcome
- Ascertaining the context and priorities addressed by the project
- Assessing and determining the possible impact on the business while implementing the project
- Critical success factors
- Expected economic benefits and rate of return from the project
- Expected strategic benefits to the business and its impact
Phase 1: Assess your Current Performance Indicators
To begin with, the first step will be monitoring and evaluating the exact position of your organization as against the industry averages. Main pointers include -
- Your performance
- Industry average
- Average Delta
- Industry best
- Best Delta
Phase 2: Improving Key Performance Indicators (KPI)
- Determine the key indicators affecting costs, revenues and profitability
- Measure the economic ROI and strategic ROI that occurs due to these improvements
- Define the performance indicators that will improve with ERP implementation
Phase 3: Linking Cloud ERP implementation with the target Key Performance Indicators
- Ascertain the major processes in your business that actually influence the Key performance indicators
- Determine and measure your current process and the labor or cost involved (As-Is process measurement)
- Define what you want your new process to be and your projected reduction in labor cost and the potential savings
Phase 4: Benefits and not time or cost to be the key factor of implementation
Certainly, time and cost of implementing an Cloud ERP solution is always a primary concern with the management. However, when you try to implement only with these factors in mind, you automatically overlook benefits, which can be a costly affair.
Usually it is observed that ERP implementations overshoot the projected timeframe as well as the budget. Under these circumstances, it is important not to forget the benefits that you will reap through this implementation. Instead, it is important to reassess the rise in cost of implementation as against the projected economic ROI.
It is important to keep in mind that benefits can be realized even after implementation of Cloud ERP, provided of course that you do not completely break up the implementation team. Your ERP infrastructure should ideally include a cycle of continuous development, which can be modified to suit the changes that occur in business processes as they happen. This will help prevent the delay and disappointment that is usually found in traditional IT solutions. It goes without saying that you will definitely need upgrades and add-ons to improve overall functionality. Moreover, it is almost always never possible to get all your wishes granted with the core implementation. While it is important to ensure that you do not need to redesign your software or even replace it for your core business area, you might need to do so when business processes change. Adopting a system that can be modified or reengineered to adopt the changes that might affect your overall performance is essential.
If you have made up your mind for an ERP implementation, the choice of ERP software is an essential element in achieving your benefits. The question primarily remains as to whether you will choose greater flexibility as is seen in JD Edwards EnterpriseOne systems or will you opt for a complex one as provided by SAP. Similarly, will you customize your solution to fit your needs or adopt the best practices that are offered by the vendor. Whichever the case, it is important to focus on benefits rather than cost reduction as your target. This will not only allow you to gain full control of your business improvement but will also help you get the maximum advantage out of this Cloud ERP implementation. And this is important, irrespective of whether you have just embarked on the Cloud ERP journey or have an ERP system already implemented in your business.
An ROI analysis and an analysis of the insubstantial benefits your organization expects from an Cloud ERP system can convince the senior management to include ERP software in their budgets next year. When implemented appropriately, ERP software has the potential to provide organizations with a host of both tangible and intangible benefits. Hence developing a convincing business case is a worthwhile and necessary activity for your organization.
Dwight Mitchell, PMP, OCP, OCS is the President and Founder of Mitchell & Associates, a leading service provider of J.D. Edwards Cloud, On-Premise, Infrastructure and Management Consulting solutions. The company is also a Platinum Level Partner in the Oracle Partner Network.