VideoThe Internal Fix
Beyond the apparent mistakes at Hershey, there are plenty of other ways for ERP implementations to go awry. Advice from successful implementers suggests ways to avoid at least the biggest potholes.
Number one. Make sure an ERP system is right for your company, suggests ADC chief financial officer Robert Switz. That may sound obvious, but no off-the-shelf software package is a panacea for a corporation's computing needs. And neither vendors nor the consultants that install the systems have much incentive to discourage prospective buyers. SAP was designed for manufacturing companies with predictable, similar ways of doing business. It is not particularly adept at handling front-end, customer-related operations. Allied Waste, a provider of waste management services, decided to scrap a $150 million ERP system it inherited through its acquisition of Browning-Ferris last August, because it felt its business practices couldn't be squeezed into the SAP mold.
Some businesses, such as telecommunications-service providers, have such sophisticated billing operations that no standardized ERP package could replace customized software produced in-house. Other companies, including Hershey, have chosen to graft different customer-relationship management (CRM) applications onto their back-office R/3 platform. That increases the number of interfaces and touch points where problems can arise. Before embarking on an ERP project, senior managers should assess whether they can — and want — to standardize business processes around one common template.
Number two. Understand the implications of customizing the software. However tempting it may be to preserve specific business processes by altering the software code, customization almost always means trouble. "Modify the code as a last resort," suggests SAP America's CEO, Kevin McKay. "You don't want to go there, because it hurts performance" — particularly when companies seek to upgrade their systems. When ERP vendors add new functionalities to their product, they usually involve changes to the database and to the data-entry screens. Any new data or fields that have been added to the software code could be wiped out or altered by upgrades. The testing and retesting of customized elements can provide expensive headaches for years to come. "Don't change the code," says ADC's Switz. Change the business process instead.
Number three. Develop performance measures for the system. Many senior executives have been dismayed at the apparent lack of cost savings they achieve by implementing ERP systems. It takes work, says Dan Spaulding, the former director of management reporting at energy services company Halliburton, in Dallas.
"We thought the benefits [of the ERP system] would just naturally happen, but they don't," he says. Spaulding developed 28 key performance indicators (kpi), including inventory turns and accounts receivable days outstanding, as well as 100 secondary indicators, to help assess the effectiveness of the R/3 implementation at Halliburton. He and other members of a "value delivery group" — separate from the R/3 project team — monitored these indicators and focused on improving them.
Number four. Control your consultant. Everyone needs consulting help for an ERP implementation. It's a question of how much. Switz suggests that, before hearing the sales pitches of consultants, senior executives should be clear about what their own IT staff can do, and what they need from consultants. Then interview the staff proposed for the project and draft a contract that spells out which individual consultant will spend what percentage of his or her time on the project, and how any staff changes will be handled. Switz, for example, conducted reference checks to identify and book the top SAP consultant at CSC Consulting before signing a deal. He also negotiated a pay-for-performance scheme that would pay CSC from 85 percent to 115 percent of its compensation based on the meeting of specific milestones.
Switz ended up happily paying more than 100 percent of the fee. The alignment of consultants' interests with the client's is the best way to get the help needed and get the consultants out. "You've got to set a date for saying good-bye," says Switz.
Number Five. Control your internal politics. Consultants can't deal with the turmoil involved in ERP implementations by themselves. Department heads are sure to present excellent reasons why the new system won't work on their turf. Their resistance to change can stall projects cold. Switz argues that ERP implementations are every bit as complicated as new plant constructions, and should be managed as such, with as much buy-in from the top. CEOs and CFOs have to visibly support and monitor the progress of the project.
Most of these recommendations are not new. What's striking is that at this date, more companies don't follow them.
Payback Time?
For most of this decade, enterprise computing has been a fee-generating gold mine for consultants. But payback time could be around the corner.
On November 2, 1999, W.L. Gore & Associates, the maker of GoreTex, filed a lawsuit against Deloitte Consulting, which Gore had hired to install a human-resources software package back in July 1997. The project did not go well. Gore is charging Deloitte with breach of contract, fraud, and negligence, and seeks recovery of the $3.5 million in fees it paid to Deloitte. For good measure, the Gore suit also names PeopleSoft, the maker of the software, for certifying an incompetent party.
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