Corporate Finance

Getting your new ERP implementation off on the right foot

The decision to embark on a new ERP implementation is one that chief financial officers don’t take lightly. While the implementation will undoubted...
A CFO InterviewSeptember 17, 2013

The decision to embark on a new ERP implementation is one that chief financial officers don’t take lightly. While the implementation will undoubtedly be painful, CFOs can get their ERP projects off on the right foot by following a few basic guidelines, experts say. Enterprise resource planning, or ERP, software is typically defined as business management software that integrates applications from all aspects of the company. Because changing ERP is such a major undertaking for a company, a significant catalyst is necessary before a company will consider a change, said Jeffrey Carr, managing partner of Ultra Consultants in Chicago. The trigger may be a new chief executive officer, a merger or acquisition, or a groundswell of users at the company who either demand business performance improvements or are very dissatisfied with the current system, Carr said. When a company’s management council decides to consider a new ERP system, the CFO and chief information officer are typically assigned with the task of gathering information about ERP costs, vendors and related topics, Carr said. Three points are critical at this stage. It is very important to have the management council educated about the current ERP and what is possible with new ERP, including technology advances, such as ERP delivery through mobile devices, and to have that education provided by a third party not directly associated with the ERP vendors, Carr said. It is also important for the CFO to present a business case that explains the justification for new ERP, which also requires knowledge about what is possible, he said. While hundreds of different metrics are available to measure return on investment for each aspect of ERP, the CFO’s analysis should focus on the main needs and areas of improvement targeted for the company, Carr said. Thirdly, the chief executive and the direct reports to the CEO all need to buy in, and be prepared to devote the resources needed to support a new ERP implementation, Carr said. Once the upper management supports the decision, then the CFO, chief information officer and management council can put together the organization needed to attack the project. Even when the CEO, the CEO direct reports and board of directors are all on board for a new ERP implementation and the business case justifies the project, the company may not be ready. If the company is on the acquisition trail, or about to roll out a new product, or has any other major project planned that would be higher on the list of priorities than new ERP, it will probably have to postpone the project, Carr said. When an ERP system from a particular vendor is installed, the company should begin by using the simplest, most standard version of the software available, said John Parkinson, an affiliate partner of Waterstone Management Group. The cheapest route to success is to use the ERP as it is set up coming out of the box, “until you know it cannot work for you,” he said. When the first ERP systems were developed for company computer servers, starting in the mid 1990s, companies commonly would “customize the heck out of it” because they could, Parkinson said. ERP software sold by SAP, for example, had more than 40,000 configuration parameters available. “There were places that tried to use all of them,” Parkinson said, and then spent long period of time trying to understand how all of those parameters would interact with each other. “It was a wonderful time to be in consulting,” he said. “It would take the client a year to figure out what it was they could do with the system. And mostly what they did was try to make it work like the stuff they had before.” In response, vendors built in sensible defaults to all of the available options, and companies should trust the defaults chosen for the standard ERP software, such as the on-premises SAP, Oracle and Microsoft ERP and the cloud-based Worday and NetSuite, Parkinson said. “They’ve gotten to be very sophisticated. They’ve been implemented hundreds of thousands of times, and how they work is, in most cases, better than how you work (the software),” he said. “Maybe you didn’t get the best tuned supply chain for your grocery retail business, but you got one that was pretty good, and 99 times out of 100 it was better than what you had before.” Key-performance-indicator reporting is built into the new ERP systems. After one or two years of experience using the new ERP system, Parkinson said, a company can use the system’s data warehouses and business intelligence tools to ask what the company likes and doesn’t like about the system. Then, the aspects that the company does not like can be fixed, and the rest can be left alone, he said. “So if you see your cash flow is great, but your inventory terms are down, don’t fuss with cash flow; go figure out why inventory terms are down,” he said. As a company begins to implement a new ERP system, it should find a place to experiment –such as a plant, or a division, or a set of stores–before the entire company is changed over, Parkinson said. That will teach the company about whether the ERP system is doing what it wants the system to do, whether the company understands it, and whether the system is working well. Also, if the company makes an implementation mistake, it provides a relatively cheap bailout option. CFOs should also make sure that their companies start a new ERP program with only one version, and then go to more than one ERP version only for a good reason, such as having a backup in case of system failure, Parkinson said.

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