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Everything a C-level needs to know about ERP – Tips and strategies

28 June, 2024

ERP systems have been around for over 25 years, but the same mistakes are still made when implementing them, and the risk of failure is high. Here are some tips on how to think when sitting on a management team.

What is ERP?

ERP (Enterprise Resource Planning) is about how to plan, utilize and monitor resources in the company in real time. This includes the management of staff, products, raw materials, services, facilities and production that both cost and generate revenue. Broadly speaking, the ERP system supports these functions and processes with a common database.

ERP has landed in the cloud

Over the past 6-7 years, cloudification of traditional ERP systems has led to continuous and controlled changes to the software. Typically, there are two major and ten minor updates per year. This means that the company's IT strategy needs to be based on which ERP platform(s) to use and how the company will evolve.

When should your company choose an ERP platform?

There are three main situations when companies decide to invest in an ERP platform:

  1. The company will be split up
    Part of your company will stand on its own two feet with its own processes and IT solutions.
  2. Massive expansion
    You need a platform to grow with because the existing IT environment does not have the conditions for this, preferably linked to an IPO.
  3. Complex situation
    The company experiences poor overview, lack of clear processes, difficulty with cost control, a complex system landscape, quality deficiencies on master data, and support on existing systems has expired.

Situations one and two provide clarity on why, what and when the company will make an investment. These provide a fairly clear picture of what the project should achieve and a given timetable. The third and most common situation is much more difficult to deal with due to unclear symptoms and root causes of the problems. Current ERP or IT systems often become the subject of the root of the problems. Here, the what and why become much more difficult to describe. Either the when is postponed or the implementation simply fails.

Where does the ERP journey begin?

The first thing many companies do is visit software vendors and send out unstructured RFIs. But this is the easiest and least relevant part of an ERP project. Instead, start by understanding and addressing different types of conflicts:

  • Board and CEO
    Often focus on risks and costs and often avoid an ERP implementation like the plague! They focus mainly on risks and costs.
  • Management
    Looks at it from a functional perspective and wants the best system for each function (finance, purchasing, HR, production, etc.).
  • Operational staff
    See it as a chance to finally implement all the support they feel they need.

The starting point is that no one is pulling in the same direction or has a common understanding of what an implementation should achieve.

Understand where the company is

It may seem trivial, but start by understanding where your company is and where you are going. Identify what the drivers are for making a change:

  • Is there really a need for a common ERP system within the group?
  • What are the risks?
  • Are you good at driving change historically?
  • Is there an organizational capability?
  • Are there other projects at company level competing for resources and attention?

ERP requires a new collaborative climate

The picture shows a skier and a warning sign

All ERP platforms and processes are structured in a West-East direction to satisfy the needs of the company's customers.A company is managed and monitored in a hierarchical North-South direction, and this is where the problems often start. All functions now have to find the balance between their own needs and the needs of the company (customer). The point of an ERP platform is that the functions in the company should be able to share information in real time. In an ERP implementation, a completely new approach and collaborative climate is needed to successfully implement the project.

Responsibilities of the management team for the ERP implementation

It is usually said that it is a business project and that business should lead. But what does business actually mean? Production, Sales, HR, Distribution, Service, etc. Who makes sure that the solution is good for the whole company instead of a single function? The CIO can lead together with Finance and the most impacted functions. But there is an organizational challenge if the CIO is not part of the management team. The investment decision often becomes a board issue, and a CIO reporting to a CFO thus finds it difficult to reconcile the different wills of the management team.

A management team or a larger business area is usually functionally divided. There is usually a clear division and a distributed responsibility and follow-up. This ensures that each function is conducted in an operational and business-optimized way and keeps its budget.

And here comes an ERP implementation that completely ignores the above!

Since a management team and board would prefer not to undertake such a project, there is naturally a pent-up need from the business to get as many of their demands and needs through once a project starts. After all, they don't know when the next opportunity will arise. And that's the first mistake.

Cloud and the time perspective

We always suggest our customers to step into a cloud-based solution. There should be very special reasons why a company should not do so. Cloud means that you will be in a solution that provides completely different opportunities to constantly develop and improve your processes and system solutions. Often without the need for major projects. On the contrary, there will be a continuous succession of smaller projects, which are much easier to absorb into the normal operational activities. So it's more a question of how big the first step should be.

And this is where the time factor comes in. Set long-term requirements for the supplier based on what you think the business will need in a number of years. But, take the first step of the ERP implementation short-term. Not based on prioritized requirements for different functions, but how to create a functioning end-to-end process. Think process instead of functional requirements.

Take the first step in a maximum of 12 months, preferably 6-9 months. The time depends a bit on whether you already have an ERP system, and the size of the company. Are you in a best-of-breed solution with complex integrations? Then it naturally takes a little longer.

 

Read also our previous articles for senior managers:

 

Contact me to help you create the right conditions for a successful ERP implementation!

About Claes Östman

»I am driven by desire - the desire to make a difference. My strength lies in looking beyond the problems, to the causes. It's only when you take the time to think about the causes that you can solve the problems.«