ERP Implementation Against the Cost of Inefficiency
New enterprise software costs money, consumes time and introduces risk to the implementing organization. Unfortunately – or fortunately, depending on how you look at it – these costs are very tangible, which can scare off an executive team and cause them to delay investing in ERP implementations.
The benefits of these implementation costs are a bit vague, nebulous and can be harder to quantify. This makes the task of confidently investing in a new ERP system somewhat challenging.
This is a phenomenon we observe for many of our clients. The downside of waiting too long to reconcile the costs and benefits of a new ERP system is that you are more likely to wait until it’s too late – or, at the very least, wait until you have no choice but to replace your system.
So what can you do to get ahead and accurately weigh the implementation costs versus the cost of inefficiency if you don’t implement?
1. Quantify the costs of inefficiency. Your current processes are likely broken, inefficient and/or ripe of opportunities for improvement. Those costs are very real and very tangible, even though they may not seem as concrete as the known line items on your implementation budget. Your employees, customers and executives are all feeling these costs, so it’s your job to quantify them. These costs will become even more real once you define how much time is being wasted on current activities and how much time automating some of those processes could save (which should all be part of your business process management initiative). Apply these time savings to decreased labor costs and other process benefits and you will be able to paint a picture of the measurable costs that will be saved by implementing a new system.
2. Have a clear vision of what your ERP implementation can and should do for your organization. In order to complete #1, you’ll need to have a clear vision of where your organization is headed and what you expect to get out of your ERP system. If you’re like most clients we work with, you may not have any doubt that a new ERP system is right for you simply because your legacy system is so outdated that you have no choice. However, this isn’t a good enough reason. You must define what exactly you want to be getting out of your system – increased inventory turns, increased sales, reduced process cycle times, less labor costs, and/or whatever specific benefits you expect to achieve. Only when you have done this can you quantify the costs of inefficiency.
3. Define how your organization will achieve those benefits. Numbers in a business case are meaningless without clear and tangible steps on how to achieve them. In order to fully “operationalize” these potential business benefits, your team will need to outline the steps and owners of the steps to realizing those benefits. For example, which specific software modules and business process changes will be required to achieve the expected benefit of increased inventory turns? How exactly will the processes be changed to reduce your process cycle times? Answering a multitude of questions such as these will ensure that you realize expected business benefits rather than creating a business case that collects dust on a shelf. It will also provide a strong foundation for downstream organizational change management, training, and employee communications activities.
Unfortunately, there is never a good time to start an enterprise software initiative, but it’s something that most organizations need to further their businesses, scale for growth, increase revenue and improve delivery to their customers.