The latest edition of Panorama Consulting’s annual report revealed that the number of failed ERP implementations was up 5% on last year, with 21% of respondents describing their ERP implementation as a failure. This at first glance can be an alarming statistic, and naturally encourages the discussion around the business value of ERP systems. However, this no longer has to be the case.
When you look into the reasons behind these failures, the picture becomes a bit more complex. It isn’t simply the case that too many ERP software implementations still come in over budget and late (although this is certainly part of the problem). As well as these fairly black-and-white problems though, there is another common grievance with ERP projects that is altogether less tangible: failure to deliver business value.
The fact that many project teams find the business value of ERP software so hard to pin down is precisely the problem. This factor shouldn’t be intangible, but often it inadvertently becomes a grey area because the scope of the implementation does not extend beyond timescale, budget and a series of ‘go live’ deliverables – as consultant Ralph Billington recently pointed out for CIO Insight.
The unfortunate result of this approach, in his words, is that “the component of the programme that should be the top priority [i.e. the benefit to your business] gets the least attention”.
So to deliver an ERP project that avoids joining the many others in the pile marked ‘failure’, teams need both a robust plan for the practical side of the implementation and an effective framework for measuring its success. They must pay as much attention to how they will ultimately determine business value as they do to budget considerations and timeframes.
The Sage ERP blog recently shared five effective key performance indicators for measuring the performance of an ERP software platform. Although they won’t all be relevant to every scenario, they do provide a good idea of how ERP project teams can establish KPIs as part of the planning process:
1. Cycle time
Cycle time is a hugely important metric in manufacturing because it measures how quickly the business is turning around customer orders. A faster cycle time demonstrates more effective processes and a higher customer satisfaction rate.
2. Demand forecast accuracy
The business intelligence elements of your ERP system should be able to accurately predict future demand based on historical numbers. Monitoring whether or not the business successfully met these predictions is a good way to measure the overall effectiveness of the business.
3. Schedule adherence
How effectively does the ERP system allow your company to maintain its production schedule? There will usually be a difference between what a manufacturer can ideally produce and what it actually manages to produce. Your ERP software should bring these two numbers closer together.
4. Customer satisfaction
Has your ERP increased customer satisfaction levels or has it remained the same? Does it enable quicker cycle time and service? Measure whether your overall number of customers is growing and consider your existing customers’ feedback.
5. Labour benefits
Don’t overlook how the ERP platform has affected your labour resources. Does it enable your staff to accomplish more in less time, and does it mean you can allocate work more effectively?