InformationWeek

May 24, 1999

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Making ERP Add Up

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Part of the problem was that users were initially trained only on the functionality within SAP that they needed to do their jobs. But that didn't give them a clear view of the way the software really operated. Because of the integrated nature of SAP, if a person in accounting enters the wrong data, the mistake has a negative effect along the entire production line. "We had to make them aware of that," Johns says. Owens Corning responded to the crisis by radically changing its training methods. The company instituted a certification process, whereby employees must pass a test before they're given access to the system. Anyone who fails to get certification is retrained until he or she can pass the test.

Industry experts agree that many companies have overblown expectations about what their ERP systems can do. Even the most straightforward benefits, like being able to close the books faster, are never guaranteed. "There's sometimes a big gap between what the companies thought the software would do and what they actually achieved," says Debra Hoffman, an analyst with Benchmarking Partners Inc.

Hoffman warns that all organizations must be prepared for a decline in productivity once they put the software into production. That's because the new systems are complex and difficult to master, and the steep learning curve usually results in errors and delays. "The first three to nine months is a real period of hurt as people try to learn the new system," says Hoffman. "On-time deliveries get affected, customer orders get delayed, and inventory levels go up when they're supposed to go down." Those short-term problems make figuring return on investment even more difficult.

Toro is familiar with those disruptions. "When you replace your old transaction systems with new ones, it takes a good deal of time for the light bulbs to go off in people's heads," Hansen says. He also concedes that the company was naive and overly optimistic when it evaluated SAP's capabilities.

Before putting in SAP, Toro had spent 15 years continually improving its management reports on such things as order accuracy, customer satisfaction, and inventory turns. SAP led the company to believe the infor- mation residing in the ERP system would not only generate more accurate reports, but that the system would automatically spit out these reports and place them at managers' fingertips. "The functionality in this area was overstated," Hansen says. "It's really hard work learning to fly this thing." The company is still working to perfect its reporting structure, although Hansen says it gets easier as people grow more familiar with SAP's system.

ROI's Benefits Identified
Benchmarking Partners recently completed an ROI study involving 62 U.S. companies that have invested in enterprise applications. The study identified several areas in which companies are likely to see payback. They include an overall reduction of IT costs, since companies that move to ERP usually eliminate a handful of legacy systems in the process and thus save on maintenance and integration expenses. Other returns include inventory reductions, improved cash management, reduction in personnel, and faster order management from the time a company receives an order to the time it ships the product.

But the differences between what companies expect and what they get can be significant. For example, 45% of companies anticipated benefits in personnel reduction, while only 34% said they actually saw such benefits. And while 25% anticipated an IT cost reduction, only 12% got it. On the flip side, 18% of companies interviewed thought they would see improvement in order management, but 33% got that benefit, and 12% anticipated a benefit in the financial close cycle--the time it takes a company to close a quarter--while 20% achieved it.

Few of the 62 companies interviewed conducted ROI studies. Among those that did, the level ranged from hastily crafted PowerPoint presentations to a handful of full-blown business cases.

"Many companies still aren't sure whether they're getting a positive return," says analyst Holincheck. "They didn't build a business case, and they're now saying to themselves, `What the heck was I thinking?'"

But that may be about to change. The notion that having an ERP system is so critical to business that it has to be done at any cost no longer carries weight, especially since companies are moving beyond the critical Y2K issue. Companies are now struggling to pin down exactly where and when the ROI will be delivered.

To help, ERP vendors are rolling out programs to identify exactly how and where investments pay off. This month, SAP launched ValueSAP, which is designed to help users optimize their multimillion-dollar investments in the enterprise software. As part of the initiative, SAP will offer its SAP Solution Maps for 17 vertical industries, to point out the areas in which users can expect to find the biggest savings and ROI, which varies by industry. SAP Solution Maps describe not only SAP's current offerings but also its future plans, as well as functionality users can get from its software partners on an industry basis.