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Smart Advice: Under-Promise And Over-Deliver On ERP Projects

To escape the Y2K spending hangover, IT must reverse the skepticism brought on by expensive ERP projects, The Advisory Council says. Also, look at business fundamentals before starting a CRM project, and create processes that implement and tie together local and global objectives to generate value companywide.

Editor's Note: Welcome to SmartAdvice, a weekly column by The Advisory Council (TAC), an advisory service firm. The feature answers three questions of core interest to you, ranging from career advice to enterprise strategies to how to deal with vendors. Submit questions directly to [email protected]

Topic A: Senior management feels that we haven't gained any strategic advantage from the enterprise-application packages we purchased for Y2K. How do I overcome the Y2K spending hangover?

Our advice: There's good reason for senior management's skepticism about the return on their enterprise resource planning investments. ERP has caused grief to many organizations, including some that went bankrupt as a result. However, many organizations have benefited from its reduced costs, shortened cycle time, and increased revenue.

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To understand why this happens, let's look at this issue from a broader perspective, not only in terms of ROI, but also in terms of strategy, design and implementation.

Why has ERP's promise not always been realized? Here are some reasons:

  • Unrealistic expectations: Sometimes we show "irrational exuberance" with our projections of the benefits from big-ticket items. ERP was presented as a panacea. There's no better way to shoot oneself in the foot than to "over-promise and under-deliver"!

  • Lack of business sponsorship: Business sponsorship and active participation is critical to the success of all major IT initiatives.

  • Ankle-deep analysis: We overlook key aspects of IT investments:
    • How much will we make or save, i.e. what is the ROI?

    • How does this affect the organization? Training, change management, etc., are critical to success.

    • How does this provide strategic advantage?
      • If our competitors have the same package, where's our competitive differentiation?

      • If our processes have to fit the package, where's the benefit in reengineering?

      • If the package has to be customized to fit the reengineered processes, where's the cost, risk, and timing advantage from buying off the shelf?

  • Lack of monitoring and control: Very little effort is put into designing the process and metrics used to measure results. Consequently, bad implementations continue far beyond their cut-off points.

  • Big-bang implementations: ERP implementation in a running organization can be like changing engines on an airplane--mid-flight! Needless to say, change is best accomplished one step at a time.

  • Overdependence on consultants: Lack of internal expertise leads to mega-dollar consulting deals that don't produce results for the clients.
    • Is the fox guarding the henhouse? If a partner in the consultant's "package A" practice is leading the charge on package selection, then is it a surprise that, no matter what the question, the answer is always, "Package A"?

    • It takes an army to do the work of a "tiger team"--consultants bill by the hour; the more the better!

    • In consulting parlance, leverage is when a team has one expert leading a hundred recent college graduates. The client, in effect, pays for on-the-job training!

Ways To Avoid Mistakes
Here are some ways to avoid these mistakes:

  • Insist on business sponsorship: Forge long-term relationships with the business. Design processes that cross the business/IT boundary, from strategy to implementation and beyond.

  • Cancel your membership in the "flavor of the month" club: IT exists to enable business results. If there's no direct correlation between the latest, greatest technology and your business model, leave the technology alone.

  • Use a portfolio-based approach: Like personal investments, IT investments are best managed as a portfolio.

  • Implement iteratively: There are always unknowns--do and learn in steps and cycles.

  • Monitor and correct: Measure results and, when appropriate, change course. Note the key milestones along the way. When you reach them, reconfirm the "go/no go" decision.

  • Choose your partners wisely:
    • Choose consulting firms based on their capability and integrity.

    • Divide the work to avoid conflict of interest " never hire the same firm as strategist, package selector, and implementer.

    • Use gain-sharing to inspire everyone on the project to be honest, eager, and hungry to succeed.

In short, to regain senior management's trust in ERP: under-promise and over-deliver!

-- Sourabh Hajela

Topic B: What are the pros and cons of software packages versus hosted-service CRM solutions?

Our advice: As usual, the answer to which model is right for your situation is, "it all depends." There's no doubt CRM has the potential to transform your business, with proper planning and careful execution. However, like all transformative business technologies, CRM also can be an expensive morass of good intentions and hidden costs, if you don't pay attention to business fundamentals. With CRM implementation costs typically starting in the six figures, deciding whether to use an application service provider solution or rely on in-house IT resources is only one of the many major assessments you will have to make.

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Here's an approach. First, identify how you're going to use the CRM application to improve your customer relationships and business processes. It's only once you have a clear understanding of CRM's role in supporting your company that you can then make specific tactical decisions on your delivery model. The common choices are either the ASP model or an in-house software implementation. If you select in-house implementation, you also must decide on either a commercial package or a custom solution.

Indicators that favor the ASP model option include:

  • Availability of a ASP solution that meets most of your needs

  • Availability of an ASP provider that supports your industry vertical

  • A shortage of appropriate in-house IT resources

  • A lack of available expertise

  • A need to minimize initial costs

  • A preference for a pay-as-you-go solution

  • Comfort with the business-partner model.

Look at an in-house deployment if you have:

  • A need for a specialized industry vertical or custom deployment

  • Enough in-house IT resources and expertise

  • A preference for capitalizing deployment costs

  • Lack of comfort with outsourcing solutions

  • A planned integration with an ERP or management-relationship-planning back-office system.

The bottom line is that the right CRM solution for your business is going to depend on your specific situation and industry vertical. The ASP or hosted-services approach potentially minimizes your business risks while giving you the advantage of business knowledge and industry best practices. It also minimizes your initial expenditures by allowing you to expense your costs, as your business needs change. On the other hand, choosing an in-house software deployment means that you can customize a package to meet your specific needs. The tradeoffs are higher initial start-up expenses and the overhead of in-house support.

-- Beth Cohen

Topic C: What are the critical success factors to achieve and maintain strategic alignment?

Our advice: Aim for quality, think globally, act locally.

Now, more than ever, IT organizations must be able to drive value for stakeholders. You need to identify ways in which value can be demonstrated.

First, IT must take the lead in developing metrics that measure success both against its own goals--the local imperatives--and against larger strategic business objectives--the global imperatives. The problem is that these two sets of imperatives, while sometimes complementary, can conflict.

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So, how do you promote value at both the local and global levels? To focus on either one is myopic. Only by creating processes that truly transcend and simultaneously implement both local and global objectives can you generate value across the company.

Change-management perspectives offer examples of how the local interests of functional groups can degrade the quality of global output. While business analysts would have IT groups believe that all requested functions are 'must-haves,' the IT group invariably tries to minimize the implementation and workload, suspecting this isn't so. What gets compromised is an accurate assessment of the financial impact of the various decisions. The solution is to have as precise a justification for project initiation as possible, so that the financial impact of every function and feature is transparent.

Historically, despite all the investment, IT has produced less-than-satisfying results. Today, most companies are scaling back on IT expenditures to reduce operating costs. This move toward outsourcing is a result of IT's low ROI. But is outsourcing the answer?

What losses will there be in quality, customer satisfaction, brand equity, public relations, and employee morale in such a move? And can current processes be optimized at the local level to cut costs further than would be realized by outsourcing?

By unifying your efforts to produce products of the highest quality allowed by operational and financial constraints, the issue shifts from how much money can be saved by outsourcing to how much can be saved by doing what's necessary to optimize mission-critical processes.

To make this happen, however, managers need the courage and understanding to do what's right as opposed to what's politically expedient.

Finally, it's important to leverage each and every individual within the organization. Managers often prefer to rely on several overachievers who will solve a problem quickly without addressing its root causes. By understanding where the talent is, and how it can best work together to deliver high quality at low cost, companies will see greater returns on their people and a minimization of the global-local conflict.

-- Vladimir Tsivkin

Sourabh Hajela, TAC Expert, has more than 15 years of experience in strategy, planning, and delivery of IT capability to maximize shareholder value for corporations in major industries across North America, Europe, and Asia. He is a member of the faculty at the University of Phoenix, where he teaches courses in strategy, marketing, E-business and leadership. Most recently, he was VP and the head of E-business with Prudential Financial.

Beth Cohen, TAC Thought Leader, has more than 20 years of experience building strong IT delivery organizations from both user and vendor perspectives. Having worked as a technologist for BBN, the company that literally invented the Internet, she not only knows where technology is today but where it's heading in the future.

Vladimir Tsivkin, TAC Expert, has more than 20 years of experience in advanced software development, with the last five-plus years in senior project-management roles at major financial-services institutions. His primary specialty is software quality engineering, including Six Sigma and the Capability Maturity Model. He has published a number of papers in operations research, management-science applications, and quality management.

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