The ERP system is the single largest IT investment many companies will make. It is an investment that makes the CIO’s job both easier and more difficult.
The CIO can breathe easier because the ERP system:
- Consolidates disparate systems
- Modernises the IT database infrastructure
- Provides capable reporting and analytic tools
- Gives a foundation for extending capabilities from a standard platform
ERP also makes the CIO’s job harder because:
- The company becomes extremely dependent on IT’s ability to operate the system
- The CIO is drawn in to the business process optimisation discussion
- Governance of IT usage and spend becomes more important as the company seeks to leverage ERP
Figure 1, based on data from Aberdeen’s ERP in Manufacturing 2011: Defining the ERP Strategy report, shows how companies we surveyed organise their IT infrastructure for ERP.
The figure compares the Best-in-Class (defined as the top 20 per cent of the respondents based on their superior operational costs, inventory accuracy, and on-time performance) to Average and Laggard companies.
Best-in-Class companies are more likely than others to obtain senior management buy-in and use cross-functional teams for ERP selection.
However, Best-in-Class companies really stand out in making line of business leaders accountable for ERP implementation and usage.
This capability is almost universal among top-performing companies, while less than half of Laggards are so accountable.
I've seen the value of including the Line-of-Business in the ERP selection and implementation process first-hand.
In a previous job, I was charged with modernising a plant by, among other things, implementing Lean Manufacturing and adopting an ERP solution.
The project lasted over a year. The ERP deployment was filled with conflict, angst, and was an overall success.
After completing the project, however, I was rewarded (or punished) by being charged with the plant’s operation. Daily use of the system I created made me aware of its limitations.
While modernisation was a success from a productivity and on-time performance standpoint, I learned it could have been better if I had been more accountable for minimising disruption of day-to-day plant operations.
During the implementation, my goal was to have as many people as possible using the new system.
When managing plant operations, though, I found myself wanting to minimise the number of people touching the new system.
I bemoaned the loss of critical functions from the older system, but I was solely to blame. Had the line-of-business been involved in the selection process earlier, we would have realised the flaws in our vision in time to correct them.
ERP simplified operations by replacing multiple older systems, but at the same time, the IT executive’s job became harder, since some of the functions eliminated would eventually have to be added back into the new ERP systems.
Properly managing the ERP implementation with accountability for the business manager and the IT manager could have helped me make the plant’s modernisation more efficient.
The CIO also needs to structure and staff IT to support ERP—for ongoing support, as well as implementation.
Figure 2 shows how Best-in-Class companies in the ERP in Manufacturing report compare to Average and Laggard companies in their approach to organising IT.
Top-performing companies are more likely than all others to ensure the IT organisation can manage the demands of ERP. Almost all Best-in-Class companies dedicate IT resources to ERP during implementation.
In fact, our research shows that a lack of internal resources for ERP implementation was a top obstacle to ERP deployment identified by companies that have yet to implement ERP.
A CIO approaching an ERP implementation must consider the internal, short-term burden of pulling people away from their current roles to support the project—in addition to the dollar cost of the system.
CIOs preparing for ERP implementations can take a few steps to minimise their difficulties up front, and increase the value of the system:
- Make sure IT does not go it alone. Best-in-Class companies are twice as likely as others to make business leaders as accountable as much as, or more so than, IT leaders
- The ERP implementation team should be cross-functional, and part of the senior management agenda
- Dedicate IT and non-IT resources to the ERP implementation. Almost all Best-in-Class companies do this.
A successful ERP implementation brings a host of new responsibilities: the IT leader has to become a business leader. ERP opens up the world of business process optimisation, and an IT leader will become a key player in that world through ERP.
Kevin Prouty is VP of Research, Enterprise Applications at Aberdeen Group