Executive Summaries on Enterprise Apps© Number 6: Managing Differently After Implementing ERP

June 18, 2015
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You’ve been at the ERP implementation for months or even years. You’ve spent typically 3% to 6% of your gross annual sales to make it happen. And now the big day has come. You’ve thrown the switch. It’s alive! So now what? What do you, yes you, the senior executives of the company do differently today then you did yesterday? The correct answer is everything, but we’ll focus on three specific items.

Organizational Design

Process Design

Business Metrics

The major difference between a modern ERP system and your old legacy systems is integration. You’ve gone from a series of independent and interfaced systems to a single interdependent system. That changes everything. Integrated ERP systems make users highly interdependent like a high wire trapeze act. Any slip by even one person can cause the act to fail and may cause everyone to fall. But when the teamwork is well executed, the result can be thrilling.

If executives’, from the “C” group down (CEO, CFO, CIO, etc.), attitudes, approaches and daily behaviors do not change, the implementation has not reached its potential.

 

Organizational Design

After the cut over, the focus shifts from implementation to leverage. Management should ask, “Now that the system is in and up, how can we achieve and even expand its benefits? How can we achieve the return on investment we predicated?”

Executives should use the ERP system to create an integrated strategic direction for the company. They should avoid local optimization and stress global efficiency. The ERP system is integrated; the way the company is managed must be integrated.

The move to an integrated way of managing may require executives to redesign intra and inter departmental structures and reporting relationships to work within the process structure that ERP creates. Executives may also need to develop new job descriptions and responsibilities to perform work in an ERP system.

After the organization has been aligned to take maximum advantage of the ERP investment, executives should ask each of his direct reports, and they of theirs, exactly how they intend to use the ERP system to increase profits for the company, decrease costs, run their departments more efficiently, or provide higher levels of customer satisfaction.

 

Process Design

The most important change that executives can make, must make, after an ERP implementation, is to use the system to operate the business.  The formal system must rule over the informal systems.  Top executives must understand this concept, practice it, and enforce it at all levels.  The president that asks for a hot list just doesn’t understand!   Failure to recognize this one concept is the primary reason that many of these implementations fail in the long run.

Old behaviors will continue unless executives set the stage and leads by example in using the new system.  That means the business must be managed with a disciplined approach.  90% of the daily activities must be executed by standard systems and procedures. While there are always exceptions, no more then 10% of daily activities can be exceptions handled outside the ERP system and then only due to the limitations of the ERP system or the system’s use.

Having a unified system should mean that regardless of who is asked for information, since everyone is looking at the same data, the results should be the same. Every piece of operational and financial information executives look at must come from the system. As soon as an executives accepts a spreadsheet or other type of manual report, they are sending the message that not using the system is acceptable.

 

Metrics

The way management assures and enforces discipline and adherence to standard systems and processes is through metrics. The system’s original objectives, the savings used in justifying the expense, become the measurements that the company needs to track.  Management of the system should involve tracking the organization’s performance to see how well the original objectives are being met.

Tracking organizational performance requires executives to develop and implement a comprehensive, fact based, integrated, performance measurement system. This system should be designed to drive behavior toward overall organization performance and away from maximizing department performance and empire building. From a top management point of view, the best performing department (and department manager) is not the one who has the best “numbers” but the one who contributes most to the overall performance of the organization. Meeting budget becomes less important and creating results becomes more important.

ERP creates plans; cost, schedule and quality plans.  ERP collects actual performance data; cost, schedule and quality data. ERP must be THE source of the plan and the source of the data to measure performance against the plan.

 

 

Executives must have the right people organized in the right way, create an effective integrated process, and put the key performance measurements in place to ensure a return on the ERP investment.  If executives don’t change their behavior, nothing will change by merely implementing a new system and the investment will have been lost.

 

To learn more details about how to ensure the success of your ERP system is successful, contact Doug Howardell at DH@theACAgroup.com or 626-836-9261

 

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