Take control over your ERP transformation | The Manila Times Online

Take control over your ERP transformation

In recent years, there have been various breakthroughs in technology which challenge companies to be more flexible and agile. Thus we see businesses – big and small – making strategic investments in major transformations, with new customer-focused products and services, new technologies and efficiency improvement being the key areas of focus.

One area we normally see as starting point of transformation is the business’ Enterprise Resource Planning or ERP.

What is an ERP System?
Wikipedia says “enterprise resource planning (ERP) is the integrated management of core business processes, often in real-time and mediated by software and technology. ERP is usually referred to as a category of business-management software – typically a suite of integrated applications – that an organization can use to collect, store, manage and interpret data from these many business activities.”

Remember that the above definition has no mention of the word “accounting”. It is precisely because ERPs are not just accounting or tax software – they cover most aspects of the company’s business such as sales, procurement, production, logistics and human resources.

How much does it cost to build my ERP?
Regardless of size or complexity, companies spend a fortune in building and maintaining their ERPs. Aside from the financial costs, one must also look at the business and human costs in implementing a complex project as an ERP. Let me share with you how much it takes to make this transformation happen.

The financial cost. In the Philippines, a typical investment in Systems Applications and Products (SAP) or Oracle for a small- to medium-sized company can cost around P20 million to P30 million, which covers implementation, hardware and licenses for 50 to 60 users. For large companies, this can go as high as P300 million, as they opt for more functionalities, operating entities and ERP customizations.

There is also the thing called “the fine print” that covers ongoing costs through annual subscription, additional support from the ERP provider, and IT support – internal for general maintenance and troubleshooting, and external for software development. These are usually ignored or intentionally left out to expedite the approval of required investments. There are also cases where ERP implementations are stopped midway due to various reasons such as vendor support issues – and these are very costly.

The business cost. ERP implementation projects result in business issues such as disruption of activities due to staff involvement, re-training of staff, creation of new process notes, problems with “legacy” systems and disruptions due to system issues after go-live. It even causes reputational damages from go-live issues – a major fast food chain had a system migration issue back in 2014 and it caused negative publicity on the company.

The human cost. This is a commonly overlooked component in building ERP. People leave ahead of the project, knowing what is to come; project team gets burned out; implementation issues take too long to resolve; redundancies are made to demonstrate project’s “success”; and people leave due to stress or disillusionment. Human costs have far-reaching business implications that should also be considered.

Managing the risks
You would have realized at this point that building your ERP demands a lot from your business. It’s not simply about technical endeavors. It’s also political, strategic, financial, structural, procedural and people-centric initiatives that require discipline across processes and data, extending beyond departmental boundaries.

So, before the “change is coming” becomes “change scamming”, here are some basic and practical considerations on how to govern these projects better:

Enterprise alignment. Successful deployments involve the coordination and alignment of decentralized businesses that may have little incentive to align with enterprise business strategies and may hold widely divergent views of project success and expected benefits.

An end-to-end view of business processes. The design of an effective ERP business process entails an understanding of end-to-end business processes – something that often does not exist in functionally focused organizations and legacy systems.

An operating and support model. The support and management of an ERP environment need unique skill sets and specific operating structures. Teams must begin to consider those requirements early in the program to allow sufficient time for identifying new support structures and educating the organization on them.

Data quality and consistency. ERP integration requires standard master data definitions across modules and systems. Each data element must be clearly understood as to where the data resides, the controls the data will be subjected to, and the decisions to be made on source systems.

Security and controls. Pay early and close attention to the design of security and controls due to the complex and integrated nature of transactions and data. Seemingly minor issues with data or transaction integrity caused by poorly designed controls can seriously delay transactions and disrupt business operations.

Change management. Successful transformation employs a comprehensive, structured change management program to support people through the change journey, to accelerate and sustain benefits realization and to ease them in the change in behavior.

Form a project assurance team to get things right
Early in the transformation journey, I suggest you build a project assurance team to help anticipate and deal with potential implementation issues. It has to be a separate team and independent from the implementation team. Project assurance may help manage the project by:

* providing a concise and current view of project risks for business sponsors and other stakeholders;

* identifying pragmatic recommendations for remediation of risks;

* assigning clear accountability for addressing risks to project team members and stakeholders;

* actively engaging stakeholders across different business units;

* providing perspective by comparing project team processes with leading practices;

* reviewing the design and effectiveness of decision authorities and escalation paths that enable timely decision-making.

A lot of challenges and changes have to be embraced in building your ERP. As the familiar African proverb goes, “It takes a village to raise a child” – one must look at this journey as a communal effort to succeed.

At the end of it all, as a business leader, you will find yourself riding through this transformation process more confident, informed and in control.

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Dakila Socrates B. Lavilla is a Risk Assurance Director of Isla Lipana & Co., the Philippine member firm of the PwC network. For more information, please email markets@ph.pwc.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.