The goal of ERP implementation is to realise benefits that support company strategy and improve organisational performance. It should yield Return on Investment like other business programs. We have identified some common practices that are considered as critical success factors in ERP implementation. Based on the findings of the research, we will introduce the benefit realisation framework.
9.2 Benefit Realisation Framework
A typical ERP implementation adopts traditional IT development lifecycle that consists of the following phases: evaluation, planning (these two phases may also combined as setting up phase), blueprint, realisation, final preparation (some ERP implementation methodologies have separate go-live phase) and post-implementation support. To manage and support various implementation activities, most of ERP implementation methodologies include the following four tracks of activities: project management, BPR, change management and technical infrastructure (see Figure 22).
Based on this framework, project organisation consists of functional teams (sales, manufacturing, planning, purchasing, finance, etc.), project management team (or program management office – PMO), process teams, change management team and technical team (including application development). The goal of other teams is to support functional teams to complete the implementation on time and within budget.
Figure 22: ERP Implementation Framework
Table 8: Top 10 Critical Success Factors in ERP Implementation
Ranking Critical Factors
1 Business Process Reengineering (BPR)
2 Manage ERP as a Business Program
3 Leadership Commitment
4 Encourage ERP Behaviours
5 Focus on Benefits rather than Requirements
6 Evaluate benefits delivery progress and make changes to implementation plan.
7 Design an effective measurement system
8 Manage stakeholders through communication, involvement and training.
9 Develop Business Case
10 Identify benefit owners from the beginning
We have learned that ERP implementation will achieve greater benefits if it is managed as a business program. Therefore, the traditional IT-oriented implementation framework is no longer suitable to deliver ERP benefits effectively. The hypothesis and the survey results have confirmed the key benefit realisation elements and common implementation practices (see Table 8 for Top 10 critical success factors in ERP implementation). The conclusions from the study as well as findings of other researchers allow us to formulate the following framework that fundamentally changes ERP implementation process.
Figure 23: Benefit Realisation Framework
9.3 Characteristics of Benefit Realisation Framework
The framework is formulated based on key benefit realisation elements stated in hypothesis: focusing on benefit, measurement, organisation alignment and benefit delivery. The evaluation system element is not considered as it has weak relationship with ERP benefit. In other hand, evaluation system is a tool that ensures a selected ERP system fit into an organisation and monitors the benefit delivery process. Benefit realisation approach builds a foundation for any kind of evaluation system to be effective. However, its impact on ERP benefit requires further research.
9.3.1 Integration of Technology, Process and Organisation
The most importance characteristic of benefit realisation framework is the integration of IT, BPR and organisational change management activities. The integration is not a simple combination of technology, process and change management specialists into a single implementation team. It requires fundamental changes to implementation process. Process improvement and change management are no longer supporting activities. They should take the primary responsibility to design new business processes and new organisation that support company’s vision and strategy.
To certain extend, IT organisation become a supporting role in ERP implementation. The role of IT organisation is to help implementation team to understand the capabilities of ERP system and configure/customise the ERP system that supports new business processes and new organisation. The key is to differentiate “system exploration” with “software modification and enhancement” (see section 3.4).
9.3.2 Business Process Redesign
Organisations have realised the need of business process reengineering (BPR) in ERP implementation. The question is whether organisation’s view on BPR is a strategic or tactical one. In most ERP implementations, BPR is seen as a consequence of an ERP implementation. At tactical level, implementation teams are worried in reengineering their business in order to align the ERP system and the current business processes. However, a BPR effort in strategic term is an intervention, and probably the most important intervention associated with the adoption of the ERP system (Esteves et al., 2002).
Therefore, a BPR intervention is not merely the adaptation of an ERP system or the business processes. It implies changes in the way of doing business as well as on organisational structure and culture. As a system, ERP is just a tool that enables changes in organisational structure, processes and culture. For this reason, Esteves et al. (2002) prefer the term – Business Process Redesign.
9.3.3 Measure For Success
In a traditional IT project, business provides its input in the form of requirements that are defined in scope definition document. In principal, requirements should support organisation’s strategy and project objectives. But in practice, requirements are defined to meet departmental objectives rather than organisational ones. In some cases, they are influenced by individual preference.
In benefit realisation, business takes ownership to define the benefits to be delivered by ERP system. The benefits defined in the business case need to be translated down to what people can control (business unit level, process level, or departmental level) in the form of performance measures for every business process. The benefit/performance measure definition will then served as input to business process redesign.
9.3.4 ERP and Business Alignment
ERP success requires the alignment between ERP and business. However, complete alignment can never be achieved as business as well as technological environments are constantly changing. Therefore, benefit realisation is a process that continually align ERP with organisational strategy and business processes. On other hand, ERP implementation is a high-cost and high-risk venture. A better way to approach an ERP implementation is to invest in stages, so that organisations can make reasonable decisions about benefits, costs, and risks along the way (Cliffe, 1999).
Although this iterative approach of benefit realisation may require more investment, companies will achieve greater benefits in long term:
• Implementation team gains experience and knowledge from smaller investment.
• Earlier success will obtain organisational commitment for later projects.
• Risk of massive write-off is substantially reduced.
• Organisation will be able to take advantage of latest advances in ERP. (e.g. e-Business, Advance Planning System).
9.4 Benefit Realisation Stages
The following sections will discuss each stage of benefit realisation framework in detail:
9.4.1 Business Case
A business case for ERP implementation should be the outcome of strategic planning process. It outlines strategic and tangible benefits, resources, costs, timeline as well as associated risks and opportunities. It is a mutual agreement among all stakeholders of ERP implementation. At this stage, the expected benefits are stated at relatively high level.
9.4.2 Benefit / Performance Measure Definition
At this stage, benefits and performance measures are defined for every business process. It is imperative for implementation team to focus on benefit to be delivered by business process rather than individual requirement. As far as possible, strategic or intangible benefits should be translated into process-specific benefits. For example, sharing of information may result in reduction of cycle time of supply chain. Benefit owners should be identified at this stage to ensure accountability throughout implementation.
To ensure the business case is still valid, the expected benefits need to be evaluated at end of the stage (and subsequent stages). If necessary, business case or implementation plan should be changed to ensure the delivery of benefits.
9.4.3 Business Process Modelling
At this stage, implementation teams design the new business processes to support the benefits and performance measures defined in previous stage. “System exploration” approach (see section 3.4) should be used to explore all opportunities for better process performance. The deliverable of this stage is the business process model that describes what the new organisation should like after go live. The business process model should be communicated to business as part of communication plan.
9.4.4 System Realisation / Organisation Design
While ERP system is being developed (or configured), implementation teams analyse the organisational impact of new business processes. What are the changes to organisation structure to support new processes? What are the new ERP behaviours and core competencies? Do we need to implement new metrics and incentives that are aligned with new business model? A detailed organisation alignment plan should be developed as the result of the assessment.
9.4.5 System Migration / Organisation Alignment
System migration includes various technical activities that prepare ERP system ready for go-live: data conversion, technology infrastructure, cutover, etc. At same time, organisational alignment activities are carried out as planned: implementation of new structure and new jobs, training, business contingency planning, helpdesk planning etc. The assessment on both technical and organisational readiness is the pre-condition for final go-live decision.
9.4.6 Benefit / Performance Monitoring
The ERP implementation does not end when the system goes live. Adequate support is the key to help organisation overcoming the inevitable dip in performance after going live. Continually monitoring of benefit and performance measures provides sustaining mechanism to encourage continuous improvement also contributes to building a culture of benefit delivery. Whenever organisational strategy requires, the next benefit realisation cycle begins.