5 Keys For Maximising Your ROI Through Optimal ERP Performance: Key No. 5 - Maximise Your Benefits by Peter Clarke

Key No. 5 - Maximising The Business Benefits And Return On Your IT Investments

It goes without saying that, despite the best planning and implementation processes, the proof of an ERP System project is in the business benefits and the return on investment achieved. A well-executed project is less than successful if there are no benefits or returns. This should be obvious to all, and this should be the primary focus of every project, in any field.

But judging by the number of 'failed' projects - whether this means never being completed or simply not living up to expectations - one would be forgiven for wondering if this overriding priority is forgotten in many cases. The attitude that "the operation was successful but the patient died" must be avoided at all costs, and it is an attitude that must be avoided throughout the project lifecycle.

Realising the benefits of your ERP implementation is determined by the actions taken in the initial planning stages of a project, as well as the result of how well the system is used once it is up and running. Poor planning can mean limited or even zero benefits or, at worst, a highly negative impact on the organisation. There are cases where organisations have suffered terminal effects of a poor implementation.

Companies focus on the process of selecting and installing ERP software systems but once the initial project is complete, it often happens that both the original team and the business focus move on, whether or not all the original goals have been achieved. The end result is something of an instant legacy system, with no budget or plan for further training or realisation of business objectives.

It cannot be emphasised enough that business benefits come after the project is complete. This is often a difficult issue to manage during the implementation phase, as those involved require faith in the project that the benefits will be achieved, but often see little evidence of this during the implementation itself.

A good example of this is in the consideration of modifications. It is often easier for project teams to request a modification to maintain the status quo and appease business users rather than try and introduce an improved process. For this reason any modification must be endorsed by the business leader most affected by the modification and reviewed by his peers.

Where possible the benefits should be built into operational plans budgets to ensure they are realised. This will encourage business managers not directly involved with the project to maintain an interest as they know they will be measured once it is in operation.

Joe Peppard et al referred to this in an article in MIS Quarterly Executive (called MIS1 from here on): "With the information technology investments, most organisations focus on implementing the technology rather than on realising the expected business benefits. Consequently, benefits are not forthcoming, despite a project's technical success."

They go on to say: "When considering return on investment calculations, organisations are so pre-occupied with manipulating the denominator - reducing spend - that they do not focus on the numerator - how IT can generate significant benefits. Equally worrying is the traditional investment appraisal process, which is often seen as a ritual that must be overcome before a project can begin. Many benefits are overstated to get the project through this process.

"No wonder few companies engage in post-implementation reviews. They already know that many of the benefits described in the business case are unlikely to be achieved."

As cynical as this last judgement is, there is an element of truth in it. But it needn't be so. There are ways to ensure - or, at least, to maximise - the business benefits that your ERP implementation can achieve.

Peppard et al, in another article (MIS Quarterly Executive, March 2008 - called MIS2 from here on), say "There is an important difference between investment objectives and benefits. Objectives are overall goals or aims on the investment, which are agreed on by all relevant stakeholders. In contrast, benefits are advantages provided to specific groups or individuals as a result of meeting the overall objectives."

They suggest (in MIS1) that, underlying an ERP project proposal, there should be five principles adhered with in order to realise value through IT.

Principle #1 is that IT has no inherent value. "Just having technology does not confer any benefit or create value. The value of technology is not in its possession. In fact, IT spending only incurs costs. Benefits result from effective use of IT assets."

Principle #2 is that benefits arise when IT enables people to do things differently. "Benefits emerge only when individuals or groups within an organisation, or its customers or suppliers, perform their roles in more efficient or effective ways. Generally, these new ways of working require improving how information is used."

Principle #3 says that only business managers and users can release business benefits. "Benefits result from changes and innovations in ways of working, so only business managers, users, and possibly customers and suppliers, can make these changes. Therefore, IT and project staff cannot be held accountable for realising the business benefits of IT investments. Business staff must take on this responsibility. Getting business staff to acknowledge this principle is a key way to ensure that they become involved in so-called IT projects."

Principle #4 reminds us that all IT projects have outcomes, but not all outcomes are benefits. "Many IT projects produce negative outcomes, sometimes even affecting the very survival of the organisation. The challenges for management are to avoid such negative outcomes and to ensure that the positive outcomes deliver explicit business benefits.

Principle #5 says that benefits must be actively managed to be obtained. "Benefits are not outcomes that automatically occur. Furthermore, the accumulation of benefits lags implementation; there can be a time gap between initial investment and payoff. Therefore, managing for the benefits does not stop when the technical implementation is completed. Benefits management needs to continue until all the expected benefits have either been achieved, or it is clear they will not materialise."

To implement an ERP project based on their five principles, Peppard et al recommend that seven key questions should be asked, the answers to which "are used to develop both a robust business case for the investment and a viable change management plan to deliver the benefits".

These questions are:

* Why must we improve?
* What improvements are necessary or possible?
* What benefits will be realised by each stakeholder if the investment objectives are achieved?
* Who owns each benefit and will be accountable for its delivery?
* What changes are needed to achieve each benefit?
* Who will be responsible for ensuring that each change is successfully made?
* How and when can the identified changes be made?

They do warn (MIS2) that "Some benefits can only be measured by opinion or judgement. … Quantifiable benefits are ones where an existing measure is in place or can be put in place relatively easily. Since quantifying benefits inevitably involves forecasting the future, the challenge is to find ways of doing this as accurately and robustly as possible."

But an ERP system does not stand alone, and realising benefits often relies on other, external inputs. ERP software systems are largely data dependent and data driven and the key to realising the full benefits is integration. If information is incomplete or inconsistent it becomes very difficult to integrate reliably and the results can lead to a loss of business confidence in the system and increased non-productive work load for support personnel.

Often day-to-day operation of systems falls to staff who weren't involved during the initial implementation and who have not received the same levels of training and handover as the original team. As a result effective system usage tends to deteriorate over time.

Your approach, then, to realising benefits of an ERP implementation (or any IT project, for that matter) relies on taking an holistic approach, which means not just all participants and stakeholders, but also all inputs. And this also means across the entire spread of a project - from the very first inkling of a suggestion or realisation of a need, to the end project and, importantly, beyond - to the ultimate users and how they will react to and live with the system that has, hopefully, been fully implemented. An implementation is not successful until anticipated benefits are achieved - largely after implementation - or a good reason established for why they won't be. Responsibility, therefore, for doing this rests with many players, at many stages.

Complex? Yes.

Difficult? Maybe.

Essential? Absolutely.

References

* Clarke, P., "How to maximise your investment in ERP technology", June 2008, IBS Australia
* Peppard, J., Ward, J., and Daniel, E., "Managing the realisation of business benefits from IT investments", March 2007, MIS Quarterly Executive
* Ward, J., Daniel, E., and Peppard, J., "Building better business cases for IT investments", March 2008, MIS Quarterly Executive


About the Author

Peter Clarke, Chief Technology Officer IBS Asia Pacific has over 20 years experience in ERP Software, ERP Systems, Supply Chain Management Software and EAI.