An ERP management information system can be defined as a business management application that integrates the flow of information, thereby enhancing processes in various areas (financial, operations, marketing, logistics, sales, and human resources). Thus, the primary objectives of ERP systems are:
- Optimization of business processes.
- Access to reliable, accurate, and timely information.
- The possibility to share information among all components of the organization.
- Elimination of redundant data and operations.
- Reduction of time and process costs.
After recognizing the extensive possibilities of an ERP, it is important to highlight that the proper implementation of an ERP leads to significant increases in productivity and the potential for improved decision-making through better information. ERP implementation is generally pursued not for minor enhancements, but for substantial improvements. Given the attributes and potential of ERPs, it becomes evident that the organizational transformation needed for ERP implementation holds great significance. This transformation involves the restructuring of processes and the engagement of individuals from diverse areas, leading to the formation of multidisciplinary teams.
In evaluating the complexity of ERP implementation, we need to consider the interaction of the following six elements:
- The ERP (Management Information System)
Initially, it might appear to be the most important aspect of the implementation process; however, as we will explore later, this is not the case. Proper change management holds greater importance than the ERP itself. The market offers numerous ERPs with varying features and price points. On the other hand, there are horizontal ERPs (suitable for any organization in any industry) and vertical ERPs (tailored or configured to meet specific sector needs). The fundamental point is to recognize that each organization possesses distinct requirements, and the choice and customization of the ERP will depend on these needs. Therefore, an ERP is not a one-size-fits-all solution, and effective solutions for other entities may not be suitable for our own. It is common to encounter situations where a company adopts an ERP simply because another company from a different sector with different characteristics found success with it. While the latter company might indeed benefit from their ERP implementation, does it logically follow that the same “ideal” ERP is suitable for both organizations, given their dissimilarities?
- People and organizational culture
People play a crucial role within organizations, and the impact of an ERP implementation on them holds significant importance. Undoubtedly, change management stands as a critical element in this process. Hence, a comprehensive analysis of user requirements and their seamless integration right from the project’s outset becomes imperative to attain favorable outcomes. Furthermore, it is essential to precisely outline the enhancements that everyone within the organization will experience through the implementation, alongside devising a communication strategy to gather widespread support for the project. Moreover, it is uncommon for organizations to have personnel possessing both business expertise and technological insight to lead such projects, underscoring the vital role played by external consultants, particularly the project manager.
- Strategy
The optimal approach would involve aligning the technological plan, which includes the ERP and its related hardware, with the corporate strategy. This contrasts with the perspective held by certain ERP manufacturers that the strategy should adapt to technology. In essence, the concept is to establish a well-defined organizational strategy and then allocate the required technological resources to execute it effectively.
- Hardware
Although hardware is generally not the most complex aspect of implementation, there are instances where incorrect hardware selection or system design can diminish the overall performance of the implementation. Therefore, it is crucial to precisely define the system requirements and design the solution accordingly, ensuring that the investment aligns with the actual needs.
- Processes
It should be recognized that, in addition to individuals, processes play a crucial role in defining the organization’s efficiency and effectiveness. Therefore, within an ERP implementation project, there is a need to redefine processes to enhance their efficiency and effectiveness. The appropriate approach involves redefining processes, utilizing the capabilities offered by the ERP, as a preliminary step before the implementation. These newly defined processes should then be supported by the ERP. However, it is common to encounter ERP implementations where processes remain unchanged post-implementation, resulting in a significant issue. This situation prevents any improvement in costs or process times from being achieved. Even if we have the best ERP in the world, if processes are not revamped, they will remain just as efficient or inefficient as they were before the implementation, and thus, the ERP implementation will have minimal or no impact on effectiveness and efficiency.
- The rest of the organization’s existing management applications
It is becoming increasingly common for organizations to have various management applications. Among the most typical applications are proprietary or industry-specific tools (e.g., budgeting), Customer Relationship Management (CRM), Business Intelligence, and Supply Chain Management (SCM), among others. In most cases, these applications need to be connected to the ERP to achieve efficient information management. Therefore, the integration between different applications (EAI) is an increasingly intricate task that significantly influences the final outcomes of the implementation. In this regard, it is also important to evaluate the pros and cons of having all management applications from the same provider. While integration is smoother and simpler when all solutions come from the same source, this choice can limit decision-making flexibility. It is worth noting that the entire approach outlined here is applicable to both organizations considering ERP implementation for the first time and those looking to replace or enhance their existing ERP for improved results.
THE PRE-IMPLEMENTATION PHASE
After covering the characteristics and global perspective of ERP implementation in the first part of this article, we will now delve into the phase preceding ERP implementation.
Any ERP implementation consists of two distinct phases:
- The “pre-implementation” phase involves preliminary analysis to define project objectives, functional scope, total costs, required resources, specific organizational needs, timelines, etc. This assessment is essential for evaluating the profitability of the ERP implementation.
- The implementation project itself encompasses developments, parameterizations, training, etc. On this occasion, we will focus on the pre-implementation methodology, which plays a crucial role in achieving project profitability. Often, this phase is underestimated, and in some instances, this analysis is overlooked altogether, resulting in implementations with ill-defined objectives and numerous challenges. The key concept to be understood is that the success or failure of the implementation is determined by a combination of three elements:
- The organization where the implementation will take place: strategy, people, culture, processes.
- The various consulting firms offering pre-implementation and implementation services.
- The selected ERP, including both the product itself and the manufacturer.
It is common to find organizations that have not adequately conducted the pre-implementation analysis, leading to the selection of an inappropriate solution. Therefore, the pre-implementation analysis should encompass, at least, the following components:
- Initial analysis of strategy, technology, processes, people, and organization. This phase involves a comprehensive examination of strategy, people, processes, and technology to propose the optimal solution from both technological and change management perspectives. Work teams will be formed to carry out this analysis and subsequent tasks.
- Definition of the functional scope of the ERP implementation. This entails identifying the areas and functions that will be covered by the implementation, along with an initial outline of the timeline.
- Definition of ERP implementation objectives. These objectives encompass tangible objectives (cost reduction, enhanced process effectiveness and efficiency, reduced delivery times, lower inventory levels, etc.) as well as intangible ones like improved decision-making through enhanced information and knowledge. Importantly, all these objectives must be integrated within the organization’s strategy.
- Definition of process and organizational enhancements from the ERP implementation. This should extend beyond mere intentions and involve modeling the organization’s processes, recognizing the ERP’s impact. In this stage, quantifiable improvement objectives should be set for each process and integrated into the project schedule.
- Development of a change management plan to ensure coherent transformation. Within this plan, the internal communication strategy holds great significance in conveying the project’s advantages to all members of the organization, fostering a sense of improvement through the ERP project.
- Selection of the suitable technological solution and the most appropriate implementer based on the analysis conducted in the initial phase, alongside the necessary modules and parameterizations. When choosing the ERP, the following parameters should be considered: Quantity of requirements addressed by the standard ERP for the specific case, Flexibility to tailor to specific requirements, Solution cost, Industry experience and successful cases, VAR (Value Added Reseller) quality, Vendor’s financial stability, Utilized technologies, Technology stability, Customer base and profiles, Solution’s technological robustness, R&D investment, Modules adaptable to needs, User-friendliness, Implementation approach, Compatibility with different operating systems and database engines, Scalability, Adaptability to manage new business lines.
The evaluation of the implementer will involve considering the following parameters at a minimum:
- Experience in the sector.
- Cost.
- Knowledge and experience of the personnel, particularly the project manager, in product implementations.
- Knowledge and experience of the personnel, particularly the project manager, in product implementations within the sector.
- Implementation methodology.
- Training methodology.
- Product experience.
- Geographical proximity.
- Global presence.
- Commitment to the implementation.
- Knowledge and experience in systems integration.
- Personnel availability capacity.
- Implementer’s financial stability.
It is evident that in both the product and implementer selection, cost holds significance, yet it is by no means the sole determining factor.
- Definition of an estimated timeline and associated budget. Naturally, this phase will have a direct correlation with the preceding phase, as the timeline and budget will vary based on the chosen technology and its related developments. Within this section, all components implicated in a project of this nature should be accounted for:
External costs
- Application licenses
- Customized developments
- Implementation consultancy
- Hardware
- Training
- Upgrades and maintenance costs
Internal costs
- Hours allocated by the organization’s personnel to the project
- Challenges that may arise due to the ERP implementation
- Define the project’s Return on Investment (ROI) and key performance indicators (KPIs) for tracking the implementation, along with a sensitivity analysis to assess variations in specific parameters.
- Vigilant monitoring and control of the established objectives, as well as the critical factors influencing project profitability, are of utmost importance. Maintaining strict control over the project ensures the realization of objectives outlined in the initial stages.
