ERP-systems are oftentimes described as the “central nervous system” for finance and logistics within companies. This refers to both their importance and the level of integration to processes and operations. With increasing digitalization and the resulting automation of processes within organizations, the expectations on ERP systems are also growing. For instance, new developments require the systems to be dynamic and include tools based on technologies like AI or Process Mining. Also, through cloud technology, companies are no longer required to maintain in-house infrastructure necessarily.
Driven by these developments, more and more companies decide to implement a state-of-the-art ERP system. Especially regarding one of the leading providers on the market, SAP, many companies face the challenge of upgrading to the new SAP S/4 HANA system in the coming years.
This article provides an insight into what is essential when implementing a new ERP system to create sustainable added value for the company. In the approach we separate three main phases of ERP-transformation: “Organizational Adoption”, “Conversion”, and “User Adoption.”
Organizational adoption: Setting the groundwork for an ERP-implementation
Organizational adoption of an ERP-system is a process that deals with several aspects before the actual implementation of a new system can be made. Therefore, creating awareness for several advantages, selecting different ERP-Vendors, and evaluating different ERP-products, resulting in a final decision is part of the organizational adoption.
The most significant component of the organizational adoption is the software selection process, which can be separated into the user requirements gathering, the evaluation, and the final selection of the new system. First, user requirements need to be understood to determine the required functionality. In this process, different stakeholders, e.g., senior management, plant managers or employees need to be involved. For example, user requirements could be capabilities in product costing, a CRM module or specific analysis capabilities. Hence, it is necessary that the responsible parties understand what end users need to enhance their productivity and what is expected from the implementation of a new ERP-system.
In the evaluation phase, a set of several ERP-systems should be evaluated according to objective criteria and based on the user requirements. Such criteria could be, e.g., the annual cost, various features that the ERP-system provides, or which type of ERP-system fits the organization better, e.g., On Premise vs. Cloud solution. Based on these criteria the chosen ERP-products can be compared and ranked, e.g., by using a scoring model. Based on this evaluation, a final purchase decision must be made by decision-makers.
Conversion: Choosing the right approach to ensure successful use
After the decision for a specific ERP-system has been made, a conversion approach must be chosen.
1. “Big bang” conversion
One method is called “big bang,” which consists of an instant changeover from the old system to the new one. This approach has the advantage to be very quick and therefore, to ensure that the whole organization stays on the same level from day one in respect to the new system. However, due to the instant changeover, everything must be done in a fixed time schedule. This exposes the whole project to higher risk, as, for example, the organization might not be ready for the changeover or incorrect datasets have been used when converting to the new system. Therefore, this approach can yield a high reward (quick conversion) but also has a high risk that can be very expensive when mistakes occur, in comparison with other approaches.
2. Phased conversion
Another approach is the phased conversion to the new ERP-system. This means that certain functionalities are implemented and tested before the whole system is rolled out. In contrast to the big bang, this approach has a lower risk but also adds more complexity to the entire project. The approach has the advantage to allow time for adjustments as the conversion will be done in separate stages. Hence, negative influences that arise during the start of the implementation are less critical. Also, the users have more time to adapt to the new system and the IT-support staff can focus on some of the users. However, the complexity of the implementation rises, which can therefore lead to mistakes. Also, with every phase a fall back to the legacy system is becoming more and more difficult. The whole approach can also be very unclear to the employees, which might lead to dissatisfaction.
3. Parallel conversion
The third conversion approach is a parallel application of both systems for a specific time, which has the advantage to strongly reduces failure risk. However, this approach requires many resources as it demands the organization to run two systems parallel for a certain time.
4. Pilot conversion
Lastly, another method can be to use the system in a pilot phase only partially within one organizational unit or entity and then, if successful, do a roll out for the entire company. This approach reduces the risk compared to a big bang approach but is not as complex as a parallel approach. However, if the test group that uses the system during the pilot phase decides that the new system is not viable, further assessment is needed to evaluate whether to fall back to the legacy system or continue with the roll-out. This can be an advantage but also a disadvantage as it prolongs the implementation.
Therefore, the adequate selection of the conversion approach is crucial for the further success of the ERP-implementation. Accordingly, this decision must be made thoroughly, based on, e.g., the company size, available resources, risk willingness, environmental circumstances, or past experiences with ERP-implementations.
User adoption: Ensuring success of the ERP-project through sustainable user adoption
No matter how thoroughly the two phases before have been performed, the success of a newly implemented ERP-system stands and falls with the user adoption. The system itself cannot increase or decrease productivity, but extensive use of the system can. Therefore, it is essential that the system is used broadly within the organization to exploit the full potential. However, acceptance is not equal to success, which means that sheer use of the new system due to the absence of alternatives for employees is not a success. Hence, the crucial point is whether the system fulfills the defined requirements of phase 1 and satisfies the user. User adoption is strongly influenced by several factors like the performance of the new system, functionality, the effort that is required for users to use the new system, e.g., training, social aspects like the opinion of other influential employees regarding the new system or the overall support provided by the company to use the system as an employee. All these aspects demand active management. Especially, in the first few months after an ERP implementation, the “shakedown” phase, the new system might negatively affect the overall job satisfaction of employees. In fact, employees who have been used to the old system might not have the same skill level and work autonomy with the new system compared to the legacy system in the first months. Therefore, it is crucial that users perceive the new system as an opportunity and not as a threat. Hence, a framework must be provided in which the users not only can apply the trained skills to work with the new system but also are motivated to discover new features that might be useful for them.
As large-scale ERP-implementations are typically programs that have a long-time scope and go along with a series of other projects, excellent change management is essential for the success of an ERP-project. Further, such projects focus on delivering internal results and improvements and less on producing results for an external customer. This can lead to deficiencies in the quality of the ERP-implementation, which can be very costly in the long-term. Therefore, it is crucial to plan and execute each phase of ERP-implementation thoroughly and professionally.
With our expertise, D&L can support your organization within every phase of your ERP-project and facilitate a successful change to the new system, which leads to long-term value creation.
If you want to get more information on successful ERP-implementation, feel free to contact Fabian Winckler (firstname.lastname@example.org) or Marco Lotz (email@example.com).