How To Get Full ROI (Return Of Investment) via ERP System

Enterprise resource planning (ERP) systems have come a long way in accelerating business growth. ERP empowers organizations with real time access to information, and enables them to take quick decisions to boost growth. However, these applications are not routine software applications; they directly impact how the business conducts itself. In most cases, existing business processes have to be re engineered and mapped to the business process as defined in the ERP system. This has many implications – the approach to crafting solutions, implementation and eventual system sustenance have to be carefully managed to reap the full potential of an ERP implementation.

While ERP implementations are successful, they have their share of failures as well - to minimize the chances of failure; organizations should adhere to a set of principles, beginning with a clear business case and an effective ERP software selection process.

• Define clear business goals
  Investment in an ERP system must be driven by a strong business case. Organizations must know the objectives of the investment in ERP – improved cash flow, reduced operating expenses, or implement a ‘single version of truth’ enabling faster decision making. ERP implementation is a business project and not a technology project. However, most often, companies focus too much on the technology capabilities or features, forgetting the fact that ERP is about business processes. Hence, what really matters is how you want your business to run, and how you map your business processes to the best practices as defined in the ERP. In short, ERP must be implemented to achieve certain business metrics, and organizations must define these before implementation.
• Get top management commitment and support
  This is one of the most critical success factors for any ERP implementation. An ERP implementation must be overseen by a steering committee, with participation from key decision makers at the CXO level. The steering committee should meet periodically to review the status of the project and proactively resolve any issues that may be affecting the implementation. The team must have equal participation from both business and IT.
• Define milestones and prepare road-maps
  Every ERP implementation requires extensive preparation. Organizations should prepare a detailed roadmap with clearly defined milestones and also have a contingency plan to deal with any exigency.
• Analyze existing business processes and define target processes
  The core of an ERP system is business process optimization. Organizations should prepare a comprehensive business process blueprint, understand their dependencies and remove non value-added activities that are part of current business process. The next step is to prepare the target process, also called the ‘To-be’ process, adopting best practices, wherever applicable. Gap analysis tests must be conducted, comparing new process with that available in the ERP. Steps that need to be undertaken to transition the business process must be thorough and implemented through a detailed change management program.
• Design a comprehensive change management program
  Depending on the process defined in the ERP, roles may have to be reassigned, changed - or in some cases simply not exist. In such cases, it is natural human tendency to resist change and block the implementation process. To counter this, senior leadership has to proactively anticipate issues and have answers and solutions to questions posed by employees. Employees must also be given comprehensive training to enable them to fully understand the benefits of the ERP system, and how will it affect their day-to-day operations. In any change management, communication is the key issue.
• Establish specific performance metrics
  Before any ERP implementation process, organizations must establish clear performance metrics to gauge if the project is meeting desired expectations. Instead of general performance metrics such as ‘significantly reduce inventory levels’, organizations must have defined performance metrics such as ‘reduce inventory by 10% in the first year.’ Organizations must benchmark this against the best in the industry, and try to meet or exceed these industry-standard benchmarks.

ERP implementation is not the same as ERP installation

Most organizations often treat ERP like any other software. But ERP is not an average piece of software – it is one that enables business processes defined in it. Organizations need to conduct regular performance audits to get an accurate picture of the implementation status.

Determining ROI

In any ERP implementation, the total costs of the solution are calculated by including components such as software, hardware servers, upgrades, support and maintenance services, IT training, application customization and development services, implementation services and more. These costs are then compared with tangible benefits obtained to determine ROI. Tangible benefits could be in the form of process improvements enforced by the ERP that have helped the organization improve its efficiency, or rise in revenues or profits due to identification of new revenue opportunities.

Hence, the success of an ERP is not only based on cost savings, but also through business benefits - which are true indicators of ROI. This could be related to reduction of inventory levels, reduction in operational costs, improvement in shipment time, and reduction of defects. Organizations, however, need experienced software service providers to quickly implement ERP systems using industry standard best practices and methodologies. The time and quality of the implementation will have a huge impact on ROI.

Conclusion

ERP implementation is not a destination, but a journey towards continuous improvement. To achieve positive ROI, organizations must approach the ERP implementation in logical, manageable phases. This ensures manageability of organizational changes, and also prepares organizations to handle any challenges that may arise out of previous implementations.