Changing For the Right Reasons: How to ensure your ERP transformation will differentiate your organization - Part 1

Introduction

ERP implementation projects aren’t as easy as they look - and they don’t look very easy. Every year, organizations spend millions of dollars to implement different ERP solutions with the hopes that the new solutions will allow them to scale, reduce operating expenses, or become more effective at serving customers. Few successfully attain these objectives.

Although most companies have a benefits case for these investments, these benefits cases are typically very technology centric and do not define the business drivers or expected specific and measurable business outcomes of expected change. According to the 2018 ERP Report by Panorama Consulting Solutions, 44% of companies achieve less than half of the benefits they imagined prior to ERP implementation. The reality is that it is easy to get caught up in the excitement associated with implementing a new technology (ERP) solution or taking advantage of a new opportunity. However, without identifying the rationale for making such a change and the expected benefits, companies often get caught off guard by the challenges of scope-creep, escalating cost, lack of buy-in among key stakeholders, or the potential loss of highly customized functionality.

MAKING THE RIGHT CHOICE

In order to determine whether a new ERP solution is right for an organization, it is imperative to take a measured, rational approach to the planning process. Through our work with a broad range of small, medium, and large enterprises, we have developed a four-step approach to determine whether to change, communicate why the proposed changes matter, identify what the scope of the required capabilities will be over time, and how resources should be deployed. Following our approach enables organizations to deliver all the people, process and technology components needed to achieve transformational change and the desired outcomes.

THESE STEPS INCLUDE:

• Assess whether change is necessary: Make a proactive decision as to whether change is the right action to take.
• Determine what needs to change: Identify the scope of the change and the impact of improving the performance of specific capabilities on an organization.
• Focus on minimum viable scope: Ensure the least amount of change is undertaken in order to achieve the desired outcomes in order to reduce transformation risk.
• Define how to change: Develop a roadmap for change based on knowledge of capabilities, impacts, and the most effective sequencing of change activities.

 Step 1:

“To change or not to change, that is the question”: Assessing whether change is necessary.

The most important question associated with any major change (such as a potential ERP implementation project) is simple: “Why change?” Answering this question, however, is not easy. Yet, it is this step – or the absence thereof – that can singlehandedly make or break the likelihood of an ERP initiative achieving a meaningful outcome. Companies that take the time to define a strong “why” give themselves a navigational beacon to strive for as well as a critical driving force to help propel them through what can be a lengthy and complex change process. Without a strong, “why” companies can get bogged down by challenges and issues experienced during the transformation. The result – many over-engineer scope, unnecessarily increasing cost, resource requirements and risk. Others, swing the other way, reducing the scope and scale of identified changes in order to mitigate risks – thereby delivering less capability than needed in order to achieve the desired outcome.

CHANGE MATRIX

The Change Matrix - an innovative way to assess the case for change. Best way to explain how The Change Matrix works is through a problem.

Once upon a time, there was a man who lived on a rock near a pond. Far in the distance was a mountain. One day, the man found out that there was a pot of gold at the top of the mountain. This gold was very desirable and he wanted to get his hands on it, even though he knew it would require hard work and significant sacrifices to climb the mountain. He told his friends about his idea to climb the mountain and they warned him that it was known to be a very treacherous climb. Many had tried and failed. In fact, many had spent much of their resources only to fall and break their legs. The idea of limping around on crutches made the man afraid and the whole idea seemed less attractive. But then he thought about the alligators in his pond that were getting larger, more numerous, and were coming closer to his comfortable rock. He was afraid that if he didn’t do something, it would only be a matter of time, before the alligators would bite his head off. This further motivated him to go on his excursion. As he was planning, he realized that if he went to climb the mountain, he would have to leave his beloved mermaid behind, because she had to stay in the pond. He really loved the mermaid, and the thought of giving her up made the decision to go much more difficult.

These are the four forces of the change matrix and influence every change decision we face, no matter how big or small.

The Pot of Gold: The top right quadrant represents the outcomes that a company wants but does not have currently. These are the expected benefits should they decide to embark on the change. While companies often define anticipated benefits by the access to new tools (e.g. new analytics, new capabilities), the real value is derived from the quantitative value a company can achieve by using the new tools (e.g. increased revenue, increased profit, increased number of customers).

The Alligators: The bottom left quadrant represents the current (or potential near term) pain points or risks associated with a company’s current state. Current pain points might include: technical system instability, errors made in general operations, failure to meet customer needs, the need to use manual workarounds to conduct important analytics, etc. Key risks might include not being able to adhere to changing compliance regulations. The alligators and pot of gold together represent the “case for change”. The more quantitative and substantive they are, the stronger the case. It’s not uncommon for organizations to confuse issues that should be “alligators” as “pot of gold”. For example, “improving reporting performance” may look like a desired pot of gold, but what it’s actually saying is that currently reporting performance is not acceptable. It isn’t as important to classify a desired outcome as one or the other - as long as it’s captured.

Now let’s move to the reasons “not to change”

Crutches: The bottom right quadrant represents obstacles or anticipated negative ramifications: First, what a company fears will be an obstacle and cause pain if they move ahead with a significant change: such as unavailability of key personnel, budget constraint, “they will never agree”, or simply the fear that the project will fail. Often, these fears are deep-rooted based on previous negative experiences with change, or from hearing about high profile failures occurring at other companies. Secondly, there may be negative ramifications that would results from a successful project. For instance, key users may fear that a new ERP could result in a loss of autonomy that they currently have under the current process, or they may fear they will become redundant and if a system successfully automates their process. In either case, recognizing the anticipated negatives of the change are critical to understanding how to proactively deal with them.

Mermaid: The top left quadrant represents everything an organization’s stakeholders love and hold sacred about their current state, and what they fear they will lose if they make a big change. For companies that have been using the same ERP solution for decades, this could include their customizations, user interface or reports that have been tailored over time.

Large-scale ERP implementations often fail because companies do not consider one or more of the key factors of change. The impact of each factor on an organization’s readiness to change can’t be underestimated. It is very easy for stakeholders to cling to their current state if they don’t have strong motivation to change. At the same time, leaping into a change without fully understanding what the change must accomplish or the potential barriers associated with achieving success could result in a company failing to achieve their desired objectives.

Using the Change Matrix can help you assess whether the drivers and anticipated benefits associated with a major ERP implementation project outweigh the costs and potential negatives. To be effective, it is important to conduct this analysis several times – with your executive team, your middle management, and your front-line staff. This iterative process can help you build a more fulsome picture of your current state and anticipated future state. It is also critical to use real, quantifiable information as part of this assessment to help drive your decision-making. If you cannot completely quantify specific variables for each quadrant, then assess the level of magnitude of their importance. For example, while you may not be able to fully quantify the financial risks associated with being non-compliant, the magnitude of non-compliance risk would be significant.

By the end of Step 1, you should have the information you need to assess whether you have the impetus to forge ahead with the implementation of a new ERP system – or not.

For more information on this leadership paper, click here.