ERP Recovery
and Turnaround
Multiyear, multimillion-dollar ERP projects are
back on the business agenda. But as ERP re-emerges
so do the perils of the past. What must organizations
do differently to prevent a business disaster?
ERP Recovery and Turnaround
1
The stakes associated with an enterprise resource planning (ERP) implementation have always
been high with numerous reports of difficulties, all out failures, and executive careers and
corporate fortunes lost as a consequence of overly ambitious, over-budget projects. While
the scale and complexity of change brought about by ERP is felt widely across the business,
so too are the repercussions of poor implementation. Yet the opportunity to transform ways
of working and realize significant business benefits remains compelling and is often business
critical. So how can organizations best manage the risks associated with an ERP project?
How can those already experiencing some degree of distress refocus their ERP projects and
navigate a path to success? The answer rests on an ERP recovery and turnaround plan.
The Challenge
ERP is more than just another technology project. The impact on the business, employee
activities, and management reporting make ERP a business-critical investment that requires
significant management attention and resources. There are roadblocks to avoid and issues
to prepare for. The main challenges are business-related—unclear requirements, limited business
involvement and engagement, and a lack of attention to change management. Vendor-related
issues, when a systems integrator (SI) is responsible for the implementation, can also create
challenges relating to cost, quality, and timelines. These usually manifest as technical difficulties—
an over-engineered solution or scope creep, excessive customization, and inadequate attention to data quality, systems integration, and testing (see sidebar: Clearing the Roadblocks
on page 3).
Sound judgment, proportional
response, and timely intervention are
vital to an ERP recovery and turnaround.
The storyline might unfold as follows: You commit to a major investment in the form of
a multiyear ERP project that places huge demand on management time and business
resources. Other business change initiatives are either put on hold or depend on the ERP
project. The project then falls behind schedule, costs increase, or the systems integrator
underdelivers.
When an ERP project starts to spiral out of control, it is imperative to quickly understand
what is really going wrong and what needs to be done. For example, delaying the rollout to
address possible business risks may result in cost overruns and clash with project team and SI
incentives. Canceling the project could lead to an immediate financial write-off that impacts
shareholders, yet continuing to spend money does not make business sense. Instead, the
right course of action is often to remain calm, stay the course, and tightly manage the project.
Many ERP projects have successfully powered through difficult times. A good project leader
applies sound judgment, considers the proportionality of the response, and intervenes in
a timely manner. All three characteristics—sound judgment, proportional response, and timely
intervention—are vital to an ERP recovery and turnaround.
ERP Recovery and Turnaround
2
Clearing the Roadblocks
The roadblocks to a successful
ERP implementation are easy to
recognize, but left unaddressed
they present a threat of spectacular failure. There are ways
to address the most common
barriers before they put a
successful implementation
at risk (see figure).
Averting ERP project failure
Risks
Mitigation
Inadequate business
involvement
• Involve senior stakeholders and expert users in specifying business needs and
helping the project team understand the “as-is” environment; lack of input leads to
design gaps, less confidence in the project, and dissatisfaction with project outcomes
Scope creep
• Control the project scope and do not allow users to add aspirational requirements in exchange
for their buy-in; sign off on detailed requirements to avoid endless discussions and problems
later on, and delays in decision making during implementation
Insufficient management
of change
• Create transparency and articulate the need for change in an effort to convince staff of the
benefits to be gained; otherwise, users will resist change and fail to adopt the new solutions
Inappropriate approach
• Maintain a clear business case and a focus on priorities
• Employ a methodology that is suited to an ERP package-enabled business transformation;
otherwise time is wasted in redesigning processes when best practice examples may
already exist
• Perform sufficient testing to ensure the solution’s stability, business fit, and user acceptance
Poor vendor management
• Set realistic expectations about the capabilities of the ERP package
• Involve a dependable high-performance systems integrator
• Establish a vendor management office with sufficient oversight
• Align rewards and incentives to business risks or desired project outcomes
Excessive customization
• Reject numerous customizations (custom code) and changes that increase implementation
costs, risks, and time and constrain agility and standardization without a clear rationale and
supporting business case
Technical complexity
• Evaluate the true effort required to integrate legacy systems, cleanse and harmonize data, and
migrate systems
• Resist over-engineering the solution and relying on unproven technology
Source: A.T. Kearney
The Remedy
We all know that prevention is better than crisis management. Whether talking about your
health or your organization, a routine “health check” can go a long way to mitigate risks,
assure all parts are working, and build confidence in the organization. One key to a successful
ERP project is to never ignore the early warning signs. When issues first arise, such as cost
overruns or missed milestones, it is time for corrective actions to rehabilitate the ERP patient.
A sound ERP turnaround plan is one that restores business confidence and aligns the project
to business priorities. It begins with an evaluation of six dimensions—the main areas that can
ERP Recovery and Turnaround
3
make or break an ERP implementation (see figure 1). Each area is assessed to identify performance issues and the root causes of problems, and potential recommendations. Priorities are
determined based on their business criticality and urgency, and actions assigned to named
individuals on the project team.
Figure 1
An ERP review takes place across six dimensions
“How”
Enablers
• Secure support of all stakeholders
• Assess business impact
• Equip users
• Ensure sufficient capacity
and capabilities
• Coordinate across teams
• Build continuity of key
resources
Change
enablement
Vendor and
resource
management
Business
case
A.T. Kearney
ERP best practice
framework
Implementation
• Establish clear project
roles and timely decision making
• Institute a quality assurance process
• Monitor project plans and issues
Drivers
Business
processes and
requirements
Technical
solution and
architecture
“What”
• Verify the strategic need
• Develop a realistic budget
• Define the benefits
• Determine requirements
• Define business priorities
• Establish process
ownership
• Use standard functionality
• Design pragmatic solution
• Perform data migration and
systems integration effort
• Allow sufficient time for testing
Source: A.T. Kearney
The Results
The results of an ERP turnaround can be impressive. For example, in our work for a hightech giant that was embarking on a pan-European ERP implementation, the challenge was
to standardize and automate business processes using a common platform. The company’s
first attempt had been expensive, unsuccessful, and eventually “mothballed,” so when the
same issues began to resurface the management team commissioned a project health check.
Our assessment revealed the major issues, from delays in decision making and poor productivity,
to scope creep. Our solution involved establishing better project management controls to
support a larger team in the next phase of the project and reprioritizing the company’s business
case to control costs. We also recommended a clearly defined charter and remit, proposed
a new operating model to integrate work streams, and developed a resource scheduling plan
and change control mechanisms to safeguard the project going forward.
In another example, a leading UK retailer approached us after its estimated cost to complete
an ERP project doubled six months into the project, leading to a complete breakdown in the
relationship between the retailer and the system integrator and between company executives
and the project management team. Over the course of a few weeks, we identified deficiencies
in how the SI was being managed, uncovered the use of a project methodology that was not
ERP Recovery and Turnaround
4
appropriate for an ERP implementation, and detected an inefficient approach for building and
rolling out the ERP functionality. As part of our recommendations, we also restructured the
scope of the initial build, renegotiated the vendor’s contract and commercial terms, and
refocused the deployment around business priorities.
Prevention is better than crisis
management. Mitigating risks and
assuring deliverables helps build
confidence.
Figure 2 highlights some of the important benefits of an ERP health check, from improved
quality and more certainty of costs and timelines, to better management control and confidence.
Figure 2
Benefits of ERP recovery and turnaround
Client examples
Automaker
• Improved inventory turns by 20 percent
Increased benefits
• Reprioritize scope
• Establish benefits focus
• Accelerate user adoption
• Doubled savings in indirect purchasing
• Raised project internal rate of return well
beyond company threshold
Waste management company
• Identified an additional $250 million
in benefits
Global telecom
• Redesigned budgeting and cost-control
measures
More certainty
of costs and
timelines
• Identify issues and
problems sooner
• Control costs
• Fast-track deployment
• Safeguarded $600 million program
investment
A&D manufacturer
• Restructured project to enable business
process improvement
• Revised the technology road map and
solution design
Global technology company
Reduced risk
• Mitigate risks
• Streamline approach
• Assure quality
• Resolved program management and
governance weaknesses in $300 million
SAP program
Multinational retailer
• Redefined methodology, deployment plan,
and responsibilities of system integrator
Note: ERP is enterprise resource planning.
Source: A.T. Kearney
ERP Recovery and Turnaround
5
Top 10 ERP Practices
Implementing ERP doesn’t have to be painful and fraught with risk. There is a wealth of
knowledge and experience that has accumulated over a decade on how to implement ERP
successfully, and many examples of organizations that have done just that. The following 10 best
practices provide valuable ground rules on how to implement, and how to avert project failure.
1. Develop and maintain a robust business case to focus on business benefits, determine
priorities, and inform scope decisions.
2. Appoint a credible and active executive sponsor, and target a rapid turnaround
on decisions.
3. Engage the business and agree on a detailed specification of business requirements,
and sustain stakeholder support through regular communications.
4. Reduce complexity by simplifying business processes, avoid over-engineering the
solution, and minimize customizations by using standard functionality available out
of the box.
5. Appoint business process owners to actively manage end-to-end processes, establish
principles, policies, and standards, and act as a design authority to initiate and control
future process changes.
6. Develop an implementation road map that delivers quick wins, and minimize the
scope of the initial release. Use a pilot, and apply lessons learned to improve the
deployment approach.
7. Attract your best people to the project team, align roles to development goals, and set
incentives tied to project outcomes. Plan for succession on multiyear projects.
8. Partner with an experienced, reliable SI with strong ERP product knowledge and
familiarity with your industry. Create a strong in-house vendor management capability
to keep the SI honest by monitoring its technical and commercial performance.
9. Focus on the user experience, user capabilities, and change management.
10. Keep documentation to a minimum. Use prototypes to communicate and confirm
the solution.
Don’t Wait for Failure
Vital to ERP project success is the ability to act preemptively rather than waiting for failure.
Successful projects are adept at spotting warning signs early on and then addressing the root
causes. Astute management also means taking responsibility for the project and not assuming
the SI will mitigate all risks just because they have implemented the system many times before.
SIs may have blind spots and be conflicted in the advice provided. Take a broad, 360° look
at the project before developing an ERP turnaround and recovery plan, and remain open to all
remediation options, not just those that are convenient or provide short-term relief. In some
cases, a project moratorium or even termination is better overall for the business. Success simply
depends on knowing what to do and when.
ERP Recovery and Turnaround
6
Authors
Stephen Ardill, partner, Dubai [email protected]
John Cruse, partner, Chicago
[email protected]
Charles Hughes, partner, London
[email protected]
Farhan Mirza, principal, Dubai
[email protected]
Shubradeep Ghosh, consultant, London
[email protected]
ERP Recovery and Turnaround
7
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