Introduction
ERP systems promise big benefits like streamlined operations, improved data visibility, and enhanced efficiency. According to a Panorama Consulting study, some of the top reasons companies implement ERPs include:
- Replace outdated legacy systems
- Standardize processes across locations
- Integrate systems and data
- Reduce operating or labor costs
- Improve reporting and analytics
But an ERP implementation also represents a huge investment of time, money and resources. The same Panorama study found the average cost of an ERP implementation to be around $1.5 million.
With stakes this high, organizations need to do more than just implement an ERP system. They have to take concrete steps before, during, and after the ERP rollout to achieve measurable business value and return on their investment.
This article covers 5 key tactics that can help maximize the ROI realized from an ERP system:
- Set Clear Goals and Metrics
- Get Executive Buy-In
- Manage Scope Creep
- Invest in Training and Adoption
- Optimize Processes First
Let’s explore each of these tactics in more detail:
1. Set Clear Goals and Metrics
The first step to get the most value from an ERP is to define clear goals, objectives and metrics before the implementation even begins.
Having concrete business goals and ROI metrics acts like a North Star to guide the ERP project and keep it on track. It also helps get executive buy-in and justify the investment in the new system.
Define Strategic Business Goals
ERP projects tend to be more successful when tightly aligned with broader company goals and business objectives.
For example, if the key driver for the ERP is to reduce operational costs, it should be explicitly called out in the project charter. Other strategic goals like improving customer experience, boosting innovation or increasing agility should also be clearly articulated upfront.
This enables the implementation to stay focused on achieving those specific business outcomes versus just rolling out software functionality.
Choose Relevant ROI Metrics
In addition to qualitative goals, organizations should identify 2-3 quantitative ROI metrics to track. Common ERP ROI metrics include:
| Metric | Description |
|---|---|
| Cost reduction | Decrease in operating expenses, headcount costs, systems maintenance fees etc. |
| Revenue growth | Increase in sales, customer acquisitions, retention rates etc. |
| Profitability | Growth in margins, net income, EBITDA etc. |
| Productivity | Improved efficiency, output per employee, asset turns etc. |
| Cycle time | Faster processing, order and cash collection times etc. |
The chosen metrics should align with the stated business goals for the ERP project. If the goal is cost reduction, metrics like operating expenses and labor costs make sense. For a growth goal, revenue and customer metrics are more appropriate.
Set Targets
Merely listing ROI metrics is not enough – targets need to be defined for each metric. Having specific quantifiable targets, e.g. 30% reduction in operating costs, keeps the project team accountable and focused.
Targets should be aggressive but realistic based on the ERP investment. They help secure executive buy-in and justify the ROI from the project.
Track Progress
Lastly, processes should be established to monitor and share progress on the ROI metrics. Dashboards that display key metrics and targets can keep stakeholders aligned.
Course-correcting if metrics start to lag also helps the project deliver on business value and ROI commitments.
2. Get Executive Buy-In
Gaining and maintaining executive sponsorship is key to ERP success. Executive buy-in ensures the ERP initiative receives adequate focus and resources to deliver value.
Align with Strategic Priorities
The ERP project should be positioned as an enabler of key strategic objectives – whether it is growth, cost optimization or boosting capabilities.
This framing helps get executives to see the ERP not just as a software implementation, but as a strategic investment in the company’s future. It makes securing buy-in and budget easier.
Assign an Executive Sponsor
Secure sponsorship from a C-level executive like the CEO, CFO, COO or CIO. This executive sponsor can remove roadblocks, facilitate coordination across teams and maintain priority of the ERP initiative.
The ideal sponsor has sufficient authority, influence and enthusiasm for the project. They should view the ERP as instrumental to achieving strategic goals.
Plan Regular Updates
Keep executives regularly updated on ERP progress via standing meetings, status reports etc. Especially highlight achievements against ROI metrics and targets.
This maintains ongoing executive alignment and surfaces any misalignments early before they become problematic.
3. Manage Scope Creep
Scope creep is one of the top threats to ERP ROI. Additional functionality, customizations, integrations and data conversions often get piled on without regard for budgets or timelines.
Organizations must actively manage scope to prevent uncontrolled creep and derive maximal value from the ERP system.
Establish Change Controls
Formal change management processes should be instituted to handle new requirements or requests. This typically involves submitting a written change request for approval by a steering committee.
Changes impacting budget, timeline or resources beyond a defined threshold should trigger additional executive review and approval. This prevents uncontrolled scope creep.
Avoid Over Customization
Heavy customization is another common driver of scope creep. Organizations often customize ERPs excessively vs. adapting their processes to standard ERP functionality.
This tends to erode ROI by increasing costs, prolonging timelines, and complicating upgrades. Customizations should be permitted only when absolutely essential.
Say No When Required
Project leaders must be willing to say no to changes that don’t align with defined goals or move key metrics. Prioritizing only value-adding requests helps keep scope and budgets under control.
Saying no is easier when backed by solid ROI metrics. The numbers help justify why a proposed change may not merit its incremental time and cost.
4. Invest in Training and Adoption
The success of an ERP implementation ultimately depends on end user adoption. Employees across the organization must embrace the new ERP-driven processes and software.
This requires investing heavily in training programs and change management to drive adoption and usage.
Conduct Training Early and Often
Comprehensive end user training should begin early in the project, not as an afterthought. Training programs should educate users on new processes and prepare them to use the ERP system productively on day one.
Power users can be trained first as “ERP Champions” who then help drive adoption across their departments. Refresher and advanced training should continue even after go-live to expand usage.
Drive Adoption through Communication
Consistent communication is vital to secure user buy-in and adoption. Employees need to know why the ERP is beneficial, not just how to use it.
Messages should emphasize how the ERP enables teams to achieve business objectives by transforming old ineffective processes.
Address Resistance Head-On
Pockets of resistance are inevitable in any organizational change effort. Identifying and proactively addressing reasons for resistance helps sustain ERP adoption.
Common causes of resistance like job security fears, work overload concerns or distrust of IT should be tackled through coaching, communication and participation.
5. Optimize Processes First
An ERP will have limited impact if deployed on dysfunctional, inefficient processes. Organizations should optimize their processes first before rolling out new ERP-enabled processes.
This approach maximizes the ROI from the ERP investment and also helps justify the project cost-benefit.
Perform As-Is Process Review
The first step is documenting existing processes, pain points, bottlenecks and areas of waste. This helps quantify process inefficiencies and opportunities for improvement.
Tools like process mapping, value stream mapping and root cause analysis can be leveraged for the review. External consultants can provide unbiased assessments.
Design New ERP-Aligned Processes
Next, redesigned processes that utilize standard ERP best practices should be created. Simplifying, standardizing and automating processes using ERP capabilities is key.
This approach is preferable to customizing the ERP to mimic outdated processes. Focus groups, workshops and prototyping can help design optimal to-be processes.
Continuously Refine Processes
Even after ERP go-live, processes must be continuously monitored and enhanced. Regular assessments should measure process performance metrics like cycle times, quality and costs.
Refresher training and updated job aids can also help users follow redesigned processes. This drive continual ROI from the ERP system.
Conclusion
Implementing an ERP system represents a major investment for most organizations. While ERP software offers many potential benefits, achieving positive ROI requires focus and effort.
Companies must take proactive ownership to drive maximum value from their ERP program before, during and after roll-out.
Setting strong goals and metrics, securing executive buy-in, managing scope, driving user adoption, and optimizing processes are proven tactics to boost ERP ROI. Focusing on these areas can help organizations transition from a costly IT project to a transformational business investment.
The payoff for getting it right is huge an integrated digital core that drives growth, productivity and competitive advantage for years to come.