ERP Strategy: Increase your ROI from ERP

Most Enterprise Resource Planning (ERP) purchase decisions are based on payback or Return on Investment (ROI)-based business cases. Business cases often use reduction in inventory and headcount as the primary ROI justifications. Since ERP software is also considered an infrastructure investment, it is natural to expect financial returns. Most organizations deploy ERP, and sit back to wait for returns. And when returns fail to come in, the ERP Strategy is regarded as a failure. It is important to understand that ROI comes from the process improvements supported by ERP—not from ERP software alone.

ROI does not come from ERP. ROI comes from what you do using ERP. ERP is a tool and it all depends on how well you use this tool. There are organizations that have got substantial benefits, which are many times their investment. And there are organizations that have not got the desired benefits. Realizing greater value from ERP systems is a matter of focusing attention on the effective use and alignment of people, process and technology. Additionally, I believe that today organizations are not able to quantify their ROI from ERP implementation because at the beginning of the project the KPIs (Key Performance Indicators) and measurement criteria were not defined; this makes it difficult to quantify the ROI at a later date. I divide the steps for getting the maximum ROI from your ERP in 3 broad categories which are Pre-Implementation Steps, During Implementation steps and Post implementation steps. Let me list down the steps under these categories, here:

Pre ERP Implementation:
  • Identify the objective(s)
  • Finalize the metrics or KPIs that are required to be improved upon ERP implementation
  • Define their current value
  • Audit the data quality of all key metrics and have a plan to improve it before you go live with new system
  • Put in place the measurement system and method
  • Freeze the targets for KPIs
  • Identify the processes that impact those KPIs
  • Make sure that the business initiatives are in place in these processes to achieve the identified KPIs
  • Assess the organization's technical maturity level before project launch
During ERP Implementation:
  • Stay focused on the KPIs improvement finalized in above steps
  • Keep an eye on the cost and ensure no cost over-run as mentioned in my earlier post
  • Go beyond basic project management and incorporate strategic alignment & tangible business improvement plans in addition of focusing on tasks & completion dates
  • Use vendor resources wisely – use them only where you lack skills. For example, if you have excellent project managers, then use only the technical people from vendor
  • Keep customizations to minimum
  • Revisit KPIs and review them
  • Plan change management strategy
Post ERP Implementation:
  • Stop running parallel systems and the ERP should be the only source of truth
  • Measure the KPIs only after 6 months of operations after Go-Live
  • Keep on looking for improvement opportunities through benchmarking and assessment exercises
  • Utilize ERP to the fullest as a tool for decision making and planning future initiatives
  • Plan a strategy to counter post ERP challenges
These were some of the steps that will help organizations to improve their ROI from ERP. A more complete analysis of return can be made by looking at the overall payback that enterprise software can offer to a company. Enterprise software payback includes not only quantifiable improvements in bottom and top line functionality, but also more qualitative measures like new business opportunities, improved customer and partner relations, and improved time to market.

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1 comment:

  1. Great!!! these people are surely some of the steps that will help organizations to improve their ROI from ERP

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