ERP Improvement and ERP II Deployment — Maximizing Return on Investment
Enterprises can boost returns on enterprise resource planning (ERP) investments through continuous-improvement strategies, as well as through migration to ERP II.
Management Summary
Continuous improvement has long been a recognized best practice for manufacturers, but it has not yet been applied to many large-scale IT projects, such as enterprise resource planning (ERP) implementations. Too often, enterprises find themselves with a suboptimal ERP implementation, but do not formally try to improve their position. As a result, return on investment (ROI) is often lower than anticipated and total cost of ownership (TCO) is higher than planned.
To remedy this, enterprises should work to improve their established ERP implementations to make the current state better, and to prepare for the demands of collaborative interactions in the future. Part of the improvement program will inevitably be a migration to ERP II, including an ongoing ERP II program to enable both internal and external enterprise business processes. Enterprises that learn from the mistakes of past implementations and adjust their methods to facilitate change will enable both successful deployments and ongoing improvements.
This Strategic Analysis Report offers analysis and recommendations on how enterprises can maximize ERP ROI through continuous improvement and ERP II migration. The analysis in this report is framed by the following Key Issues:
• Through 2005, what can enterprises do to improve the usability of their ERP implementations?
• How will ERP II help enterprises achieve better returns on their ERP investments during the next three years?
• Through 2005, how can enterprises build ROI and limit TCO during ERP II deployment? The report's analysis includes the following Strategic Planning Assumptions:
• Through 2005, ERP II packages will serve as the dominant enterprise application model to enable collaborative commerce (c-commerce) business models (0.7 probability).
• By 2005, more than 80 percent of midmarket ERP II users (that is, enterprises with annual revenue between $50 million to $800 million) will be employing their main ERP II vendors’ integration layers as their primary integration platform (0.7 probability).
• By 2005, less than 40 percent of large-market ERP II users (that is, enterprises with annual revenue greater than $800 million) will be using their main ERP II vendors’ integration layers as their primary integration platform (0.8 probability).
• Through 2005, enterprises that deploy best-of-breed solutions to achieve ERP II will incur ownership costs that are at least 25 percent higher than those of single-vendor-centric deployments (0.7 probability).
• By 2005, more than 50 percent of enterprises with multiple instances of ERP will have consolidated, or be in the process of consolidating, to a single ERP instance (0.7 probability).
CONTENTS
1.0 Introduction: Four ERP and ERP II Deployment Myths...5
2.0 Improving Established ERP Implementations ...5
2.1 Five Steps to ERP Optimization ...6
2.2 People Optimization ...7
2.3 Leveraging Unexploited ERP Functionality ...8
2.4 Examining the Need for Customization...8
3.0 Moving From ERP to ERP II...9
3.1 ERP II and Collaborative Commerce ...10
3.2 ERP II and Integration...11
4.0 ERP II Deployment: Lowering Costs and Improving Returns...12
4.1 The Importance of Program Management...13
4.2 Best-of-Breed vs. Integrated Approach...13
4.3 Change Management ...14
4.4 Controlling the Number of Instances ...15
4.5 The Importance of Timely and Accurate Data...16
5.0 Summary and Recommendations...16
FIGURES
Figure 1. The Application Life Cycle ...5
Figure 2. Optimization: The First Step to ROI...6
Figure 3. Missed Opportunities for ERP Become Risks in ERP II...7
Figure 4. When Does Optimization Mean Customization? ...9
Figure 5. ERP II Defined ...10
Figure 6. Integration and Interoperability ...11
Figure 7. Deploying ERP II ...12
Figure 8. More Vendors Bring Higher Costs ...14
1.0 Introduction: Four ERP and ERP II Deployment Myths
This report details how decisions made throughout the ERP life cycle affect ROI, and explores strategies that successful teams will use to improve returns on their ERP investments, including the migration to ERP II. In doing so, the analysis will dispel four common myths concerning ERP and ERP II deployment:
• Myth 1: Once the implementation has "gone live," an enterprise is “done” deploying ERP. Traditionally,
enterprises have treated ERP deployment as a discrete project. In reality, it requires a program focus that includes application optimization and retirement.
• Myth 2: Once ERP is deployed, nothing can be done to optimize it prior to migrating to ERP II. On the
contrary, there are typically many opportunities for improvement if enterprises listen to user issues and engage in an ongoing improvement cycle as part of larger ERP II program activities.
• Myth 3: Change management is not required. If there is an overarching lesson to be learned from past
implementation failures, it is that projects fail due to people, not applications or technology. Enterprises must embark on robust change management programs as part of the ERP II deployment process.
• Myth 4: ERP II is just another no-return money pit. ERP II will be the enterprise’s enabler for
participation in collaborative initiatives, unlocking the value associated with the enterprise’s intellectual capital.
2.0 Improving Established ERP Implementations
Key Issue: Through 2005, what can enterprises do to improve the usability of their ERP implementations?
Most enterprises manage the phases of a typical application’s life cycle with varying degrees of skill (see Figure 1). Planning, acquiring and deploying a new application are usually executed well with some assistance from external resources, such as systems integrators and the vendor’s technical specialists. Operating the solution, once deployed, is the enterprise’s "comfort zone." Improving and eventually retiring the application, however, are two phases with which enterprises typically struggle.
Plan Acquire Deploy Operate Improve (Optimize) Retire Phases typically not considered by enterprises
Phases typically handled well by enterprises, with assistance from external resources
Enterprise "comfort zone"
Source: Gartner Research
System improvements — or optimization — are often derailed by lack of funding, enterprise disinterest, or insufficient understanding of the capabilities that would improve ROI or lower TCO. Retirement of the application is frequently poorly planned or not considered.
Often, enterprises expect packaged applications to remain appropriate to business requirements for years after they are implemented. To increase the value of applications, enterprises should frequently improve installed applications, and identify retirement strategies when appropriate based on changing business requirements and emerging technologies. The ERP solution implemented today may well have a long life, but portions of the solution may have limited usefulness, or technology and product improvements may become available that render them obsolete. These should be periodically factored into the overall application portfolio management strategy.
2.1 Five Steps to ERP Optimization
Before embarking on migration to ERP II, enterprises must make established ERP implementations more effective for users through optimization (see Figure 2).
•Head count •Transaction times •Corrective transactions •Financial variances •Cost •Benefit •Time to benefit •Short time frame •Narrow scope •Focus on result
People
Core ERP
Customization
Retraining requirements Process improvement/change More standard functionality Version upgrades Bolt-on applications Customizations •Users know best •Experienced system integrators Identify the Pain IdentifyAlternatives Prioritize Plan Execute
Source: Gartner Research
Figure 2. Optimization: The First Step to ROI
To optimize ERP, enterprises should take the following five-step approach.
• Identify key areas of pain. Where is the system failing to meet the needs of the business? Where are
users most frustrated?
• Identify alternatives to address the pain. System problems often manifest themselves in various ways.
When developing solutions to address the recognized pain, it is important to explore solutions across the continuum that runs from training and process change through application customization. Often, enterprises assume there is a system problem when, in fact, training or process changes may solve the problem. Enterprises should turn to application customization only as a last resort, after all other alternatives have been explored.
• Prioritize based on costs and benefits. Do what makes the most sense for the business. ROI is often a
particularly critical concern, since ERP implementations have typically failed to deliver the cost savings that were originally anticipated.
• Plan — Keep the time frame short and focus on results. To maintain user commitment, take small but
successful steps that resolve user concerns.
• Execute — Keep users involved. Daily users have the most insight into their issues. Team them with
experienced integrators to develop solutions that reduce identified areas of pain.
Following this approach to optimization will enable enterprises to enhance the internal value of their ERP systems through productivity increases. In addition, the user community will feel more appreciated because its most important application needs are being met.
2.2 People Optimization
Enterprises must overcome people optimization issues that were created in the initial ERP implementation. Otherwise, ERP II implementation will fail for the same reasons (see Figure 3).
Product Training Process Training Organizational Change
Where 90 percent of ERP projects originally failed
Risks that will compromise 70 percent of ERP II projects Meeting the needs of the
expanded user base and demand for complex transactions
Preparing users for
upstream and downstream impacts at each step within the business process Preparing users for new roles and using reward systems that motivate change
Number of users expand, and transactions extend beyond the enterprise
Traditional attitudes concerning information ownership and
empowerment threaten enterprise success, not just project success Optimization
Opportunities
Multiprocess dependencies increase and process failure impacts multiple enterprises
Source: Gartner Research
Figure 3. Missed Opportunities for ERP Become Risks in ERP II
In many ERP implementations, enterprises have underexecuted when addressing the people aspects. Offering training on subjects that are typically left out of the original implementation effort — such as less-used processes, master-file maintenance transactions and negative conditions/troubleshooting — can increase end-user acceptance and system use, not to mention lower end-user frustration levels. In addition, training on business processes and basic business functions is almost never considered during implementation, although increased user understanding of both areas is critical to make effective use of the increased amounts of information available in the ERP system.
Adjusting the enterprise from an organizational standpoint can also yield substantial results. Overhauling business processes to operate horizontally across the enterprise will not be effective without changing reporting hierarchies, performance measurement criteria and job descriptions. The enterprise must realign these to support the cross-functional processes that are the essence of ERP.
Action Item: Enterprises should identify areas where additional system, process and business training, as well as organizational realignment, will yield increases in system use and acceptance, and improve the quality of business operations supported by the system. Enterprises should also consider revising performance metrics, rewards, incentives and job descriptions, and develop follow-up training focused on improvement areas.
2.3 Leveraging Unexploited ERP Functionality
At times, end-user requirements may emerge that were not considered during implementation. Often, these requirements can be met by deploying unexploited functionality already offered in the installed application, or by migrating to a later release. Before embarking on application customization, enterprises should examine the installed version, and other available versions, of the application for appropriate functionality. Failure to do so will result in higher TCO and limited ROI.
Consider, for example, the following case study of a distribution company, whose pricing clerk needed a way to create a client-specific price list for a certain number of products. This need was not a documented requirement during the implementation (it was assumed that standard reports would suffice). To get this information, the clerk would query the system for the price of each item, based on the customer’s negotiated pricing, and then enter the information into a spreadsheet. This would take anywhere from 30 minutes to two hours, depending on the number of items in question.
This time was reduced to a range of five to 15 minutes by deploying a standard set of sales quotation functionality, which was already available for the application but not initially deployed. The deployment costs (including configuration and user training) were minimal compared to the substantial benefits achieved. By deploying more of the established application, the enterprise avoided the cost of developing and maintaining a set of custom reports to achieve the same outcome.
Action Item: Enterprises should investigate where available but unexploited functionality may meet user requirements, checking both deployed versions as well as generally available new releases.
2.4 Examining the Need for Customization
During package implementation projects, enterprises must decide if they are willing to adopt package-provided processes, or if the package should be tailored to support unique business process requirements. To determine the most-appropriate approach, enterprises should identify where each requirement fits on the optimization matrix shown in Figure 4, balancing the maturity of the process area against the competitive advantage provided by the requirement.
Mature Process Area Emerging Process Area
No Competitive
Advantage
Delivered
• Use the package • Change theprocess
Assembled
• Use the packageor multiple packages • May need best-of-breed
Customized
• Likely custom application • Probable custom integrationTweaked
• Leverage the package• Mix of process and minor package changes
Clear Competitive
Advantage
Source: Gartner Research
Figure 4. When Does Optimization Mean Customization?
Although application customization may be required in some areas, enterprises need to consider the impact on TCO as part of the overall decision-making process. Application customization ownership costs go beyond the costs of initial development and integration. When base applications are upgraded or patched, customizations must be revisited for applicability. Custom components may be superseded — fully or partially — by new packaged capabilities, causing the need for customizations to be eliminated or rewritten. Customizations not affected by new functionality will require analysis to ensure that application touchpoints are unchanged and integrated processes still perform as planned. These analyses must be performed with each packaged application upgrade.
In the case of best-of-breed applications, similar issues occur when managing multiple versions of multiple packages. With each package upgrade, integrated applications must be verified and modified as appropriate.
Action Item: Enterprises should focus package customization efforts on competitive-advantage enablement to best leverage package capabilities and achieve the greatest return on custom-development investments.
3.0 Moving From ERP to ERP II
Key Issue: How will ERP II help enterprises achieve better returns on their ERP investments during the next three years?
ERP, whether built or bought, remains crucial for effective, optimized operation in most enterprises. As enterprises seek competitiveness in the “e” world, they will seek more flexibility and focus on core competencies. In so doing, they will find that ERP — in the broader context of a suite of applications — becomes a key platform for successful evolution into a c-commerce-enabled enterprise. The question for enterprises seeking competitive advantage is not “What was my ERP ROI?” but rather “How do we leverage the ERP capability we have to enable us to become a better partner and collaborator?”
Ultimately, the answer lies in ERP II. ERP II is an application and deployment strategy that expands out from ERP functions to achieve integration of an enterprise’s key domain-specific internal and external collaborative, operational and financial processes (see Figure 5).
What
Who
When
Where
Why
How
An application and deployment strategy for collaborative, operational and financial processes To provide deep, vertical-specific functionality coupled with external connectivityWithin the enterprise, and between the enterprise
and key external partners and markets
Migration from existing ERP vendor and integration with other enterprise-centric
business applications In conjunction with collaboration Traditional ERP vendor
with extensions (integrated or best of breed)
ERP II
Source: Gartner Research
Figure 5. ERP II Defined
ERP II starts as an application strategy, setting a vision for integration of all enterprise-centric, commerce-oriented business processes — without requiring a single-vendor strategy. As a deployment strategy, ERP II does not preclude a best-of-breed approach; instead, it allows enterprises to determine the degree of vendor-centricity necessary to fulfill enterprise processes requirements and — via integration capabilities native to ERP II — include best-of-breed components.
ERP II includes capability specific to the enterprise domain, while also including the capability to connect the enterprise to key business partners directly or via a private e-marketplace. The process footprint of ERP II includes all collaborative, operational and financial processes that have the enterprise at the center. ERP II would not be deployed for a many-to-many interaction hub, such as an industry consortium.
3.1 ERP II and Collaborative Commerce
Strategic Planning Assumption: Through 2005, ERP II packages will serve as the dominant enterprise application model to enable c-commerce business models (0.7 probability).
ERP II is an enabler for achieving maximum payback from c-commerce. Improving c-commerce benefits and value will be a continual process of revisiting the decisions made during ERP II deployment, as well as c-commerce initiatives. There are both short- and long-term issues that enterprises need to address:
• In the short term, enterprises will emphasize and implement c-commerce initiatives, partnerships and processes to improve revenue, profit (or efficiency, in the case of not-for-profit or public-sector organizations) and quality.
• In the long term, enterprises will develop new competencies, add or remove partners, and raise the level of partnerships to increase quality targets and leverage intellectual capital for long-term value
As enterprises focus on core competencies, intellectual capital will become one of the more-leveraged assets. Unlike raw material, energy and labor, which are location-dependent, capital — both fiscal and intellectual — is well-suited to leverage the Internet.
Action Item: Enterprises should inventory intellectual-capital assets and seek to valuate them in preparation for c-commerce participation.
3.2 ERP II and Integration
Strategic Planning Assumptions:
• By 2005, more than 80 percent of midmarket ERP II users (that is, enterprises with annual revenue
between $50 million to $800 million) will be employing their main ERP II vendors’ integration layers as their primary integration platform (0.7 probability).
• By 2005, less than 40 percent of large-market ERP II users (that is, enterprises with annual revenue
greater than $800 million) will be using their main ERP II vendors’ integration layers as their primary integration platform (0.8 probability).
ERP today is the primary enterprise application, and the architectural framework into which most other applications are "plugged." With the rise of c-commerce, ERP will evolve into ERP II, which will serve as just one component of an application environment in which effective collaboration will be the primary competitive weapon (see Figure 6). To perform adequately in this role, ERP II vendors must leave their roots in the monolithic, closed, enterprise-centric ERP products and deploy more-componentized, Web-centric, built-for-integration architectures.
ASPs and other Outsourcers Suppliers and E-Markets Customers and E-Markets Applications in Autonomous Divisions Legacy Applications New Applications ERP II Applications Integration Infrastructure ERP II Vendor or Third Party
ASP Application service provider ERP II Enterprise resource planning II Source: Gartner Research
Figure 6. Integration and Interoperability
Even with more-robust integration capabilities, however, ERP II products will not render obsolete the best-of-breed applications that address more narrowly defined functional needs. Few established brick-and-mortar enterprises will be able to remove all legacy systems, given that many of them were custom-built to
support enterprise-specific and mission-critical functions. Thus, to ensure effective collaborative capability, deploying and maintaining an integrated application portfolio in which ERP II is a component will, in itself, be a mission-critical function.
Action Item: Enterprises need to approach integration proactively rather than depend on ERP II to solve all integration problems. They should create integration strategies and mechanisms (such as integration hubs) that embrace diversity and incompatibility, to allow business units that are charged with selecting applications the greatest opportunity to find the most-suitable product.
4.0 ERP II Deployment: Lowering Costs and Improving Returns
Key Issue: Through 2005, how can enterprises build ROI and limit TCO during ERP II deployment? Lessons learned during past ERP implementations must be brought forward for ERP II, since implementation fundamentals do not change (see Figure 7). For example:
• Enterprises must have a clear, concise and achievable business case that guides each initiative within the overarching ERP II program.
• They must decide on an appropriate vendor strategy, favoring the integrated or best-of-breed approach without precluding either.
• Change management must be considered the most-critical aspect of the project, since the people using the system will ultimately make or break the project.
• Enterprises must define an implementation instance strategy, understanding that the number of instances deployed can become a multiplier of ownership cost.
• Processes must be changed to align with application capabilities while enterprises consider the eventual requirements for collaboration.
• Collaboration should be attacked in stages, building from a solid, internal foundation, including timely and accurate data, through to controlled pilots.
Starting From Legacy
Moving From ERP
Achieve ERP
Business Case
Migrate Vendor Strategy
Change Processes Optimize for Collaboration Enable Change
Eliminate Data Latency and Inaccuracy Pilot and Deploy Collaboration Define Instance Strategy Revisit Instance Strategy
Program Management
ERP II
Source: Gartner Research
Action Item: When planning ERP II initiatives, enterprises should consider the failure points of past projects and emphasize these areas in new project plans.
4.1 The Importance of Program Management
To improve ROI and limit TCO in ERP II initiatives, enterprises must adopt a program management approach to project oversight, providing coordination and consistency across associated projects rather than managing individual projects as discrete, unrelated efforts. Compared to a project focus, a program management focus yields up to 30 percent less TCO and up to 30 percent more ROI.
• Improving ROI: ERP II deployments will comprise numerous projects that share objectives, risks, end
users and IT resources. Progress and decisions on one project may depend on or impact others. If projects operate independently, the likely outcome will be decisions that misalign with other projects. Costs will rise when work efforts that could be leveraged across projects are duplicated in individual ones, or as decisions affecting the total ERP II solution are made at the project level. Coordination across projects during key activities such as design and testing will improve the overall solution, yielding higher end-user acceptance and more-effective enterprise-level processes.
• Reducing TCO: Although the application life cycle includes retirement, enterprises often fail to
consider it. As ERP II vendors expand their footprints, enterprises must be prepared to revisit previous best-of-breed decisions. Those that implemented best-of-breed customer relationship management (CRM) solutions, for example, will incur the costs of integration. In a few years, the ERP II vendors may reach functional parity for enterprise CRM requirements. To reduce TCO, it may be more economical to replace the best-of-breed application with a pre-integrated application from the ERP II vendor. Enterprises should regularly evaluate their ERP II vendor’s capability against installed best-of-breed packages.
Action Item: Enterprises should adopt a program management strategy that provides coordinated oversight of the numerous projects associated with evolving to ERP II.
4.2 Best-of-Breed vs. Integrated Approach
Strategic Planning Assumption: Through 2005, enterprises that deploy best-of-breed solutions to achieve ERP II will incur ownership costs that are at least 25 percent higher than those of single-vendor-centric deployments (0.7 probability).
The choice of deploying best-of-breed vs. integrated solutions is no longer purely an either/or proposition. The real question is the degree of native integration that can be achieved.
Each best-of-breed component will increase ownership costs, and as more components are introduced, the number of custom connections can multiply rapidly (see Figure 8). Consequently, many enterprises will forgo functional supremacy to simplify the overall application architecture.
Single Vendor A Few Vendors Many Vendors
Single Vendor-Centric Strategy:
• Lower TCO • dependent BOB Integration Strategy: • Higher TCO • dependent Custom/ Component Strategy: • Highest TCO • dependent Number of Enterprises Deploying ERP II
Number of Vendors Involved
BOB Best of breed
ERP II Enterprise resource planning II TCO Total cost of ownership Source: Gartner Research
Figure 8. More Vendors Bring Higher Costs
This choice, however, can also negatively impact ownership costs. Where an application is functionally deficient, enterprises may choose to customize (and break the “prime directive” of most projects). Customizing packaged applications can become a habit-forming exercise that, if not tightly managed, will significantly impair an enterprise’s ability to migrate to later versions without heavy manual intervention. This balance between integration costs and development costs becomes paramount for managing TCO on an ongoing basis.
Action Item: Enterprises should carefully weigh integration costs (associated with best-of-breed-oriented strategies) and custom-development costs (associated with single-vendor-centric strategies) to assess the potential impact on TCO.
4.3 Change Management
As part of ERP II deployment initiatives, enterprises must adopt a robust change management program to ensure that users are prepared for new processes, responsibilities and metrics.
Multiple ERP II initiatives will frequently impact the same end users or introduce change to enterprisewide processes, making it difficult to control the amount of change and how often end users must modify their knowledge, skills, abilities or work activities. It will also be crucial to present a united front to the end-user community when asking them to make changes. Providing a total picture of the change — including expected results, and a "road map" from the legacy processes to the new ones — will be necessary to eliminate contradictory or confusing advice. In many cases, increasing end users’ understanding of basic business practices will be critical to harnessing the real value of the new system. Organizational changes, such as job redefinitions or departmental realignments that are complex to execute, should be combined and deployed at the program level (where possible) to minimize time, cost and frustration.
Action Item: Enterprises should combine organizational-change requirements from individual ERP II projects and formulate an organizationwide change management plan that accommodates individual project needs, yet minimizes the volume and intensity of change that end users must absorb from multiple directions. Be cautious of end-user sensory overload, and introduce changes in increments that users can easily absorb.
4.4 Controlling the Number of Instances
Strategic Planning Assumption: By 2005, more than 50 percent of enterprises with multiple instances of ERP will have consolidated, or be in the process of consolidating, to a single ERP instance (0.7 probability).
One the main drivers of ERP TCO is the number of instances that are deployed and how they are managed for a distributed enterprise.
Most enterprises that have pursued multiple-instance deployments have experienced higher TCO than expected. This is partly due to diverging configurations across locations that require specialized local support, and the need for human intervention (manual or programmatic) to consolidate reports. However, a larger cost factor is simply the amount of time and effort necessary to maintain and upgrade the numerous instances. As enterprises move forward with c-commerce, inconsistencies across locations will hamper their ability to respond quickly and accurately to customer requests, and will increase the time required to complete ongoing maintenance and upgrades.
Deploying a single instance reduces support requirements, increases consistency in processes and data, and allows for an integrated view into the enterprise’s data (see Figure 9).
Distributed Multiple Instances Consolidated Single Instance •Nonstandard nomenclature •Manual consolidation •Local upgrades •Local support •Implement another for acquisition •Standard nomenclature •Easy reporting •Upgrade once •Centrally supportable •Ease acquisitions •100-percent local •Local practices •Autonomy •80/20 rule •Best practices •Shared services
•Works local way
•Local documentation
•Local training
•Local experience
•Works one way
•One set of documentation
•Ease of training
•One-user experience
•Use to meet local
requirements (20 percent) Local
Instance InstanceSingle
Local Process Local Config. Local Variants Common Config. Common Process
Source: Gartner Research
Figure 9. Instance Strategies
Action Item: Enterprises should revisit instance strategies as part of the move to ERP II, and drive the number of instances to an absolute minimum.
4.5 The Importance of Timely and Accurate Data
Enterprises must ensure that data is accurate and timely to support collaborative initiatives. Failure to do so will risk market-share loss.
The ERP II vision provides the enterprise with a single data dictionary and a reliable transaction backbone. While data and transaction issues are less important in vertical communities, they are a critical consideration in the horizontal and collaborative worlds.
The goal of interenterprise collaboration is to add value for customers by synchronizing the activities of partners that are united in a common business mission. Effective collaboration entirely depends on the quality of information, where quality is defined in terms of timeliness and accuracy. Thus, in a collaborative world, enterprises must compete based not only on the availability, cost and quality of their products and services, but also on the quality of information they can publish for consumption by collaborating partners.
For enterprises pursuing c-commerce strategies, ERP II systems will be mission-critical, since they will maintain and publish information that is crucial to effective interenterprise collaboration. Data issues such as ownership, timeliness, update authority and methods for ensuring accuracy will become a high priority both during and after implementation.
To avoid ERP II failure caused by data latency and inaccuracy, enterprises will need to avoid the following six common pitfalls:
• Manual adjustment to inventory
• Relying on annual physical inventory
• Delaying material receipts and issues
• Ignoring rescheduling and exception messages
• Production reporting only at the end of the line
• Using “dummy” sales or purchase orders
Action Item: Enterprises must treat data as a competitive weapon and ensure that it is both timely and accurate to meet the needs of both the enterprise and its key business partners.
5.0 Summary and Recommendations
Enterprises must improve established ERP implementations and prepare for the demands of collaborative interactions in the future. Part of the improvement program will be a migration to ERP II, and the launch of an ongoing ERP II program to enable both internal and external enterprise business processes. Enterprises that have learned from the mistakes of past implementations and adjusted their methods to facilitate change will achieve both successful deployments and ongoing improvements.
Decisions made throughout the ERP and ERP II life cycle affect ROI. Successful teams will use continuous-improvement strategies to improve the return on their ERP and ERP II investments. Otherwise, these investments will yield lower returns and higher costs than anticipated, leaving enterprise executives and IT staff disillusioned, and users dissatisfied.
To avoid this fate, Gartner recommends that enterprises and their IS organizations follow the action items offered in this Strategic Analysis Report. In addition, Gartner offers the following general recommendations:
• Enterprises starting ERP implementations should plan projects with a benefit-centric mind set. Due to
past failures and current economic conditions, enterprises must develop clear business cases that define both TCO and ROI, and focus on the achievement of planned benefits.
• Enterprises already using ERP should examine potential areas for improvement to make the current
environment more effective. Enterprises must not become complacent with regard to their
implementations. Continuous-improvement strategies must be developed and executed.
• Enterprises should plan the move to ERP II to enable effective collaboration by capturing and
exposing accurate and timely data and information. The challenges of collaboration will require good
fundamentals within the enterprise. Failure to provide accurate and timely data to the trading communities of choice will erode competitive positioning and interenterprise trust.
Appendix A: Acronym Key
ASP Application service provider BOB Best of breed
CRM Customer relationship management ERP Enterprise resource planning ERP II Enterprise resource planning II IS Information systems
IT Information technology ROI Return on investment TCO Total cost of ownership
