When MRP (Materials Requirements Planning) systems first got commercialized in the early 1980s (they had actually been around for many years prior to that), it wasn’t long before they were linked to financial and distribution systems and MRPII (Manufacturing Resource Planning) was born. Then, in the early 1990s, MRPII was developed further to create ERP (Enterprise Resource Planning).
Despite that being over a quarter of a century ago, ERPII never arrived and, instead, people are now talking about digital transformation. Is this just a new name for ERP, to get around the bad press that it sometimes gets?
First, it might help to answer that question by considering why companies are getting interested in digital transformations. Some are companies that have successfully implemented ERP and are now looking for the next step, but others will be companies whose ERP implementations have been disappointing and are looking for an alternative.
The problem is that companies that are disappointed with their ERP implementations will also be disappointed with their digital transformations unless they understand what went wrong. Only then can they hope not to make the same mistakes again. When looking at reasons for ERP failures, two stand out: expecting too much from ERP and, ironically, expecting too little.
It is easy for companies to expect too much from ERP because the big ERP vendors have superb marketing departments and anybody who has contemplated buying their systems will know how compelling and convincing their message is.
There are slick PowerPoint presentations, peppered with the names of companies (usually big and successful ones) that use their software; with the implied message that using their software will make your company big and successful too.
ERP providers also promise quick and easy implementations through the use of preconfigured ‘industry templates’ that apply best practices. There are other articles that discuss why these claims are only sometimes, and only partially, true so no detailed analysis will be attempted here, but a brief summary might be useful.
Step 1: Implementing ERP is not easy (if it was, there wouldn’t be so many failures). Implementing ERP is not just a matter of loading software, training users, and pressing the button to receive all the benefits. An ERP project cannot be a success if the implementation team (the company’s own internal project team and the supplier’s consultants) don’t know what is expected of the new system; and they can’t know that if the company has not clearly, and in detail, articulated its requirements.
Many companies state their requirements as, “what we have now, but better”. Even if the internal project team can translate that into a specification for the external consultants, it’s a very backward-looking view of requirements at a time when the company should be looking at where they want to be in the future and considering what they will need from a system to help them get there.
Step 2: Even when companies do embrace all the advantages that a new system offers, the results can be disappointing. The reason is simply that not all systems labeled and sold as ERP actually are in fact ERP. Many are (excellent) accounting systems and, if companies don’t fully understand what ERP is, they can buy and implement such systems, not realizing that they cannot possibly deliver all the benefits that a full ERP system can.
Yes, they might get the ‘improved management information’ that is often quoted, but it’s little use knowing that sales are below forecast, that purchasing costs are higher than expected, or that work in progress levels are remorselessly climbing if the system doesn’t offer any tools to tackle these problems.
A lot of companies are happy if the new system produces the same reports as the old one while being faster, easier to use, and suffering fewer technical problems. But, is that going to have a major impact on the bottom line? Almost certainly not. Laudable as it may be to become more efficient, it is very rare for efficiency improvements alone to bring about the step-change in company performance that most companies expect when they invest in new systems.
An old quote says that “If you always do what you’ve always done, you’ll always get what you’ve always had”. If all a company wants is a like-for-like replacement, with perhaps lower running costs, there is nothing wrong with that. As long as they don’t expect to receive substantial benefits.
When moving to a digital transformation, both companies that have had successful ERP implementations and those that have had disappointments, or even failures, can leverage their experiences, because the former know what they did right, and the latter (should) know what they did wrong. Either way, they need to understand that they are not just looking at an upgraded ERP system.
A true digital transformation means a comprehensive review of what the company does, how it does it, and why it does it. To quote Peter Drucker: “There is nothing so useless as doing efficiently that which should not be done at all”. All company business processes need to be reviewed and assessed; both for their ability to support what needs to be done today and for their ability to support what needs to be done tomorrow.
Digital transformation is what it says: it’s not an attempt to improve current ways of working but an attempt to transform the company and the way it works. It requires going back to a blank sheet of paper and re-imagining the business. That will be challenging for some companies and, in truth, those that are only looking for incremental improvements probably should not be looking at a digital transformation (and perhaps not even a new ERP system).
A digital transformation means radical change and companies need to be honest with themselves if that is really what they want. The good news is that there are companies that can give independent and objective advice for companies that really want to make a difference. If you have questions regarding ERP or digital transformation in general, please reach out to Third Stage directly.