Enterprising IT: the answer for new business?

Enterprise Resource Planning (ERP) systems seem to be conquering the industrial world with comprehensive packaged software available from market leaders such as SAP and Baan. But is it a guarantee of success? and how can you be sure of choosing the right product? We asked John Geoghegan and Tony Kelly of business consulting and IT services company Cap Gemini.

Enterprise Resource Planning (ERP) systems seem to be conquering the industrial world. The software packages sold under this heading are large, integrated suites which typically aim to support the vast majority of business functions such as customer billing, production planning, payroll and human resources. In fact such packages are unlikely to support your entire business, but they are increasingly seen as the information backbone, holding together the network of systems that spans the whole enterprise.

But just how good are these products? Are they the panacea that some imagine? And what is the best way to select the package that`s best for your particular needs – and then manage the implementation? After all, implementing one of these ERP products amounts to giving your business a new central nervous system. Such major surgery is best in the hands of experts who have undertaken the operation successfully many times over. You can minimise the risks – and the costs and timescales – by following some basic guidelines, based on experience gained from the large number of ERP implementations (successful and less successful) that the industrial world, including engineering, power and utility companies, has seen over the last five years.

Survival of the fittest

Migrating to a package-based solution is, on the face of it, inevitably expensive, time-consuming and complex. The stimulus for change can come from a number of areas. These may be technical or business driven. Either way there must be a sound business-driven justification for the implementation. The exercise is not just about cost and time; it`s about return on investment. The IT system – and, even more important, the business information it delivers – is every industrial company`s central nervous system, but the demands made upon it are increasing all the time. In the late 1990s it has to be able to cope with an era of rapid evolution and. If your competitors can deploy their systems to make themselves more alert, more flexible, or more responsive to their customers` needs, your own survival may be at risk.

Your existing IT systems may be ancient and creaking, inflexible and suffering lots of downtime. Or maybe your need for change stems from a broader business perspective, involving any number of factors, from specific issues such as the speed with which you can produce available-to-sell information right up to such as your overall quality of co-ordination and control.

But whatever the motivation for change, the justification must be underpinned by a solid return-on-investment argument that is geared to an improvement in business performance.

Deregulation of UK utilities

Today, issues such as deregulation (in UK utility industries) and the coming of EMU (across all industries) are providing additional powerful stimuli to thought and action on IT systems: a brand new system can seem a better bet than applying sticking plaster to one that`s already heavily patched-up.

But whatever the motivation, many companies in all sectors are looking for a total revamp of IT support. Bespoke software for every single part of the enterprise is often no longer a realistic alternative to an ERP solution. Not only are bespoke solutions usually more expensive, time consuming and inflexible, they are usually (for many organisations, despite every company thinking that it is unique) unnecessary for many functions of the business.

The leading ERP vendors all recognise that different sectors of industry have particular needs and so the increasing trend is towards industry-specific variants in the core product. The ERP approach will in many cases be cheaper, quicker, safer and more flexible than the bespoke option and, in these rapidly changing times, more future-proof.

That said, however, it is vital to remember that the deregulation process in utilities is creating its own set of highly industry-specific processes which will need to be supported by whatever applications software is put in place.

DIY versus professional help

The question is how to choose the right system when the wrong one could spell disaster? And how to handle the demanding task of implementing your chosen package? Given the amounts of money involved, and what is at stake – a complete new central nervous system for your entire business – these are some of the biggest questions you`ll ever face.

Even a medium-sized company can end up spending of the order of £1million ($1.6m) or more when all the costs (including software licence, migration services, implementation and training) are taken into account. Serious money, serious issues. And the cost, at least initially, is the same for a wrong answer as for a right one.

Some companies have tried the DIY (do-it-yourself) approach to both selection and implementation. But consider the problems. A power generator for example, is after all first and foremost an expert in generating power – not in running computers. And however good his in-house IT people, they are likely to be too tightly focussed on existing systems and problems to form a sound judgment of the many competing new technologies that today`s ERP packages offer – a problem made no easier by the package vendors continually improving their products and adding new features.

Leaving the task to your own IT staff could be a recipe for increasing timescales, costs and risks as they chart their way for the first time into unknown waters.

But perhaps the most important and fundamental objection to a pure DIY approach is the problem of getting your business objectives and your IT support into full alignment. This is a concept to which, in our experience, too little attention has historically been paid by the average manufacturing sector IT department. Indeed it could be argued that in many companies it is a simple case of such high-level issues lying outside their remit.

Whether in your case that is true or not, it surely makes sound business sense to utilise the expertise of professionals whose working lives are devoted to this key challenge, the alignment of strategic objectives with IT, and who can show a track record in precisely this area.

Choice of package is clearly crucial, and an area in which your chosen consultants must be able and willing to give you advice that is independent and free from bias. The rapidly changing package market and rich functionality of the leading ERP products demands up-to-date knowledge. Computer-supported package selection is increasingly relevant and Cap Gemini makes use of selection software which keeps the top ten packages under continuous in-depth review. However it must be borne in mind that this is only one weapon in the armoury of knowledge and experience that skilled consultants can bring to bear on the selection process.

Implementation made simple?

At the implementation stage, vendors such as SAP and Baan have been introducing a variety of `implementation improvement tools` in response to market pressure to reduce the cost and complexity of implementation. These tools assist in the business modelling and product configuration stages at the front end of the implementation process.

Most leading package vendors undertake the implementation of only a minority of their licence sales themselves. They do this by policy and design because on the one hand they wish, quite rightly, to maintain contact with their markets. But equally, if they tried to implement all their licence sales, they would constrain their own ability to grow. The vast bulk of package implementation experience therefore lies in the hands of the leading IT services companies and consultancies. The basic premise here is “stick to what you know.” Software companies are good at building software and selling software. IT services companies are good at consultancy, project management, systems integration and the provision of computing services.

So just who can you trust to implement your chosen system ? Many companies might see the appeal of a one-stop shop and opt for the software vendor. But in practice solid teamwork between the expertise of the software vendor supplying the package and that of a specialist systems implementor will produce the best results. But before you take such a decision, consider a few important factors:

– the need for sound knowledge of your specific sector

– there may be a need to select different modules (best-of-breed) from more than one package

– the integration and migration skills to effect a smooth transition from legacy systems to the new environment are essential, and as a basis for these skills a broad, deep knowledge of legacy hardware and software platforms is critical

– a guarantee of the right level of support, not only during the implementation phase but during the bedding-in period and afterwards, when your new system is up and running

– The need for `point solutions` – specialist software to handle areas not covered by the ERP package – and specialist skills in integrating such add-ons.

Billing and customer care

For companies that sell direct to consumers, the challenge of putting in place systems that support state-of-the-art Customer Relationship Management techniques – including of course the billing process – is a crucial one. It will dictate a hard scrutiny of just what the relevant modules of the ERP package can offer and how well they match requirements.

In the UK`s deregulated utility industries for example, many companies will wish to put a premium on great power and flexibility in these areas, since (a) they seek some plus factor to help them steal a march on competitors, and (b) they are planning to diversify into new services and products. They will therefore want to consider factors such as single billing for multiple services, and the ability to cope with special offers and cross-discounting. Many companies may find that they need specialised systems to supplement their basic ERP package (assuming that they do in fact go the ERP route) in order to excel in the critical area of customer relationships.

In their quest for adding `bundled` services and products onto the gas or electricity they already offer their customers, many utilities are finding that their present billing system is a severe limiting factor – a bad case of the tail wagging the dog. What makes the situation worse is the emergence on the market in 1998 of powerful new billing engines with all the sophistication and flexibility to handle billing for a vast range of services and products. Such new systems also support the full range of customer care activities, from helping the customer retention and acquisition process to empowering customer-facing end-users and reducing costs.

New customer care/billing systems can also address the current areas of concern that are facing our competitive utilities, e.g. staff motivation and integration of information in a usable form. However, as with other business areas where new software is being planned, it is often necessary to rethink and re-engineer many existing business processes prior to installation. A clear three-part programme of: plan; build; and implement is usually called for.

Shape up for the 21st Century

Your decision really boils down to choosing between two different concepts of an ERP implementation: are you `just replacing the software`, or are you putting your business processes and the supporting IT in good shape for the 21st century?

In our view the latter is what you should be aiming for. If you aim simply to replace software, you will throw away three-quarters of the potential benefits – the benefits of better business processes, improved flexibility, and increased competitiveness that such a move can deliver.

But how are you going to choose the right implementation partner? We suggest that in addition to such obvious credentials as a sound track record in package implementation and good reference sites, you should also look for a partner with proven industry-specific skills and a strong relationship with your chosen ERP package vendor

The concept of outsourcing not only the `build phase` but the `run phase` is rapidly gaining ground, particularly as IT skills shortages increase and, if you intend to consider this option, you must add experience of running outsourced IT to the list of qualities needed in your chosen consultancy.

A good consultancy can not only be key to giving you the benefits you are seeking; they can also steer you around the pitfalls. Caution is needed in respect of vendor claims about their packages` ability to handle euro trading, for example, or support for electronic commerce, including doing business over the Internet. A good consultancy and implementation partner will also have the skills to guide you through these complex and topical issues.

Conclusions

In conclusion, we would summarise our advice for those contemplating an overhaul of their IT as follows:

– Seize the opportunity to align your IT systems to your business needs and do not think of the exercise as one of simply replacing your software.

– For many companies a package-based solution can deliver 85-90 per cent of what you need – but the remaining 10-15 per cent can be vital to your competitive edge.

– Consider the package as an integration backbone for your corporate systems.

– Implementation can be trouble-fee provided it is in the safe hands of an implementation team that understands the pitfalls and also how to get the maximum return on your investment in new systems.

– Get independent professional advice on package selection.

– Look forward to where you will be post- implementation: is it an opportunity to review the cost-effectiveness of your IT and the possibilities of outsourcing?

A solution based on an ERP package can bring immense benefits across your entire business, by functioning as a new corporate nervous system with the power to revitalise your competitiveness, responsiveness and efficiency – provided you don`t forget the 10 -15 per cent where customised software will be needed. For many companies such a move is literally inevitable, and for any company it is a major operation. That, in our view, is why those undertaking it must get the help of experienced IT surgeons who have perfected the operation.

But like every other major business decision it has to be taken with sound advice and implemented with total professionalism.