WHitE pApE R

Avoiding Blind SpotS in ERp
from ImplementatIon to managed
applIcatIon ServIceS

WHitE pApE R

RiSkS And StRAtEgiES Mid-SizE
CoMpAniES nEEd to knoW:
execUtIve overvIew

Executive overview
efficiency a...
WHitE pApE R

However, many erp implementations fail to improve the business performance and yield the promised returns...
WHitE pApE R

Strategies and Critical Success Factors
the factors that have the greatest impact on successfully achievi...
WHitE pApE R

although an implementer may have in-depth erp product knowledge, crucial mistakes can still occur without...
WHitE pApE R

Rapid Deployment
there are several methodologies and approaches for implementing an erp solution. each va...
WHitE pApE R

                                                  Case Study

   The Challenge: a company was migrating i...
WHitE pApE R

If the erp solution is outsourced, knowledge transfer must include the client’s conveyance of its busines...
WHitE pApE R

figure 2 illustrates a solution-assurance matrix used by Infocrossing to identify potential problems. Ite...
WHitE pApE R

Benefits of Managed Application Services
for most mid-size companies, smaller budgets and the lack of nec...
WHitE pApE R

findings from numerous industry studies leave no doubt that few mid-size companies are able to achieve ad...
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Avoiding Blind SpotS in ERp from ImplementatIon to managed ...

  1. 1. WHitE pApE R Avoiding Blind SpotS in ERp from ImplementatIon to managed applIcatIon ServIceS www.infocrossing.com
  2. 2. WHitE pApE R RiSkS And StRAtEgiES Mid-SizE CoMpAniES nEEd to knoW: execUtIve overvIew Executive overview efficiency and productivity gains, as well as data integration for better decision-making are the promise of enterprise resource planning (erp) systems. However, it’s a well-documented fact that most companies encounter challenges in implementing an erp system. for mid-size companies, the issues are even greater, with blind spots at several decision points. Understanding how to avoid the blind spots and actually capture the promised benefits will yield greater return on investment (roI). this paper takes an up-close look at the use of erp software in mid-size companies, assessing the unique challenges in a mid-size enterprise environment and identifying strategies—from implementation to managed application services—that result in the desired roI. the paper discusses value-creation aspects that mid-size companies need to know including: • The greatest threats to achieving ERP ROI in mid-size companies • Steps mid-size companies can take to avoid derailing their ERP implementation projects • How to ensure an ERP implementation is optimized for long-term benefits and shareholder value • Effective decision-making on ERP solutions • Best-practice methodology for implementation • Benefits of outsourcing ERP implementation • Benefits of Managed Application Services (MAS) ongoing ERP professional services together with application outsourcing and infrastructure hosting/management armed with the information and actionable steps in this paper, executives in mid-size companies can take full advantage of the promise of erp systems. Risks Surrounding ERp in Mid-size Companies five trends have caused an increase in erp implementations since the 1990s: 1. tremendous growth in data volumes/transactions per day 2. Increased utilization of customer relationship management systems 3. Increased utilization of supply chain management systems 4. Growth in eBusiness driving decreased response times and the need for integrated processes 5. erp software vendors’ strides in adding value that appeals to the mid-market |2| 866.779.4369 › info@infocrossing.com
  3. 3. WHitE pApE R However, many erp implementations fail to improve the business performance and yield the promised returns on investment. erp implementations are notoriously: • Resource intensive • Highly complex • Time consuming • Unpredictable in cost adding to these challenges is the fact that mid-size companies operate very lean, usually resulting in smaller budgets and smaller It staffs than larger enterprises. as a result, mid-size companies nearly always lack It staff with the critical skill sets around ERP. This risk factor quickly becomes a major cost exposure. Cost risk #1: Lack of ERP skill sets. lack of erp skill sets will impact a company first in the implementation, with system glitches that cause costly delays. moreover, glitches have a tendency of turning erp into an It project when, in reality, successful ERP projects are business process driven. Because of the glitches, few mid-size companies can implement erp products within a reasonable time frame. the inability to execute with speed adds to the cost. Cost risk #2: Total cost of ownership. mid-size companies seldom have a true assessment of the total cost of ownership—the cost to support the system over time. erp environments continually evolve, with software vendors adding more features and functionality but also more complexity for the It team. mid-size companies’ It skills seldom can keep up with the fast pace of change in the software, which is a high risk, given the fact that the business will become increasingly dependent on business-critical erp applications. not continuing to upgrade the system will cause problems that mushroom to the point of applications that have not grown with the business and no longer provide business value. Investing in continual upgrading of erp skill sets must be a priority for protecting roI; but this need is often unmet because of budget constraints. Cost Risk #3: Not doing the necessary process re-engineering to accompany an ERP implementation. Because it is often a challenge for mid-size companies to adequately evaluate which erp product is most appropriate for their objectives, costly mistakes occur at the outset. Selecting and implementing a new ERP system and the process changes that accompany it are complex undertakings. efforts to address risks should be holistic. an implementation approached holistically, for example, would consider which components of the erp product are best used to optimize the business processes, ensuring the product will be more durable over time and evolve easily as the business changes. this type of expertise is seldom resident in mid-size companies. Speeding information-flow, reducing cycle time and inventories are beneficial outcomes of ERP systems. But ROI is realized from the process re-engineering that the erp product supports, rather than from the software itself. Thus, a comprehensive plan that manages the entire ERP effort—not just implementing the technology—must be established. It begins with understanding the business objectives and determining who is accountable for results. |3| 866.779.4369 › info@infocrossing.com
  4. 4. WHitE pApE R Strategies and Critical Success Factors the factors that have the greatest impact on successfully achieving roI are: • Thorough planning • Product expertise • Industry expertise • Rapid deployment • Controlling modifications • Knowledge transfer • Methodology all of these are more difficult to achieve than they may appear at first glance and are especially challenging for mid-size companies. Product Expertise companies doing erp implementations without deep product expertise and experience encounter: • Higher direct and indirect costs • Unnecessary modifications • Software that does not support the business process properly • ERP system that does not meet user requirements and may even increase workloads first and foremost, successfully capturing the benefits of erp requires mastery of every nuance of erp products. the implementers cannot configure the software properly without knowledge of everything the software product performs. this lack of product expertise results in both direct and indirect costs to the company. without product knowledge, implementation may result in unnecessary modifications (which cost money and time) that could have been avoided if the functionality were well understood. Indirect costs occur if the software is not optimized for the business. thus, the business processes would not be re-engineered properly, nor would the software support the processes properly. as a result, the erp business solution would not fully meet user requirements and would actually increase the everyday workload of the employees and back office administration. Industry Expertise companies that hire erp implementers that lack expertise in the client’s industry encounter: • Problems that surface after the implementer has finished its work • Mistakes that end up not allowing the ERP system to provide a competitive edge like a castle built in the sand, erp implementations undertaken without industry expertise are doomed to fail. the deployment of business-critical applications must take into account the unique challenges of the buyer’s industry. a lack of understanding of industry-specific requirements can lead to problems that will often surface only after the erp implementation. In depth industry expertise is required to ensure erp applications actually provide a competitive edge. |4| 866.779.4369 › info@infocrossing.com
  5. 5. WHitE pApE R although an implementer may have in-depth erp product knowledge, crucial mistakes can still occur without industry expertise. a company in the fresh fruit and vegetable business, for example, is in a very different situation from one in the pharmaceutical industry. on the face of it, the erp implementer will use the same tools and rules (lot numbers, traceability requirements, shelf life, expiration dates, etc.) in both instances but needs to utilize them differently, according to industry characteristics. as pointed out in figure 1, rules for the fruit and vegetable industry are extremely fluid, while they are rigid in the pharmaceutical industry. Figure 1 Rule Fruit/vegetable industry pharmaceutical industry fluid—need maximum flexibility rigid—the product lot first Sales orders for easily modifying orders. produced is the first one to be sold. fluid—expiration dates on fruit rigid—medicines have a certain differ from product to product, number of shelf life days from shipment to shipment and supplier the dates on which they were lot expiration dates to supplier. after the product produced. after the expiration isinspected, a determine is made date, the product would no on how long it will keep in longer be sold. cold storage. fluid—depends on factors such rigid—System automatically as quality rating, inspection date, decides which lot or pallet to codification of supplier. needs to pick to ship from the warehouse. picking rules allow for manual intervention to over-ride the automated pallet pick because of knowledge of the customer and the product. If the rigid rules of the pharmaceutical industry were applied to the configuration of an erp system in the fruit and vegetable business, the implementation would fail with the first inaccuracy or first information not properly communicated from a third-party retail business or supplier to the fruit and vegetable business. |5| 866.779.4369 › info@infocrossing.com
  6. 6. WHitE pApE R Rapid Deployment there are several methodologies and approaches for implementing an erp solution. each varies in the impact to the company on time and costs involved in such matters as: • Design solution and development • Data conversion • Training employees on use of the ERP system • Integration • Testing as with any business solution, buyers want to take steps to help them realize the benefits of an erp system sooner. this is even more essential for mid-size companies since they run leaner organizations than large companies. rapid deployment is one strategy to make the erp solution more cost-effective. One strategy for ensuring rapid deployment is Infocrossing, Inc.’s revamp of the traditional “Big Five” approach to erp implementations, which is often overwhelming for the mid-market. these methodologies typically involve three to six months in research and design—solution definition and development (“as-is,” and “to be designed,”), blue sky or white board re-engineering before anyone could use the software. In addition, the technical development and data conversion aspects of the project are usually back-loaded efforts. In contrast, Infocrossing, an outsourcing service provider with offerings customized to the mid-market, has “right- sized” the Big Five project-management methodologies, to be more flexible, leaner and hit the ground running. Infocrossing’s mid-market methodology has employees working with the erp product within two to six weeks from project kickoff to begin details of how to use the ERP package. Furthermore, technology development and data conversion aspects of the project are integrated up front, as soon as a good solution definition is in place. this enables thorough integration testing and mock conversions; ensuring users actually do the acceptance testing of the system using the data converted from the legacy system. The Infocrossing methodology still employs the same steps and controls of a traditional Big Five project methodology, but the order of the activities is staged differently. In this manner, there is a faster emphasis on the value and on working leaner and more cost-effectively. a second strategy for rapid deployment is to build a steady-state foundation at the outset. Because it is expensive to alter computer code, mid-size companies need to ensure their ERP systems are set up correctly and streamlined at the outset. Building a solid foundation that is optimized for the individual business and industry from the beginning will eliminate the risk of problems developing from complex tweaking or poorly documented processes. a solid-state foundation will assure easier, more cost-effective maintenance over time. |6| 866.779.4369 › info@infocrossing.com
  7. 7. WHitE pApE R Case Study The Challenge: a company was migrating its erp system to an outsourcing provider’s managed services solution. the provider had estimated that only a few hours would be necessary for maintaining the system over time. However, the client company—typical of many of its peers—had poor documentation for its invoicing business processes. In the midst of the implementation, they realized that the client’s parent company had not provided everything necessary for the invoicing processes to work properly. The Solution: one of the provider’s experts with deep knowledge of the client’s industry realized the erp system had originally been implemented sub-optimally at the parent company. the provider determined it would take far less time and money to reinstall the invoicing system in a “vanilla” state, using good business processes the way the software actually worked. The Result: By reinstalling the software correctly and in a vanilla state, they ensured the ability to change it more easily when the client’s business increases or veers in a different direction. In the long run, this will save the buyer money and time, facilitating changes without altering code. today, they have an erp system that performs better because it has been optimized to give them what they need, as opposed to giving them what it was originally configured to do. Knowledge Transfer companies that undertake erp initiatives without adequate knowledge transfer encounter problems in the areas of: • End-user problems in using the system • Process and business-rules problems optimally, knowledge transfer is a two-way street. to begin with, a best practice is involving end users of the ERP product early on in the project, preparing them to “own” and operate as much of the systems as possible. This strategy is key to achieving ROI. Case studies and root cause analyses often reveal that a major reason ERP systems do not achieve anticipated outcomes can be traced to lack of user training. this is especially true in mid- size companies, where everyone is busy enough just trying to accomplish the normal daily work, without having to learn (or teach) something new. In contrast, the Infocrossing implementation methodology, right-sized from the Big Five approach, is an example of a strategy to eliminate these challenges. This methodology includes “system walkthroughs” where users begin assimilating and building the internal company knowledge of how to use and operate the product even before anyone can actually use the software. |7| 866.779.4369 › info@infocrossing.com
  8. 8. WHitE pApE R If the erp solution is outsourced, knowledge transfer must include the client’s conveyance of its business rules and business processes. this is even more crucial in a case where the client’s work and It systems have been poorly documented (or not documented at all). mid-sized companies do not have deep pockets that can afford consultants spending 90 percent of the time uncovering the business rules and documenting processes. Here, again, industry expertise comes into play in the outsourcer’s ability to quickly understand and know what questions to ask to quickly uncover the key information. Implementation Methodology companies that use implementers without best-in-class methodologies and proactive communication practices encounter: • Poor change control • Poor quality assurance • The project may not be managed to budget constraints • The client is likely to lack understanding of why the system was initially configured the way it was, which will cause problems later on when the system is updated Implementation methodology should be a provider-selection criterion for buyers who turn over the reins to outsourcing service providers for their ERP projects. Some critical aspects go beyond creating budgets, milestones and scope. capturing anticipated value is critically dependent upon the provider’s proactive communication on whether it is meeting the implementation goals. For example, a buyer’s objective may be: 100 percent of the EDI transactions will be processed accurately within one hour. what happens if the provider encounters an implementation reality of only 97 percent in two hours and knows that getting to the next level (the buyer’s objective) will increase the cost dramatically? without a methodology that includes proactive communication between the parties about progress toward the objectives, the buyer in this scenario may not even be informed of the issue (or of a change in scope) and have an opportunity to make conscious decisions regarding the change. Buyers should select providers whose methodologies include keeping the client informed on implementation progress toward the objectives. This will ensure milestones are achieved and the project is managed toward the budget and time the buyer considers reasonable. more importantly, proactive communication assures the buyer can influence the final quality and scope of the system installed, ensuring the system is not marginal or does not create more work for the people trying to run it. This proactive approach is dubbed by Infocrossing as a “solution-assurance” methodology. Stakeholders are given assurances of progress at milestones, so there is no surprise about the outcomes. Buyers must drive monitoring of the project, as well as change control and quality assurance. |8| 866.779.4369 › info@infocrossing.com
  9. 9. WHitE pApE R figure 2 illustrates a solution-assurance matrix used by Infocrossing to identify potential problems. Items rated in green are on target and have no problems on the horizon. Yellow indicates such issues as something running behind schedule or something costing more than planned. red identifies issues which need to be resolved. the matrix is a communication tool allowing proactive discussions and management action such as assigning more resources, responding faster, increasing budget or increasing project scope. Knowledge transfer is a component of an effective solution-assurance methodology. By the time the system goes live, the client organization should understand why it was configured the way it was so that, if it needs to be changed in the future, they will understand the parameters involved and what needs to be taken into consideration when it is changed. ensuring adequate knowledge transfer of the configuration begins by identifying at the outset the individuals who need this information for changes in the future. Specific tasks must be put in place to assure the information is actually conveyed to them at certain points. Figure 2 n io ts n ts at en io en ur te s at ra es m m d ed e fig ur d ed ed eg in ire op let re s on fig nt us ed ge ce gn ed in qu Sc p ui ar ra e on e C sI B rt m at an ur si eq ed e us ep s T so De se nd fo Co et n at l R et C or h es R pl atio at rp s C Pr er es a pl ce gr ca in ss Re n Ef is St oc m d Us d tio co es om fa ef ne d ys te ni om lic Pr yste ll C ter In ech oc an l an lu Critical Business Initiative or Project Risk D usi pp ra na an d En So Pr ve In A A T B S In O C Project Project Process Scripts for Scripts for Technical Procedure Test and Training Deliverables Charter Plan Map Applications Interfaces Requirements Manuals Review Schedule & Listing Results Manuals Program Management Project Plan Scheduled and Resources Help Desk Process Tested and Deployed Sales Order to Cash EDI Translator Conversion Re-Install Orders Booked w/ Preferences & Advance Price Item Availability, Allocations Release Load Builder by CSR and Release to Warehouse Contract Warehouse EDI Transactions, Shipping Ship Confirmation, Transportation Accruals Customer SO Invoice and ASR EDI Transactions CASS Import Transport Cost,Voucher, Accruals Technology and Infrastructure Security and User Access Citrix Farm Stability & Licensing Citrix and Database Server Performance Environment Readiness, Reliability & Performance Overnight Batch Processing Reporting Server Database Responsiveness Cognos Reporting & Licensing EDI Process Saleable Interfaces MS Access Reporting System Monitoring Network for Remote Sites (Frame Circuit) for HQ Network for Remote Sites (Frame Circuit) for Winchester Network for Remote Sites (Frame Circuit) for Fresno Network for Remote Sites (Frame Circuit) for Montreal Network for Remote Sites (Frame Circuit) for St. Louis Final Citrix Application Licenses Secured Final Cognos Application Licenses Secured |9| 866.779.4369 › info@infocrossing.com
  10. 10. WHitE pApE R Benefits of Managed Application Services for most mid-size companies, smaller budgets and the lack of necessary It skills place them on the path of incurring: • Higher costs from managing ERP systems reactively instead of protectively • Unpredictable performance and timelines for projects partnering with outsourcing companies with core expertise in full-service erp solutions is an effective strategy that enhances roI and saves frustration down the road. Selecting an outsourcing service provider that has the capability for erp implementation and managed application Services (ongoing erp professional services together with application outsourcing and infrastructure hosting/management) will yield the highest roI. maS for ongoing support and maintenance of erp systems is a best practice in protecting the value-creation capabilities built into the system during the implementation phase. this type of solution also provides: • A lower, predictable cost for the ERP environment • More predictable performance and timelines for projects for deployment of new capabilities • Maximum flexibility to respond to changing business conditions • Continual optimization of the system for the business over time Buyer organizations’ greatest application-management challenges today are: • Outages that impact the business, making performance unpredictable • IT team spending too much time on implementing patches, fixes and bundles, hindering the team from having time to deploy new capabilities that support the organization’s business goals as an organization responds to its competitive environment, the It operations strategy must ensure that applications keep pace with the company’s growth and strategic objectives. More and more mid-size companies are opting to outsource their applications support services. By outsourcing to an expert service provider for MAS, a company takes a proactive approach to assuring application roI in the following respects: • Reduces financial risk from business-impacting outages, total cost of ownership, and revenue protection • Ensures reliability and availability of systems • Provides predictable service levels • Frees up capital for strategic-growth initiatives In addition, an outsourced maS strategy reduces a client’s regulatory compliance risk. the outsourcing company provides a service delivery model that includes infrastructure and processes, such as change control, which are audited. Conclusion | 10 | 866.779.4369 › info@infocrossing.com
  11. 11. WHitE pApE R findings from numerous industry studies leave no doubt that few mid-size companies are able to achieve adequate roI on erp systems. the number-one reason erp efforts stall or roI is inadequate is because companies lack capital resources and the requisite in-house capabilities in It skill sets. these twin risks impact not only the initial implementation—and initial optimization in aligning the technology with the business process and business- improvement objectives—but also the ongoing maintenance and support. the best way for mid-size companies to address the dilemma of how to do more with fewer resources is to look beyond their own walls for the necessary distinctive capabilities. mid-size companies seeking to optimize their roI in erp and application management should adopt an outsourcing strategy. provider-selection criteria should include: • Best-in-class capabilities • In-depth knowledge of ERP and application products • Expertise in the client’s industry • Comprehensive (and future) investment in tools and methodologies that ensure cost-effective, rapid deployment • Implementation methodology that includes robust process for knowledge transfer an outsourced approach provides predictability is performance, cost and timelines and additionally trims the operating costs associated with erp systems and applications management. this produces savings the buyer can invest in areas of critical need for business growth and competitive advantage. this approach will ensure the erp system and applications will be optimized at the outset for the client’s business and then managed through changes over the long run in order to achieve the desired strategic outcomes and roI. About infocrossing Infocrossing, a wipro company, is a provider of It outsourcing and business processing solutions, delivering the computing platforms and proprietary systems that enable companies—regardless of industry—to process data and share information within their business and between their customers, suppliers and distribution channels. leading companies reduce costs and improve system delivery by leveraging Infocrossing for server (mainframes, midrange, open system) and network management; healthcare IT and BPO; managed messaging support; and enterprise application services. founded in 1984, Infocrossing and its subsidiaries became indirect, wholly owned subsidiaries of wipro limited in 2007. | 11 | 866.779.4369 › info@infocrossing.com