If it’s looking like a legacy ERP migration or upgrade -- or greenfield implementation -- is in a company’s future,...
the advocates for the project must put together a business case to justify the investment. This may seem obvious, but experts say too many manufacturers undertake major ERP projects without the benefit of a business case.
One reason for this oversight: According to a June 2011 Aberdeen Group survey of 465 IT and business executives, 63% upgraded their legacy ERP system to replace obsolete technology. Companies in that camp generally do not bother with building a business case, since the stakes are clear: Fail to invest, and your company is in jeopardy. And companies looking to upgrade or migrate their ERP based on other factors often delay the initiative for one simple reason -- putting together a solid business case that lays out hard cost savings is difficult.
“Many times, executives feel they’re going to get back the same functionality they already had, for more money,” said Brad Little, vice president at Capgemini, an international consultancy. Hanging the justification for the project on a critical new capability, such as business analytics, will make the business case flow much more smoothly, he added.
“For business executives, the reason to upgrade, plain and simple, is ‘I have to do it,’ ” said Steve Phillips, a former ERP consultant, SearchManufacturingERP.com contributor and IT director at Candle-lite, a Cincinnati candlemaker. “ ‘I have to do this to stay in business.’ That’s the ultimate driver,” Phillips said.
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That’s not to say that upgrading or migrating ERP doesn’t carry potential business benefits. In fact, the benefits of a well-executed ERP upgrade or migration are legion: better efficiency and productivity, the chance to optimize business processes through new capabilities, and cost reduction, to name a few. Cloud and mobile ERP are also enticing for many manufacturers. It’s just that many of these benefits are hard to pin down in a traditional return on investment (ROI) calculation.
Fortunately, for this type of project, it is good enough to list the types of business benefits -- whether hard values such as cost savings or softer benefits such as higher productivity or increased business agility. With soft benefits, assigning a looser monetary value is sufficient, these experts say. For example, the company will have no reliable way to predict the bottom-line effect of being able for the first time to sell directly to consumers versus continuing to rely on the channel.
Reduction of business risk is another common driver that is tough to quantify, according to Phillips. “When it comes down to it, you have to have a system that is supported and sustainable. If it appears your vendor may be the target of a takeover or may be about to go bankrupt, your business could be at risk.” Upgrading or migrating to a demonstrably viable ERP vendor and product will reduce the risk significantly.
The problem with sidestepping the business case, no matter how squishy it might be, is that the organization will likely never know if it achieved the expected results from its ERP initiative, say industry experts. You can’t manage what you don’t measure, as the adage goes, so without a business case, an ERP system’s benefits will go unmeasured. They say this all-too-common scenario sets the stage for business-IT misalignment.