We are concerned about the nearly standardised ways in which ERPs are implemented in Finland. This concern arises from the observation that the current, nearly standardised ways of carrying out ERP reforms do not work.
Let’s highlight this with some figures:
Every year, 3–10% of companies’ turnover goes into ongoing ERP transformation projects. This means a massive investment, or rather wasted expenditure, as the figures on the success of ERP reforms are stark. 70% of ERP reforms never reach their business goals. More than 50% of ERP projects fail and 25% fail catastrophically.
Simply put, ERPs are vital systems for businesses. So how can it be that reforms of such essential systems go wrong more often than they succeed?
There are many reasons for this.
The essence of the problem: Building an expensive custom-made house that no one wants to move into.”
Reforms of ERPs, i.e. software-based enterprise resource systems, should be implemented in such a way that they produce a fertile soil for future growth and provide the company with a competitive advantage.
The fact that ERP reforms focus only on ensuring business continuity does not bring growth or competitive advantage to Finland. Roughly speaking: after the horrendously expensive ERP overhaul, the cash register keeps ringing, but it doesn’t ring any more than it did before this reform.
ERP reforms are often years-long projects that suck up tens of millions of euros from companies’ coffers. If the end result is a failed project, the question arises: can we afford this in the current economic situation?
The current model for executing ERP reforms actually resembles a series of building projects that go wrong. Although the goal is to build a new, great home for the company’s business, the end result is like an unsuitable building that the business does not really want to move to but is forced to because there is no alternative.
ERP projects are subject to detailed cost-benefit calculations before they start, business objectives are considered, and the Board of Directors is requested to approve the project as a whole. But then strange things happen overnight: a business-driven project turns into an IT project. The project planning phase is carried out too lightly and is not guided by business management, nor necessarily by the organisation’s strategy; rather, it is treated as a technical IT deliverable.
The time of business executives is not allocated sufficiently for the ERP project, and the current or future needs of the main users and the end user are not taken into account.
How to turn the course of ERP reforms towards value creation and support for competitiveness?
As a rule of thumb in ERP reforms, 60% of the project and its investment budget should be allocated to ensuring the technical implementation and functionality of the new system – the part that ensures business continuity. The remaining 40% should be allocated to activities that create new competitive advantages and generate new value for end customers. Often during an ERP project, this critical part is ignored and excluded.
Here is a list of critical questions that support future competitiveness that should always be asked before starting the ERP reform planning:
- What do our customers or their customers value now and in the future?
- What do we know about our end customers’ attitudes, values and the ecosystem in which they make their purchasing decisions?
- Is it likely that our industry will be facing major upheavals in the next 10 years, and how could these changes affect our operations?
- Do we see that purchasing behaviour could change in the future?
- Do we know whether new competitors will enter our industry?
- What kind of new business should we be able to offer in the coming years?
- Does the new ERP system we are planning contribute to future growth or is our system modelled for today’s needs only?
At the heart of value creation is identifying the future operating environment for for which the renewed ERP is being built. When you think about your own customers, what is valuable to them today, what about tomorrow?
