5 Questions with … Art Worster
Many organizations today struggle to meet – or even to properly define – their ROI goals for their SAP investments. Art Worster is author of Maximizing Return on Investment Using ERP Applications and a noted expert in enterprise resource planning (ERP)-driven business improvement programs. We were fortunate to sit down with Art for the latest in our “5 Questions with …” blog series.
How have companies changed the way they plan, implement, and manage an investment in an ERP system like SAP over the last five to ten years? Are companies better prepared to maximize return or do you see the sins of the past repeated today?
A lot has changed over the past 20 years in Enterprise Resource Planning applications in general and in how they are implemented. The capabilities of all of the Enterprise Resource Planning applications have continued a rapid explosion of functionality in virtually all aspects of business, as well as in the underlying technology that is used to organize and deliver them. Additionally, the project management toolsets have both expanded and become more integrated with the functionality itself. Skills of both client employees and consultants have also developed as more and more have gained experience in addressing different and more varied requirements.
It is necessary to look within the business itself to find the answer to the questions of cost versus benefits for these IT investments and in a majority of cases, I don’t see this happening in a meaningful way.
What has not kept up is the development of better understanding within business leadership of the need for how business fundamentals are affected by the conversion from functional applications to integrated business processes. Businesses have continued in many cases to believe that the only things needing change are the applications and that business can continue to operate as they have in the past, with the blind hope that somehow this process will still yield improved business results. Just this past week, I heard a comment from a CFO that stated that he “didn’t believe that Return on Investment was real”, that it could be predicted and delivered accurately.
I continue to see companies who implement some of the newer technologies without a clear view of the financial improvements that can or will be achieved. It is necessary to look within the business itself to find the answer to the questions of cost versus benefits for these IT investments and in a majority of cases, I don’t see this happening in a meaningful way.
In Maximizing Return on Investment Using ERP Applications, you mention that the strategy of delaying ERP upgrades as long as possible can actually hinder an organization’s ability to achieve the highest return on its ERP solutions. How so?
There are many reasons for this phenomenon. In some cases the organization simply never develops the discipline and techniques necessary to achieve intended Return on Investment. In others, the complexity of the upgrade program simply becomes overwhelming and timelines too long to stay on track. It is not that upgrades cannot be deferred forever in most cases (although that typically gets the blame – someone made me do it), but that all upgrade processes are viewed as unfortunate and necessary costs.
In many cases, the original implementation was completed including a large number of modifications. In some cases this may have been that the necessary business processes in the business were so unique that they actually required modifications to standard code and that a cost/benefit analysis had been done to demonstrate that the long-term business benefits outweighed the additional continuing costs of the modifications. In most cases, however, this is simply not true. It may be that the original implementation was done before the full functionality had been developed, however, now should be reversed as it becomes possible to use native processes. Or it may simply be the lack of political discipline within the company that allowed non-economic modifications to be made to the system without full costs and benefits being understood.
If there is a continuous improvement program that has been developed to achieve a Return on Investment for the investment dollars, it is possible that many of these changes to eliminate modifications can be done well ahead of or after major upgrades to the technical systems and that the technical upgrade can become part of a continuous improvement process and the costs be merged with other components where Return on Investment is identified, calculated, tracked and recovered.
When all is combined into one complex program, just getting through it successfully often becomes the mission rather than creating value for the organization before, during and subsequent to the upgrade.
What’s the biggest mistake companies make when building a business case for an ERP implementation?
There are many, but I really think that it has to start with a fundamental understanding of what Return on Investment looks like, that it is tangible, that it is quantifiable, that it can be measuring over the length of the project and that it can be conclusively proved to be “real”.
I have never understood why otherwise good leadership teams often cannot seem to either see potential returns or if they see them, to acknowledge them. In this case, “them” being areas where costs are being incurred that either don’t contribute to the organization or at the very least are excessive based upon what is necessary, or alternatively opportunities to increase revenue. I had an MRP consultant many years ago who referred to them as “gold nuggets”, meaning that if you could figure out how to recover them, they were simply “gold” (piles of work-in-progress inventory laying around for long periods of time is an easy example, however there are many easy to see cases).
As leaders, we tend to get caught up in what belongs to me or what belongs to you, and fail to recognize that we jointly have custody of shared potential areas of improvement. The times that I was personally able to produce the most Return on Investment for the projects that I scoped and led were the times that I was responsible for all of the affected components. In turn-around situations, this may occur, but in usual business scenarios they do not and we have to learn how to play fair with each other for the betterment of the larger organization. Return on Investment tends to get caught up in the middle of all of this and we pretend to do things that might be effective but know from the outset that they will fail.
The second mistake is to take too narrow a view of what produces a more effective organization. Whether it is within the political culture or deals with individual learning opportunities, we tend to look for immediate returns and fail to see that the development of more competence (organizational or individual) eventually produces a more effective organization and that will lead to improved business performance.
You are part of the faculty at Central Michigan University and work directly with the university’s ERP Concentration and ERP Graduate Certificate programs. How are SAP University Alliance programs like the one at CMU preparing students to be tomorrow’s IT leaders?
While I believe that the inclusion of any courses in undergraduate and graduate programs that teach integrated business processes, most schools still teach a couple, or a few, electives and are satisfied with whoever takes the courses, neglecting to see that very few students will actually know what courses will provide the most benefit to their integrated business knowledge upon graduation. I think that there is a great opportunity being missed.
At Central Michigan University, we have taken the University Alliance Program supplied by SAP and used it extensively in our courses. When we teach the technology in most courses it is in support of business processes and business process design. While there are IT technical courses, the business school courses are designed to teach students how to use integrated business systems to produce tangible business results. As a result of this focus, we are producing students more prepared to immediately to enter functional entry-level positions and know enough about how business processes operate cross-functionally to make immediate contributions.
In this manner, we are one of the leading schools in the country, or world, in turning what has been an academic pursuit into practical application of these principles to producing tangible business benefits. The need to do this both in this, and in other arenas, is currently one of the topics being discussed in the academic community.
At SpinifexIT, we spend a great deal of time working with our customers to help them monitor and improve data quality and completeness. How does data quality impact an organization’s ability to achieve ROI targets from their ERP investment?
I have found that businesses tend to start with what they have and to think in terms of incremental changes to address whatever their issues are. The use of integrated business systems offers an opportunity to take a more strategic view of how to drive business improvements. Instead of focusing on trendy technology issues like speed and mobility, it offers an opportunity to focus on business fundamentals or to develop them. Once you have done this, speed and mobility will become even more valuable.
Enterprise Resource Planning is the tool, but the leaders of the organization still have to be able to envision what might be possible.
If you start with what you have and ask how you can use it more effectively, you are constrained both by what you have and by how broadly you can think. If, on the other hand, you ask the question as “in a perfect world, what information could I get that would provide me the best opportunity to optimize my business performance,” you have the opportunity to ask for something that hasn’t been thought of. Data quality is both accuracy and relevance. Enterprise Resource Planning applications have gone a long way to improve data accuracy, based upon how accurately it is collected. They often, however, stop well short of maximum relevance.
Single versions of the truth in operations within a business can be one of the most illuminating (and embarrassing) experiences for any organization, however, are easily one of the most important opportunities to achieve transformational results. Enterprise Resource Planning is the tool, but the leaders of the organization still have to be able to envision what might be possible.
Art Worster is President of Worster Associates, LLC and Director, Applicability, Student Support, and Professional Specialist Acquisition at Central Michigan University. Art has more than 35 years of experience in manufacturing and logistics and 12 years of ERP implementation management experience. He is also a published expert in ROI calculation, business process management design, and IT strategy development.
Art’s new book Maximizing Return on Investment Using ERP Applications was published in October 2012 and is available in hardcover and Kindle editions at Amazon.com.