What is ERP implementation?
Choosing an enterprise resource planning (ERP) system is only the beginning. From preliminary preparation to post-migration, following best practices for implementing ERP helps companies avoid pitfalls and steer clear of avoidable costs and risks.
ERP implementation overview
The first thing to understand about an ERP system implementation is what ERP is: enterprise resource planning. The simplest way to define ERP is to think about all the core business processes needed to run a company: finance, HR, manufacturing, supply chain, services, procurement, and others. At its most basic level, ERP is software that helps efficiently manage all these processes in an integrated system—that’s why it’s often referred to as the system of record for the organisation.
Without an effectively implemented ERP system, businesses face many siloed processes and legacy systems that lead to prolonged, error-prone reporting cycles; limited access to real-time data; and no reliable single source of truth. That’s why—no matter the size of the company—business leaders choose to deploy an ERP system: to help them gain a competitive edge and optimise their operations while reducing risk.
But integrating an ERP system into a company’s processes and IT environment can be a monumental task. It’s important to know the benefits, potential pitfalls, and best practices for implementation before getting started.
Business benefits of implementing an ERP system
There are numerous benefits to implementing an ERP system—particularly a cloud-based one—and they vary from business to business. A professional services company, for example, has very different reasons for choosing an ERP system than a manufacturing company.
But these three positives of ERP implementation apply to just about every organisation:
Delivers actionable insights in real time: Steering the business in real time is challenging when information is difficult to access and act upon. Implementing an ERP system helps business leaders centralise data, continuously monitor a company's financial position, and manage reporting—even in a tough and ever-evolving business environment.
Increases operational efficiency: Managing the business using disconnected systems that rely on manual intervention is not only expensive and labour-intensive, but also leads to errors, delays, and dissatisfied customers. Automating manual processes with an ERP solution saves time, reduces effort, lowers costs, and helps increase profitability.
Simplified deployment, use, and maintenance: Keeping up with technology advancements gets complicated when an organisation operates in multiple geographies that aren’t fully supported or in line-of-business silos that don’t stay in step with change. Deploying a cloud ERP makes updates scalable, automatic, and available everywhere.
ERP implementation strategies
When companies think about system implementations, they often start by considering desired features. But new features or technologies are not the core issue; what a business needs for growth are modern business processes that enable agility and responsiveness.
However, existing processes tend to be inflexible, sluggish, and incapable of meeting business needs. Even when proven and cost-effective processes are in place, they need to be updated frequently to meet evolving needs or be enhanced with new capabilities such as AI, mobile access, alerts, and business intelligence. It’s important to keep those processes at the core of the implementation plan. It’s also worth noting that the more complex the enterprise, the more comprehensive and sophisticated the approach to implementation will be.
Here are four general strategies for how companies of all sizes could approach an ERP implementation project:
- Big bang: Implement a system or process in its entirety, all at once. This method is often used when transitioning from an old system to a new one, where everything switches over simultaneously. While this approach can lead to immediate benefits and reduce the need for parallel operations, it also carries significant risk. Any issues that arise during implementation can have widespread impacts, and the sudden change can be overwhelming for users and stakeholders. The big bang approach is often chosen when time constraints or the nature of the project make phased ERP implementation impractical.
- Phased rollout: Gradually implement a system or process in stages, often across different departments, locations, or user groups. This method allows for careful monitoring and adjustments at each phase, reducing the risk of widespread disruption. By spreading out the implementation, organisations address issues as they arise and learn from each stage before moving on to the next. Although it takes longer to fully implement the system, this approach enables smoother transitions and greater user acceptance. It's especially useful in complex projects where full-scale ERP deployment carries significant risk.
- Pilot implementation: Introduce a new system, process, or product on a small scale, often in a controlled environment or with a limited user group, before a full-scale rollout. The primary goal of a pilot is to test the system's functionality, identify potential issues, and gather feedback from users. This approach allows for adjustments and refinements before broader deployment, reducing the likelihood of failure in the full implementation. A successful pilot can build confidence among stakeholders and serve as a proof of concept for larger-scale ERP adoption.
- Hybrid approach: Combine elements from multiple implementation strategies, such as the big bang, phased rollout, and pilot implementation to tailor a plan to specific project needs. For example, an organisation might use a phased rollout for core functions while simultaneously piloting new features in select areas. This approach offers flexibility, allowing for adjustments based on real-time feedback and evolving circumstances. By leveraging the strengths of different strategies, the hybrid approach mitigates risks, optimises resources, and increases the likelihood of successful ERP implementation.
The role of the ERP project team
No matter the strategy, one up-front element is perhaps more critical to ERP project success than any other: the team itself. Case study after case study of ERP implementations tell the same story. The make-or-break factor for implementation success is the implementation team—the people shaping the project from the very start.
That’s because great ERP software is great only if implemented by a strong team. If people lack the time, support, or skills to do the job effectively, they won’t be successful—and the project could suffer from delays, additional costs, and/or software that fails to meet the company’s needs.
Companies that experienced setbacks or failures often assigned staff who “had the time” to work on the project. But an ERP project requires recruiting the people that “you can’t do without.” These are the busy people who know the business processes, work well with other members of the organisation, and have the respect of executive management. These people should be dedicated to the project full time (40 available hours), or as many hours as possible per week.
No one who is unable to dedicate at least 25% of their weekly time (minimum 10 hours) should be added to the key project team. Team members spending less than a quarter of their time will barely be able to catch up on project activities, much less add value to the project.
Executive support for the team is also critical. In every major ERP implementation, decisions must be made regarding priorities and resourcing trade-offs. Without strong support and commitment, even the most qualified teams can flounder.
Getting a modern ERP system implemented quickly is one of the most significant things a company can achieve, and having the right people involved from project inception onward is essential.
Steps for planning a new ERP implementation project
Every ERP project inevitably encounters unexpected issues. But adhering to best practices for a successful ERP implementation can identify and address problems as they arise, helping manage risks and costs.
It’s vital to schedule the implementation sequence realistically, always considering the availability of the leadership team, managers, and in-house experts who contribute to the effort. Be sure to prioritise needs to focus on the big wins while building a core software and technology base that can expand with business needs.
The main steps involved in ERP implementation planning
Although the detailed end plan and key performance indicators (KPIs) are tailored to specific business requirements, the following key activities are common steps in all successful ERP implementations:
Best practices for planning a new ERP implementation
1. Select a software and services partner to help in implementation.
After the ERP software research and evaluation process is complete, it’s time to select a partner to help implement the selected system, as most project teams are not very experienced in implementing ERP software. Search for a qualified ERP implementation consultant with intimate knowledge of and experience with the selected ERP application. Confirm that they understand how the new ERP solution supports current and evolving business processes, including interviewing their references for verification of their expertise.
The partner should have staff trained in the specific industry and available in the necessary locations. For international customers and suppliers, make sure the partner has the multinational business, language, and currency skills needed to streamline implementation. Finally, review the project management software that the firm uses to make sure that it is compatible with the existing internal planning, scheduling, and tracking system.
2. Detail all project tasks.
An ERP implementation partner helps develop a detailed task list of everything that needs to be done.
This list is extensive—training alone, for example, includes many tasks:
Project team training: The ERP project team needs to learn about the software so that they can decide how to customise business processes.
IT team training: The IT team must be educated on how to optimally install and maintain the ERP system.
Business user training: Every end user of the ERP software must learn how it works.
Ongoing training: New users need training as they join the company, so a longer-term onboarding plan needs to be in place.
The list of tasks should be divided up into phases. Time should be allocated for the conference room pilot, customisation of the application, integration to other applications and data sources, infrastructure implementation, data cleansing, user acceptance, and so on.
3. Calculate work hours.
Carefully estimate the amount of time it takes for every task. Consider the work involved in each task, and then assign the number of “work hours” required, even if it’s just a range of hours. Add up the work hours for each phase of the ERP project and assign the project team member responsible for getting it done.
This can be a formidable task; that’s why it’s important to involve an implementation partner familiar with the particular ERP solution. This step is essential for accurately calculating the timeline, determining if the current team requires help, and limiting scope creep.
4. Create a realistic schedule.
After tabulating the work hours available and required, create a manageable schedule. In many cases, the first pass reveals a capacity problem when compared to the implementation timeframe that was originally presented to executives.
Here is an example calculation that illustrates the potential discrepancies:
Target go-live time frame = 12 months or 1 year
Total number of work hours available in a 12-month period = 540/week or 28,080 hours/year
Total number of work hours required to implement = 42,000 hours in total
Hours required divided by hours available per year = 1.496 years
The result? Go-live date is already missed before the project even begins. Some possible solutions include:
Reducing the scope—even though the team has agreed that these are essential tasks
Extending the date to a realistic one
Adding more internal and external resources (more work hours available)
Breaking the project into phases
This is where the executive management team needs to make the decision. It’s just one example of why they should be involved in the ERP software selection and implementation process.
5. Conduct a conference room pilot.
After kick-off, conduct a test run or a pilot (in a conference room) before full rollout. This conference room pilot ensures that the proper business processes are in place for the current and future needs of the company. As new processes are designed, it’s important to understand the range of options available in the ERP system—and to validate processes with the project team and stakeholders from the user community.
In this multi-week phase, the ERP implementation partner installs pilot software that allows a test-drive of all processes to make sure that they work as expected, with no surprises. Applying best practices at this point often saves time, particularly if configuration tools can make adjustments for process refinements.
6. Cleanse the data.
It sounds simple, but data cleansing is a very time-consuming activity. It’s best to start assessing data accuracy as soon as possible because it takes a great deal of effort to complete this step correctly. During the project, business process changes occur—so be prepared for additional data management steps during the implementation.
7. Keep everybody informed.
On a weekly basis, a project team member should contact all the key stakeholders so that they know the positives and “not-so positives” of the implementation project progress. The worst scenario is when people are not kept up to date and are taken by surprise. Most project management systems can provide visual representations of the ERP project’s progress.
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The Cloud ERP Playbook podcast
Hear advice from industry leaders who’ve successfully transitioned to Cloud ERP.
Prioritize processes and capabilities that matter most
Because not all businesses have the same issues, it’s best to review all relevant business workflows and flag which procedures to address first.
Here’s a list of high-value areas to consider:
Finance and accounting: Accurate, real-time financial transactions, KPIs, and analytics are critical to every business, and they must span all locations and departments. In addition to accounting, they must be integrated with costing, budgeting, forecasting, projects, asset management, compliance, and cash management.
Supply chain management (SCM) and manufacturing: Tight schedules, low margins, and supply chain disruptions challenge every business. Managing them requires a team effort—working with suppliers, carriers, import/export firms, banks, and other partners—often on mobile devices across many locations.
Customer relationship management (CRM): CRM processes typically touch every part of a business. Direct sales, distributors, retail showrooms, e-commerce, and customer and field service all need to be able to share customer information with order management, operations, purchasing, engineering, accounts receivable, and shipping.
Human resources (HR): Managing a diverse workforce is challenging, and HR teams need immediate, secure access to HR systems that contain employee information for payroll, benefits, budgeting, scheduling, and compliance needs. In addition, employee recruiting, development, and retention are a big part of evaluating current and proposed business plans.
Business intelligence, including management alerts and dashboards: The line-of-business team needs fast updates on business issues, as well as the ability to easily drill down into the details to resolve matters quickly—in the office, at home, or on the road. Built-in business intelligence and data that live in a single database are essential elements.
Multinational languages, currencies, and locations: As a business expands, particularly into new regions or countries, the ability to open and expand new operations consistently and quickly becomes even more important. This requires broad and advanced ERP software capabilities, as well as consistent services from the software provider in each location.
Mobility: The requirement for employees to access information when they work remotely is inherent in the modern work model. A cloud-based ERP solution gives anywhere access to business systems.
Tips for reducing ERP implementation risks
All software implementation projects involve an element of risk, but the following five tips are valuable for improving the chances of an on-time, on-budget ERP project completion:
- Select software, business process, and implementation partners with industry and local know-how. Always interview references from similar businesses/industries.
- Don’t stretch outdated technology beyond its limits. Eliminate old, outdated, standalone systems and, as much as possible, consolidate data into a single database (single version of truth) with built-in business intelligence for global access and consistent performance.
- Verify that the selected ERP vendor has cloud integration capabilities and expertise with supplier networks. In the digital economy, businesses must often integrate systems across business units as well as outside with customers and suppliers.
- Avoid project scope creep. It’s common to discover needs and opportunities during an ERP implementation, so it’s important to manage change orders to avoid delays and cost overruns.
- Confirm that the ERP vendor can provide consistent expertise across all business locations. Training, implementation, and support are a must—and often come from a combination of local management, software distributors, consulting firms, and the software partner.
Tips for avoiding extra ERP implementation costs
A new ERP system investment includes a company’s time commitment, business process and implementation consulting, software, and cloud services as well as end user devices and other hardware, making it important to control the project and the costs.
Here are some key areas to track:
Keep the focus on the total cost of ownership (TCO). Manage total costs and benefits over time to minimise expenses and maximise the return. ERP system implementations will have a big impact on the business.
Match the business direction and do not force unnecessary process changes. In many cases, companies are pressured to change how they operate to fit their ERP software, increasing both implementation and operating costs.
Focus on the routine business processes that provide significant value to the company. Managing customer orders, updating pricing, adding new products and services, changing manufacturing details, and onboarding new employees are examples of such routine processes.
Avoid customisations and capitalise on a configurable user interface, dashboards, alerts, workflows, business intelligence, and mobile capabilities. These competencies streamline work for all departments as well as aid in making fast, cost-effective adjustments as needed.
System hacks and data breaches are expensive. When using the internet, use a secure cloud ERP solution where appropriate—confirm that the software and service suppliers support a range of secure software deployment options.
Measuring the ROI of an ERP implementation
After an ERP is implemented, the inevitable question for every company is: “Did we get what we expected out of this investment?”
Calculating the ROI of an ERP implementation involves evaluating both the tangible and intangible benefits the system brings against the total costs incurred. The process starts with identifying KPIs that align with the organisation’s strategic goals, such as improvements in operational efficiency, reduced inventory costs, increased sales, and enhanced decision-making capabilities. These KPIs should be tracked before and after ERP implementation to gauge the system's impact. For example, if the ERP system streamlines inventory management, leading to a reduction in carrying costs and stockouts, these savings can be directly linked to the ROI calculation.
It's also crucial to compare the cost savings and revenue improvements against the total cost of ownership (TCO) of the ERP system. This includes not only the initial investment in software and hardware but also ongoing costs such as maintenance, training, and system upgrades.
Finally, it's important to recognise that some benefits of ERP implementation—such as improved data accuracy, better compliance, and enhanced customer satisfaction—may not be easily quantifiable but still contribute significantly to the overall success of the business. Including these factors in a balanced scorecard approach can provide a more comprehensive view of the ERP system’s ROI, ensuring that the evaluation reflects both immediate financial gains and long-term strategic advantages.
When is ERP implementation complete?
An ERP implementation is technically considered complete when the initial implementation goes live, allowing businesses to start using the new system for their day-to-day operations. However, it's important to note that even after the initial go-live, businesses should continue enhancing their ERP system with additional capabilities to meet opportunities such as new locations, product and service lines, and acquisitions. Therefore, while the initial ERP implementation marks a significant milestone, the implementation process is really a continuous journey of optimisation and innovation.
An evolving technology landscape also provides additional possibilities for businesses to team up with customers and suppliers and redefine how business is done in specific industries. These digital transformation projects often include new technologies such as machine learning and artificial intelligence (AI), as well as integration with equipment and vehicles using Internet of Things (IoT) technology to improve speed and efficiency.
Learn more about ERP implementation
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Whether you’re adopting your first ERP or migrating from an existing on-premises application to the cloud, SAP has the right cloud ERP for you. SAP S/4HANA Cloud is ERP for every business need—from mission-critical operations to AI-driven business-model innovation.