Sep 6, 2011

ERP Journey - Risks faced by an SME

So you are the Owner / CEO / CIO of an SME. You have heard a lot about the benefits of having an ERP in your organization. You have heard that it will bring in data integrity and efficiency to your operations. You can't wait to start..

Wait a sec, have you considered the following risks.

Small enterprises like yours face some typical risks while embarking on your ERP journey. The risk start at the time of evaluating the ERP and could, if not mitigated effectively, potentially go on for years after you have attained that holy grail of all implementations, vis. go live. Let us take a look at the top 10 risks that you may face in your ERP implementation journey.

1. Process Knowledge Risk: While your enthusiasm to go for ERP is appreciable, take a step back and see if you know your business processes. Do you know who are your top 10 customers, do you know how your balance sheet is generated, do you know the various statutory rules that apply to taxation for your industry, do you know the different types of items you purchase, do you know the conceptual / theoretical process of manufacturing key products, do you know how cost is calculated and tracked in your organization

Do you know.....

All right, you are the Owner / CEO / CIO, you are not supposed to know the details of these processes. But the question is does your Organization know these processes. Of course, there are people in your organization who know these processes. The key question is, is there anyone in your organization who know the integrated business processes in your organization? If the answer is yes, then, let me say this, you are very lucky. Get that person to quickly document the business process. If needed, get an expert to sit with him and get your processes documented. If you have documented your processes, you have crossed the first hurdle and mitigated the first risk. There is a good chance that your ERP implementation will be successful.

2. Pain Points Knowledge Risk: Do you know which are your top five, ten pain points? I have seen many organizations deciding to go for ERP implementations only because, either, their headquarters told them to do so, or, because their competitors have gone in for ERP. For them ERP is just another IT application like, say, MS Office, Excel or that tax application your internal auditor uses once a while. They do not have any clear expectations from ERP. They do not have a clear objective when going in for implementing ERP. If you do not know your pain areas, the chances are high that they will not be addressed during the implementation.   Know your pain points, and have a clear measurable goal of incrementally reducing the pain points during and after the ERP is implemented.

3. Product Risk: So which product are you going to choose? Oracle? SAP? Any other? A friend of mine, who owns an SME company which implemented ERP, told me that while they were looking out for ERP, they did not have any awareness of any other ERP applications being available (other than SAP and Oracle) out there. This is a typical problem being faced by SMEs. Lack of information about product options means that you run the risk of choosing an application which may not be a fit for your organizations. SME industry being fragmented as it is, there is no single source of learnings related to ERP procurement, lessons learnt etc.

4. Product Versions Risk: So finally you have decided to go for a product. The next risk relates to the product version that you want to procure. As an SME, you will not be able to handle the implications of wrong choices. In percentage terms, a wrong choice could lead to significant monetary impact for your organization. There will be pressure from those in your organization to go for the latest version. After all that is the product direction and the vendor will be giving you good discounts to buy the latest version (they want 'early adopters'). Please remember that buying ERP is not like buying a consumer durable or a music system. The bigger / the latest may not be the better 'for you'. I think that it makes sense for you to go for a tried and tested version. After all, you are not a Fortune 500 company ( at least till now, who know what can happen once ERP is implemented)

5. Consultants Competence risk: As an SME, you may not be able to afford the TCSs and Infys of the world. This means that you have to go with smaller partner organizations. This decision entails its own risk. The smaller organizations may not be able to attract and retain talent. They may not have sufficient number of senior consultants with thorough implementation experience in SME sector. The consultants may not have enough business experience or will not be able to understand your business requirements. Or the consultants may leave midway through your project leaving you high and dry and unable to cope up with the time and cost overruns that entail as the implementation partner searches the market for a new consultant and then the new consultant takes his own time understanding your business process and the status of your implementation.

How do you handle such risk? One way is to modularize your implementation. Divide the project into optimum number of  Stop Gates where you can take a 'Go - No Go' decision. Each Gate should have its own documented deliverables. The implementation methodology of most of the big application vendors automatically considers these 'Stop Gates'. If the methodology do not (consider these gates), insist that the implementation partner divide the project into suitable number of manageable milestones ('Stop Gates') with their own deliverables.

6. Internal Knowledge Risk: As an SME, chances are that there are only few resources in your organization possessing an Organization wide process knowledge. While these resources are valuable to you, remember that these resources will be much more valuable to the ERP ecosystem (competitors, Implementation Partners, Product Companies, Consulting Companies) once your implementation is completed. In case you have depended a lot on these resources to drive your implementation, without ensuring that the knowledge is transferred across the organization (building up internal capabilities), you run a serious risk of breakdown once the application / implementation goes live and the resources leave you.

How do you handle such risks? There are many ways to do that. First, as I mentioned before, is detailed documentation of the Business Process, the solution, the configuration, user manual, user training etc. Another way to handle it is to have multiple resources tagged to the main resource. As an SME you may not be able to afford that. Another way to handle this risk is through the use of an expert partner who can provide continuity for your implementation in difficult times.

7. Localization knowledge risk: As an SME your exposure and impact of this exposure to local taxation rules is much more significant than, say, a large enterprise. This means that solution of country / tax localization is a very important aspect of your implementation. The statutory / localization might have three types of implications / impacts in the order of increasing risk and complexity. They are one, reporting impact, two,  transaction & reporting impact and three, transaction, accounting and reporting impact. The ERP application should support country localization. If not, the implementation partner should be able to suggest an acceptable solution for country localization. In this case it is very important for you (as the implementing organization) to be aware of the key requirements relating to your localization / statutory reporting. Ability of the application to meet these requirements should be a key criteria in deciding on the application to procure.

8. Period Closing Risk: Other than going live, the main milestone in any ERP implementation is the Closure of the first period. This activity entails many sub activities and is very significant to external reporting. At the beginning of the project itself you should be aware of how much time you are taking to close the period (both month and year). You should have a clear KPI to reduce this value post implementation. You could say something like 'Currently  we close the month on the 10 of the next month and the year by the 20th of February every year. After ERP is implemented I want the month closing to come down to 5 days in the first year, 3 days in the second year and target 'one day closing' from third day onwards'. This will give you a powerful statement of direction for your ERP implementation.

9. Continuous Support / Maintenance Risk: Once you have gone live on ERP, you are bound to face issues, both major and minor, on an ongoing basis while using your ERP application. To resolve this you will require continuous support. No problem, many vendors offer you continuous support (at a fee, of course. In case your vendor do not have a dedicated team to support you post your go live, reject them during the procurement stage itself.
Assuming that your vendor has the necessary support available, the problem doesn't end there. Most of the technical support teams do not understand business, but understand only technology. So to interact with them, you have to be technology savvy. And that is a problem for an SME like you, who would rather invest your time on improving business, rather than learning technology.
How do you handle this? I wish there were easy answers. There are none. If you train some of your staff on technology, they are bound to quit sooner or later. To counter this attrition, you have to continuously have a pool of tech savvy resources. Training your resources on technology is not what you are there for.
You could outsource this aspect of operation. However, it is not very easy to find agencies / organizations that are into such activities. And they come at a price.

10. Lack of support knowledge risk.: In addition to knowledge of technology, you also need to be aware of your sources of support. There are vast sources of support for your problems available in the internet. There is the Vendor's portal, Vendors support portal, Vendor managed user forums, independent user forums, Specific business communities, generic technology communities (like IT Tool Box) and individual consultant blogs (like the one you are reading) available out there which can provide you with the knowledge and support that you require, often free of cost or at a nominal cost.
The problem is again the tech savviness of the organization. If the senior management and the key team are inquisitive, open to learning and open to embrasing technology, then you have a significant advantage in running an efficient and effective ERP application

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