Organizational Change Management: The #1 Key to Digital Transformation Success

Organizational Change Management: The #1 Key to Digital Transformation Success

Over the last few weeks, I have met in person with about a dozen CIOs in different parts of the world. During my discussions with each of them, I conducted an informal survey to find out what was keeping them up at night.

The number one response? By far, it was organizational change management.

Some are troubled by their organization’s lack of understanding of the term (see our related article about what is organizational change management?). Others are aware of the challenges associated with a large digital transformation. Still others have heard the horror stories about ERP failures related to lack of organizational change management.

Whatever the reasons, executives are becoming more aware of the importance of organizational change management. In fact, even some attorneys involved in ERP lawsuits are becoming more educated about the merits of organizational change management. For example, I was just recently retained to be an SAP organizational change management expert witness – a first in my 25+ expert witness cases over the last decade.

Your digital transformation will fail without strong organizational change management

It is safe to assume that your digital transformation will fail without strong organizational change management guidance and support. Of all the failures we have helped recover and expert witness cases we have been involved with over the years, they all shared one commonality: they didn’t address the human component well. The inverse is true for the successes we have been involved with.

You are responsible for addressing organizational change

Your software vendor may provide you with great software. Your system integrator may provide strong functional and technical implementation support. But only you can ensure that organizational changes are properly managed throughout your digital transformation. Companies too often assume that someone else will address this critical success factor for them by default. It’s simply not true.

Your ERP system integrator probably doesn’t have strong organizational change management skills

Even if you want to completely outsource the human component (which you shouldn’t), your system integrator isn’t likely to handle it well. Big system integrators such as Deloitte, Capgemini, and Accenture may be world-class technical implementors, but they typically don’t handle organizational change very well. What little change support they provide typically very tactical in nature. I have found that these system integrators often overlook the more strategic and critical organizational change workstreams.

This video provides a case study of an organization that is in the process of building an organizational change management strategy as part of the implementation readiness stage of their Microsoft Dynamics 365 implementation:

The key components of digital transformation organizational change management

So, what are the things that these system integrators and digital transformation project teams are typically missing? They typically address the obvious ones, such as basic system training and employee newsletters, but that just scratches the surface of what is required for success.

Here are a few things the big system integrators and resellers commonly miss:

  • Clearly defined and documented future-state business processes
  • Organizational design to support those new processes (for example, how are people’s jobs going to look in the future?)
  • Assessing and communicating change impacts to individual work groups and individuals
  • Defining a measurable benefits realization plan for your digital transformation initiative
  • Building an internal center of excellence within your IT department
  • Training your internal team to be more self-sufficient after the consultants leave

What next?

The good news is that – although they are rare – there are good organizational change management consultants out there. I started my career as an organizational change management consultant, so we have built a very strong change competency here at Third Stage Consulting.

Email me at eric@thirdstage-consulting.com or call me at +1-720-837-3604 to pick my brain about how you can better incorporate change into your digital transformation. I’m happy to help!

How to Define the Best Digital Strategy

How to Define the Best Digital Strategy

There is no one-size-fits-all solution to define your digital strategy. Every organization has a unique culture, operations, people, competencies, and technological needs.

On any given week, I interact and consult with at least a dozen different current and potential clients. I come to different conclusions and recommendations for each based on who they are and what they are trying to accomplish. An effective digital strategy is one that is tailored for and aligned with an organization’s specific needs.

I cringe every time I hear a software vendor talk about “best practices” or suggest that their solution is a silver bullet to solve the world’s problems. The reality is that every organization has different needs. This is one of my biggest lessons from over 1,000 ERP implementations.

Here are five steps to enable you to define your digital strategy:

1. Define who you are and where you’re going with your digital strategy

Alignment with corporate strategy and culture is probably the most important aspect of an effective digital strategy. This is even more important than the actual decisions themselves. If your digital strategy is aligned with your corporate strategy and with how you execute the transformation, then you have a high chance of success.

With this in mind, it is important to first define your core competencies and strategy for the future. What is it you are trying to accomplish as an organization? What is your vision for how your operations will look in the future. The answers to these and other questions will set you on the path toward the best digital strategy.

2. Establish clear metrics for your digital transformation

Once you understand where you are and where you’re going as an organization, it is important to define what success means to you. This entails defining your key operational metrics, which should tie to planned business process improvements.

These metrics should also feed into your business case and benefits realization plan. They are also helpful in ensuring project governance and risk mitigation strategies. They will help you justify and optimize the benefits for your potential digital strategies.

3. Objectively assess the pros and cons of your potential digital strategies

Your organization has a number of potential strategic alternatives – all with distinct pros, cons, and tradeoffs. No one alternative will be perfect, so it is important to objectively evaluate each of them. The metrics and business case you’ve defined will help you to evaluate the strengths and weaknesses of each option.

For example, your organization may be considering SAP S4/HANA vs. Oracle Cloud ERP vs. Microsoft Dynamics 365 as potential solutions. Each will have different implementation costs, impacts to your organization, and tradeoffs. It is important to objectively evaluate these very different strategic paths. This is an area that Third Stage Consulting can help.

4. Build an organizational change management strategy to support your digital strategy

Your digital strategy won’t mean much without an effective organizational change management strategy to support it. Defining this important human component of your transformation is one of the most important inputs and determinants of success.

I have written other blogs about how to define your organizational change plan. To summarize, your organizational change plan should address organizational readiness, change impact, organizational design, and other critical activities that most project teams and system integrators don’t think about.

5. Define a transformation plan that is aligned with your digital strategy

Now that you have defined your potential options, it is important to define how exactly those strategies might unfold. In other words, you need to define your implementation plans for each. This will help you define the overall strategy and costs of each potential option.

This should also entail defining project governance and measures of success. These should remain aligned with your overall corporate and digital strategy as defined so far.

Conclusion

The best digital strategy for your organization probably looks unlike the best ones for most other companies. There are no generic answers, so it is important to objectively define what works best for you. This is an area that Third Stage Consulting can help.

Lessons from the National Grid v. Wipro SAP Lawsuit

Lessons from the National Grid v. Wipro SAP Lawsuit

Just after writing about the well-publicized SAP failure at Lidl, news broke about a settlement in the National Grid v. Wipro SAP lawsuit. Long story short, Wipro agreed to pay $75 million to National Grid to settle the case. (Read the original article here).

Overview of the National Grid v. Wipro SAP Lawsuit

Since I am a frequent SAP expert witness on the most well-publicized SAP lawsuits, I took a particular interest in this case. Here are some of the key facts regarding the situation:

  • National Grid spent close to $1B in total costs on their SAP implementation
  • National Grid paid Wipro over $100M in services to support the implementation
  • They also had Ernst and Young helping with the implementation
  • By the end of the project, the company was spending roughly $30M per month supporting the upgrade to SAP
  • After go-live, National Grid’s period-end close process ballooned from 4 days to 43 days
  • National Grid’s post go-live accounts payable processes resulted in 15,000 unpaid supplier invoices

What Can We Learn from the National Grid v. Wipro SAP Lawsuit?

Most SAP implementations are difficult, but this one clearly got out of control in a big way. There are some lessons here that we can all apply to our projects, whether that be an SAP S4/HANA implementation or any other ERP implementation or digital transformation:

  • Choose the right ERP software. You may be considering SAP vs. Oracle vs. Microsoft Dynamics for your digital transformation. Or perhaps you are considering Infor, NetSuite, Workday, or some other solution. Whatever the case may be, you will want to make sure you choose the right technology for your organization.
  • Choose the right SAP system integrator. You may be considering SAP system integrators, such as Deloitte vs. Capgemini vs. Accenture or other firms. There are a lot of them out there, ranging from the conglomerates to the niche players. Either way, be sure to find the one that is the best cultural fit for your organization and its needs.
  • Put the right project governance and controls in place. There is no reason this project should have spiraled out of control the way it did. Proper project governance, controls, and risk mitigation would have likely prevented this disaster. Invest in third-party, independent SAP or ERP project quality assurance as an insurance policy.
  • Remember that you are in charge of your project – not your system integrator. You may not be the SAP or ERP experts in the same way your system integrator is, and that’s okay. But that doesn’t mean that you aren’t responsible and accountable for your digital transformation. Rely on independent experts such as our team at Third Stage Consulting to keep your system integrator and overall project on track.

Conclusion

The final lesson above is the biggest one: this is your project. It’s not your system integrator’s project. It’s not your software vendor’s project. It’s yours. You are the one who needs to make sure things stay on track and deliver the true transformation you are looking for.

If things aren’t going well, then fix it before it’s too late. Better yet, take the proper steps to ensure these sorts of problems don’t occur in the first place. When compared to the time and cost of cleaning up an ERP failure, it’s a lot cheaper and faster to implement technology right the first time.

The Missing Pieces of Your ERP Organizational Change Management Plan

The Missing Pieces of Your ERP Organizational Change Management Plan

The term “organizational change management” has many meanings. Some understand it. Most don’t. And most ERP implementations fail because of it. Because of their failure to understand what is organizational change management, most digital transformation initiatives lack a solid ERP organizational change management plan.

We find that most project teams and systems integrators recognize the need for the basics. Employee training and basic communications are two of the most common activities. These two things unfortunately barely scratch the surface of what is required to effect real and lasting change. Much more is required to make digital transformations successful.

Here are five things that are probably missing from your organizational change management plan. They should be integrated into your transformation if you want it to be successful.

1. Skills assessment and organizational design

System integrators such as Deloitte, Capgemini, and Deloitte view organizational impact at the software / transactional level. However, there are broader changes to job descriptions and required skills that extend well beyond software workflows.

For example, customer service reps may not have access to much more customer history and predictive analytics. How should they be using this information to perform their jobs more effectively? What will they do with the time they save from not having to manually search for information? These questions need to be clearly defined so the organization is aligned with the implementation, and vice versa.

2. Implementing organizational changes prior to your ERP implementation

Contrary to popular belief, there is no need to wait until for new software to go-live before implementing some process and organizational changes. Chances are, some operating procedures can be effectively implemented even before the software. The benefits of this proactive approach are numerous. The primary advantage is that you are able to phase changes over time rather than overloading the organization with mass changes on the day of go-live.

3. Cultural transformation within your organizational change management plan

Most people don’t equate digital transformation to culture. But, the changes to your culture are a lot more significant than you think. We have written about how culture is the most overlooked component of organizational change strategies. This is especially true for global digital transformations.

Think about a retailer embarking on a digital transformation or ERP implementation. A recent client of mine decided to leverage technology to help them better compete with Amazon via an integrated omni-channel strategy. This required different ways of thinking and acting – not just a new way of using a back-office ERP system. It is important that your organizational change plan include dedicated strategies to help transform the culture of your company.

4. IT transformation and center of excellence

Digital transformations have significant impacts on your IT department. This is especially true for big SAP S4/HANA, Microsoft Dynamics 365, and Oracle Cloud Suite implementations. Your IT organization needs to develop new skills and competencies to support this new technology going forward.

This is where organizational change management can help. It is important to identify the skills required in the future, and in some cases, which jobs may need to be created to build the necessary competencies. In addition, effective organizational change management strategies will ensure that the IT group is part of a cross-functional center of excellence that supports ongoing improvements to the company’s operations going forward.

5. Benefits realization

Organizational change management is often viewed as a “soft” competency that isn’t really required. This is one of the biggest misconceptions of this critical domain.

Organizational change is one thing that has a material impact on tangible business results. Moreover, you can’t achieve what you don’t measure. The goal of your organizational change management plan should be to bridge the gap between the intangible side of human change and measurable business benefits. This is where a robust benefits realization plan can help keep your team focused on the highest-value improvements that will transform your business.

Conclusion

In many ways, organizational change management is the missing link in most digital transformation and ERP initiatives. My experience as an SAP expert witness and as a Microsoft Dynamics expert witness shows that organizational change is one of the most critical root causes of success and failure.

Contact me to discuss what your organizational change plan might look like for your organization. I’m happy to help.

Lessons from an SAP Failure at Lidl

Lessons from an SAP Failure at Lidl

By now, you may have heard about Lidl, the German retailer than spent 500M Euros ($580M USD) on their SAP failure. As painful – and unbelievable – as it is to read about, there are some good lessons from SAP failure that we can take away from this story.

I generally prefer to focus on the positive and learn lessons from SAP S4/HANA implementations that haven’t failed. However, looking at extreme cases of SAP failure often underscore why critical success factors and implementation best practices are so important. It also shows how important it is to have a strong implementation team to help you through the process.

Here are five lessons that we can learn from this SAP failure. These lessons are relevant whether you are implementing SAP S4/HANA, Oracle Cloud ERP, Microsoft Dynamics, or any other ERP software:

1. Organizations are often unwilling to change the way they need to, which can lead to SAP failure

The story cites an interesting example of how the company refused to adapt to SAP’s standard inventory management based on retail price, versus Lidl’s tradition of basing on purchase price. I don’t know how big of a deal this was to Lidle, or whether they could have realistically been expected to change, but it shows how even the smallest details can disrupt a project.

It also underscores the damage and risk that can be caused misalignment between business operations and software functionality. If not managed correctly, digital transformations can get sideways very quickly as a result. Organizational change management is one of the most important ways to reconcile these inevitable differences that every ERP project faces.

2. Software customization can lead to SAP failure

Along those same lines, customization is a risky way to reconcile your off-the-shelf ERP software with the realities of your business. Our research shows that 90% of organizations customize their ERP software to some degree. But, should they? That’s a different question.

Customization creates headaches by breaking other parts of the software, introducing risk to implementation, and making ongoing maintenance very difficult. It is important to have stingy project governance processes in place to validate and rationalize any requests to change the way the software was initially built.

And here’s an important takeaway: too much customization is often a symptom of not having a good enough organizational change management strategy and plan in place. Ensuring you have SAP implementation readiness is an important way to mitigate this risk (learn more in the below video).

3. Choosing the best SAP system integrator is important, but not the only answer

Choosing the best SAP system integrator is important, whether it be Deloitte, Capgemini, Accenture or another firm. However, this is just one component of a successful ERP project. It is important to not have blind faith in your integrator, because they won’t solve all of your problems, either.

4. The trickle-down effect of executive misalignment can lead to SAP failure

Lidl experienced quite a bit of executive turnover throughout their transformation. It is difficult to maintain alignment and momentum against this backdrop. As executive priorities and personalities change, it is highly likely that your ERP project will become misaligned with those new people. This is where projects often fail.

No one wins when a project is misaligned with executive priorities. Resources aren’t committed to the project the way they need to be. The project team lacks clear direction. Project and software decisions don’t tie into bigger-picture business decisions that need to be made. I could go on, but the point is that executive misalignment can derail projects like these.

5. SAP software works

According to SAP, 80% of the retailers in the Forbes Global 2000 are SAP customers. This suggests that grocers like Lidl are successfully using the software. Even setting this statistic aside, there are thousands of organizations that are successfully operating on SAP S4/HANA and other legacy versions of the software. Simply put, the software works.

The more relevant question is: does or can SAP software work for your business? Are you willing to do the hard work required to reconcile the inevitable differences between your business and the vanilla software? This is where so many organizations fail. It sounds like Lidl was one of them.

Conclusion

In my years analyzing failures as an SAP expert witness, I have seen more than my share of disasters like this one. The good news is that failure can be avoided. It all comes down to how you plan and execute proven best practices.

Here are few of them: our lessons from 1,000+ ERP implementations.

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20 Lessons from 1,000+ ERP Implementations

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