Digital Transformation 101: The Cost of Doing Nothing

Digital Transformation 101: The Cost of Doing Nothing

Investment in digital transformation is a necessity for any business today. However, it is seen as a necessary evil for many organizations rather than an opportunity for competitive advantage.

Because of this, companies face delays in the decision process to acquire new technologies. Budgets and focus move to immediate, more tangible investments, such as new product lines, expanded distribution, and other strategies that hit the top line. Ultimately, under this scenario and without proper IT investment, existing technology becomes stressed to the point that operations and the bottom line take a hit.

When sharing this concept with decision makers at many companies, the immediate reaction is that the necessary IT investments will be reviewed when stress cracks start to show. Sounds simple enough, but waiting until this point violates a key principle we were all taught in business school:
Opportunity Cost.

Once a technology initiative is considered, it takes time to define the strategic approach, time to evaluate development and delivery alternatives, time to prepare internally, and considerable time to implement the technology itself as well as the resulting change impacts to the organization. While this is occurring, competitors that have taken moves to stay current with technology jump ahead in production scheduling, delivery time, client satisfaction and ultimately revenue and profit.

While it may seem cheaper and faster to do nothing, it is probably costing you more. Here are some of the hidden costs of doing nothing:

  • Higher IT maintenance and support costs
  • Operational inefficiencies
  • Lost opportunities to provide better service to your customers
  • Sub-optimized top-line revenue growth
  • Lack of inventory optimization
  • Employee frustration
  • Difficulty hiring employees that may not be comfortable with your dated legacy systems

Cutting organizational change management from your project is another example. Companies often think that this will save them money, but it will actually cost them more in the long term. The benefits lost and operational disruption caused by poor organizational change is typically much more costly than whatever costs may have been saved up front.

Business today moves fast, and decision and action from leadership needs to keep up. Technology is, in many cases a necessary evil meaning you need it to run your business. Ignoring it simply is not an option, and those who act on this understanding will find themselves ahead of the competition.

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.

How to Find the Best Independent ERP Consultants

How to Find the Best Independent ERP Consultants

I’ve been an independent ERP consultant for over 20 years now. I hate to admit it, but my experience so far has left me a bit jaded.

I like to think I’ve always had the best of intentions with clients, but that vision was watered down at my previous venture. Unqualified managing partners and consultants – along with what I would consider poor business decisions – negatively impacted clients, in my opinion. This is why I spun off to form Third Stage Consulting earlier this year.

The good news is that there are a number of questions you can ask to avoid the same traps I’ve seen clients fall into. These will help determine whether or not you are adequately vetting a partner that can influence your level of success in the future.

  1. Are You Really Independent? With the diversity of technologies available as part of your digital transformation, it is important that your consultants are truly independent. Find out if they are partners of software vendors or resellers, or if they have affiliate companies that create conflicts of interest. You’ll want to know that your comparison of SAP S4/HANA vs. Oracle Cloud ERP vs. Microsoft Dynamics 365 vs. other ERP systems is unbiased and not influenced by under-the-table economic incentives.
  2. How Much Hands-On Implementation Experience Do Your Consultants Really Have? I am of the opinion that academic consultants aren’t of much value to most organizations. The best that I’ve worked with know how to marry theory with hands-on implementation experience. Be sure your consultants have implemented multiple types of technology – including the ones you are considering.
  3. How Much Attention Will I Get from Your Managing Partners – and Do They Understand Consulting? You want to know that your organization and project will get the attention of the top brass within your consulting firm. Be sure that you feel comfortable with their backgrounds and ability to help your project – especially when times get tough throughout your journey.
  4. How Much Time Will You Spend On-Site Getting to Know My Business and My Team? Consultants are not effective when they spend more time working from their ivory towers. Instead, they need to be on-site with your team, side by side, learning your culture, understanding the nuances of your operations, and giving you the high-touch experience that you deserve and are paying for.
  5. How Many Times Has Your Firm Been Fired by Clients in the Last 1-2 Years? There’s no better indicator of a consulting team’s abilities than by looking at recent client references. Ask the firm how many times they’ve been fired by clients in that last couple of years. Be very careful of the firm if they have a history of unhappy clients.
  6. How Many of Your Clients Over the Last 1-2 Years Will Provide Positive References? Some consulting firms bask in their glory days of when they used to do good work and use those references to help them win current work. Instead, look for references on very recent projects.
  7. How Much of Your Revenue is Derived from ERP Software Selection Projects vs ERP Implementation? Consulting firms without balanced experience and revenue from multiple phases of an implementation cycle are not credible. You want to know that your consultants don’t just do software selection and pretend to do implementations (or vice versa), so dig into the details of the type of work they actually do. Whether it is experience with SAP S4/HANA implementations, Microsoft Dynamics 365 implementations, or any other sort of digital transformation, your ERP consultant should have relevant hands-on experience.
  8. How is Your Company Perceived Among Industry Vendors, Resellers, and Competitors? Consultants that can’t play well in the sandbox with others are not very effective. Ask around to gauge perceptions among industry peers. If you hear negative feedback, just know that where there’s smoke, there’s usually fire.
  9. What Do Current and Former Employees Have to Say About Your Firm? A disgruntled workforce is one of the biggest detriments a consulting company can have. Read reviews on Glassdoor and Indeed, look at the company’s LinkedIn page to see if the company is growing or shrinking, and maybe even reach out to former employees on LinkedIn to get the inside scoop.
  10. How Much Turnover Have You Experienced Among Consultants and Executives over the Last 1-2 Years? A company with high turnover (more than 10% per year) has underlying issues. Look at the company’s LinkedIn page to find out how many have resigned in recent years. Also, beware of consulting firms with high turnover at the executive ranks.

Your ERP consultant should be on that you partner with for years to come. The best ones will make you successful, while subpar ones can undermine your success.

ERP Software and the Flooded Basement

ERP Software and the Flooded Basement

When budgeting for their ERP transformations, most companies tend to focus on immediately trying to reduce external costs. They then compare what could be handled in-house, assuming that anything run internally will lower costs.

This is simply a bad assumption. In fact, what we have commonly found is that the more companies try to lower and cut costs from the start, the more they end up spending in the long run to fix problems that should have never occurred in the first place.

Bob’s flooded basement

Take the example of Bob, a home owner whose basement flooded a year after moving into his new home. With the intention of saving money, Bob rented water vacuums and humidifiers and cleaned up the mess himself. He actually saved over $2,500 from hiring a mitigation company.

The next summer, rains came again, and again his basement flooded. This time, Bob was getting ready for summer vacation with his family and didn’t have time to again clean things up, so he called in a trusted flood mitigation company. Upon inspection, the mitigation company informed Bob that not only was there damage to the baseboards and drywall, but a mold infestation had begun since Bob neglected to replace the baseboards the prior year. Now he was looking at a $22,000 mitigation, repair and rebuild project.  All for saving $2,500 the prior year.

The value of independent, third-party expertise

We’re not quite done with Bob, but the lesson here is clear. When facing a situation that is outside your expertise, such as a digital transformation or ERP implementation, spend the time and money to make certain you are taking the right approach. There is likely quite a bit you can do internally, but don’t make that call unless you have the necessary experience. There is too much variation and options with technology these days and making ill-informed decisions can have direct impact on a business.

What would an independent, third-party consultant do?

Back to Bob.  Upon completing the mitigation and rebuild of his basement, Bob’s neighbor, John came over to take a look at the work. John, who happens to be a building inspector, shook his head and shared with Bob that his flooding horrors were only going to get worse.

Stepping out into Bob’s backyard, John suggested that the correct approach would be to fix the root cause of the flooding rather than have to mitigate every time they got a good rain. John showed Bob how the slope of his back yard angled toward the house rather than away, and the sloping continues to increase every time it rained. With a little landscaping, all of Bob’s flooding nightmares could be done.

Summary: independent ERP consultants can help make your digital transformation more successful and reduce risk

A few points to summarize:

  • When you are heading into unfamiliar territory, such as an ERP implementation (or flood remediation), take the time and invest in getting proper guidance.
  • Be sure you are aiming your solution to the root cause of failure. This may not be only the technology itself, but could include process or change management as well.
  • Don’t assume expertise just because an ERP consultant calls themselves an expert. Look for true experience.
  • Understand how your “expert” is being compensated and where their motivation lies. In Bob’s example, the mitigation company probably knew he should identify the root cause, but they had no incentive to do so. Bob’s neighbor, on the other hand was a truly independent expert.
When Does a Digital Transformation End?

When Does a Digital Transformation End?

Clients often ask us, “when does a digital transformation end?”

Well, you probably saw this coming, but the answer is never. To be clear, once you begin on a digital transformation, you and your company are locked in for life. It’s like a marriage in the good ‘ol days.

The reasons for this are many, but stem from the fact that technology transformation continues, therefore our adoption of technology must continue. Companies who are successfully transforming into the digital era are doing it with more of an agile approach. They are setting roadmaps with longer-term objectives, but these roadmaps are broken down into clear, short-term objectives, and the overriding roadmaps are then re-evaluated on a regular basis. The more successful project teams build organizational agility into their digital transformations.

Take an Ecommerce initiative for example. A company may begin with the goal of “adopting” Ecommerce, however the competitive landscape surrounding E-commerce is changing every day. Once an Ecommerce solution is selected and implemented, the use of the system needs to be continuously monitored and updated. Mobile applications, changing product lines, marketing initiatives or changing EDI requirements will require updates, additional technologies or processes. Once those changes are made, inventory systems, integrations etc. will need to be modified accordingly, and vice versa.

The same concept remains whether we are talking about ERP, EPM, CRM, data analytics, automation, mobility, etc. With technology changing as fast as it is, it is important to understand how to define a great digital strategy for your organization. This roadmap should articulate how you will adopt new technology, business processes, and organizational changes for the years to come. In other words, a digital strategy will give you some clarity on your never-ending digital transformation journey.

If you feel stuck in a digital transformation, you are, and that’s ok. Take a step back and consider the progress made to date and be grateful that there will always be more to do. If digital transformations were ever truly finished, a good percentage of CIOs, IT Directors, and consultants would eventually be out of work!

Are You Building Organizational Agility into Your Digital Transformation?

Are You Building Organizational Agility into Your Digital Transformation?

Let’s face it: most people don’t associate many ERP systems with “flexible” or “agile.” Structure and standardization is one of the strengths of ERP systems like SAP S/4HANA, Oracle Cloud ERP, and others. But there are ways to create organizational agility as part of your digital transformation.

First, it is important to decide whether or not you really want organizational agility. It sounds good and “agile” is a big buzz word, but standardization and efficiency may be on your mind as well. These two things are in conflict. This could be why the organizational change field is in need of change.

It’s also not a simple, either/or type of answer. There is a whole spectrum in between the two extremes of complete standardization and inflexibility versus total decentralization and flexibility. Make sure you understand where on the spectrum your organization thinks it should be heading.

Assuming you are interested in creating some degree of agility in your organization, you will need an effective organizational change strategy to help you get there. Here are several components that will help you add agility to your project during your digital transformation or ERP implementation:

Organizational readiness assessment

The first step is to get a lay of the land by assessing potential barriers to change during your implementation. For example, a good organizational readiness assessment may determine that communication between departments or previous training gaffes are causing skepticism among employees. It is important to go beyond “are you ready for change?” and other superficial questions to dig into the root causes for resistance to change.

Change impact assessment

Employee training and communication is just the beginning of an effective organizational change management plan. Your change strategy should also begin with defining how people’s jobs will change as part of your digital transformation. It should dive into the gaps between the current state and future state, including how specific individuals and work groups will be affected. Those changes can and should be communicated as they are identified.

Organizational design, skills, roles, and responsibilities

Just as business processes change during digital transformations, so do organizational roles and responsibilities. New processes lead to new roles, which lead to new required skills. The overall organizational design of your organization needs to be defined as part of an effective digital transformation strategy. Your team will become more agile only when you have designed your organization accordingly. This work stream is a critical organizational change strategy for global digital transformations.

Benefits realization plan

Nothing drives business agility and performance quite like a benefits realization plan. As the old saying goes: “if you don’t measure it, you won’t achieve it.” Defining and quantifying how your business will improve is the first step. The next step is to define how those benefits will be realized. This workstream continues as technology is deployed, actual results are measured, and corrective action to address benefit shortfalls is implemented.

Center of Excellence and continuous improvement

Continuous improvement is the capstone of organizational agility. Successful companies don’t end their organizational change efforts when technology is deployed. Instead, they create a culture of constant change. This allows them to adapt to evolving needs. This is most often implemented via a center of excellence, which creates the internal competencies required to drive continuous improvement.

Agility is one of the keys benefits of a successful organizational change plan. Learn more about this and other keys to ERP implementation success by downloading our white paper Lessons from 1,000+ ERP Implementations.

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20 Lessons from 1,000+ ERP Implementations

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