Infocrossing Executive Brief

Avoiding Blind Spots in ERP

Risks and Strategies Mid-size Companies Need to Know
by Kathleen Goolsby

www.infocrossing.com
Copyright 2005 Infocrossing, Inc. All Rights Reserved.
Infocrossing and the Infocrossing starburst logo are trademarks of Infocrossing, Inc.

Infocrossing Executive Brief

Executive Overview
Tantalizing efficiency and profitability gains are the promise of Enterprise Resource Planning (ERP) systems.
But they come with special risks for mid-size companies, and understanding how to avoid the blind spots
and capture the promised benefits can be an enigma.
This paper takes an up-close look at the use of ERP software in mid-size companies, assessing the unique
challenges and identifying strategies that enable the desired return on investment (ROI).
The paper answers questions mid-size companies need to know, including:
What are the greatest threats to achieving ERP ROI in mid-size companies?
What steps can mid-size companies take to avoid derailing their ERP implementation projects?
What is the best way to ensure an ERP implementation is optimized for long-term benefits and
shareholder value?
What tactics work best for effective decision-making on ERP solutions?
Is there a best-practice methodology for implementation?
What role does outsourcing play in achieving ERP ROI?
Armed with the information and actionable steps in this paper, executives in mid-size companies can take
full advantage of the promise of ERP systems.

Copyright 2005 Infocrossing, Inc. All Rights Reserved.

Infocrossing and the Infocrossing starburst logo are trademarks of Infocrossing, Inc.

Infocrossing Executive Brief

Risks Surrounding ERP in Mid-size

Five trends have caused an increase in ERP implementations since the 1990s: (1) tremendous growth in
data volumes/transactions per day, (2) increased utilization of customer relationship management systems,
(3) increased utilization of supply chain management systems, (4) growth in eBusiness driving decreased
response times and the need for integrated processes, and (5) ERP software vendors strides in adding
value that appeals to the mid market. However, many ERP implementations fail to improve the business
performance and yield the promised returns on investment.
ERP implementations are notoriously resource intensive, highly complex, time consuming, and unpredictable
in cost, even for large enterprises, and more so for mid-size companies. The primary challenge that often
leaves mid-size companies marooned when it comes to ERP is that such companies usually operate very
lean. Thus, they have smaller budgets and smaller information technology (IT) staffs. They seldom have in
house the critical IT skill sets around ERP; this risk factor quickly becomes a major cost exposure. Additionally,
they seldom are able to free time of their users to focus on the steps necessary to ensure that the new ERP
is configured and rolled out in a fashion to best meet the business needs of the company.
Cost Risk #1: Lack of ERP skill sets will impact a company first in
the implementation, with system glitches that cause costly delays.
Moreover, glitches have a tendency to turn an ERP project
into an IT project when, in reality, successful ERP projects are
business-process driven, with business executive commitment to
getting it done. Because of the glitches, few mid-size companies
can implement ERP products within a reasonable timeframe. The
inability to execute with speed adds to the cost.
Cost Risk #2: ERP environments continually evolve, with software
vendors adding more features and functionality but also more
complexity for the IT team. Mid-size companies IT skills seldom
can keep up with the fast pace of change in the software, which is
a high risk, given the fact that the business will become increasingly
dependent on business-critical ERP applications. The dilemma of
not continuing to upgrade the system will mushroom to the point
of applications that have not grown with the business and no
longer provide business value. Investing in continual upgrading of
ERP skill sets must be a priority for protecting ROI; but this need is
often unmet because of budget constraints. Mid-size companies
seldom have a true assessment of the total cost of ownershipthe
cost to support the system over time.

Copyright 2005 Infocrossing, Inc. All Rights Reserved.

Infocrossing and the Infocrossing starburst logo are trademarks of Infocrossing, Inc.

According to Infocrossing, Inc., an IT

services provider, the biggest pitfall
for mid-size companies implementing
ERP systems is budget constraints,
necessitating having to get it right
the first time.

Can you scale and maintain infrastructure to meet application growth

requirements?
Can you assure ongoing security?
Can you forecast and manage the
cost of it all, given the constantly
changing business landscape?

Infocrossing Executive Brief

Cost Risk #3: Because it is often a challenge for mid-size companies

to adequately evaluate which ERP product is most appropriate for
their objectives, costly mistakes occur at the outset. Selecting and
implementing a new ERP system and the process changes that
accompany it are complex undertakings.
Efforts to address risks should be holistic. An implementation
approached holistically, for example, would consider which
components of the ERP product are best used to optimize the
business processes, ensuring the product will be more durable
over time and evolve easily as the business changes. This type of
expertise is seldom resident in mid-size companies.

4 Decision Points to
Approach ERP Holistically
1. Evaluating which ERP product to buy
2. Obtaining IT skill sets for the
implementation and optimization
of the product
3. Obtaining IT expertise for ongoing
maintenance and support
4. Upgrading the environment (all
hardware, software, and security)

Speeding information flow, reducing cycle time, and inventories are

beneficial by-products of ERP systems. But ROI is realized from the
process reengineering that the ERP product supports, rather
than from the software itself. Thus, a comprehensive plan that manages the entire ERP effortnot just
implementing the technologymust be established. It begins with understanding the business objectives
and determining who is accountable for results.

Strategies and Critical Success Factors

The factors that have the greatest impact on successfully achieving ROI are:
Thorough planning
Product expertise
Industry expertise
Rapid deployment
Controlling modifications
Knowledge transfer
Methodology
All of these are more difficult to achieve that they may appear at first glance and are especially challenging
for mid-size companies. Thorough planning and controlling modifications are, of course, essential in any
project where change impacts a business process or its enabling IT. In an ERP project, the following factors
are absolutely crucial to achieving the anticipated ROI.

Copyright 2005 Infocrossing, Inc. All Rights Reserved.

Infocrossing and the Infocrossing starburst logo are trademarks of Infocrossing, Inc.

Infocrossing Executive Brief

Product Expertise
First and foremost, successfully capturing the benefits of ERP requires mastery of every nuance of ERP
products. The implementers cannot configure the software properly without knowledge of every feature
and function that the software product performs. This lack of product expertise results in both direct and
indirect costs to the company.
Without product knowledge, implementation may result in unnecessary modifications (which cost money
and time) that could have been avoided if the functionality were well understood. Indirect costs occur if
the software is not optimized for the business. Thus, the business processes would not be reengineered
properly, nor would the software support the processes properly. As a result, the ERP business solution
would not fully meet user requirements and would actually increase the everyday workload of the
employees and back office administration.
Industry Expertise
Like a castle built in the sand, ERP implementations undertaken without industry expertise are doomed
to fail. The deployment of business-critical applications must take into account the unique challenges of
the buyers industry. A lack of understanding of industry-specific requirements can lead to problems that
will often surface only after the ERP implementation. In-depth industry expertise is required to ensure ERP
applications actually provide a competitive edge.
Although an implementer may have in-depth ERP product knowledge, crucial mistakes can still occur without
industry expertise. A company in the fresh fruit and vegetable business, for example, is in a very different
situation from one in the pharmaceutical industry. On the face of it, the ERP implementer will use the same
tools and rules (lot numbers, traceability requirements, shelf life, expiration dates, etc.) in both instances but
needs to utilize them differently, according to industry characteristics. As pointed out in Figure 1, rules for the
fruit and vegetable industry are extremely fluid, while they are rigid in the pharmaceutical industry.
Figure 1
Rule

Fruit/Vegetable Industry

Pharmaceutical Industry

Sales orders

Fluid Need maximum flexibility

for easily modifying orders.

Rigid The product lot first

produced is the first one to be sold.

Lot expiration dates

Fluid Expiration dates on fruit differ

from product to product, shipment
to shipment and supplier to supplier.
After the product is inspected, a
determination is made on how long
it will keep in cold storage.

Rigid Medicines have a certain

number of shelf life days from the
dates on which they were produced.
After the expiration date, the
product can no longer be sold.

Picking rules

Fluid Depends on factors such as

quality rating, inspection date,
codification of supplier. Needs to
allow for manual intervention to
over-ride the automated pallet pick
because of knowledge of the
customer and the product.

Rigid System automatically

decides which lot or pallet to pick
to ship from the warehouse.

Copyright 2005 Infocrossing, Inc. All Rights Reserved.

Infocrossing and the Infocrossing starburst logo are trademarks of Infocrossing, Inc.

Infocrossing Executive Brief

If the rigid rules of the pharmaceutical industry were applied to the configuration of an ERP system in the
fruit and vegetable business, the implementation would fail with the first inaccuracy or first information not
properly communicated from a third-party retail business or supplier to the fruit and vegetable business.
Rapid Deployment
As with any business solution, buyers want to take steps to help
them realize the benefits of an ERP system sooner. This is even more
essential for mid-size companies since they run leaner organizations
than large companies. Rapid deployment is one strategy to make
the ERP solution more cost-effective.
One strategy for ensuring rapid deployment is Infocrossing, Inc.s
revamp of the traditional Big Five approach to ERP
implementations, which is often overwhelming for the mid market.
These methodologies typically spend three to six months doing
research and designsolution definition and development (as-is,
and to be designed,), blue sky or white board reengineering
before anyone could use the software. In addition, the technical
development and data conversion aspects of the project are
usually back-loaded efforts.

Melding industry and product expertise

enables an implementer to determine
how best to take advantage of the
software in a vanilla state, as
opposed to going in and coding and
making it more complicated. That way,
the product is a more durable product
and will last a longer period of time
because it will evolve and can change

In contrast, Infocrossing, an outsourcing service provider with

offerings customized to the mid market, has right-sized the
Big Five project-management methodologies, to be more
flexible, leaner, and hit the ground running.

easily with the business.

Infocrossings mid market methodology has employees working with the ERP product within two to six weeks
from project kickoff to begin the tasks associated with configuring the ERP package.
Furthermore, technology development and data conversion aspects of the project are integrated up front,
as soon as a good solution definition is in place. This enables thorough integration testing and mock
conversions; ensuring users actually do the acceptance testing of the system using the data converted from
the legacy system.
The Infocrossing methodology still employs the same steps and controls of a traditional Big Five project
methodologies, but the order of the activities is staged differently. In this manner, there is a faster emphasis
on the value and on working both leaner and more cost-effectively.
A second strategy for rapid deployment is to build a steady-state foundation at the outset.

Copyright 2005 Infocrossing, Inc. All Rights Reserved.

Infocrossing and the Infocrossing starburst logo are trademarks of Infocrossing, Inc.

Infocrossing Executive Brief

Because it is expensive to alter computer code, mid-size companies need to ensure their ERP systems are set up
correctly and streamlined at the outset. Building a solid foundation that is optimized for the individual business
and industry from the beginning will reduce the risk of problems developing from complex tweaking or poorly
documented processes. A solid-state foundation will assure easier, more cost-effective maintenance over time.

Case Study

The challenge A company was migrating its ERP system to an outsourcing providers
managed services solution. The provider had estimated that only a few hours would be
necessary for maintaining the system over time. However, the client companytypical of
many of its peershad poor documentation for its invoicing business processes. In the
midst of the implementation, they realized that the clients parent company had not
provided everything necessary for the invoicing processes to work properly.

The solution One of the providers experts with deep knowledge of the clients industry
realized the ERP system had originally been implemented sub-optimally at the parent
company. The provider determined it would take far less time and money to reinstall the
invoicing system in a vanilla state, using good business processes the way the software
actually worked.

The result By reinstalling the software correctly and in a vanilla state, they ensured the
ability to change it more easily when the clients business increases or veers in a different
direction. In the long run, this saved the buyer money and time, facilitating changes
without altering code. Today, they have an ERP system that performs better because it has
been optimized to give them what they need, as opposed to giving them what it was
originally configured to do.

Copyright 2005 Infocrossing, Inc. All Rights Reserved.

Infocrossing and the Infocrossing starburst logo are trademarks of Infocrossing, Inc.

Infocrossing Executive Brief

Knowledge Transfer
Optimally, knowledge transfer is a two-way street. To begin with, a best practice is involving end users of the
ERP product early on in the project, preparing them to own and operate as much of the systems as possible.
This strategy is key to achieving ROI. Case studies and root cause analysis often reveal that a major reason
ERP systems do not achieve anticipated outcomes can be traced to lack of user training. This is especially
true in mid-size companies; where everyone is busy enough just trying to accomplish the normal daily work,
without having to learn (or teach) something new.
In contrast, the Infocrossing implementation methodology, rightsized from the Big Five approach, is an example of a strategy to
eliminate these challenges. This methodology includes system
walk-throughs where users begin assimilating and building the
internal company knowledge of how to use and operate the
product even before anyone can actually use the software.

The critical up-front work and

preparation can make or break the
success of an implementation.

If the ERP solution is outsourced, knowledge transfer must include the clients conveyance of its business
rules and business processes. This is even more crucial in a case where the clients work and IT systems
have been poorly documented (or not documented at all). Mid-size companies do not have deep pockets
that can afford consultants spending 90 percent of the time uncovering the business rules and documenting
processes. Here, again, industry expertise comes into play in the outsourcers ability to quickly understand
and know what questions to ask to quickly uncover the key information.
Methodology
Implementation methodology should be a provider-selection criterion for buyers who turn over the reins
to outsourcing service providers for their ERP projects. Some critical aspects go beyond creating budgets,
milestones, and scope.
Capturing anticipated value is critically dependent upon the providers proactive communication on whether
it is meeting the implementation goals. For example, a buyers objective may be: 100 percent of the EDI
transactions will be processed accurately within one hour. What happens if the provider encounters an
implementation reality of only 97 percent in two hours and knows that getting to the next level (the buyers
objective) will increase the cost dramatically? Without a methodology that includes proactive communication
between the parties about progress toward the objectives, the buyer in this scenario may not even be
informed of the issue (or of a change in scope) and have an opportunity to make conscious decisions
regarding the change.
Buyers should select providers whose methodologies include keeping the client informed on implementation
progress toward the objectives. This will ensure milestones are achieved and the project is managed toward
the budget and what the buyer considers reasonable. More importantly, proactive communication assures
the buyer can influence the final quality and scope of the system installed, ensuring the system is not
marginal or does not create more work for the people trying to use it to run the buyers business.
Copyright 2005 Infocrossing, Inc. All Rights Reserved.
Infocrossing and the Infocrossing starburst logo are trademarks of Infocrossing, Inc.

Infocrossing Executive Brief

This proactive approach is dubbed by Infocrossing as a solution-assurance methodology. Stakeholders

are given assurances of progress at milestones, so there is no surprise about the outcomes. Buyers must
drive monitoring of the project, as well as change control and quality assurance.
Figure 2 illustrates a solution-assurance matrix used by Infocrossing to identify potential problems. Items
rated in green are on target and have no problems on the horizon. Yellow indicates such issues as something
running behind schedule or something costing more than planned. Red identifies issues which need to
be resolved immediately.
Figure 2

Critical Business Initiative or Project Risk

Deliverables

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us
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Project
Charter

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Project
Plan

Process
Map

Scripts for
Applications

Program Management
Project Plan Scheduled and Resourced
Help Desk Process Tested and Deployed

Scripts for
Interfaces

Technical
Requirements
Listing

Procedure
Manuals

Test and
Review Results

Training
Schedule &
Manuals

Legend

On plan and
on schedule

Sales Order to Cash

EDI translator conversion re-install
Orders Booked w/ Preferences & Advance price
Item Availability, Allocations release
Load builder by CSR and release to Warehouse
Contract warehouse EDI transactions, shipping
Ship Confirmation, Transportation Accruals
Customer SO Invoice and ASN EDI transactions
CASS import transport cost, Voucher, Accruals

Requires attention
or focus

Critical

Technology and Infrastructure

Security and User Access
Citrix Farm Stability & Licensing
Citrix and Database Server Performance
Environment Readiness, Reliability & Performance
Overnight Batch Processing
Reporting Server Database Responsiveness
Cognos Reporting & Licensing
EDI Process
MS Access Reporting
Sieble Interfaces
System Monitoring
Network for Remote Sites (Frame Circuit) for HQ
Network for Remote Sites (Frame Circuit) for Winchester
Network for Remote Sites (Frame Circuit) for Fresno
Network for Remote Sites (Frame Circuit) for Montreal
Network for Remote Sites (Frame Circuit) for St. Louis
Final Citrix Application Licenses Secured
Final Cognos Application Licenses Secured

The matrix is a communication tool allowing proactive discussions and management action such as assigning
more resources, responding faster, increasing budget, or increasing project scope.
Knowledge transfer is a component of an effective solution-assurance methodology. By the time the system
goes live, the client organization should understand why it was configured the way it was so that, if it
needs to be changed in the future, they will understand the parameters involved and what needs to be
taken into consideration when it is changed.
Ensuring timely and complete knowledge transfer of the configuration begins by identifying at the outset
the individuals who need this information for changes in the future. Specific tasks must be put in place to
assure the information is actually conveyed to them at certain points.
Copyright 2005 Infocrossing, Inc. All Rights Reserved.
Infocrossing and the Infocrossing starburst logo are trademarks of Infocrossing, Inc.

Infocrossing Executive Brief

Managed Services
For most mid-size companies, smaller budgets and the lack of IT skills place them on the path of incurring
higher costs from managing reactively instead of proactively. Many have learned that partnering with
outsourcing companies with core expertise in full-service ERP solutions is an effective strategy that enhances
ROI and saves frustration down the road.
Managed services offerings, for ongoing support and maintenance, are a valuable means of protecting what
is built in the implementation phase. This type of solution also provides:
A lower, predictable cost for the ERP environment
Maximum flexibility to respond to changing business conditions
Continual optimization of the system for the business over time

Conclusion
Findings from numerous industry studies leave no doubt that few mid-size companies are able to achieve
their anticipated ROI on ERP systems. The number one reason ERP efforts stall or ROI is inadequate is because
companies lack capital resources and the requisite in-house capabilities in IT skill sets. These twin risks impact
not only the initial implementation but also the ongoing maintenance and support.
The best way for mid-size companies to address the dilemma of how to do more with less is to look beyond
their own walls for the necessary distinctive capabilities.
Instead of an in-house attempt to implement and maintain an ERP system, a comprehensive, managed
services approach with an outsourcing partner will ensure best-in-class capabilities and delivery of the
promised benefits. The outsourcing provider should have in-depth knowledge of ERP products, expertise in
the clients industry, and investment in tools and methodologies that ensure cost-effective, rapid deployment,
knowledge transfer, and methodology adherence.
This holistic approach trims the operating costs associated with ERP systems, producing savings the buyer
can invest in other areas of critical need for business growth and competitive advantage. A holistic approach
with an outsourcing provider will also ensure a system is optimized at the outset for the buyers business
and will be managed through change over the long run in order to achieve the desired outcomes.

For more information about ERP solutions, visit www.infocrossing.com or call (714) 986-8415.

Copyright 2005 Infocrossing, Inc. All Rights Reserved.

Infocrossing and the Infocrossing starburst logo are trademarks of Infocrossing, Inc.