Welcome to my first blog post on KPMG's website! I look forward to sharing a range of views and - let's be honest - quite subjective attitudes to what works when we talk about digital transformation.
The goal is to try to deliver a range of recommendations, based on the many projects my team and I have delivered over the years. I hope that you, dear reader, can use some of our experience to avoid starting from scratch if you are facing a complex digitisation project.
If you are experienced in the technological and human twists and turns that this type of initiative often gives rise to, then you may be able to recognise one or more points. If not, the internet never forgets and I have wasted your time - oops. Let's grab a beer if you see me in town one day. My treat!
This is an advertisement for KPMG and what we can do and deliver, because we want to enlighten you about the idea of a collaboration. Very likely on this topic.
Have a cup of coffee and sit down. I borrow 15 minutes of reading time from you. Let's get started.
The spooky ERP project
When someone like me at KPMG works with digitization with a wide range of both public and private clients, there is one type of project that often scares an executive or board of directors more than anything else: the ERP project!
The reason is a combination of factors, typically including management's experience from previous similar activities, cautionary examples from consultants, the general press-coverage of spectacular failure implementations and then an intuitive professional understanding that this can be difficult – and expensive!
The horror stories are circulating in the management network, where large-scale but failed ERP projects often lead to layoffs, management changes, massive costs and little or no ROI at all. You thought you would get a smart new IT platform that lifted the organisation to new efficient heights, but instead you were left with a wounded organisation, an overly expensive and complex system and a large bill for suppliers.
The analogy is often that an ERP project is like changing the engine of an airplane at 30,000 feet. And even though it might not be that dramatic in reality, the comparison is not entirely stupid. Because when the projects reach a certain size, it can be both complex and challenging for a company to succeed, on top of everything else you also have to achieve and deliver on.
ERP project? Not on my watch!
ERP is the abbreviation for Enteprise Resource Planning and the system is often the digital platform(s) that handle the business's core processes from order receipt to production, warehousing, logistics, and invoicing - with a financial management layer at the bottom that ensures governance, control, and legality. That is, the entire back office of a company. The system can be so integrated into a company's operational model that it can sometimes be difficult to distinguish the 'system' from the 'process'.
The vast majority of c-suites understand very well what an ERP project entails. And on paper, one can easily acknowledge the many risk factors an upgrade or replacement of ERP can entail. It increases the day-to-day operational risk, it potentially causes delays on other tactical and strategic projects and above all, it is typically expensive and very rarely affects the top line (or bottom line) positively.
If you combine this with the fact that the trend for years has been on a (reasonable) strengthening of the more customer-facing activities such as CRM systems, webshops, strengthening analytics, and maybe even automation through AI/ML or RPA, well then ERP is in a best-case 6-7 place of prioritised strategic digital initiatives.
Therefore, the vast majority of management would like to avoid an ERP replacement on their watch; if possible.
So why do we still see several ERP projects?
Covid helped to kickstart many companies' too poor digital maturity. When employees had to sit at home and serve customers, the digital value chain quickly took off. If the degree of automation was low and the manual measures high, the customers' response was prompt: They found another place to shop.
Furthermore, the requirements from customer-facing systems have increased the pressure on access to data from ERP systems, among other things, to create the insights that can differentiate a company in the market. At the same time, many years of underinvestment in the core systems, including ERP, have now created pressure to upgrade or update the many fraudulent platforms in Danish and international companies, as the requirements for near-real-time data increase.
Last but not least, the security situation has deteriorated. Not only because of decidedly major political crises but also because the threat from well-organised cybercriminals is rising almost daily. An outdated platform, with a lack of vendor support and security updates spinning in a corner of a local data center, is suddenly not so attractive.
There is simply a business requirement that the ERP system to a much greater extent interacts effectively with other best-of-breed systems around it, in a coherent and connected digital value chain, based on a secure, scalable platform.
And yes and then SAP, Oracle, and Microsoft (and a host of other vendors) have introduced new cloud-based platforms that promise exactly that they can deliver the above. In combination with the expiry of support for several large volumes of ERP systems, there is now 'the perfect storm' for ERP projects.
But how difficult is it then to get hold of a new ERP system?
Now I put the matter at the forefront - and the picture is of course more nuanced - but exaggeration promotes understanding. Roughly speaking, there are two types of companies:
- Those who have continuously monitored and invested in their core technology platforms keep pace with business requirements and technological development
- Those who have invested up-front and then focused more on IT as a cost center for too many years with a more ‘ad-hoc approach’ to updating and maintenance.
Category 1 has thus had a conscious strategy to ensure that its core systems are always up to date. And lives up to not just the current but also more strategic requirements from customers and business.
Category 2 has been more or less proactive in ensuring that the basic updates are in place but has not timely challenged the core system's place and relevance in relation to where the market and customers have moved. Perhaps a very large initial investment has given rise to a need for many years of depreciation. Or there just hasn’t been ‘time’ to get it uncovered and updated.
Are you in category 1? Congratulations. You are part of a rare minority. A possible new ERP project may still need the advice later in the series of posts, but you are ahead on points!
There are far more companies in category 2. And it is the type of company that also typically stands with one or more ERP platforms (or other core systems) that have accumulated technical and functional "debt" over a number of years.
This means that they are very much facing an internal maturation process towards the readiness necessary to succeed with a new ERP system.