No to transformation. Why an ERP transformation isn't always the best solution right now!

Anyone who runs a company today, or works in a company's management, will inevitably come into contact sooner or later with ERP systems like SAP S/4HANA and, beyond that, with the transformation of such ERP systems. This is confirmed by a 2020 study by Deloitte, that around 60% of German manufacturing companies carried out corresponding change initiatives in the last five years:

1. Do you belong to the remaining 40%, or are you dealing with the 2nd wave after the initial transformation (optimization / stabilization phase)? Then you should definitely read on.

Unifying business processes, resilience in disruptions, maximum scalability, increased productivity, harmonization and real-time reporting are just some of the keywords that can be associated with a system transformation. And even if change initiatives are often economically sensible and, especially looking ahead toward ever-advancing digitalization and international networking, even become more important, there are some reasons why companies can also say „No, not now“ to comprehensive transformations and shouldn't invest in a new system.

You'll learn some impulses about what these are and what you can watch out for in a (non-)switch in this article.

• The most diverse ERP systems can be found on the market today. Some have already been successfully tested in practice and extensively implemented. Others are newer and seem at first glance more advanced, with even greater value and slick user interfaces (UIs), as well as lower implementation and operating costs. These systems can, at first glance, seem like the „jack of all trades“, but appearances can deceive. In part, these systems aren't yet mature enough to be used in practice and are therefore possibly still burdened with various teething troubles. So they often don't yet have a full (end-to-end) range of functions and there are no robust best practices or reference processes you can rely on for implementation. There's also often no available know-how on the consulting market yet that could be used.

• But whether you want to establish a new or an already proven system: you should have developed a clear (company) strategy. What is your vision, which goals do you want to reach in the future? Which steps are necessary for that and which obstacles have to be removed for it? Investing in a new system without a clear strategy and clear goal can generate many costs you could simply avoid. Furthermore, you can only decide how strongly you want to factor in your strategy implementation once you actually have a strategy. Then it's easier to assess in which areas you should set priorities and where it really pays off to invest resources. Better decisions can be made about whether emerging challenges have to be solved immediately, or whether the solution can be put on hold for now. Many organizations implement new tools prematurely that are meant to clear problems out of the way, even though many of these obstacles could also have been solved with already existing but unused or insufficiently used functions. So an investment in new tools isn't always actually necessary.

Especially with regard to investments and the associated costs, various facets can be considered: because even if switches of the core systems are often associated, in the long term, with the goal of cost savings, since processes are e.g. improved and faulty interfaces removed, the cost burden of a complete transformation shouldn't be misjudged.

• In summary, in this area we have the so-called „total costs of ownership“ (TCO). These cover all costs arising from the acquisition, upkeep and maintenance, as well as the disposal of a system. While they can be calculated well for extensively tested and practice-established systems, they're often not clearly assessable for systems newly appeared on the market, since the technology is still in its infancy and there's little to no reference data. If you consider one of these newly appeared products as potentially relevant for you, you should better wait some time until the technology has developed further and you can be sure the system really works. Only proofs of concept and pilot projects can create the certainty that new technologies and providers deliver what's expected and promised and that the TCO can be soundly calculated. Or you rely from the start on (many times) successfully introduced and established software to avoid these problems.

• But the TCO can be divided into smaller blocks. One part of this is the costs associated exclusively with the system transformation, also referred to as „costs of change“. They differ depending on the system and a company's individual conditions. They're influenced, for example, by the similarity of the system to be newly established with the one already used. Because the more similar the two software solutions are with their individual processes, the smaller the extent to which the employees have to adjust to the new system. The faster such a transformation can succeed, which in turn influences the level of costs. The more different two systems are, the more intensively testing has to be done during the transformation and thus more has to be documented too. But not only the similarity of the systems, but also the size of the organization or the employees' fundamental willingness to change influence the costs of change and the likelihood of a smoothly running transformation. Because to master a transformation successfully, you have to convince a certain percentage of your employees of the sense of the change. As in all areas, people differ from one another: so too with regard to enthusiasm for change. You too will have employees in your teams who are very open and supportive toward change – while others are rather critical in these areas.

• This can be illustrated, for example, with the normal distribution curve. In the left area of the curve (the first two fields) are change-motivated employees, ready to invest a lot of energy to move it forward. That, however, often comprises only a fraction of your entire workforce.At the other end of the distribution, in the two fields on the far right, is an equally large part that actively, or at least passively, opposes the change. The largest part, however, will probably find itself in the middle. This part, with more than half of your employees, will at first be hesitant toward the change, but be willing to participate once it sees the advantages of the change and is convinced of the benefit with good arguments. But here's the crux: to achieve this willingness, you have to deploy the small pool of motivated employees optimally. Only this way do you get the basis to convince the rest of the change. The magic threshold for your success lies between 15–18%: only when about a fifth of your workforce enthusiastically supports the change can it succeed. But if you don't manage to get this fifth excited about a change, you should first wait with a transformation and find out what's holding back the enthusiasm. Was the communication regarding the reasons, goals or opportunities insufficient? Are there serious conflicts of interest? Is something simmering in your teams for other reasons? If you were to carry out a profound transformation of the ERP systems just like that with a possibly fragile system, failure is pre-programmed. Even for stable teams, major switches can be a challenge, which can, however, be absorbed with good change management. A stable basis is, however, the prerequisite for it. So for you to succeed, your company has to be ready for the transformation not only technologically, but above all organizationally and process-wise. Whether this is the case for you, you can determine, for example, with a change impact analysis. Here, target ideas are compared with the status quo and the areas in which change should take place are identified. In doing so, it becomes clear not only how big the change initiative is, but also roughly what time and financial effort you should reckon with and which steps would have to be taken for the change to succeed.
• Another part of the TCO are ongoing operating costs, training costs and partly non-transparent license costs. Here one speaks of dynamic costs, which often can't be calculated well either. In this context, cloud solutions are readily presented as the better choice. They undoubtedly offer many advantages. However, they're often even more expensive than on-premise solutions in the long run, especially when a company grows. Many companies make the mistake of switching prematurely to purely cloud-based solutions because they're mainly led by short-term goals. A common argument for this is that cloud services are cheaper to implement than on-premise solutions. However, with cloud-based systems you often buy „the whole package“, even if you don't need all of it. This is different with on-premise solutions: here you can pick out the functions relevant to you – and then of course only pay for the things you actually use. And regardless of the acquisition costs too, the ongoing costs of on-premise solutions can be influenced and managed much better compared to cloud services. You may be surprised now, since this also seems to be the case with – or possibly precisely with – cloud services with their calculable subscription model. With these, however, you're directly dependent on the pricing policy and pricing of the providers. You have to reckon with monthly costs that don't simply stop at some point. On the contrary – they often even rise when the company keeps growing, or inflation drives the prices up. So all in all, it's not a good motivation to choose a cloud solution if you're aiming for a pure cost reduction.

Let's assume your team has recognized the necessity of the change and you're „ready for change“ from an organizational point of view. Let's assume you've also chosen an established ERP system where no big surprises are to be expected and the entire TCO can be well assessed. So off we go?

Not necessarily! Another mistake that should be avoided is choosing a system that has indeed been successfully introduced and established many times, but can't be sufficiently adapted to your company. For example, because the origins of the solution lie in an industry other than yours, certain standards aren't present or the system doesn't fit your company strategy and philosophy. After all, every organization has its own peculiarities and small but relevant details that can make the difference whether a system fits – or not. If, in the focus on innovation and technology, it slips out of view what the system is actually mainly supposed to deliver and improve, a transformation can also turn out to be pointless or failed. The approach should never be: „A system will somehow solve our challenges“. Instead, rely from the start on the approach of finding out which system is most suited to pay into your company strategy. In the worst case, you'll otherwise only notice that the system simply doesn't fit you after you've already put a lot of money and time into the restructuring.

For this reason, it pays off to analyze the status quo early and identify the truly fitting system. If you don't yet have much experience here, or have to manage capacity bottlenecks, an investment in the know-how of an external consultancy like grandega can pay off too, to save a lot of costs in the long run.

Don't get us wrong! In many cases it's quite sensible, for various reasons, to replace outdated and obsolete systems. This, however, isn't of use in every company and there can be good reasons to simply say „No“ to a transformation too.

You may now ask yourself whether you then have no other options at all besides switching the systems and „staying passive“? Yes you do – organizations that decide against a complete switch for now can also work on their system. So which alternatives are there concretely?

Not infrequently, we see that companies are far from exhausting their full potential. This already begins with hiring and onboarding, but also in the development of employees. Often it's not completely clear to the staff what their tasks actually are. Then role definitions are vague, job descriptions unclear and responsibilities shifted – or simply no one feels responsible for the tasks. A loss of productivity and superfluous friction losses are the result.

Here it can help to rethink the organizational design, offer suitable training and further education opportunities and support with good change management. This is also helpful when you're not dealing with major transformations. Even smaller internal switches can lead to resistance and unrest, even if this naturally happens far more strongly and frequently with major changes. Targeted, transparent communication always supports the understanding and motivation of your employees regarding a change initiative – no matter how big it is.

Besides the human within the system, however, you can also rethink the system as such. Almost always there are avoidable, time-consuming manual tasks that could meanwhile easily be done differently and faster. Cumbersome workarounds and inefficient or traditional processes should also be recognized and improved. New systems can often absorb and compensate for these things – but this often isn't strictly necessary.

In most already existing systems, as briefly touched on earlier, there are still unused functions and possibilities dormant, bought a long time ago and now waiting „on the shelf“ for their use. As a rule, employees do have to be trained and instructed a little for this, but this is rarely a major undertaking. In some cases, the selective use of new software can also be of use. For example, when there are one or more processes that can run even more smoothly or simply with a new feature in the system. Instead of throwing the whole system overboard at once, it's sensible, not only with regard to the motivation of employees, but especially with regard to costs, to implement small and scalable units. Of course, only after the existing system has been examined for solution possibilities and a problem still exists.

You see: besides the complete replacement of a core system, there are still many other possibilities that can be considered. And a common solution isn't always the solution that's individually right for your company.

If you'd like independent advice, we'd be very happy to advise you. And if you want to learn a little more about us first, you'll find here further information about us and what drives us. Are you still unsure whether we fit together? Find the answer here.

Let's shape #heroes together!