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With the evolution to cloud-based enterprise resource planning (ERP), the potential for lower costs, increased process agility and more ease-of-use have entered the equation. Yet for all these advantages, many ERP investments fall short of delivering tangible results. Why?
In our conversations with company executives, we’ve found that one of the top reasons many have moved to a new ERP solution was to improve their business processes with an eye toward the company’s future. There should also be a material ROI — essentially productivity gains and cost savings along the way. But when asked about the biggest barriers to embarking on an ERP transformation, many executives cited a lack of ROI and the organization not understanding the benefits.
This raises a critical question: If the aim of ERP is to improve enterprise processes, increase efficiencies and reduce costs, why is there so much lack of clarity around ROI? Why would an organization need more convincing about the benefits of this move? It turns out that these apprehensions aren’t misplaced. In our recent analysis of organizations that moved to new cloud-based ERP solutions, nearly half haven’t realized the business value potential, and most programs haven’t created satisfactory value. That amounts to a huge waste of time, money and skills.
Reducing both technical and business process debt is key to ERP ROI
For a cloud ERP investment to deliver value, it should at the very least reduce technical debt. This involves eliminating legacy applications and custom systems, reducing point-to-point interfaces and moving to a consolidated “clean core” in which modifications to functionality are minimal. But there should be equal focus on reducing business process debt — the outdated, functionally isolated and customer-disconnected ways of working. Until you do that, you won’t realize the massive potential of technologies like AI and other digitization tools.
A relentless focus on solving for business process debt and technology debt is key. Doing so requires reimagining your business processes and innovating with digital technologies around the core ERP platform. That can be the recipe for tackling the challenge of business value and ROI. And by achieving this ERP target-state, your company can begin to achieve outsized performance.
4 key steps in a performance-optimized ERP program
Based on our experience working with clients in different industries, there are four key elements of a value-based ERP program that can help solve for both technical debt and process debt.
To deliver on the modern cloud ERP value equation, you should drive business process standardization and automation based on a fit-to-industry approach. The deployment approach should be able to eliminate technical and process debt, set the right business performance targets and establish a foundation that can help achieve outsized performance outcomes.
How can you achieve that? By layering digital innovations from the current century — such as process mining, machine learning, data visualization and generative artificial intelligence (GenAI) — as integrated enhancements to the cloud ERP software core. The result is fit-to-industry, clean-core ERP that leverages the latest technology.
Value-based ERP in action
Consider the procurement example above. After aligning on outcomes and levers, the organization would want to confirm that the buying process is standardized and that most of the catalog is enabled on the system. Then it would clean up and standardize the supplier master along with harmonizing approval policies and thresholds. Finally, it would pull the strategic sourcing levers before going live with ERP as an early value drop.
But performance uplift isn’t just a one time undertaking. Leveraging machine learning algorithms, your company can recommend the best suppliers for each spot buy that would balance low cost with lead times. An AI assistant can flag to a centralized monitoring team anytime a purchase request is raised that carries exceptions to guidelines or thresholds.
This isn’t just hypothetical. At one consumer products company, the procurement team was spending time on several non-value-added activities such as answering user queries on requisition status and running recurring reports. We created an AI-enabled chatbot that uplifted productivity by 30%. The chatbot was linked to the ERP system to answer queries and execute transactions like opening and closing requisitions, provided the buying guidelines were met. The analytics assets, such as machine learning-enabled recommendation engines and dashboards, drove better financial outcomes.
Similar assets exist across supply chain, warehousing, production planning, forecasting, asset management and other enterprise processes. But this value can be captured only with the combination of a clean core and a reimagined, AI-enabled, end-to-end connected process. Once your organization is on a clear core, leveraging industry standard process models, it can rapidly unlock the next several tiers of enterprise performance improvement.
There’s a new paradigm in ERP. It isn’t a foundational technology that only reduces technical debt. It’s a catalyst to reimagine your business process, to preload and self-fund value creation, to create digital-first processes that can enhance stakeholder experiences and to set up your organization for sustainable growth.
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