Modernized ERPs can revolutionize a business, give it a sharp competitive edge, and prepare it for the kind of agility and flexibility future technology developments will bring.

But a new system can also be a drain of resources and money if implementation goes wrong — as it often does. Seven in 10 digital transformation efforts fail to meet their objectives, according to a report from BCG. 

"Anytime a client is thinking through a fundamental platform that enables their business, there's inherent risks," said Kate Morican, partner, strategic change and transformation at Deloitte Canada. 

Global corporations aren't immune either. J&J Snack Foods lost an estimated $20 million in revenue in Q2 due to an ERP transition that disrupted production. Mission Produce also saw $4.1 million in increased operating expenses in the first quarter of the year due to "significant challenges" implementing its new ERP system. 

Strong leadership and flexibility can help ERP implementations deliver on its promises. That also includes making sure end users — employees and customers — are on board, and can realize how the new system will impact their everyday lives. 

Without top-down guidance and commitment, and frequent checks on progress, new ERPs can be used incorrectly, result in customer mistakes, and ultimately not meet company objectives. 

The leadership component

An ERP implantation is a long, complex process. It can become tedious and frustrating at times. Without strong leadership, the end result can fall far short of its goals, or disrupt operations altogether.

"A lot of times, companies think of ERP as back-office accounting systems, something you buy and implement," said Rick Veague, CTO of IFS. "But ERP is foundational to business strategy and strategy realization."

If leadership isn't on board and driving that transformation, "it is going to fail for one reason or another. You lose that sense of guiding light on why we're doing this and what we're trying to do." 

Strong leadership must come from across business to make sure employees are also buying into these changes.

That might include using data to show how changes are making work better, said Morican. Instead of just talking about positive changes, organizations are using data to create dashboards that show the impact of changes to both customers and employees. "You can use reporting with visualization to give that confidence." 

A multi-step, flexible process

Checking in regularly on the implementation is also critical in the process, to ensure that it's meeting initial business objectives, especially when complications inevitably show up.

"These projects always begin with starry-eyed dreams, that my ERP system is going to make me toast and coffee in the morning," said Veague. "In reality, these are hard projects." 

One tactic is to treat a "go live" date as just one step in the process instead of the ultimate driving goal. That allows organizations to be flexible, get new insights on operations, and focus on gaining the biggest competitive advantage at that time.

Meeting 80% of initial objectives on "go live" day isn't a failure," Veague said. Instead, it's a step in the process. 

That kind of openness to change usually results in "much wiser and more educated company in what you can get from an ERP system and maybe redesigned outcome," he said, adding that the days of doing three to five, even 10 year ERPs, are over. 

The transition to the cloud has allowed this kind of agility, where setting fresh objectives for six to nine months after a launch date lets the ERP progress to move forward incrementally instead of in one big push.

Keep the end users in mind

Most ERPs have two end users: employees who will use it and customers who will be affected by it. That's why leaders must keep those two groups in mind to ensure a successful transition.

Stericycle is two-thirds of the way through an ERP implementation. Throughout the process, the company made sure employees who are used to working with older systems are on board. 

Leaders at the medical waste company used "a lot of reinforcement and hypercare and change management in how this is all supposed to work," said Janet Zelenka, EVP, CFO and CIO at Stericycle. 

Before the shift, "there were pockets of data that people put together on a spreadsheet. [Employees] had belief systems and a lot of self-reporting on how things were going." Leaders prepared them for the eventuality that data-driven insights weren't going to match self-reporting, and to embrace this new, better information. 

"You have to plan for that. You can't just hope it magically changes. You have to lead and force those discussions every day," Zelenka said.

Zelenka also stressed the importance of doing trial runs before turning a system live. For example, after transitioning its billing system to a new ERP, the company did a test run: creating bills without sending them.

"When you have years of a company that's never had a system like this, it's impossible to get every little bit" of information correct, she said. 

For example, a ZIP code might be wrong, or a small contract change didn't come through. Without a dry run, the company would have been forced to go back to customers to tell them their bills were wrong.

 "A lot of people forget that bill you're sending your customer is part of the overall customer experience," she added. Doing check-in dry runs is "making sure the customer journey from beginning to end" benefits from the new ERP system too.  

In a time where efficiency and lower costs are universal goals for most companies, Adell Group knew it could do a better job at maximizing productivity and visibility through technology. 

“We immediately kind of understood that just by walking around the plants, you could measure the inventory by the inches of dust on it,” said Michael Lee, CIO of Vehicle Accessories Inc.

Adell Group was acquired by Kinderhook Industries, an investment portfolio of companies, in 2019 and was folded into the Vehicle Accessories Inc. umbrella. Shortly after, Adell Group began digitizing its resources.

“We knew we had an issue with inventory, and we knew we were going to be acquiring several other companies and needed a way to bring those companies together, so we started looking at ERP systems,” Lee said.

Many companies turn to ERP systems to streamline processes, improve worker productivity, anticipate IT agility improvements and enable further innovation through modernization efforts, according to a Boomi survey of 1,675 CTOs and enterprise architects.

Even though leadership at Adell Group was on board with tech investments, making it an easier sell for the CIO, the top decision-makers took their time to ensure that the system they chose had the proper capabilities, easy end-user experience and stayed within budget. 

For capabilities, Adell Group focused on traceability, inventory control mechanisms, better reporting, real-time plant floor data, controls over scheduling and accessibility for both English and Spanish-speaking workers. 

Before digitizing, most things at Adell Group were manual. 

“Once it left the office, it was completely manual with some spreadsheets, a lot of pieces of paper flying around with signatures, so we really wanted to automate that facility, and we knew we could get a lot of advantages out of it,” Lee said. 

Lee worked with the CFO for three to four months to make an ERP selection and ended up with Plex. For companies undergoing digital transformations, it can be a large undertaking with many risks if not completed correctly. 

Seven in 10 digital transformation efforts do not meet their objectives, according to a report from BCG. Some companies have experienced massive losses due to inefficient technology implementation, such as J&J Snack Foods, which lost an estimated $20 million in revenue in one quarter during its ERP transition. 

Implementation roadmap

Adell Group adopted the ERP system through three implementation phases, separating the launches based on specific business units.

When the first round of implementation began, the company was not running at full capacity due to the pandemic. Lee said this was a blessing in disguise because they were able to walk transactions through the plant floor and train workers without interrupting their day-to-day duties. 

The company also used the liaison method where a company chooses one person from the plant floor to be a type of spokesperson for the project to the rest of the workers. Lee brought the person up to speed on the advantages of the new ERP system for the business and employees, leading to greater credibility among the workforce. 

Within the first week of each implementation, Lee said the respective business unit reached 100% adoption.

By February 2021, Adell Group was six to seven months post-implementation and was able to measure the impact of the new system compared to the year before without the ERP. 

“We knew there were improvements because we never missed a ship date,” Lee said. “We were ordering and making the right things because we knew what we had on the shelves, in inventory… so that was the biggest benefit for us, and that kind of trickles down everywhere all the way through to the efficiency numbers.”

In addition to greater visibility of inventory, floor activities and shipping and receiving details, the company lowered direct labor costs, including the cost of tools, systems and wages, by 26% from $287,000 in February 2020 to $212,000 a year later.

The company also reduced overtime hours by more than 55% from 873 hours in February 2020 to 389 hours a year later.

 

The Hershey Company is investing heavily in its digital infrastructure, with execution underway of a new enterprisewide ERP system.

The company expects capital expenditures of approximately $800 million to $900 million in 2023, which includes the ERP system implementation and expanded core confection capacity.

Michele Buck, CEO and chairman of Hershey, expects the ERP project to continue into 2024, she said, speaking on last week’s Q4 2022 earnings call for the period ending Dec. 31, according to a SeekingAlpha transcript. 

Hershey’s unallocated corporate expense in Q4 was $205 million, a 22.7% increase from $167 million last year during the same time period. The company tied the increase to higher technology costs related to the new ERP and digital infrastructure upgrades. 

In mid-2018, Hershey added two ERP modules as part of a multiyear implementation. Aspects of the project were put on pause during the pandemic, shifting the timeline of the project. 

The ERP deployment has led to expected rises in capital expenditures and unallocated corporate expenses since the start. In the company’s Q4 2018 earnings call, Hershey expected capital expenditures to total around $330 million to $350 million.

“Capacity expansion plus the ERP investments that will eventually drop out are the two kind of biggest components of the CapEx right now,” Buck said.

Hershey has previously had a fraught relationship with ERP implementations. 

In the late 1990’s, the company experienced issues with ERP implementation resulting in a 19% drop in quarterly profits and an 8% decline in stock price, according to consulting firm Pemeco’s study. When its system went live in July 1999, Hershey could not process $100 million worth of candy orders, despite having adequate inventory.

Enterprise spending on software will not slow anytime soon, but without proper governance, wasted budgets will plague businesses.

Software spending is expected to snowball through 2027, growing to 42% of total tech spend, up from 34% last year, according to Forrester data published in January.

What started as adding a few collaboration tools and software licenses to support remote employees during the pandemic quickly became unmanageable for most enterprises. 

Businesses understand the value that software can bring, but economic uncertainty and record-high inflation have pressured many enterprise leaders to rethink budgets, priorities and governance models. 

To make sure software spending is bringing the highest value to the business, CIOs need to prioritize visibility and governance models, according to experts. Only 35% of companies have complete visibility into IT assets and their impact on business, according to a Flexera survey of 500 IT executives.

Understanding how vendors update their products can help CIOs keep track of capabilities, according to Greg Leiter, senior director analyst at Gartner.

Many enterprises are accessing software solutions via the cloud. Cloud-based models enable businesses to have less downtime for updates and upgrades, but those incremental changes could impact the current needs of the enterprise, according to Leiter. 

“Vendors can continually innovate the product, so you’re getting access to that innovation much faster than you could in the old world,” Leiter said. 

A capability gap filled by one SaaS subscription could be duplicated in a new update from another vendor. 

This requires businesses to not only have a catalog of current capabilities at the time of subscription renewal but also throughout the process as updates are released to avoid repetitive applications, according to Liz Herbert, VP principal analyst at Forrester.

“If your business needs are changing, if just the product mix is changing or if the quantity is changing, then those are all opportunities for you as a business to ensure your standards continue to be aligned with what your business really needs,” Herbert said.

This applies to the recent enterprise interest in generative AI technology, as well. 

AI software spending is set to nearly double by 2025, reaching $64 billion, according to Forrester data in October. AI-enhanced tools have become more popular as the technology evolves, and viral tools like ChatGPT spur incumbents. 

Generative AI technology has already begun to trickle down to enterprises through vendors and major cloud providers, including Microsoft Azure, Google Cloud and AWS.

Companies with a more mature tech stack will be looking to invest in the latest and greatest AI-enhanced software, while companies with more rudimentary tech capabilities will be searching to add automation where they can, according to Herbert. 

“In general, as companies want to achieve better outcomes for their business, software tends to play an important role no matter what their starting point is,” Herbert said.

J&J Snack Foods lost an estimated $20 million in revenue in Q2 after problems transitioning to a new enterprise resource planning system disrupted production, executives said on a May earnings call.

Issues implementing the new ERP system "created unforeseen temporary, operational, manufacturing and supply chain challenges" that contributed to a $7.6 million rise in operating expenses, CEO Dan Fachner said on the call. The snack distributor's foodservice and retail segments were most impacted. 

The company — which owns snack brands including ICEE and SuperPretzel — has made progress resolving challenges surrounding implementation. "We have all signs pointing towards that we are out of the worst of it," said Fachner. 

J&J Snack Foods had timed its transition to the new ERP system during what's typically its slowest quarter for volumes. Still, implementation issues created major headwinds for the company and disrupted production of certain product lines including frozen novelties. 

"The combination of our ERP delays and the ongoing inflationary challenges combined to have a marked impact on our margins," said CFO Ken Plunk. 

Implementation challenges led to "picking and scheduling issues," according to Fachner. The company did not respond to a request for more details on operational impacts. 

The snack distributor isn't the only one that's faced production issues stemming from ERP conversions gone awry. Mission Produce said challenges transitioning to its new system led to a lack of visibility into inventory and contributed to a $4.1 million increase in operating expenses.

Three-quarters of ERP transformations fail to stay on schedule or on budget, according to McKinsey. Around two-thirds have a negative return on investment. 

"The typical implementation involves long phases of design, specifications, and blueprinting but yields no measurable impact — while shareholder value diminishes, day after day," the research group wrote in 2019.

J&J Snack Foods is transitioning to an enterprise platform provided by JD Edwards, which is owned by Oracle. The company's frozen beverage business, which includes ICEE products, was not affected by the conversion as the product line was already running on JD Edwards' platform. 

The company shifted to an ERP system as it looks to build additional capacity and improve operating efficiency. Fachner called the transition "the largest and most necessary change required to strengthen our supply chain."

"Having a robust ERP platform provides a more seamless, integrated process from raw materials through production, warehousing, inventory management and electronic order fulfillment," he said. 

With many economists predicting an imminent recession and sluggish consumer spending, CFOs need to be prepared to weather the storm.

“We are headed into another change,” Sharon Bhalaru, partner at national accounting and consulting firm Armanino LLP, said in an interview with CFO Dive, noting that many companies are right now wrestling with a difficult period marked by volatility, uncertainty, complexity and ambiguity — the concept known as VUCA. 

While the Great Recession from 2007-2009 was fueled by the collapse of the housing market, this time around it is “a little bit unique because we're in this post-pandemic world, and one of the things that is going to be very different in this economic downturn is really the focus on the people's side of things,” Bhalaru said. 

But Bhalaru sees technology, and enterprise resource planning (ERP) — software used by a company to manage key parts of operations, including accounting and resource management — as a key means of getting CFOs and their respective organizations through the looming recession because the systems enable companies to integrate and track all of their financial metrics under one roof, or that is, under one business application.

“ERP solutions and business applications are really there to help executives understand the health of their business and make better decisions,” said Bhalaru. Here are three main ways she sees ERP as a key tool in a downturn: 

Empowering operations

Empowering operations, or tracking the money coming in and the money going out, is totally dependent on data, Bhalaru stressed.

“When you have vendors that you need to pay, having the data and understanding what it is exactly that you're spending, which products you’re buying, will really help reduce the money going out of the business,” she said.

When it comes to accounts receivable, Bhalaru explained that because CFOs are very cautious about cash flow, an ERP system can be helpful with timely invoicing and getting those invoices out to customers, while also tracking how the money comes back in. 

With finance chiefs’ responsibilities growing, the financial and accounting realms are only a portion of the job. ERP systems allow those sitting in the CFO seat to have data at their fingertips. “These systems allow for there to be a single source of truth in data,” said Bhalaru. 

“Many times we work with executives, and they'll be in a conference room debating about what data is the right data, and that is a waste of time,” she said. Focusing on the right data allows CFOs to look to the future challenges they need to navigate, the geographies they need to invest in and the talent they need to hire, Bhalaru explained. 

Moving to the cloud

CFOs often lead these digital transformations at their respective organizations, so they see what they need for their accounting systems as front and center, said Bhalaru. “Having closets and physical locations to store information has really gone away,” she said. 

Having a single source of data and information is essential for businesses, and moving ERP systems to the cloud allows for access from anywhere.

“We're seeing a lot of CFOs and executives come to us looking to move into the cloud, and asking what does that roadmap look like? They're being very deliberate and they understand that it's not an easy undertaking,” said Bhalaru. 

Digital transformation and ERP systems also play into talent retention concerns which are top of mind for CFOs right now as well.

“I’m noticing a lot of my clients are coming to me asking for automation so that their employees don't have to do mundane, boring, routine tasks that a system or digital worker can be automated to do, while they can focus their energy on serving their clients or being innovative and doing value add work,” explained Bhalaru. 

Re-imagining the people strategy

During economic uncertainty as such we are experiencing today, “we encourage our CFOs and our executives to re-imagine their people strategy and to not lose focus on improving the employee experience and the employee journey,” said Bhalaru, and ERP systems can help CFOs achieve this. 

As we have seen, things like attracting and retaining talent — which Bhalaru sees as a key metric to look out for in the midst of a looming recession — have remained top of mind for CFOs. ERP systems can track the lifecycle of an employee, as well as subcontractors, from hiring to retiring.

“In an ERP, you can also align employee skills so you make sure that people have the right skills for the role and are able to help them upskill through certifications and training programs,” said Bhalaru. This idea of upskilling can also save businesses in turnover costs. 

The signs of poor quality software can be obvious: bugs, errors, complaining customers, and the inability to execute projects because tools aren’t up to the task.

But the financial costs of these flaws can quietly add up. Software quality issues cost U.S. businesses $2.41 trillion in 2022, according to a report from Synopsys and CISQ. That’s nearly double the cost of the U.S. budget deficit.

These costs come from cyberattacks that target existing vulnerabilities, software supply chain issues, and the growing impact of accumulating technical debt. 

“This is not just about having better functioning software. It’s about having software that actually works the way it’s supposed to,” said Anita D'Amico, vice president of cross-portfolio solutions and strategy for the Synopsys Software Integrity Group.

Fixing software can be an expensive undertaking, but one that will only get worse if ignored. That can cost enterprises in terms of lost opportunities and — potentially — customers. But it’s possible, starting with reconfiguring the development process, and tackling the biggest issues first on the road to software redemption.

Rethinking software, from development up

Poor software quality can be a consequence of relegating security and quality assurance to the last stages of the development process.

Both criteria should be considered before the software is designed and developed. They are part of architectural analysis and threat modeling, said D’Amico. “It would be like designing a house without thinking whether or not you’re going to need air conditioning.”

That strategy might require a paradigm shift, especially since software quality and security are not required courses in college, she said. Plus, “people are in a rush to get code out,” with efficiency, performance and scalability taking precedent.

Problems with software quality can also become evident once a product is released before being tested at real-world scale, said Brian Alletto, a director in the technology practice at West Monroe.

“Things may work at a very small proof of concept stage, but then when you scale up to a larger enterprise, to even internet scale, you find the technical decisions you made for the small scale system just don’t work,” he said. 

Considering issues like reliability, security, and scalability during the development process can address these issues before they run amuck.

Testing and quality tools should be “put into the developers’ hands as part of their development process,” said D’Amico. “Once you put it into the pipeline, you can break a build because [of] security, quality or compliance issues."

Lost opportunity costs add up

Fixing poor quality software can be expensive, not just in having to repair issues, but in the time and effort required for those repairs — which could have been spent on something else. 

“All that time that your developers are doing the workarounds for this poorly designed system is time that they could have been working on a new feature of a new project,” said D’Amico. 

Constant bug-hunting can take a toll on developers. More than 2 in 5 developers said fixing bugs is their biggest pain point, according to Rollbar’s 2021 State of the Software Code report. The report also found 2 in 5 respondents spent 25% of their time fixing bugs. Even more alarming, 88% of respondents said that bugs and errors were first found by customers. 

Problems being obvious to customers is why poor software quality is also an immediate business risk for CIOs, D’Amico added. “If that system is a must-have and it really isn’t functioning properly … the customer might not be happy,” she said.

Finding and fixing software

A good place to start is by doing inventory on underlying platforms and technology components. 

That approach can help CIOs identify products running on older versions of commercial or open source software, said Alletto.

“You can start finding things, just from an age perspective, that are pretty strong indicators of technical debt,” he said. CIOs can also look for trends in operational history, and look for an increase in errors and indications of customer dissatisfaction.

Finding where poor quality software lives can help create a road map to prioritize “what are we going to tackle, what is really impacting innovation, what is impacting services?” said Alletto. 

While the best time to fix poor software was during development, that’s not going to help CIOs stuck with poor quality software now, said D’Amico. 

Once there's a clear picture of what technical debt looks like, the next step is to prioritize the issues which could cascade and have the biggest impact, she said. That way, CIOs can address technical debt by “paying it down faster than it’s accumulating.”