ERP Migration – Opportunities and Risks
When the focus of digital transformation or process optimization in a mid-sized company is on revenue growth, the courageous questioning of existing systems is often the prerequisite for successful and sustainable scaling. Increasingly, the ERP system that has been in use for many years comes under scrutiny. Particularly smaller and medium-sized, down-to-earth SMEs are frequently confronted with a challenge that requires a clear commitment to change from top management. Often, a profound break with the past is necessary to successfully implement a new ERP system.
The starting point is often the same: the old system consists of a multitude of “satellites” developed internally over the years by various developers. These are software and function satellites, as well as data silos, that have met a wide range of process and data processing requirements over the years. Documentation of this evolution is often sparse or even nonexistent.
The companies’ dependence on their IT and/or developer departments has grown year after year, in parallel with the increasing complexity and instability of the systems. Whether for simple updates or complex upgrades, the effort required to optimize the old system increases each year. All too often, companies react too slowly – or not at all – to market changes and are overtaken by competitors. Does this sound familiar?
There are not many options left to companies. One of them is the introduction of a new, modern, and scalable ERP system. In the first step, most companies will ask themselves which system to choose, how much the ERP implementation will cost, and how long it will take.
The insolvency of the Klingel Group has made it clear: an ERP migration can not only help on the path to growth but can even be absolutely essential. However, in rare cases, an ERP switch can also lead to collapse. The reasons are usually the same:
Insufficient – especially process-related – expertise within the client’s departments
Many of the managers who are usually appointed as key users for such a project have been with the company for many years. The advantage of this is their knowledge of the company. The disadvantage, however, is a lack of flexibility when it comes to adapting or questioning existing processes. Phrases like “We’ve always done it this way” come as intuitively as “We’ve tried this before, and it didn’t work.” In the worst-case scenario, you have to expect the project to be actively undermined.
So, what is the solution?
At the beginning of every ERP implementation, there must be a change management process. As an entrepreneur, you expect results: greater efficiency, cost savings, faster processes, fewer errors, increased customer satisfaction, and more transparency. However, this desired transformation does not happen by implementing an IT system alone. While your new ERP provides the technical potential for these improvements, it is your employees who must translate these optimizations into day-to-day practice. You should therefore anticipate fear, skepticism, and resistance to the new system. Experience shows that, in addition to appointing an ERP implementation lead, it is highly advisable to involve a change manager – whether internal or external.
If the key users – your managers – lack sufficient professional expertise, I strongly recommend considering interim solutions. This is particularly relevant in logistics, procurement, and often sales – whether digital or traditional. In the end, this will cost you less money than relying on employees who do not think in terms of processes and, often due to lack of experience, want the new ERP to look and behave like the old system. If a key user position is assigned to the wrong or inexperienced employee, you are highly likely to incur significantly higher costs for custom ERP adjustments than originally anticipated.
Insufficient or no relief of key users from daily business operations
ERP implementation is a massive project. Those who underestimate it quickly learn otherwise! It requires not only excellent time and financial planning, competent key users, and an experienced, forward-looking IT leadership. Key users in particular will – depending on company size – be pushed to their limits during various phases of the rollout. It is not uncommon for implementation partners to use a workload factor of 1.5 to even 2.4 per key user. This means that one employee will need to dedicate 1.5 to 2.4 times their usual work hours to both daily operations and the project simultaneously. At a factor of 1.5, that equates to a 60-hour week; at a factor of 2.4, a 96-hour week.
This is why top management plays such a crucial role: providing relief from day-to-day operations during ERP implementation. A professional ERP implementation can take anywhere between 1.3 and 2.5 years. The math on key-user workload is simple: without sufficient relief, burnout, frequent absences, and even rejection of the project are practically guaranteed.
Relieving key users from daily business tasks – including professional redistribution of their duties – is therefore not just advisable, it is essential.
Inaccurate or constantly changing estimates of project duration
When looking for a suitable system and implementation partner, you will almost certainly be presented with various persuasive sales presentations. These will give you an impression of proven processes and methods. The fact remains that at the time of the initial proposal, your implementation partner either has no or only very limited knowledge of your company processes. These will only be determined during the so-called analysis and design phase, and later additions or new insights – sometimes significant ones – cannot be ruled out.
If your company has not yet documented its processes, this is the first and mandatory step before commissioning an ERP implementation. If internal resources are insufficient, process documentation – for example, using a BPMN framework – can be carried out by external partners. It is important that the documentation is created digitally in a tool you already use internally or plan to use in the future.
Once the processes have been documented and handed over to potential implementation partners, along with the requirements for the future system, the partner has a solid foundation for estimating the overall effort.
Even if the processes are documented, a professional list of requirements is available, and the implementation partner presents you with a project schedule through to go-live, I recommend applying a factor of 0.5 to 2.3 to that schedule. If your partner presents you with a timeline showing that go-live can be achieved within 18 months, in reality, it is likely to take 27 months or even more. It is important that, for projects billed on a fixed daily rate, substantial reductions are agreed upon in case of timeline overruns.
The fact is: without a precise timeline broken down into the typical analysis, design, implementation, and testing phases, there is no planning certainty. You will always be on the safe side if you plan with a sufficient time buffer.
Incorrect calculation of the total financial effort
It is practically impossible to estimate the costs of an ERP implementation in advance of a thorough analysis. Understandably, you may still request a preliminary figure from the provider. Any professional ERP implementation company, however, should make it clear that the initial estimate may deviate significantly from the actual costs incurred during the project. Deviations of 50% are not uncommon.
The more detailed and precise the analysis of all processes and data is before the start of the ERP implementation, the better ERP providers can tailor their approach to your requirements. This has a cost-reducing effect, but it is simply unrealistic to exclude unforeseen additional costs entirely.
Throughout the ERP project, you will inevitably encounter many processes and challenges that will lead to additional effort.
For example, you may suddenly find that the standard price control mechanisms in the ERP system do not match the needs of your business. Or your warehouse manager unexpectedly discovers that your current picking and packing process cannot be represented in the new ERP standard.
Similar challenges are certain to occur. Beyond employee motivation, resilience and problem-solving skills play a decisive role. You will often have to decide between adopting the ERP standard or opting for custom development. The latter not only costs money but is often simply unnecessary. The phrase “We’ve always done it this way” will accompany you throughout the project.
Arthur Hentges is therefore: if your processes can be mapped using the standard ERP functionality, stick strictly to the standard. While deviations and customizations cannot be completely avoided, they should be reduced to the absolute minimum necessary.
