Investing in ERP (Enterprise Resource Planning) is a big and often expensive decision. But businesses go into it because they have been promised it will revolutionize their workplace and add value to their organization. Why then do so many ERP implementations fail to deliver on their promises? More importantly, what can you do to ensure that your ERP implementation project is a success?
This four-part series, ERP Implementations Reimagined, presents a new, forward-thinking approach that will drastically improve ERP Implementation success. In part 1, we talked about the flaws in the Sure Step Method used by most Microsoft Dynamics partners. Part 2, addressed the problem of shadow ERP.
In Part 3, we’ll talk more about the manual workarounds, customizations, and third-party add-ons of Shadow ERP. We’ll help you identify signs of spreading Shadow ERP and ways to address the problem.
Chasing ERP Shadows
You may wonder why we are interested in defining and focusing on Shadow ERP. Experience has shown that the impact of Shadow ERP usually only becomes evident after an ERP implementation has failed to deliver as promised. It should be discussed before an implementation partner is selected or engaged. Failure to plan will just perpetuate the experience of challenged or failed projects. At best, it will add significant cost to your project.
At Pelorus, we feel it’s critical to identify and examine Shadow ERP elements for improved ERP selection, implementation, and upgrades. Two aspects to consider:
Shadow ERP Components
Identify Shadow ERP components for a better understanding of business requirements and user behaviors
Shadow ERP Ratios
Analyze Shadow ERP ratios to identify critical trends
Shadow ERP components unearthed
Start by illuminating all Shadow ERP components. These are the workarounds and auxiliary tools and systems you have installed to perform tasks that your ERP system should handle. Examine each user, department, and business process. Gauge the level of complexity and figure out what’s really going on.
It’s important to find out why these Shadow ERP functions are not being cared for by your ERP. Is it faulty software, a botched implementation, or insufficient training and adoption?
Considering each Shadow ERP component, it’s important to ask whether it is adding functionality and value to a correctly implemented ERP. Or, is it being used to supplement the functions of an improperly implemented ERP or lack of training?
Understanding the totality of Shadow ERP elements will present a fuller picture of your organization's actual requirements. Meeting these requirements should be the goal for your successful ERP selection, upgrade, or implementation project.
Shadow ERP Ratios
You’ve identified all the non-ERP components and processes lurking in the shadows. Now you can begin to understand the ratio of time and resources wasted with Shadow ERP.
Look at a couple of examples:
- Your CO spends ten percent of his time looking up information in the company ERP system, and ninety percent analyzing data that he has downloaded/exported from the ERP system. So, 90% of his ERP-related time is spent outside the existing ERP software working in Excel, potentially a Shadow ERP program with a 90/10 ratio.
- Your Production Manager spends ten percent of his time looking at production orders in the company ERP system and ninety percent of his time downloading production order and inventory balance information. Then he uses the downloaded data to create purchase orders and update production orders. Again, we could calculate that 90% of his ERP-related time is spent outside the existing ERP software working in Excel, a Shadow ERP program.
On the surface, these two percentage ratios look the same. However, a knowledgeable ERP implementer knows that they are dramatically different. The 90/10 ratio might be all right for the CFO. But the same 90/10 ratio is completely unacceptable in the case of the Production Manager. Why?
Spending ninety percent of his time analyzing financial data in Excel may be a perfect use of a CFO’s time. And his tools may be appropriate. On the other hand, the same 90/10 percentage ratio is unacceptable in the case of the Production Manager. His use of Excel replicates functionality that could be handled by a properly implemented ERP solution. His use of Shadow ERP elements should trend towards zero. The ninety percent points to a dramatic failure of ERP setup or training.
It all comes down to assessing which tools are needed for each job and building your ERP solution accordingly.
Shadow ERP health check
Once you’ve identified the Shadow ERP elements in your organization, consider the following for each:
- What is the role of each player in the process supported by the Shadow ERP element?
- What is the nature of the process it supports (individual, departmental, enterprise)?
- What role can your ERP play in the related process tasks?
- What is the lifecycle of the data in each process and which stakeholders need access and visibility?
- What is the cost of relying on Shadow ERP components?
The team at Pelorus has used the Shadow ERP examination to inform a new ERP implementation methodology. We help enterprises implement, adopt and support the right tools for their processes to drive them towards their goals. Applying this methodology to organizations of various sizes and industries we establish benchmarks and best practices that will help companies to avoid the Shadow ERP trap and failed ERP rollouts.
In Part 4 of ERP Implementations Reimagined, we will explore a reporting tool used by Pelorus to transform the concept of the Shadow ERP ratio into actionable insights. Not coincidentally, the specific reporting application we’ll discuss is called Insite, developed by
To learn how you can apply this methodology to check the health of your own systems and processes,