IN SEARCH OF BUSINESS VALUE:

HOW TO ACHIEVE THE BENEFITS OF ERP TECHNOLOGY

Panorama Consulting Group

Introduction

In today’s increasingly competitive business environment, significant investment in Information

Technology (IT) is becoming an important source of competitive advantage and operational
efficiency. Companies are implementing tens of millions of dollars at a time to implement SAP,
Oracle, Siebel, or other large ERP or CRM technologies in hopes of achieving dramatic
improvements in an organization’s efficiency. In their quests to successfully implement these
complex technologies, most companies are well versed in their abilities to develop detailed
business cases to gain management approval for the proposed systems.

However, despite the benefit appeal of information technology, managers need to understand the
primary drivers of technology benefits realization and avoid the many obstacles to full benefit
achievement. Many of the drivers are related to employee and technology alignment with overall
strategy; an organization’s employees are ultimately the ones that will determine the benefits and
overall success of an implementation. By focusing on using ERP as a tool to achieve overall
business objectives, IT and corporate managers will be able to better maximize the potential
benefits of any particular system. A comprehensive benefits realization program is needed as a
part of any IT implementation to ensure that this maximization occurs.

This paper will discuss the obstacles and drivers of technology benefits realization and focus on
how managers can optimize the potential of information technology. In particular, this paper will
outline the obstacles to technology benefits realization and the “levers” managers can use to
realize IT benefits using their existing people, processes, and organizations. In addition, the
paper will outline specific tools and approaches for leveraging the possibilities of technology,
including performance measurement, organizational design, process improvement, training and
communications.

An understanding of the topics presented in this paper will ensure that managers understand the
organizational challenges of benefits realization, as well as how to leverage their people to
achieve the benefits promised by technologies. In addition, this paper will allow managers to
maximize the potential return on IT investments within their organizations. Only by
understanding these concepts and tools described above will managers be able to drive their
organizations to high performance and maximum operational efficiency.

The Need for Benefits Realization

There are a number of reasons that companies implement cutting-edge technologies as part of
their IT strategies. Cost pressures, organizational inefficiencies, and hype are all common

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catalysts for the introduction of new technologies. However, despite the compelling reasons for
information technology, many companies fail to realize the full benefit of these technologies.
According to Gartner Group, 27 percent of organizations are not able to or have not tried to
measure the benefits of technology. In addition, another 64 percent of companies have only
realized “some” benefits that are possible through the use of technology. Similarly, Information
Week recently found that through the end of 2002, only 25 percent of IT projects will have
delivered hard monetary benefits.

Given the millions of dollars that many companies spend on IT projects annually, these figures
can be disturbing to management and shareholders. To many CFOs and other managers, it is
difficult to fathom the thought of a $5 million to $40 million-plus IT investment without
knowing what the exact benefits payback will be. Many companies develop business cases to
justify IT investments to gain budgetary approval, but very rarely is any type of follow-up
analysis done to determine what the actual benefits of the implemented technologies are. While
many IT projects are positioned to deliver nonquantifiable strategic benefits, it is difficult to
justify current and future IT spending without a more disciplined approach to such investment
decisions. Clearly, there are a number of compelling reasons to incorporate a benefits realization
approach into any IT implementation project. This type of approach addresses the
above-mentioned difficulties in measuring and understanding the actual benefits of information
technology.

What Is Benefits Realization?

Benefits realization is a comprehensive project approach that focuses on identifying, measuring

and ensuring the business benefits achievable through technology. As mentioned above, business
cases and cost-benefit analyses are often developed by managers to gain initial budgetary
approval for IT expenditures. In contrast, benefits realization breaks down high-level benefits
into manageable chunks, measures benefits after implementation, and utilizes tools to ensure that
the true benefits potential of projects are attained. Benefits realization is a comprehensive and
integrated approach that focuses on realizing business value, and it combines elements of a
cost-benefit analysis, performance metrics, organizational change management, and process
modeling. In short, benefits realization supplements the technical aspects of an implementation
with the business side of the equation to ensure that potential benefits come to fruition.

An effective benefits realization approach consists of a number of activities beginning at project

inception and continuing through implementation. These activities, which are illustrated in a
timeline relative to an IT rollout schedule in Figure 1, include the following:

• Development of business case, corporate metrics, and benchmark

One of the first activities to occur as part of an IT project is the financial justification of
the necessary technology investment. It is important to identify and quantify the potential
benefits of the project, and compare those to the projected costs associated with the
proposed information technology.

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 • Organizational Change Management (OCM) Cultural Assessment
Since most IT implementations involve large-scale change in terms of end users learning
new technologies and processes, it is imperative to assess the company’s culture early in
the project to identify cultural areas that will need to be addressed. Cultural obstacles can
significantly undermine the success of a project, and this area should be addressed early
in a project since implementing cultural changes are long-term in nature.

• Cultural Change
Based on the results of the cultural assessment, there may be areas that need
improvement to enable the large-scale changes required of the project. Given the
challenging nature of cultural change at many companies, it is recommended that
managers focus on the largest gaps rather than try to change each and every aspect of
culture that needs to be addressed.

• Communications
To ensure acceptance of the new technologies, it is important to effectively communicate
changes to end users. This should be done through a variety of channels and should be
targeted for each audience.

• Business Process Modeling

While this may seem intuitive to most, it is often not performed adequately or not
performed at all. In order to realize the full benefits of technologies, business processes
need to be modeled and improved to improve efficiency and to make certain that
technology is not merely used to “pave the cowpaths.”

• Development of Operational and Departmental Metrics and Benchmarks

While most business cases effectively develop high-level projected business benefits for
an implementation, it is perhaps even more important to translate those metrics into
operational numbers that department and other middle managers can be held accountable
for. High-level benefits are useless if they are not presented in a way in which individual
managers can be measured. Therefore, the business case must be translated to target
levels of performance at the departmental level.

• Organizational Job Design and Planning

Just as processes need to be evaluated and changed to enable forthcoming technologies,
job descriptions, reporting relationships, and work accountabilities all need to be
evaluated and redesigned to support new technologies. Often new information technology
will require workloads to shift on to new work groups, and this type of change needs to
be identified early in the project.

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 • Detailed Process Design
Once the high-level process modeling is complete, which identifies who will do what
type of work at a high level and how that work will be completed, it is important to take
this process modeling to the next level and develop more detailed Level 4 to 6 process
models to ensure that individuals are able to clearly understand their roles,
responsibilities and individual processes pertaining to them. Many companies effectively
model their high-level processes, but they more often than not fail to develop detailed
processes to identify and document how individuals will complete their work with the
new technologies. In addition, developing more detailed processes based on the
high-level processes ensures that use cases and other technical activities are closely
aligned with the intended business processes. Often, process modeling is performed
independently of key software development activities. This detailed process design
activity also helps direct training courses developed further downstream during the
technology rollout to end users.

• Individual Metrics, Processes, and Benchmarks

While operational and departmental metrics are useful to hold managers accountable for
contributing to the potential benefits of technology, they in turn must then be translated to
individual metrics so individuals understand how their performance contributes to the
success of the project. For example, if I am a customer service manager, how does my
day-to-day work and performance add to the overall benefits identified in the business
case?

• Organizational Job Design Implementation

Once the organization and related jobs have been designed, it is time to implement the
necessary changes. Simply documenting how jobs and structures will change as a result
of new technologies is not enough; those ideas must then be translated to reality to ensure
that the changes become a part of the new organization.

• End-User Training
Using the detailed process models developed above, it is important to then develop
end-user training that not only helps end users understand how to use the new
technologies, but also how to perform their new processes and job functions. Many
training programs underestimate the value of the latter.

• Reward Design and Implementation

Unfortunately, designing new processes, establishing metrics and targets to identify
potential benefit areas, and conducting traditional change management and end-user
training is not enough to ensure that people are motivated to make the project succeed.
Companies must also incorporate reward systems to ensure alignment between individual
performance and project benefits achievement. Establishing new Key Performance

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 Indicators (KPI)s as part of an annual review process is an effective way of ensuring this
level of alignment.

• Benefits Measurement
Here is where the real value of benefits realization comes into play. As mentioned, most
companies do not measure actual benefits after implementation, but a comprehensive
benefits realization approach does. It is imperative to compare actual results to projected
departmental and individual results to identify any potential benefits gaps. It also enables
managers to understand what they are doing well and ensure that they continue to realize
the benefits in these areas. Unfortunately, no matter how well managers have
incorporated the subsequent activities (discussed above) into their project plans, there are
almost always areas where full benefits are not achieved initially.

• Root Cause Analysis of Benefit Gaps

Based on the post-implementation measurement, it then becomes imperative to
understand why certain gaps exist. Root cause analysis, such as understanding why
people are not becoming more productive with the new technology, helps clarify the
reasons for the gaps. A common example of a root cause of less than 100 percent benefits
realization is that end users understand how to use the technology but they don’t
understand the importance of doing so, so they often resort to workarounds and perform
their jobs as they did prior to the new information technology.

• Implementation of Corrective Action

Once the root cause of benefit gaps have been ascertained, it is then time to implement
activities to address the root cause analysis for the problem areas. In the example of not
having a thorough process understanding of how an end-user’s work contributes to
downstream activities, it may be appropriate to develop and conduct some follow-up
training to address these areas.

Engineer
Phase Go-Live
Business Case/Corporate Metrics/Benchmarking

OCM/Cultural Assessment
Cultural Change and Communications
IBPM/BPR (Level 1-3)

Operational Metrics/Benchmarking
Org/job design planning
Detailed process design (Level 4-6)
Individual/Dept Metrics/Benchmkg
Org/job design implementation
End-user training

Reward design/imp
Benefits measurement
Root cause analysis of benefits gaps
Implementation of corrective action

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 Figure 1: IT rollout activities

Many of these activities are included to some degree as part of overall project plans. Benefits
realization in and of itself does not offer any groundbreaking activities that have never been done
before. The challenging aspect, however, is ensuring that all of these activities are implemented
effectively and in alignment with the technical aspects of the project. This is where benefits
realization provides real value — by ensuring that all of the activities are completed in an
integrated fashion and that post-implementation activities measure and ensure benefits are
actually realized. The activities prior to implementation are intended to establish a foundation for
benefits realization potential, while post-implementation activities are intended to measure and
ensure that the benefits come to fruition.

Benefits Realization Tools

While benefits realization focuses on an integrated set of activities, it also entails a number of
tools that can be used to effectively perform the tasks:

• Business Case and Metrics

Traditional financial and cost-benefit analysis is a useful tool for outlining and
documenting the high-level benefits to be achieved by the proposed technology. In
addition, it is useful to also examine industry benchmarks to gain a more accurate
understanding of the potential benefits of technologies. Consulting and benchmarking
firms are often invaluable sources of data regarding the impact of information technology
on actual performance and metrics.

• OCM Tools
In order to measure a company’s cultural gaps, it is helpful to conduct an Organizational
Culture Inventory (OCI), which measures the current and ideal culture in 12 different
areas. This tool helps identify the biggest gaps to enable these areas to be address as part
of the IT project. If the large gaps continue after go-live, there will be significant
end-user resistance to the associated changes.

• Process Modeling Tools

There are a number of approaches that can be used to model and document processes, but
the most effective approach used by our clientele has been to use a best-of-breed model
as a starting point and then tailor it to fit a company’s unique operating conditions. This
approach is more accelerated and time- and cost-effective than undergoing complete
business process reengineering from scratch.

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 • Skills Gap Matrices
As part of the job and organizational design activities, it is helpful to develop a matrix
that identifies the required skill set for each major job type as a result of the new
technologies and processes. This matrix can then be used to compare required skills to
actual skills, which can then act as a catalyst for developing training requirements. It is
important to capture both technical skills as well as business process skills in these
matrices. It is also important to evaluate every major job area that will be impacted by the
upcoming changes.

• Process and Organizational Change Implementation Plans

While organizational design and process models are nice to conceptualize and document
at a high level, it must not end there. It is equally, if not more, important to identify the
changes that are necessary to arrive at the “to be” process and organizational states and to
develop corresponding change implementation plans to make the changes actually
happen. For example, how might you change the role of customer service representatives
to ensure they use the new technologies? Will we need to work with HR and/or labor
unions to implement the job changes? How will we roll out new rewards and
measurements aligned with the project? These are the types of questions that need to be
answered and addressed with specific timelines and ownership for each task.

• Benefits Realization Scorecards

Once projected organizational and individual target performance metrics have been
identified, it is useful to develop scorecards to track actual benefits performance after go-
live. These scorecards serve as an effective communication vehicle to disseminate
performance results throughout a company.

The Value of Benefits Realization

Why should a company implement this type of benefits realization approach? This paper
identified some of the challenges organizations are facing in terms of measuring benefits, which
is one primary reason for including this type of approach as part of a project plan. However,
there are several other reasons that justify the need for these activities:

• Reduced Project Risk

Benefits realization focuses on ensuring that the full benefits of technologies are
achieved, which reduces the risk of the project failing. In addition, pre-implementation
activities all focus on establishing the foundation for realizing benefits by addressing
process and organizational change management issues that would otherwise undermine a
project’s success. In short, the approach is focused on achieving quantifiable business
value.

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 • Close Alignment Between Business and Technical Activities
This approach ensures that processes, jobs, metrics, and organizational structures are
designed to support the technical aspects of the project, and vice versa. More often than
not, business and technical activities are done in isolation of one another and are
significantly misaligned. Even among business activities, such as organizational change
management and process modeling, there is often a disconnect when in fact they should
be very closely aligned. The most successful projects have a core group of individuals
that perform all of the benefits realization activities discussed above with involvement
from other subject matter experts as needed.

• Proactively Identifies and Addresses Obstacles to Realizing Benefits

Since this approach focuses on measuring actual results and addressing benefit gaps, it
inherently ensures that potential obstacles are identified and addressed early in the
post-implementation project lifecycle.

• Provides More Thorough Understanding of “Lessons Learned”

Since a benefits realization approach measures results, identifies benefits gaps, and
implements corrective action to address the gaps, it serves as a wealth of knowledge for
future IT projects in terms of what the project struggled with, what went well, and what
can be improved in the future.

• Better Justification for Future IT Project Approvals

With the actual benefits measurement that occurs as part of this approach, it is far more
reasonable to gain funding for future projects when IT managers can point to previous
successes in terms of actual financial results. CFOs and other financial managers who are
likely to approve such projects are much more likely to give the green light to other
projects when one can point to exact costs and benefits of previous projects. This
knowledge and apparent financial discipline also conveys a great deal of invaluable
credibility to key decisionmakers.

Clearly, there are a number of ways that an effective benefits realization approach can create
value for IT managers and companies in general.

Conclusion

Given the above discussion of current IT challenges, it is clear that there is a need to ensure that
companies more fully realize the potential benefits of technology. Unfortunately, investing
millions of dollars in new information technology without a compelling justification and
validation of this justification is not acceptable in today’s increasingly competitive environment.
By understanding and integrating a comprehensive benefits realization approach into IT
implementations, managers will ensure that their projects are rolled out successfully and that the
projects translate to wise investment decisions for the company.

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