990312; Wanted: ERPeople Skills - COVER STORY: ENTERPRISE RESOURCE PLANNING -

Original Source
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Mar. 1, 1999 Issue of CIO Magazine

S ANYONE WHO HAS EVER SURVIVED the implementation of an enterprise resource planning (ERP) system can tell you, it's not about the technology, it's about reinventing the business. And, although your company may pay tremendous lip service to people and cultural issues, when it comes to a major ERP initiative you ignore them at your peril.
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In its brief history, ERP is more often identified with out-of-control budgets and questionable returns than with business transformation. Replacing dozens of legacy systems with a single integrated one for managing operations across every discipline—finance, human resources, procurement, materials management, sales and distribution, production, order management—is challenging even for companies with generous IS budgets and a hefty staff. Equally daunting, because ERP is so intertwined with business processes, is the task of effectively changing the daily activities and behaviors of many of your employees. For instance, a warehouse worker managing inventory spreadsheets pre-ERP could be forecasting customer demand and making critical business decisions after ERP. Are you confident your workforce is ready for those kinds of changes?
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From an organizational viewpoint, ERP concepts are especially tricky because they go against the mantra of decentralization, which many companies adopted in the '70s and '80s to spur innovation among business units. These sophisticated enterprise systems require a switch from a functional to a process orientation because modules often cut across traditional departmental lines. That's tough for companies with myriad independent business units that are unaccustomed to sharing information or coordinating with other divisions.
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Finally, the spate of mergers and acquisitions in many industries over the last decade has made the integration problem more vexing. Taking a hard look at your company's unique culture—before you choose a system—is the first step toward preventing resistance in the ranks.
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Unfortunately, many companies have paid the price for ignoring corporate culture in a mad rush to slam-dunk the system. Take Westinghouse Electric Corp. (now CBS Corp.), which began an SAP/R3 finance and purchasing installation encompassing six business units in 1994. During the recession of the early '90s, Westinghouse was forced to write off $5 billion in bad loans—approximately one-third of its revenues—from its financial services unit, according to Don Janson, former SAP project manager at Westinghouse, now director of financial process improvements at Ingersoll-Rand Co. in Woodcliff Lake, N.J. When a new chairman was hired to lead a turnaround strategy that included cutting costs through standardization, the IS department had just over a year to get the system up and running.
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Westinghouse had been organized in a highly decentralized fashion since the 1970s, with each business unit controlling its own finances and resources. The project team did not spend much time educating the businesses that moving to a centralized, shared environment would help Westinghouse become more efficient, and it met resistance as a result. Faced with a loss of autonomy, managers from various divisions haggled over the new reporting structures, standards for coding systems and other common processes. Further, they were slow to provide information the project team needed for the implementation. Finally, says Janson, "senior management had to come in and lay down the law."
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The project team extended the deadline by three months to work through the problems, costing Westinghouse an added $3 million to $4 million. Janson says the company learned the value of educating all stakeholders, not just the end users. In his new position at Ingersoll-Rand, Janson predicts he will soon head another ERP project. His first step will be to hire a consultant to help assess the culture. "Most companies don't have good change management resources, and sometimes it's better to get an outside view." Second, he plans to hire a change management director, who he believes should report not to the CIO but to a general manager or other cross-functional title.
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In some cases, the challenge of ERP is not so much gaining buy-in but helping employees cope with fundamental job makeovers. And if ever there was a company in need of a face lift, it would be The Boeing Co. The embattled aviation giant has been struggling for 20 years to shed its 1940s approach to building planes.
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Since World War II, Boeing's commercial airline division has built up an amazing conglomeration of legacy systems, including the 450 that feed data into the production process and that are being replaced through Boeing's business process and systems improvement plan. At last count, there were 14 bill-of-material systems and 30 shop floor control systems. With every change to an order, parts data must be manually updated in all systems and then triple-checked for accuracy. Still, there have been embarrassing and costly gaffes. In 1997 the company had to shut down the 747 production line for 20 days after a series of mishaps resulted in missing parts and delayed schedules.
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Boeing's announcement in late 1998 that layoffs planned for the next two years had risen to 48,000 is a further indication of the company's production ills. Publicly, the company blames the layoffs on canceled orders from Asia, yet spokesperson Vicki Ray freely admits, "Our planes cost too much to make."

In 1994 Boeing devised a business process improvement plan, of which ERP is just one piece, with the arrival of new management. The cost of the plan was a reported $500 million, although Boeing would not comment. The new ERP system, based on Baan IV finance, manufacturing and distribution modules, an Oracle database and process planning software from Cimlinc Inc. in Itasca, Ill., is up and running in all 19 parts plants across 18,000 users. The engineering area will follow this year. The company is now working from a single source of product data, departments are communicating better and one plant has already shown an 80 percent reduction in the cycle time for a part to flow through the manufacturing process, according to Martin Ritchie, director of Boeing's ERP Competence Center. Boeing is pinning its future on these systems—up to 2,000 people are working on the overall reengineering project implementation, from developing the processes and system to preparing their areas for implementation, at any given time.
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While Ritchie says that many of Boeing's workers are glad to see the changes, the company's culture of independence formed a barrier to introducing common processes. Each department had free rein to make decisions and set procedures. "This culture can lead to one in which 100,000 people are going out and taking charge," he admits.

The ERP project team encouraged flexibility and user involvement in decisions whenever possible. In manufacturing, for instance, plants can choose to install one of four different MRP modules. In areas like materials planning, change was dramatic. Previously, roughly 300 materials planners (under different job titles) worked as expediters, hunting down parts on the shop floor. Now they work as buyers, ordering raw materials from suppliers and letting the system track parts. Individuals who used to work as buyers are now contract administrators.
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To ease anxiety and help employees learn their new roles, Dave Clark, Boeing's director of knowledge transfer, introduced a "proof of concept" exercise, an eight-week knowledge transfer course on the system that involves users and managers from every department in the plant. During the course, employees work together on a problem, such as how to handle an emergency order or a last-minute design change. Cross-functional training has torn down walls between previously isolated areas like finance and engineering and helped everyone understand the impact one change to the system has on the entire operation, according to Clark.
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The first course had 300 participants but no managers, a mistake the company paid for after the system went live. Managers continued to work off the old "hot lists" for parts requests and began to reshuffle work rather than follow instructions in the system. That caused further parts shortages and general chaos until the managers came up to speed on the new process, Clark recalls. Now managers attend the training, and, says Clark, "life is good in the parts plants."
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Clark knew the exercise was a success when he learned that a manager in one of the divisions called the accounting department to report that an error he made in the system might affect a customer's invoice. "Now people at the plants have an understanding of finance. That's a real powerful thing," he says.

Clark hopes the massive reengineering program will catapult the world's largest exporter out of the Dark Ages. Early results show the company is headed in the right direction: The machine fabrication plant in Auburn, Wash., has met its 25 percent cost reduction goal and is delivering sales orders on or ahead of schedule 85 percent to 90 percent of the time, as opposed to 65 percent to 75 percent of the time under the old processes. Casual surveys also suggest that employees have better control of their work and higher job satisfaction. Boasts Clark: "We have replaced the informal knowledge sources with people who are pretty savvy with how the enterprise works."

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Introducing ERP across a complex production process is an ongoing communications struggle. Imagine the rise in complexity once the project crosses U.S. borders. As AlliedSignal Inc. learned, the people you choose to lead the effort make all the difference. A $14.5 billion manufacturer of aircraft and automotive components, chemicals, fiber and other advanced materials, AlliedSignal's turbocharging systems division is in the middle of an SAP/R3 project spanning 11 countries, 18 sites and 9 languages. The company developed an enterprise systems strategy in 1996 to help improve productivity in logistics and supply chain management, beginning with its turbocharging systems division, which makes turbochargers for cars, trucks and airplanes.
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In the last two years, Jeff Smith, CIO of the turbocharging systems division, has spent 28 weeks in Europe, Asia and South America and could probably write a book on the subtleties of international business culture. Despite the cross-culture challenges, Smith decided that a big-bang approach of launching all nine SAP modules at once at each site would help the division meet Allied's broader corporate goals for common global processes and would also eliminate Y2K costs. With a time frame of roughly seven months to implement new processes, data standards and systems in each country, the pressure was intense, Smith admits.
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Given the cultural and political differences between nationalities, Smith realized that people would resist the new business model unless there were local representatives on the project team. He attributes the project's success largely to the global team, whose 15 members represented all 11 countries. "It never would have worked if they were all Americans," he says. Each member of the global team brought expertise in one of the SAP modules and worked with the local teams as consultants during the implementation, defining requirements, assisting with training and ensuring design consistency around the world. The global team also facilitated and approved requests for customization, which, if deemed appropriate, were copied around the world. Smith says conflicts over standards lessened with time as people learned of progress at the early project sites. Smith calls the global team "the fabric that held all the decisions together."
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A major roadblock was overcoming skills gaps between the plants. In some countries, workers were using paper or, at best, spreadsheets to manage the production schedule. In France, workers had no concept of modern production principles such as planning ahead for customer demand. With the help of in-house trainers and experts from Buker Inc., an Illinois consulting firm, every user attended functional training in ERP manufacturing disciplines, along with SAP technical training.
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At the national level, the local business culture dictated the training method. The French, for instance, tended to segment workers into narrow, vertical job roles and required heavy documentation, while the Irish, who have broader responsibilities, needed more general training across several disciplines. "We wanted to make sure that when SAP turned on, we had the right people in the right positions, ready to execute the job," Smith explains.
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While Smith says many low-skill jobs at the plants were eliminated with the new system, company growth has allowed the displaced workers to find other factory positions. Smith proudly reports that the turbocharging division is now managing customers and suppliers from a central database, and on-time product delivery rates have jumped from 65 percent to 92 percent. He says the hardest part of the project has not been resistance but a lack of readiness in countries where ERP processes were brand new. He adds that prioritizing requests across several countries at once became "a very draining process."

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Spend a few minutes with ERP warrior Jorge Taborga, vice president and CIO of networking company Bay Networks Inc., who took his company through a kamikaze nine-month implementation from October 1995 to July 1996, and you'll get a little different perspective from Smith's. "It was a blast." he says. Not one to mince words, Taborga's overall message is to think simple. Resist customizing the software or including optional features and promise only what can be delivered in the time frame. "The objective should always be to aim high enough to make a difference, but not so high that the target will be missed," he says.
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Since the Silicon Valley networking company replaced a patchwork enterprise system based on software from Ask (now a Computer Associates division) with SAP/R3 financial, distribution and manufacturing modules, the company has realized a $20 million return on investment from a number of improvements, including better inventory turns and on-time delivery.

Formed from a 1994 merger of SynOptics Communications Inc. and Wellfleet Communications Inc., Bay Networks (now owned by Nortel Networks Ltd.) was struggling to keep up not only with its hotshot competitor Cisco Systems Inc. but also with 35 percent growth rates in the networking industry. The company needed an integrated system that wouldn't take two years to install.
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Taborga focused on three principles to ensure success: scope management, speed and "constant care," his term for a stable, ongoing support team. The trick was to convince stakeholders that a slimmed-down system would help the company achieve its goals more quickly—and avoid the typical burnout of ERP project teams.

As the SAP project director, Taborga was the disciplinarian. He issued business managers IOUs for functionality that would not be included in the nine-month project scope and instituted a 70 percent accuracy rule for rapid decision making that allowed the project team to make decisions based on incomplete information. Taborga says speed was a major factor in managing the change. "It eliminated a lot of the 'why' and 'how' arguments," he says. Taborga spent most of his energy selling the project to top executives in each department, who were then charged with the task of carrying the message to their staffs.
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Taborga also worked to minimize job changes. New jobs were not created to match the system as in some ERP projects. Aside from basic SAP training, the project team worked individually with users to explain the added responsibilities they would have and designated "power users" in each area who serve as both ongoing training resources and IS liaisons. The project team then ran SAP workshops so that managers could learn the system's impact on daily operations.

If he could do it again, Taborga says he would have included more business simulation sessions. He worries about the ramifications of giving users such power at the desktop. "SAP is like a jet fighter, capable of destroying cities. If a mistake is made [in the system], it can affect product availability, which, if it were to happen at the end of the quarter, would be fatal."
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Taborga believes the experience has created a "good change culture" (which he defines as the ability to adapt to change and embrace teamwork) at Bay Networks and is proud to report that the IS department has not missed a deadline for an SAP implementation in the four years since the project began. The company even created a new service offering to help its customers better manage their SAP projects. In ERP initiatives, Taborga believes the CIO's most important task is developing relationships with the business and ensuring constant support. "If the CIO does not take this active role, the project is not going anywhere," he says.

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Communicate with stakeholders, develop relationships, foster collaboration, strive for simplicity. Sounds pretty basic, right? Not really. ERP is a long-term commitment that requires long-term support. Training and education shouldn't end after the system has gone live. While there is no "right" way to implement ERP, the core ingredient of every project—and the toughest to do well—is active and engaged leadership. Someone from the top—whether it's the CIO, COO, CFO or CEO—must own the role of "change champion" for the life of the project. As the companies above demonstrate, the most important step you can take as the leader of an ERP project is to plan for culture change well before the implementation begins. The second step is to act on those plans with a dedicated change management program.
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Consultants believe that evolutionary change in business from ERP will not occur until organizations begin to reorganize their businesses around processes, which means pitching the old organization chart and starting anew. Ideally, says Ingersoll-Rand's Janson, companies should create employee support departments for HR and payroll, vendor support for purchasing and a customer department for sales, marketing, manufacturing and scheduling. But remember, there are people behind that org chart. As one CIO joked about the challenge of converting a paper-based manufacturing plant to the company's new ERP system: "It's much easier to reprogram a robotic piece of equipment. It's not going to talk back to you."

Senior Writer Polly Schneider can be reached via e-mail at pschneider@cio.com.

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