ERP Implementations and The Valley of Despair

By Tod B. Schwartz for ITtoolbox PeopleSoft Knowledge Base

Tod is an independent Supply Chain Consultant & owner of TBS Consulting. He is CPIM certified & has worked in the manufacturing sector for over 16 years. He has implemented several major ERP packages, in over 40 manufacturing companies.

The new Enterprise Resource Planning (ERP) system has been purchased, the promises have been made, and the project team has trained long and hard. Your company is finally ready to turn on the switch and go live with the new system. Nothing but promised-filled days of lower inventory; lower production costs, deliveries made on time, and delighted customers. Does this sound like the vision promised by the software package sales team and endorsed by the senior management of your company? Not all companies enter into the implementation of a new ERP system with these expectations, but all to many companies do. Many companies get a sobering dose of reality several months after going live on a new system. Shipments can be later than normal, work-in-process can be building, and internal processes can breakdown. Why is this? This is NOT what was promised at the last sales demo! Is it the new system? Do we not have the right people?

In reality, when a company struggles with the implementation of ANY new business system the problem rarely lies with the software. It is many times, in fact, the expectations that are set forth for the new system that are not based on realistic assumptions. The implementation of any new enterprise-wide business system can be one of the most extensive investments of people, time, and money that a company can make. So the communication of what the real expectations should be are paramount. All to often it is expected that the software alone will lower inventory and operational costs. This is just not the case. It is the quality of the processes and procedures that must be in place before the implementation begins, that will let the company reap the benefits of the new business system. It is the ongoing effort of Continuous Improvement of processes along with the new power of information processing and retrieval that will assure the success of the ERP system implementation and improve performance metrics.

With the successful formula of Continuous Improvement and a new high-powered system in our business, we should see dramatic improvements in our performance metrics almost immediately. Right? Wrong! In fact it may be months before any detectable signs of improvement are noticed. It is well known that when any new task or activity is learned, that a period of inefficiency occurs as part of the learning curve. As the activity becomes more familiar to the person performing the task, the previous efficiencies return. We have all had this experience at sometime in our life when we learn something new. When a new enterprise-wide business system is implemented at a company, something like the learning curve happens, but on a much larger scale. The more departments and processes the new system touches, the steeper the curve. If the scale of the change is large enough in a company, a different and more complex phenomenon occurs. A learning curve does occur on an individual level, but also a sharp decline in performance metrics can also occur at the company level. This phenomenon of declining performance at the company level is sometimes referred to as the "Valley of Despair." This valley describes a steep fall in performance metrics followed by a slow rise to previously established performance levels. The "Valley of Despair" is a natural reaction to a major change that occurs at the company level when the new business system is implemented. But it can be lessened and managed with the setting of proper expectations.

The length of time that is spent in the "Valley" is dependant on the management of two factors. The first is how well top company management has set forth the expectations and performance metrics for the new system. In other words, what related goals and timeframes for achievement have been set for the company and how resolved is the company to maturing on the new system. How well senior management has prepared the workforce here is all-critical. The second factor in successfully managing the "Valley" is the cycle time of information. For example, in a repetitive automotive manufacturer that is manufacturing product for shipment in days or hours, the entry into the "Valley" is almost immediate as the volume of informational transactions in the system is very rapid. In such as situation as this because people are performing the same transactional tasks again and again over a short period of time, the learning curve is shortened, the "Valley" can be managed quickly, and recovery is rapid.

In a project-manufacturing environment, where the cycle time of a machine or project could be a year or more, the slope down into the valley can be gentle at first and almost unnoticeable for several months after going live. If the cycle time of the product is long, a return to previous levels of performance may take many weeks. Some documented examples of "Valleys" in the project-manufacturing sector show drops of on-time shipments by 20 percent for six weeks and/or a drop in inventory accuracy by 20 percent is dependant on the level of transactional activity in the system that the company will produce and how well processes and people were prepared before going live. An understanding of how the speed of information and processes can be slowed by the "Valley" is paramount in being able to properly set expectations for the organization during a business system implementation.

Short-term results like these after going live on a new ERP system can be seen, many times, as a failure of the project. People on the project team can be fired, the consultants implementing the system can be removed, the project can be cancelled, and the legacy system put back on line or any other combination of unenlightened reactions you care to think of. With proper setting of expectations, this difficult time can be transcended. With good training, a solid conference room pilot, good system information, and integration before going live a successful implementation is almost always assured, IF the "Valley of Despair" is properly managed. IF NOT, well let's just say be ready to spend some serious cash in fixing the issues.

The "Valley of Despair" is real and alive in any business system implementation regardless of the package purchased and will be felt SOME, regardless of the complexity of the software package. It is true however, that the larger and more complex the package, the steeper the valley may potentially be. Do not be fooled by sales promises or company politics that would argue to the contrary. Any good sales person or company executive worth their salt who has actually done some hands-on implementation of ERP systems will acknowledge human nature and the learning process that must occur when change of this magnitude is brought to people on a company-wide basis. There may be other reasons for the failure of ERP implementations, but I have never seen one that was successful that did not manage the "Valley" somewhere along the way. Manage the "Valley" and your ERP implementation will stand a better chance of meeting or exceeding expectations of the most demanding company management.