The benefits of the project had not yet been seen. The project was completed on time, within the budget and with the defined scope. One month after the Go-Live, the organization acknowledged that it was an exemplary project. However today, two years later, the benefits have yet to be seen.
Two years earlier, the company concluded a project of implementing a technological tool to optimize its supply chain. Among the expected benefits were an increased level of service, the reduction in inventories and transport costs, and the ability to manage greater complexity to support the growth of the business. The same tool was used by other companies that had obtained significant benefits. However, the company was now experiencing higher inventory, higher transport costs and a lower level of service. Moreover, a lot of users had stopped using the tool.
Why do Information Technology (IT) projects fail? Why do companies using the same technology get different results?
The benefits of IT
Aral, Brynjolfsson & Wu (1) demonstrated quantitatively that the implementation of IT, in the shape of business systems, causes improvements in the performance of companies, and that there is a virtual cycle in the relationship between investment in IT and performance.
However, not all companies get the same benefits. Aberdeen Group (2), in its annual report on implementation of business systems, points out that there are significant differences in the benefits obtained by different companies. For example, the Best-In-Class (20% of companies with the best performance) observed, on average, a 20% inventory reduction and a service level of 97%, while the Laggards (35% of companies with the worst performance) on average observed a 6% inventory reduction and a service level of 84%. The Best-In-Class also have the best evaluations in the standardization and execution of processes, the commitment at different levels of the organization, the visibility of information for decision-making, the effective use of the technology, and the capacity to measure the benefits and time taken to achieve them.
It is clear that a system, by itself, does not give a competitive edge, but using it properly does. The benefits come from the ability to support a business strategy, when they enable practices and decisions that are relevant to the strategy.
What does a project need to be “successful”?
In 1994, the company, The Standish Group, (3) published the CHAOS report, that measures the success of IT projects and identifies the critical factors of success. Since its initial publication, it has been updated many time and remained one of the most referenced reports of all times. The CHAOS report classifies projects into three types:
- Succeeded: The project is completed on-time and on-budget, with all features and functions as initially specified.
- Challenged: The project is completed and operational but over-budget and/or over the time estimate, and offers fewer features and functions than originally specified.
- Failed: The project is canceled at some point during the development cycle.
Graph 1 shows the evolution of the CHAOS report results over the years. Despite the fact that the percentage of successful projects has been increasing, much remains to be done.
After the original CHAOS report, numerous research papers have been published on the critical success factors for IT projects. Many of them argue against the CHAOS report, as it does not consider other aspects such as the bias of the initial estimate (“roomy” projects tend to be more successful), the quality, risk and customer satisfaction. However, in general, all coincide on the same factors:
- User involvement
- Management commitment
- Clear definition of business objectives
- Reduction in the size, complexity and lifetime of the project
- Experience in project management
- Simple solutions with no unnecessary complexity
- Proven methodology
- Feasible activity plan
- Allocation of skilled resources
- Continuity of the team
- Quality of data
All these factors are critical and necessary for the success of a project. And the more of these that there are in a project, the greater shall be the likelihood of its success.
However, these factors assume that a project ends with the Go-Live and the stabilization of a system. They do not consider that the benefits are not immediately obtained, but rather can be seen some time afterwards.
The Go-Live is the main milestone of any project, but not its conclusion. On the contrary, it is the start of a frequently long road to obtaining the business objectives that justify the investment.
What is need to obtain the benefits?
To achieve the business benefits after the Go-Live, 4 elements are required:
- Long-term management commitment
- The maturity of the processes
- Their rigorous execution
- Effective use of the technology
Long-term executive commitment
As we have mentioned, the benefits of a project are seldom obtained immediately after the Go-Live, but require effort and a long-term commitment.
Deloitte Consulting & Benchmarking Partners (4) were among the first to focus on the period that starts after the Go-Live, which they called the “Second Wave”. En They found, in their research, that more than half those surveyed thought that a project ends with the Go-Live or when the system is stabilized, while the rest acknowledged that it is an endless project.
To obtain the expected benefits, it is crucial for the company, starting with its executives, to have a long-term view, always bearing in mind the business objectives. Likewise, it is necessary for the executives to know the tools and their limitations, and not to be influenced by short-term decisions (for example, switching the system off when it experiences temporary failures.
One of the main factors that explains the different results for IT implementations between companies is the vision about what it means to say that the implementation is complete.
How much time is required to obtain the benefits? There is not much research on this and it largely depends on the type of tool, size of the project and company. In general, the result of the research done leads us to estimate that the benefits of a business system are achieved between 1 and 3 years after the Go-Live.
Maturity of the processes
Heinrich and Simchi-Levi (5) demonstrated that investments in IT do achieve business benefits, but only if there are mature business processes. To assess the maturity, they based themselves on the SCOR® model, published by Supply Chain Council, that assesses the maturity of the processes in terms of their definition, documentation, structure and roles, measurement of indicators, intra and inter-company cooperation, consistency of results and predictability of performance. Using the same technology, different companies get different results, and the differences are explained by the maturity of their business processes. The improvements in performance are highly correlated with both elements (processes and IT), and both should work together to make a bigger impact.
Figure 1 summarizes the study’s results, showing the results in a chart defined by the immaturity vs maturity of the processes and the IT.
IT on its own does not solve the problems, but can, on the contrary, make them worse. The real benefit come from having mature business processes, that are potentiated by the use of IT. The performance of the IT depends, not on its functionalities, but rather on the way the users use it.
Rigorous execution of the processes
The main reasons why IT implementation projects fail have to do with people. According to the Deloitte (et al) report, 51% of the obstacles to achieving the benefits are connected with people: handling the change, lack of discipline and training. People are the hidden cost in an IT implementation, as any resistance on the part of the users can mean that they stop using it.
Although there are issues with the usability of the tool that are definitely important, people are the main factor. Culey (6) points out that the human element is the one that can ruin the implementation of most perfect IT. However, normally more time and attention is devoted to the technical implementation than to handling the change.
According to Aberdeen (et al), Best-In-Class companies standardize their processes throughout the organization, which ensures adherence to best practice and a common front to customers and suppliers. Lack of discipline in the performance of said processes on the part of the users invalidates the business case and the expected benefits of the implementation.
During the implementation stage, change is handled by focusing on training in the new process and tools, communication with different levels of the organization, the management of stakeholders’ expectations and resistance to change. The main goal is to prepare the organization for the Go-Live and the stabilization period.
Whereas, during the post-implementation stage, the management of the change should focus on the execution of processes. The processes should be executed in the system as they were defined, irrespective of the preferences of the person, the organizational changes and the hiring of new people.
The processes stop being executed for different reasons:
- Users do not know or understand it. Users that take part in the projects leave the organization or change jobs, and the people that replace them (through recruitment or promotion) are unfamiliar with the processes. To avoid this, the processes must be included as part of the job profile, making sure that the person has the defined skills and receives formal training in the processes and systems they are to execute.
- Users ignore it, either because they question its value, or because they find other simpler ways to do it. If the questioning is valid, the process should be modified. If the questioning is not valid, by ignoring or executing the process in another way its value is lost or diminished. To avoid this, the process must be made so that it is impossible to ignore, linking it to indicators, compensation, development, and making it obligatory (for example, by the use of workflows).
- Exceptions are permitted, of a fact that can lead to the process itself becoming the exception. Exceptions eliminate assumptions from the business case that prevent the achievement of 100% of the expected benefit.
- The users argue that the IT is too rigid. To avoid this, it is recommended to maintain improvement cycles for the tool and incorporate the users’ suggestions, thus giving them a sense of ownership towards it. This point shall be dealt with in a later section.
One of the main ways in which the lack of robust processes shows is in the lack of data quality. One of the main reasons for the failure of IT implementations in the majority of cases is the lack of data quality . We are all familiar with the phrase, “garbage in, garbage out”: if you feed garbage into a system, the results it gives you will also be garbage. A problem in data quality is a symptom of the need to change a current business process. The data are not the responsibility of the Systems areas, but rather of the business areas.
Effective use of the technology
IT is a support for the business processes, which is why it should change at the same speed as the business itself. Therefore it would be naive to think that the implementation of an IT tool ends with the Go-Live of a project. Although changes in IT should closely follow changes in the business model, the reality is that in most companies they fall quite behind (either because of rigidity in the system or the Systems area), and pile up until there is a new migration or update.
Furthermore , the 100% exploitation of the of the abilities of a tool does not happens at the time of Go-Live, after only a few days of training and tests. The exploitation of any system happens through a learning curve , where the user gradually get to know the tool , and demand grows. The users should be up to date with the improvements incorporated into the systems, through training in new versions and their participation in events (i.e. Sapphire, Oracle Open Word, Dreamforce), user groups and professional associations, among others.
One of the best practices for incorporating changes and taking advantage of the abilities of a tool is the use of improvement cycles (for example, every 3 months),in which during each cycle improvement proposals or` requirements are submitted , prioritized, developed and tested. The use of said cycles makes it possible to improve the exploitation of the tool, avoid mass updates and gives the users a sense of ownership towards them. According to Aberdeen (et al), the Best-In-Class companies use the latest versions, make faster changes to the systems to fit in with changes in business, use more functionality, and, in general, take better advantage of their maintenance fees.
Conclusions
To get the benefits of an IT tool implementation requires the inexorable execution of two different stages.
The purpose of the first, which consists of the implementation itself, is to complete the project on time, within the budget and with the defined scope . This stage ends with the Go-Live and the stabilization of a system. The success of this stage is based on the clear definition of objectives, management commitment, bringing expectations into line, user involvement, the ongoing allocation of skilled resources, and the application of a proven methodology for the management of the project.
The purpose of the second stage, which is an endless stage, is to ensure that the business benefits are obtained . The success of this stage requires the long-term commitment of all levels of the company, the rigorous execution of mature processes and standardized throughout the business, the ongoing skills development of the people, and the effective use of the technology through a model that makes it possible to get the maximum advantage from it and to quickly incorporate changes that support the dynamism of the business.
References
(1) Aral, Brynjolfsson & Wu, “Which came first, IT or productivity? The virtuous cycle of investment and use in enterprise systems”, Twenty Seventh International Conference on Information Systems, Milwaukee, 2006
(2) “ERP in Manufacturing 2012”, Aberdeen Group, 2012
(3) “CHAOS Report”, The Standish Group, 2009
(4) Deloitte Consulting & Benchmarking Partners Inc., “ERP’s Second Wave”, 1999.
(5) Heinrich & Simchi-Levi, “Do IT investments really pay-off”, Supply Chain Management Review, 2005.
(6) Culey, “Ensuring the ROI from ERP has a Bigger R than I”, The European Business Review, 2012.
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