Today’s enterprise application forecast: Cloudy with a Chance of Transformation
By ROB PRINZO
The rapid pace of technology innovation combined with market forces creates the opportunity for organizations to find additional operating efficiencies through technology. These efficiencies are being found through consolidation, shared services, outsourcing and new deployment models such as SaaS and cloud computing.
However, many organizations have investments in existing system that are fundamental to business operations, but are running on older releases of applications and underlying technologies.
Although organizations have come to terms with application upgrades and technology refreshes, the economic downturn has halted spending on enterprise business applications because for the most part, organizations were able get by with what they had in place. The decline in investment has resulted in larger gaps between operational version and new releases.
According to research firm Forrester, the halt on spending will continue in 2011 as:
– One quarter of roughly 900 companies surveyed by Forrester plan to upgrade, expand or implement an ERP system, down from 29% in a study last year, according to the report by analyst Paul Hamerman. “Overall, 72% are â€œin a holding pattern for 2011, with plans to stand pat or no specific plans to invest in ERP” Hamerman wrote.
Roughly half of ERP customers are running product releases that are two versions behind the current one, according to the report. But expiring support windows and related price increases will spur more upgrades over time. (Source: ERP investments to slow in 2011, Forrester says. Computer World January 24, 2011)
Obviously, the longer an organization waits to upgrade its technology, the more the upgrade will cost. The more the upgrade cost, the sooner the organization reaches its inflection point. The inflection point occurs when organizations are financially ready to reinvest in enterprise systems and realize that upgrading the application may cost almost as much as implementing it in the first place.
The inflection point raises the following questions:
– ‘Should we upgrade or find a new system?’
– ‘Is this a business we want to be in or should we outsource the business process, our infrastructure or evaluate software as a service?’
– ‘Do we need to change how we do business and consider a business transformation project by evaluating systems as part of larger business processes?’
How current your systems were before the downturn or how your organization weathered the storm will be good predictors of the type and size of your inflection point and the projects that are forthcoming. If you were behind on applications versions in 2008 and have just keep the lights on over the last couple of years, you may be facing projects that will be larger in scope and may require multi-version upgrades. If you have keep relatively current, it may be a good opportunity to invest in software and/or services as recession based incentives will soon come to an end as the economy improves. In either case, it is a good time to step back and look more strategically at enterprise application projects and start developing your road map for the future.
As part of this road map it is important to consider not only the technology, but the supporting business processes. Consolidation, shared services, outsourcing and SaaS (and now Cloud) business models can not only accelerate operating efficiencies through business process improvements, but also allow organizations – or divisions operating on outdated systems – to make technology leaps to the latest platforms.
From a project management perspective, transformation projects resemble most large scale technology or ERP system implementations because at the heart of each of these initiatives is an enterprise business application. In some cases, a new implementation or upgrade is included as part of the project to make sure the organization is on the latest release or that the consolidated entities are on the same platform.
However, because of the changes to business operations and organization dynamics, transformation projects present a few additional challenges:
– More vendor / partner involvement â€“ As part of the project, a service provider may be taking over business processes, technology operations or both. In addition, due to risk, contracts and service levels may be fixed and provide rigid requirements for change requests.
– Employee uncertainty â€“ Part of the potential cost savings are realized through decreased headcount. Some employees will be transitioned to new roles, some may be transferred to the service provider and unfortunately others will lose their jobs.
– Increased change management â€“ Additional change management may be required because not only is the organization moving to a new application, but also a new business model.
– Increased scope-creep â€“ Because contracts and timeframes are negotiated up front, often without detailed business process analysis, scope, timeline and project complexity may expand as vendors uncover additional requirements or realize the complexity of running the clientâ€™s operations.
– Duration â€“ Based the size and complexity, transformation projects can last between 18 â€“ 36 months and are often divided into multiple phases based on transitioning business process, functionality or entities to the new business model.
Given the additional complexities associated with business transformation initiatives combined with IT project failure rates between 50-70%, it is important to incorporate a project assurance program into your business transformation project. Project assurance is about identifying and closing the gaps that lead to the project failure by conducting periodic assessments through the project lifecycle. These assessments should be conducted by an executive consultant from outside the project team to provide objective third party analysis and create an environment for collaborative issue resolution.
Having project assurance as part of a large-scale business system implementation helps you: control/reduce project costs; ensure milestones are met; minimize surprises and provide objective analysis. The incremental costs you will incur by having an additional resource periodically conduct project assessments will be far less than the cost of project delays caused by unrealized project gaps and will provide the peace of mind that the project is on the right track resulting in a sunnier forecast for you and your project.
Rob Prinzo is CEO of The Prinzo Group, a knowledge consulting firm and the author of ‘No Wishing Required: The Business Case for Project Assurance’ available at nowishingrequired.com.