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How to choose the right ERP for digital transformation

Digital transformation is critical to many companies' success and ERP underpins that transformation. Here's a look at how to make that transformation happen.

2020 forced massive changes on companies around the world. Finding new ways to do business is no longer a nice-to-have but a must-have and that often means an ERP digital transformation.

Business and technology leaders can use an ERP implementation to transform how their business operates by offering new capabilities and new opportunities.

In practice, digital transformation is a way to support the business through an overhaul of information technology to enable organizations to make more money, save money or get closer to their customers, said Patrick Moorhead, founder, president and principal analyst at technology analyst firm Moor Insights & Strategy in Austin, Texas.

"It's also moving from maybe an older way of doing it to a newer way of doing it with more modern tools [and] methodologies," he said.

Digital transformation is composed of three simple components, said Suketu Gandhi, partner and global leader for digital supply chain at Kearney, a consulting firm in Chicago.

"The first component is interaction with and insight into your customers. The second is decision-making and working within the company," Gandhi said. "And the third is working with your ecosystem partners."

ERP forms the backbone of all the transactional components across these three segments, Gandhi said.

"Without that [ERP system], you don't have an order coming in, you don't have the ability to plan what you should buy [or] what you should make, you don't have an understanding of where any product is, or if you got paid for it," he said. "And then finally, you don't know where you can source things from."

In other words, ERP forms the core of digital transformation.

Here are five tips to help companies use ERP to achieve their digital transformations.

Understand business goals and plan wisely

Planning for a digital transformation and ERP implementation is critical. This stage requires the full attention of all stakeholders.

The key to a successful ERP transformation is planning, said Jim Martindale, CEO of Navint Partners LLC, a management consulting firm in West Henrietta, N.Y.

Don't just jump in, pick your vendor and then start implementing, he said. Rather, companies have to understand their business objectives and why they're deciding to embark on this transformation.

"Digital transformations are lengthy and expensive, so you need to make sure that you and the rest of your organization understand the value of what you're about to embark on," Martindale said.

That planning doesn't just involve looking at where the business is today; it also means determining where it will be in 10 years, he said.

"[Ask] where you want to go as a business," Martindale said.

Stakeholders should take the time to understand business requirements that go with those goals to ensure that the ERP platform can meet those requirements and that the implementation is designed to support them.

"Then plan, plan, plan," Martindale said.

Thinking in terms of customer needs can help guide strategies.

"[Determine] where your business groups want to go in the next five years and what capabilities they want to deliver to their customers," Moorhead said.

Create a cross-departmental ERP buying team

Choosing the right ERP vendor and the specific applications necessary to achieve digital transformation requires the cross-departmental understanding

"Like any good buying process, you should know where those fits and gaps [in functionality] are," Martindale said. "In some cases you might have to build around a functionality gap, [if] a vendor might fit 90% of your other requirements."

Organizations should set up a buying committee to make certain that they're getting the right ERP system, Moorhead said. The best way to do that is to set up a "tiger team," a non-permanent, cross-functional team brought together by senior management to attack a particular problem, in this case selecting the right vendor and the right ERP, he said.

Then everyone has gains to make and is more likely to truly care, Moorhead said.

Take one example: IT has a favorite vendor, but the business unit representatives know the ERP systems doesn't have the features they want, Moorhead said. The business side can ask to have assurances written into the contract that the vendor will develop those features.

That kind of cross-departmental discussion can help prevent ERP disaster later on.

It also helps ensure the ERP is right for the company and its goals. Take the example of Cohu, a provider of equipment and services for back-end semiconductor manufacturing, headquartered in Poway, Calif.

Cohu executives did an analysis of ERP vendors based on several factors, including weighing the functionality that was most important to the company, the ability of the vendor to deliver on the company's requirements and the cost of the licenses, said Craig Halterman, CIO at the company.

In February, Cohu implemented Oracle Cloud ERP financial applications as the backbone of its digital transformation, Halterman said. At the heart of this transformation was the need to more quickly integrate the organizations that it had acquired over the years.

Because the goal was to become "one Cohu," the company also implemented Oracle Cloud Supply Chain Management and Oracle Configure, Price, Quote sales applications in February. It had already standardized its HR department on Oracle Human Capital Management five years earlier, Halterman said.

Select the right implementation partner

Although an ERP digital transformation is based on technology, its success depends on people -- their knowledge, interaction and collaboration. That's why choosing the right implementation partner is so important.

After deciding on Oracle ERP Cloud, Cohu leaders knew they needed an implementation partner that understood the cloud and all its features -- knowledge that Cohu's internal team didn't possess, Halterman said.

Because Cohu didn't know any implementation partners that met its needs, Oracle stepped in and recommended Inspirage as a potential partner, he said.

"[Then] we did an analysis . . . and found that they brought broad-based experience, not just in the ERP piece, but they also had experience in change management as well as [product lifecycle management] and enterprise performance management," Halterman said. "And we really wanted a team that would gel with our internal team as well as be, in the end, partners."

Plan for change management

Change management is at the heart of any successful ERP digital transformation.

The reality is that any ERP implementation, whether a company is switching platforms or moving from an old, legacy architecture to a modern-day architecture, is a pretty big leap for any size organization, Martindale said.

"So your organization has to understand how it's going to use this technology, how it's going to change the business processes inside the organization from where they are today, to where they might be in the future," he said. "And you have to ensure that everybody knows and understands how to use [the ERP], and the implications of using it. You have to make sure that message is clear."

ERP users are people such as accountants, shop floor managers, warehouse managers, inventory planners and the merchandise planners, Martindale said. Very rarely does an executive use an ERP system, he said.

Companies also have to ensure that their users -- top to bottom -- are involved in the transformation as their input is very important, he said. And they have to be adequately trained and prepared to use the system when it's time to go live.

"Your people are the ones that have to use the system once it's implemented," Martindale said.

In other words, the employees who actually use the ERP system -- or create workarounds -- will ultimate decide the success or failure of the digital transformation effort.

Cohu leaders recognized from the beginning that while there was a technology element to implementing an ERP system, the organizational change management piece was also especially important, Halterman said. That was because each of the acquired businesses were resistant to change and wanted to maintain their own environments.

"The first thing we had to do was communicate clearly," he said. "We did everything from defining our message and getting executive buy-in. So everything from the CEO doing videos just explaining why [being one Cohu] was important for us and why it was critical for our future."

Cohu turned to its implementation partner to help develop and tailor a custom strategy for organizational change management, Halterman said.

"A lot of our people were hesitant and they wanted to stay where they were," he said. "So [Inspirage helped us] put a change management process in place where we not only had the executive sponsorship and leadership and an executive steering committee, but we worked from the top down with different layers and pieces that allowed us to start that messaging and harmonize the process."

Inspirage also trained Cohu's superusers on the ERP, who in turn trained the company's everyday users, he said.

Understand data is key

A successful ERP digital transformation depends on an effective data strategy.

When it's time to implement the new ERP, an organization has to map the data from the legacy system to the new system, Moorhead said.

"And you have to make sure there's a fallback plan if something goes wrong," he said. "What I mean by a fallback plan is if something goes wrong, what do you do? It might be a minor thing like the data mapping might be off and you think you're looking at a customer's name but you're looking at their address. So run parallel systems and stress test the environment the best that you can."

Although not a fan of consultants, Moorhead also suggested hiring an experienced consultant -- one who's done 10 of these types of transformations.

Data migration and conversion is even more critical when integrating different organizations.

Cohu's implementation of Oracle Cloud ERP was delayed about six months because of data, Halterman said. There was no commonality among the systems of Cohu's acquisitions. For instance, what was called a purchase order in one system might not really be a purchase order in another system.

"We had do a lot of harmonizing of the data, which meant when we extracted it to load it into the cloud, it had to be cleaned up or filtered or massaged, he said.

"The second piece that really hit was that we were adding a lot more capability and a lot more unified functionality than we had ever had before," Halterman said. "So we had to do almost data creation. We had to be able to feed [the data] into all the environments, such as the product lifecycle management and the enterprise performance management systems."

Cohu anticipated the data cleansing and data creation would take about 13 months, but it ultimately took some five months longer, Halterman said.

Data is not just important when merging many companies, it's always an issue.

With all ERP implementations, so goes the data so goes the project, Martindale said, sharing his firm's motto.

"What we mean is that if you don't have a really thorough data conversion and rationalization plan as part of your implementation, the data is going to destroy your project when you get further down the line," Martindale said.

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