ERP transformations are always challenging. Implementing Agile methodologies can enhance your outcomes

Enterprise resource planning (ERP) solutions are integral to the operations of many large corporations, yet ERP transformations often pose significant challenges in terms of time and complexity. While there has been a perception among IT professionals that agile methodologies are not compatible with ERP, our extensive experience working with numerous organizations has shown otherwise. Agile can indeed be effectively applied to ERP programs, yielding significantly improved outcomes, provided that the methodology is tailored to suit the distinctive needs of these intricate solutions.

The significance of ERP transformations persists

Large ERP solutions have slid down the priority list for IT management, overshadowed by newer trends like digitalization, big data, machine learning, and cloud computing. However, the core benefits of ERP systems, such as facilitating seamless integration across functions and standardizing processes across different regions and business units, make them indispensable assets for most large enterprises. Furthermore, the latest generation of ERP solutions, including Oracle, SAP, Priority, and H-ERP offer even more advanced functionalities and technological capabilities. Companies focusing on digital transformation or advanced analytics initiatives are beginning to recognize the importance of integrating these new technologies with their existing ERP infrastructure to fully leverage their investments.

Challenges persist in the realm of ERP transformations

Despite their importance, the reality is that many ERP transformation initiatives face significant challenges. Here are five primary reasons why these projects often encounter difficulties:

• I. Misaligned Objectives:
  Discrepancies in objectives between different stakeholders can impede progress. For instance, while a system integrator may benefit from prolonging the project to increase revenue, the company may prioritize timely delivery to capture value quickly.
• II. Lack of Project Management Experience:
  Many organizations lack the necessary experience in managing large-scale IT projects and coordinating multiple vendors. This deficit in skilled managers and rigorous governance structures hampers effective project execution.
• III. Complexity of ERP Systems:
  ERP systems encompass a broad range of integrated functions, necessitating extensive discussions with business stakeholders on topics like operating models, data management, and access rights. These decisions often arise mid-project, requiring high-level executive input based on incomplete information and causing delays.
• IV. Focus on Activities Over Business Value:
  ERP transformations often prioritize completing tasks and meeting deliverables over delivering tangible business value. Quantifying, documenting, and monitoring business value throughout the project lifecycle is crucial for driving success.
• V. Sequential Approach:
  Many ERP projects follow a linear, sequential waterfall methodology, which can delay the realization of project value. Adopting a more agile approach that emphasizes iterative development and continuous improvement could lead to better outcomes.

These challenges frequently result in prolonged ERP implementations, stretching over one to two years and more. Traditional implementations often involve extended periods of design, specification, and blueprinting phases, yet fail to deliver measurable impact. Meanwhile, shareholder value steadily declines with each passing day.

Misunderstandings and Realities Regarding Agile and ERP

The misconception that agile methodology cannot be applied to ERP implementations stems from several false assumptions. One is that ERP projects are too large and complex to be managed by small agile teams, and that the highly integrated nature of ERP requirements cannot be broken down into manageable vertical user stories for agile delivery. Another misconception is that since ERP software is standardized, it doesn’t require the adaptability of an agile approach, which is typically used for evolving or uncertain requirements. Lastly, there’s the belief that incremental showcases of ERP solutions to end users are ineffective, as they won’t see value until the system is fully built and integrated.

Indeed, agile practices offer significant advantages in addressing the risks and challenges commonly encountered in ERP implementations. For instance, by fostering collaboration between vendors and system integrators, agile methodologies ensure that they function as a cohesive, end-to-end team with shared objectives centered around key performance indicators (KPIs) and outcomes.

Agile methodology introduces a quicker tempo and enhanced transparency, facilitating managers in making timely and informed decisions. Contrary to common misconceptions, agile does not imply a lack of planning. Instead, it replaces extended, opaque project phases with short two- to three-week sprints, allowing managers to monitor outcomes, advancements, and obstacles effectively.

Agile methodology emphasizes the integration of business and IT groups into the project team, structurally oriented towards value creation. From the outset of the project, these two groups collaborate closely, fostering agility and alignment between business objectives and technical execution.

Agile methodology facilitates breaking down the functional scope of ERP into smaller sets of features that small teams can deliver in sprints. This iterative approach accelerates the realization of business value, allowing projects to achieve tangible results quickly.

In essence, agile practices are precisely what’s required to effectively manage ERP implementations. It’s not surprising that prominent ERP vendors like SAP, Priority and H-ERP are now advocating for a more agile approach.

How to adjust agile methodologies for Enterprise Resource Planning (ERP) systems

Certain agile methodologies can be seamlessly integrated into ERP implementations without significant modifications. These include establishing compact, interdisciplinary agile teams with committed product owners representing business stakeholders and end users; adhering to brief development cycles spanning two to three weeks to iteratively produce functional software components or system configurations; implementing scrum-based rituals centered on ongoing enhancement, bolstered by transparent communication channels and key performance indicators (KPIs); and leveraging advanced tools and technologies like test automation and CI (continuous integration) to enhance and expedite the delivery pipeline.

While certain agile techniques can be seamlessly integrated into ERP projects, others require more customization. For example, defining the project’s overall scope upfront with well-defined success metrics is essential, diverging from the typical agile emphasis on a minimum viable product (MVP). Nevertheless, teams should retain the flexibility to refine detailed scope and adjust priorities as the project progresses.
Moreover, to maintain coherence throughout development, greater emphasis should be placed on business process analysis and architectural planning compared to conventional agile practices. This ensures that tasks can be effectively distributed among smaller, specialized teams.

Effective coordination between agile teams responsible for delivering functionalities and the “transversal” teams, which handle non-functional aspects such as data migration, integration, or change management, is crucial. It’s imperative that all teams operate in sync, maintaining a unified rhythm to ensure they reach their goals collectively.

Delivering “production ready” software at the same frequency as in standard agile software development is not feasible. Instead, a phase of end-to-end (E2E) testing and cut-over becomes necessary to consolidate the increments delivered by individual teams and to test complex interfaces with legacy systems. This process often extends beyond a single sprint duration.

Ultimately, a robust agile program management office (PMO) should be established to expedite issue resolution and facilitate cross-team decision-making.

Implementing Agile within traditional methodologies

A traditional ERP implementation typically progresses through four stages: strategic planning, program setup, implementation, and deployment. Agile methodologies can be integrated into each stage as follows:

• Strategic Planning:
  This phase involves creating a target architecture and business case for the new solution. While the overall process remains similar, it can be expedited by conducting a rapid fit-gap analysis and adopting an iterative approach in sprints. Product owners play a crucial role from the outset, empowered to make key decisions, and cross-functional teams are formed to achieve program objectives.
• Program Setup:
  In an agile approach, program setup is accelerated, focusing on real-life challenges rather than theoretical design. This includes swiftly selecting an experienced partner, building a macro-feature roadmap, staffing and training in agile methodologies, and establishing a robust project management office (PMO) to coordinate workstreams.
• Implementation:
  Agile implementation involves multiple waves to capture value quickly. Cross-functional teams, comprising both business and IT personnel, work in sprints to design, develop, and test features. Continuous testing and user acceptance testing (UAT) ensure better code quality, while coordination between functional and nonfunctional teams is crucial. Nonfunctional tasks like data migration and deployment follow a similar process, albeit with close coordination with functional teams.
• Deployment:
  While deployment follows a traditional approach, agile practices facilitate more frequent releases and help address bottlenecks. A rapid deployment mindset, analytics for optimization, and early design of local templates streamline the process. With shorter hypercare phases and more frequent releases, there are greater opportunities for process industrialization.

In an agile-adapted implementation, the initial stages are expedited compared to the traditional waterfall approach. The majority of the time is allocated to the later stages, emphasizing the delivery of functionalities.

Advantages of applying agile to ERP

The appeal of agile methodology largely stems from its outcomes. Studies indicate that organizations embracing agile practices have a 70 percent likelihood of ranking in the top quartile of organizational health, a key predictor of sustained performance. Additionally, these companies experience enhanced customer focus, accelerated time to market, increased revenue growth, reduced expenses, and heightened employee engagement concurrently.

In the context of ERP implementation, adopting an agile approach—regardless of the technology involved—leads to a variety of concrete and intangible advantages:

• A 10% reduction in program costs, primarily achieved by minimizing rework during end-to-end testing and user acceptance testing phases;
• A 20% increase in the program’s value, facilitated by providing the product owner with sufficient insight into project advancement to prioritize high-value tasks;
• The capacity to accomplish three times the workload within a specified timeframe due to enhanced parallelization of functional teams;
• Enhanced acceptance and utilization of the solution by end users, who are actively engaged throughout the implementation process;
• Elevated team morale stemming from the observable progress of the solution implementation on a daily basis.

While ERP systems may be viewed as a “necessary evil,” they remain a cornerstone of digital business operations. It’s crucial for companies to recognize their significance and integrate them effectively into their digital strategies. The conventional, intricate methods of ERP transformation should be reevaluated and, where feasible, updated to incorporate agile methodologies.

Businesses and system integrators need to discard the misconception that agile methodologies are incompatible with ERP systems and instead streamline the application of agile principles for ERP transformations. Additionally, ERP solutions should be designed with greater modularity to facilitate phased deployment, leading to reduced costs and accelerated value realization.

Implementing ERP transformations can be inherently challenging, but leveraging an agile approach can significantly mitigate these difficulties.