ERP Transformation Strategy: How CFOs Avoid Failure, Hidden Costs and Legacy Risk

Speaker A: Welcome to the CFO Show. I'm your host, Melissa Howitzen, CFO of Vena. One of the most consequential decisions you'll make as a business is which enterprise resource planning platform to invest in. It's a commitment that you'll be entering for multiple years that will have downstream impacts on all your business operations. And when it comes to making that decision, there are many hidden costs and factors that you might not be aware of. In this episode, we'll discuss the risks of sticking with legacy ERP environments, examine the true cost of ERP implementations, and unpack lessons learned from both successful and failed ERP projects. Joining me today is Harpal Matu, FCMA and Managing Director at Agilix Group. Harpal brings a wealth of experience in guiding businesses through ERP transformations. Harpal, welcome to the show.

Speaker B: Thank you for the invite.

Speaker A: Melissa, you've had a ton of experience in your space and you've helped many different customers do business transformations. Can you give us a little bit of background about your journey to get here and about the company that you work for now?

Speaker B: Yeah, so a bit about the company. Uh, we're. We're a global digital transformation company. We work with organizations across the world. Well, when I say across the world, really around the territories we operate in, which is uk, uh, Australia, Canada, North America, as, uh, in the usa, New, uh, Zealand and Singapore as well. So. So the background of the company is we work towards making digital solutions work for organizations, uh, be that erp, uh, be that CRM, and uh, be that fpna. So we're the kind of the conduits between the cfo, the chro, the CIO and even see aio now the Artificial Intelligence Officer, which is more of a newer role, and try to demystify tech and making things work. So we are definitely not the technicians, we don't design tech, but we come from the sort of idea of the practitioner. So I'm an accountant. Most of my team are accountants, which is why we work in the office of the cfo. We have some HR professionals, uh, um, and really we kind of sort of work in the office of the CFO or the C suite to make things work.

Speaker A: And so your company helps companies with digital transformation?

Speaker B: Absolutely, yes.

Speaker A: What got you interested in space?

Speaker B: Yeah, well, it was a natural progression for me, personally qualified as an accountant in the UK many, many years ago and that from my career progression. It started off actually working within the organizations, working to make, to implement ERP systems in the main, or as it was back then, sort of Finance systems or sort of systems of record. As that evolved, that, that became fun and as a project sort of finished, you end up going back to your day job which probably wasn't as exciting. So the natural progression was to move from working within organizations to implement tech and actually be the practitioner of implementing tech. And one thing led to another and 20 odd years later, you wouldn't think it's three odd years later. Uh, but still doing it, still having fun and still learning. The industry is evolving at quite a pace right now. What was I going to say? Digital Transformation 1.0 was uh, an exciting time sort of 15 odd years ago. Now we're moving to Digital Transformation 2.0 which is a very, very different space right now. Um, we all hear of AI, we all hear of sort of different sort of forms of AI that's sort of taken, taken us to quite an exciting place. SAS is now taking us to quite an exciting place. Um, so, so, and also sort of what, what, what people are expecting in offices I would sort of say especially so people around, um, everything's around people. We find right now is people are very much digitally connected at home and actually when they come to work they seem to have that digital downgrade. So actually people, consumers or users of the systems are expecting the same experience at work from corporate systems as they get in the home lives and in their personal lives. So again, very exciting time right now.

Speaker A: Let's start with the basics. ERP has been around a long time. Why do you think it's still critical today for helping businesses to scale their operations?

Speaker B: ERP is the digital background of any organization or backbone of any organization. It is the system of record for any organization. Even at growing sort of level. When you think about when you start off as your uh, you know, start off in any kind of business you have to keep records and you start off using spreadsheets and just system record. And that's absolutely fine because you know, know you need to be keeping some kind of record systems as you scale that, that isn't sustainable. So you start to get customers, you start to get suppliers, you start to get stock, you start to get people and the cracks then start to appear. So then you start to get duplicate data, uh, inconsistent processes, slow decisions. This is why moving towards some kind of an ERP system be that even primitive, it starts to control uh, your processes, starts to normalize your processes and actually allows you to scale. So you know, the system is just the system. The real growth is going to come from what you do as a business

Speaker A: in My experience, understanding the total cost of an ERP implementation is a little harder to do than it may seem at first. There's the obvious cost, the implementation costs, the annual fees you're going to pay, but then there's the hidden costs. How much of your own team's time and energy is this going to take? What about other supports that you're going to need or ongoing maintenance and systems changes that you're going to need? How do you see your customers thinking about that cost and how do you advise them to get their arms around what that total cost of ownership is going to look like?

Speaker B: There's a question around fit, scalability and risk from a fit perspective. There's lots of great vendors out there and they all do great things. There's a whole thing around aligning industry verticals to, to ERP solutions. And um, they tend typically sort of go out for the role of sort of 80, 20. So you know, most organizations in a, let's say retail or insurance or not, uh, for profit, quality, what you want, whatever industry sector happens to be, um, a lot of these ERP vendors are actually starting to get sort of industry verticals that your organization. So the thing there is trying to do that fit and make sure actually your process are very much aligned to that industry vertical. So you get to that 8020 fit. This reduces risk, uh, and sort of normally associated with cost and overruns and all these kind of things. And also you know, the whole thing of sort of that time to value is important as well. So the scalability is important as well. So you know, what you fit in today, will it work in three to five years time as volumes and complexities grow? Um, and that's issues reduced by sort of, you know, trying to get use more configuration and customization. Where a lot of ERP, uh stacks tend to go wrong is you know, we see customers will try and actually systems integrators will try to customize solutions to their sort of emph. Um, and then you end up with something called, you know, it's known as Frankenstack. It's a solution that, you know, it's not scalable, it's not workable. Um, and it's kind of, you know, how did you get to that situation? You know, if you go back to that first principle and making sure that, you know, whatever you do is configurable and actually you have industry verticals and industry verticals, the vendor will be the voice of reason across lots of verticals as opposed to your industry. So that that kind of Gives you that and the risk as well. There's a whole risk around cost complexity, vendor roadmap. So there's a whole thing around, you know, people don't buy off a uh, feature list, buy off benefits and if the benefits are right, the features and sort of functions will come with it. And also the thing also you have to remember is you're implementing a people system. Are your people ready for this change? Are your people ready to design the system? And this people tends to be a big sort of factor and when things breaking down. So yes, you've got great people now, but are they ready for sort of, sort of homogenizing an ERP system, sort of the straight jacket in the way they work and do they know what good looks like? Do you have a um, target operating model? So you know, just because you work this way today, this is that how you want to be working going forward, is that scalable? So you know these risks can be sort of counteracted before you even get to the drawing board or even sort of selection, system selection, you know, get that target operating model right and then the system sort of fits up. There's a whole question around cloud or on prem integration capability. Um, and you know the whole thing around architecture and adoption. So there's a, it's. So yeah there's a lot that can be said about sort of um, getting to a point of influencing those ERP decisions.

Speaker A: You mentioned Frankenstack and oh my goodness, the images that, that brought to my mind of some of the combinations of tools and how things were like sliced together to try to make them work for you. What does that mean? What do you think of when you, when you say that word?

Speaker B: It came to mind actually earlier this week we were talking about to one of our customers, a large manufacturing company who have done exactly that they customize the solution, um, the ERP system to such an extent nothing's documented. Um, the people that done the customization have all retired, moved on and actually it's trying to unpick it all and trying to build this into some kind of a um, uh, an easy to use configurable ERP solution. And just this stack includes what's on the ERP uh system, how things are integrated, how data, I mean data's flowing backwards and forwards manually. Um, it's horrible to look at. It really, really is an ugly sort of piece of sort of kit. But yeah, the term Frank is like I think I must have picked up an intel something. I do not own it. It's not my IP at all. But it just comes to mind every

Speaker A: single time you talk about the importance of the people, and that's been my experience too, is that uh, really that can make or break whether the implementation is going to go well. What advice do you have for companies about how they engage their people in the process, how they take them through the changes that are needed to make it a successful implementation?

Speaker B: Change management is the kind of overarching statement with this in change management, getting change management correct. But I think there's a step before change management. Change management tends to be the thing that happens after uh, the events or we're implementing the system and let's, let's get you changed, let's get you change ready. And it's more about, than just training people on how to use the system actually from a, from a sort of bringing people along starts at the inception and it could be the fact, and it's controversial to say this, maybe the people that you're working with aren't the right fit to get to a position of using an ERP system. So there may be some sort of conversations need to be had before you start to do the selection, before you start to do the implementation. So bringing people on that journey is important and bringing the right people on the journey to make these changes is just as important. Um, so if I think of some of, you know, I'm going to a mind's eye now where organizations have failed. You know, we looked into ERP implementations where we've had to pick up the pieces and try to make do with. Um, a lot of time people are taken into design workshops and ask, you know, what, what would a good erp, ah, system, what's a good process? If you're coming from a level of not knowing what good looks like, it's very difficult for you to shape it and it's very difficult for you to sort of go on that journey. So people are very important, but also to realizing actually there's maybe some work to be done before system selection to get those right people in place.

Speaker A: And that's making me think of. You talked a bit about customization earlier and one of the things that I found both with erp, but even other system implementations is I really quite tried to take an approach from the outset of let's leverage the knowledge of the person helping us implement and leverage the knowledge of the vendor because they seen what works and what good looks like across so many different companies along the way. And therefore before just trying to build and potentially on a customization path because of what we always done in the past. Try to be very open minded to what does good look like in general, what most often works, what have you seen others do to really challenge yourself as you're going through that process to think differently? How should companies think about, you know, that kind of an approach versus when customization is really the right thing to be doing?

Speaker B: So good, uh, question, but then you're, are you customizing your processes to fit a system or are you not taking best practice processes? So there's two problems that either your solution's wrong and there's a question to be had there. So maybe your solution is outdated now because the only way you're getting it to work is you have to customize it. Or actually the way you're working needs to be re looked at and that needs to be sort of uh, addressed as well. So I'll give you an example. We worked within the uk, within a large, I'm going to call it a municipality. Um, they had something like 48 different leave schemes. So you know, different, you know, depending on sort of, you know, when you started you had different leave schemes and depending on where they boarded staff from different sort of areas. And uh, the ERP system was never designed to deal with that. You know, the levels of leave schemes or leave absence was four or six I think it was at the time. So they had a choice. We could either customize the system to make it to 48 or actually have the conversation with the organization to say actually best practice is four or six, account of the exact number now. And let's do what we got to do to get this, to get our process to retrofit what good looks like what other municipalities in the country are doing, uh, and actually fix this, uh, rather than getting this, getting it the other way around or actually then if, if we have to, if you're in a position, we're having to create 48 leases, having to customize the way that was addressable and that scenario is addressed. Actually there's policy politics, change in the organization, processes change to get everybody to harmonize to these four to six processes, four to six league processes. And that's worked ever since.

Speaker A: And you bring up a really good point there because there is that you have to stop and think about is it time for me to change my processes so that they'll fit with what the system is structured to do? Or do I really need to fight to keep my process what it is? Which means the system needs to find a way to work around the process. I have Whether that's customization or maybe how we're going to stand it up needs to look a little bit different. It's a tough decision to make as a business to know which of those two camps am I in?

Speaker B: You know, there's kind of no wrong or right answer on this, but let's take a step back. Uh, so a lot of this can be resolved at the buying stage. So when people are buying ERP systems or any technical systems, what tends to happen is you're halfway through an implementation and actually realizing you've got this roadblock. It's too late to go back. You're already in the choice of the ERP system. We're going to customize it to get it to fit or try change of processes. If you do this up front, you can actually make that by buying decision. Actually, is this system the right system for us or should we be looking somewhere else? So again, getting to the conversation of benefits and working aligning benefits as opposed to features and functions can, can eradicate some of that.

Speaker A: You've seen lots, you've seen what good looks like. What about when an implementation fails? Can you share with us some of the things that you think are common that lead to failure and what are some of the horror stories of failure, things that you would recommend that other companies try to avoid doing?

Speaker B: Yeah, and we see this time and time again. Um, look, I think so, yes, there is a lot of failures and there continues to be a lot of failures. A lot of the failures, um, some of these are classic textbook failures. They tend to come from where organizations want what they've always had in a new sort of platform. So you're customizing and actually then you've got a situation, situation with a vendor or the system integrator is allowing the customization to happen or not holding the company to account to say, actually this is never going to work. These are the challenges now and again, controversially, uh, why that doesn't happen is because people see the dollar signs and think, this is great. This is lots of value for us to keep on doing what the customer asks. Or actually the customer not having that clear steering board or the right engagement at the top to sort of say, we are going to take what, what good looks like we are. We want total, we want time, uh, to value. We want a system to be up and ready in a short pace of time and actually question why are they different to other organizations. An ERP system isn't what sort of differentiates you, isn't what is going to add value to your, your, your end customer process. It is a system of record, system of reasoning. It isn't the reason to sort of bastardize the hell out of it. So, so it is having that whole thing, thing about stopping, um, reducing customization, um, taking what the vendor should have been doing. And I mean there could be some questions around that. Now if the system doesn't work for you, then maybe it's a case of right, let's not keep on going on, let's stop, let's, let's evaluate and look at something else. It's a hard pill to swallow sometimes, but if that's the right thing to do, that's the right thing to do. But keep on going on customization routes, um, with people who are not engaged, um, it is an absolute recipe for disaster. And we see time and time again and we're recovering a number of projects at the moment where we're actually going in not from a system or technical perspective, but we're going from a voice of reason to say let's start again, let's look at that target operating model. Go back to first principles and listen, what are we trying to do here? What we trying to do here? And let's see, let's see if we can reconcile that back.

Speaker A: One of the things I found sometimes is as you embark on a new system, it's easy then for everyone to think that the system is going to fix all the problems that you might, uh, you might be having the new system, everything is going to be perfect. And then sometimes people it can turn into, well see, it's not working because it's not doing all those things. And I feel that phasing it out and being very realistic about what does phase one look like and what does good look like and then what is a subsequent journey and a subsequent also to avoid scope pre happening where you never lie because you just keep on throwing too many things onto the project. So that, that just helps with getting a better sense of reality. Otherwise it can uh, you can always point to things that aren't yet stood up, aren't working. This is a failure again, it goes

Speaker B: back to expectation management, change management and uh, understanding. When you're implementing an ERP system, your chances are you're replacing an ERP system. Um, a lot of times we are replacing ERP systems from say legacy on premise, um, legacy sort of, if you like, sort of systems that need to be upgraded now to sort of modern ERP systems. So you have to realize whilst there's a project going to implement an ERP system, the business is still running, the business still needs to operate this is system on record. Um, and not getting this correct, you know, not getting the billing out, not, not getting employees paid. Now these are all sort of drastic measures. So actually there is a phasing of getting this correct because when, let's we put it so if you implement an ERP system and employees do not get paid one month, that message will always stick. Um, so, so there's, there's some critical path sort of, uh, areas that you've got to avoid getting the phasing correct, uh, as you said, getting those release notes correct in terms of what are we going to do and doing this easy sort of simple drops and parallels and sort of getting the data sort of migrated over uh, to a point where things work. That's important. So big bang, whilst it sounds great, a vendor will tell you big bang is the way you have to realize that you are doing things in parallel that the business cannot afford to stop from months while you're implementing a system. And again, if you, if you make that, if you get any of those things wrong, you know, people don't forgive if salaries don't get paid one month, people remember that forever. And the system, you know, you never, you never recover from that bad reputation.

Speaker A: It's funny how people, uh, get so worked up over their pay. I can't even imagine.

Speaker B: Right, no, exactly, absolutely.

Speaker A: Let's talk a bit about that structure because you're right, people often still have their day job to do while they're trying to stand up the new system or make improvements to the system. How have you seen some of the best companies structure the different teams around the project and what kind of resourcing that they do to make it a success?

Speaker B: This is a good question because there's two elements of this. You could either sort of say, well, we'll bring in the experts and we'll bring in sort of, you know what we'll find farm people in, get the system in. And uh, then you know, that's fine because no one's disrupted by that. But then the, the flip side of the coin of that is change management. You need to bring people along with the journey because they need to manage the system. So some organizations have done it. We see this in a lot of municipalities. What they would do is those individuals who are involved in the process change and the new system will be concentrated or, or redeployed to work on the new system whilst, you know, the day job is done by, let's say interim or Subcontractors who will just carry on as, you know, carrying us in a carry on watering the current system because that's legacy, that's mature, that's not going to change, but it allows the people that are going on the journey to spend, know, have that headspace to work on this new system, get evolved, understand where the creeks are. And actually when we go live on, you know, let's say the first of the month, actually they've been on the journey all the way along so they're not disrupted too much. And then you can slowly phase out the old system and sort of phase out those contractors or associates or you know, whatever agency staff or if that's the correct sort of way of doing it. And I've seen that work very, very well across large municipalities that we worked in. Um, trying to expect people to do their day job and a project job and work with change. Human inertia just doesn't allow that and people get fatigued. Um, all of a sudden you are in a position of not liking the system for the wrong reasons. So we call it backfilling in the uk. That's probably a term that you're familiar with that works really well. I know it's expensive but it's, it's worth that investment.

Speaker A: Yeah, I've taken that approach as well and sometimes, and it turns out we've ended up keeping folks on afterwards because other opportunities open up in the organization. So certainly good do find to help people see where you are carving out the space for them to actually think through what would good look like Redefining my assesses and that. And uh, the other thing that I found works well is having, depending on the size and square scope, having a project manager who's helping to herd the cats in the process, keep everybody accountable, keep things on task and on delivery and having that steering committee and that executive sponsor so that you know, at the right levels you're reporting out how's it going, keeping people fully abreast of what's happening, where you're hitting any roadblocks. It just helps keep everything working in concert and towards delivering on the goals that you initially would have set for the project.

Speaker B: Yeah, and look, you can go a step further than that. Uh, and this has worked. We've done some, we've been involved in some government transformation programs in the uk. I can think of two which work really well. So the project manager if you like, there were sub verticals within project manager. So you had a, a project manager that was involved with change, change management. Another Project manager that was involved with cutover. So you know, data cut over, cut over sequences and getting those correct. Uh, and that's including bringing vendors and customers on at uh, various times. Then you had a sort of, you know, someone that's responsible for training and that's, you know, so you end up sort of having sub verticals of project managers sort of specializing their area. So you know, you know, it's easy for everybody to point to, you know, this person due to cutover, this person's doing change management at ah, the outset. That sounds like, um, you know, it sounds expensive, it sounds like, you know, this is overboard. But actually if you plan these things correctly, if you can repurpose people actually it's not too difficult rather than trying to scramble towards the end and that's even more expensive and that's sort of a bit sort of knee jerky. Uh, and that's always caught with problems as well. So it's more about sort of taking that project manager, the role of the project manager and trying to break it into the sub verticals of what you're expecting. And this will be different from projects to projects, but tends to be change management, tends to be stakeholder management. It could be cutover management. You end up, and it could be the fact that you could be redeploying the same person to various of those roles. But you know, having different sections makes it sort of gives a lot more clarity.

Speaker A: So let's look into the future. What do you see as the future for erp? Will we see modular approaches? Will you see more holistic systems? How does AI change the game? And you look into your pistol ball, what do you see?

Speaker B: Yeah, no, it's an absolutely exciting time. Um, and I probably said system of record multiple times, but actually the way ERP is evolved now, it's now becoming the system of reasoning. Um, so when you've got good data together and actually when you can start to use the AI, uh, sorry, using the AI problem part of it, but actually using the erp, uh, system to start to make informed decisions, doing pattern analysis and starting to sort of, you know, get some reasoning through, that's starting to be seeing that more and more now. Yes, a lot of it's powered by AI, but some examples here, um, you know, if a customer's not paying their bills, but also you realize that their project's red, that could be there's a correlation there. Or actually if an employee hasn't completed their training and is project red, there might be some correlations there. So actually starting to sort of build sequences. But also I think there's a step beyond this as well as we move into multi tenant cloud. You could be, and this is controversial as well, but actually we could be in a, um, let's say in a consumer sort of world where we know that the big data companies sort of share our data for data analytics to give us better user experiences. But what would happen if we were creating a new customer? And actually we could look across the multi tenanted cloud and sort of see how that customer's performing with uh, another uh, ERP vendor on the same cloud. So in other words they're not paying their bills then should we create them as a customer as well? Notice that sharing records, sharing records within, again controversial. So multi tenanted cloud could start to open up towards those things. The other thing I still have seen crystal ball gazing is the ERP system is if you like, it gets to a point of best of breed because we do have more open AIs now. We've got more connectivity, we've got, you know, the ERP system will now become more of a, an Internet of things. Um, so you know, you don't need to sort of try and do a big bank, you don't need one system to try to do everything. Let's get a collection of good systems, let's get a great finance system that's got a great HR system, let's get a good, great logistics system, let's get them to talk to each other in unison because you've got that sort of common thread all the way through which is always very difficult to do because you've got the voice system reasoning now and uh, because the records are the same. You know a good AI can start to make some good interpretations from, from all this data. And again I've got youngsters going, sort of going through, growing up now. Um, if you think of what they're expecting or used to at home in consumer life, um, this is what they're expecting when they go to work. Um, they expect right now experience a digital downgrade. So ERP systems don't need to be bland, they don't need to be boring. There's a lot you can get from it. You know, it's kind of an exciting time. Digital Digital Transformation 2.0 powered by AI. There's, there's a lot of place for agents as well. Um, and how we sort of, sort of self service customers and suppliers and employees through agents. So there's a lot to be given.

Speaker A: Well you certainly paint an inspiring picture of where we are and what the future holds. So thank you so much for joining me today and having this discussion. Now whenever we do have a guest on, we do have two rapid fire questions that we like to ask. Oh, are you ready?

Speaker B: I'm ready. Great.

Speaker A: The first one, what is the hallmark of a mature finance organization in terms of how they operate?

Speaker B: Hallmark of a good mature finance yet when we're using the data to make real reasoning sort of decision. So system, where you get system reasoning, not system or record.

Speaker A: It's a good one. And the second one, what is a book that has had an impact on you like whether it's in your leadership or in your personal life?

Speaker B: Yeah. So it's this one here actually. This, this is for you. This is for everyone. Sorry. By Tim Berners Lee. And um, so Tim Berners Lee was the inventor of the World Wide Web, he's British. So um, I'm always going to be a little bit um, uh, mindful of that. So it was more about Tim's idea of what he saw of the world of the World Wide Web when it was sort of incepted, uh, about connecting people, about connecting communities, but also sort of connecting disenfranchised communities in terms of giving a single access to everybody. And if you think of with we're about talking about ERP instead of multi tenanted cloud and using data for good. And you know, we also know data has been used for bad as well. But let's put that to a site. Very exciting book actually in terms of, you know, what going to his mind's eye. Uh, and also where he sees data, where he sees the Internet going as well. It's kind of interesting as well in terms of personal pods and other things. So allowing people to take control of data again, which we've kind of lost control of. But that's very interesting book. I had the pleasure of meeting him in London a few months ago. Very insightful, very intelligent. This is for everyone is he took that quote from the 2012 London Olympics where he featured. That was the tweet he sort of put out. This is for everyone. You know, the Internet was for everybody when he put it out. So change, change the world basically.

Speaker A: Absolutely. Again, uh, thank you for joining me today. Really appreciate this chance to have this conversation with you.

Speaker B: Yeah, well thank you as well. Thank you for the opportunity. Melissa.

Speaker A: If you've enjoyed this episode, we'd love your support. Follow the show and leave us a rating or review on Apple podcasts or Spotify. It's one of the best ways to help more finance professionals discover the show. For the CFO show, I'm Melissa Howitzon. Until next time,

Speaker B: Sa.