By Dr. Jack G. Nestell
Private Equity and ERP Organizational Change Research Actually Have a Lot in Common
Private Equity (PE) and ERP organizational change research have the same goals and objectives. For example:
- PE and Enterprise Resource Planning (ERP) Organizational Change Research has a primary goal of solving real, and not the perceived, issues in assuring organizational change success.
- Are highly motivated to contribute to and create a vibrant, healthy, and sustainable business.
- Seek to improve organizational performance in the most effective and efficient manner possible by properly and appropriately leveraging resources.
- They focus on the appropriate and effective expenditure of time, money, and effort in the organizational performance improvement process.
- Improve organizational business intelligence and dollar tracking (ERP transactions represent dollars).
- Contribute to a sustainable high-level of organizational performance.
- Focus on preventing failure and properly mitigating risk.
Private Equity and ERP Organizational Change Research Are Both Driven By Demand
Just like there are an opportunity and demand for PE to invest in and improve businesses, ERP organizational change is also driven by demand. Moreover, they both seek the same reward, a self-sustaining, healthy, and vibrant organization. After all, if large scale ERP organizational change were easy and risk-free (that is, no demand), then 1) objective vendor-neutral research would be wrong, 2) there would be no need for ERP rescue, 3) ERP litigation and expert witness services would not be required (there are ample law firms and professional firms that provide this service), and 4) professional researchers would not be spending significant cost, incredible time, and a great deal of effort trying to solve a problem that doesn’t exist. Research is typically driven by a demand to solve a problem or to address a gap or offer insight, innovation, and creativity for the improvement and advancement of a particular field, service, product, or business.
Anyone that has spent any time in the field of ERP organizational change knows that there exist many, often invisible, organizational, knowledge, and motivational influences. There are relatively successful large-scale projects and on the flip-side, there are projects that struggle significantly. But they all have one thing in common, significant challenges and learning curves are more often the norm. Any experienced “boots on the ground” practitioner, if being honest, will be the first to say that ERP organizational change is a tough business. Vendor-neutral and objective research knows that well too. This understood problem has driven the demand for significant ERP organizational change research.
Therefore, the key for PE as well as ERP organizational change research is not to only try to prevent any/all issues and challenges (that’s impossible), but also to handle them appropriately by knowing and addressing the root issues when they rise to the surface.
Private Equity and ERP Organizational Change Research Are Both About Successful Organizational Transformation
ERP organizational change research is being viewed from many different perspectives and fields. Successful ERP organizational change goes well beyond IT solutions and project management techniques and tactics. Organizations consist of people and processes as well. Therefore, ERP organizational change research considers looking at ERP projects, for example, from the lens of leadership theory, stakeholder theory, diversity, psychology, and the list goes on. Over the last decade in particular, more study is being done among practitioners and in academia research looking for ERP “success models” and “critical success factors (CSF)”. Scholars and practitioners continue the search to find common denominators in considering all possible influences upon ERP organizational change success. ERP assimilation failure is a significant problem directly related to many complex and dynamic critical success factors. What some of the results and findings suggest may not only provide insight but be new information for organizational leadership reflection and application.
Demands For Both PE Business Success As Well As For ERP Organizational Change Success is Significant
There are tough conversations that occur in boardrooms all across the country. Practitioners, business owners, executives, stakeholders, and employees often experience significant organizational challenges due to business growth, business correction, or challenging and changing business environments that place great strain on organizations. Companies are constantly under great demand to be competitive, innovative, and creative (yet with diminishing resources) in an effort to stay relevant and competitive and to maintain a healthy organization. For an organization to remain healthy, the business environment and position have to be clearly understood and this requires business intelligence. Accurate and timely information is one of the most important assets, next to their people, that allows businesses to react quickly and appropriately to ever-changing business conditions. Both PE firms and ERP organizational change research understand this well.
Sometimes remaining competitive and healthy requires significant organizational change. And two of those change agents are PE and effective ERP assimilation. They both are agents to drive organizational improvements and to create or maintain a competitive advantage.
ERP Organizational Change Research is a Significant Value Proposition for Private Equity
To quote Wikipedia, “A value proposition is a promise of value to be delivered, communicated, and acknowledged.” ERP organizational change research offers a significant toolbox of resources, that if only reflected upon and then applied, could perhaps further advocate for and support successful organizational transformation.
Moral of the Story
PE and ERP organizational change research have the same goals and objectives in common. ERP organizational change research is not only a value proposition for Private Equity, but also makes a great partner in advocating for successful and sustaining organizational transformation.
“A private equity investment will generally be made by a private equity firm, a venture capital firm or an angel investor. Each of these categories of investors has its own set of goals, preferences and investment strategies; however, all provide working capital to a target company to nurture expansion, new-product development, or restructuring of the company’s operations, management, or ownership.” https://en.wikipedia.org/wiki/Private_equity
And, to accomplish this in an effective and sustainable way, this goal often requires effective and efficient business information, effective and improved business process, and effective organizational change: the same goals as ERP organizational change,
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The Post-Go-Live Productivity Dip is a Reality: Be Honest and Then Be Prepared
The post-go-live productivity dip deserves attention. ERP organizational change success doesn’t end, and isn’t determined, just when you “hit the switch”. In fact, it is really just the beginning of opportunities for continuous organizational improvements and the realization of benefits and ROI. And, the value of formal and informal learning and training doesn’t stop after you “hit the switch”. During the pre-go-live phase, preparation and readiness training needs to consist of effective and efficient organizational stakeholder learning. This leaning should be executed with a scaffolding approach such that the learning process is effective. This learning should address conceptional as well as functional ERP learning. It should include user acceptance testing (UAT), conference room piloting (CRP), and formal and official sign-off among other best practices founded in principle in order to ensure proper training.
Pre-go-live training is just the half of it
But, even given and assuming an effective and efficient pre-go-live training program, that’s really just the start. It is one thing to learn in a pre-go-live environment, it is another thing to learn on the job in a “real world” environment after the go-live. More to come on this in future posts, but to a certain degree, the transition past the productivity dip is a function of human learning and the application of effective ERP organizational change learning programs. We are going to discuss the post-go-live productivity dip further on upcoming posts and articles, but there are multiple reasons for this dip. The key is not to just try to mitigate the productivity dip as much as possible (via the most effective and effect pre-go-live training), but to also just acknowledge and be honest about it, and then be prepared with tangible and effective post-go-live tactical actions that help ensure the transition past this productivity dip.
A key post-go-live success concept #1: Application of learning
One major and primary key to post go-live transition success comes with; 1) a continuous learning program, 2) effective and efficient transfer of knowledge to the workplace, and 3) and proper measurement, adjustment, and support for the application of the knowledge that was gained in pre-go-live training.
“Up to 70 percent of all learning that directly contributes to job performance takes place on the job” (Kirkpatrick & Kirkpatrick, “Four Levels of Training Evaluation”, page 15).
In their book “Four Levels of Training Evaluation”, page 35, Kirkpatrick and Kirkpatrick discuss how “Reinforcement that occurs after the learning event produces the highest level of learning effectiveness, followed by activities that occur before the learning event, yet each typically garners only 5 percent of the training time and budget”. Essentially what Kirkpatrick and Kirkpatrick are stating is that there is great value in transfer and application from the training room to operations. And, this is certainly no less true in the context of ERP organizational change. Kirkpatrick and Kirkpatrick also note that (provided and assumed you have an effective and efficient pre-training program), “…when desired program outcomes are not achieved, the cause is usually found on the job, not in lack of knowledge or skill. It is seldom necessary to send employees back to the classroom.”, again, assuming proper, effective, and efficient training. Kirkpatrick and Kirkpatrick are simply stating the value of transfer and application of training to the “real world” environment and that lack of application can often be a significant gap in effective learning and hence desired business results. Therefore, your ERP organizational change plan would benefit from the points of Kirkpatrick and Kirkpatrick in that pre-go-live classroom training and evaluation is just a part of success, the successful application is also critical. And the successful application needs to be wholly advocated and endorsed by the organization.
Kirkpatrick and Kirkpatrick are basically telling us ERP Organizational change practitioners that effective training as well as training expectations, evaluations, and the application doesn’t end after the classroom UATs and CRPs. So then, the ERP organizational change plan must have concrete, specific, organizationally aligned action items in order to ensure that training and its application is effective. This will help organizations accelerate past the known, factual, expected, and accepted (to a certain degree) post-go-live productivity dip.
A key post-go-live success concept #2: A honest reality in that success and realized benefits aren’t always immediate
In “Firm Performance Effects in Relation to the Implementation and Use of Enterprise Resource Planning Systems”, Nicolaou (2011) states that ERP implementation represents a significant commitment that impacts nearly all business processes. Nicolaou also states that given the sheer nature of ERP, benefits aren’t and can’t all be realized within a short time frame. Nicolaou (2011) suggests that ROI and expected benefits can be a longer-term realization. Nicolaou further adds that the “return on assets and return on investment were negatively affected by ERP adoption in the year of and following system completion”. In other words, success and realized benefits aren’t always immediate and fully realized just because an organization “hit the switch”.
Moreover, in “Effect of enterprise resource planning implementation on organizational productivity.” Newlin (2009) states a great and true point, “ERPs evolve as they make their way through a life cycle, usually starting with conception and ending with a new way of doing business”. Newlin also describes the post-go-live productivity dip as:
“Next is stabilization where processes are cleaned up and organizations attempt to adjust to the new environment. Continuous improvement follows and is defined by adding bolt-ons, which are specialized applications that augment the ERP system and engaging in process redesign to implement new structures and roles to leverage the system. Finally, the organization enters transformation, where the use of the new system is part of everyday operations. There is no longer management emphasis on using the system, it is simply used. Organizational personnel has accepted the system and processes have been modified to match the information system if necessary.”
The moral of the story:
Be honest and realistic within the organization that the effort and training (and its application) doesn’t end after go-live. The ERP benefits happen, but they depend on the holistic approach to the effort. In “Minimizing the human capital aspect of productivity disruption during the implementation of an enterprise resource planning (ERP) system”, Newlin (2009) states that “In order to minimize the productivity dip, it is necessary to have a realistic expectation regarding depth and duration of the dip, and understand the factors that contribute to the dip including how to manage them”. And then, build concrete action items into your ERP organizational change plan in which to address these factors.
Lastly, Sobyanina and Mockutė in their work “ERP post-implementation: Risk assessment” make a great point/suggestion: “In the end, it should be mentioned that the awareness of potential risk factors and their dependence on each other can facilitate managing process and help to avoid possible negative effects for a company’s business. Sometimes manager’s confidence that technology could solve any problem, might discourage employees from presenting a realistic view, which, in turn, may prevent from addressing post-implementation issues more effectively……The findings suggest that companies should invest and pay more attention not only in technological solutions but in organizational or human resource areas, e.g. every company should have a proper human resource strategy that implies not only monetary rewards but non-material values as well, such as training, seminars or participation in projects”.
Well said indeed.
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Did you know that there are many different leadership styles? Did you know that leadership styles can be identified and measured? Did you know that ERP organizational change literature suggests that executive teams and leaders that tend to have real (not perceived, assumed, or desired) transformational leadership qualities may have the benefit of a known ERP organizational change critical success factor?
These are important questions as leadership styles (individual and as teams) come in many forms. As ERP organizational change agents, it is important to understand, assess, and be honest about leadership styles and their strengths and weaknesses. ERP organizational change efforts often consist of a significant iterative process of improvement, may require business process re-engineering, usually requires increased demands on internal time and effort, consists of much diversity in terms of experience/perspectives/opinions/knowledge, may encounter resistance to change (which could be dues to many reasons), and many other change variables. In other words, ERP organizational change can be quite disruptive (to the norm) as well as require significant organizational resources (time, money, effort). And, also often requires significant alignment.
Although resistance to change can be a very useful tool, at some point, an organization is either committed to the project or they are not. But, for the effort to work, this takes leadership that is strategic, effectively listens to the workforce, and ultimately creates a culture of teamwork and commitment towards the goal. Northouse, author of “Leadership: Theory and Practice”, describes transformational leader attributes as an idealized influence, inspirational motivation, and individualized consideration. Moreover, transformational leaders raise the level of value about reaching goals and help the team transcend their own self-interest. They manage emotion, inspire motivation, are creative and innovative, and create a supportive climate for discussing differences in opinions. ERP organizational change leadership style needs to allow a managed risk-taking orientation that drives creativity and innovation as well as organizational learning. Emphasize on transformational leadership as being a project “catch-all” is certainly an ERP organizational change critical success factor.
There is some great literature that suggests and demonstrates the value of transformational leadership. Shao, Feng, and Liu (2012) found that their empirical results emphasized transformational leadership as a critical factor in obtaining the desired organizational culture as well as to improve knowledge sharing on ERP success. Burns, Kotrba, and Dension (2013) further describe that transformational leaders possess predicted organizational cultural characteristics such as strategic vision, celebrating success, employee support, innovation, goal setting, and organizational culture orientations and identification that exceeds beyond some of the cultural orientations of transactional leadership (Georgada & Xenikou, 2007). Burns, Kotrba, and Dension (2013) also forward the suggested notion that in times of crisis and significant organizational challenge, transformational leaders may be best oriented to provide, promote, and develop a more adaptive organizational culture (Uhl-Bien, Marion, & McKelvey, 2007). Bass and Avolio (1990) suggest that transformational leaders are able to stay in tune with the desires of employees but also maintain alignment of realities and expectations (that would be required for a successful ERP organizational change).
(In upcoming posts we will discuss more specific ERP organizational studies regarding transformational leadership).
Transformational leadership begets transformational culture.
What your leadership style? How do you know that?
Information technology failure is one in which stakeholders are left dissatisfied with how the system has served their interests (Chua, 2009; Sauer, 1993). The Standish Group (1994) defines ERP failure as one in which the project was canceled, over budget, missed time delivery, and/or did not meet stated business goals.
Wong, Scarbrough, Chau, and Davison (2005) describe how failure refers to ERP system downtime, fully functional, loss of sales, lost market share or lost competitive advantage. Wong, Scarbrough, Chau, and Davison (2005) further note that often ERP failure is identified in which the project approval phase objectives and goals have not realized sufficient or expected return on investment.
The key is keeping the definition and measurement of failure, or success, as objective as possible. The organization needs to spend the time and effort to formally document and agree on how failure, and success, will be defined. Without a formal process in which failure/success is formally documented and communicated, the idea of failure or success can become quite subjective and mean many things across the stakeholder groups and their members.
Moreover, the organization needs to allow some time to fully realize the benefits and value of ERP assimilation. Ghosh (2018) notes that stakeholders should allow time before considering ERP as a failure as it takes months to years to realize the return and benefits of ERP.
Markus, Axline, Petrie, and Tanis (2000) describe two categories of ERP success:
1) project success metrics such as being on-time, on-budget, and functional delivery, and
2) business value metrics such as improved inventory management, cycle-times reduction, and time to market reduction.
Stanciu and Tinca (2013) define a successful ERP project as one that accomplishes the stated and desired functionality, utilized as planned, and operational within the planned time and budget.
Ifinedo and Nazmun (2013) describe ERP success as utilizing ERP in order to improve organizational goals.
Stanciu and Tinca (2013) suggest that definitions of ERP success include system quality, information quality, and the quality of outputs.
Although it can be challenging to define and agree to ERP success (and end-user perception of success may be subjective), the ERP organizational change plan needs to allow for a formal process for defining and documenting success. The organization then needs formal and sufficient mechanisms in which to measure and discuss success.
There is one best ERP solution for each and every unique organization. And, the organization needs to take the time and effort to find that “one best fit” without making assumptions.
In fact, research suggests that ERP systems selection, implementation methodology, and partner selection is critical for a successful ERP organizational change project. There are 100+ ERP vendors. Some ERP solutions cater to specific industries while some cater across industries. Some come with industry-specific configurations and have hundreds of preconfigured business processes. Some cater to specific niches with little configuration. Some have been around since the beginning of the ERP era and some that we don’t know about yet but will bring to the market new and exciting products with creativity and innovation. ERP solutions utilize different models and often cater to different business needs. Some have all the bells and whistles and try to be everything to everyone. Others are very industry-specific and cater to a niche market.
They often employ technology differently and have different approaches to functionality and business modeling. They have different competitive differentiators that drive how they advertise and approach the market. There is free and open-source ERP and there are propriety ERP vendors. And there are ERP vendors that focus on add-ons only.
ERP solutions and vendors all have unique tangible and intangible benefits, advantages, disadvantages, and costs. Some of them have truly unique differentiators, some don’t, and some say they do.
What matters, is not just the ERP vendor Ads, commercials, or sales pitches, but what really makes for an organization’s success is being mindful of how critical the triad (people, process, and technology) and hence the true differentiators that ERP solutions and vendors bring or don’t bring to the table.