184 Reduce the Pain of Erp Upgrades With Better Planning

7/31/2019 184 Reduce the Pain of Erp Upgrades With Better Planning

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Enterprise Strategies Report

June 2007

As corporations become more dependent on their ERP systems, they struggle to

strike the right balance between regularly updating the sotware and minimizing

cost and disruption to the business. Tis Report oers advice on how to develop

and communicate a practical upgrade strategy and then build an eective process

or maintaining your ERP asset.

by Jim Shepherd

Reduce the Pain o ERP UpgradesWith Better Planning


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Acronyms and Initialisms

COE Center o excellence

ERP Enterprise resource planning

ROI Return on investment

Copyright 2007 by AMR Research, Inc.

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TheBottomLine

Enterprise Strategies Report | June 2007 2007 AMR Research, Inc.

Reduce the Pain o ERP UpgradesWith Better Planningby Jim Shepherd

The key to minimizing the pain of ERP upgrades is to have both a long-term ERP

lifecycle strategy and a comprehensive tactical plan for the actual upgrade project.

In many organizations, the ERP system has become the application

support or the majority o business processes and the repository or

the corporations most sensitive data. As these systems become more

important and pervasive, there are oten conicting opinions abouthow they should be maintained and updated. Tis is no longer a technical decision that

can be made by the I department or dictated by the sotware vendors release schedule.

ERP upgrades are now important enough that senior management needs to ully under-

stand both the timing and project plan.

Tis Report oers guidance on developing an overall corporate strategy or maintain-

ing an ERP system by providing practical advice or planning and managing an ERP

upgrade project. Here are some o the areas that will be addressed:

Why companies should periodical ly upgrade their ERP systems

Deining the strategy and timing or ERP upgrades Consensus building and communicating the ERP strategy

How to justiy the cost and resources required or an ERP upgrade

Creating a project plan or a successul upgrade

Organization and governance options

Resources, services, and tools available or upgrades

It is vital that the company develops a strategy or how oten the sotware and underlying

technology will be updated so that the entire organization can plan and budget or the

inevitable costs and disruptions. Because upgrades are periodic events, it is also importantto create a repeatable process as well as a set o tools and skills to ensure the projects can

be executed efciently while minimizing any risk to the organization.

ExecutiveSummary


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Why companies need to upgrade their ERP systems

Most organizations are realizing the ERP system is not just a key part o their I

strategies, but one o their most important and sensitive corporate assets. ERP systems

should have at least a 15- to 20-year useul lie, but over that time they will need to be

maintained and enhanced to protect their value and serve the changing needs o thebusiness.

Other capital assets that corporations own, such as buildings, vehicles, or equipment,

need regular maintenance, but they dont typically require large-scale upgrades. Sotware-

based assets like ERP systems have some unusual characteristics:

hey can deliver long liecycles, but theyre subject to rapid technical obsolescence

because o the volatility o the underlying sotware and hardware technology.

his technological instability and the complexity inherent in millions o lines o

computer code tend to result in surprisingly poor quality by the standards o other

highly engineered products.

Most companies pay 17% to 22% o the original sotware license price per year

in order to gain access to bug ixes, legal changes, and technical and unctional

enhancement releases.

Tese actors alone would suggest that companies need to plan or periodic updates just

to ensure the reliability o mission-critical applications. Perhaps even more important is

the role that upgrades play in adding new unctionality, improving business processes,

and extending the deployment o ERP suites.

In the last ew years, we have seen a best practice evolve in which companies use theupgrade project as a ocal point or a whole series o related improvements. At a

minimum, this is an excellent time to consider implementing new capabilities and

rereshing the technology environment, but it is oten combined with other business

and I initiatives. Corporations moving rom decentralized environments to shared-

services unctions or global integrated structures typically upgrade their ERP systems

as a part o the consolidation eort. Upgrades are also an excellent time or companies

to evaluate their I portolios and look or opportunities to eliminate custom sotware,

unneeded modications, and even third-party or legacy systems in order to simpliy

their environments and lower costs o ownership.


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Deining an ERP upgrade strategy

It is very important that a companys management team and board o directors

understand the nature o ERP systems so that they can appreciate the importance o

having a long-term upgrade strategy. It is quite possible or organizations to squander

their investments and shorten the asset lie by ailing to invest in periodic upgrades otheir business systems. At the same time, AMR Research requently sees companies

that seem to be in constant upgrade mode because they are simply reacting to a variety

o internal and vendor-driven imperatives and deadlines.

A proper upgrade strategy should span a minimum o ve to seven years and consider a

number o dierent actors. Te rst issue, o course, is your companys commitment to

the sotware package. I there are plans to replace the current system in the next two or

three years, it rarely makes sense to invest in an upgrade project, regardless o the vendors

support policy. Even i the vendor plans to end support o the product or version, it would

still be less expensive to pay or extended maintenance or a third-party support contract.

Assuming that your company intends to keep the sotware, it should spend some time

developing a strategic plan or the timing and requency o upgrade projects (see Figure

1). Te rate o change in the business and the sotware vendors approach to new-release

timing generally determines the requency o upgrades. Very aggressive companies may

plan upgrades every two-to-three years i their business environments are quite volatile

and they have an ERP vendor like Oracle with relatively rapid release cycles. In other

cases, we may see large, global companies choosing a much more conservative ve- to

six-year upgrade pattern because they consider the cost and risk to be high relative to

the benets. Tis decision about upgrade requency must ensure that the company

stays within the bounds o the vendors support and maintenance policy. Running theorganizations most critical business processes on unsupported sotware is too risky to

be acceptable to most boards o directors.


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Once the upgrade requency is determined, the specic upgrade projects can be scheduled

by looking or windows o opportunity or particular business requirements. As shown in

Figure 1, the upgrade timing needs to be shited in order to accommodate other

constraints or incentives:

Related business initiatives

Sotware release schedules

Upgrade inrastructure like servers, databases, and middleware

Requirements or new sotware unctionality

Availability o critical internal I or user resources

Attractive go-live windows, like three-day weekends

Unacceptable go-live periods during busy seasons or iscal quarter ends

ERP Upgrade Schedule

2006 2007 2008 2009 2010 2011 2012

Signicant businessinitiatives

Vendor releaseschedules

Plannedinfrastructure

updates

Vendor supportpolicies

Demand fornew functionality

Technologyrequirements

Resource and

budget constraints

Release 6.0 Release 8.0

Duration

Sche

duled

Activity

Figure 1: ERP upgrade strategy example

Source: AMR Research, 2007


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Consensus building and communicating the ERPstrategy

One o the most critical reasons to create an ERP upgrade strategy is to acilitate the

buy-in and involvement o the rest o the organization. Like successul implementations,

ERP upgrades require the active participation and support o many parts o the company.One o the main causes o resistance to upgrades is they oten come as a surprise, with

management and business leaders eeling like they are being blackmailed by the sotware

vendor or their own I departments. Developing a strategy document that explains the

reasons why periodic upgrades are necessary and lays out the time rames o the next

several projects will encourage an internal dialog and allow or nancial and resource

planning.

An ERP upgrade strategy must be actively sold to the organization. Unlike ERP prac-

titioners, most people dont understand why something that costs so much to buy and

deploy needs to be changed and upgraded every ew years. It may appear the companyis paying a lot o money to x things that werent done right the rst time. A key part

o the upgrade strategy process is getting a critical mass o employees to understand

ERP upgrades are a normal part o the product liecycle.

ERP systems are typically implemented in phases over several months or several years.

Te phases may represent groups o modules, business units, geographic locations, or

some combination o all three. Te ERP upgrade strategy needs to be positioned as a

continuation o that approach, with new phases every three to ve years that respond to

inevitable changes in the business requirements and incorporate improvements in tech-

nology. Te important thing is to help everyone understand that the purpose is to allow

the company to have a modern, up-to-date inormation system without having to buya new one every ew years. ERP upgrades may seem expensive, but they are much less

expensive than replacement projects.

Justiying the cost and resources required or an ERPupgrade

A ormal ERP upgrade strategy helps to prepare the organization, but in most cases each

upgrade project will require its own justication. Preparing a ormal business case or an

ERP upgrade is challenging and can sometimes take longer than the actual project. Parto the problem is that companies are accustomed to creating justications or tangible

capital equipment. Tey tend to approach the upgrade justication by trying to nd

enough cost savings to und the project and provide the appropriate ROI. While there are

oten potential cost savings rom improved processes or I portolio rationalization, much

o the justication or an upgrade must be based on opportunities and risk avoidance.

While these sot benets may not t neatly into an ROI calculation, it is very important

to quantiy them and include them in the justication.


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Te most difcult part o the justication tends to be assigning a monetary value to the

opportunities and risks. Te opportunities are generally associated with business capabili-

ties supported by the new release (or could be implemented during the upgrade project)

that are not available with the current system or are viewed as inadequate. Te groups

within the organization that understand the need or these new eatures are the ones that

can develop estimates o potential value. Tese may be related to better efciency, asterresponse to change, competitive threats, new business models, or improved processes.

With a little creativity, however, they can all be assigned cost or revenue values.

Risk mitigation is nearly always a part o the rationale or ERP upgrades, but companies

struggle to nd a way to include it in a nancial justication. Te easiest area to

quantiy tends to be vendor support costs. Most companies recognize they cant aord

to be running their business on unsupported ERP sotware, and nearly all the vendors

speciy support windows or each release. A typical vendor policy might be to provide

standard maintenance or ve years rom the release date and then charge a premium

or the next two or three years. At that point, most vendors will continue taking your

maintenance ees, but they stop providing bug xes, legal changes, and technology

compatibility. Avoiding the maintenance premiums alone can be a signicant savings,

but stafng internally or paying consulting ees to support old releases is very expensive.

Another signicant area o risk is technological obsolescence. Hardware, operating

systems, and databases tend to evolve aster than ERP systems, so companies that ail

to upgrade their applications can easily nd themselves unable to capitalize on the

benets o newer and more cost-eective technology. ERP releases that are only our

or ve years old may not be compatible with the latest inrastructure, and the sotware

vendors have little incentive to update old releases. Te monetary value o this risk

increases dramatically i the company aces capacity constraints related to transactionthroughput or data volumes. In some cases, upgrading may be the only way to ensure

critical unctions like order processing are not degraded. Te upgrade also may allow

I to add needed capacity at a much lower cost.

Te best practice in building an ERP upgrade justication is to make the benets-and-

opportunities list as long as possible. Tere is a tendency to look or the silver bulletan

item so compelling that it will justiy the entire projectbut in most cases it simply

doesnt exist. Te best upgrade projects provide value to lots o parts o the organization

and incorporate improved processes, new unctionality, and updated technology. It is

more work up ront to gather the necessary inormation and coordinate all the interested

parties, but it results in a better justication and broader support or the project.


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Creating a project plan or a successul upgrade

A project plan or an ERP upgrade should look like a condensed version o an ERP

implementation plan, since the essential steps are the same. In most cases, though, the

duration and resources required will be reduced. Regardless o how narrow the scope

is or an upgrade project, it always needs a ormal project plan and a project team. Teproject should have a governance structure in place and management oversight with

specic milestone dates, metrics, and change management. Companies that take a

casual approach to upgrades or simply dump the project in the lap o the I depart-

ment will increase the risk o business disruption and jeopardize the expected benets.

Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

Planning

Design

Development

Prepare for cutover

Final go live and production support

Figure 2: Typical ERP upgrade timeline

Source: AMR Research, 2007

Te key activities in an ERP upgrade include the ollowing:

Planning

Determine what organizational changes, business process improvements, and technol-

ogy updates are in scope or the project.

Evaluate the existing application portolio to determine i there are any existing

applications that can be eliminated or replaced by unctionality in the ERP system.

Create a ormal project plan and establish an upgrade project team.

Identiy and secure any necessary resources.


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Design

rain the project team on new release unctionality and technology.

Modiy existing business processes slated or improvement and design any new

processes.

Evaluate existing modiications to see i they are still needed.

Conigure new applications and develop any new reports.

Redesign any integration sotware or procedures that may be aected by the upgrade.

Evaluate system inrastructure, perorm sizing analysis, and determine required

upgrades.

Development

Develop any necessary data migration scripts and clean up any aected data.

Establish a test system that runs new sotware against a representative data set. Create or revise documentation and education materials.

Evaluate regulatory or validation requirements.

Revise and extend existing test scripts.

Prepare or cutover

Develop cutover sequence, intermediate check points, and recovery options.

Perorm comprehensive integration and unctional testing.

Schedule super-user walk-through o all key business processes. Conduct stress tests to identiy any perormance issues.

rain any users that will be aected by new or changed unctionality or processes.

Perorm a technical upgrade rehearsal using the sandbox system.

Final go-live and production support

Upgrade production system to new release.

Conduct perormance measurements and do any necessary tuning.

Monitor user and help-desk activity to identiy required ollow-up employee training. Evaluate process changes and new unctionality where adjustments are needed.

Conduct a post go-live project assessment to look or ways to improve the next

upgrade project.


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Organizational and governance options

Tere are organizational and governance requirements or a successul ERP upgrade

project, but in many companies, permanent structures can be readily adapted. A manage-

ment steering committee should be responsible or approving the project plan, allocating

the necessary resources, and monitoring perormance against the identied milestones.Any changes to the projects scope or timing must be approved by the steering committee

because they will inevitably impact both budget and resource availability. Tis body also

resolves any conicts with other activities or issues associated with organizational or

business process changes.

Te project team needs to be cross-unctional, with representation rom the major busi-

ness unctions, aected geographies, and the I department. Ideally, the project leader

should not be someone rom the I organization because it is very important to send the

message that the ERP upgrade project is a business process improvement activity, not an

I exercise. In situations where the company has decided to use external consulting or

technical resources, they should be embedded in the project team parallel or reporting to

internal personnel.

Companies that have an existing ERP competency center or center o excellence (COE)

requently choose to have that organization run the upgrade project. It typically has many

o the right ingredients to drive a successul project, including unctional expertise, busi-

ness process knowledge, technical skills, and experience with project management, change

management, and employee training. For companies that dont have a permanent COE,

the upgrade project may be an ideal time to establish one since there is strong correlation

between COEs and the value derived rom the ERP system.

Resources, services, and tools available or upgrades

Over the past 25 years, ERP sotware has grown into a $28B per year market that serves

hundreds o thousands o companies worldwide. Tis success created a parallel market o

companies that provide tools and services to help implement, manage, and upgrade ERP

systems. Companies evaluating or planning ERP upgrades should take the time to amil-

iarize themselves with the resources available rom the ERP vendors and their partners. In

many cases, these resources can signicantly lower the cost, minimize the risk, and reduce

the impact on key internal personnel. Tere are hundreds o methodologies, sizinganalyzers, testing tools, data management utilities, and consulting services proven to

deliver excellent ROI investment, but are chronically underutilized.


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Companies should rst look to the ERP vendors. In most cases, the vendors have

comprehensive inormation available to help companies evaluate upgrades. Tis will

generally include release notes, comparisons to prior releases, and tools to estimate

the cutover times, database sizes, and processor impacts o new releases. Many o the

vendors also have standardized upgrade methodologies, such as the Oracle Upgrade

Assistant or SAPs ASAP or Upgrades, which include sample project plans, proceduralguides, and other tools to acilitate the project.

ERP vendors also oer a variety o specialized consulting services to help. Tese may

start with two- or three-day onsite evaluations to help identiy business opportunities

rom an upgrade that may be ollowed up by a project to build a nancial justication.

Te ERP vendors consulting arms will generally oer project assistance or specialized

expertise or the upgrade project. In some cases, these upgrade services can be delivered

rom a remote site. Lawson, or instance, claims that upgrade services may be as much

as 30% less expensive when they are sourced through its Global Solution Centers.

A wide variety o sotware tools have been developed to assist companies with ERPupgrades. Here are some o the most popular categories and vendors:

Release and customization analysis tools

Tese products compare your existing ERP system to a specied new version and identiy

changes, modications, and potential problem areas. Since customizations and testing are

among the most time-consuming and expensive parts o an ERP upgrade, these tools can

easily pay or themselves in a single project.

IntelliCorpLiveCompare

IntelligroupUptimizer

CompuwareSAP Functional Realization

Wipro1Up

Hewlett-Packard (HP)Mercury Deployment Manager


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Testing and test management tools

Experienced ERP customers always single out testing as the most difcult aspect o

upgrade projects. Determining what to test, developing and maintaining test scripts, and

administering the multiple rounds o integration and perormance tests are extremely

challenging. While ERP vendors provide some support or testing, we recommend thatcompanies invest in comprehensive testing sotware to support both upgrade projects

and routine sotware patching.

WiproPowerAn

AutoTesterAutoester ONE

HPMercury LoadRunner; Mercury Quickest Proessional

GenpactAppready

CompuwareQACenter

Data management tools

One o the keys to successul upgrade projects is the creation o sandbox systems, test

systems, and quality assurance systems that can be used or a variety o activities during

the upgrade projects. In order to be useul or testing and training, these systems need

to be populated with current production data, with all the complex relationships intact.

Specialized data management tools provide the select, extract, and load sotware to

clone and move master data or transactional data between ERP instances.

Gamma Enterprise TechnologiesInoShuttle

SymSoftGold Client IntelliCorpDataWorks

CompuwareFile-AID

In addition to the ERP and tools vendors, hundreds o consulting and I services rms

oer ERP upgrade services. Almost any rm that does ERP implementations will also

do upgrade projects or the services, ranging rom ull turnkey projects to sta augmen-

tation and specialized expertise. Te largest global rms, like IBM,Accenture, Deloitte,

and BearingPoint, tend to have specic service oerings or SAP and Oracle upgrades.

Smaller rms, such as Wipro, Intelligroup, and Ciber, also oer comprehensive upgrade

services and a variety o tools and templates. In addition to global and local consultingrms, there are thousands o experienced contractors requently used on upgrade proj-

ects. For companies that are comortable running their own projects, contractors are a

relatively inexpensive way to temporarily add sta with specic skills and expertise.


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Not a necessary evil

ERP upgrades are an essential process that helps organizations derive greater value rom

their ERP sotware and prolong the useul lie o this very important asset. Companies

need to recognize the importance o upgrades and develop an appropriate strategy or

them that aligns with the realities o their I and business environments. Tis strategy isvital because ERP upgrades can be expensive and disruptive, and the business needs to be

able to plan, budget, and coordinate these projects with other activities and initiatives.

Actual projects to upgrade an ERP system need to be treated as smaller versions o an

implementation project rather than just another I program. Many o the methodologies,

processes, and governance structures required or an eective ERP implementation should

be employed as an upgrade project, albeit on a smaller scale. Most organizations have the

resources and skills necessary to run an upgrade project, but the quality o planning dis-

tinguishes truly successul upgrades. Dening the scope, determining the project tasks,

securing the resources, and preparing the organization are all planning activities that can

shorten the duration, lower the cost, and minimize the risks o an upgrade.

oo oten we see companies underestimate the level o eort and the broad impact o an

ERP upgrade. Tese projects can potentially aect most o the critical business processes

and a high percentage o employees. Tey need to be planned or very careully and

deserve signicant management attention.

At the same time, both users and the vendor community are improving this process. Te

products are more easily upgraded, and there is a wide range o tools and services to assist.

Te emergence o the option to do a true technical upgrade ollowed by gradual adop-

tion o new unctionality revolutionized the ERP upgrade process. We now see even largecompanies with massive ERP deployments able to periodically upgrade their systems in

an orderly way with very little trauma. Tese organizations generally have long-term ERP

strategies with standardized upgrade processes and the discipline to develop very detailed

project plans.

We dont expect to see a time when users will welcome ERP upgrades, but we believe that

we will reach a point where they can be treated as routine business activities. As users

develop their ERP liecycle skills and vendors move closer to the goal o zero downtime

upgrades, we hope to reach a point where ERP upgrades can be seen as simply another

component o the continuous business process improvement program rather than a major

company event.


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184 Reduce the Pain of Erp Upgrades With Better Planning