ERP Project 101: What + Why = How

One of the reasons why I am a consultant is that I enjoy solving business problems with technology. ERP provides a technical foundation that I can utilize to solve problems.  However, during my career I came to the realization that simply throwing technology at a business need is not in the best interest of the customer.  This is especially true when you do not completely understand the requirement.   There is a difference between an evolving requirement and an evolving understanding of the requirement.  In the next sections we will briefly review a practical approach for ERP requirements management.

 

Gathering Business Requirements is Just the Beginning

I think we all can agree that gathering business requirements is a key activity that will have a significant impact on ERP implementation success.  However, it is as equally important to focus on requirements validation before proceeding to implementing a solution for addressing requirements. Too often we jump from gather to design before we have a full appreciation of the business need.  When it comes to formal requirements management, I keep the following simple equation in mind:

Requirements Mgmt 101

Basic ERP Requirements Management

  

Defining What

Sounds simple enough but how you gather requirements sends a message.  Also, it is important to understand if the requirement is the result of a new opportunity or addressing an existing business pain.  The source should play a factor in your approach to gathering information.  Consider the following commonly accepted approaches utilized for gathering ERP business requirements:

 

Defining Requirements

Generally Accepted Requirements Gathering Methods

 

Please allow me to state that the above methods are valid and have their inherent advantages and disadvantages.  The challenge I find is not gathering the requirement but rather the limited effort spent on understanding how the requirement supports business process results. 

 

Determining Why

It is hard to provide a solution when you do not understand the business.  Asking why is less about challenging business requirements and more about gaining a better perspective of the requirement.  What are the desired result(s)?  How do the result(s) add value to the overall business process?   Odds are that you will have only a superficial understanding of the requirement if you do not understand the context (environment) of the business need.  Also note that asking why is the first step to validating your understanding of the business need.  Following is a list of the common validation activities for business requirements:

Confirming Requirements

Requirements validation techniques

 

I firmly believe that all four validation methods should be employed as part of defining business requirements.  Unfortunately, not all of these validation steps occur during the deployment.  The advantage with ERP is that you have working software that you can easily demonstrate and confirm how business requirements would be handled.  Do not guess – prove what is possible!

 

Constructing How

This process is typically an area that is not executed well when it comes to ERP.  In the rush for faster results many assume that the solution must be implemented via technology.   Technology is good for many activities (repeatable, logical) but it can also be a costly option for conflicting requirements across a business process.  As a rule of thumb, I typically consider 4 options for addressing business needs:

 

Addressing requirements

Options to address ERP requirements

 

  1. Automation: Developing a technical solution to address need.
  2. Business Process: Creating business process to address need.
  3. Acceptance:  Do nothing and handle as the need arises.
  4. Avoidance: Eliminating the source of the business need.

 

Understanding both the What and Why will provide you the right insight to select the most viable approach for implementation of the requirement.  It provides you with the perspective and context for effective decision-making.

 

Summary

An enterprise technology platform like ERP is an empowering toolset for addressing business needs across an organization.  Yet, soft skills like requirements management have a greater impact on business solution success.  It seems like every couple of years there is a “new” ERP methodology that will address the challenge of gathering ERP requirements.   Often I observed too much focus on the methodology and not enough effort focused on the end result.  I’m sure that I may receive some criticism from my peers in regards to my attempt to “dumb down” requirements management.  However, I have found that the best approach is a simple approach that every stakeholder can understand and recall instantly versus having to go to a methodology book.  

Best approach for gathering ERP requirements

How You Gather Requirements Sends a Message!

Let’s us go through an analogy together.  You are the customer and I am the consultant working with you to develop some software changes for your packaged software.  As the consultant I can take two approaches for gathering requirements:

Option #1:  “What would you like?” An open-ended question that will generate a lot of feedback from you the customer.  Yet it communicates several underlying messages:

  • You as the customer will get a turn-key, custom solution.  Software changes require a minimal effort.
  • I as the consultant may not have sufficient knowledge of your business – or not enough to lead with a recommendation.
  • You as the customer know exactly what you want.
  • I as the consultant appear to be more customer-focused.

Option #2:  “Here is the delivered functionality. Please explain why this is not sufficient?” A question that will generate less feedback from you the customer.  Yet it communicates several underlying messages:

  • You as the customer may not get what you want.  Software changes should not be required.
  • I as the consultant may not have sufficient knowledge of your business – especially if I did not know of the gaps beforehand.
  • You as the customer may feel to be put on the defensive and not treated appropriately as the key stakeholder.
  • I as the consultant appear to be less customer-focused.

Both options are valid approaches for gathering ERP requirements.  However, the challenges I see today are due to how project teams apply requirements gathering strategies to their ERP implementations.  Project teams typically confine themselves to only one approach and do not account for the challenges associated with the selected requirements gathering method.

Multiple Methods for Requirements Gathering

Based upon my experience there are three main strategies for gathering ERP business requirements:

Requirements-Driven Strategy

A pure requirements-driven strategy focuses on defining all business requirements independent of organizational and technology constraints.  This approach is the most widely used method today.  This is also the slowest approach to gathering requirements and will require the most time from business users to articulate requirements.  We can anticipate gathering non-value-added business requirements that must be filtered through the requirements section process.  With additional gaps business stakeholders will have to spend more during Fit/Gap to make decisions.

Solution-Driven Strategy

On the other end of the spectrum, a pure solution-driven strategy focuses on the gap business requirements (requirements that cannot be met with delivered functionality).  This approach is highly popular in for rapid ERP implementations.  This approach requires the least amount of time from business users; however, business activities must conform to the packaged business software.  This could have a significant impact on organizational acceptance and impact because ERP software designs are based upon a market-driven set of requirements and not the specific requirements of an individual customer.

Configuration-Driven Strategy

The configuration-driven strategy is based upon the premise “The new system needs to do what the existing system does today”.  It may be a situation where a customer simply needs a replacement system because the existing system is nearing the end of its license and may become decommissioned software.  Starting with what the customer knows helps to expedite requirements gathering.  Business user time is minimized because IT can provide insight into the existing business system capabilities and configuration.    However, this approach will surface requirements based upon existing system limitations as well as legacy non-value-add business requirements.

Each requirements gathering approach has its strengths and challenges.   This fact does not invalidate the approaches described.  What is required is the right application of these methods to encourage – not force – customers to maximize their ERP investment.

Best Practice: Use Multiple Methods for Requirements Gathering

What if there was a way to take the best from all the approaches mentioned above and produce a strategy that took full advantage of ERP software?  What if we could bring in different approaches in such way as to complement and progressively elaborate (iterate) business requirements?   This is the aim of the blended approach – to leverage different techniques in the process where they can generate the most value.  The project team gathers business requirements from different perspectives which enable the team to create a holistic requirements definition set. Finally, the approach will naturally filter out non-value add business requirements.  Let’s review how we would execute on a blended approach for requirements gathering.

Gathering ERP requirements

Gathering Requirements for ERP

Iteration #1 – Listen to your customer

In the first iteration we will utilize the requirements-driven approach to gather high-level requirements.  The difference in applying this approach is the level or degree that we execute in this iteration.  The objective is to gather enough business requirements that will enable the project team to develop a competent system for business solution modeling.  A key concept here is that your customer needs to feel that they are being listened to and engaged, yet not being promised a custom solution.  The project team wants to be able to develop a system that will convincethe customer that the packaged software will support their business.  Focus on gathering the main business scenarios and relevant data that will enable the project team to produce a realistic solution to utilize during business solution modeling.

Iteration #2 – Lead your customer

Here in this iteration the project team transitions from listening to leading with a business solution.  During business solution modeling the project team will demonstrate the ability of the packaged software to support the main business scenarios to your customers.  During business solution modeling the project team also focuses on gathering exceptions to the standard business process scenarios defined.  You will also note that this activity will provide the project team with the opportunity to validate business requirements and software configuration during the requirements gathering process.

Iteration #3 – Negotiate with your customer

This final iteration is a confirmation that all value-add business requirements are defined and all business exceptions and scenarios have been addressed.  Looking at the configuration of your customer’s legacy system(s) not only is another source of validation but also can be the first iteration of defining legacy data migration requirements.

Summary

One of the key techniques the project team can use to detect and resolve business requirements conflict is to gather requirements from different perspectives.

Gathering ERP Requirements from different prespectives

Different Views of Requirements

Driving to define your business requirements from different perspectives will naturally identify potential conflicts.  Starting off with a requirements-driven approach lays the foundation for effective requirements gathering as well as promotes collaboration.  Next, taking a solution-driven approach enables the project team to quickly identify the boundaries of the packaged business software.  Third, utilizing the configuration-driven approach provides a validation of results from both the requirements-driven and solution-driven activities.  And finally taking a results-driven approach ensures that the business results support the desired business results.

Source:  This hybrid approach is further defined in my book Maximize Your Investment: 10 Key Strategies for Effective Packaged Software Implementations.

Applying Pareto’s Principle to ERP Selections

The Pareto principle (also known as the 80-20 rule), states that, for many events, roughly 80% of the effects comes from 20% of the causes.  The principle was developed to explain income and wealth distribution in Italy.  This principle has evolved into a “rule of thumb” in business.  In the software industry the Pareto principle has been applied to several areas:

  • Fixing the top 20% software errors would result in addressing 80% of reported software issues.
  • 80% of the value customers receives from software comes from 20% of the software’s functionality.

ERP Selection Case Study

I recently completed a software selection project for a mid-market discrete manufacturer.  A key activity for software selection is prioritizing requirements.    The following table provides an executive summary of our requirements gathered.

Area

Requirements Pains

Benefit Opportunities

Order Management

207

35 25
Warehouse

93

19

16

Manufacturing

88

17

9

Engineering

44

24

16

Finance

142

8

24

Purchasing

37

23

11

Reporting

77

14

38

Total

688 140

139

 

Allow me to make a few key points.  Gathering requirements is an iterative process.  The objective of requirements gathering was to define requirements to a level where the customer could make an informed decision on selecting an ERP solution.  As the implementation progresses from software selection to implementation the high-level business requirements will be further refined.  Second, as you gather requirements it is important to capture business pains and benefit opportunities.  Pains are limitations or barriers that keep business from meeting their objectives.  Pains may result in additional requirements and/or opportunities for quick wins.  Benefit opportunities are directly related to business requirements and will enable the customer to start with developing the business case up-front versus towards the end of software selection (which is reactive and a bad practice for software selection). 

Requirements Prioritization Guidelines

Requirements prioritization can be a painstaking, time-consuming process.  For the customer in this case study we had a single prioritization session instead of individual, functional prioritization sessions.  As part of the joint session we defined the following guidelines:

  1. Individuals should consider their top 3 – 5 business requirements.
  2. As a group we will determine priorities for all requirements (not just your own).
  3. Priority classifications: “Must Have”, “Valuable”, “Nice to Have”
    • “Must Have” requirements include competitive, strategic, and compliance business needs.  Revenue-generating business processes should drive the majority of these requirements.
    • “Valuable” requirements are usually not “show stoppers” however, they will add quantifiable benefits to the organization.
    • “Nice to Have” requirements are convenient but do not provide a significant or quantifiable benefit to the organization.
    • Rule of Thumb:  Demonstration scripts for vendor demos should primarily focus on “Must Have” requirements.
  4. Using Pareto to estimate requirements prioritization
    • No every requirement should be marked as “Must Have”.
    • Prioritization should be solution-based, not functional-based.
    • 80% of benefit is generated from 20% of effort (requirements).
    • 20% (138) of the total requirements (688) gathered should be prioritized as “Must Have”.

 

Summary

Prioritizing business requirements for an ERP selection project is both an art and a science.  Sorry to say that there is not a simple formula that can help you magically produce appropriate rankings.  There are heuristics like Pareto’s principle that can provide you “signs” that you are heading down the right path.

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