Step one in your journey to catalyse change in Finance and HR system transformation with a move to the cloud.
Delivering the future
In this blog post, I cover how government and public sector organizations can understand the value of making powerful progress towards moving to Cloud ERP (Enterprise Resource Planning or Finance, HR, Procurement, Supply Chain), consider the options available and define the benefits case.
“If you don't know where you are going, every road will get you nowhere,” said Henry Kissinger. While I’m sure he wasn’t referring to a Finance and HR systems transformation he made a more salient point than A. Milne who said, “If you don’t know where you are going, any road will get you there”. At what cost and to what benefit?
The start of Finance and HR systems transformation
Organizations considering a change and transformation of their core ERP systems generally start from one of two positions - either technology obsolescence or significant business change. Organizations that are currently operating on-premise applications from major technology vendors are being encouraged to move to the cloud with the publication of obsolescence timetables. System changes that are driven by this impending system end date are often IT rather the business-driven and can create a struggle to define an effective business case for the relatively large cost of the transition when comparing TCO (Total Cost of Ownership).
Considering the move to the cloud from a business outcomes perspective helps align the organization behind the adoption of the change, as the benefits are directly aligned to the needs of the user community. We all work harder on the things that we want.
The fundamental components to justify the business case
As an organization embarking on moving to cloud ERP, there are four key steps in the journey. The first three are fundamental components of the business case definition, that will ultimately require sign-off to get the program moving.
1) Where are we?
Starting any journey without knowing where you are now would be folly, resulting in wrong destinations being defined. But what is the definition of the starting point?
Deploying a cloud ERP system begins with standardizing on a set of leading practice processes. These processes can be deployed across the organization replacing legacy working practices and individual department workarounds, providing a consistent set of data and outcomes that employees understand, and can relate to.
In a requirement-led transformation, previous methodologies involved spending weeks mapping the current processes. While this resulted in revenues for the consulting firms, it also reinforced the status quo and supported further entrenchment by teams who were not keen on change.
Use the target processes as the goal and measure the organization’s ability to achieve these. Considering the question of ‘why not’ when looking at the art of the possible, provides a much better starting point. Eighty percent of processes are common across organizations, otherwise, how could cloud vendors create common platforms? Focus the time on the differences and how support the adoption of the common processes.
In a back-office transformation the challenge is to focus on the journeys that matter most. Organizations should identify the priority processes that will
a) support the normal operations, and
b) deliver innovative change in the organization;
- The departmental and organizational business goals should be aligned to the transformation program. Summarizing these goals into strategic KPIs that can be benchmarked across the industry helps to formalize the current level of achievement, sets the target and therefore defines the ROI into the business case.
- Engage the operational processes owners in the measurement of the process maturity using industry models, and assess the level of change required to achieve process standardization. This will build a clearer picture on the support needed by the organization to adopt the new ways of working.
- Effective outcomes definition, reinforcement and measurement through the program keeps the journey on the right road, driving a more direct route to a focused outcome. Programs without clear and repeatable outcomes tend to be driven off course by competing business priorities and scope creep.
3) Assessing options
Any good strategy is based on the consideration of a series of options. From ‘do nothing’ to ‘target operating model and system change’. The options should consider both the outcomes that are delivered by the technology platform as well as the partner to support you in the transformation.
Define effective criterion for assessing the options, which will also support the governance forum in establishing the program charter and allow effective progress measurement. Criteria could include time to value, level of organizational change, external impacts, costs and ROI.
Review the market for suitable technology vendors and service providers, allowing a pre-engagement for fact gathering to take place, reducing later rounds to suppliers that are closest to fit. This will help lead to more streamlined and cost-efficient procurement.
Moving through the following business case phase can take time. Activities that prepare the organization for the transformation and prioritize BAU work while the procurement, subsequent business case and the program progresses should be considered. These are activities with ‘no regrets’.
4) Constructing the business case
The type of business case required across organizations varies considerably, from internal ‘justification for funds’ cases to those that require sign-off by Government Treasury departments and follow strict guidelines (i.e. Green Book in the UK).
The business case will be reviewed in the light of the target outcomes you have defined earlier but other than the usual direct / indirect cost and benefit comparison, other elements to consider are as follows:
- What is the most commercially viable procurement route? Should you procure cloud ERP subscriptions and implementation services under a single contract? Probably not, given they have different longevities. You are essentially married to the cloud provider but only engaged to your implementation partner.
- What service delivery model options are available to you? Does it make sense to adopt these revised ways of working without reviewing the changes in the support organization that will be required to sustain the innovation moving forward? There is no need for traditional AMS (Applications Managed Service) in the cloud.
- What do you need to do from a people, process and technology perspective to make this transition? When did you last perform major surgery on your ERP platform? Probably not in the last decade. The cloud is different and it’s likely you don’t currently have the right experience in-house. Where are these skills going to come from in the short-term and how will you keep them for the future?
The immediate actions
Taking any road on the journey will get you somewhere, but most likely not to the destination you have in mind or by your intended timeline. Preparing key outcomes, with clear metrics that are embedded into the business case, will set a direction for the journey that has benefit and can be measured before, during and after – ultimately helping deliver the initial business case within budget and on time.
What is the next step?
To talk further about your journey, contact us to understand how KPMG can assist you in your assessment of where you are today with process reviews, options assessments, and business case preparation. All of these are tailored to your organization and to where you are in the journey today. Also, look out for the next blog in this mini-series on ‘no regrets’ to understand where to go next.
About 'Transform to the Cloud' article series
Transform to the cloud is a series of blogs that look at the common steps in a journey to the cloud, including making the right choices at the beginning to preparing for a continuing innovation culture that harnesses the benefits of the back-office transformation for the long term.