Global operating models are showing signs of strain at many companies. Research by our colleagues suggests that globalization can take its toll on organizational health: high-performing global companies often struggle to set their direction or to coordinate and control operations effectively. Part of the problem is the fine line that organizations must toe between driving common processes across regions to promote efficiency and allowing tailored offerings that match the needs of local business units and functions. That push–pull can lead to unwieldy operating models as leaders strive to manage diverse business interests and competing priorities.
IT should help companies strike that balance, but the same tug of war between standardization and customization often plagues IT leaders. Organizations have lost hundreds of millions of dollars, for example, trying to build the right enterprise-resource-planning (ERP) model to support global operations. While ERP has been used successfully to run management tasks, such as finance and accounting, on a functional or regional basis, cross-functional integration on a global scale has proved far more elusive. Data from Financial Executive International, an association of corporate-finance executives, show that more than 50 percent of ERP implementations do not provide the expected benefits and that more than 80 percent end up over budget struggling to support the expanding demands of corporate global operating models.
Contributing to the problem is the scale and inherent complexity of change. ERP functions like an organization’s circulatory system, connecting and running core operations, such as finance, procurement, and supply chains. Refining such deeply embedded technology is a massive undertaking made all the more slippery by the near-constant shifting of global business conditions.
One large electronics company in Asia, for example, spent more than $100 million on a global ERP implementation, taking five years to define the requirements and another five to roll out the new system. By the time the project team was ready to pilot the program, the initial assumptions that drove the planning, such as the product set and the underlying R&D, were no longer valid, forcing the team to rework the original specs.
Complicating the issue is the outmoded presumption that technology implementations remain within the exclusive purview of IT. Although the scale of many new ERP efforts means that they require board-level approval, once such a project is green-lighted, senior management often lets IT run the show independently rather than engage directly—despite the minefield of business issues involved and the value at stake.
IT hasn’t helped its cause either. Many ERP projects are managed like traditional systems integration efforts, with teams opting either for a “one size fits all,” globally standard approach or for a heavily customized, decentralized one. Neither has worked terribly well in practice.
Our experience suggests that a more business-driven approach to ERP delivers the best results. Instead of wasting management and staff time detailing a set of IT specifications across global business processes, leaders should focus on a handful of agreed-upon management priorities and use them to define a target operating model. This more calibrated approach requires IT to step out of the trenches and lead with traditional senior-management skill sets, from planning to governance, to secure buy-in from business units and to negotiate the inevitable trade-offs. Many IT leaders have yet to master that role.
We believe that organizations can sharply improve their prospects for success by treating ERP as a focused change-management process, but IT needs to take the lead in shaping that understanding and in choreographing the design and implementation.