By Zeeshan Hasan
(From the August 2011 issue of CIO magazine, Bangladesh edition)
Practically
everyone has heard the ERP buzzword, but many are still unclear what it
means; in brief, ERP (Enterprise Resource Planning) is integrated
business software which combines accounts, costing, purchase, inventory,
manufacturing, sales, human resources and project management. In other
words, it’s the holy grail of MIS (Management Information Systems); it
puts all company information in one live, constantly updated database
where whatever reports anyone requires can be instantly produced.
Three
years ago Kazi Farms, the largest poultry company in Bangladesh,
decided to embark on its own ERP implementation journey. In the course
of it, many mistakes were made and lessons learned. When I started doing
research into typical ERP implementations, I realized that the mistakes
we made were typical; ERP implementation is a complex business,
touching every department in an organization, where many things can and
often do go wrong. The academic field of Management of Information
Systems largely grew up due to recognition of the fact that around 50%
of large software projects (typically ERP) usually fail. This sounds
like an incredibly high number, but it’s one that has been repeatedly
found by survey after survey around the world.
Why
should ERP systems fail so often? The simple reason is their very
nature; ERP integrates all departments in an company. But these
departments, in the real world, may not be accustomed to working with
each other so closely, and may not want to cooperate. Prior to
implementing ERP, a company’s sales, purchase, manufacturing and
accounts departments operate in relative isolation, since no one else is
directly using their data; this means every department is fairly
independent. Usually, in companies without ERP, all departments have to
reconcile their data only once every thirty days to produce the monthly
accounts. But once ERP comes along, everyone is forced to work together
and reconcile stocks and other data on a daily basis. People who hardly
know each other have to work together very closely. The result is that
all the interpersonal and interdepartmental politics lying under the
surface of the organization is aggravated. Any such intra-company
politics and disagreement is likely to cause the ERP effort to fail,
since an integrated ERP system requires coordinated input from every
department.
The
Kazi Farms experience here will be illustrative. Prior to our ERP
effort, Kazi Farms was a highly distributed company operating in many
locations; however, there was no distributed information system other
than e-mail. The standard way that information was exchanged was by a
daily transfer of huge quantities of paper vouchers and documents from
each location to a massive team of accountants in the head office, who
then put in a superhuman effort to enter all that data into a central
Tally accounting package. The old way of doing things had obvious
drawbacks; the huge volume of paper vouchers and documents being
transfered every day from locations to the head office meant that things
sometimes got lost, and the huge pressure of Tally data entry at the
head office meant that errors were made. Both of these errors caused
problems that took time to resolve. The net result was that accounts
could never be made more frequently than once a month, and at a delay of
several weeks at that.
Around
2008, GPRS connections finally became sufficiently widespread and
reliable that we could think about integrating all these departments and
locations with a modern web-based ERP. This was the solution,
obviously, to our absurd data entry workload in the accounts department.
The central feature of any ERP software is that there is practically no
accounting data entry workload; ERP means that all operational data
entry such as purchase, manufacturing or sales automatically generates
accounting entries in the system. This profoundly changes the work of
accountants; they no longer have any data entry to worry about. Instead,
they can concentrate on the real work of accounts, which is financial
control and cost control.
The
first thing we did was recruit a Cheif Technology Officer (CTO), an
experienced ERP implementation person with the same status as our
existing General Managers of accounts, sales etc. The CTO was given the
responsibility of coordinating all the ERP related efforts of different
departments. Appointment of the CTO immediately created problems with
several General Managers, particularly in the accounts department, as
the GM of accounts was suddenly no longer the expert on the accounting
system; as an ERP novice, he obviously knew much less about the new
accounting system than the CTO.
This
started a game of non-cooperation between the GM of accounts and the
CTO that severely hampered the ERP implementation. Even though the
accounts department was no longer supposed to do the bulk of data entry,
they still needed to check all balances and the verify the accuracy of
each entry. An ERP software is still an accounting system, and
accountants have to ensure the validity of data in any accounting
system. That means that, if the ERP is to work, accountants have to
minutely supervise the daily data entry work in every single location by
every single department; this is a task they may not be prepared for or
willing to do. Any wrong data entry anywhere will result in wrong
accounting entries being made. If this is not found and corrected
immediately, there will be a huge mess in accounts. The fundamental rule
of any computerized system is that if you put garbage in, you get
garbage out; there is no alternative to correct data entry.
Once
the Kazi Farms ERP project began, the accounts department had a vastly
changed job; it was more managerial in nature, in that they had to check
the data entry work of all departments every day. It was also more
distributed, in that they had to do this job in every location every
day. That was where the problem lay; the junior accounts people in
remote locations were not ready to take on these new responsibilities.
They had always done a simple clerical job of writing paper vouchers by
hand and sending them to the head office for entry in Tally. This job
changed completely; these junior accounts staff suddenly had to make all
the real entries into the ERP system. Many of them had never used a
computer before, and it required a huge HR effort to arrange training
for them.
But
even after the junior accounts people were trained in the data entry
job, they could not be expected to take over the responsibility of
checking all the accounting entries and adjustments that had to be made
each month. That was supposed to be the job of the senior accounts staff
in the head office. But senior accounts people were busy with their
game of non-cooperation with the CTO, and simply refused to take
responsibility for data entry accuracy happening at remote locations;
they had never visited those places in their lives as accountants, so
why should they care about them now? The junior accounts people posted
in remote locations were simply not qualified to do the whole job of
checking everything themselves without the aid of the senior
accountants, who were not interested.
Before
we realized what was happening, we saw unacceptable data entry errors
creeping into our ERP accounting reports. When asked what was going on,
our senior accountants had no answers as they had simply not fulfilled
their responsibilities to check all data entry in all locations.
What
was the solution at that point? Quite simply, the senior accountants
who were becoming the barrier to the ERP running smoothly had to go. We
realized that our most senior and highly qualified accountants were not
going to accept the new way of working required by the ERP. The
management of Kazi Farms made it clear that we were now married to our
ERP solution, not to our senior accountants. Ultimately, the senior
accountants left or were sidelined to non-critical duties. They were
replaced by a new set of senior accountants, recruited from companies
which had already implemented ERP solutions, and came in knowing what
was expected of them.
In
retrospect, we would have had a much easier time implementing our ERP
if we had taken three steps to prepare for it better. Firstly, we
should have recruited a number of senior accountants of at least
Assistant General Manager level from companies experienced with ERP
implementation so that someone senior in the accounts department could
be relied upon to take the ERP implementation seriously. Secondly, we
should have had a much stronger internal audit department. If internal
audit had been stronger, any failure in the accounts department would
have been found and highlighted immediately, and been easier to correct.
Thirdly, we should have had a better Human Resources department. Our HR
department at the time was only concerned with paying monthly salaries
and overtime with Excel spreadsheets. But HR should have been the
department which identified that our locations were weak in terms of
experienced accountants who would not be able to manage the job of
checking all data entry; at that point, HR should have pro-actively
recruited and trained better people in locations to overcome this
weakness.
The
good news is that, two years later, our accounts department is
reorganized with more capable people in remote locations as well as
ERP-savvy senior accountants at the head office; our internal audit and
HR departments are also much stronger than they were. In retrospect,
strengthening of all these departments was required to make the whole
company better managed. The ultimate benefit is that our ERP software is
now working, and has made the organization much more efficient and
transparent. We have capabilities we could only dream of before, such as
up-to-date product costing, live inventories visible in all locations,
and the ability to get daily income statements from each location.
As
Bangladesh develops, companies will become bigger, and it is inevitable
that more of them will be turning to ERP. I hope that this recollection
of Kazi Farms’ experience with ERP implementation will be of use to
others in their own attempts. As someone once said: “Fools learn from
their own mistakes; wise men from those of others.”
