Industrial Goods (IG) sector companies are becoming increasingly aware of the importance of ERP or Core Systems Transformation. This insight, from our recent IG survey from over 477 manufacturing organizations revealed that 76% of businesses have either completed or are in the process of completing a transformation of this kind.
More strikingly, 75% of those surveyed deem ERP transformation as critical to the survival of their business. This strong trend is driven by the range of associated benefits, with 27% stating their main objective was to increase profits through enhanced productivity followed by greater ability to compete and innovate.
While 36% of the respondents that had recently implemented a core system enjoyed results that exceeded their KPI’s, not all approaches to ERP transformation yield positive outcomes. To ensure a successful transformation, an aligned strategic approach is required. Organizations must be clear on their objectives both from business and IT perspectives and must carefully select the right partner to implement the chosen system.
In this article, we will define four key categories that IG businesses fall into when it comes to this topic, and highlight the characteristics of those that are leading the way.
From laggards to leaders
With widespread boardroom buy-in contributing to the IG industry’s proactivity around core systems transformation, most businesses are at least making progress of some kind. Despite this, some are falling behind and others are failing to get the most out of their implementations. The four main categories businesses are grouped into include:
At one end of the spectrum there are IG organizations that fall into the laggard category, these companies are waiting until prompted or forced to conduct critical transformations. It is not advisable to replace core systems based on ‘end of life’ pressures alone — furthermore, relying on aging systems unnecessarily leaves many benefits untapped. Only 25% of the organizations surveyed did not state that core systems transformation is critical to the survival of IG businesses, while just 11% are not combining transformations with business initiatives at all. These statistics offer perspective on the small minority of IG organizations that are in this category.
Organizations in this category are one step ahead of the laggards, but their approach is imperfect. These IG businesses embark on core systems implementations as replacement projects, but are unlikely to have implemented best practices, defined clear goals, and chosen a suitable technology partner.
In this category, these businesses will combine core systems replacement with business initiatives as a way of maximizing transformation value. They will also choose a modern, cloud-based solution, such as a SaaS or Cloud ERP platform. Finally, those in the intermediate category will also adopt modern architectural practices, ensuring that an effective data layer and the right integrations are in place.
Businesses in the leader category have two distinctive traits. Firstly, they will focus on unlocking data from the core and making efforts to leverage this data to provide real-time insights to steer the business or enabling critical business use cases. Although reported as one of the top success factors by the respondents, our research revealed that only half of organizations are actively progressing with such efforts. Secondly, winners will also directly and clearly link the transformation to specific outcomes, examples of which include innovation and increased productivity. Only 27% of organizations currently rank this success factor as being among the top three most important.
An international perspective
To gain further insight into the IG industry’s approach to core systems transformation, we conducted specific analysis on the state of transformation in the African market. This approach enabled us to highlight some key similarities and differences, contributing to a more accurate view of this evolving trend.
One of the most striking observations we made was the difference in transformation readiness, with just 59% of organizations in Africa stating that their business could facilitate a successful transformation project. In contrast, 73% of European organizations stated that they could provide everything they needed to successfully complete one. This disparity reflects a gap in cloud and data-driven capabilities enabled by digital transformation.
While readiness to complete core systems transformation projects may be lower on average in Africa, a 76% majority of African businesses recognize the critical need to complete them. In response to this important trend, significant progress has been made in the market, with 53% of African organizations demonstrating that they have set clear goals for their transformation ambitions. An encouraging 42% have real-time data and analytics relating to core systems in place, while almost half (48%) have established the necessary communication management capabilities.
Regarding specific challenges, African organizations pointed to some primary blockers that are limiting transformation success. The complexities of data migration were the first set of issues to be highlighted, with 30% of African businesses in the IG space in agreement. This was followed very closely by the limited change windows that make significant alterations difficult to absorb, with 29% sharing this opinion. Meanwhile, 27% identified the lack of system integrators and implementation partners as barriers to core systems transformation success.
Within Western Europe, perceived ability to share core data, such as commercial, financial, manufacturing information, remains quite high (UK, Iberia, France, Belgium). Conversely, the lowest perceived ability is in central European countries, such as Italy, Austria, and the Nordics. Furthermore, the survey revealed that 16% of the companies are not following the NextGen practice of keeping the core lean. Germany (30%) and Austria (40%) were significantly higher in not following lean core mindset, while the overall European average remained quite optimistic (17%).
Understanding the Wider Challenges
In this period of immense global uncertainty, several challenges have made it more difficult for business leaders to carry out optimal transformations. This is due in part to the fact that a successful core systems transformation requires a fundamental shift in culture and ways of working.
A majority 60% of respondents agreed that technology factors were the biggest obstacles getting in the way of successful implementations, as opposed to business factors. Themes that are driving this opinion include the challenge of managing cutover, data migration, and technical dependency management. Top non-technical factors are related to program and change management across several functions, geographies, business models and geographies, as well as protecting critical resources.
Core systems transformations are complex, multi-year projects that require significant upfront and ongoing planning and monitoring efforts. This finding emphasizes the vital importance of selecting the right technology partner when embarking on a core systems transformation.
It is a positive sign that most IG industry businesses view core systems transformation as critical, but the right choices must still be made to maximize the potential benefits. As outlined in the leaders category, linking transformation objectives to specific business outcomes is a top priority. With many businesses facing more technology barriers to success than business ones, it is of paramount importance that IT and business functions are aligned, and that the right technology partner is chosen.
Organizations should remember that despite the many challenges associated with transformation, the potential gains unlocked by a well-executed implementation are significant. When they are done right, core systems transformations can lead to a greater ability to innovate and enhance ways of working at all organizational levels.
About the Authors
Norbert is Digital Data Platform Leader for EMESA (Europe, Africa, South America) of BCGX. He oversees major Digital Transformation programs to help some of the world’s leading organizations leveraging quality and accessible internal and external data. His transformative mindset has helped clients across a wide range of sectors to build digital advantage toward industry 4.0.
Andreas Dietze is a Managing Director in the Cologne office of BCG Platinion. He focuses especially on the management and turnaround of complex IT transformations and the digitalization of business processes in the domains ERP, CRM, PLM/PDM, MES, and SCM. He has also supported numerous clients in the successful implementation of master data management concepts. Andreas studied computer science at the University of Koblenz-Landau and received a doctorate in economics from the Otto Beisheim School of Management (WHU) in Vallendar.
Régis is an expert in reshaping industries through cutting-edge technology by people for people. Helping to scale BCG Platinion in Paris, he is an expert in new software architecture and data as a strategic asset to prepare for the wide adoption of new innovative tech. His experience includes 15+ years of operational management, ten years of innovation project leadership and seven years of tech consulting.
Sankalp is an expert in delivering large-scale digital transformation projects (including core system transformation) program management and program de-risking. He has previously worked as a Business and Technology Consultant with a focus on ERP applications consulting that covered design, implementation, lifecycle maintenance and country adoption in large-scale rollout projects.
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