Digital Efficiency Through Agility in ERP Transformation Projects

If you look at current statements by international managers regarding their corporate goals, two terms are particularly frequently mentioned: "agility" and "digital efficiency". Companies want to become more agile and also increase their digital efficiency. We investigate whether there is a connection between these two goals and whether the use of agile methods can increase the digital efficiency of companies, especially in the context of ERP transformation projects.

The topic of agility has become an integral part of today's business. Already 71% of companies use agile methods in their projects (Project Management Institute, PMI’s Pulse of the Profession, 2018). Looking at the business development of IT service providers, agile software development played a major role in 76% of these companies (Lünendonk-Studie „Der Markt für IT-Beratung und IT-Service in Deutschland – Marktstruktur, Trends & Entwicklung aus Sicht von IT-Dienstleistern und Anwenderunternehmen“, 2019).

More about the topic of agility: Company ReBuilding and Agile Working.

Digital efficiency and agility ensure the competitiveness of companies

Software development projects and ERP transformations in general pursue, among other things, the goal of increasing digital efficiency in companies. Both the quest for "agility" and "digital efficiency" are aimed at remaining competitive and further expanding competitive advantages. The question arises as to whether there may even be a dependency between these two goals. Can the use of agile methods have an impact on the digital efficiency of a company?

The use of agile methods has many advantages: faster development cycles, higher customer satisfaction, increased productivity and thus shorter project durations offer companies the opportunity to face and master the challenge of changing requirements in times of increasing complexity and high pressure to innovate.

These advantages of increased agility are also perceived in ERP transformations and in software development. While a few years ago, software was developed over years using the classic waterfall method, this is no longer conceivable for companies today. Ever shorter innovation cycles require that the delivery time of new software is being significantly reduced. This is made possible by the use of agile methods, which at the same time also lead to an increased quality of the final product.

Making ERP transformation agile

But to what extent does agile methodology really influence a software implementation? We first look at a holistic ERP transformation.

An ERP transformation project is a complex and lengthy task. It is undisputed that the ERP system is the backbone of a company and it should always be "up to date". In the best case, the ERP system enables seamless end-to-end integration of functionalities and processes across different departments, companies or even national borders and continents. Many companies recognize the need to update their ERP system technically and functionally to the latest state of the art in order to realize the full business potential. This often requires harmonization or consolidation of the existing system landscape and core processes, which often lead to complex and lengthy transformation projects - but this is in contradiction to the fast and dynamic agile methodology. So is an ERP transformation even compatible with the concept of agility?

Definitely. There is not "one" agile methodology that can be applied to any project without adaptation. Rather, project managers select individual components and use them in the project. Frequently, the development in particular is set up in an agile way, which means that the team works in so-called increments, which in turn are divided into sprints and provided with concrete work packages. To additionally support agile development and to reduce the complexity of the transformation project, prototypes are often created at the beginning with a partial functionality of the later end product. The so-called Proof of Concept (PoC) serves on the one hand to check the feasibility and usefulness of the project. On the other hand, it aims to demonstrate and test the functionality of a product and the dependencies between different applications. At the same time, project members test interfaces within the framework of a PoC and uncover risk factors in order to better assess and plan the project. It would be advisable to build further prototypes after the initial prototype in order to maintain a holistic view and to continuously check whether the development and the project plan can be realized as planned. However, this requires both additional financial resources and additional staff resources, so that customers often decide to develop only a single prototype.

The use of the agile methodology thus results in a new work model that is characterized by a high degree of transparency. By continuously tracking the degree of completion of the individual work packages, project leaders and managers are able to make decisions more quickly and, if necessary, initiate countermeasures if the project progress deviates from the plan or if unforeseen problems occur.

However, this new way of working often requires a cultural change in the project team. Hierarchies suddenly play only a minor role and the actual performance of each project member moves into focus. In return, the error culture changes: errors are no longer negatively associated with the project, but are part of the process and an important step towards an improved end product. In order to create this new mindset, intensive control of all project participants is required. If the Scrum Master is still actively steering the team at the beginning of a project, he can often withdraw more and more once the team has internalized the agile way of working. In the best case, the Scrum master is supported by a strong project management (PMO) team that can react quickly to scope changes, such as the expansion of planned functionality, and initiate countermeasures.

Often in ERP transformation projects only some sub-projects are executed agilely. In this hybrid approach, networking between the agile subprojects and the non-agile teams is important to synchronize work and uncover dependencies. An example of this is the management team's challenge that both end-to-end testing and the actual cut-over phase depend on the finalization of the development of other agile subprojects.

Realization of advantages in practice

But what advantages of agility in ERP transformations do we actually see with our customers?

Our project experience shows that customers are often more satisfied with the end product after using agile methods in the project. In theory, a shortened project duration is often proven to be an advantage. In practice, however, it often turns out that even in agile projects, project extensions occur, especially if the planned functionality cannot be completed as planned within the scope of an increment.

The basic idea of agility also implies questioning where savings are possible, so that companies can benefit from the advantages of standardization. In many cases, the scope does not need to be extended because standard functionalities are sufficient. To recognize this, however, project managers need a certain degree of maturity with regard to the agile mindset. If the project scope is expanded more than would be the case with classic waterfall project planning, even the "miracle cure" of agility cannot lead to a faster project end.

Nevertheless, it is possible to parallelize tasks, which often saves time, but also entails a higher planning and coordination effort. One advantage that should not be underestimated is the often higher end-user acceptance, since the users are involved in the project much earlier than in the classic project procedure and thus get to know the product at an earlier stage. This also has the advantage that the end users get to know the new processes earlier, become familiar with the new tasks more quickly and develop a routine in their daily tasks. This saves resources in the long term and allows employees to devote more time to new and innovative tasks, resulting in a digitally more efficient way of working.

Positive correlation between agile methodology and digital efficiency

Can agility in an ERP transformation project have an overall impact on and improve digital efficiency?

Digital efficiency is primarily determined by the new ERP system. Especially in transformation projects that aim at a "new generation" ERP system, such as SAP S/4HANA, customers often make a big leap to newly acquired functionalities. These new functionalities improve the (digital) efficiency, for example through improved workflows or a holistic, digital end-to-end mapping of processes, which significantly simplify the daily work of the end users. If the company also succeeds in institutionalizing "agile thinking" by using the agile methodology, the employees develop a critical way of thinking and can continuously and critically question future process changes. In this way, the company continues to benefit from a long-term cultural change that creates sustainable added value even after the transformation is complete.

Many thanks for contributing to this article to our alumni Dirk Schmadel and Lisa Lenk.