Over the past decade, large companies have invested billions of dollars and a lot of time trying to simplify the business processes and technologies they use to keep their organizations running.
 
When everything goes smoothly with these so-called enterprise resource planning projects, the ratio of savings to dollars invested typically increases over time. When plotted on a graph, the return on investment looks something like Nike’s trademark “swoosh,” plunging as the firm spends more than it saves early on, but then moving upward as the company becomes a leaner, more efficient entity.
 
Unfortunately, the return on investment for many organizations looks more like a “W,” as the streamlining effort starts and stalls and starts again, resulting in disastrous detours and cost overruns. Savings, if they come at all, occur many millions of dollars and many months later than planned.
 
Why does enterprise resource planning work so well for some and not for others?
 
After studying dozens of these projects over six years, we concluded that executives need to think more broadly if they want enterprise resource planning, or ERP, to pay off. Too many executives see ERP solely as a technology project, believing all they must do is buy a new software system and inefficiencies will magically disappear. It’s no surprise that it doesn’t work that way. Instead, they need to treat ERP as a transformation effort that involves three areas of their business: processes, technology and spending.
 

Embracing the New

When people talk about ERP, they usually are referring to a class of software designed to integrate all of a company’s activities on a single computer network. The idea is to eliminate incompatible and duplicate technology that ends up costing the organization money.

 
Before executives make a big investment in a new information-technology system, however, they need to rethink the way their organization is designed. Otherwise, they may end up with technology that isn’t a good fit for their needs.
 
The effort to redesign business processes is typically the most expensive part of an ERP project. That’s because many companies, especially those that have expanded via mergers and acquisitions, are organized along lines of business, each operating as