Challenges of IT Investment, ERP, and Project Management Success in the AI Era

Prepared For: Executive Leadership, IT Management

Subject: Analysis of Key Themes and Ideas on IT Investment and ERP Project Management

Podcast: Join Mila and Liam as they draw on Turning Point thought leadership resources to discuss the challenges all Executives face when addressing IT Investment, ERP Modernization, and Project Management in the age of AI.

Briefing Document: This briefing document summarizes the main themes, important ideas, and key facts presented in the TPC podcast concerning IT investment strategies and the critical success factors for Enterprise Resource Planning (ERP) projects in the age of AI. 

1. The Growing Chasm: Business Needs vs. Constrained IT Resources

We need to acknowledge a fundamental business tension: the increasing reliance of businesses on technology to drive growth and profitability that clashes with the limited human and financial capital available to IT departments. This gap creates significant frustration across organizations.

"Businesses are always looking to grow revenues and increase profits, but they are reliant on technology to make that happen more than ever before. And this trend is not going away in the age of AI. Against that backdrop, IT agendas and organizations continue to be a constrained resource in terms of both human and financial capital. This chasm between growing business appetites for new technology and constrained IT capability begs attention."

Dave Brady Turning Point CEO

2. Addressing the Chasm: Spend More vs. Spend Smarter

The Turning Point team advises two primary approaches to address the resource gap:

• Spend More: This involves increasing the overall investment in IT resources. However, the sources note that this is often difficult due to constrained working capital and competing priorities across the company. For increased spending to be approved, a strong business justification is required.
• Spend Smarter: This focuses on optimizing existing IT spending to free up resources for new initiatives. The "IT Investments and Spending Smarter" blog heavily emphasizes this approach.

3. The Importance of a Strong Business Case for IT Investment

When seeking increased IT investment ("spending more"), a robust business case is presented as the crucial tool for securing approval. A good business case should:

• Clearly outline the background: the business opportunity or issue being addressed and its importance to the company.
• Present options: including a "do nothing" baseline, along with their respective pros and cons.
• Recommend a solution: demonstrating how it best addresses the identified issue.
• Detail an execution plan: including scope, schedule, resources, and budget.
• Provide a multi-year pro-forma: showing the total cost of ownership (TCO) and future budget implications.

1. Grow Revenue
2. Increase Margins
3. Improve Products and Services
4. Increase Customer Satisfaction
5. Improve Employee Engagement
6. Manage Governance, Risk, Regulatory, and Compliance Challenges

4. Initiating and Approving Technology Investment Requests

Requests for new technology investments typically arise in two ways:

• Annual Planning Process: This vets larger, planned investments, upgrades, maintenance, and growth-related initiatives.
• Ad-hoc Requests: These are unexpected needs that emerge outside the annual plan.

Leaders responsible for approving technology requests, particularly ad-hoc ones, should ask five simple questions to quickly assess their merits:

1. Will it make us more money?
2. Will it save us time and money?
3. Will it improve customer service?
4. Will it improve our quality?
5. Will it keep us compliant and secure?

If a request doesn't satisfy at least one of these questions, it warrants further scrutiny.

• Leaders responsible for approving technology requests should keep business objectives and goals in mind each time a new request lands on their desk. 
• If it does not satisfy one or more of these five questions, it’s time to push back on the requester and ask why should we spend time and money on this?

5. The IT 70/20/10 Budget Principle and "Spending Smarter"

The Turning Point team uses the IT 70/20/10 budget principle with our clients, which suggests a typical IT budget allocation:

• 70%: Maintaining existing systems ("keeping the lights on").
• 20%: Necessary enhancements to legacy systems, upgrades, security, and compliance.
• 10%: New investments to drive the business forward.

TPC highlights that the "chasm" and frustration often reside in the constrained 10% allocated for new investments, hindering the business's ability to adopt new technologies for growth. To "spend smarter" and free up resources for innovation within the 70% portion, technology managers can employ strategies such as:

• Standardizing technology
• Consolidating suppliers
• Virtualizing and automating technology
• Sunsetting obsolete technology
• Considering service providers
• Reviewing and renegotiating service expenses
• Considering cloud options
• Standardizing service management processes

The goal is to deliver the same business value from legacy systems with fewer resources, thus increasing the capacity for new investments.

• That leaves only 10% of a typical IT budget for new investments to drive the business forward. For your business, this is where “new and exciting” happens. And here lies the chasm and frustrations that result from IT not being able to do enough, fast enough. 
• To optimize the 10%: standardize, consolidate, virtualize, and automate technology.

6. Critical Steps for Successful ERP Projects

For successful ERP projects TPC advises using these five crucial steps to mitigate the recurring theme of disappointing ERP project outcomes:

1. Business Strategy: Incorporating business strategy is vital to ensure the ERP system supports both current and future business directions. Omitting this can lead to limitations when new opportunities arise ("Our Systems Can't Do That").
2. Business and Technical Architecture: Defining the current and future state of business and technology architecture is foundational for a successful ERP. This includes considering the data model, system type (monolithic, best of breed, hybrid), and level of customization.
3. Define the Business Process: Mapping current and future state business processes is critical. A common pitfall is simply replicating old processes in the new ERP, missing opportunities for improvement and efficiency. Simplifying processes before ERP deployment is vitally important especially in light of AI use cases.
4. Governance Team: The business should drive ERP selection and implementation, championed by an executive business leader. A governance team representing key business areas should oversee decisions regarding scope, schedule, resources, and budgets. IT's role is to provide project methodology and technical expertise.
5. Project Core Team: A dedicated team comprised of key employees from all relevant departments (process experts), backfilled in their regular roles, is essential. Supplementing this team with external functional and technical expertise, along with a strong program leader and project managers, ensures quality outcomes.

• ERP capabilities and configurations that are deeply rooted in business strategy ensure the system is capable of not only supporting current, but future business directions too.
•  Implement your ERP to support your business's Future State. Too often new ERP is made to look just like old ERP, forgoing opportunities to improve the business and gain operational efficiencies that a new system invariably offers.
• ERP is at the heart of how a business operates. Therefore, the business should drive ERP selection and implementation, not IT.

7. Glossary of Key Terms in the Podcast and Briefing Document

These definitions provide a common understanding of the terminology used in the context of IT investment and ERP project management.

• IT Investment: Expenditure of financial or human capital on technology assets, infrastructure, software, or services with the expectation of future benefits.
• Business Case: A formal document outlining the justification for a proposed project or investment, detailing the problem or opportunity, potential solutions, costs, benefits, and risks.
• ROI (Return on Investment): A financial metric used to evaluate the efficiency or profitability of an investment, typically expressed as a percentage.
• TCO (Total Cost of Ownership): An estimate of all direct and indirect costs associated with an asset or system over its entire lifecycle, including acquisition, operation, maintenance, and disposal.
• IT 70/20/10 Budget Principle: A general guideline suggesting that 70% of an IT budget is spent on maintaining existing systems, 20% on enhancements, and 10% on new investments.
• Technology Debt: The accumulated cost of delaying necessary upgrades or maintenance to IT systems, which can lead to increased risks, inefficiencies, and higher future costs.
• ERP (Enterprise Resource Planning): Integrated software that manages core business processes, often including planning, manufacturing, sales, marketing, finance, and human resources.
• Business Strategy: A high-level plan outlining an organization's long-term goals, objectives, and how it intends to achieve them, often considering market trends, competitive landscape, and internal capabilities.
• Business Process: A series of related tasks or activities performed in a specific order to achieve a particular business outcome.
• Governance Team (for ERP): A committee of key stakeholders, typically including executive leaders from various business areas, responsible for overseeing and guiding an ERP project's direction and decisions.

Conclusion

We identified and detailed the ongoing challenge of balancing growing business technology needs with constrained IT resources. The Podcast emphasizes the importance of strategic IT investment, supported by well-articulated business cases, and the need for IT leaders to proactively seek ways to "spend smarter" to free up capacity for innovation. Furthermore, we provided a valuable framework for ensuring the success of complex ERP projects by emphasizing the critical roles of business strategy alignment, thorough process definition, strong governance, and dedicated project teams. Ignoring these principles can lead to significant operational and financial repercussions. 

Let’s be proactive, well informed, and forward looking to avoid those consequences!