Weathering the ERP Storm

"We have a very complex business," says Bill Savitsky, MSC's comptroller.

It's critical that MSC keep its costs under control because, as a working capital fund agency, it gets no appropriations from Congress. MSC relies solely upon the income created by charging military commands for the sealift services they use. If those commands are not satisfied, they can contract outside MSC for these services. As a result, MSC officials are always looking for ways to cut operating costs while ensuring the same or better service.

Three years ago, MSC officials decided that its commercial business model and fickle income base made the command a good candidate for implementing an enterprise resource planning (ERP) system. ERP systems combine business software applications that have traditionally been run on separate systems into one integrated software package, enabling organizations to integrate all facets of their business operations.

MSC managers had every reason to be frightened about implementing an ERP system. Horror stories abound of failed multimillion-dollar ERP efforts. Yet MSC weathered the storm and unveiled a successful $30 million ERP system in April. Other agencies, including the U.S. Mint, the Postal Service, Federal Prison Industries, the Smithsonian Institution and the Bonneville Power Administration are also making the leap to ERP.

According to a report issued in late May by Input, a Chantilly, Va.-based market research firm, the federal ERP market will grow to nearly $1.8 billion per year by 2005, accounting for 4 percent of all federal IT spending. But ERP implementations can be painful, and they're certainly not for everyone.

Coming of Age

ERP software is not new. Private-sector firms began adopting the approach in the mid- to late 1990s. But its cost and the significant changes an organization must undergo during implementation have slowed ERP adoption within the federal government.

Agencies have been eager to use the best business practices integrated into ERP systems for years. But because they are required to follow a number of statutory guidelines not found in the private sector, they have waited for ERP vendors to "federalize" their products-especially in finance and human resources.

Now, the major ERP vendors-Oracle Corp., PeopleSoft Inc. and SAP Public Services-all have federal-specific products and have made inroads in the government arena. Numerous agencies have launched complex, multi-year ERP efforts. A number have been triumphs, others failures. Some of the most ambitious recent projects include:

• The Defense Integrated Military Human Resources System, being built by PeopleSoft for the Defense Department. At completion in 2006, this system could cost as much as $120 million and will provide payroll processing and human resources services for 3.1 million active duty and retired military personnel.
• The U.S. Mint's ERP implementation, the Consolidated Information System (COINS), debuted in 1998 to much fanfare. Since then, the Mint has upgraded to COINS 2.0, installing updates to supply chain and plant automation software within its PeopleSoft system. COINS 2.5 and 3.0 are six months and a year away, respectively. First, the Mint will begin using PeopleSoft's human resources software in COINS 2.5. Then, in COINS 3.0, it will upgrade to PeopleSoft's Web-based product.
• SAP has made a big splash in the Navy, with major projects at the Naval Sea Systems Command, the Naval Air Systems Command and the Naval Supply Systems Command. SAP has also been working with the Interior Department's National Business Center to "federalize" its human resources product. These systems are as different as the agencies' missions. Yet the rules for achieving ERP success are the same no matter what niche is being automated, or whether an agency is implementing a new system or upgrading an old one. Agencies must find an ERP package that mirrors their business practices as closely as possible, then resolve to implement the package without significant modifications. Industry experts say agencies should aim for a few quick ERP successes, and use them to win support for the effort at all levels, including among front-line workers whose jobs will be changed dramatically by the new approach. They also need to ensure that their information technology systems have the horsepower to run robust ERP systems for years into the future.

Choosing Vanilla

MSC followed all of these rules. In identifying its initial requirements, MSC officials first determined they needed a financial software suite that was compliant with the 1990 Chief Financial Officers Act. But MSC wasn't just in the market for financial information. Agency officials put together a list of about 1,000 other requirements that the optimal software would fulfill. For example, the agency wanted reliable inventory tracking to monitor the cargo on its ships and how much fuel they were carrying. MSC also wanted a list of assets at each shore base. Plus, agency officials wanted to find out how expensive it was to operate individual ships.

Wish list in hand, MSC went shopping in early 1998. After evaluating the ERP options on the General Services Administration's supply schedule, MSC managers chose Oracle's Federal Financials package. They purchased a full suite of accounting modules, including general ledger, accounts receivable and accounts payable systems. They also bought a purchasing module that could mesh with the Defense Department's Standard Procurement System. To meet the agency's asset management needs, they purchased modules dedicated to inventory and fixed assets management. They also bought a project module to help with cost accounting.

MSC managers decided to integrate business intelligence software to help them analyze the data produced by the Oracle system. The new system helps them project costs based on trends.

MSC managers made a key decision to minimize the risk of ERP implementation by taking a "vanilla" approach: They committed to installing the software as it was packaged, without any modifications. Vice Adm. Gordon Holder, the MSC commander made the decision to modify MSC processes to fit the Oracle software and not the other way around.

"If you don't make any changes to the software, it is easy to install," Savitsky says. "There were 11 areas where our processes didn't match the software's. In most areas we changed our processes to accommodate the software."

Decision-Makers

Savitsky himself embodies another lesson for future ERP implementers: He is not a technical expert. "I was the person responsible for getting this system implemented," he says. "The technical folks are great, but they are not accountants." Since ERP systems affect every part of an organization, decisions about them require the participation of executives, managers and employees from every office. This requires top officials to set up briefings and training sessions to communicate how an ERP system will help the agency meet its goals and mission. MSC brought staff from around the world to its Washington headquarters for an intensive 10-week session that helped determine the scope and course of the agency's change.

ERP implementations also require a clear decision-making process. "Agencies need to have a decision-making structure in place as part of the project," says Brian Zrimsek, a research director at the Gartner Group, a Stamford, Conn., research firm. He says ERP efforts should be guided by a "project team empowered to make decisions." In the event that the project team cannot resolve problems, the agency should rely on a steering committee consisting of upper level managers. If this committee can't reach consensus, the agency must have the active involvement of a top official with the authority to make final decisions.

In MSC's case, that person was Holder. He and other MSC leaders were attuned to the potential impact of the ERP implementation on the organization and its employees. For this reason, they focused heavily on change management during the implementation process. "The majority of the problems organizations encounter in ERP projects are due to how the application and the technology are applied to the people," says Zrimsek. "Sometimes managers fail . . . to get users involved in the project and communicate to them how it is going to affect their jobs."

MSC employees had to understand what their new roles would be and how they would fit into a vastly different organization. "People's roles changed significantly as a result of this project," Savitsky says.

MSC dedicated itself to training its worldwide workforce before the Oracle system went live. ERP experts say that training is a common casualty of implementations that are running behind schedule. And when training is shortened or cut as a result of delays, overall system effectiveness suffers.

Agencies must analyze such risk factors not just at the beginning of an ERP implementation, but throughout the process. "Risks change over time and should be analyzed on a periodic basis," Zrimsek says.

With its ERP system up and running, MSC has turned its attention to the future. Its contract entitles the agency to all future Oracle upgrades of its ERP software, and Savitsky says that as long as the software stays on the leading edge, the agency's processes will, too.