With 17,000 employees and nearly $2 billion in revenues, Newport News is a large player in the business of the construction and repair of nuclear-powered Naval submarines and ships. The shipyard builds aircraft carriers, made up of numerous systems, equipment and components. A cycle in the shipyard might be to create a system. This requires a process consisting of a design, specification of material, procurement of material, warehousing the material, and then sending the components to many different craft shops to build and complete. With an ERP system in place, the transactions involved in ordering and specifying material and contacting suppliers to get the material are done in one common window, accessible by the different constituents. This reduces time and effort because the intelligence is more accessible, employable and less costly.
That was the intent at the outset of the project, and the project officially kicked off in July 1997, after a year of strategizing and planning, which included visits to other companies that had taken on a similar task and researching approaches to ERP, examining successes and failures.
After Newport News' ERP team had gathered sufficient information, it began to roll out the integration. Included in the implementation were SAP R/3, which served as the ERP product; i2's Finite Capacity Scheduler, a schedule-management tool; and Aspect Development's Component and Supplier Management (i2 has since acquired Aspect). Newport News synchronized the ERP product and other solutions over the next three years, and the project is now in its final stages of implementation. A four-year project is not unheard of for such a large organization. During that time, Newport News began to implement different products at different places, following carefully planned project-management logic.
"When we went to companies like Chrysler or Anheuser Busch, they had the same issues about the supply chain, about controlling quality, and about controlling the processes," says Stephen Hassell, Newport News' CIO. Hassell is not an IT person, though his title implies it: He came from a strategic planning group within the organization.
The company didn't seek ERP advice from companies in its industry for one simple reason: None had implemented an ERP system. The U.S. shipbuilding industry is small and limited, and Newport News is one of the largest builders. It decided instead to focus on other industrial companies that faced some of the same business challenges that the shipyard did.
And the fact that it wasn't an IT-centric effort is notable. Past ERP implementation errors and failures can be attributed to a limited, IT-only focus. The IT staff is important in any software implementation and traditionally has taken the lead for many major undertakings of this type. However, in enterprise-system integration, such as in this case, the functional leaders are the ones that best know the business processes and own the infrastructure and the outputs from their functions after the implementation. For this reason, the functional project team players were as important as the IT staffers.
Return on Investment?
At the outset of the project, the implementation team began to calculate the ROI, but that effort was short-lived. "I can make a spreadsheet say anything," Hassell says. "It's very easy to refine your assumptions to crank your return down to nothing or negative, or crank it up to numbers that are just unbelievable." However, the ROI calculations would be a meaningless number to the implementation, as there were too many unknowns. The teams learned that even if they were to discover that the ROI wasn't working out, they would be reluctant to scrap the project.
Marching forth without an ROI calculation seemed like a bold move at the time. As it turns out, it is typical of large enterprise implementations. Financial analysts like ROI calculations because they can use the numbers to make management decisions. It's typically used in buying equipment and capital assets. But while an enterprise product may be viewed as an asset purchase, there are too many intangibles, unknowns and unpredictable results. This explains why many firms don't bother with an ROI calculation.
And with no ROI number, it was easier to discuss the project with labor unions. The unions were most concerned about head count, even though Newport News did not anticipate cutting employees. The team was more fearful of conclusions that union leaders or other employee factions might draw or presume had the bottom line investment return been used as a selling point.
To get buy-in without the ROI figures, the team relied on the logic of its presentation and what an ERP implementation would mean to the company. When it works, it doesn't take long for an enterprise integration to reap big cost savings in labor and overhead.
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