Unlocking the Value of ERP
For nearly three decades, enterprise resource planning (ERP) has been promising to streamline processes, reduce inventory, maximize resource productivity, integrate transactions and provide unified data to enhance decision making. The goals include improving efficiency and profitability, gaining competitive advantage and enhancing customer service.
It is frustrating that after 30 years, ERP implementations are still falling considerably short of expectations. The communications portion of ERP—scope definition, management commitment, project management and training—is frequently to blame. The most alarming fact, however, is that even after all this effort, vital information is often not readily available to management.
We repeatedly hear from the C suite words to this effect: “Given all our system investments, why can’t I get meaningful enterprise information in a timely, accurate and convenient format, so that I can effectively manage my business?”
Some examples of the types of information requested include the following: What is the real cost of goods and services? Where are the opportunities to optimize business efficiency? How can internal lead times be improved? Is sourcing and capital deployed effectively across all strategic business units?
Today, there are tens of thousands of companies using ERP in a variety of ways. However, only a small percentage of them have achieved a high degree of effectiveness, along with a well-balanced, sustainable solution set.
That achievement would include fully utilizing best-of-need modules from a late-release tier-one ERP system; taking advantage of some best-of-breed bolt-ons (software as a service [SaaS] where justified); getting master data management (MDM) in place across all applications; using business intelligence/business insight (BI) extensively; leveraging robust and friendly presentation tools; and having all this with a reasonable total cost of ownership (TCO).
In reality, an overwhelming number of companies suffer from one or more of the following debilitating conditions that significantly detract from obtaining full ERP value:
• Disparate home-grown applications
• Applications that do not meet current business requirements
• Old or technically deficient ERP solutions
• Underutilized and/or never fully implemented ERP
• Multiple divisions on a variety of ERP solutions and/or releases
• Many bolt-ons with poor interoperability among applications
• No MDM
• Poorly developed or executed BI strategy
• Support challenges from vendors and/or from in-house resources
• High and rising TCO.
Developing a Road Map
What is the road map for achieving a Class A ERP and BI environment? First, you must understand that this is a significant and time-phased endeavor that necessitates top management buy-in and ongoing commitment. The vision and execution strategy must be willingly embraced across the enterprise because this project will affect virtually every department.
To achieve the desired objectives, the following approach is often pursued:
1. Validate that the company’s IT strategy is aligned with the business goals.
2. Pursue the following tactical actions:
• Assess current applications and infrastructure.
• Evaluate existing resources: internal, service providers and vendors.
• Develop a new applications and infrastructure architectural design.
• Identify and select resources to achieve the new architectural design.
• Establish an MDM initiative.
• Determine needed new resources: internal, service providers and vendors.
3. Assure that governance is in place, along with a project management office (PMO).
4.Build cross-functional project teams (led by a process champion) to define common best-practice-based processes that ERP must support.
5. Develop a master plan that outlines what, who, when and how the new architecture pieces fit together and how they will be deployed. (There are usually multiple phases.)
Getting it Right
To guide the successful implementation of a project of this magnitude, it is imperative to have resources in place with relevant subject-matter expertise, project management knowledge, leadership skills and bandwidth. Companies that do not have appropriate internal resources often augment their team with a consulting firm.
A consulting firm should have in-depth experience in strategic planning, architectural design, operational management, ERP selection/implementation, PMO and BI. Typically, it also should have broad industry knowledge of best-practice solutions and be adept at vendor management, negotiations and risk mitigation.
In summary, companies in today’s uneasy economic environment need to have a firm grip on running their businesses. They must gain competitive advantage, position themselves for growth and be able to prosper—regardless of the economic situation. To do that, they must have easy access to pertinent, timely information (communications) supported by a best-practice systems architecture.
The journey from the state of your current ERP environment to Class A is likely going to be arduous, but progress can be made in logical steps. The good news is that application vendors and service providers are much more flexible and pragmatic today than they ever were before. Their offerings are highly configurable, and the climate for mixing and matching competitive solutions is significantly better than in the past.
In addition, SaaS is a viable alternative for some functions, such as CRM and human resources. This option often offers low initial investment, fast implementation and quick benefits.
In concert with upgrading your applications solutions, it is essential to address the concept of master data management. Basically, this is the process of qualifying your data: naming conventions; data definitions and relationships; normalization (error correction, eliminating redundancies, etc.); and data storage and mining. This will greatly enhance the contribution of the BI process.
The traditional role of ERP—handling back-office transactions—remains to this day, but the combination of a revitalized underlying architecture with the robust use of BI is the key to unlocking the true value of ERP.
George Wing is a partner in the Business Operations and Technology Practice of Tatum LLC, a consulting firm. He is based in the company’s New York office.