The apparent tension between high precision strategic configuration and operational or tactical configuration is arguably the greatest challenge within ERP implementations today.
Introspection of several key aspects and grey areas will hopefully make the situation a lot clearer, writes Dr James A Robertson, of James A Robertson and Associates.
The conundrum – surveys with opposite results
It is an all-too-familiar conundrum in business – surveys that emerge with completely opposite conclusions about the same subject. There have been surveys that state "19 out of 20 ERP implementations do not deliver what was promised" and yet others that indicate a high level of satisfaction with ERP.
The resolution of this conundrum lies in the disparity between the successful tactical and operational implementation of ERP and the near total failure to implement ERP as a strategic resource in support of corporate competitive decision making that enables the organisation to thrive.
ERP is necessary for medium and large businesses
The reality is that ERP is necessary for most medium and large businesses to be credible contenders in the current global and local economy.
Without the inventory, warehouse management, replenishment and other operational and tactical agility that is afforded by big brand ERP systems, many organisations would not make it onto the playing field at all.
An ERP is necessary to support the ever increasing complexity and velocity of business in most sectors. Many implementers are able, to some degree, to successfully implement ERP at this level – albeit frequently with massive cost and time overruns.
The problem arises when executives want answers to strategic and competitive questions, and justifiably expect their ERP to supply the necessary hard measurements required.
Process efficiency is generally tactical
Process efficiency or "business process optimisation" or other similar nomenclature is viewed by many as being synonymous with ERP, and represents the core emphasis of the vast majority of ERP implementations.
Due to the fact that process efficiency is inherently operational, most ERPs are implemented by the operational personnel in the organisation and not by the strategic personnel – and particularly not the executive team.
In focussing on process, most implementation companies and most software companies lose sight of the fact that process efficiency is a natural outcome of a strategically implemented ERP.
It is not necessary to place great emphasis on process efficiency provided that the implementation of the software accurately models the real world in which the business operates at a strategic level.
In other words, it models the essence of the business and how it thrives. Once this is done, process efficiency almost "falls out of the tree" – it is inevitable.
Thus, a large amount of the effort that is devoted to traditional ERP implementations is, in fact, not required if the ERP is strategically implemented – a significant amount of the time on operational configuration is replaced by comparable time and effort on top down strategic configuration.
And this, in turn, as a by-product, gives rise to greatly increased efficiency of operation of the ERP and resulting reduced life-time costs, and in many cases, reduction in overall implementation cost.
Automatic replenishment is necessary for businesses
The speed of replenishment and complexity are vital to competing in many sectors today. A visit to a local big brand supermarket will illustrate the point. There is massive complexity in terms of the mix of products on the shelves and, in the case of low volume products, there may only be one or two items on the shelf.
Replenishment takes place daily and the entire manufacturing network and supply chain is geared to this level of just-in-time micro replenishment.
A retailer that is not able to maintain these micro levels of inventory replenished daily will be rapidly defeated by others that have this "licked". The same comment applies to logistics and distribution organisations and to manufacturing organisations.
It also applies to banks and, interestingly, even applies to the national revenue service – ERP has enabled much greater levels of complexity and flexibility at the operational level than was the case a few years ago.
Countering this, Gartner reported a few years ago following a survey of 1 300 CIOs of major corporations that had made substantial investments in ERP and BI software, that "most organisations are not making better decisions than five years ago".
And so users find themselves faced once again with that apparent conundrum – ERP and BI have enabled many businesses to maintain their competitive edge and even become more operationally competitive, but executives are not making better decisions than they did five years earlier.
One of the great promises of ERP is failing to deliver. Why? Because a bottom-up operational ERP or BI implementation will never tie the logic of the business together strategically.
The implementation must start top-down commencing with a high level strategic view of the business and where it is going to be in five or ten years' time. Then it must drill down to the detail within this high level strategic framework.
The core frustration
One of the core elements of frustration can be summed up by the statement "I cannot get answers to the questions I have only now thought to ask".
It is a fallacy of modern ERP implementation that “user requirements workshops” that are focused on the current reports and ways of doing things, will do anything other than deliver a new system that works the way the old system worked – not meeting the strategic needs of the business.
At the strategic level, the issue is not "can I get the report I have had for the last 10/five/ two years?”, it is "can I get the report I have never previously thought to ask for?".
And, can users get it now? Will it be accurate and reliable? And if the question is asked in three or five or 10 different ways, will the answers correlate and be consistent and congruent?
After all, surely it is reasonable to expect that if the data is in the system users can get answers to any question they can conceivably think to ask? Yes, of course it is reasonable.
The problem is that most implementations are executed in such a way that it can take days, weeks or months to get answers, and it is quite common that the answer is simply not available without massive manual effort or even not available at all.
Why? Because the system was not implemented with this goal in mind.
In order to achieve this outcome, the software must be configured from the ground up to contain strategically logical "information bins" in the information warehouse that is the ERP database.
This requires design at a sufficiently fine level of strategic granularity that the data can be added up every conceivable way possible in accordance with a clearly defined high level strategic (thrive) view of the business, one that accurately models the essence of the business and how it thrives.
This applies to the item master or product class, the customer class, the supplier class, the general ledger chart of accounts, the plant maintenance classifications, and so on. And it applies to the fine nuances of what differentiates products and services, viewed from the perspective of the executives of the business and their customers.
The greatest ERP opportunity today
The answer to the problem outlined above is "precision engineered strategic configuration", at the heart of which are "precision engineered strategic taxonomies".
These taxonomies catalogue every possible attribute of the business, its products and its services in such a way that they can be quickly and rapidly summarised in ways that make sense strategically in response to questions that have never been asked before.
Coupled with this is the use of advanced statistical and other analytical tools, operated by highly qualified statisticians, economists, engineers and the like, in order to better understand the economic dynamics of the business and optimise the operation of the business in accordance with the insights that flow from precision analysis of the data.
The big opportunity today is precision taxonomies coupled to precision configuration, coupled to precision operation of the ERP coupled to precision analysis of the information in the data warehouse resulting in significantly better business decisions than the competition are making.
Thus, the taxonomies and the analysis of data made available via the taxonomies are essential attributes of a high value ERP implementation.
Increasingly, Robertson is recommending to clients that in addition to the taxonomies, they look at hiring an analyst with a Bachelor of Commerce degree majoring in statistics and economics with ten years' experience in advanced statistical economic analysis.
The challenge is that the analyst only becomes economically viable once the precision taxonomies and configuration are in place.
The total cost of a precision strategic configuration with precision taxonomies is roughly the same or less than the cost of a conventional configuration. However, the life-time operating cost is substantially less and the strategic and competitive return on investment is orders of magnitude greater. Software is under development by the writer in order to maintain the integrity of the configuration and taxonomies.