SNw 025 Precision Strategic Taxonomies - The ERP (and IT) Missing Link Created by James on 6/12/2013 11:39:28 AM
Why do I say that taxonomies are the ERP missing link?
1. Failure is rife
"19 out of 20 ERP implementations do not deliver what was promised" according to the Financial Mail, "most companies are not making better decisions than they did five years ago" according to Gartner.
2. Taxonomies are critical
In my experience over more than 20 years of investigating sub-optimal and failed ERP projects as well as being involved in a number of ERP implementations as project leader and solution architect I have found that substandard and defective taxonomies, ranging from the design of the Chart of Accounts through to all other modules, are the biggest single tangible reason for non-performance.
3. Taxonomies should model the real world
A well designed taxonomy is a logical semantic (word) structure that models the real world with particular emphasis on the essence of the business and how it thrives (strategy).
A well designed taxonomy or classification scheme is practical and when a business person sees it the immediate response is "YES, that is my business".
The following reason codes for credit notes are an example of badly designed coding:
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01
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Incorrect Price
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02
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Damaged Goods
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03
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Incorrectly Supplied
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The list is incomplete and does not provide information that could lead to value adding action.
The following list is an example of a simple structured taxonomy for the same purpose:
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C.
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ORDER CANCELLED
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CC
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Order Cancelled Credit Control
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CS
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Order Cancelled by Consumer
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CT
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Order Cancelled by Customer
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D.
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DAMAGED OR DEFECTIVE
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DF
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Defective Product
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DM
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Damaged Product
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DP
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Damaged Packaging
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DT
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Consumer Complaint
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P.
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PRICE ERRORS OR DISCONTINUED
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PD
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Discontinued
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PI
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Incorrect Price
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S.
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SUPPLY ISSUES
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SD
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Order Duplication
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SF
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Customer Non-Franchise Holder
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SI
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Incorrectly Supplied
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SK
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Overstock
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SL
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Late Delivery
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SO
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Oversupplied
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SV
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Not in Customer Inventory Master
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T.
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USED AS TESTER
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TT
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Used as Tester
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Z.
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OTHER
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ZN
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Not Known
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ZO
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Other
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Much more information is gathered and the information is such that it points to possible remedial actions or management decisions.
Taxonomies are a mechanism for creating "intelligent data".
4. Answer every question
The most important requirement for any ERP investment does NOT relate to business processes, it is "I should be able to get answers to every question I can reasonably ask of my ERP data including answers to questions I have not thought of yet"
Lengthy requirements workshops are a waste of time, model the business accurately with custom attribute fields to describe ALL attributes of customers, machines, products, etc that are relevant in supporting the business to thrive. Do this with highly structured taxonomies designed from a fundamental first principles understanding of the business to fine levels of detail and precision and operate the software as a precision instrument and you WILL find you can get answers to all reasonable questions. The traditional approach with process obsession almost guarantees that your ERP will never meet this most fundamental requirement -- "answer ALL my reasonable questions".
5. Thrive decisions
ERP value is delivered by executives and managers taking high value competitive "thrive" decisions at all levels in the organization.
Decisions that are aligned with the essence of the business and how it thrives. Such decisions create value, growth, profitability, etc. They do things that positively impact customers and stake holders and they produce outcomes that are self evident.
Hiring a consultant or appointing a manager to determine "the return on investment" for your ERP is an admission that it has NOT paid for itself. My benchmark for success is a business that doubled in real turnover in twelve months and created a revenue stream that lasted for ten years. The benefit was self evident. If executives cannot see value without compromising their intellect then there is NO VALUE!
6. Operational efficiency follows
Once thrive decisions are being taken based on intelligent data operational efficiencies FOLLOW.
You should NOT put in an ERP for operational efficiency, or headcount reduction, or reduction in audit fees. You should put in an ERP to support the business to thrive, as a strategic resource and IF you do it well and populate the entire system with appropriate and well designed taxonomies, configure and integrate it precisely, train your staff to operate accurately and reliably and with discipline you will achieve operational efficiencies, preferably through the same staff doing more as the organization expands rather than reducing head count.
7. Growth and competitiveness are the goals
Improved governance, and empowerment, accelerated sustainable growth, the ability to quickly and reliably integrate acquisitions, improve service levels, benefit customers are the high value operational outcomes you should be looking for -- can you double the physical size of the business in two to five years? Without doubling your executive and management head count and keep your finger on the pulse better than you have been able to do in the past?
Conclusion
This is where the future of ERP lies.
Frequently it will require a reimplementation of your present software, unless you have a very old badly maintained legacy system that you can no longer rely on. In which case make sure you implement your new software according to the principles set out above.
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