I constantly encounter sub-optimal ERP implementations.

This article discusses some of the issues that relate to the effective application of these big integrated business computer software systems from the perspective of achieving value.

Introduction

What is an ERP?

and how do you use it effectively?

While the term "ERP" stands for "Enterprise Resource Planning" the use of the term is misleading in terms of the way most organizations use such systems and also does not fully describe the scope of such systems.

A more accurate label would be "integrated business information systems" (IBIS) and should embrace all electronic stores of data that are used by different people in an organization.  I will use the term ERP in the remainder of this article for the sake of convenience as this is the term most people are familiar with.

An ERP may also be viewed as a collection of warehouses or filing cabinets coupled with some machines and production lines that manipulate data to execute required actions and functions in order to assist human beings to run the business and sometimes to support decision making.

A large proportion of these systems comprise the entry of data with limited manipulation which triggers simple processes like "check stock", "generate a picking slip", "issue an invoice", etc.  Many of these are mundane tasks that can easily be executed by relatively lowly paid clerks.

A further component involves more sophisticated manipulation of data such as historically based trend forecasting of estimated order levels which is particularly important from a stock management point of view whether dealing with stock with long lead times and cyclical variability or dealing with "just in time" operations.  This is where the term �resource planning� comes in.

Having performed these mundane and, in a sense, trivial tasks nearly all of which could be performed by a large enough staff of clerks and junior to mid-level accountants, analysts and supervisors we start to move into the area where value is generated -- the ready availability of diverse management information that is intended to support better operational decision making.

 1. How do ERP systems create value? � through PEOPLE

In order to position my thinking on this topic my benchmark experience is a company that doubled its turnover in twelve months through a limited, focused, strategic investment in custom developed software.

In another case a client went from a budget for twelve clerks to capture 10% of available data to only FOUR clerks to capture 90% of the same data, an eightfold increase in data with a 67% REDUCTION in staff AND a massive increase in strategic and operational management information.

From this and other experiences over the last twenty three years I have drawn certain conclusions.

To start with, in order to make value adding decisions with regard to integrated business systems (ERP), it is necessary to define how value is created:

PEOPLE NOT software create value

people create value when they make high value decisions

based on high relevance

high quality information

and those decisions are executed by

well motivated and well trained PEOPLE

So

Where does the value of integrated business systems (ERP) software lie?

in materials / resource planning?

or through support for better decisions through information that provides insight

and facilitating better training

and facilitating the motivation of people through better communication, etc?

and ...

I have been investigating the creation of value for quite a few years now and have concluded that the value that most human beings create is frequently not recognized nor is it rewarded.  In fact, modern IT driven theology holds that it is a small thing to trash a loyal employeeafter years of service in order to replace them with a computer.

In contrast only a small number of the total population of our planet generate exceptional value on a consistent basis that creates wealth generating employment for substantial numbers of people who are motivated to do so by inspired leadership.

Many of those people who generate such wealth have done so without the use of computer systems at the level of their personal creative genius.

Thus we must be cautious in looking toward large complex computer software systems to create high value outcomes.  In fact we should CEASE looking to such systems and should look at the PEOPLE who conceptualize the strategic (i.e. high value) application of those systems and the people who productively and effectively use them in support of facilitating material improvement in performance in support of the essential elements of the organization � the essence of why it exists and how it thrives.

Thus, in the context of integrated business information systems (ERP), the key to high value lies with PEOPLE who are given access to high relevance, appropriate quality information when they need it AND who have the knowledge, experience, insight, aptitude and motivation to engage with the information to take decisions that lead to high value outcomes.

I am NOT referring here only to senior executives, such decisions are required at all levels of an organization in order for the organization to thrive, whether it is inventory reorder levels and other �resource planning� activities, accounting, payment of creditors or other mundane task or high level conceptual scenarios, a valid and valuable integrated business information system (ERP) should support ALL such decisions to the extent that it is practical for the raw data to reside in a data table (file) with software to access it.

It is my contention that, in order for your ERP investment to justify its existence, you should be able to obtain the answers to ALL QUESTIONS you could reasonably expect to be able to ask in the context of ALL data that you can reasonably expect to be present in the database.

This requires a five year or longer look into the FUTURE in terms of how you want to describe machines, stock, people, etc in your integrated business information system (ERP) database.  Where you think your business is going, expansion, acquisition, mergers, new products, etc.

By extension, this requires strategic, that is high level executive, input and by extension this requires that the Chief Executive has custody of the implementation and that the person who manages and runs the systems should report to the CEO and sit at the boardroom table, whether they are at executive level or not.

Of course, if the system is so badly conceptualized, configured and operated that no strategic information is delivered, there is no need for such a reporting line � the challenge is � which comes first? � the reporting line or the strategic application of the technology? (use of technology to assist the business to thrive)

Keep in mind that as you move up the echelons of strategic impact it may take decades for a person to develop the strategic insight, knowledge and experience necessary to give rise to really high value recommendations, decisions and actions and therefore, IT �head count reduction� projects may trash hidden value quite easily.  Corporate growth NOT headcount reduction should be the rationale for your ERP (integrated business information system) investment.

So, the art of creating wealth lies in creating the opportunity for MANY PEOPLE to be exposed to opportunities that enable them to achieve a significant level of their personal potential in a harmonized, synchronized flow within a well run organization.

2. Decision support -- a major point of failure

This is the point at which many ERP implementations start to fall over in terms of the expectations of the executives, managers and owners who motivated and sanctioned the frequently very large investments that constitute modern ERP installations.

If you focus on implementing your ERP (integrated business information system) with emphasis on mundane operational head count reduction and operational efficiency with no executive input and relying primarily on the staff who will remain after the system is commissioned you will get what:

Guess...

the system that the staff you entrusted with the implementation think you need?

Guess again...

because they do not like the idea of losing their jobs many staff will ensure that the system is configured and implemented in such a way that their jobs are secure.  This does not necessarily happen consciously, it is frequently sub-conscious BUT it CAN be conscious -- I once encountered a situation where the four clerks in a team where three were supposed to be made redundant so effectively sabotaged the new system that the company ended up with 24 temps in addition to the four staff before the sabotage was uncovered!

Obvious when you think about it.

This is NOT because the staff are bad or negative, or destructive, it is a simple piece of basic psychology, most people do NOT want to work themselves out of a job.

So, unless the project is closely architected by people at the strategic level in the business AND by a high level strategic architect, or you by accident have a highly strategic thinker who is rising through the ranks do NOT expect a strategic outcome.

3. Custody of your Integrated Business Information System (ERP)

So,

since the project contains large amounts of financial data the obvious thing is to make the Chief Financial Officer the custodian of the system, not so?

of COURSE!

after all, a substantial number of ERP's ARE implemented this way.

aren't they?

YES

and many of the big implementation firms stem originally from the big audit firms, at least historically,

so that is OBVIOUSLY the way to do it!

isn't it?

Well,

there is a problem!

The Financial Mail reported some years ago that "19 out of 20 ERP implementations do not deliver what was promised".  Other sources report other adverse statistics, many agree that IT generally and ERP in particular is NOT delivering on its promises!

So

doing things the way everyone else is doing it might just be the wrong way to go?

What do you think?

If you are willing to give me a few minutes of your time after reading this, I would like to learn about your experience in this area -- towards the end of this article you will find a link to an ERP satisfaction survey, I would really like to know what YOU think and have experienced in this field.

So

why not make finance the custodian of your integrated business information system (ERP)?

Well ...

because it IS an integrated BUSINESS system NOT a financial system -- notice that the "enterprise resource planning " label does not really say much to give guidance to this question -- other than to confuse customers into thinking that this is some new technology when it is really the same technology that has been around for the last twenty to thirty years at least and prevalent for over twenty years -- remember "MIS", "BIS", "business systems", "database", "Accounting System", "Financial System", FIS, etc?

actually all the same basic thing...

just different MARKETING buzz words...

Consider the concept of "integrated business".

What does that mean?

Well, clearly a system which integrates ALL relevant business information is NOT just an accounting system.

It needs to include all facets of your business that in any material way contribute to the generation of the outputs that provide data storage, data processing, operational management information, process automation AND hopefully strategic management information --information that assists executives and managers to make decisions that enhance the ESSENCE of the business and assist the business to THRIVE.

So,

who is the custodian of the integrated view of the business?

Obviously --

the Chief Executive Officer / Managing Director / whatever label you assign to the individual who sits at the head of the boardroom table in Executive Committee / Management Committee / Strategic Committee meetings.

The person who is responsible for tying the business together, getting divisions and business units to see one integrated end to end view of the business and implementing and operating according to that view.

and

when they do not cooperate?

the authority to "make it work!".

so

If your CEO is NOT the custodian of your Integrated Business System (ERP) do not be surprised if the implementation is sub-optimal.

4. Should you use the � module if you have �?

Once you realize that a database is a warehouse or even, in simple terms a filing cabinet, then you should have a database (filing cabinet for each category of data).

For example, a General Ledger is a large book into which financial information is written, therefore it is a warehouse for currency denominated and financially categorized information.

But

because a GL is a warehouse for "banknotes" why record project, plant or people information in it?

it IS a large book so you CAN draw pictures of machines in it if you want to, but you would not do that if it was a real ledger, so why do it because it is computerized?

Any significant integrated business system (ERP) has a database (warehouse) for projects and one for machines and one for people and others as well.

The management of machines, people, etc within a General Ledger is quite a common mistake and causes a phenomenon in which the financial system is unnecessarily complex.

As a consequence, audit time and fees escalate and bookkeepers spend large amounts of time posting corrections.  This is inefficient and clumsy but it does support creation of finance empires and well fed auditors (not necessarily consciously, but it does just the same...).

This is NOT an ERP and even less an integrated business information system it is an accounting system being badly applied.

This is NOT to say that you should not account for machines, people, etc in the General Ledger, that is what it is there for, but the plant module, the human resource module, etc all provide a "sub-ledger" facility in which the financial detail is stored and can be accessed, PROVIDED the system is properly configured and integrated.  Correctly implemented they also track all sorts of non-financial information.

With such sub-optimal implementations the problem is that the executives and managers responsible for the people and / or machines and / or projects and / or factory and / or mine and / or ... cannot get the operational management information that they need let alone the strategic information they need.

So, they resort to third party systems and / or manual systems and / or spreadsheets and multiple versions of the truth and all sorts of problems.

In a recent case, I encountered a client who had to write off nearly R4 million on a project to implement a Plant Maintenance module because the financial executive insisted on posting plant and other data direct to the General Ledger.  They then required over-qualified site clerks to make the allocations and a book keeper to post journals to correct the posting errors leading to a large accounting staff headcount and excessive audit costs and overall finance overhead.

And, despite this, there was still a heated argument from finance in support of a fundamentally seriously flawed configuration that would never be considered if there were physical warehouses or filing cabinets and physical production lines.

So heated that they fired the strategic solution architect rather than confront the root cause of the problem, the finance executive.

So

what am I saying?

understand in practical terms what the fundamental physical technical components and functions of the business are and ensure that there is a family of databases AND associated functionality that accurately models the REAL WORLD.

5. Some customization is almost inevitable

Note that it is NOT necessarily so that you will find an off-the shelf module for every component of YOUR business.

so what?

Buy specific components from different specialist suppliers if necessary AND do NOT buy from other suppliers unless it is strategically necessary AND recognize that some limited amount of strategic customization or custom development is almost certainly going to be necessary.

Make sure that you can integrate at the DATA and political level, through precision strategically engineered configuration and data taxonomies and data coding standards, configuration and integration standards coupled, where necessary, to effective data replication or synchronization in order to ensure that the information flows between the modules.

and

in certain cases

you MAY need SOME (frequently small) strategic software customization or custom development in order to accommodate key strategic drivers or differentiators.

Thus, should your company have a core driver that is different for other companies in your "industry", you may need some custom development or unusual integration in order to provide the strategic management information that you require.

This understanding informs configuration of all modules, the logic of your chart of accounts, the structure and configuration of your item master, your product master, your materials master, etc, etc.

This may also require some pieces of custom software, for example in order to allow you to use your brand name ERP's standard project module to manage mine production on the basis of team, consumables and material per shift and per stope and per machine so you are able to precisely track production and compare operating costs and production at this level.

Such a capability will determine whether you have a mundane operational system and lots of other pieces of disparate unconnected software, administrators and spreadsheets versus a fully integrated business information system comprising pieces of software from diverse sources and tables / databases / filing cabinets from diverse sources incorporating strategic configuration, customization and custom enhancement or a powerful and effective strategic resource.

6. Strategic precision engineered taxonomies and configuration (data engineering)

Taking this further, appropriate strategic taxonomies of all master data, validation data and all other classification fields on a fundamental first principles basis starts to facilitate high quality strategic AND operational decision support (help the business to THRIVE).

When this is coupled to configuration and inter-module integration design that is highly consistently and strategically aligned and harmonized at a fundamental first principles level with precise, consistent, micro granular coding schemes such as the chart of accounts, product master, materials master, item master, etc that accurately model the real world granularity and fundamental taxonomic logic of each data component the solution becomes not only practical but EASIER, FASTER, CHEAPER AND BETTER than less precise, coarser, less structured coding schemes.

Once this is achieved the generation of a vast range of precise, easy to use and relevant reports becomes possible very affordably -- the difference is really substantial � it literally is a difference at the scale of orders of magnitude improvement in information at the same or less overall cost � �so much information we do not know what to do with it� is a HEALTHY AND DESIRABLE state for an integrated business information system (ERP) because you do not know what information you will need to support decision making tomorrow � for this reason, detailed �requirements analysis� and detailed �process mapping� up front is almost entirely superfluous, only the strategic headlines are required at the start of a project...

AND

Provided we do the job right we find, paradoxically, that �so much information we do not know what to do with it� is coupled with operational transaction processing efficiencies and data capture is easier, faster and more accurate (email me for some case studies).

Material operational efficiencies are frequently experienced including headcount reductions, reductions in audit fees, etc -- note that the GOAL is NOT reduction in costs, it is strategic effectiveness and efficiency -- effectiveness and efficiency with regard to the essence of the business and how it thrives � it just happens that the one drives the other...

BUT

The primary benefit is better decision support resulting in greater competitiveness, greater growth, greater profitability, etc.  There is really no reason to put in an ERP / IBIS UNLESS one is seeking these objectives.

From this I hope that you will see that NOT all ERP implementations and implementers are the same, it is possible to implement the same software in the same business in RADICALLY different ways one of which will support the creation of value and be fundamentally sound and most of which will at best NOT create value and at worst consume or even destroy value.

In the worst case businesses are destroyed by seriously sub-optimal ERP implementations.

In order to achieve these strategic outcomes it is vital to focus on fundamental strategic executive decision support and cascading consistent precision strategic taxonomic logic and structure down through the entire configuration of the entire system.

It is VITAL to start with the top down strategic view of the business -- develop the strategic architecture of the solution and information taxonomy, cascade these down to the baseline transaction level posting data and then build bottom up detailed content in a series of cycles of recursive iterations alternating between top down design and bottom up configuration -- the way buildings are designed and built -- architects seldom, if ever, design the basement first and then decide what to build on top of it and engineers never build the penthouse first, they start with the foundations.

Once this level of taxonomic and coding precision is achieved partial automation of high precision configuration becomes possible and this in turn leads to precision strategically aligned, practical, efficient, auditable integration.  From this automated generation of a huge diversity of standard reports across the full spectrum of granularity of the data code model of the business become easily, reliably and affordably "doable" giving quantum improvements relative to traditional approaches.

Once data of this quality is loaded into a data warehouse and accompanying Business Intelligence tools it becomes possible to affordably and efficiently generate sophisticated management models, dashboards, triggers, etc in ways that support the executives and managers in the business to generate high business value outcomes.

Taken a step further, auto generation of a huge variety of standard and custom dashboards, views, reports, etc becomes cost effectively and reliably available -- subject to precision configuration and precision maintenance and operation.

Applying these principles offers a huge opportunity to better understand why your ERP is NOT meeting your expectations.

AND

An even greater opportunity to add huge value to your existing integrated business information systems (ERP) by fundamental first principles re-implementation alongside your existing configuration and incorporating comprehensive strategic analysis and design, business optimization and precision engineered strategic configuration. 

This should be followed by a comprehensive laboratory testing program which continues until the test team certifies that the entire configuration is reliable, accurate, dependable and AUDITABLE at an extremely high level of precision and reproducibility.

6. Process design is an OUTPUT

Note that process design is an OUTPUT of the detailed strategic design and construction process defined largely in the laboratory while high level strategic discovery of all information components is critical INPUT but only at the headline level except where vitally strategic differences exist.

Part of this output is the development of organization specific computer based training modules which capture and embed corporate standards, codes and processes in the staff of the organization and ensure high levels of data quality and therefore support high quality management information.

Interestingly, IF you design well structured codes operators will find it easier to post accurately AND this will impact on processes.

This aspect is difficult to describe in writing, I have a presentation which addresses various aspects of this in some detail together with various white papers which discuss some case histories where substantial value was unlocked.  If you would like copies of these documents please email me and I will send them to you.

Conclusion � Unlocking ERP value

Only people can unlock value in any organization.

Expecting computer software to do this is not wise UNLESS it is coupled with a comprehensive plan as to how people will be supported to make higher value decisions on a sustainable basis.

This includes a comprehensive plan to facilitate the psychology of change.

Justifying ERP investment on the basis of �headcount reduction� is unlikely to produce sustainable value delivery.

Effective and efficient decision making at every level of the organization is an essential element of a successful integrated business information system (ERP) investment.

Highly structured taxonomies that accurately model real world complexity coupled with finely granular coding schemes that are capable of expanding to accommodate all foreseeable growth and which follow rules that the people using them can easily understand are vital to delivering high value outcomes.

The value lies in high value decisions well executed.

Attached Files

Unlocking ERP Value

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