TxM 040 Section 4.5 Understanding strategy and how ERP fits in (Reprint from one of my newsletters) Created by James on 7/3/2013 5:14:05 PM
The high level of dissatisfaction with ERP amongst executives is compounded by the absence of strategic alignment in virtually all ERP implementations. The inevitable, unavoidable truth is that ERP must fit into strategy.
Strategy is one of those strange words that is widely used but seldom understood.
Ask ten people to define "strategy" in one sentence and you will get a wide diversity of answers with interpretations that range from plans to tactics to deceitful manoeuvres to …
In 1990 I wrote a paper on the importance of aligning IT with business strategy and then found that I could not define strategy in one sentence.
As I sought an answer to this conundrum I encountered various definitions and found that even internationally acclaimed and recognised ”gurus” did not have concise definitions that matched.
I also found that very few organisations were successful in developing strategic plans that worked and even fewer organisations actually managed to execute strategic plans successfully.
In my search I encountered the work of Professor Malcolm McDonald who defines strategy as "doing the right things" as determined by the customer with tactics defined as "doing things right".
McDonald plots this on a matrix with strategy horizontally and tactics vertically and asserts that if an organisation "does the right things well, it will thrive" and that if it "does the wrong things well, it will die quickly".
The essence of the business and how it thrives
As I investigated further I encountered other definitions of strategy but always came back to the concept of doing the right things in order to thrive.
Painstaking research has led me to the conclusion that strategy is “the essence of the business and how it thrives".
That has become my focus in delivering high value solutions – understand the essence of the business and then put in place measures to assist clients to use Information Technology / ERP to support high value "thrive" decisions. All the rest, the operational benefits, etc follow automatically from an ERP implemented with strategy as its focus.
Generally I commence my Pulse Measurement interviews with questions directed at establishing the "essence of the business and how it thrives".
ERP versus IBIS – the mixed bag of software
ERP stands for "Enterprise Resource Planning" and many organisations do NOT use their ERPs for ERP. Frequently the resource planning for the enterprise gets done somewhere other than in the ERP.
Frankly, if you scratch beneath the surface you will find that most ERP implementations are actually accounting and workflow implementations and there is little or no RP done in the so-called "ERP"!
If the resource planning IS being done in the ERP it is being done in a very tactical and operational manner with absolutely no thought to strategic considerations. Huge unstructured lists are the order of the day associated with huge maintenance bills for expensive contractors on an on-going basis.
As far as the application of information systems in business is concerned, it is better to think in terms of "Integrated Business Information Systems" or IBIS ("ERP Plus" if you like).
Fact is that in my experience I have not encountered a single ERP installation that is not surrounded with other pieces of software. Most ERP implementations live in a sea of customization, Excel spreadsheets and other custom development such that many times the business is hardly using any of the ERP at all.
"Zero customization" is seductive but in real life it is almost universally a myth. As a basic minimum sub-optimally configured ERP systems immediately create a substantial requirement of customization and custom development outside the ERP.
Accordingly, in evaluating your current system, whether it is labelled "ERP" or not, consider ALL the surrounding systems and custom development and soberly assess how you will replace that system with another system without falling into the same traps again. It is very easy to believe that your organisation does things differently and therefore customization is called for.
The real criterion of customization is what I term "strategic customization" – custom development that is necessary to support the business to thrive, that is that supports the essence of the business. This criterion requires robust and sober assessment at the executive level associated with high level strategic advice that ensures that only customization that is really required and that really adds value is entertained.
And remember that you may well end up retaining many of your satellite systems because they are industry specific or perform functions that standard software does not cater for – so replacement of your ERP requires very careful consideration.
ERP implementations are typically tactical and operational not strategic – 80% of effort for 20% of value
As noted above, very few ERP implementations are truly strategic, most are operational and tactical.
They address the 80% of the configuration and implementation that will deliver 20% of the value while the strategic elements are largely or entirely overlooked.
One of the major reasons this happens is as a consequence of a lack of strategic guidance from the executive suite and the lack of strategic translation from an executive level strategic solution architect advisor to the CEO. These are vital requirements for a high value implementation that supports high value decision making.
Leaving your ERP to your mid-level operational and administrative staff to implement and operate guarantees you what you have commissioned: a mid-level operational and administrative system. If you want executive information out you must provide executive level input across all domains of the business into the ERP implementation project.
Strategic decision support – the essence of how an organisation thrives – the right decisions
It is my contention that the major reason any organisation should invest in upgrading or replacing its current ERP should be to support strategic decision making – that is to supply the information that allows executives, managers, supervisors and staff to take decisions which enhance the essence of the business with a view to enabling the organisation to thrive – that is, the right decisions.
The absence of this decision support is the fundamental reason why a survey of executives in the Financial Mail found that "19 out of 20 ERP implementations do not deliver what was promised" and why a Gartner survey of 1,300 organisations in Europe reported that "most organisations are not making better decisions than five years ago".
Precision engineered strategic configuration and taxonomies – the 20% of the effort that will deliver 80% of the strategic value
How does this work in practice? All of the issues touched on above may seem very theoretical – how to do it?
Firstly, define, document and publish "the essence of the business and how it thrives". Then define precision engineered strategic taxonomies as discussed in previous articles.
These taxonomies must be highly structured, highly hierarchical and strategically focussed.
What do I mean by "strategically focussed"? Simple – every level of the taxonomy should have between five and ten items in the hierarchy (seven is optimal).
These should be ordered where appropriate in such a way that the most strategic elements are at the top of the list and the most operational at the bottom of the list with the caveat that where there is a logical progression viewed in terms of the essence of the business then this logical progression should dictate the default sort order.
Once the content of every taxonomy in each module has been determined this way, it will form the basis of precision configuration of the entire ERP and associated systems to one consistent, congruent and uniform standard across all systems in the enterprise and all modules in the ERP.
Uniform and consistent taxonomy standards rigorously enforced with stringent discipline across the entire enterprise will ensure that all systems integrate seamlessly.
There is a catch, however, the real cost of a comprehensive, engineering standard (zero probability of failure) full blown ERP implementation is very substantial. If the basic ERP is functioning reasonably well at a tactical and operational level, it is almost impossible to justify the real cost of a full implementation or re-implementation. A full blown re-implementation will re-do the 80% of the work that is already working more or less reliably before the 20% of strategic investment can be leveraged.
There is, however, an alternative course of action.
Precision engineered strategic taxonomies and the data warehouse – the REAL opportunity
One of the reasons most organisations do not get executive value is that the operational ERP implementation is so poorly structured that it is extremely time consuming and costly to extract the most basic strategic information let alone to create a competitive resource.
This manifests frequently in a sub-standard or almost non-existent data warehouse or a data warehouse that is extremely costly to operate but which fails to deliver strategic information.
This introduces an interesting and highly attractive opportunity. You could leave the operational ERP configuration largely unchanged, save for limited incremental enhancement and introduce an excellent new data warehouse implementation using the same strategic taxonomies as described in the previous section - with the exception that you may not develop the taxonomies in master lists like the Item Master or Materials Master down to the full level of detail.
Map the unstructured data in the operational ERP onto the new precision engineered strategic taxonomies and then build the data warehouse reports, models, dashboards, etc. on top of the strategically transformed data.
This should take place in a new data warehouse instance and the existing data warehouse should remain in operation until such time as the new data warehouse is able to fully replace the old warehouse.
This will deliver the 20% of the strategic information that will deliver 80% of the value of the strategic investment for a fraction of the cost of a full ERP re-implementation, I estimate probably about 20% of the cost of a full implementation.
Once this is in place and a comprehensive suite of strategic reports, models, dashboards, etc. are in place you can trickle the new taxonomies down into the operational ERP on an incremental basis over a number of years until the operational ERP is configured to the new standards, again on an 80:20 basis – make the 20% of the configuration changes that will provide 80% of the investment value.
While this will take longer than a full blown ERP re-implementation it will cost much less, the business disruption will be greatly reduced and the risk to the business will also be dramatically reduced.
I am convinced this is the highest value, lowest risk opportunity facing virtually all corporations of any size that are currently operating a brand name ERP and are dissatisfied with the decision support outputs at an executive level.
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