5. Executives are the custodians of the thrive (strategic) view of the business
Increasingly I am realizing that in defining the taxonomies for your ERP system implementation, it is the executives of the business who should be primarily involved -- assisted by the staff who report directly to them.
It is the executives who are the custodians of the strategic executive (thrive) view of the business and therefore they are the most important people when it comes to defining how the business is modelled strategically through the taxonomies.
Executives hold the integrated holistic view of the business, its customers and markets, its suppliers, its personnel, its future direction.
They are the people who know best how they want these items segmented in terms of the three, five or ten year view of where the business is going.
Accordingly they are the most important people to consult when it comes to developing taxonomies.
The MOST important output of an ERP or any business system is information that enables executives to make better strategic (thrive) decisions.
It is not difficult today to get technology to facilitate processes, enforce policies, etc but that is not enough for the organization to thrive. An organization will thrive if the correct decisions are taken by those at the top. So an ERP must facilitate the supply of the information that is required for such thrive decisions to be taken.
6. The most important requirement – answer the questions I have not thought of
By extension this means that the ERP must be able to answer the questions that executives have not yet thought of.
That sounds crazy, doesn't it?
After all, traditional ERP and other business systems implementations spend days, weeks or even months on user requirements workshops specifying all the reports that are required and now I am saying that is not required or not enough or both?
Well, at the start of an ERP project what matters is what the outcome will be in five or ten years' time, NOT what the outcome will be at go-live.
The issue is answering questions executives and managers have not thought to ask.
How do you do that?
Firstly, ASK, what the business will look like in five or ten years' time – what expansion, what acquisitions, etc – executives do not necessarily have all the answers but at a headline level they have CLEAR views of where the business is going WHEN you ask them and WHEN they think about it.
But most of the time IT and ERP implementers never ask the question. They ask lots of operational and tactical questions but they seldom ask the really important questions and so they start off the journey going in the wrong direction based on the right answers to the wrong questions.
And then, what questions will you ask that you have not thought of yet?
No, I don't think you will find the answer that way!
7. Model the business accurately – large numbers of small bins
In order to answer that question there is something else you must do.
Ask them to identify ALL the possible attributes of the components of the business, the products, the customers, the suppliers, the staff members, a widget, etc.
You goal is to classify every attribute that can realistically be identified because, IF you have all the attributes that they use consciously AND unconsciously to define a product or whatever you have the information that is required to answer most, if not all, of the questions they might ask in the future.
And, if you configure or customize the software in such a way that all these attributes are available, with drop down lists configured with carefully thought out taxonomies AND you make provision for additional fields to be added, you are likely to have a lot of the building blocks in place to answer those difficult questions sometime in the future.
Then, in addition to this, make sure that the level of detail in your taxonomies is sufficiently fine that the taxonomy divides your products or whatever into a large number of small bins (categories). This means that the data can be added up just about any way you want.
And, if you do this at the design stage it costs almost nothing to make provision for this.
The relevant metaphor is screws in a hardware store – if you go to a hardware store to purchase screws you expect to find them stored in little plastic sleeves or bins neatly organized by length, diameter, head type, etc – in other words, you expect to find a taxonomy.
If the screws were all dumped in one large bin that you had to scratch in you would go to another hardware store.
This is often why companies replace their ERP systems, they are frequently configured with large haphazard bins with little or no taxonomic logic with the result that the systems are clumsy to use and do not package the data in such a way that intelligent analysis is possible.
So, the obvious conclusion is that we have bought the wrong ERP -- not so?
No, the problem is almost NEVER the software, it is the way the software is configured and implemented!
In such a case there is frequently an opportunity to reconfigure and re-implement the same software or fix the data in the Data Warehouse.
8. Use the technology appropriately to its full potential appropriate to the business
Re-implementing your ERP is frequently a major consideration in achieving the full potential of the software.
Another aspect of getting the full potential of the software AND of ensuring that the scope of an ERP project is correct is to apply the same principle – a blank sheet of paper – to the specification of the requirements for an ERP project.
In simple terms a key element of the requirement for an ERP project should be "implement this software in a manner that fully exploits the capabilities of the software to add real value to the business in a practical manner" – in other words, do not expect the business to tell you what it wants, other than a highly effective and efficient (thriving) business, understand the business, understand the software and then identify ALL possible synergies that will enable the tool properly used in the business to add value.
Rather than expending massive amounts of time trying to understand the "as is" condition of the business, understand the essence of the business and what causes the business to thrive (the strategy), understand the full potential of the software and then facilitate the EXECUTIVES of the business to define the high level requirement based on how the software can best be utilized to assist the business to thrive.
This could give rise to a three year or five year implementation plan during which the functionality of the software is progressively mobilized to support the business in achieving its strategic objectives.
Do NOT constrain the executives or the business by spending detailed time on what they currently do, they KNOW THAT, focus on where they are going and what they need to get there.
Do it right first time.
I would be happy to discuss how we can assist you to implement effective taxonomies and give a new lease of life to your existing ERP or create a platform for unlocking exceptional value from your new ERP.
Why ERP can make the blood boil
(Reprint from one of my newsletters)
The apparent tension between high precision strategic configuration and operational / 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.
The conundrum – 19 out of 20 dissatisfied vs most are satisfied
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 most medium and large businesses to compete
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 NOT strategic
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 micro level daily replenishment is increasingly necessary for many businesses to compete and grow
The speed of replenishment and complexity are vital to competing in many sectors today.
A visit to your local big brand supermarket will show what I mean. 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 organizations. 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.
But most organizations are NOT making better decision than they did five 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 Business Intelligence software, that "most organizations are NOT making better decisions than five years ago".
And so we find ourselves 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 ten / five / two years?” it is "can I get the report I have never previously thought to ask for".
And, can I get it NOW?!... Will it be accurate and reliable? And if I ask the question three or five or ten 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 I can get answers to any question I can conceivably think to ask?
Yes, of course it is reasonable!
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, etc, etc. AND it applies to the fine nuances of what differentiates products, services, etc viewed from the perspective of the executives of the business AND their customers.
Precision engineered strategic configuration and taxonomies – the greatest ERP opportunity today
The answer to the problem outlined above is what I term "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 summarized 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 optimize 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 I am 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.
The CEO MUST be the custodian of ERP
(Reprint from one of my newsletters)
The debate over who should serve as guardian over an organisation’s ERP can be settled with one answer - the Chief Executive Officer.
My ERP is not integrated and I do not have an end-to-end view of the business
I regularly encounter executives and managers who complain that their ERP is not properly integrated or that they do not have an end-to-end view of products, costs, inventory, etc.
The implication is that the ERP is defective or that the ‘wrong’ ERP was purchased. But this is not accurate.
Such problems are indicative of a poorly configured ERP which has not been implemented with end- to-end strategic information objectives in mind.
The most significant reason for this problem is inappropriate governance of the ERP project during the implementation - and the key issue here is that the only person who can provide this governance is the CEO and the CEO is seldom the custodian of the ERP implementation project, or, for that matter, the operation of the ERP.
The worst big brand ERP implementation I ever saw reported to the Legal Affairs executive – they had an amazing contract but the rest of the implementation was a mess and the contract was worthless.
ERP under finance – a historical disservice to business
Historically ERP has mostly resided under finance. The result is that finance irritates other functions by forcing cooperation and, more seriously, the ERP implementation ends up as a finance implementation with the other operational elements tacked on as an afterthought.
The worst example I ever encountered was a big brand ERP with a domineering Chief Financial Officer who forced everything from people, to plant to projects into the General Ledger - and then verbally abused anyone who suggested that the solution was technically fundamentally unsound.
The organisation could not get the plant maintenance module to work because most of the information was in the General Ledger and not in the operational modules of the ERP.
Many organisations resolve this problem by having financial (or commercial) systems reporting in to finance and operational systems reporting into manufacturing, production, mining, etc because they cannot get end-to-end cooperation in the business. These silos feed on themselves creating more and more problems because the two camps cannot collaborate in a constructive manner.
Only the CEO can resolve these problems.
The CEO is the custodian of the integrated view of the business and hence the ERP
Fundamentally the CEO is the custodian of the integrated view of the business. It is one of the principal functions of the CEO – to get all the divisions and functions of the business to pull together coherently.
Inherently, therefore, only the CEO can be the custodian of the ERP, or the data warehouse and business intelligence systems.
There is no practical alternative.
I have repeatedly seen sub-optimal ERP implementations (and I have seen dozens) where the lack of CEO custody is a significant and frequently dominant factor in an unsatisfactory situation.
Frequently the viability of the business is placed at risk.
Only the CEO has the authority to get all functions and divisions to collaborate as peers without bias and domination
Getting an ERP properly configured and operating effectively requires that all business units and functions operate collaboratively in the best interests of the collective whole that is the entire enterprise.
This requires that all disparate business elements work together collectively and harmoniously for the good of the whole.
This requires trade-off, strong leadership and guidance.
Firm discipline may be required if one or more business units fail to contribute and collaborate as peers.
Only the CEO has the authority and mandate to demand such collaboration and make it happen.
Where the CEO abdicates, massive system problems will follow which are frequently taken to be technology problems.
But the CEO does not have the time / knowledge / … to manage the ERP – not so!
I have been told by more than one client that the CEO does not have the time or the knowledge or the interest or the … to manage ERP.
Well, if the CEO does not know how the business should operate as an integrated whole then the business has greater problems than the ERP. If the CEO does know how the business should operate as an integrated whole then the CEO does know how the ERP should work.
A fundamental principle of an excellent ERP implementation is that the ERP implementation should accurately model the REAL WORLD characteristics of the business. Any executive or business user should be able to look at the configuration of the ERP and say "yes, that IS my business".
If you cannot say that about your ERP it is because it is badly implemented.
When an executive says to me "Dr Robertson, I do not understand IT" experience has shown me that this translates to "I have seen the jumbled mess in my ERP and I cannot comprehend how that can do all the things the consultants say it can do, so, obviously, I do not understand IT"
NOT SO! The correct translation is "the consultants clearly do not understand my business and the way they have implemented this system bears absolutely no correlation with my strategic understanding of the business and this is a multi-million Rand mess" – the problem is NEVER your big brand ERP, it is how it was implemented and the almost universal lack of precision engineered strategic configuration in the form that I regard as essential and non-negotiable.
If the CEO does not have time to take custody of the ERP then, in the world of 2011, you should probably start looking urgently for a buyer for your corporation whose CEO does have the time. The future of business today will increasingly be determined by the ability of executives to take high value strategic decisions that lead to growth - while those that cannot do this will be taken over by those that can. Otherwise it may be more cost effective to replace the CEO than it will be to replace the ERP!
I am NOT advocating that the CEO spends a lot of time managing the ERP, but I AM advocating that the CEO gives high level guidance and takes custody – once effective governance is in place this should require at most a couple of hours a week.
If strategic decision support, that relies on information in your ERP, is necessary for your business to thrive - then it must be managed by a person reporting to the CEO
If you want to manage your business at a strategic level from information in your ERP then it is essential that the person who manages the ERP reports directly to the CEO.
Depending on the size of your organisation this is NOT necessarily an executive but should at least be a senior manager and they should at least be present at EXCO when system related matters and matters that impact systems are discussed – which is probably all the time J
This person should NOT be a technology person but a business person.
If necessary appoint an executive level strategic advisor to assist with bridging the technology to business gap – someone who can operate at a peer level with the CEO and who understands both business AND ERP.
Strategic decision support NOT process is the essence of the investment case for ERP and resides with the CEO
The general view of ERP is process, but process is operational and at the bottom of the organisational pyramid.
There is no such thing as "the strategic process". If there were it would look like:
Identify need for decision --> convene EXCO --> present information --> deliberate --> take decision …
Reference to "strategic process" is one of the absurd ‘jargonistic’ sayings that characterise the mystical mumbo-jumbo of the management consulting and IT / ERP fraternity and clouds the issues. The real issue is to supply the right information to the right people at the right time and in the right form in order to make the RIGHT DECISION.
In the absence of the "right decisions" the business will eventually go out of business – highly optimised business processes will simply help it to go out of business faster!
With consistent "right decisions" the business will thrive and optimized business processes will assist with this.
Professor Malcolm MacDonald defines strategy as "doing the right things" and, since the CEO is the custodian of the right (strategic) things the CEO must be the custodian of the systems that supply strategic information to support strategic, high value, decisions.
Overall governance of the ERP rests with the EXCO – precision configuration starts with the EXCO and so executives must understand the essence of the business and own the BUSINESS outcome
From the above it will be apparent that overall governance of the ERP flows from the CEO to the EXCO and then to the rest of the business.
Accordingly precision configuration starts with the CEO and EXCO and therefore executives must understand the essence of the ERP and own the business outcome of the use of the ERP.
By way of example, I am currently busy with a series of workshops with the EXCO of a mid-size South African company to develop the high level structure of all major taxonomies in their ERP system in order to ensure that the configuration of the ERP reflects their strategic view of the business.
This is the only way that we will ensure that the default view of the information in the ERP reflects the strategic executive view of the business and its long term priorities.
Only 15% of executive decisions are based on hard information, but without that information they are flying blind - strategic decision support should be the primary consideration in ERP implementation
But, I hear you cry, "executives only base strategic decisions 15% on hard information" – that is true, BUT, if they do not have that information they are flying blind on gut feel or by the seat of their pants.
That hard information is critical BUT it must be packaged in a way that accurately reflects the essence of the business and how it thrives (the strategy of the business). That is why the CEO - and through the CEO the EXCO, must be the custodians of the ERP.
Precision strategic taxonomies can be retrofitted to an operational ERP implementation through a data warehouse
I have written previously about the importance of precision engineered strategic taxonomies and configuration in ERPs.
Problem is that the cost of completely re-implementing an ERP in order to introduce rigorous precision configuration is more than most organisations can justify spending, particularly considering that at an operational and process level the ERP is probably working quite well – so we find ourselves faced with having to spend 80% of the budget re-implementing the stuff that is working in order to fix the 20% of the stuff that is causing 80% of the strategic pain.
There is, however, an alternative – leave the ERP implementation largely unchanged, develop precision engineered strategic taxonomies for all the tables in the ERP. Then map the old codes onto the new codes and transform the data in the load component of the extract, transform, load (ETL) portion of a new data warehouse and then build high value reports, graphs and models in the business intelligence environment.
This will require some changes to the configuration of the ERP but they will be incremental – provided they are carefully planned by someone with strategic insight into what is REALLY important.
Over time the high quality taxonomies and other configuration elements can be dropped into the ERP in small controlled deployments. As such unexpected impacts can be carefully trapped and managed until after a year or two a reasonably high quality precision configuration has been achieved in the existing ERP.
This represents a major opportunity for many businesses with established investments in ERP today.
The metaphor is one of taking a badly maintained and operated factory and systematically refurbishing it, one part at a time, until after a couple of years the whole factory has been refurbished.
CEO custody is critical to successful long term high value ERP operation
As with all the other components identified above, CEO custody and direction is vital to achieving a high value integrated business outcome cost effectively and sustainably.
Where necessary the CEO should seek to secure high level strategic advisory services at an appropriate scale to support them in taking on this responsibility.
Understanding strategy and how ERP fits in
(Reprint from one of my newsletters)
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.
Risks and common mistakes
when developing taxonomies and configuring systems
Following are the major risks and common mistakes when configuring systems and should be read in conjunction with other sections in the Taxonomy Handbook: