The Next Evolution of ERP: Adaptive ERP

With the initial release of ERP, one of the key “game changers” was the ability of business users to access data and generates reports without direct IT involvement. This empowerment of the business user had a significant impact on business agility. Today, we continue to see ERP vendors focus on providing business-friendly tools for reporting and analysis.  Yet, I can see a new evolution brewing in the ERP industry what I like to call “Adaptive ERP” where business users can perform on-demand actions to meet business changes real-time.  In the next sections we discuss the key capabilities of Adaptive ERP and a practical assessment of where the ERP industry is today.

What is Adaptive ERP?

Adaptive ERP would enable business users to configure, simulate, test, and implement business technology changes with limited traditional IT services (ex. software development).  Predictive analysis will become a reality.  Logical thinking and search methods will be more valuable than technical syntax. Information will become context and even transactional specific.   Following is an illustration of the major domains that Adaptive ERP should address:

Adaptive ERP

Conceptual Model of Adaptive ERP

Domain:  Logical Development

Too often a change in the business model requires an IT development effort.  Any competent IT development will require the following activities:

  • Business requirements gathering
  • Technical design
  • Technical construction
  • Unit, System testing

In general, the greater the number of individuals involved in a project the greater the coordination/communication effort resulting in a greater time commitment.  Enabling business to become agile will require an evolutionary change in how ERP supports business activities.  However, simply removing people out of the equation is not the answer.  What is required is providing business owners the tools and experience required to become more self-sufficient.

Logical Development

Logical Development for ERP

Following is a brief list of the capabilities required to enable business users to perform logical development

  • Business models must be defined as metadata within the ERP software.
  • Business rules are separate from technical components and are exposed directly to business users.
  • Business scenarios are defined separate from the respective business models. Business exceptions are variations to a specific business scenario.
  • Business users should have the ability to run simulations in production (i.e. parallel testing)
  • ERP must provide automated testing support
    • Automated unit and system testing (self-learning via business model metadata).
    • Automated business process test scripting.
    • Test scripts are a results-oriented view of business requirements.
    • Automated impact analysis with logical development change.
  • Business users should be trained in logical and structured thinking.  There has to be a prescribed process to effectively conduct knowledge transfer with the ERP software.  Business users should be able to directly educate (i.e. configure) the ERP software on how they run their business.

Remember that a key value proposition for ERP is to reduce software development.  This is not an argument to eliminate IT but rather to refocus IT from tactical support to strategic activities.  IT will play a very important role in enabling business users in logical and structured thinking.

Domain: Predictive Analysis

Today, there is interest in Big Data and Enterprise 2.0 technologies but they are not the final destination.

Predictive Analysis

Predictive Analysis

At the end of the day, business decisions have an impact on business results. Enterprise 2.0 and Big Data are supportive technologies.  Enterprise 2.0 focuses on the utilization of Web 2.0 standards in developing collaborative technologies like blogs, RSS, social bookmarking, social networking and wikis.  Enterprise 2.0 emphasizes employee, partner and consumer collaboration for creating knowledge.  Big Data is the next evolution in Knowledge Management where it is now viable to manage and utilize both structured and unstructured data.   However, the key challenge remains – how to effectively leverage all the information we are collecting.  We need to flip the following time paradigm:

Data Analysis Cycle

Business Information Cycle

Changing this paradigm will require inference engines that streamline analysis generation and enable predictive analysis.  Following is a brief list of capabilities that will support predictive analysis:

  • Case-Based Inference will provide recommendations based upon data and transactional patterns.
  • Rules-Based Inference will provide tactical, operational decision support based upon standard business principles.
  • Big Data will facilitate the assimilation of structured and unstructured data to identify patterns and provide operational context.
  • Collaborative ERP 2.0 will support collaborative discussions and provide transactional context for decision support.

Advancements like this in analytics will enable business users to focus on the value-add activities of reviewing analysis and drawing conclusions for effective business decisions. 

Domain: Open

Whether or not you are sold on open source ERP,  you have to admire the new paradigm and simplicity that open source ERP promotes.  As we continue to see the consumerization of legacy ERP technologies, the market will continue to drive individual user enablement and vendor independence.  Following is a brief list of capabilities that will promote a more open ERP industry

  • BYOD (Bring Your Own Device)will enableemployees are able to bring their own computing devices – such as smartphones, laptops and PDAs – to the workplace for use and connectivity on the corporate network.
  • BPMN compliance will ensure that ERP business process definitions will agree with business process definition standards outlined in the Business Process Modeling Notation (BPMN) model.  This model is governed by the Object Management Group (OMG).  In my humble opinion, the OMG is in the best position to define a global standard for business process models.  This advancement will be a key enabler to the holy grail of true enterprise system interoperability.  This is no small task and will require significant market demand to promote this standardization initiative.
  • Collaborative Shared Development is a key benefit of an open community.  Sometimes it takes a village of developers to support an ERP solution.  Today, I can go to the Apple App Store to purchase an app for my iPhone.  In the future, we should see an ERP App Store when a customer or an individual business user can download an object (software, report, role-based feature) to customize their ERP experience.
  • Open Partner Network.  The more integrated your ERP is within your business value chain (suppliers, vendors, customers, providers) the more powerful your ERP system can be.  I expect we will see the ERP market put more value in delivered integrations with partner, supplier, and provider networks over software product features.  SOA will be a key enabler for making open partner networks a reality.

Openness is about creating flexibility and the freedom for a customer to respond to the changing business environment in the most effective manner.

Domain: Viable Solutions

A profound lesson I learned the hard way is that regardless of how many features and products an ERP vendor can provide (even for free); it will all be all in vain if the software is unmanageable.  It is unacceptable that a customer has to pay triple and even quadruple the original software cost to maintain their ERP investment.  Some may argue that ERP vendors have not acted in the best interest of their customers by building features upon features without providing tools to significantly reduce the Total Cost of Ownership (TCO).

Simplifying Technical Support

Simplifying Technical Support

Following is a brief list of capabilities that will significantly reduce TCO:

  • Automated testing (self-learning tools).
  • Automated master data management (information awareness tools).
  • Eliminate the need for multiple instances.
  • Assimilated, holistic solutions– loosely coupled point systems will not work and result in greater costs and possible failures.
    • Minimize the technical stack.
  • Higher Quality Assurance
    • Upgrades/Software Maintenance releases included the test cases and results performed by the ERP vendor.
  • Implementation Wizards
  • Support for Hybrid Deployments
    • Software architecture can support either single or multiple tenants.
    • On-Premise, Hosted, Public Cloud, Private Cloud for either applications and/or data.
      • Example:  Customer decides to store mission-critical data on-premise and internal data on the public cloud.

It should no longer be acceptable that an ERP customer has to totally shoulder additional implementation and upgrade costs.  This is not indicative of a true partnership.

Challenge to ERP Industry for Adaptive ERP

Today, we continue to see a consolidation of the ERP industry.  With these acquisitions some ERP vendors provide some limited capabilities of Adaptive ERP but these capabilities are spread across multiple software products and platforms.  An ERP solution is only as strong as its weakest link (integration).  More technologies loosely coupled together usually mean (a) more IT resources, (b) additional points of failure, and (c) a more complicated experience for business users. We have witnessed where ERP software has become bloated with features upon features without any logical progression.  ERP customers are forced to deal and pay for unused features resulting in more frustration than simplicity.

Many top-tier ERP software solution packages use a systems configuration concept to set up the business environment for some time but please allow me to challenge the industry a little more. I agree that several ERP software packages provides configuration concept yet there is no clear decrease in implementation schedule (ex. SAP) or cost savings associated with this approach because the currently exposed configurations do not change that frequently (ex. Earning Codes, GL Accounts). Objects like business rules, scenarios, and exceptions change more frequently. This is a challenge for some ERP software (ex. PeopleSoft) where many business rules are encapsulated within the technical object. Pre-configurations are only a beginning – it adds value in the short-term but ERP is a long-term proposition. In my humble opinion, the key is to expose the underlying business model to business users for greater real-time interaction.

Also, there are Master Data Management (MDM) solutions available to support a tactical level of data governance by removing duplicates, standardizing data and, incorporating rules to eliminate incorrect data from entering the ERP system.  For Adaptive ERP, MDM must advance in what I call “information awareness”.   Information awareness means two things (1) MDM is able to automatically detect and define new information sources within the enterprise ecosystem via data polling, and (2) MDM is able to determine how data is used.  These capabilities will be key enablers for automated impact analysis.

What we need to have is a mature, open, holistic solution where all the individual software platforms are assimilated into a robust, uniformed solution.  This is not simply building a dashboard that brings together two separate user sessions together or an orchestration level that adds another level of technology abstraction and performance overhead.  A viable solution is a manageable solution.

Summary

I’m a firm believer in performing non-competitive business activities as competent and cheap as possible.  In that end I am a firm believer in ERP.  However, the ERP industry has come up short in the areas of total cost of ownership and business adaptability.  Many on both sides of the aisle have wrongly concluded that more software features and increasing the technical stack are the answers for making ERP adaptable.  Putting more power in the hand of business users is the strategic answer for business agility.  People are the most important and adaptive component of a business solution.

Business Leads and Technology Supports

There is a misconception in the ERP market that says technology is the key enabler to business maturity.  In a previous blog (ERP is Only Part of a Business Solution) I discussed the supporting role ERP plays in a business solution.  Business processes and people have a far greater influence on business process maturity and business results.  Let’s clear up this misconception by examining two areas that have driven its general adoption.

 

Is Technology changing Business?

I do not believe that technology is changing business but rather technology is finally catching up with leading business practices.  For example, back in the early nineties I read a book on the e-business revolution.  The major premise of the book was that technology was transforming existing business models into an e-business model.  The book provided an example where inventory stocks could now be checked in retailer stores and inventory orders could be generated to maintain a desired stock level.  The book explained that this is an emerging requirement due to new e-business technology.

I have to humbly disagree with this analysis.  The above requirement had always been a desire of business.  I remember back in the early fifties when my father would make the rounds as a salesman to his retailer customers to see their inventory and manually created orders to maintain the retailer’s inventory levels.  Many businesses did not perform this process because (a) it was manually intensive work, and (b) it reduced focus on higher priority business activities.   Technology is now providing a cost-effective vehicle to accomplish this business requirement.

Build It and They will Come

Everyone has heard the phrase “build it and they will come”.  Several internal IT and external Implementation Partners & ERP vendors have used new technology as the value proposition for ERP implementations.  This philosophy may have worked in the era of “green screens” and emerging client/server technologies but it does not work in today’s world.  Technology driving Business is like putting the cart before the horse.  I recently talked with a customer where the IT organization and ERP vendor took the above approach for implementing new Business Intelligence (BI) software.  The business users felt limited and constrained by the technology.  Results – user adoption was low and now business users are looking at implementing their own BI solution(s).  Needless to say that the ERP vendor, the Implementation Partner, and their own internal IT organization are no longer considered trusted advisors.

What Drives Business Results?

Technology is a great enabler that can play a role in supporting the generation of business value.  However, technology is not always the best approach to address problems that may be inherent in the business model.  Example: automating non-value-add business activities will not generate business value for the customer.  Also consider that most business value is generated outside the ERP software.    “Making decisions and implementing them is where business value is created in an organization.” (Dawson, Ross. Developing Knowledge-Based Client Relationships. Butterworth Heinemann, 2000).   ERP does not have the capacity to make decisions having considered a diverse range of issues, and will not have the capacity to do so in the near future (maybe in our lifetime we should have artificial intelligence capabilities embedded within ERP).  Knowledge is only an attribute of people.  Technology stores information.    So how should we leverage ERP to support greater business results and business maturity?   Consider the follow illustration:

Key Drivers for Business Results

Key Drivers for Business Results

 

It is important to note that business processes and people have a far greater impact on business results than technology.  Technology can be a cost-effective solution in automating consistent rules and activities.  However, technology like ERP can only utilize information that has been codified.  There will always be tribal business-related knowledge and experience that exists outside technology.  Some of this tribal knowledge is leading or emerging business activities/rules.  In this situation where business rules and activities are radically evolving then technology is not a cost-effective solution for automation. 

Summary

It is important to understand and appreciate what technology can and cannot do for a customer.  Often the true problem lies not with the ERP software itself (granted there always software bugs and fixes to apply) but rather the demand for quick fixes and rapid cures to business challenges.  If the ERP software did not improve the performance of the underlying business model then executive management would conclude that the ERP implementation was a failure. 

Technology like ERP can be an enabler and a limitation for customers.  To ensure enablement over limitation you must first understand the right relationship between business and technology.  Once you understand the key strengths and weaknesses of both areas then you will have a greater insight to the right application of technology to support the customer in driving valued business results.

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