BPR, BPM and ERP

I had a customer ask me about the relationship between BPM and ERP.  Does ERP implement BPM or do you need to have BPM before ERP?  Is an ERP implementation a BPR project?  Who’s on first?  As the ERP industry evolves it has become evident that additional disciplines like Business Process Management (BPM) and Business Process Reengineering (BPR) must be employed for a successful ERP experience.  In the following blog posting I plan to define and demonstrate the roles that BPM/BPR play in the ERP lifecycle.

BPR, BPM, and ERP Revisited

Allow me to establish some basic definitions for our discussion:

  • Business Process Management (BPM) consists of methods, techniques and tools to design, deploy, control, and analyze operational business processes involving humans, organizations, applications, documents and other sources of information.
  • Business Process Reengineering (BPR) is the redesign of business processes – and the systems, policies, and organizational structures that support them – to optimize the work flows and productivity in an organization.
  • Enterprise Resource Planning (ERP) is integrated business software that supports multiple business functions across an enterprise.  ERP implies the use of Commercial Off-The-Shelf (COTS) packaged software rather than proprietary software written by or for one customer.

There are a couple of key concepts we should review to compare/contrast BPR and BPM.

Compare BPM and BPR

Compare & Contrast BPM & BPR

BPM focuses on the business process model to monitor, identify, and implement incremental improvements.  These improvements or eliminations fall within the fundamental rules, parameters, and culture established by the existing business model.  However, there comes a point in time where the law of diminishing returns applies and a transformation to the underlying business model is required.  A more aggressive approach like BPR must be utilized to evolve to the next level of business process maturity.  Consider the following illustration to demonstrate how BPM and BPR interact along the Capability Maturity Model Integration (CMMI):

 

BPR, BPM within CMMI

BPR, BPM within CMMI

Allow me to provide an example.  Company A performed a CMMI assessment of their purchasing process.  Results from the assessment showed that the purchasing process was defined for certain business sales (revenue stream) but not for all purchasing events (direct & indirect).  Another key finding was that there was no formal integration between demand planning, supply planning and purchasing which resulted in reactive purchasing. From the above CMMI reference, it was determined that Company A’s purchasing process is at the Managed level.  Company A implemented several incremental initiatives (BPM) to improve process execution including documenting purchasing tasks for all purchasing events and conducting periodic purchasing planning meetings with operations. 

Company A realized process improvement yet the value was limited by following model constraints: (1) each revenue stream (business line) had its own unique purchasing process & rules and (2) Purchasing had limited visibility across the entire supply chain.  Two fundamental mindsets have to change:

  1. Move from unique purchasing processes to a common enterprise purchasing model that is flexible enough to address the competitive requirements for each business line
  2. Enable Purchasing to have visibility across the entire supply chain to support a process-oriented management model versus a function-oriented management model.

Implementing these changes will require a formal, projectized (BPM) effort that will redefine existing business rules, culture, and business process activities.   As Company A continues to evolve their purchasing process they will conduct both BPM within the CMMI maturity level and BPR as they move to the next CMMI maturity level. 

How Do BPR, BPM, and ERP Relate?

ERP provides the automation of business activities.   There are two fundamental value propositions that ERP provide to customers looking to move up the CMMI maturity model

  1. ERP reduces the effort required to perform tactical business activities so customers can focus on strategic activities. Expanding on our purchasing example, this would include basic functionality like automating the creation of purchase orders, approving purchase orders, and matching purchase orders with receipts & supplier invoices.
  2. ERP provides the opportunity for visibility across business functions to support business process management.  That said, there are several factors that determine the level of visibility. 
ERP Business Process Visibility

Factors Impacting ERP Business Process Visibility

A competent ERP solution should provide robust, closed-loop integration between the functional modules provided out-of-the-box.  As a practical note, there is always a need to integrate ERP to legacy systems and this requirement should be not overlooked.  A business solution is only as good as its weakest integration.  Process consistency will enable a relevant comparison of results and management of business processes.

A mature ERP solution should provide automation and integration support for both tactical and strategic business activities across the CMMI model.   

ERP Evolution within CMMI

Interaction of BPR, BPM, and ERP within CMMI

I am a firm believer that business should lead and technology supports.  Therefore, as the business model evolves it is important to identify the corresponding ERP functionality to support the business activities.   This model also communicates that the best approach to implement ERP is to follow a logical maturity path for business processes.

Common ERP Misconception and Mistakes Related to BPR & BPM

Allow me to address some common misconceptions and mistakes made during ERP implementations related to BPR and BPM.

BPR is part of the ERP implementation.

While I agree that the initial ERP implementation will result in major changes with existing business functions, BPR will not happen unless there is a concerted effort to redefine the holistic business model and organizational structure to be successful with the ERP software.

Implementing ERP will give us BPM.

The direct answer is no.  ERP does provide an information foundation that can support BPM.  BPM is more about a discipline for managing processes and less about software. 

Do I need ERP to mature my business processes?

Technically speaking, ERP is not a hard requirement for BPM.   However, manual routine tasks and limited visibility hinder strategic activities.  ERP can play a key support role in automating business tasks and provide visibility through integration.

Should I implement ERP features that support business activities at different maturity levels?

Business realities will necessitate that customers implement ERP features supporting different CMMI maturity levels.    The problem lies in two areas:

  1. Customer expectations are not appropriate set regarding the limited value realized from mature ERP functionality due to less mature business activities supporting strategic activities.  Example:  A procurement process scorecard measuring standard Key Performance Indicators (KPIs) will have limited value if there is not a standard, enterprise procurement process.
  2. Implementation partners and business solution advisors should provide a short-term strategy and roadmap to evolve the supporting business activities to same level of maturity.   This approach provides a “quick-win” opportunity for customers to drive additional value from the existing ERP investment.

Summary

Understanding how BPR, BPM, and ERP should relate to one another can be a challenge.  Some believe that it is an “either or” proposition.  I do not subscribe to this school of thought but rather believe that BPR and BPM are disciplines that should be interweaved as part of your ERP application strategy.  Knowing and appreciating these interdependencies will put you in a better position for ERP success. 

Cloud Can Bring Out the Best of ERP

Previously, I discussed some of the hard realities customers have to manage as part of a Cloud ERP solution.  However, these challenges should not deter customers from looking at a Cloud ERP deployment model.  There are broad advantages for Cloud ERP including incremental scalability and smaller start-up investment.  I would like to speak to some of the less known advantages that a cloud model can provide to ERP customers.

ERP Value Proposition Revisited

In a previous blog article (ERP Makes for an Expensive Custom Solution); I outlined the key advantages and challenges associated with ERP software.

ERP Pros and Cons

ERP Advantages and Challenges

 

For a successful ERP implementation, it is vital that the approach address both the inherent advantages and challenges.  The right cloud deployment model can address many of the ERP advantages/challenges in a more effective manner than a traditional On-Premise model. 

How Cloud Can Make ERP Value a Reality

Let’s briefly discuss how a Cloud ERP model can have an advantage over an On-Premise ERP model using the inherent ERP advantages and challenges as the context for the comparison.

How Cloud can support ERP Advantages

Cloud ERP vs On Premise ERP

Let’s discuss some of the less obvious advantages in more detail:

  • Standardization:  Cloud ERP will have an advantage over an On Premise model simply because the costs tend to be more visible to business users.  Traditional internal IT organizations in general do not have a service-oriented price model for their internal customers.  The cost of not standardizing business processes gets lost in the general IT overhead allocated back to internal businesses.
  • Share IT Development Costs:  as far as short-term capital expenditures and scalability costs, I can see where Cloud ERP has a definite advantage.  Longer-term or Total Cost of Ownership may swing the advantage to an On Premise model given factors like (a) customer size and (b) level of software customization required.

Next, let’s review a comparison between Cloud ERP model and On-Premise model on which model can better address inherent ERP challenges.

Cloud vs On Premise ERP Challenges

Cloud vs On Premise ERP Challenges

Let’s discuss some of the less obvious challenges in more detail:

  • Organizational change:  When you own the change the more likely you are to accept the change.  Even though there may be a divide between business users and an internal IT organization, they are both part of the overall organization.   A rapid deployment of functionality does not necessarily mean a rapid user acceptance and effective use of technology.
  • Requirements gathering:  Requirements gathering and business analysis is a gap that most ERP Cloud providers have not addressed effectively.  Onsite, face-to-face interactions is still the most efficient means of gathering and validating business requirements.

 Regardless of the advantages that Cloud ERP may have over an On Premise ERP model, a customer with unrealistic expectations for Cloud ERP will result in a disappointing experience.

 Beware Of Unrealistic ERP Cloud Expectations

Cloud ERP is an evolving solution model with as many misconceptions as hype.  In fact, many have labeled these misconceptions as cloud washing.  Following are common perceptions and misconceptions that customers may have with Cloud ERP offerings:

  1. Huge cost savings:  This can be a huge misconception if customers expect to run on the latest/greatest/fastest possible hardware.
  2. Quick solutionsThere can be a perception of a real-time, on-demand value generation for customers.  It is important to remember that Cloud ERP is only one component of a business solution.
  3. Greater collaboration: Cloud ERP or any technology does not automatically result in greater interconnection between people, departments, and companies.

Be careful of expectations that go far and beyond what the cloud is actually capable of providing.  Customers may want everything automated without having the discipline and effort to utilize technology appropriately.   As the saying goes “You can’t have your cake and eat it too!”

Summary

Cloud ERP is a maturing deployment model that may provide a greater opportunity to capitalize on an ERP investment.  A Cloud ERP model encourages standardization through visible economic drivers and provides the opportunity for greater focus on strategic activities. However, we need to balance our enthusiasm for Cloud ERP with realistic expectations.  There is no such thing as a push button solution. 

SI Partner for PeopleSoft ERP

Blog Sponsor – Cardinal Point Solutions, LLC.

Conducting ERP Assessment to Maximize ERP ROI

Many have come to know that ERP projects never really end.  An ERP implementation is only the beginning of a journey with many twists, turns and – unfortunately – missed opportunities.  The majority of business value ERP can generate happens during the maintenance life-cycle.  Many customers never realize the full potential of ERP due to the maintenance strategy employed.  What can we do to stay the course and ensure that customers can realize the value articulated in the ERP sales cycle?

IT all starts with Governance

An area that gets little attention but has a significant impact on ERP business value generation is ERP governance.  Let’s revisit the inherent advantages and challenges associated with ERP.

ERP Advantages and Challenges

ERP Advantages and Challenges

We must address the above points throughout the entire ERP life-cycle.  Too often I have observed customers applying their existing IT governance policies predicated on developing custom software for ERP packaged software.  This overlooked problem can lead to significant ERP pains and limitations.  Periodically conducting an ERP assessment can help the customer stay on track to maximizing their ERP investment.

Performing an ERP Assessment

An ERP assessment is a set of activities to determine how the organization is utilizing their ERP solution and identify opportunities for generating additional value from the investment.   It is also a chance for the customer’s IT organization to develop an ERP roadmap to align with business objectives.  Following is a brief overview of how to perform an ERP assessment.

Step #1 – Conduct a ERP software assessment

Knowing how the business is using their ERP software provides insight into possible opportunities and risks that should be part of an overall ERP roadmap.  The ERP software checklist should identify all Out-Of-The-Box (OOTB) functionality that is available for use.   I recommend that we complete the checklist by completing the following interviews:

  1. Conduct interview(s) with key IT resources for business.  This will give us the opportunity to pre-populate the checklist before meeting with the key business users.
  2. Conduct interview(s) with key business users (owners).    Highlight differences between IT and the Business so we can realign the understanding.

I also suggest that you highlight opportunities and concerns like the following:

  • What are the Functionality/Business activities performed outside the ERP software?
  • Identify functionality that may be a future requirement.
  • Identify functionality that the Business does not know exists in the ERP software.

Following is an example of an ERP software checklist for a specific module (Asset Management).

ERP Software Feature Assessment

Sample Template – ERP Software Assessment

ERP software is only one component of a business solution.  When we perform an ERP assessment an analysis should also look at the business processes and people who the ERP software supports.

Step #2 – Perform a Business Process assessment

Understanding business maturity provides insight into what ERP OOTB functionality that business should be utilizing.  However, do not get caught up in the trap that technology alone matures a business model.   The business process assessment should identify all business activities. We also need to define a scale or rating to determine the maturity level.  I typically utilize the Capability Maturity Model Integrated (CMMI) to define the level of maturity.

I recommend that we should complete the assessment by completing the following interviews:

  1. Conduct interview(s) with key IT resources (pre-populate) for business.
  2. Conduct interview(s) with key business users (owners).    Highlight differences between IT and the Business so we can realign the understanding.

I also suggest that you highlight opportunities and concerns like the following:

  • Business maturity capability gaps greater than 1.0 level.

Following is an example of a business maturity assessment.

ERP Business Process Maturity Level (CMMI)

Sample Template for ERP Business Process Maturity

Now, we need to focus on the most important part of a business solution – people.  The last step looks at identifying resource capacity supporting your ERP investment.

Step #3 – Conduct a People assessment

If your organization does not have the resources or knowledge to effectively leverage your ERP investment.  The skills checklist should identify all relevant software and process knowledge required to support the business.  We should also identify the required knowledge/skill level required across the business solution.  Complete the assessment by completing the following interviews:

  1. Conduct interview(s) with dedicated Business and IT resources.
  2. Review results with appropriate Business and IT management.  Highlight differences between resource and manager evaluations.

Following is an example of an ERP skills assessment template.

ERP Knowledge Assessment

Sample Template for ERP Skills Assessment

Another strategic area to investigate is demand management.  Reviewing the wants and needs communicated by the business will provide you insight regarding their expectations of ERP software.

Step #4 – Conduct a Helpdesk request assessment

Managing user expectations are constantly challenging.  Technology may not be the answer for every business requirement.  In addition, we need to be practical and understand that users naturally would like to address both their needs and wants for ERP.  Regardless of the tool you use for ERP helpdesk management you need to categorize and analyze ticket volume and underlying drivers.  Consider the following analysis:

ERP Support Assessment

Sample Template for ERP Support Assessment

From this summary we can see that the IT organization spent time an inordinate amount of effort due to no formal training being performed. Regardless of the ERP software capabilities, if users do not have sufficient ERP knowledge then business value is not generated.   If the ERP software is of poor quality then we will see a significant increase in issues.  IT support analysis for ERP software is a key indicator of how well the business is experiencing value from their ERP investment.

Summary

What is the purpose of doing an ERP assessment? At the end of the day the purpose of conducting an ERP health check assessment is to understand how to generate additional Return On Investment (ROI) from ERP.   It is the first step in generating a holistic ERP application strategy.

ERP Roadmap

ERP Application Strategy Process

Conducting an ERP health check can provide us the insight and knowledge we need to made informed decisions regarding governance, opportunities, risks, and investments.

ERP Makes for an Expensive Custom Solution

The Allure of Technology

Think of the possibilities!  Rapid delivery of new functionality!  Reduce development cost by quickly deploying prebuilt solutions!  If the software does not meet your needs then use the delivered, user-friendly development tools to customize the ERP software.  We have the technology to make your business more flexible and adaptable.  Most customers do think about the possibilities quickly but have a hard time taking that vision and incorporating it into the realities that are involved with using ERP.

The Challenge: Customer Expectations Not Aligning with ERP Strengths

A key area that causes conflicts during an ERP implementation is the misalignment between the customer’s expectation of business software and key ERP value drivers.  Consider the following illustration.

ERP Advantages and Challenges

ERP Advantages and Challenges

 

It is important to understand the customer’s business owner/user expectations of enterprise business software. If customers expect ERP to adapt to current business activities then there is an increase risk of developing a custom solution that cannot support the fundamental value drivers for ERP. When an organization makes the decision to implement ERP they are making the decision (consciously or unconsciously) to realign business processes with delivered ERP functionality. This is a significant mind shift for key business owners and end users! It’s not a “light switch” that you can turn on and customers think differently. There must be an evolutionary process to better align customer expectations with ERP strategy and direction. Let me provide a real life example to further elaborate.

The No Win Situation

I was a functional consultant for an ERP implementation to replace a customer’s legacy time reporting system. The customer’s process consisted of Microsoft Excel spreadsheets coupled together with a data load process to a custom staging table for time approval and payroll processing. When I started working with the customer to define their business requirements it was apparent that there was a difference between executive and business stakeholder expectations. The payroll manager insisted on having the exact functionality that they current have in their systems today. I knew that no matter how good our developers were we would not be able to cost-effectively build Microsoft Excel flexibility into the ERP software. It would totally invalidate the justification for going with an ERP software solution in the first place. The payroll manager was used to getting exactly what they wanted from software to the point where software replaced the need for training (ex. dummy-proofing). I did an initial gap analysis and identified over twenty (20) gaps that required changes to the ERP software.  Addressing the gaps via software would require additional resources (costs) to design, develop, test, and implement software changes.  In addition the customer would have to allocate resources to re-analyze their software changes against new ERP software updates.  These activities will reduce the ability of rapid delivery and increase Total Cost of Ownership (TCO).

I came to the realization that if I proceeded with a traditional approach to gathering requirements that (a) I would spend a lot of wasted effort gathering non-value-add business requirements and (b) the fit/gap session would be much longer than planned, (c) and I was in a non-win situation unless I changed the game. If I provided a custom software solution then I would have a happy payroll manager but I would have disappointed executives because the ERP solution increases costs. On the other hand, if I ruled out customizations and only used delivered functionality then I would get happy executives and an upset payroll manager! The only way I could be successful was to move from a traditional requirements and implementation approach to a new approach that addresses the realities of using ERP.

SEI Evolutionary Process Integrating COTS-based Systems

Source: SEI Evolutionary Process for Integrating COTS-based Systems

 

The approach I took was to reset software expectations. I met with the payroll manager to discuss the reasons for selecting ERP software and the inherent advantages and disadvantages with ERP software. This was not a one-time discussion and required several additional discussions with the entire project team. In the end the payroll manager’s expectations were adapted which enabled us to accelerate our fit/gap session. We still identified a few gaps. Of the three gaps we negotiated to have only one addressed via a software change and the other gap was handled via training. Our negotiations resulted in a significant reduction of effort and were only made possible by establishing the right environment for effective negotiating. If either party has unrealistic expectations then effective negotiations will be extremely difficult.

Summary

The fundamental design of ERP is to provide a common software solution across a broad customer base. ERP is maturing to enable more custom capabilities via configuration, but the fact remains that ERP can make for an expensive custom solution. The marketplace has realized that ERP requires a different implementation approach (ex. Software Engineering Institute’s EPIC methodology). Consider the drivers for purchasing an ERP software package. What was the business justification for purchasing packaged software? Remember that ERP targets customers across multiple geographic locations and industries. Two key implied statements that executives make when they select an ERP software solution are (1) having a custom software solution is not strategic to the organization, and (2) we expect our organization to adapt to the ERP software – specifically non-competitive, non-strategic areas. Strong words I know, however, I have seen a lot of grief and anxiety created during packaged implementations because this message was not clearly articulated to the project team and the organization.

The software vendor, implementation partner (consultants) and the customer’s IT department have the opportunity to play an important advisory role to the business user community by defining the best approach to leverage technology in creating a business solution. This advisory role can be a challenge given the high technology expectations of ERP software; however it is in the best interest to our customers!

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