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. 

ERP Application Strategy Roadmap for Maximizing Long-Term ROI

You have just implemented your ERP solution – congratulations!  Now what?  Will your ERP experience become an endless cycle of applying maintenance patches and upgrades?  Many customers only realize a fraction of the business value that ERP can provide.  Too often customers rely on their ERP vendor to provide the long-term vision and strategy for increasing ERP ROI – which is general as best. In the next sections, I would like to speak to you about internally creating the vision and strategy for maximizing your ERP investment over the long-term.  It all starts with having an ERP application strategy roadmap.

What is an ERP Application Strategy Roadmap

The ERP application strategy roadmap documents the application strategy that enables the stated business goals, strategies, and processes to be achieved given the IT goals, governance, and capacity.  Generating and maintaining ERP application strategy roadmaps will ensure alignment between business goals, strategies, and performance targets to the required ERP functionality.  In addition, the application strategy roadmap provides the framework for a shared prioritization mechanism for conflicting business and IT priorities. Consider the following illustration:

ERP Application Strategy Roadmap

ERP Application Strategy Roadmap

Practically speaking, there will always be two different  perspectives for ERP strategy and prioritization.  What is important is that your organization has an ongoing process to align business priorities and IT priorities for your business solution.  Having an ERP application strategy roadmap is a deliverable that will support the alignment process.  In the next section, we will address the activities for creating an ERP application strategy roadmap.

Creating an ERP Application Strategy Roadmap

The following illustration outlines the key activities to perform in creating an ERP application strategy roadmap.

ERP Application Strategy Process

ERP Application Strategy Process

For brevity sake, I would like to focus on two key activities that are typically overlooked during the development ERP application strategies:

  1. Step 2 – Inventory Current State Solution
  2. Step 3 – Define Gaps, Duplication, & Inefficiencies

Once your organization defines the business goals and strategies (Step 1), the next analysis is to determine what components are in place to support the business needs.

Mapping ERP Features to Business Objectives, Goals, and Strategies

Mapping ERP Features to Business Objectives, Goals, and Strategies

In the illustration above you see that the business objectives are supported by a series of business strategies that provides the first level of support for meeting the agreed upon objectives.  Business strategies are further elaborated into the individual business processe(s), people, and ERP capabilities that will support the implementation. Performing this experience is important in order to identify the required interdependencies between the components of a business solution.

Once the above analysis is performed, the next step is to conduct an ERP assessment.  The ERP assessment will provide you with the insight needed to understand how your organization utilizes your ERP system. This analysis will enable you identify opportunities to better align with business objectives and goals.   In additional to finding opportunities your organization should identify gaps and duplicate functionality that should be addressed.  Consider the following:

Highlighting ERP System Gaps and Duplicate Functionality

Identifying ERP System Gaps and Duplications

An important exercise that needs to be performed is to map business requirements to the existing ERP solution(s).  The above illustration is an example of mapping business objectives to the individual systems that would said objectives.  This exercise is very useful for identifying gaps and functionality overlap (Step 3).

The Price of Not Having an ERP Application Strategy Roadmap

Performing a current assessment (Step 2) and identifying opportunities and gaps within the current ERP environment (Step 3) is no small feat of effort.  Many times these activities are perceived as “looking back” and generate no real value of moving forward.  I humbly disagree and say that these activities are vital to enabling customers to move forward with a realistic and achievable strategy.  Without an ERP application strategy customers are “blindly following” the ERP vendor’s application strategy – which may not be in the best interest of a single individual customer.

ERP Return On Investment Analysis

ERP Return On Investment Analysis

It is important to realize that your ERP solution will have incremental costs (red arrows) throughout the ERP life-cycle.  Without an ERP application strategy in place, your organization is taking a gamble that business benefits from ERP will continue to outpace the corresponding operational costs.

Summary

Maximizing your ERP investment is a process – not a milestone.   Not only do you need to understand the ERP functionality implemented but also how that functionality supports business results.   To achieve long-lasting value from ERP you need to have a long-term strategy to incrementally generate additional value because you will generate additional incremental cost over the ERP life-cycle.

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.

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