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 pain can be good for ERP

Instinctively, we all try to avoid or minimize pain.  This is true for individuals as well as business organizations.  However, in our attempts to reduce pain, we too often focus on eliminating the symptoms without addressing the underlying root cause.  We may feel temporary relieve but our short-term decisions only lead us to a point were the pain resurfaces and the available options to address the pain become more limited and costly.   In the next sections, we will discuss how to address business pain by effectively utilizing your existing ERP investment.

Step #1 – Take an appropriate problem solving approach

Following is a standard problem-solving approach as defined in the Project Management Institute’s Body of Knowledge (PMBOK).

Root cause analysis

Root Cause Analysis

Seems easy enough!  The challenge I’ve observed is that many organizations do not execute the problem-solving process effectively.  To compound this challenge many customers believe that having an ERP system somehow accelerates or simplifies the problem-solving process.  Following are some of the common misconceptions that cause ERP customers to miss the mark in solving problems.

Missing the Mark

Missing the Mark

The misperceptions and inappropriate expectations surrounding ERP can cloud your view of the real problem.  However, the greater hindrances to effective problem solving are the views that (a) pain is bad, and (b) quick-fixes are more desirable (demanded) than permanent solutions to business problems. For an ERP perspective, the typical end-result to quick fixes will be more customizations.  Greater customizations result in less flexibility and more costs. If unchecked, your organization can build band aid fixes on top of one another,which may ultimately result in a catastrophic event.  The key to eliminating this quick-fix mentality is to change the perspective of how pain is viewed.

Step #2 – See business pain as an opportunity

My daughter loves to play volleyball.  Recently, she has experienced some pain with her ankles as well as experienced some falls that caused my wife and me to have concerns.  I suspect that I’m a little over-sensitive given that our daughter has Type-1 diabetes.  We took our daughter to see a sports physician specialist to identify the problem.  “Your daughter has a good problem to have.,” said the specialist, “she is still growing!  Your daughter is still figuring out how to coordinate her changing limbs.”  Whew!  What at relief yet what a good life lesson.  Too often, organizations can’t see past the present pain. We focus only on the symptoms (negatives) without looking for the opportunities (positives).

Many times, IT organizations are motivated by addressing problems by taking a “triage” or ‘fire-fighting” mentality.  IT performance metrics can support this mentality if the focus is only on cycle-time and response-time metrics.  Don’t get me wrong, if a production system goes offline unexpectedly, you can bet that a quick response is warranted.  A red flag to look for is when ERP support problems are seen as an inconvenience rather than an opportunity.  This can be especially frustrating to IT when the problem is a recurring issue.  When viewed as a hindrance there is the natural human tendency to deal with the issue as quickly as possible to move on to the next problem. To get out of the above support rut  first we need to eliminate or minimize reoccurring problems through effective problem solving.  Once performed the IT organization can spend the time to evaluate viable options for greater ERP value generation.

Step #3 – Use business pain as a driver to increase ERP value generation

During my career as an ERP consultant, one of the key challenges I faced with every one of my customers was how to drive additional value from their ERP investment.  As I did additional analysis, a common theme across my customers was that they did not realize the rapid deployment of new ERP functionality.  Based upon my experience, I have identified the top three strategies that support long-term, rapid delivery from ERP.

Strategies for Rapid Delivery via ERP

Rapid Deployment Strategies for ERP

As seen from the illustration above the single largest driver for long-term, rapid delivery of addition value from a customer’s ERP investment is frequent upgrades. However, in the effort to address tactical business pain quickly IT organizations built customizations as quick fixes instead of allowing these opportunities to drive the value proposition for an ERP upgrade.  It is important that the internal IT organization resist the temptation for a quick win and illuminate the IT roadmap that will provide the opportunity for greater value from their ERP investment.  In the next section, we will briefly discuss the price to be paid if one uses ERP as a means to a quick fix.

 The price of ERP quick fixes

There is a price associated with every decision made.  In the case of ERP, the short-term gains will eventually result in limiting your ERP strategy.  ERP quick fixes are typically implemented as customizations.  Customizations require a greater level of support from the customer’s IT organization (because ERP vendors do not support customizations).  IT spends more time performing support activities (indirect business value) versus building new enhancements (direct business value).

Second, customizations add to the upgrade effort.  Third – and most important – performing quick fixes send a signal to customers that counters the basic value proposition of ERP (packaged) software.  The price of ERP quick fixes may be small at first but they will have a compounding effect on the Total Cost of Ownership (TCO).

 Summary

Pain is the way our bodies (and organizations) communicate that something is wrong.  It defines the gap between where we are and where we want to be.  Effective root-cause analysis is the first step to correctly diagnoses the pain and identify viable solutions.  ERP can play a positive or sometimes negative role in addressing business pains.  The key to understand how to correctly apply ERP technology to transform business pains into opportunities for greater business value.

Best of Breed vs. Integrated ERP

We have all heard the proverb “A chain is only as strong as its weakest link.”   Applying this concept to business software, we would conclude that a business solution is only as strong as its weakest integration.  Usually overlooked and underestimated, integration is one of the most important factors to consider as part of a best of breed vs. integrated ERP solution.   The benefit of richer functionality is limited by partial integration.   In the next sections, we will discuss all the factors to consider as part of making an informed decision regarding best of breed vs. integrated ERP.

Best of Breed versus Integrated ERP

The typical value proposition for best of breed software is the deeper and industry-specific functionality provided.  This advantage is especially important for generating competitive advantage.   It is vital that an organization’s revenue-generating business processes are competitive.  However, it is not strategic to an organization to be competitive in non revenue-generating business activities.  Consider the following:

Advantages and Disadvantages with Best of Breed vs. Integrated ERP

Advantages and Disadvantages with Best of Breed and Integrated ERP

Allow me to expound on a few key facts expressed above:

  1. Integrating a best of breed application with ERP software will result in additional cost and maintenance (ex. dual upgrade and maintenance cycle).
  2. Developing integration between a best of breed application and ERP software will not be as robust as the delivered ERP integrations between its applications.  Part of result has to do with the total integration cost over the life of ERP and the other area is the simple fact that the underlying data models are different.

The question I challenge my customers with is “Will having a best of breed software versus integrated ERP worth the cost?”  Will the additional investment generate a significant impact to competitive advantage?

Allow me to provide a real life example.  I was working with a large insurance provider with their ERP implementation.  As part of the ERP implementation, the customer was considering a best of breed software package instead of utilizing delivered ERP functionality to support IT project management activities.  Following is the case I presented to advise the customer in making their decision:

Outlining considerations for best of breed and integrated ERP

Building the Case for Best of Breed vs Integrated ERP

Ultimately, the business makes the decision but as business technology advisors (IT, Consultants) it is our responsibility to present all the relevant information in the appropriate content so an informed decision can be made.  There is one area in particular that is generally not fully elaborated – the true cost of integration.

The True Cost of Integration

When we think about integration between two different software packages we usually only focus on transactions.  To continue with the example I provided in the previous section, following is a representation of the required integrations between ERP and the best of breed packaged software.

Integration points for Best of Breed with ERP

Integration points for Best of Breed with ERP

Each packaged software has business rules and control data (ex. Project types) that govern how software functionality supports business activities.  Also, consider that the underlying data models for each packaged software are different.  There must be a process (either manual or automatic) in place to keep the respective business rules and control data in sync.  Business transactions must also be replicated between the ERP and the Best of Breed packaged software.  It is worth considering the amount of data that must be replicated between the two software packages.  I understand that replication sounds much worse than integration; however, when we need to integrate transactions between different data models, replication is typically the approach taken.  Even when an ERP vendor indicates they have delivered integration with a best of breed packaged software we need to ask whether the integration is services-oriented or data-oriented (replicated).

There are also strategic considerations for a customer’s IT organization.  Consider the following sources:

Costs required to integrate a best of breed software with ERP

Total Integration Costs for business software

Making the decision to implement a best of breed approach for supporting business activities will increase the total cost of IT as well as put the underlying technical architecture is not flexible and adaptable to meet emerging requirements.

Does Best of Breed Make Sense?

Let me say this loud and clear “ABSOLUTELY”.  ERP can be a good integrated solution to support revenue-supporting, compliance, and generally accepted best practices.  However, ERP does not support competitive practices (if it did then the business practice would no longer be competitive because it is generally available to everyone).   Generally speaking, a best of breed software vendor may be more open to active collaboration and co-development with customers in developing solutions for emerging requirements – which is the nature of revenue-generating business processes.   Yes, there will be the additional cost and support but the payoff is far more significant in terms of the potential for increased revenue and market share.

Summary

Business processes, not individual business functions, generate business results.  Too often, we only focus on business activities and the specific software functionality that supports these activities without holistically addressing the entire business process.  This limited view typically results in a short-sighted decision resulting in a higher Total Cost of Ownership (TCO) and a less flexible software solution.

Best of breed software may be the best decision for supporting revenue-generating business processes.  There are times were integrated ERP is the right choice given the potential return.  What is most important to consider is which choice will enable the customer to be in the best position to take advantage of future opportunities.

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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