IT Should Move Up the ERP Value Chain

A key challenge in my role as an IT ERP Director was to maximize business value with a shrinking budget.  It was quite an education for a person with the majority of his experience in Tier I ERP Consulting.  There are many options competing against IT organizations in providing ERP services (SaaS, Cloud, Off-shore and Near-Shore support models).  Two key battlegrounds are ERP software development for customizations and ERP support.

Show me an IT organization whose key competitive advantage is that they are internal and I will show you a shrinking IT department!  There must be a major shift in IT’s value proposition for ERP support.  In the next sections we will discuss some of the shifts IT ERP shops need to make to stay competitive and relevant.

IT ERP Support Can Be Done Cheaper

For the purpose of this blog discussion let’s broadly assume that there are three tiers of ERP support.

ERP System Support Model

Levels of ERP Support

There has been much discussion regarding outsourcing IT support along with noted advantages and disadvantages.  I will not join the debate on one side or the other but I do consider myself a realist.  Generally speaking, you are looking between 30% to 50% reduction in costs (depending on the study) which just can’t be ignored.  Instead of fighting the change I prefer to control the change in such a manner as to enable my ERP IT support team to generate greater value for our customers. 

Also, consider that there are just some activities you should not outsource.  Referring to above model I have been very cautious with outsourcing Tier I support.  Nothing is more reassuring to a business user with a critical issue than to see their IT support partner face to face and have a real-time discussion.  Cost cannot be the only consideration – just like Dell learned the hard way.    If the activity is not strategic and highly valued by your customer then look for a cheap and competent (not world-class) option that will free your IT resources for greater value-add activities.

Trend:  Competitive Advantage for ERP is Configuration over Customization

With the initial release of ERP, one of the key “game changers” was the ability of business users to access data and generate 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 will be able to perform on-demand configurations to meet business changes real-time.  This would go way beyond simple user preference configurations.  Adaptive ERP would enable business users to configure, simulate, test, and implement business technology changes with limited traditional IT services (ex. software development).    Today, some Tier I ERP vendors provide some limited capabilities of Configurable ERP but these capabilities are spread across multiple software products and OS platforms.  It’s a great topic for discussion (and future blog) but not what I would consider a sustainable, viable solution for today. 

Key Evolutions of ERP

Major ERP Development Milestones

 

Advice for ERP IT Departments – Focus on Moving up the Value Chain

In my previous experience, I had an opportunity to work for a Tier I ERP vendor developing new service offerings and consulting practices.  A key lesson I learned the hard way was when a service offering is facing significant commodity pressures either you can (a) reduce the cost or (b) move up the value chain where you can generate a strategic competitive advantage. 

Service Categories for ERP Support

ERP Service Categories

In order to move up the value chain not only will include training but more importantly a fundamental change in what IT considers their strategic business value. Remember that a key value proposition for ERP is to reduce software development.  Therefore, software development should not be the key IT value proposition for the IT ERP team.  Many perceptions and expectations must be carefully managed through this organizational transition.  The goal is to evolve IT software developers into IT business technology advisors.  One only needs to look at the ERP professional services industry to observe what the market will bear for software development roles versus technology advisory roles to confirm the above recommendation.  With this move, internal IT organizations will be able to support more advisory and consultative roles once reserved for external consulting organizations.  Just think of the potential cost savings and knowledge retention to your business.

Summary

Is this the end for internal IT support for ERP?  Hardly! However, more will be asked of internal ERP support teams with limited resources.  This may result in a more challenging and stressful work environment.  What use to be considered valuable has become generally accepted and expected from business users.   To remain a strategic partner, IT ERP support teams should look for opportunities to free up their staff to focus higher up the value chain.       

Viable – Manageable ERP

Several ERP implementations suffer from what I call a “fast-food” mentality of delivering value.  Customers feel that they need to get functionality that addresses both existing needs but also future needs given long implementation cycles.  Business needs and business wants get blurred together during requirements gathering which make it harder to differentiate and validate.  Finally, more analysis and effort is spent trying to fit one more feature or capability into the ERP implementation versus understanding the support requirements after the implementation.  Typically, the result is a solution that causes more problems than it solves because the ERP solution is not sustainable.  In the next sections, we will discuss some principles to prevent your ERP project from delivering an unmanageable solution.

Set REAL Expectations for Executives (i.e. There is no such thing as a “push button” solution)

How many time(s) have you heard an executive say “All I want is a button to push so I can produce what I need!”  That statement is enough to indicate that there is a huge “expectation gap” and no matter what you do it will be a losing battle.  To establish expectations for success I use the following strategy:

Setting Realistic Expecations

Setting Realistic Expectations

The first and most important step is to establish realistic expectations.  This effort will require educating your executives on the organizational effort, potential business value, and possible risks involved in meeting an executive mandate.  Be prepared to articulate in layman’s terms what is you can do and what should not do with technology.  Second, use the language that every executive knows and understands: money!  Quantifying business value, costs, and risks in an executive business case can quickly align executive wishes with business reality.  Third, come to an agreement on expectations.  This agreement should be formalized via a signed project charter.  Finally, there should be boundaries (limits) on the agreed upon expectations.  These limits should be defined within a scope statement with constraints and assumptions.  Next, we need to further define and refine expectations for key business personnel that will enable you to meet executive expectations. 

Set REAL Expectations for Business Users (i.e. theoretically correct vs. practically accurate)

Today’s ERP software has increased the amount of data that business users can capture.  In addition, naturally business users see this as an opportunity to drive more business value.  However, capturing additional data does not automatically equate to additional business value.  Consider the following illustration:

theoretically correct vs. practically accurate

theoretically correct vs. practically accurate

It is important to challenge the assumption that more data creates greater value and better decisions.  In the illustration above what is the level of precision required to get to the right answer?  In the pursuit of driving better decisions we can easily start down the path of creating a data-gathering monster that cannot realistically be maintained.  The result is bad or missing data and the goal of driving better decisions is unattainable. 

Set REAL Expectations for IT (i.e. developing software is not the most valuable thing IT performs)

I’m sure if you ask a majority of IT personnel how they generate business value that software development is right there at the top. However, this value generator is in conflict with a core ERP value proposition.  Organizations purchase packaged software like ERP to minimize internal software development.    Internal IT organizations that support ERP solutions must change their definition of value generation for their customers.  Consider the following illustration: 

ERP Service Categories for ERP

ERP Service Value Chain

As you can see above the highest level of services that IT organizations can provide are advisory services that assist internal customers in how to best leverage technology.  Another key concept that is a huge mind shift for IT organizations is to utilize ERP as the fundamental driver for generating additional value versus utilizing a traditional requirements-driven approach.  Let’s look at the implications of IT organizations do not adapt to take full advantage of their largest software investment (ERP).

Impacts of an Unmanageable Solution (i.e. we are not getting value from ERP)

I don’t know about you but I’m guessing that you are being asked to do more with less.  I have a very small IT staff that is responsible for both ERP support and ERP-driven enhancements/transformations.  The IT staff spends the majority of their time (up to 70%) on ERP support.  Even though ERP support is at the lower end of the ERP value chain the activty is a very high priority.   However, this leaves us with a small level of capacity to support higher services.  A high maintenance ERP solution limits your ability to generate greater perceived value to business users.  Business users usually do not perceive value from ERP support services unless something goes wrong. 

Summary

As the ERP industry continues to mature we are observing the rise of more functionality and capabilities to capture even more data.  However, nothing is free. Additional functionality and data capture requires additional discipline and support requirements from both IT and Business users.   Please do not take an extreme approach and stifle innovation.  Business is all about take risks.  My point is – take calculated risks.

Customers – Insist on an ERP Knowledge Transfer Plan

What Gets Tracked and Measured Gets Done

How do you measure knowledge transfer?  Customers – have you ever received a report or completed checklist that demonstrated the Implementation Partner conducted knowledge transfer?   Knowledge transfer is a process, not just a milestone task on a project plan.  Consider the following illustration to identify the importance of knowledge transfer.

ERP Business Solution

Business Solution Defined

In a previous article I referred to this view and also identified people as the component with the largest impact to a successful business solution.  A key enabler for people being successful is Implementation Partners conducting effective knowledge transfer.  For many ERP implementations, knowledge transfer is a process that is loosely managed which results in the Implementation Partner providing support long after the go-live date. For an area so important it demands that we formalize this process to ensure completeness.

Best Practice: Knowledge Transfer Plan

Simply put, if you want to ensure that an objective is reached then you need a plan.  A knowledge transfer plan first defines the knowledge transfer process and the methods that will be used to conduct knowledge transfer.    Second, it defines all the customer’s roles & responsibilities that are required to support the entire business solution – both from a functional and technical perspective.  Third, the knowledge transfer plan should act as a checklist for each individual role validating that effective knowledge transfer has taken place.    Following is an example of a knowledge transfer plan.

Knowledge Transfer Process for Consultants

Knowledge Transfer Plan

Effective knowledge transfer is more than just training or having a user sit next to a consultant.  It requires a holistic approach in using several methods (training, mentoring, knowledge generation, and interactions) to be successful.  The end result of knowledge transfer is enabling the customer to support their new business solution.  

Implications for Implementation Partners

Knowledge is power!  Knowledge can be money and a key source of competitive advantage for an Implementation Partner.  For an Implementation Partner a key concern is balancing knowledge transfer to ensure customer success versus providing too much knowledge resulting in the customer terminating services early.  It’s important for customers to keep in mind that knowledge sharing happens more freely in a trusted environment.

There are two broad categories of service that an Implementation Partner can provide: staff leadership and staff augmentation.

Broad categories for ERP implementation services

ERP Implementation Service Spectrum

To achieve greater customer enablement Implementation Partners should play more of a staff leadership role during the implementation.  Customers, there is a price associated with effective knowledge transfer.  Also keep in mind that there are greater resource requirements (i.e. knowledge, experience, advisory) for staff leadership services.  Price should not be the only consideration when comparing staff leadership versus staff augmentation services.

Summary

True enablement is based upon customers selecting consulting firms that act as a true partner and not just staff augmentation.  If customers only require staff augmentation then I suggest customers get it as cheap as possible, yet don’t expect any reliable knowledge transfer to occur. If this is the first ERP implementation for the customer then I would recommend that the customer selects an Implementation Partner that not only assist your project team but more importantly train and enable your project team to be successful on your own.  That is what a true partner would do.  To maximize knowledge transfer the customer needs to foster a trusted work environment.  Customers – it’s in your best interest to take the lead in creating this environment.

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