ERP Then and Now - A Manager's Perspective

ERP Then and Now: A Manager’s Perspective

Thursday, February 26, 2015 1

What Defines an ERP?


• Integration

• Parameterisation

• Standardisation (of business process)

Example of Integration


Purchase Requisition

Purchase Order

Goods Receipt

Invoice Receipt

Payment

Basic Purchase Cycle

User Dept

Purchase Dept

Stores Dept

Accounts Dept

Stock Accounting

3 Way Invoice Verification

Accounts Dept

Impact on Accounting

Dis-integrated purchase and accounts processes leading to discrepancies

Non integrated purchase and accounting process

Example of Integration


Purchase Requisition

Purchase Order

Goods Receipt

Invoice Receipt

Payment

Basic Purchase Cycle

User Dept

Purchase Dept

Stores Dept

Accounts Dept

Stock Accounting

3 Way Invoice Verification

Accounts Dept

Impact on Accounting

Integrated purchase and accounting process in SAP

Material document

Accounting document

Integration is not absolute!


Volume of transactions

No Software is 100% integrated and no software is 100% disintegrated. It is only a matter of degree.

Good ERPs typically integrate “core” business processes. Non core processes (the “long tail”) may still be outside the purview of an integrated ERP.

Business Processes

Core Processes under an integrated ERP

Long tail of non core processes

What is “Parameterisation”?


Parameterisation can be compared with the building blocks of “Lego toys”. In a parameterised software, a trained professional can map business processes from various companies and industries by changing the relevant “parameters” and withoutchanging codes.

Example of “Parameterisation”


Schematic Example of “Parameterisation” in SAP. The example shown is only for explaining the concept, it may not be technically accurate.

Movement Type

Valuation Class

Account Dr. Account Cr.

101 3000 1012345 2378908

261 3003 1037823 2984576

These are like “Lego Blocks”, Greek to a normal user, but well known terms to an SAP super user who can use these for “making” processes

Using relevant “Lego blocks” like Movement Type, Valuation Class, etc., a trained SAP Consultant can create an integrated process for any type of movement of any type of material in any type of industry and the corresponding accounting treatment. He/she can do this without having to change any source code.

Configuration vs. Customisation


Configuration of ERP Packages can be done using parameterisation features of the ERP. More parameterised an ERP is, there are higher chances of mapping any business process of an organisation.

Customisation is NOT configuration. Customisation is writing programs to manage business process that cannot be handled through configuration.

Industry Process

Company Process

ERP Process

Why is Customisation not Recommended?


• It takes time and effort, costs money (more than configuration)

• The quality of code may not be as good as product vendor

• Testing may not be as rigorous as the product vendor

• The code may get over written and has to be re-written if the ERP software is upgraded

You may still have to customise the ERP under certain circumstances e.g. if the business requirement is of statutory nature and it cannot be mapped in SAP through configuration

Standardisation of business processes


• When you implement a world class ERP be prepared for the fact that even though ERP will not drive your business, it is going to drive your business processes.

• You cannot implement ERP without changing your business processes.

• Good ERPs will help you to improve your processes because these ERPs have the capability by which such improved business processes can be configured in the ERP software

• After a company implements an ERP it is very common that users start talking in ERP terminology for their normal business processes.

Genesis of ERP


Automation of individual departments created “islands of automation”. Building bridges between the islands was difficult and expensive in pre- SoA era. Business was not realising benefit of automation because of inconsistent and fragmented business information available from different departments.

ERP proposed an integrated system with a central database and unified processes that enable business to get one information from all departments thereby facilitating decision making.

ERP transformed the IT and Consulting Industry


• ERP made IT strategic to organisations

• ERP created the position of CIO

• ERP created a new profession

• ERP became the vehicle of large scale Business Process Re-engineering (BPR) in organisations

Benefits of ERP


• It is hard to measure ROI of ERP in hard numbers• But it is possible to have a qualitative view of the benefits of ERP

Value Addition

Cost Reduction

Business Benefit

Cash Liberation

Real time confirmation of delivery date leading to higher customer satisfaction

Reduction of inventoryAccurate information on product cost leading to possible reduction in cost

Does ERP Reduce or Increase Manpower?


• ERP enables organisations to extract more business information compared to that what is feasible without ERP

• More information requires more input data

• Increase in input data post ERP to meet management expectation on information may increase workload.

Data input effort

Before ERP After ERP

Information output

Additional Information

Output desired by

Management after ERP

Data input effort for same information output prior to ERP

reduces dues to automation

But there is additional data input effort required to meet the expectation for additional

information.Thus total data input effort

might increase

Does ERP Reduce or Increase Manpower?


• ERP redistributes work load between divisions of an organisation• Thus, though total workload may reduce, workload of specific departments may increase• Excess manpower of one department may not be feasible to be deployed in another department• Thus, if an organisation does not have appropriate re-skilling, redeployment or separation plans, it may end up with higher staff post ERP implementation

Workload distribution before ERP

Workload distribution after ERP: Though overall workload of company

may come down, workload on specific departments may increase

Critical Success Factors for Successful ERP Implementation


• Managing Organisational Change

• Making Business Own the Implementation

• Managing Data

• Mobilisation quality internal manpower for implementation

• Managing Scope of Implementation

What kind of Organisational Change does ERP Bring?


• Change in business process (and, business process change is inevitable in ERP implementation)

• Change in organisational roles

• Learning new software (and, learning ERP is not easy!)

• Transparency of information may cause discomfort to many in the organisation

• Information is accessible to all, given the requisite authority (and, statutory authorities have full authority to access such information)

Michael Hammer’s Study on Success of ERP Implementations


Degree of Success

100%0%

No. of Companies

Michael Hammer identified that the single most important reason for the “abnormal” distribution is the inability of organisations to manage change with ERP brings.

Why is there always a “fight” on scope of ERP implementation?


User Defines Requirement Software Programmers Write Code

In Custom Software, there is no or minimal change in process. The users define the requirement and the software programmers make software according to the requirement define. If there is any subsequent change in requirement, it is understood by all.

Why is there always a “fight” on scope of ERP implementation?


User Defines As Is Process

“Process Improvement”

transforms As Is defined by users

In ERP, business process change puts the ownership of the “wire frame” from where the final system will be configured under question. This results in frequent changes in scope during implementation. This leads to delay in implementation too.

Who defines “To Be” ? Users point to Consultants and Consultants point to Users. Some say “Joint Ownership”. But we know that “We” is the most dangerous pronoun!

The final system is configured and customised based on a wire frame whose ownership was never established at the time of its creation. Result – changes to design after configuration, frequent fights over change in scope

Leading ERPs Today


How can I select the right ERP?


• You cannot do it by comparing a laundry list of “features” of various ERPs. Because, except at a high level, where most good ERPs are similar, such “features” can be assessed only after configuring the ERP for your business process.

• And, for configuring an ERP, you have to buy licenses and pay consultants for configuring. Thus you have already sunk a lot of money in “assessing” the right ERP for you. In order to assess multiple ERPs you have to do the same for every ERP you want to assess. Is it a practical proposition?

The only realistic method to assess the right ERP for you is to talk to the “guy next door” i.e. some other similar company who has implemented the ERP.

This is probably one of the reasons for “consolidation” in ERP product space with not many people willing to bet on a new untested ERP vendor.

Is ERP a Software Product?


NO! Even the best of breed ERPs are far from being a software product in its true sense.

Unlike software products like MS Office, Lotus Notes, etc., ERP is not a “productised software” (though there has been attempts to do so) that can be installed and made to support your business processes almost instantaneously (like you install an MS Word and can start using it almost immediately).

ERP is a “parameterised integrated software” which can be made to support your business processes in a standardised form with relative ease of effort, compared to custom software.

Can I Custom Develop an ERP?


You CAN, but it is HARD!

First, it may be hugely expensive to build a real custom developed ERP

Second, it may integrate your business processes but may not meet other qualifying criteria of integrating different types of businesses, parameterisation and standardisation of business processes.

Future of ERP: The Disruptive Forces


Volume of transactions

Business Processes

Core Processes under an integrated ERP

Long tail of non core processes

At the turn of the millennium, with the advent of E-Commerce, leading ERPs tried to expand into the “long tail”, but were mostly unsuccessful.


The “islands of automation” are back, but this time with technology to build comfortable bridges between islands quickly and efficiently.

Where would you like to live? The place to your left or that to your right?

Service Oriented Architecture (SoA) disrupted the ERP Theory of Integration

The Disruptive Forces: SOA


Cloud made software available at low cost, sometimes free. Investments in Software became an Opex expenditure from Capex. Organisations could build software infrastructure “as they grew” and not necessarily upfront.

The Whack from SMAC!

Infrastructure as a Service (IaaS)

Software as a Service (SaaS)

Platform as a Service (PaaS)


ERP will continue to be the primary software for enterprise core processes. Some ERPs are proactively adopting SMAC either organically or inorganically to keep pace with the new age technology. Most ERPs are yet to demonstrate strong success stories, though.

The New ERP: Example SAP