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ERP--More Processing, Less Planning

By: Frank Scavo

Frank Scavo is a principal analyst with Constellation Research (www.constellationrg.com), and a cofounder of Strativa, a California-based management consulting firm providing independent advice for business and technology decisions; fscavo@computereconomics.com.

Saturday, September 01, 2012
 

When I served as a keynote presenter last year at MetalForming magazine’s inaugural Manufacturing ERP Experience conference in Chicago, I discussed current ERP trends and best practices for success. This presented a challenge: I’ve been speaking about ERP for more than 20 years, so I asked myself: “How can I provide a presentation on this subject different than one I would have given 20 years ago?” 

During the keynote, I thought of at least three ways in which ERP software differs today, and one way in which it remains the same. 

ERP as a Platform

Twenty years ago, ERP was viewed, in effect, as the final destination. For example, customer-relationship management (CRM) was not yet popularized (Siebel was founded in 1993). In most companies, business intelligence was limited to report-writing or custom-built data warehouses. Mobility apps and collaboration systems were a long way off in the future. Even e-mail was not well-established in business communications. So, ERP was where most of the action was, especially in the manufacturing sector, where it has its roots. 

 
Frank Scavo provided a keynote presentation at The Manufacturing ERP Experience, held August 23-24, 2011, in Chicago, IL. He’ll provide another keynote presentation at this year’s Manufacturing ERP Experience, slated for October 3-4, 2012, in Cleveland, OH. Learn more and register to attend at www.metalformingmagazine.com/ERP.
Although ERP was a hot topic in the early 1990s, today we understand that ERP really does not do all things equally well. Even the term “Enterprise Resource Planning” (an evolution of the “Material Requirements Planning” and “Manufacturing Resource Planning” systems of the 70s and 80s) is a misnomer. ERP systems are not primarily planning systems; they are transaction-processing systems. Benefits primarily are in standardizing and automating business processes. To perform what-if planning, understand trends hidden in the data, or gain a 360-deg. view of customers, you need to go beyond ERP. 

ERP plays a unique role in a company’s applications portfolio, and forms the foundation for so many other things that organizations want to do. Sure, you can go out and implement CRM as a standalone system, but CRM works better when integrated with ERP for end-to-end business processes. Likewise, some organizations have implemented supply-chain management (SCM) software without ERP, but SCM is much more powerful when it builds upon ERP as the system of record. The same holds true for business-intelligence systems, collaboration systems and mobility apps—all deliver more value when they have ERP as their foundation. 

Today, ERP is critical as the transaction-processing hub of an organization. In many respects, we can think of ERP as the new IT infrastructure—a standard platform for building out the rest of an organization’s enterprise-applications portfolio. 

Recognizing the Risks

The second way in which the business-management landscape has changed is in how organizations perceive the risks of ERP. Everyone has read the horror stories of failed ERP implementations. Names like Hershey, Waste Management and Nike are well-known examples. Often the understanding strikes closer to home: Most business leaders by now have either experienced for themselves, or heard from their peers, what can go wrong with an ERP implementation. 

This was not the case 20 years ago. Executives often believed the hype of software vendors who claimed that implementation could be rapid or painless, or that business leaders could go about their jobs while the vendor or a systems-integration partner, did the heavy lifting. Very few executives believe these myths today.

Acceptance of Key Success Factors

Also true 20 yr. ago: Executives were quick to believe that new software could solve their problems, or that systems could be customized to match how the organization did business in the past. ERP projects often were viewed as computer projects, not business projects.

Today I find that business leaders have a better understanding of best practices for successful ERP implementations. They realize that ERP means changing how the organization does business. They recognize (usually) that top management must be committed; that a successful implementation will require participation by all affected functions; and that it is best to select an ERP system that fits the business out of the box, minimizing as much as possible customizing the software code. 

But Outcomes Have Not Improved

So, if ERP plays a critical role and executives understand the risks and best practices, then organizations must be more successful with ERP today then they were 20 years ago, right?

Sadly, I don’t think this is the case. According to our 2011 survey, 38 percent of ERP projects exceed their budgets for total cost of ownership. Furthermore, as I indicated in my keynote last August, the risks of ERP go beyond cost overruns: ERP is particularly subject to functionality risks (the project was within budget, but the system doesn’t satisfy key requirements), adoption risks (the project was within budget, but the organization is not fully using it), and benefit risks (the project was within budget, but the expected benefits are not realized). 

So, what is the answer? The answer is that business leaders need to be reminded again and again about these lessons learned, and they need to execute on these best practices. So, while I could have given (and did give) much of this presentation 20 years ago, the lessons are still relevant. 

You can view my entire presentation from the 2011 Manufacturing ERP Experience on YouTube. Search for “Trends in Manufacturing ERP and How to Ensure Success.” MF

 

See also: Constellation Research, Inc.

Related Enterprise Zones: Software


Reader Comments

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