"If the rate of change outside your organisation is greater than the rate of change inside your organisation, the end is in sight," said US businessman and author Jack Welch.
There is something religious about taking up enterprise resource planning (ERP). It needs faith that the goal will justify the sacrifice and change. In short, it requires enormous discipline. This factor was often lacking when many organisations hired consultants instead of adapting to ERP, dismantled the software and rebuilt it to fit existing business processes.
They were designing doctrines around how they worked rather than working to industry standards, believing they would lose competitive advantage if they conformed to "best practice". Now, with a new breed of software as a service (SaaS)/cloud computing agile ERP solutions about, is it time for change?
With the private and public sectors challenged, respectively, by moderate growth prospects and government reform, and with both under budgetary pressure, business systems must be adaptable. For example, emphasis in the public sector is now on shared services as part of the transformational government agenda.
When different organisations have to share systems, you need a commonality of standard processes but with the ability to support diverse needs. This puts a strain on departments that have implemented a "one size fits all" model, aka SAP/Oracle. Sadly, in the public and private sectors alike, the reality is that many organisations are saddled with monolithic, highly customised systems developed for a different era.
Winds of change
In a recession, businesses change. They consolidate operations and centralise or decentralise functions, and as they do, management's information needs to alter dramatically. Although legacy ERP applications can adjust, they cost enormous sums to maintain, modify and update. Traditional ERP continues to be expensive and risky. Given the state of the economy and the fact that traditional big-bang ERP implementations cost more than some can currently afford, SaaS ERP is gaining ground.
Dreams and reality
So what if you want to swap a lumbering enterprise system for a more agile one? The drivers for changing such monumental structures are complex. In selling alternatives to the board, go back to the rationale used to convince them to "big bang the enterprise" in the first place. From the snake-oil medicine they bought on the golf course to the slick consultant presentations, measure the dream-to-reality difference.
Firstly – and the chances are that it didn't – did the old project ever end? Seeing a major consultant's deployment tool, I was astonished at the "make work" formula deployed against the organisation using the consultant. With big-hitters hammering on the boardroom door, organisations surrendered in the face of the onslaught – particularly in the public sector, where the salesperson would earn more in commission than the client would in a lifetime.
The software supplier and the consultant deliberately created a parasite designed to live off the host. This view is supported by data showing that 85% of respondents agreed that their ERP system was essential to the core of their business, but just 4% said it gave their company competitive differentiation or advantage. Remember, vendors count on inertia.
It's a business problem
Secondly, while trying to sync organisational processes with an ERP application, internal arguments blow up about how best to define something simple, for example a chart of accounts. In trying to define an overall view of assets, liabilities and expenses, you will find each business unit has a different view. Suddenly something simple becomes complex because you have to get powerful people aligned behind one vision. This can quickly build up to a multitude of contentious issues. In short, customise means compromise.
In most cases, industry best practice has already resolved it for you, so the out-of-the-box application that matches the process will probably fit. As a CIO, you have to negotiate between vendors promising that what they are selling will work and your own team saying: "That won't work for us." Your main objective is to limit costs by educating business managers as to why customisation is not the best route in the long run. This is not easy because every company thinks (with little rationale) that its processes and products are so individual that customisation is a must. In truth, off-the-shelf works just as well.
Time for change
Thirdly, in selling an agile alternative to ERP, you have to overcome the notion that you do enterprise systems once, concrete them over and hope you never have to dig them up. This is a difficult mindset to shift because it takes five to seven years for investments in ERP systems to deliver substantial returns. But do you have that time any more? This is the moment to ask the question: what are the alternatives to sticking with Oracle or SAP?
Companies that realign around more flexible service offerings hold a key to future success because they can achieve process efficiencies without having to use one system to control the business. The underlying principle is simple: a smaller, tier-two system is cheaper and faster to deploy than force-feeding tier one ERP software to company units that don't need the headache and can't take the cost.
Barely repeatable processes
In certain non-transactional businesses where each task can lead to many non-standard workflow paths, it is difficult for enterprises to establish a standard view of core business processes. In such cases, ERP - a mantra for efficiency and transformation – is more likely to reflect a centralist desire for control. However, more agile systems, where users can define the rules, are the route to achieving the fine balance between management reporting and operational needs – a system that delivers the data for decisions in which everyone, from the CEO to the area manager, has confidence, and also has the ability to cope with non-standard requirements without bespoke programming.
Flexibility is the difference between agile ERP and its forerunner. Plasticity in workflow, event management, and so on, means that unexpected changes can be accommodated without needing expensive consultants. These are pliable systems open to modification during their lifecycle, rather than those fixed on day one. The market has changed and traditional ERP is facing extinction.
Do it again
An iterative approach to ERP software design, development and implementation is a refreshing change from projects that overrun on time and cost. But there are risks to this approach: organisational risk, where users become frustrated when their system changes because of updates; business risk, such as what happens if there are problems processing payment as a result of going live without ironing out the wrinkles; and change risk, because it is hard to draw a line in the sand when people know a system is easy to change.
But is agile ERP the no-brainer some make it out to be? Aspects to consider when evaluating SaaS options are: Cost – while it is true SaaS is cheaper than tier one ERP systems (SaaS does not require a complex internal infrastructure to support and you pay less up-front than you would with traditional on-premise ERP), the ongoing annual leasing costs may be higher; Flexibility – there is less you can do to change the software to fit your business, but this is a reasonable trade-off for a small business, although larger enterprises may struggle; Ease of implementation – SaaS's selling point is that you can have a system working in a few weeks. The problem is in defining business processes and ensuring people are trained in the new process workflows and transactions.
Benefits and risks of SaaS ERP
- Agility improves with users' ability to reprovision technological infrastructure resources rapidly and inexpensively.
- Cost is claimed to be reduced greatly and capital expenditure is converted to operational expenditure, lowering barriers to entry.
- Device and location independence allows users to access systems using a web browser regardless of their location or device.
- Reliability improves through using multiple redundant sites, which makes cloud computing suitable for business continuity and disaster recovery.
- Maintaining applications is improved as changes reach the client instantly and apps do not have to be installed on individual machines.
- Security is an ongoing concern because the data is not on your premises and if there is any disruption in "supply", there is little your organisation can do about it.
Global Shop Solutions
This was first published in April 2010