ERP Comes of Age: From Differentiator to Essential Building Block
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The document discusses how ERP systems have evolved from differentiators to essential foundational tools, and how businesses need to transform by integrating ERP with external data and sustainability applications to drive innovation. ERP implementation now requires a broader focus on change management, process optimization, and program management skills. Emerging enterprise sustainability management suites integrate ERP with energy, carbon, risk, and customer experience data to generate insights that fuel engineered innovation.
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ERP Comes of Age: From Differentiator to Essential Building Block
- 1. 1© Copyright 2015 ProNexus LLC All Rights Reserved ERP Comes of Age From Differentiator to Essential Building Block What you need to know about what’s coming August 2016 Anthony W. Perrone Vice President, Enterprise Technology Solutions
- 2. 22© Copyright 2015 ProNexus LLC All Rights Reserved ERP to Date Strengths • Common, integrated data • Single version of “truth” • Facilitates Internal Controls • Official Transaction Repository – Detailed History • Can Be Transformative Catalyst for change Challenges • Has become “table stakes” • Focused internally • Implementation may be lengthy and costly • Technical installation vs effective implementation • ERP by itself rarely offers competitive differentiation
- 3. 33© Copyright 2015 ProNexus LLC All Rights Reserved Data, Information and Its Relative Value • Enterprise Sustainability Management • Business Intelligence • Enterprise Resource Planning • Manual Accounting RelativeValue SustainabilityPotential
- 4. 44© Copyright 2015 ProNexus LLC All Rights Reserved ERP: No Longer an “End All” Changes We Already See • Market demanding “cheaper, better, faster.” • Customer experience • Race for “disruption” • Business, socio-economic, and environmental interdependencies • Increased availability / adoption of SaaS • Consumerization of IT • Internet of Things (IoT) Rate of Change Rate of organization’s ability to adapt “Innovation Gap”
- 5. 55© Copyright 2015 ProNexus LLC All Rights Reserved Global Mega-Trends Re-Shaping Business Changes To Come • Acceptance of climate change prompts business risk mitigation • Increased regulatory pressure • Sustainability reporting transparency • Development of 3rd world countries • Aging population and displacement of Baby Boomer Generation • Innovation Engineering - Relentless pursuit of “cheaper, better, faster”
- 6. 66© Copyright 2015 ProNexus LLC All Rights Reserved Business System Maturity Model Chaos Ledgers Notebooks Paper Limited Data, Islands of Information Silos – No Integration Accounting Systems Mainframes and Dumb Workstations, “Time Sharing” More Data, Islands of Information Inter- Departmental Integration MRP & MRP II Mini Computers, PCs, Local Area Networks Closed- Loop Information and Internal Transaction Flow Supply Chain Integration ERP & ERP II Client-Server, LAN/WAN, Internet Integrated Information Flow – Internally and with Trading Partners Transaction Recording and Reporting
- 7. 77© Copyright 2015 ProNexus LLC All Rights Reserved Chaos Ledgers Notebooks Paper Limited Data, Islands of Information Silos – No Integration Accounting Systems Mainframes and Dumb Workstations, “Time Sharing” More Data, Islands of Information Inter- Departmental Integration MRP & MRP II Mini Computers, PCs, Local Area Networks Closed- Loop Information and Internal Transaction Flow Supply Chain Integration ERP & ERP II Client-Server, LAN/WAN, Internet Integrated Information Flow – Internally and with Trading Partners Transaction Recording and Reporting Wisdom & Insight MoreHistorical MorePredictive Business Sustainability MoreLess Business System Maturity Model
- 8. 88© Copyright 2015 ProNexus LLC All Rights Reserved Information: Life-blood of Innovation!
- 9. 99© Copyright 2015 ProNexus LLC All Rights Reserved What Drives Innovation? 61% of CEOs say that innovation is a priority or a primary focus within their business. PwC Survey • 57% - right culture • 44% - strong visionary Leadership • 37% - willingness to challenge norms & take risks • 31% - ability to capture ideas throughout organization • 31% - capacity & capability for creativity KEY: Must generate LOTS of ideas and discern the best Products Market Expansion Channel Partner Relationships Services Production Processes Facilities ImprovementDATAfromIntegrated GlobalSystems
- 10. 1010© Copyright 2015 ProNexus LLC All Rights Reserved New & Maturing Application Suites • 1st Time Gartner Quadrant – 2014 • Traditional Players • Maturing Specialized Players • New Entrants • Scope - Environmental Management - Health Management - Safety Management - Product Safety - Risk Assessment & Analysis Gartner Magic Quadrant – EHS Suites
- 11. 1111© Copyright 2015 ProNexus LLC All Rights Reserved Enterprise Sustainability Management Application Architecture EHS Energy Mgmt Carbon Mgmt ERP PLM Enterprise Risk Mgmt Social Media Data Warehouse Public Domain Data Customer Experience Inference Engine
- 12. 1212© Copyright 2015 ProNexus LLC All Rights Reserved Implementation Implications • Start with desired end state • Engage customers and other external stakeholders • Optimize business processes more broadly • Sufficient focus on Change Management • Technical architecture becomes more strategic decision • Project management PLUS program management • Enables creative design and implementation of market-making business models
- 13. 1313© Copyright 2015 ProNexus LLC All Rights Reserved Summary • Stable ERP an essential, foundational building block • ERP is technology best applied as tool for business transformation • Business transformation requires being mindful of people, process and technology • Organizational change management is critical implementation element • Integration of external data has become increasingly important (e.g. Customer Experience)
- 14. 1414© Copyright 2015 ProNexus LLC All Rights Reserved Summary • Management by information – never more critical • Resulting wisdom & insights fuel engineered innovation • Project management still essential • Program management skills becoming more relevant • Enterprise Sustainability Management – a collection of integrated processes, application systems and management principles to support innovation of emerging business operating models
- 15. 15© Copyright 2015 ProNexus LLC All Rights Reserved Thank You! Anthony W. Perrone Vice President, Enterprise Technology Solutions ProNexus LLC 171 Sully’s Trail Pittsford, NY 14534 aperrone@pronexusllc.com 585.662.2215
Editor's Notes
- Good afternoon. Thank you for joining us to learn all about the “Wonders of Enterprise Resources Planning!” or ERP. Interesting choice of words “Wonder!” Really?! Regardless, I believe we stand today on the cusp of what will be an extended period of intense and rapid change – even transformation – and that ERP will play a foundational role in it. This morning my colleagues will address many the challenges associated with implementing ERP – of which there are many. I have done it myself for over 30 years deploying dozens of software products across many industries. What I’d like to do today is focus instead on the intrinsic VALUE of ERP, and the role it will play in business going forward. That said, the path toward establishing a stable ERP environment that actually realizes the business benefits it promises, is not linear and fraught with peril. So do yourselves a favor, seek the help of an ERP “sherpa” and benefit from their experience. As a wise man once said, “Good judgement comes from experience. Experience comes from bad judgement.” <next slide>
- Let’s talk about some well known characteristics of ERP. Companies spend billions of dollars implementing these systems, so they’re either on to something or they’re all wrong! ERP gives executive management a unified, common view of the information that drives and transacts the business. This integration often enables the simplification of business processes and can drive efficiencies. Before ERP, when there were multiple versions of “the truth,” the conflicting data made it difficult for management to make informed decisions. ERP also facilitates internal controls and provides a rich repository of transactional detail. ERP can be a valuable tool for catalyzing and sustaining transformative change. <next point> There are a number of challenges that come along with ERP that can dilute the business outcomes you expect. For starters, ERP – once considered to be a strategic investment to drive competitive advantage - has been somewhat commoditized – it’s just an expected cost of doing business. You’re actually at a competitive disadvantage if you’re not using one. The projects can be notoriously long and costly – I’m sure many of you have heard the horror stories. Some companies get seduced into short-cutting the process kidding themselves that simply installing new software, converting some data and delivering some training will do the trick. Successful companies understand the difference between a software installation and a business system implementation. The key point I want to drive home here is this: That ERP – BY ITSELF – even when implemented well – will not provide your business with effective competitive differentiation. <next slide>
- I’m sure that many of you have seen charts like this before. The pyramid shows the stratification of data in terms of relative value and its effectiveness at promoting a healthy, sustainable business. <next point> In the beginning was the ledger – the paper ledger. That was it. Handled manually. Nothing operational. Nothing forward thinking. At its worst, you could consider those times as representing chaos – at least from a data availability and accessibility perspective. <next point> Next came the rise of transaction systems, that through incremental improvement and expansion over 15 years, ultimately matured into what we now call ERP. This information was nicely integrated, and operational events were nicely captured by transactions that automagically accurately and completely posted to the General Ledger. Management finally had a reasonable information foundation on which to base decision making. Why then do the CEOs and CFOs of so many companies that are using ERP systems – and some for years – regularly cry out in frustration that they can’t seem to get the information they need to answer the questions they have about the business? <next point> Enter the Business Intelligence value tier. Let’s build a data warehouse! Let’s develop dashboards! Sure, we’ve helped businesses develop these things and with some success – though at typically a significant cost. Do you think that those cries of frustration went away once this tier was in place? Not on your life! So why is that? ERP – and most attempts at developing business intelligence -- is a rear-view mirror look at a business – much of it within the four walls of the company. You know you’re only catching a small subset of available intelligence when all of it can be represented as rows and columns of numbers. See, so much of a company’s data isn’t structured or codified to provide the kinds of insight executives routinely seek. It continuously surprises me that this is the case – but I observe it constantly. And with companies who should, and do, know better. <next point> Businesses need to transcend merely having data, even knowledge - and graduate it somehow into wisdom. That means dealing with both transaction data as well as the unstructured data that resides in product literature, engineering drawing, email, social media, etc. It needs to be made accessible and available for modelling and scenario planning. As data is to knowledge, knowledge is to wisdom. It’s no longer enough simply to know things about your business. Its important to also know what to do. That means factoring in additional inputs, considering the implications of how your business impacts and interacts with the many different stakeholder groups it touches. You need to understand the interrelationships between your company’s actions on those stakeholders and be able to predict how they will behave. You need to be able to anticipate that behavior and place your well-informed, intelligent bets. Businesses need to build bridges from their transactional, historical understanding to a predictive, future perspective and make smarter decisions that will ultimately enable their longer-term profitable sustainability. Wait a minute. Why can’t ERP help me do that? Don’t we already do that to some extent? Perhaps. But not very effectively. It’s not your fault. You simply don’t have the tools. <next>
- The simple fact is that the world has become a crazy place! Admit it – we all feel it! The rate of change in our world has made it virtually impossible for us to keep up! And the entire paradigm that ERP supports simply isn’t equipped to help us anticipate market behaviors or make us as agile as we need to be to keep up with markets that change so quickly they’re a blur! <build the slide out> We’ve grown to be impatient consumers – even in an industrial context. “Cheaper, better faster” is the mantra of the day – second only to “cash is king” Think it plays a major role when customers are trying to make a buy decision? You bet it does! Now it also seems as though competitors are able to gain parity rather quickly on cost, quality and time, and in the process unwittingly accelerate their products into commodities faster than ever before. Once that happens, how does one compete? Hence the growing trend of automating the customer experience! Disruption has become the name of the game. New mousetraps are being invented and launched every day. The world in which we live has become ever smaller, and technology has helped accelerate the rate of change to a fevered pitch, making it nearly impossible for individuals, let alone businesses to keep up! Even the information technology landscape changes very quickly. Over the past few years we have seen mobile computing become the new standard. We observe more and more addressable devices sensing, providing telemetry, gathering the digital fingerprints that belie more and more of our choices – even influencing our behaviors (There’s even a new term for it: The Internet of Things.) CIO’s no longer have dominion over what technologies can be deployed within the companies they support, because technology itself has evolved into a consumer product. More and more organizations are finding that they simply can’t keep up. They simply can’t absorb and adapt to the changes that shape the business fast enough to be effective. This delta increasingly demands that businesses become learning organizations and devise tools and methodologies that will allow them to innovate ways to meet ever-changing demands. Information technology will play an ever increasing role in enabling this. <next slide>
- <build the slide out> Now there are also some other mega trends at play here, many of which CEOs are not yet actively factoring into their business planning. Acceptance of climate change has made its way into board rooms around the world – and has prompted more attention to managing risks. Governmental bodies, to-date more outside the US than here, also have growing concern and are enacting legislation that increases regulatory requirements and drives greater need for reporting to provide auditable transparency. New markets are exploding – most notably in formerly 3rd world countries – increasing market demand by orders of magnitude, and introducing new challenges in marketing, product development, supply chain and logistics. Customers and the work force itself is transforming. Evidence of shifting values abound – prompted by an aging population and the baby boomer generation essentially being displaced. The reality is clear if not simple: businesses need to learn to innovate more quickly in order to overcome these challenges. How does one learn how to innovate? Is it possible to engineer innovation? I posit that it is. It will come from harnessing the tsunami of increasingly available data and synthesizing it effectively into wisdom that will allow us to anticipate, instead of react, to market demands, as well as better manage risks. We used to say that information is power. While that is more true now than ever before, it is only when used in the context of driving innovation that its power will manifest. <next slide>
- Let’s spend a moment reviewing how business systems evolved to this point. It all started with manual, paper based ledgers. <next point> We finally began to figure out that there was a better way, heralded by the dawn of accounting systems, large, cumbersome, used by very few people within a company, and serviced by the emerging “high priests” of technology who kept themselves cloistered in vast, air-conditioned rooms, speaking in strange tongues outside the understanding of mere mortal men. Slowly but surely data began to accumulate, but alas, its use was limited as much of it was stranded on islands throughout the company: puzzle pieces inaccessible to the chosen few who might be able to assemble to piece them together to see the big picture – or at least not without a whole lot of effort. <next point> Fast forward to the introduction of mini computers ,PCs and local area networks. Businesses became able to obliterate silos between departments, and workers began to understand how the tasks they performed fit into the overall flow of their business. Technology became more accessible, as did the information it contained. Finally, the life of a customer order could be traced and managed from taking a quote to making an order, to producing the product, shipping and billing it, and ultimately applying the customer’s payment. Life was good – wasn’t it? <next point> So now we finally had a good grasp on what was happenining within the four walls of our businesses. But so much of our success and even profitability was dependent on our capabilities to effectively do business with our trading partners –our supplier and distribution channels. MRP graduated into ERP and the internet helped more easily connect all the players, opening the door for greater collaboration, further cost savings, cycle time compression and higher margins. <next point> We had finally, as a business culture, figured out how to manage our business, using information to communicate seamlessly across the supply chain value stream. We could transact business in real time, and easily report on anything at all – provided it was related to those business transactions. From where I sit, this is pretty much where the state of business systems is in most companies around the world. For many on this call, getting what you really want as an outcome is going to come not just from ERP, but optimizing the overall solution and institutionalizing the management principles it enables and supports. I don’t say this to disappoint you. Rather, I want to ignite your sense of urgency to get on with it and give it all you have. Why? Because getting your ERP solidly in place is just the first step of what you really need to do! What am I talking about? What about all those dynamics and mega-trends we’re now being forced to confront? Remember what I said about the ever-increasing rate of change? The incessant clamor for cheaper, better, faster? Will ERP address that? Will ERP enable your organization to catalyze, socialize and engineer innovation? <next slide>
- Recall that ERP will help boost your knowledge. You’ll know what’s going on in your business. You’ll have a small horizon forward view into supply and demand. You’ll even be able to do a better job of cash forecasting and managing your inventory. But it won’t get you the Wisdom and Insight you need to effectively compete in the emerging Digital Economy. Integrating across departments (managing the white space in the org chart), even integrating across your supply chain won’t be enough. You’ll need to view your markets differently. You’ll need to understand the stakeholders you impact differently. You’ll need to expand your perspective on who your stakeholders are. And you’ll need to truly think of those inter-relationships on a global scale. You’ll need to embrace new sources of data with which to better understand those stakeholders and the effects of your business decisions on their behaviors. Why? Because ultimately its going to effect your bottom line! Ultimately, by the time you respond to a downward trend, it will be too late to remediate it. You will need to anticipate, innovate and adapt faster than ever before. Essentially, you will transition your attention to managing the future, versus reflecting on the past. And in doing so, and doing so effectively, you will ensure the healthy sustainability of your business. What exactly will all of this integration buy you you won’t get out of your ERP? It will get you incredible volumes of data that will begin to obliterate the boundaries between you and your customers. It will take you beyond your enterprise – your isolated world – and provide you use case data of your product, insight into your customers’ behaviors, information about what happens to your product when it reaches end of life. Imagine if you could go along with your products as they ship – and gain a better understanding of how they’re used. How they’re applied. What seems to work well. And what seems to not work so well. Huge volumes of data now to digest? You bet. But the means to do so now exists. Imagine what insights this new well-spring of data could bring to you and your organization. Imagine the extent it will eliminate the guess work out of your planning. Imagine the impact it could have on new product development. How it might shape your operations – not only your production methods, not only your materials management, but your very facilities, locations, employee and customer experiences. Imagine how it could bring you closer to the communities in which you do business. The key word here is something that has for too long lived largely on the fringe of the business world: IMAGINATION – which directly correlates into INNOVATION! <next slide>
- I’ll wager that the effect this new wealth of data points will have on your business will catalyze innovation no less than did the introduction of electricity 100 years ago! We’re talking about a new paradigm here – where data will drive innovation, and guesswork will cease to drain costly resources. Why is innovation so very critical to businesses’ long term sustainability? <next slide>
- Well for starters, it’s a belief held by most CEOs. According to a recent survey conducted by Big 4 accounting firm Price Waterhouse Coopers, CEO’s hold various opinions on what actually drives innovation – an asset that most organizations find so strangely elusive. <read bullet points> Organizations seeking to transform themselves always need to work on a number of things in order to effectively drive and manage change. Recall that as it relates to ERP, the software alone won’t do it. Without focus on the people and process sides of the effort, the software – the technology – component will fall flat and not achieve the desired results. The same is true of leading your business successfully into the Digital Economy. Interestingly, the CEO’s in the study seem to highlight the “people and process” or soft side capabilities, but actually failed to identify the technology that will help drive this transformation. Perhaps its because most have not yet internalized the reality that solutions – at least partial ones actually exist. Perhaps they are unaware that there are now practical ways in which they may tap into the vast growing ocean of information that is becoming increasingly accessible to them! <next point> Ironically, when we were children, innovation came easily to us. Our imaginations were triggered endlessly by those things we observed and learned. Our educations and social pressures had yet to teach us to edit our ideas before sharing them with others. As we mature in our society we actually learn to become less and less creative and subsequently less and less innovative. If only we could unlearn our tendencies to prematurely squelch our ideas what a different world this would be. The CEOs in the study recognize this, even if articulated in different terms. Think of the possibilities of what could be achieved in your business, if you could figure out a way to ensure that at least a few things in this list could be nurtured in your company. Imagine now, if you could dramatically increase the learnings of your business throughout your company – I’m not talking about the sort of things that are taught in the leading business schools, I’m talking about the learnings that will come from the tidal wave of new data that is becoming more and more accessible every day – the data that will be derived from Integrated Global Systems as we have been discussing. <next point> Certainly ERP suites will remain a foundational component of such an application systems architecture. But other critically important suites of applications are now emerging that will soon join ERP as staples in managing a business. One example is EH&S – or Environmental, Health and Safety suites. <next slide>
- <build the slide out> EH&S suites have been maturing considerably over the past several years, and are increasingly being used by progressive companies in this space. So much so, that IT Research and Analyst firm, Gartner, actually published one of its Magic Quadrants for EH&S suites for the first time in 2014. Historically, Gartner only invests its resources in providing such analysis in areas that have made their way into the business mainstream – or are expected to do so imminently. For those who aren’t familiar with them, EHS suites address some or all of these functional areas – and manage the related information in much the same way that ERP suites manage their own data. Notice that many of these functional areas address the very things I noted as emerging areas of need at the beginning of this presentation. Note that there is a growing number of players in this fast-emerging space. While there are relatively new entrants – an indicator of growing demand, a few, such as Enablon and HIS have been around for years and are among the most mature and robust. Even large, legacy ERP vendors like SAP are positioning themselves to be players in this space. While many have been playing catch up with ERP, entirely new suites of application suites have quietly been making their way into the mainstream. There are other areas, very germane to what we have been discussing, that are quickly maturing and being adopted and applied faster than ERP ever was. What does the emerging applications system architecture look like in the Digital Age? From where will the data necessary to drive innovation and better manage a more sustainable business come? And how will it all hang together? <next slide>
- This rather busy chart represents one way I envision the most forward thinking approaching this. I am basing it more on the current state of the software market and less on an ideal architecture. Right near the center, you see ERP called out. Clearly, any investments you make in ERP should be able to be applied once you shift your sights to this model. The other hexigons represent key application systems or suites that I view as being essential for most companies to provision the kind of information I believe they will need to drive innovation. This framework represents an application systems architecture and suggests a strategic infrastucture will be necessary to make it a reality. Products currently exist for each of the hexagons. In addition to these “feeder” systems, the architecture also taps into social media and the data feeds coming in from IoT devices being used to manage facilities as well as enrich the management of R&D and product lifecycles. Having this data would enrich product lifecycle management, or PLM. Because much of the value of such an architecture will come from a greatly enhanced capability for predictive analytics, systems thinking schematics will need to be thought through and applied to an inference engine to facilitate modelling. It goes without saying that this architecture is what we used to call a “best-of-breed” model. The contrasting approach is a fully integrated, optimized suite satisfying the full scope articulated here. In the current state of affairs such a product does not exist, although it is being hotly pursued by the likes of SAP and Enablon. Implied but not specified in the model is the assumption that all of these tools have a mobile component to them. Mobile computing has become a de facto requirement for most businesses I know. <next slide>
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