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January 31, 2014 in Business Collaboration, Business Performance Management (BPM), Cloud Computing, Financial Performance Management (FPM) | Tags: Analytics, business process, CFO, ERP, FPM, Infor, Intacct, mobile, Oracle, SAP, social, Workday | by Robert Kugel | 1 comment
In the wake of the past year’s usual crop of failed ERP implementations, I’ve read a couple of blogs that bemoan the fact that ERP systems are not nearly as user-friendly or intuitive as the mobile apps that everyone loves. I’ve complained about this aspect of ERP, and our research confirms that ERP systems are viewed as cumbersome: Just one in five companies (21%) said it is easy to make changes to ERP systems while one-third (33%) said making changes is difficult or very difficult. Yet as with many such technology topics, addressing the difficulty in working with ERP systems is not as straightforward as one might hope. ERP software vendors must make it easier, less expensive and less risky for customers to adapt the systems they buy to their changing business needs. To do this, vendors must design products to be more configurable. The goal should be that organizations can make changes and add new capabilities to their ERP system in far less time than it takes today and without having to engage outside consultants.
That may take some doing. In the current environment, several issues impede users in implementing changes to their ERP systems; some are easy to fix, but others are more intractable. Starting with the easier side, we note that smartphones and tablets have simplified some user interactions with core ERP functions. These mobile technologies enable the use of lightweight applications to automate edge processes that manage, for instance, travel and entertainment expenses, customer service or aspects of workforce management such as scheduling. However, examples don’t point to a future where an ERP system is cobbled together from a constellation of loosely coupled apps. Edge processes are those that can stand alone, have discrete boundaries and interact with a core ERP system by exchanging easily defined data such as amounts, status (for instance, where the individual is in a process) and dimensions (such as time, territory and product family). These applications are relatively easy to construct and use because the heavy lifting has already been done in designing and configuring the ERP system itself.
Trying to equate a smartphone app to a full-fledged ERP system is like comparing a paper airplane or one of those new hobby drones to a jetliner. The former is inexpensive and simple to operate, while by design the latter is not. A jetliner faces the real-world constraint that it must carry hundreds of people safely while handling the stresses of near-sonic flight and withstanding thousands of cycles of substantial pressure and thermal differentials. To be able to do this with utter reliability and safety requires a complex set of redundant systems. This means a passenger jet will never be simple to operate and inexpensive to create. In this analogy, that’s the intractable issue. Yet it’s noteworthy that today’s commercial jetliner is more reliable, easier to operate and less difficult and costly to maintain than the first generation of aircraft that emerged half a century ago. ERP vendors ought to be modernizing their products in a similar fashion.
The primary barrier to making ERP software easy to implement is the inherent complexity of the business processes the systems manage. ERP systems are designed to handle a diverse set of procedures that might span multiple business units in multiple industries in multiple locations and jurisdictions. In a word, its operation is business-critical. But it’s problematic that the final system design is often the result of multiple trade-offs that best reflect the needs of a variety of competing interests and priorities. These options must be considered, and then agreement must be reached on the mass of details that are baked into the final design. In this complicated process, mistakes are not uncommon, especially by inexperienced or incompetent consultants. Even using the best resources, it’s not hard to make mistakes. One of my favorite examples of how the provisioning of an ERP system can go wrong was the inventory management portion of an ERP system at an airline’s maintenance depot. The new system – designed by accountants and auditors – followed a standard, “common sense” process of requiring the defective part to be checked in before a new one could be checked out. However, the system it replaced allowed pilots to radio ahead when some piece of equipment or component failed so that replacement could start as soon as the plane arrived at the gate. From the perspective of a pilot or maintenance personnel, this approach was sensible. But when the airline changed over to the new system with a process designed for inventory control, very expensive aircraft and many grumpy passengers were left waiting at the gate while the old part was shuttled to the inventory cage and the replacement part was found and reissued. The lesson here is that different types of businesses have their own requirements of varying complexity. For ERP, it’s often the little stuff that trips up an implementation. Even within a given type of business, a company’s unique strategies and strengths may lead it to operate in a different manner. So the various competing interests within a company will always need to resolve trade-offs in implementing and operating a system, and ERP systems always will have a high level of complexity.
Still, not all of the complexity of ERP systems is necessary, and dealing with changes and adding new capabilities can be simplified. As the business software market, including ERP, increasingly moves to the cloud, a major challenge facing software vendors is designing their applications for maximum configurability. By this I don’t mean being able to select modules from a menu, but having the ability for only moderately trained line-of-business users to make more granular adjustments to process flow and data structures in a multitenant setting. This lack of flexibility is an important barrier inhibiting adoption of cloud-based ERP. Although user organizations that are better able to adapt to an as-is version of an ERP system are more likely to take the cloud-based option, this covers only some of the potential market. The cloud ERP vendors that offer greater flexibility in allowing individual customers to modify their implementation to suit their specific needs will have a competitive advantage.
An ERP system that can be more easily configured by end users would also confer a competitive advantage for on-premises deployments. Today, almost all ERP software aimed at large organizations, and many implementations designed for midsize companies, either have versions preconfigured for a specific industry (such as aerospace or automotive) or have evolved for use by some specific industry (beverages) or even a subset of an industry (beer distribution). This cuts down on the amount of work – and therefore the cost – required to set up a specific customer’s system.
This “verticalization” is necessary but insufficient. After an ERP system is installed, user organizations need to be able to simplify the process of making modifications. The elements of an ERP system that are inherently more standalone are the easiest to shift to a more self-service model. The hardest part for vendors will be in changing their architecture and design to make it easier (though probably never easy) for organizations to make modifications on their own or with limited assistance from consultants. Until multitenant cloud deployment came along, and with it the need to enable greater flexibility, vendors had little incentive to work on this issue.
The inability to easily make changes to an ERP system inhibits change and innovation in corporations. This is ironic, since one of the factors driving corporations to buy the first ERP systems in the 1990s was their desire to do business process re-engineering, a useful business strategy fad of the time. Today, few companies do anything more than tinker around the edges of their processes unless they are implementing a new ERP system and there is an urgent need to do so and is why it is part of my research agenda for 2014.
Robert Kugel – SVP Research
September 25, 2013 in Business Collaboration, Business Performance Management (BPM), Cloud Computing, Operational Performance Management (OPM), Social Media, Supply Chain Performance Management (SCPM) | Tags: Analytics, CFO, ERP, FPM, Infor, Intacct, mobile, Oracle, SAP, social, Workday | by Robert Kugel | Leave a comment
Enterprise resource planning (ERP) systems emerged in the 1990s. Even though they don’t do much in the way of planning, the systems provide companies a means of centralizing and consolidating transaction data collection (such as purchase orders, inventory movements and depreciation), automating the management of processes, and handling the bookkeeping and financial record keeping for these transactions and related processes. ERP systems are an indispensable piece of IT infrastructure in today’s enterprises. Alas, they also are inherently flawed. But perhaps not for much longer.
ERP systems are about to undergo a considerable transformation, driven by the growing availability of technologies that can address the shortcomings of today’s systems. As I noted in my research agenda on the Office of Finance, the demographic shift taking place in the ranks of senior executives and managers – from the baby-boom generation to those who grew up with computer technology – will drive demand for a new generation of software. Soon, to be competitive, ERP systems will have to deliver a better user experience, greater flexibility and agility, as I have said, as well as mobility and lower cost of ownership.
In many respects, today’s ERP systems are exactly what people don’t want anymore. They are notoriously time-consuming and expensive to set up, maintain and modify. In our ERP research only 21 percent of larger companies said implementing new capabilities in ERP systems is easy or very easy while one-third characterized it as difficult. Because of this, the current generation of ERP software acts a barrier to innovation and improvement.
To be sure, more than any other piece of enterprise software, ERP systems are a challenge because of the complexities of business organizations. This isn’t going to change. I’ve spent decades examining all sorts of businesses from multiple perspectives – from strategic, high-level business models to footnotes in financial statements and the execution of specific manufacturing and financial processes. To the uninitiated, everything about business appears simple until they get into the details. Then, even when you strip out inessential elements, it’s still complicated. As well, in any organization, there are competing requirements and priorities at work when an ERP system is set up. Thus, when a global airline changed its inventory management system, consultants – with the accountants and auditors in mind – designed it to minimize the possibility of shrinkage. The old system allowed pilots to radio ahead to have needed spares on the ramp when they landed. The new system, however, required the defective part (say, a radio or a switch) to be returned before a new one was issued. Consequently, the airline soon found its $150 million aircraft with hundreds of passengers aboard delayed at the gate for an hour or more as $15 replacement parts were laboriously checked in and checked out.
Although some aspects of ERP will always be complex and require experienced assistance to design and maintain, techniques for mass customization can make it easier to implement, maintain and change, thereby eliminating a significant portion of the cost of ownership. To be sure, software companies have tried to minimize deployment costs. For a couple of decades, ERP vendors have offered packages aimed at specific industries such as aerospace and pharmaceuticals. Those addressing midsize companies, which have tighter budgets than large ones, offer out-of-the-box configurations aimed at even more specific types of business, such as steel service centers, manufacturing job shops or brewers. For more generic businesses, today’s cloud-based ERP systems are one solution to the problem of costly updates and reconfiguration. However, this option still may not be attractive if an organization is in a business that has very specific customization requirements that a more generic ERP systems cannot support well (for instance, process-manufacturing industries such as specialty chemicals manufacturing). Another issue that vendors such as Infor and Oracle are addressing is the challenge of updating on-premises systems. Their motivation in making updating as easy and inexpensive as possible is to keep existing customers on maintenance and not lose their annuity revenue stream. In the North American market (and to a lesser degree elsewhere), major upgrade cycles provoke companies to reconsider whether a new system from another vendor would be preferable. Some progress has been made over the years to minimize the difficulty and cost of configuring and updating ERP software, but much more is needed.
A second area of ERP systems that needs attention is the user experience, which is an increasingly important aspect of all business applications. The dull, cluttered and difficult-to-navigate interfaces that have been the norm are the result of inexperience in design and constrained computing resources. The next generation of ERP systems will be designed with decades of experience and far more powerful computing platforms and tools than the current one. In the 1930s, Raymond Loewy and others revolutionized the design of everyday objects, from soda fountains to locomotives and automobiles so that form and function combined to produce a better product. Apple’s success has much to do with brilliant integrations of design and technology. Today, it’s even more important to apply basic concepts of industrial design and ergonomics to creating user interfaces. This goes beyond making old code bases pretty. Largely because of tablets and mobile computing platforms, people now work with multiple types of interfaces and use a wider range of methods and gestures to interact with their devices. Next-generation ERP software must reflect these changes.
It’s also clear that ERP systems will be faster in the future, as technology such as in-memory processing will eliminate nearly all batch routines. Faster and more cycle times promote corporate agility because more frequent cycles become feasible and necessary information is available sooner. As well, another important change that is already under way is the ability to do real-time or near-real-time analytics on data held in an ERP system. This was to some extent feasible nearly 20 years ago with Coda (because it was built on a multidimensional database) and is part of Infor’s and Oracle’s longer-term architectural strategies.
Moreover, business and social collaboration is an important set of capabilities that has been taking hold in business, as our research found. Collaboration ranked second behind analytics as a technology innovation priority. Perhaps because most of the attention on the benefits of collaboration so far has focused on front-office roles, there’s less awareness of its need in back-office and administrative functions, as I’ve pointed out before. Indeed, the same research reveals that those in front-office roles said business and social collaboration is very important to their organization five times more often than those in accounting and finance roles (21% vs. a mere 4%). However, it’s just a matter of time before the finance group understands that social collaboration has substantial potential to improve its performance. Rather than following a general broadcast model, social collaboration in ERP and other finance applications will need to understand that individuals belong to multiple groups. For example, people in a company typically have a general role (“I’m in Finance”) and one or more task-specific ones (“I’m the director of financial planning and analysis”). Some relationships are persistent while others begin and end with a project. Issues that arise may be open to all or confined to specific groups, subsets of groups or a private dialogue. Queries or comments may be general, specific or somewhere in between. Some conversations, especially in finance and tax departments, must be tightly controlled. Software that understands the context of the work performed and automates the process of managing the who, what and when of the communications will support more effective collaboration, faster completion of tasks, greater situational awareness within the organization and as a result better decision-making.
Last, mobile enablement is already an important capability of some ERP systems. However, it’s important that ERP vendors focus on those elements where mobility is important and optimize the user experience for the task and platform. Unlike CRM and sales force automation systems where sales and service must be accessible anytime and anywhere, mobility’s importance in ERP depends on who uses it and why. Certain tasks such as data entry are not well suited to mobile devices, while routine reviews and approvals are. These must be simple to configure and deploy as well as use.
The worst aspect of today’s ERP systems is that they inhibit change in corporations, especially in holding back finance organizations from playing a more effective role in the company. The lack of adaptability in these systems inhibits companies from making necessary changes in processes, stifling innovation. Poor user interface design as well as limited support for social interaction is an ongoing drag on productivity. Antiquated design hampers data availability. Today’s corporations are willing to put up with these issues because everyone is in the same boat. In the decade or so after the great Y2K ERP sales bubble, there hasn’t been much fundamentally new in ERP systems. This period of limited innovation fostered a substantial consolidation of existing vendors. It has justified the consolidation because companies have continued to pay rich annual maintenance fees. However, the surviving on-premises ERP vendors are now confronted by a substantial number of cloud-based challenges. They also understand that they (and their competitors) are now in a position to use technology to create truly differentiated offerings. As such, I expect to see a new wave of product innovation in the coming years that will transform ERP into more flexible and usable software.
Robert Kugel – SVP Research