10 Signposts on the ERP Journey

ERP vendors are working hard to develop new and enhanced functions for their applications. Far from being superfluous bells and whistles, these new features are intended to provide organizations with an impressive array of new tools that will help them improve their competitive position and strengthen their operating efficiency.

If one assumes the claims for these new functions are true, the question that remains is: will Canadian organizations be ready to take advantage of them? There is evidence to suggest that some won’t be. These organizations have a lot of work to do now — well before the new products reach the market — if they are to be prepared to put them to good use.

As much as senior management may want to believe otherwise, ERP isn’t a “been there, done that” issue. Many organizations haven’t actually “done” much of anything with their ERP investment, opting merely to replicate old processes in order to minimize the disruptions involved in transferring to the new software. And no organization can make the claim that it has “been there”, because ERP is a journey, not a destination. And with the new ERP capabilities now being developed, it appears likely to be a much longer and more interesting one than we ever thought it would be.

To see how far along your organization has come in its ERP journey — and what preparations it might need to make in order to successfully travel the interesting paths that lie ahead — we’ve provided the following 10 “signposts”.

1. External Focus Of The Enterprise

Traditional ERP systems focused on automating and integrating business processes, sharing data and practices, and producing and accessing information in a real-time environment. However, all of those activities have been directed internally, within the organization. Because of that, ERP systems have yet to deliver on their full potential simply because the focus of activity has changed: the greatest value is now external in optimizing the processes between organizations.

The Internet has dramatically changed the relationships between suppliers, customers and employees. Organizations that not only collaborate but also integrate their process with those of their customers or suppliers will obviously deepen their business relationships. After all, it’s harder to change a supplier or customer that is wired into your processes.

ERP vendors are quick to focus on these external relationships. Their new applications will focus on inter- rather than intra-organizational relationships. That’s great, but what’s the point if companies have yet to optimize their internal processes?

2. Front Office Functionality/CRM

No corporate relationship is more critical than the one between the company and its customers. Research has shown that it takes just one-tenth the cost and effort to sell additional products and/or services to an existing customer than it does to win a brand new one.

So why have so few organizations developed a truly customer-centric focus? Simply because it has always been so hard to do, and it is increasingly difficult the more diverse the organization is.

In an increasingly competitive global market, few companies have the resources to devote to cultivating large numbers of new customers at the expense of extending relationships with existing ones. While new technologies can provide tools to facilitate these relationships, they can also challenge them as well. The Internet and the continually expanding range of alternate distribution channels provide customers with a greater access to knowledge and suppliers than ever before — and that is severely testing the loyalty of some existing relationships.

It is, therefore, not surprising that customer relationship management (CRM) has become the latest “buzz” in the market. CRM technologies enable organizations to combine all points of contact with a customer — marketing, sales and service — in one location so that even the most multifaceted and multidimensional organization can satisfy all of a customer’s needs and queries through one point of contact.

A number of CRM products are currently available on the market, and ERP vendors are developing CRM applications, acquiring CRM vendors, or establishing strategic relationships with existing CRM developers that will provide a front-office functionality to their products. However, the real challenge for companies to realize the benefits of CRM isn’t in the technologies. It’s in the process and organizational changes they need to make to eliminate the functional silos that divide the customer experiences within their organizations. That won’t be a simple task; it will take time and involve major change-management issues. However, for those companies that bite the bullet, make the changes and get them right, the paybacks will be enormous.

3. Supply Chain Optimization/E-procurement

Few new features are as likely to be as popular as quickly as this one. Because of their intra-organizational focus, ERP systems to date have had only limited success in reducing production times, inventories or cost of production. However, the Internet is proving to be the important link that helps companies optimize their external relationships with suppliers to better manage their sourcing of goods and services.

The area of maintenance, repairs and operations (MRO) purchases alone typically accounts for more than one-third of indirect goods and services an organization purchases, at an average cost of $115 per transaction. E-procurement offers impressive paybacks by eliminating maverick buying and enabling companies to leverage their relationships with their suppliers.

Ideally, companies will be able to integrate all their suppliers into the production cycle in real time. This is a critical consideration in today’s increasingly competitive business environment. If your organization is linked into your customer’s supply chain and becomes an integral element of it, you’ll have a mutually beneficial relationship that will be difficult for your customer to break.

Today, many companies are in the process of optimizing their supply chains and using e-procurement tools to help them rationalize their suppliers. As this occurs, you cannot afford to be left out of this relationship. An important consideration to begin addressing now is the system and other requirements that your customers may impose on you in order for you to link into their supply chains. If your current ERP environment isn’t compatible with that of your key customers, you’ll have to move fast to adapt.

4. Outsourcing/Application Service Providers

If supply chain optimization and e-procurement look as though they’ll be instantly popular with ERP customers, this is the area that may well be the most exciting for ERP vendors.

The increasing convergence of hardware, software and telecom makes it ever easier for companies to outsource various applications. For large organizations with the volumes to justify it, outsourcing can reduce the total cost of ownership and eliminates the problems of network capacity, hardware obsolescence, the need for additional skills training, etc.

It’s therefore easy to see why ERP vendors find this so appealing. As the service provider for organizations’ traditional ERP functions, vendors will be provided with a service “annuity” that will be far more lucrative than what they can achieve solely through the sales and implementation of their applications.

The question remains, however: is there a market for vendors to tap? So far, there seems to be relatively little demand in the business world for this kind of ERP capability.

5. Customer/Employee Self-service

In today’s fast-growing e-business market place, customer and/or employee self-service is the norm. Companies can reduce costs while increasing service levels and convenience — meeting the growing demand for around the clock access to orders, reports, status and employee data.

Self-service helps companies reduce the high costs associated with data entry and can lead to greater accuracy of information since customers or employees who enter their own data are less likely to make keystroke and other errors. They will also identify and correct any errors that may already exist in their records.

Clearly, adding a self-service capability to ERP systems is appealing, both for the increased capability it will bring to existing functions and the potential it opens up for new ones. However, if companies are to fully realize those benefits, they must begin now to ensure that they have the interconnected databases and other systems necessary to support this service. In particular, they need effective security mechanisms to protect corporate databases from the hackers who inevitably seem to try their luck with most sites.

6. Business Intelligence/External Publishing

Publicly listed companies are well aware of the market place pressures for improved disclosures, both in terms of quality and timeliness of information. As on-line trading grows, and stock markets move to 24-hour trading, these pressures will increase. At the same time, complex businesses with global operations find they need instant access to the operating information required to manage their enterprises.

Out-of-the-box ERP solutions do not come with an elegant reporting solution, but the new applications now being developed by ERP vendors will address this problem.

With this technological enabler soon to be in place, companies should now be taking steps to address the underlying process issues. For example, policies need to be set, or updated, to govern external information reporting. Companies listed on multiple stock exchanges, especially in different countries, will need to consider the different regulatory requirements around information reporting.

It’s important to begin preparing for 24 x 7 reporting now. The market is demanding it so when the technology becomes available to enable it, you’ll be forced to react whether you’re prepared to or not.

7. Browser-Based Web Access

This is another new feature that is bound to be an instant success with many ERP customers. Browser-based Web access will provide companies with infinite, simple and low-cost access to their corporate data from virtually anyplace in the world.

The Internet is quickly becoming the preferred “free” communications vehicle. Web access to ERP will resolve the many problems and costs (e.g. transmission and telecom) that are currently associated with setting up remote access to central ERP systems. If your company is still wrestling with remote access, it’s worth bearing in mind that all ERP vendors have announced their plans for 100 per cent Web-accessible solutions.

8. Workflow Automation

Workflow automation remains a largely untapped feature in most companies. Many simply transferred their existing functions and processes from their old systems to their new ERP solutions.

The biggest ERP operating cost is labour — associated with manual processes, reconciliation, error checking, and internal control. Workflow enhancements that automate approvals, routing and controls will not only reduce overall operating costs, but will also increase operating efficiencies.

But while the benefits to be achieved through automated workflow are real and often significant, the challenges to implementing them can be daunting. Changing processes — including entrenched behaviour patterns commonly defended as “that’s the way we do things around here” — is one of the most difficult undertakings for any organization. Nevertheless, it is a bullet that management and workers will have to bite together. With most ERP vendors either developing full-feature workflow automation or having strategic alliances for it, these changes will need to be made sooner rather than later.

9. Task Orientation

Typically, employees work with many different tools during the day, and the number of those tools will increase as companies become more diverse and sophisticated, and as individual jobs become more multifaceted.

One of the key reasons why many critics believe ERP solutions fail to live up to the expectations companies have for them is because they are process-oriented rather than task-oriented solutions.

Employees don’t like adapting their work habits to accommodate the ERP solution, and as a result their acceptance of it — and, as a result, its use and value — remains low.

This is all bound to change when ERP vendors deliver multi-sourced content and functionality that mirrors the way employees prefer to work. Currently, most vendors are working on “business portals” or extensive personalized configuration tools designed to deliver task orientation. When these tools come to market, they may prove to be the most important enabler for many of the other process-related features described in this article.

10. On-line Retailing/Selling

With the fast-growing world of e-commerce — and, in particular, e-tailing — it comes as little surprise that ERP vendors are also focusing on this area. On-line retailing strengthens supply chain relationships, enables companies to open new distribution channels to reach customers globally, and can help reduce the overall cost of order processing.

However, on-line retailing presents a world of regulatory issues that need to be addressed. Companies that sell on-line are able to complete transactions with customers in virtually every jurisdiction of the world, and that may expose them to a myriad of legal and tax rules to comply with.

Then there are the organizational and technological challenges to on-line retailing. For example, building the infrastructure necessary to support 24 x 7 shopping and customer support is a major undertaking. Even though costs for on-line transactions are less than those for traditional sales, companies’ overall costs will rise since they will need to maintain their traditional formats in addition to their new on-line ones.

Given this, it would seem that having a well-planned and supported e-commerce strategy is an obvious necessity for companies undertaking any kind of on-line retail activity. In fact, however, many companies allow themselves to be caught up in the current enthusiasm for Web-based businesses, often with dire consequences. A Gartner Group survey found that the most common reason why Web-based businesses fail is — you guessed it — the companies’ on-line strategy was simply: go ahead and do it.

Getting ready for ERP’s next wave

Provided that the vendors can deliver on their promises, ERP’s next wave appears likely to present some interesting and exciting new opportunities. However, as with all technologies, these new features are simply enablers. The real benefit will be measured in terms of the process and other preparations companies make in order to take full advantage of the potential offered by their new technologies.

Given that many companies have yet to take full advantage of their current ERP systems, one might doubt the likelihood of them being able to fully seize the advantages of these new features once they come to market. On the other hand, today’s competitive global business environment ensures that where one company may be reluctant to go, another will be more than willing to make that journey.

The question for Canadian businesses is simple. Can they afford not to begin making the changes they need to be able to utilize these technologies, and therefore better ensure their survival in the global business market place?

Lynn Cooke is a senior manager with Deloitte & Touche Management Solutions and is based in Mississauga, Ont.