The systems offer a conceptual framework for reengineering business processes to support enterprise goals. They target all or most major business processes, such as manufacturing, human resources, finance, and supply chain management. Large companies throughout the world began installing off-the-shelf ERP systems in the late 1980s and through the 1990s. By early 2010, ERP market penetration rates had settled in the 50-60% range among all enterprises after two decades of steady growth.
Are Your ERP “Best Practices” Your Business Practices?
“Best Practices” are incorporated into most ERP systems; therefore ERP projects almost always entail reengineering legacy business practices. The degree of change required to adhere to the ERP system architecture determines the time, cost, and risk associated with each enterprise implementation effort. Indeed, the alignment of organization strategy, structure, and processes with the chosen ERP application has been a major determinant of ERP success or failure.
Rather than changing the software to match current business practices, vendors and consultants typically discourage enterprises from “over-customizing” their ERP application software. Seasoned ERP veterans warn that modifying the manufacturer's commercial information system brings significant risk to the implementation project. If software customization is necessary, they advise the enterprise to determine whether it can be deferred until after an initial launch of the unmodified software solution. As a result, operations often conform to the software vendor's paradigm.
Indeed, ERP customers who implemented the prescribed “best practices”for ERP enjoyed decreased implementation time and cost. In addition, adopting the ERP vendor's recommended practices reduced implementation risk by 71% when compared to other software implementations, according to Ellen Monk and Brett Wagner in their 2009 book Concepts in Enterprise Resource Planning .
ERP implementation projects typically impose process and data integration across departmental boundaries, yielding substantial benefits for the enterprise. Corporate ERP implementation teams integrate cross-functional business processes and expand the view of information from a departmental, operational perspective to encompass enterprise informational and analytical objectives. As a result, ERP projects often substantially mature enterprise operational and organizational capabilities.
Process standardization, however, forms a more rigid system, and may not afford sufficient flexibility to easily accommodate change. This rigidity could inhibit effective adaptation to dynamic markets and process requirements for mass customization. The systems may serve to inhibit significant response to changing market conditions in order to avoid costly system customization.
As the enterprise reengineers its processes to conform to the system's “best practices”, it is similarly bound to enforce ERP vendor software updates. The update process for highly customized ERP systems requires extra effort. As a result, the system itself may inhibit evolution of the enterprise business strategy over time.
Who Is Running Your Business?
As many enterprises move to the next ERP release, their executives should be asking, “Are ERP 'best practices' adequately serving our enterprise? Is IT aligning with the business or is the business aligning with IT?” In other words, are your enterprise leaders determining how the business should operate, or is it your ERP software company for example, Larry Ellison, Oracle's CEO? The optimal answer balances enterprise agility with the advantages of the standard ERP solution.
Written By: Allyn McGillicuddy, June 2011
Allyn is a Principal with the Office of the CIO Professional Services
- Monk, Ellen and Wagner, Brett, Concepts in Enterprise Resource Planning, 3rd Edition Thompson Learning, Inc., Boston, Massachusetts, 2009