In Part I of this blog series, we looked at ERP ROI; the difficulties in quantifying the returns and the mismatch in value positioning by ERP vendors. In this part II we will look at the determinants of value and how companies should look at their selection basis for ERP systems.
ERP systems have long been known to deliver efficiency improvements across the enterprise, in most, if not all operational areas. The extent to which they are able to do this is measured by a few key determinants:
Operational adherence is the extent to which an ERP system is capable of offering suitable features and functions in order to adhere to a given companies’ operational requirements. This is broadly referred to as ‘functionality’.
Horizontal Operational Integration
Organizational departments often operate as silos. Focused on excellence and efficiency within their narrow scope of functions and control. However, a companies’ overall effectiveness is a measure of delivering operational cycles which span across multiple departments and business units. Often, due to their narrow remit, efficiencies are lost between the integration of these departments. Horizontal operational integration is the extent to which an ERP system is able to seamlessly integrate an operational business cycle across multiple departments, removing the inefficiencies and providing a consistent flow to the business processes.
Vertical Operational Integration
Organizational hierarchies exist in all companies. The division and segregation of duties are necessitated due to the requirement to manage. Manage is a broad term but in essence if you cannot monitor, you cannot control, and if you cannot control you cannot manage. A further leg to this adage is the provision of planning. Vertical operational integration is the extent by which ERP systems provide the control systems, the monitoring systems and planning ability in order for managers to effectively manage.
Security and Governance
An increasing requirement for any business system is the extent to which it is able to provide the adequate security and governance measures to remove business risk. ERP systems do this to varying degrees and the capabilities in this area are an increasing requirement.
Flexibility and Extensibility
Flexibility and extensibility is the extent to which an ERP system is able to provide integration capabilities to non-ERP type systems: flexible ‘fit-for-purpose’ interfaces based on companies’ specific requirements and deployment options for the increasing mobile workforce, the extended supply-chain and customers alike.
Understanding these determinants is key to the selection of an ERP system. It is both a strategic and critical decision in ensuring a companies’ business strategy and goals are realized. Yet, companies tend to initiate their selection process with a laundry-list of departmental features. Whilst this answers the Operational Adherence determinant of value, it does not describe the other crucial determinants. Further, the remaining determinants is where the real value and ROI resides.
In the next part of this blog series, I will be outlining a selection framework that speaks to all the determinants of value and propose how companies should be evaluating and selecting ERP systems.