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ERP Standardization: Hope Becomes Strategy

When I began my career in the ERP world 30+ years ago as an applications engineer, I was consistently baffled by the ubiquitous demand for customization. What was so different, I wondered, about order-to-cash for a company that manufactured watches versus one that manufactured PC sub-assemblies? Why did the watch company think their sales order process was unique? And how did the PC company justify paying a team of Cullinet IDMSR programmers millions of dollars to develop a “better” mouse trap? After all, both companies had foundational processes related to bills of material, planning, purchasing and other business activities. I was always amazed that I could use the same software to provide a specific demonstration and even a proof of concept to different and clients in different businesses. We never modified anything. We demonstrated that we could design, deliver and support systems that met requirements and were ready made to manage a business.

Yet for some reason, when it came to actual implementation, generic processes were regularly modified and engineered to accommodate “unique” business requirements. The attitude of the customer was “I need it to do this because I need it to do this.” And this attitude enabled the systems integration industry to build an empire based on the misplaced desire to overcomplicate, modify and even redefine simple and proven processes. Several hundreds of MRP/MRPII and ERP providers clamored for business; waves of consolidation followed, and ultimately many pioneers and pillars of the solution world folded under the pressure. The consistent theme throughout was the cha-ching sound of cash being sucked into implementation, new technologies and (always) customization. In the process, the idea of building consistent, foundational processes around buying materials, planning capacity, and selling and billing for products has fallen by the wayside.

Or has it?

Welcome, cloud. Hello, everything-as-a-service.

Enterprises assessing new systems, technologies and capabilities are finding a value proposition fundamentally based on standardization, best practices and high-value delivery. I’m seeing a rush to transition away from expensive, outdated, on-premises customized systems, especially when it comes to applications that have well-documented best practices to manage key parts of the business. Specifically, we’re seeing a huge shift to the cloud for specific capabilities like sales force automation and customer relationship management. Customers are still a bit hesitant to adopt the cloud for more traditional manufacturing, distribution and supply chain-type applications that support everyday critical operations, as skepticism persists regarding reliability, security and control. (But, if a company is willing to run the life blood of their company, their customers, prospects and forecasts, as well as their people’s information in the cloud, then managing bills of materials, inventory and schedules in the cloud seems almost mundane.)

Alluring as the cloud’s and the as-a-service model’s benefits are, there’s a catch: most companies have customized systems to the point of no return. While an “all-in” approach is appropriate for many business processes, a wholesale rip-and-replace strategy is potentially catastrophic if something goes wrong. Another challenge is the basic reality that people don’t like change, and whatever the stated benefits of moving to the cloud, resistance in the form of “but this is the way we’ve always done it” is inevitable.

In light of these obstacles, for some, a transition to a cloud-based approach is best undertaken on a step-by-step basis, as part of a broader, long-term sourcing strategy. The strategy should be informed by proven and solid change management, governance and transition processes, effective communication and organizational design structures and a clearly defined vendor management function. Partnering is also essential to successfully executing this level of major surgery. Here, the role of vendors must evolve from that of a customization and maintenance shop to more of a collaborative integrator. SAP, for example, has defined a partnering model for customers seeking to embark on the “journey” from one environment to another.

Given how deeply ingrained and complex today’s existing systems are, that journey will be arduous for many. Those that get the move to a cloud-based architecture right and standardize even a few processes can expect to reap the benefits of streamlined operations, lower initial and ongoing costs, faster time to deployment and greater flexibility.