Business Strategy and ERP– Where’s the Fit?
When it comes to business strategy and ERP, where’s the fit for your company?
Many of the manufacturing and distribution teams we speak with start a technology selection project by asking the users what they need in a new system. But is that the most effective place to start? As an ERP consulting firm, we feel quite strongly that there’s a better way
If your team is considering an enterprise technology project, just assessing user requirements alone isn’t a best practice. That approach will miss key requirements needed for the business to succeed with its business plan.
Instead, the company needs to be sure the business strategy and ERP are tightly linked to drive business performance improvement.
Looking Deeper at Business Strategy and ERP
A new ERP system is one of the components of a company’s information technology strategy, and the information technology strategy should support the company’s business strategy. The company business strategy should be one of the inputs to the ERP requirements.
When planning the needs of the future system, the company and the department plans must provide input to the definition of the new system. That’s the first phase of aligning business strategy and ERP.
The business plan can then drive critical requirements for the new system.
At Ultra, we assist the ERP selection team with the development of a Business Goal Driver Framework. This Framework will link critical ERP software requirements to the business goals. The framework has the following linkage:
- Business goals are linked to strategies
- Strategies are linked to processes
- Processes are linked critical software function
The development of this framework depicts how the company business plan is linked to the future ERP system.
An Example of Linking Business Strategy and ERP
Consider the following example:
Business goal – the company has decided it needs to reduce inventory. It has compared its inventory levels to peers and best in class companies. The comparison has shown management that their inventory levels are higher than other companies. Management has set a goal to reduce inventory levels.
Strategy – the company has decided to use a “pull” strategy to reduce inventory levels. During their analysis of peer and “best in class” companies, management has found the use of a “pull” strategy can facilitate the reduction of inventory.
Process – the “pull” strategy will be implemented for the replenishment process of certain components and finished goods. The strategy is linked to the replenishment process. During their review of component and finished goods replenishment they have identified the parts that can fit into a “pull” strategy. They have designed a “pull” process chart and determined the Kanban quantities for the parts.
ERP Software Requirements – In order to implement a “pull” replenishment process, the team has determined the new ERP system must have Kanban capability. This capability needs to include electronic Kanban notification, electronic Kanban visibility, and Kanban quantity calculations.
The ERP team builds a framework that shows the connection of the:
- Goal to Strategy
- Strategy to Process
- Process to ERP Requirement
By analyzing the business goal, and linking it to a business strategy, that links to a business process, and ERP requirement, the team has identified and defined a critical requirement that will be used to evaluate software and head into ERP selection.
This framework communicates to everyone involved in the project the importance of the software requirement. It also establishes a clear objective and ROI for management in the implementation of a new ERP system.
First Steps to Align Business Strategy and ERP
We’ve made the case that a new or upgraded ERP system is one component of a company’s information technology strategy. And for a successful project, the information technology strategy should support the company’s business strategy.
As an example, we’ve spoken with teams who wish to drive the following improvements:
- Increase On-Time Delivery
- Improve Overall Equipment Effectiveness
- Realize Improved Raw Material Yield.
- Standardize Exception Handling Processes Across Manufacturing Operations.
- Enable Continuous Improvement Teams with Analytics and Real Time Visibility.
These drivers were assembled after the company asked for input from the enterprise departmental managers to develop business plans to support the company plan.
This process involved much more than asking users what they wanted out of a new system. This process links the enterprise selection project to overall business strategy.
By making the link between business strategy and ERP, the team has a better chance of selecting the right system that supports the company’s overall priorities.
Business Strategy and ERP: Lessons Learned
One of the most significant lessons learned I’ve seen in the field is that most ERP projects do not link business strategy and ERP.
In some projects I’ve been aware of over the last decade or so, I’ve heard teams say their legacy system is bad, and my response is that it might not be the case. It’s not the solution that’s bad, it’s just likely a bad fit and not the right one to help a company improve their business performance.
Not focusing on the overall business causes that drive issues is a missed opportunity. It’s not enough for an ERP implementation to be an IT project, it must be a business transformation opportunity.
We’ve supported manyERP recovery effort projects, and understand that companies can spend significant resources on enterprise systems, but if the project is not tied to business strategy, those resources are wasted with marginal benefits realized
Without Ultra involved during and after implementation, project teams rarely focus on business improvement. Instead, they focus simply on getting the system “installed and live.” But what follows is a startling realization: the benefits do not come until AFTER going live. Without the transformation (supported by identifying goals, measuring and acting on metrics, mapping the current state against the desired future state), nothing really changed except the technology tool that is being used.
Instead, when an enterprise technology project puts business process improvement as the highest priority, success and reduced time to benefit follows.
The 7 Deadly Sins of ERP Implementation
Some mistakes are just bad strategic or financial decisions. Some are the inevitable consequence of situational or organizational factors. Some, however, are the result of process-oriented or people-centric choices – and are easily avoided. These are The Seven Deadly Sins of ERP Implementation.