What Is ERP?

Question: Suppose your company has Oracle financials, PeopleSoft HR, and SAP SCM. Each of the constituencies sees themselves as the ERP system. Do we have an ERP system?

Answer: Maybe. But probably not. When properly deployed, ERP systems are the enablers of corporate transaction system coherency, and generally speaking, when you have more than one, you don’t have an ERP system. The term ERP was coined originally to describe a new kind of manufacturing system that had material resource planning (MRP), finance, and human resources fully integrated (process and data) on a single database. ERP systems have expanded since then to include advanced planning optimization (APO) and customer relationship management (CRM). We call those systems comprehensive enterprise applications (CEA). The architecture has also evolved to include component based systems (each of which can have its own database) that are message-based integrated. At the same time, the term ERP has fallen into disuse to include any single product from an ERP vendor and even best-of-breed systems that loosely integrate multiple functions from one or more ERP vendors. Here is an ERP checklist:

• Do all functions have access to and use the same data? In real time
• Are the processes fully integrated? (i.e. position based budgeting sees the HR data, CRM sees and posts to live inventory data for orders)
• Can users seamlessly move from one function to another?

If the system fails on any of these three questions, you don’t have ERP. Those companies that have homogenous customers and products can have one ERP system and should strive to get there. Those that must have more than one should seek to have as few as possible.

When ERP systems were introduced, the thought of purchasing a packaged system instead of coding a set of programs particular to a given manufacturing site was a very radical idea. However, a few corporations realized that while their legacy systems were inadequate to keep up with business, many of the major projects to replace them were failing. There had been a whole series of failed IT strategic initiatives that were aimed at building better systems:

1. Structured Systems to fix the bad coding
2. The corporate data model so that data could be integrated across systems
3. The Strategic Plan so that companies could figure out where they should be going with IT
4. Case tools to enable faster analysis and design
5. Client/server technology originally as a way to get new functions online faster

The new ERP systems ended having to build the dreaded corporate data model. They had their own. Further, it was thought that ERP systems would end the project failures (hmmm) while getting the new functionality online faster (hmmm). In other words, ERP started being viewed as a silver bullet. Over time we have learned once again that there is no silver bullet, but we have not learned why ERP is not a silver bullet. The fact is, ERP systems just packaged all the other issues that came before them.

In order to have corporate transaction system coherency everyone in the corporation has to be on the same page:

• The company has to decide to have common business practices
• The company has to decide to have a single data model

In other words, in order to have a full ERP experience, a company still has to address the fundamental reasons it wasn’t successful with the legacy systems. Then it has to purchase a system that supports what they have decided to do and that system must be fully integrated within itself. This means that a company has to purchase a system from exactly one vendor.

Why does an ERP system have to come from exactly one vendor? It is because there is no community of standards that define:

• A complete, unambiguous, common object meta-model. A common object meta-model is necessary as it defines every object, each attribute of every object; each relationship of every object, the object types and subtypes, and the object behaviors.
• A complete process meta-model. A process meta model defines a way to describe how the object events stream completes both short-running and long-running processes.

Instead, some vendors have defined their own models and some still seem clueless. This makes it impossible for parts of processes to fully integrate across systems from multiple vendors.

Is such a strict interpretation of ERP worthwhile? It is for those companies whose business allows them to have a single global instance. Research shows that those companies are seeing a 40 percent reduction in the cost of IT as well as numerous business benefits. However getting to a single instance takes time and a high level of commitment to overcome the obstacles.

What then of the companies whose business does not really allow for a single global instance? These companies are typified by:

• The large conglomerates that have many unrelated businesses under a single corporate parent. The products and customers of these diverse business units are not related in meaningful ways. These companies will likely have systems for the parent and each major business. Even then it makes sense to have a single vendor IF the vendor can cover the functionality needed by each of the divisions. It also makes sense to have a single vendor at corporate.
• The companies in industries where there is no ERP or CEA system that fully meets their needs. These companies will have to use multiple vendors or live with less functionality.

In any case, the less systems and software vendors there are in a landscape the easier it will be to share information and in the end, that is what ERP is all about.