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Enterprise Resource Planning
The CEO must be the custodian of ERP
Thu, 28 Jul 2011 12:22
By Dr James Robertson
The debate over who should serve as guardian over an organisation's ERP can be settled with one answer - the Chief Executive Officer.
My ERP is not integrated and I do not have an end-to-end view of the business
I regularly encounter executives and managers who complain that their ERP is not properly integrated or that they do not have an end-to-end view of products, costs, inventory, etc.
The implication is that the ERP is defective or that the wrong ERP was purchased. But this is not accurate.
Such problems are indicative of a poorly configured ERP which has not been implemented with end- to-end strategic information objectives in mind.
The most significant reason for this problem is inappropriate governance of the ERP project during the implementation - and the key issue here is that the only person who can provide this governance is the CEO and the CEO is seldom the custodian of the ERP implementation project, or, for that matter, the operation of the ERP.
The worst big brand ERP implementation I ever saw reported to the Legal Affairs executive - they had an amazing contract but the rest of the implementation was a mess and the contract was worthless.
ERP under finance - a historical disservice to business
Historically ERP has mostly resided under finance. The result is that finance irritates other functions by forcing cooperation and, more seriously, the ERP implementation ends up as a finance implementation with the other operational elements tacked on as an afterthought.
The worst example I ever encountered was a big brand ERP with a domineering Chief Financial Officer who forced everything from people, to plant to projects into the General Ledger - and then verbally abused anyone who suggested that the solution was technically fundamentally unsound.
The organisation could not get the plant maintenance module to work because most of the information was in the General Ledger and not in the operational modules of the ERP.
Many organisations resolve this problem by having financial (or commercial) systems reporting in to finance and operational systems reporting into manufacturing, production, mining, etc because they cannot get end-to-end cooperation in the business. These silos feed on themselves creating more and more problems because the two camps cannot collaborate in a constructive manner.
Only the CEO can resolve these problems.
The CEO is the custodian of the integrated view of the business and hence the ERP
Fundamentally the CEO is the custodian of the integrated view of the business. It is one of the principal functions of the CEO - to get all the divisions and functions of the business to pull together coherently.
Inherently, therefore, only the CEO can be the custodian of the ERP, or the data warehouse and business intelligence systems.
There is no practical alternative.
I have repeatedly seen sub-optimal ERP implementations (and I have seen dozens) where the lack of CEO custody is a significant and frequently dominant factor in an unsatisfactory situation.
Frequently the viability of the business is placed at risk.
Only the CEO has the authority to get all functions and divisions to collaborate as peers without bias and domination
Getting an ERP properly configured and operating effectively requires that all business units and functions operate collaboratively in the best interests of the collective whole that is the entire enterprise.
This requires that all disparate business elements work together collectively and harmoniously for the good of the whole.
This requires trade-off, strong leadership and guidance.
Firm discipline may be required if one or more business units fail to contribute and collaborate as peers.
Only the CEO has the authority and mandate to demand such collaboration and make it happen.
Where the CEO abdicates, massive system problems will follow which are frequently taken to be technology problems.
But the CEO does not have the time / knowledge / to manage the ERP- not so!
I have been told by more than one client that the CEO does not have the time or the knowledge or the interest or the ¡K to manage ERP.
Well, if the CEO does not know how the business should operate as an integrated whole then the business has greater problems than the ERP. If the CEO does know how the business should operate as an integrated whole then the CEO does know how the ERP should work.
A fundamental principle of an excellent ERP implementation is that the ERP implementation should accurately model the REAL WORLD characteristics of the business. Any executive or business user should be able to look at the configuration of the ERP and say "yes, that IS my business".
If you cannot say that about your ERP it is because it is badly implemented.
When an executive says to me "Dr Robertson, I do not understand IT" experience has shown me that this translates to "I have seen the jumbled mess in my ERP and I cannot comprehend how that can do all the things the consultants say it can do, so, obviously, I do not understand IT"
NOT SO! The correct translation is "the consultants clearly do not understand my business and the way they have implemented this system bears absolutely no correlation with my strategic understanding of the business and this is a multi-million Rand mess" - the problem is NEVER your big brand ERP, it is how it was implemented and the almost universal lack of precision engineered strategic configuration in the form that I regard as essential and non-negotiable.
If the CEO does not have time to take custody of the ERP then, in the world of 2011, you should probably start looking urgently for a buyer for your corporation whose CEO does have the time. The future of business today will increasingly be determined by the ability of executives to take high value strategic decisions that lead to growth - while those that cannot do this will be taken over by those that can. Otherwise it may be more cost effective to replace the CEO than it will be to replace the ERP!
I am NOT advocating that the CEO spends a lot of time managing the ERP, but I AM advocating that the CEO gives high level guidance and takes custody - once effective governance is in place this should require at most a couple of hours a week.
If strategic decision support, that relies on information in your ERP, is necessary for your business to thrive - then it must be managed by a person reporting to the CEO
If you want to manage your business at a strategic level from information in your ERP then it is essential that the person who manages the ERP reports directly to the CEO.
Depending on the size of your organisation this is NOT necessarily an executive but should at least be a senior manager and they should at least be present at EXCO when system related matters and matters that impact systems are discussed -which is probably all the time
This person should NOT be a technology person but a business person.
If necessary appoint an executive level strategic advisor to assist with bridging the technology to business gap - someone who can operate at a peer level with the CEO and who understands both business AND ERP.
Strategic decision support NOT process is the essence of the investment case for ERP and resides with the CEO
The general view of ERP is process, but process is operational and at the bottom of the organisational pyramid.
There is no such thing as "the strategic process". If there were it would look like: take decision Identify need for decision, convene EXCO,present information, deliberate.
Reference to "strategic process" is one of the absurd jargonistic sayings that characterise the mystical mumbo-jumbo of the management consulting and IT / ERP fraternity and clouds the issues. The real issue is to supply the right information to the right people at the right time and in the right form in order to make the RIGHT DECISION.
In the absence of the "right decisions" the business will eventually go out of business - highly optimised business processes will simply help it to go out of business faster!
With consistent "right decisions" the business will thrive and optimized business processes will assist with this.
Professor Malcolm MacDonald defines strategy as "doing the right things" and, since the CEO is the custodian of the right (strategic) things the CEO must be the custodian of the systems that supply strategic information to support strategic, high value, decisions.
Overall governance of the ERP rests with the EXCO - precision configuration starts with the EXCO and so executives must understand the essence of the business and own the BUSINESS outcome.
From the above it will be apparent that overall governance of the ERP flows from the CEO to the EXCO and then to the rest of the business.
Accordingly precision configuration starts with the CEO and EXCO and therefore executives must understand the essence of the ERP and own the business outcome of the use of the ERP.
By way of example, I am currently busy with a series of workshops with the EXCO of a mid-size South African company to develop the high level structure of all major taxonomies in their ERP system in order to ensure that the configuration of the ERP reflects their strategic view of the business.
This is the only way that we will ensure that the default view of the information in the ERP reflects the strategic executive view of the business and its long term priorities.
Only 15% of executive decisions are based on hard information, but without that information they are flying blind - strategic decision support should be the primary consideration in ERP implementation
But, I hear you cry, "executives only base strategic decisions 15% on hard information"- that is true, BUT, if they do not have that information they are flying blind on gut feel or by the seat of their pants.
That hard information is critical BUT it must be packaged in a way that accurately reflects the essence of the business and how it thrives (the strategy of the business). That is why the CEO - and through the CEO the EXCO, must be the custodians of the ERP.
Precision strategic taxonomies can be retrofitted to an operational ERP implementation through a data warehouse
I have written previously about the importance of precision engineered strategic taxonomies and configuration in ERPs.
Problem is that the cost of completely re-implementing an ERP in order to introduce rigorous precision configuration is more than most organisations can justify spending, particularly considering that at an operational and process level the ERP is probably working quite well - so we find ourselves faced with having to spend 80% of the budget re-implementing the stuff that is working in order to fix the 20% of the stuff that is causing 80% of the strategic pain.
There is, however, an alternative ¡V leave the ERP implementation largely unchanged, develop precision engineered strategic taxonomies for all the tables in the ERP. Then map the old codes onto the new codes and transform the data in the load component of the extract, transform, load (ETL) portion of a new data warehouse and then build high value reports, graphs and models in the business intelligence environment.
This will require some changes to the configuration of the ERP but they will be incremental - provided they are carefully planned by someone with strategic insight into what is REALLY important.
Over time the high quality taxonomies and other configuration elements can be dropped into the ERP in small controlled deployments. As such unexpected impacts can be carefully trapped and managed until after a year or two a reasonably high quality precision configuration has been achieved in the existing ERP.
This represents a major opportunity for many businesses with established investments in ERP today.
The metaphor is one of taking a badly maintained and operated factory and systematically refurbishing it, one part at a time, until after a couple of years the whole factory has been refurbished.
CEO custody is critical to successful long term high value ERP operation
As with all the other components identified above, CEO custody and direction is vital to achieving a high value integrated business outcome cost effectively and sustainably.
Where necessary the CEO should seek to secure high level strategic advisory services at an appropriate scale to support them in taking on this responsibility.
For more information contact Dr Robertson at JamesRobertson@JamesARobertson.com