Misplaced Dependence on Enterprise Resource Planning

Another system-induced gap can be caused by the reliance some organisations have placed on their ERP systems to implement strategy. At first glance, such reliance seems logical. Before ERP, the processes that made up the supply chain - order entry, inventory management, billing, accounts receivable and others - were separate functions supported by multiple stand-alone systems, often running on multiple technologies. Each part of the process could be owned by a different department or operating unit.

The problems these systems generated are similar to those encountered with today's planning, budgeting and reporting systems:

Expensive in terms of both time (maintenance) and money (hardware and software, personnel). Software had to be maintained on individual desktops. Information technology staff had to learn multiple technologies. If the system had been created inhouse by a person who then left the company, the organisation had a big problem.

Data integrity and version control issues. Changes in one system were not automatically reflected in other systems, data often had to be rekeyed and data were shared by transferring files. Many departments multiplied by many files equalled trouble. Organisations could never be certain that the information they were basing decisions on was accurate and up to date.

Organisations could not easily see what was happening across the enterprise, making it difficult to implement corporate strategy, measure its success and make informed decisions.

Enterprise resource planning was hailed as the solution because it integrated the supply chain processes and supporting systems. The ERP systems increased the efficiency and speed of these operations.

Because ERP systems appear to hold most of the actual data in a centralised database, companies today are looking to these systems to solve their planning, budgeting and reporting problems. Many organisations are also trying to leverage their huge investments in ERP implementations to get a return.

Given that many ERP vendors are now offering "integrated" planning, budgeting and reporting applications on top of ERP, this initially seems an attractive solution. The problem, however, is that ERP is the wrong vehicle for implementing strategic plans just as a farm tractor is the wrong vehicle for taking a family on vacation.

Gartner reports that "[al]lthough ERP systems have largely addressed the needs of transactional users, they have not been able to address the needs of strategic and operational users".

The main reasons given are the complexity of these systems for users and their closed architectures, which make it difficult to integrate non-ERP data. All enterprise resource planning systems are focused on transactions, not on strategy. This very issue is the reason why today's traditional planning, budgeting, forecasting and reporting systems fail.

Implementing a strategic plan requires the dissemination of goals, objectives, strategies and tactics. Planners must be able to evaluate the impact of economic drivers, forecast trends and predict the impact of competitors. Senior management needs the ability to analyse alternative operating structures, investments and divestments.

Enterprise resource planning was not designed to deliver these capabilities. It is focused on operational efficiency. Implementing strategy is about management effectiveness. The two are different and require different tools and processes.