Legacy ERP and Hybrid ERP

As if CIOs didn’t knew it. ERP and bespoke applications are unblendable. It is trying to dissolve oil in water. It gives you a colloid where customized particles are dispersed through the standard code. It becomes very hard to retrieve these particles if the standard code needs to be changed. Regularly this leads to a destruction of the complete application or delivers another failed IT project.  Gartner posits that by 2016 these customized ERP systems will become so called ‘Legacy ERP’ and will hamper IT departments to innovatively grow or even put a huge burden on their overall existence.

The problem seems to be the lack of flexibility of legacy ERP. The claim is that legacy ERP is not agile enough to meet changing business needs due to the overwhelmed insufficient documented modifications in a customized ERP system. Besides, the costs of legacy ERP are running high. On the issue of the impact of ERP on organizational flexibility is the literature highly divided, as Gartner should know. There is indeed a stream of academic literature comparing ERP systems with liquid (digital) concrete poured into the company. On the other hand, recent research has revealed that the positive or negative impact of ERP systems on organizational flexibility greatly depends to extend of assimilation of the ERP systems.  ERP systems drive organizational innovation to a certain extend which is greatly depended on the use of the ERP system and how use becomes routinized in the processes and projects of an  organization.  This is what is mend by assimilation of ERP systems.

The whole story reminds me of mainframe systems. These ancient IS systems were the first legacy systems and were overtaken by flexible midrange IS systems. Applications move further into PC-based-network point solutions. They called it ‘client-server’ systems and applications. By the 1990s ERP slung the pendulum back to heavily centralized systems not seldom without heavily customized modules and components. In that way ERP systems were transformational in nature and indeed change almost the complete IT landscape. In less than a decade since the 1990s, 76% of manufacturers, 35% of insurance  companies and 60% of the U.S. Fortune 1000 companies have adopted an ERP system. Now tables turning and ERP is framed in the role of a ‘legacy’ mainframe, condemned to focus on a limited job of supporting basic non-innovative business processes.

Not that there is an easy answer to these problems. Gartners mentioned ‘postmodern ERP’ or hybrid ERP indicating a federated, loosely coupled ERP environment with extra functionality sourced as cloud services and business process outsourcing. According to Gartner the Cloud seems to be key for a solution.  A shift is to be made from monolithic ERP to hybrid ERP incorporating differentiating functionalities  based on cloud applications and not on customized ERP. The Cloud is not so much the silver bullet, but it can deal with the insufficiencies of monolithic ERP, which focused all too much on tangible products and asset-centric industries and leaving too much crucial business processes without any (central) IT support . Service-centric organizations such as professional services, universities, government agencies and digital media are not so well served by ERP systems. This is much noticeable in my own organization (university) where an SAP implementation only covers the basic financial and  procurement processes, but the line-of-business processes are supported by very lean cloud applications. The question is now if the cloud will also be transformational in nature. It looks like it does. Cloud applications are real-time in nature due to augmented broadband connections and increased server capacity and performance. And opposed to ERP systems, cloud applications can be purchased from a multitude of software vendors or cloud providers. The own development of cloud applications (e.g. mobile apps) can easily be done, much easier than customizing ERP systems. Cloud application can easily fill the business gaps that ERP systems have left behind and focus more on core business processes.

As for me, I am a bit afraid of the term ‘loosely coupled suites of cloud functionalities’. It is the degree of coupled IT systems that is largely accountable for the organizational flexibility as well as for the strategic alignment of all business processes. Businesses need to function as a holistic system, where all business processes are aligned to the corporate strategy. The danger of dis-alignment between IT and business lurks behind the horizon with loosely coupled systems. We saw this already happened in the past.  But loosely coupled should not be the same as loosely managed. This can be a new challenge for the CIO.

jan devos

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CONFENIS 2012 – Call for participation

call for participation

ERP: An Inconvenient Truth or A Reassured Lie?

Yesterday I reviewed a sparkling paper of academic research to an ERP failure in an SME. The authors used a interpretative narrative to unfold the complete project from its inception phase to the use phase. Believe or not, but the system is in use! The story has become all too familiar: over budget, over time, a lot of flaws and errors in the system, a troubled relationship with the ISV and a lot of painful scars in the own organization. I took the paper to contemplate on what could be an overall understanding of what is exactly the problem with ERP projects in SMEs. Of course one could say that there are abundant factors that lead or instigate a failure, but there is always a tendency to summarize and to be brief, meaningful and still be truthful.

To my believe and understanding the root cause of the failures lays within the relationship with the ISV or consultant and the inappropriate handling of risk. There is risk involved with an ERP implementation. If statistics say that more than 70% of these project either go over budget or go over time, than it should be wise to take that into account. This is an inconvenient truth. The ISV should confront his customer with that risk, instead of trying to hide this figure. But what does the CEO of the SME wants to hear? An inconvenient truth or a reassured lie?  According to D. Kahneman people largely choose for certainty if chances of a lost are high. A reassured lie?

The risk involved with an outsourced ERP project goes over to the consultant or ISV (the agent). This transfer is done in a sphere of mutual trust which is very difficult to manage. I did a rather large research to trust and outsourced IS failures and my findings where that trust is paramount to the avoidance of a failure. Trust is a highly asymmetric construct: it is much easier to lose trust than to build up trust in a relationship. The agent will try to mitigate the risks of the outsourced contract just as the principal did. In his strive to reduce the intrinsic risks of an ERP project, the agent jeopardize  easily the trust within his relation with the principal.

Let’s face it: It is not possible to transfer all risks involved with an ERP project to one party, the consultant or ISV. Why is this not possible? Because the main reason for ERP failures is the lack of commitment of top management. In SMEs this is a non transferable duty of the owner/manager. It make no sense to ignore that fact or to cover it up with formal controls and other governance mechanisms. When the cat’s away the mice will play!

So is it wise to conduct ERP projects in a traditional principal-agent setting? Maybe the key to the solution is a tripartite with a principal (the SME), the agent (the ISV) and the mediator (the project leader). The mediator should be an independent party that acts only in the interests of the project. The three parties should be independent to each other and all should sign a threefold contract. Maybe that could help to distribute the risks of the project and to avoid failure.

jan

ERP Gap Fillers

It looks like many ERP implementations have a lot of holes and do not cover all business processes in an automated way. Indeed, how can one otherwise explain the wide variety of business initiatives and new businesses that offer solutions in supplement to ERP to fill in the gaps?

Yesterday I read a white paper of a medium-sized software vendor offering a solution to automate the processes of accounts receivable (AR) and payable (AP) in organizations that have implemented an ERP system from a major vendor. One could expect that AR and AP are basic business processes that should be incorporated in an ERP system. Nope! There are several reasons why this gap-filling business is booming. Since business growth nowadays is mainly achieved by M&As, large companies are still struggling with implementing one standard ERP-template in all their affiliates. Time is not always on their side. The greatest common divider of their ERP-template is therefore very small leaving a lot of holes that cannot be covered in the system. These organizations do not manage to fully implement an end-to-end solution for their business processes. Processes AR and AP are considered as quite complex and at times very different over geographic locations, so there are left over to the gap-fillers.

Same goes for the accounting and bookkeeping systems in ERP. Nothing is more country specific as a tax system (e.g. VAT system). Several documents and even complete work flows are defined by governments and are sometimes surprisingly well automated by e-government initiatives, but not so well in the major ERP systems. This time it are the ERP-systems that are lagging behind. Again this leaves room for gap fillers. Therefore it is of no surprise that there is still a large number of independent software vendors selling their country specific accounting systems to organizations where large ERP vendors has once promised to cover the complete set of business processes.

Another example where gap fillers see opportunities is in the domain of business intelligence (BI). BI should be the pedal of an ERP system. Was the promise of ERP not to cover all operational processes and bring them onto a tactical level from which they should deliver information to the strategic level of the organization? It is therefore sad to see that precisely for BI there are a lot of separate products, largely based on open software, that must fill in the gaps.

There are in addition some problems related with ERP that gives extra fuel for the gap fillers. A common problem for many ERP implementations is the often poor performance in terms of response times. ERP systems are centralized systems but incorporate a broad spectrum of different software trunks, all having different operational requirements. This constitutes a system with a very heterogeneous nature. For example heavy duty transaction systems like order-entry systems often demand the largest portion of  performance of the system, leaving no room for simultaneous running BI processes. Cloud computing does not always offers a solution here since the variation in demand for immediate performance does not change in a cloud setting. The only solution is therefore sometimes to uncouple the operational data from the centralized system to a separate system. The latter from which BI is operating.

And there is of course the ever present sword of Damocles over the ERP system in the shape of user rejection and resistance to the software. Not all users fully embrace the often complex ERP user interfaces and therefore tend to adopt ‘easier’ solutions.

The discussion inside or outside the ERP is most active in SMEs. Smaller organizations have tighter IT budgets and are therefore sometimes more demanding to ERP systems than large ones and are challenging the selling propositions of ERP vendors. Unfortunately this leads again to lots of IT failures due to unmatched selling promises!

jan

 

After all these years, ERP implementations still fail…

The last three months I spotted five articles in the business press of failed ERP projects. Names of companies, involved project leaders, CEOs, CIOs and lawsuits are all mentioned without camouflage; this might be the top of an iceberg. It is remarkable but all major ERP suppliers and consultants are involved. It is certainly not a one actor concourse. Off course it is very difficult to reveal the exact causes of these failures, since both parties, customer and consultant (or supplier) are making their points of defense or complaint.  But there are some common components involved as we shall see. Let’s first review in short the five cases.

Case One. The plaintiff (customer) complains about the consultant lying about his skills to manage the project. The consultant will continue to defend his work vigorously. (lawsuit claim = $90 million)

Case Two. An ERP supplier cannot deliver on time making the customer to delay its financial filling. The consultant didn’t respond to  the claim. (lawsuit claim unknown)

Case Three. After a formal selection, the customer discovers that the proposed ERP  is dated and that the users find it hard to change to the ‘new’ system. The consultant was taken away from the project. (lawsuit claim = $33 million)

Case Four. A customer decides to halt the roll-out of an ERP due to massive budgetary over spendings. The consultant didn’t respond to  the claim. (lawsuit claim = $2 billion).

Case Five. A customer was proposed a vanilla implementation of an ERP. However the implementation took massive customizations to make a fit with the organizational needs. The consultant will continue to defend his work vigorously. (lawsuit claim = $102,000)

The customer organizations in all of the former cases are in no way small and medium-sized enterprises (SME), but well staffed organizations with IT capabilities, and the consultants and the suppliers tend to have a proven (?) track record. This raise questions on the approach of such projects. Can we still use the well known techniques of project management if it turns out that we constantly ran out of time and budget? Isn’t it time to rethink our current models of governing these large complex organizational and technical projects?  Is ERP really a solution or is it the problem? Maybe we should start all over again with the implementation of information systems and start to make an organizational architecture from which we can derive a workable system instead of doing the opposite. All too often ERP is proposed as a solution to avoid the difficult and often tedious exercise of making an enterprise architecture. In such a context ERP vendors make sometimes expensive promises to bridge fit-gap analyses and bring themselves in defense positions. Indeed, the most compelling factor in all cases is that the plaintiff is the customer.

jan devos

The fall and rise of ERP and the spiders form Mars?

ERP systems are here since more than 20 years now. It all started back in the early 90s when the down-sourcing trend took off and smaller client-server systems became popular. Bespoke software and in house developments, mostly based on older Cobol, PL/I or RPG languages were chiefly outdated and were replaced at fast pace by newer and contemporary ERP systems. We headed to the end of the millennium and the nervousness for a complete system clash due to the date problem rose the temperature and accelerated ERP implementations. Since 2000, sales of ERP systems grow also in Small and Medium-sized Enterprises, although not always with great success. Not that ERP success was only guaranteed for large companies. Horror stories of failed ERP project reached the business and academic literature since the first day. The paper ‘Putting the enterprise into  the enterprise systems’ of Davenport in 1998 set the tone of the most of the preceding ominous reports on ERP systems. ERP on the fall?

According to recent research, ERP systems are still alive and kicking! Investments of the early days has become outdated and require updating. Today computer platforms move to the cloud and this requires a new and fresh look to the IT budget. Compared with 20 years ago, decisions to adopt ERP systems are now more carefully taken, with consideration for business disruptions and impact on customers, staff and (financial) resources.   But there is more. A lot of ERP suppliers didn’t survive the battle and a lot mergers and acquisitions took place and are still taking place. At a certain point Microsoft in her strive to compete with SAP and Oracle for the SME market became owner of more than three ERP systems. A splendid competitive move to conqueror the market but internally a mess. All these software systems in one portfolio needed a cleanup.

Today ERP systems are based on multiple systems that allow flexible integration of a wide variety of business processes. Not so much the big bang conversion, but gradual integration based on SOA and web services. This means that the suppliers also have changed their software license policies. No more rigid prices for a all-in software, but ‘Software as a Service’ (SaaS). Customers are now paying monthly fees which allows a stricter budgetary control.  Not only the software is rented, also the hardware platforms become more and more hosted form external data centers, offering ‘Infrastructure as a Service’ (IaaS) and ‘Platform as a Service’ (Paas). The centralisation of computer infrastructures in data centers allows a better and cheaper 365/24/7 service of the operations, still a burden for most organisations when done on they own premises.  ERP on the rise?

However there are still some problems to be deal with. First, implementations of ERP systems for the most part suffer from cost excesses. For SMEs this starts with an appropriate selection of an industry-specific preconfigured solution. However this requires managerial and technical capabilities who are not always present in the organisation, so the burden of the adverse selection loom largely in SMEs. ERP implementers often lack good skills, even those who have glossy brochures and smashing web sites. This is the second major problem with ERP systems: a real shortage of consultants on the market that can combine good IT skills with a combined understanding of an industry and a particular business in that industry. Spiders from Mars? The universities and colleges offering IS and IT programs should start to rework their current (too) technical oriented curricula to bring in new skill domains such as business process management, project management, (legal) contract management,  enterprise architectures, business modelling and also the so-called ‘soft’ skills like interviewing, presenting, and writing skills. A well-skilled and talented ERP consultant can make the difference of an ERP systems implementation success or failure!

jan devos

COBIT 5 for SMEs?

Previous Tuesday, April 10, 2012 ISACA launched COBIT 5, the newest evolution of her well known framework, that has his roots in Belgium! Yes its true, one of the founding fathers of Cobit, Erik Guldentops, professor at University of Antwerp Management School conceived the concepts of CobiT (Control Objectives for Information and related Technology) from his early experiences as an IT auditor in SWIFT (Brussels) and later on as member of the boards of the IT Governance Institute and the Information Systems Audit and Control Association (ISACA).  Many years from now.

Today I am looking at COBIT 5 and according to ISACA this is the most significant evolution in the framework’s 16-years history. In 2004 and 2005 I was a member of the expert developers group and a reviewer of Cobit 4.0  and at that time the new version was also considered as a mayor update of the model. In IT land we are counting of course in light years so am I willing to believe that COBIT 5 is the next step ahead.

As an IS researcher with a strong focus on small and medium-sized enterprises (SMEs) I am keen on finding new insights, methods and principles to deal with IT in these organizations. I always use Cobit in my courses as a formal method to confront graduate engineering students with the real world of information systems (not computer science) for the most part in SMEs. Cobit offers me a very well synthesized overview of the overall IS function, with links to audit and governance. However, there are some drawbacks when focussing on SMEs. I know that a lot of my colleagues are not convinced that SMEs constitute a different environment when it comes to adopting and using IT, but they are of course wrong. Sure that SMEs are confronted with the same challenges of all other companies like IT alignment, IT failures, third party management, IT assurance, business orientation of IT,  and to some degree even IT Governance. But through my research and experience as an IT practitioner I dear to say that SMEs constitute a different behaviour towards IT adoption and use. SMEs have limited resources and are therefore differently governed as compared to large organisations. Within SMEs, the CEO often assumes the role of owner and manager. Owner/manager needs to allocate the resources and devote significant time and effort to manage the adoption process often in the absence of the necessary ICT managerial and technical capabilities.

So what can COBIT 5 bring us when we look through the lens of an SME?

First of all COBIT 5 adheres to the principle of striving for efficiency in organizations. This is already subject to a large debate in the scholar community. Do information systems attribute to the efficiency (and maybe to a larger scale also to the effectiveness) of organisations?  This is of course an academic question and not so interesting for practitioners. However the principles of efficiency are very well understood in SMEs. In that sense SMEs make no difference with large organisations. So if IT is used in SMEs it will have to contribute to the efficiency of the organisation. COBIT 5 has definitely a value proposition for SMEs.

As expected, the approach of COBIT 5 still reigns in the paradigm of control and the agency setting. The title of the framework emphasizes that view: a Business Framework for the Governance and Management of Enterprise IT. There is, at least in the title, the very promising separation between governance and management. COBIT 5 is based on five key principles and the fifth one is Separating Governance From Management. Try to explain the concept of IT Governance to an SME entrepreneur and you will get nowhere. In most SMEs there is no segregation of management (control) and governance (ownership). Students will accept the separation between governance and management from a theoretical perspective, but both concepts are intertwined in reality even in large organisations. This is where COBIT 5 strongly moves away from the world of SMEs.

I noticed that separation of governance and management was the fifth principle of COBIT 5. The four other principles however are equally valid in SMEs. Principle 1: Meeting Stakeholders Needs. The concept of a stakeholder is universal in information systems and thus also for SMEs. Principle 2: Covering the Enterprise End-to-end. This is something where SMEs can outperform large organisations. The personal commitment of the CEO, working with his own capital, his feel for responsibility and his devotion to make money will keep the focus on the business. The failure to make business processes end-to-end seems to be a characteristic typical for large companies with less personal commitment of the management and where the anxiety of opportunistic behaviour due to agency problems looms largely throughout all business silos. Principle 3: Applying a Single, Integrated Framework. SMEs are overwhelmed by consultants preaching all kinds of methodologies and frameworks borrowed from environments unreceptive to SMEs. We talk about ITIL, Prince2, PMboK, ISOxxxxx, CMMi, … Only one integrated, broad and flexible framework is needed for SMEs, if possible with theoretical foundations grounded in the business soil of SMEs. I strongly believe COBIT 5 does offers that! Principle 4: Enabling a Holistic Approach. Running a business and not focussing on a holistic approach is one of the reasons that our well educated but highly specialized IT engineers tend to forget. This is probably also the motive why the industry is asking for more business skills as compared to computer science skills for their new incoming IT professionals. This holistic principle is gold in SMEs where jobs tend to have a more generalist nature than in large organisations.

According to COBIT 5 information is a key resource for all enterprises and this is probably an understatement. Information has become the input of the production function and SMEs are also recognizing the need to invest in information capital. CEOs of SMEs see that information has the power the transform economic sectors, markets and business models. SMEs often compete in niches and sometimes solely on information thereby helping in breaking existing business models. To be in control is to be in control of the information and not of IT.

The goals cascade of COBIT 5 tend to focus solely on a top down approach, but according to Charles Pertrie (2010) there is plenty of room outside the company. Pertrie is referring to the so-called Emergent Collectives, coming from beneath, without a central control mechanism but offering a lot of scalability and value to the users (customers) while still be more or less durable. Examples are the upcoming open source communities around ERP, CRM and BI competing now with the vested information systems in large enterprises. Other examples are the large number of social media platforms (Facebook, Twitter, FourSquare, …) that enter the organisation through devices not under control of the organisation. The phenomenon of BYOD is the next nightmare for the CIO. These collectives do not behave in nice predictable ways, because they are in no way under control of central governing mechanism.

Anyway, some critical thoughts maybe but I will still keep on using Cobit in my lectures and I will even adapt my slides to the newest version, because I believe there is no framework that encompasses IT, information, and their functions in organisations better than Cobit, even for SMEs!

jan devos

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