Shifting from ERP to Enterprise Architecture
The center of the IT universe is shifting from ERP to
Enterprise Architecture. Enterprises would need to redirect
investments in Applications, Middleware and Infrastructure that
enable business transformation at a lower total cost of ownership,
says Teck Wee Lim.
Twenty years ago, the promise of ERP was to enable companies to standardize their business processes based on aggregating multiple disconnected enterprise applications into one system. This is 2010. ERP has served its purpose. Companies now realize that ERP only took them so far, and that they need to shift their investments to differentiation and user productivity. The ERP era as a primary use of IT funds is coming to an end.
When talking to IT executives throughout the industry over the last few months, we realized that, despite making significant investments in ERP, many companies are still facing considerable challenges to drive competitive differentiation in the marketplace.
Among the main challenges that we hear from industry executives are that companies spend approximately 80% of their IT budgets just to keep the lights on. This is a stranglehold for the CIO. It does not give the CIO enough flexibility to make strategic investments targeted at achieving business differentiation. Companies need to reduce the IT funds dedicated to operations and redirect their IT investments towards strategic projects supporting differentiated processes and capabilities.
Additionally, we hear that companies are hindered by complex IT environments, characterized by disconnected processes, redundant applications and islands of data. Companies need to reduce the complexity of their IT environments, because that complexity has a direct impact on their business performance.
Moreover, the gap between the needs of the business users and the ability of IT to support them is growing. CIOs need to find a better way to support business innovation. The business requires more agility and flexibility.
Addressing these challenges will require a paradigm shift. It will require shifting the center of the universe from ERP to Enterprise Architecture. Enterprise Architecture consists of a set of open, standard-based technologies that enable a company to build flexible and configurable business processes, transform data into insights, deliver more value to the business users, reduce time-to-value and create competitive differentiation, while leveraging existing investments. The focus needs to move from standardization (enabled by ERP) to differentiation (enabled by Enterprise Architecture).
Within the organization, IT needs to enable the business transformation required to create sustainable differentiation. With this, transforming the business means moving …
- From rigid and proprietary systems to flexible, adaptable and interoperable systems;
- From pre-defined business processes to configurable business processes leveraging existing investments;
- From backward-looking reporting to forward-looking insight to action;
- From massive amounts of data locked in disconnected databases to usable information delivered to users in role-based cockpits;
- From an inside-out focus on a single enterprise built around the general ledger to an outside-in focus on collaboration built around the consumer.
Importantly, there are two primary areas to consider in going beyond ERP:
- Enterprise Architecture, such as Business Process Management, Business Intelligence, User Experience and Infrastructure.
- Money-making processes, such as Innovation, Sales and Marketing, Demand to Delivery and Service.
These two concepts are intertwined: companies need to invest in the business processes that make them money and help them create a sustainable competitive advantage, and they need to leverage a SOA-based architecture in order to deploy them with more flexibility and velocity, and at a lower cost.
A “Beyond ERP” strategy will enable companies to:
- Enhance the value of their ERP investments;
- Incrementally adopt new capabilities to support strategic business needs;
- Drive value to the business in a modular and flexible way;
- Create sustainable differentiation;
- Transform data into usable insights;
- Empower better decisions with reduced cost and risk.
We live in an era of increased variability and velocity. Companies cannot engage anymore in costly long term projects and big bang approaches. This new era requires agility, velocity and responsiveness – achieved incrementally through value-based projects targeted at increasing differentiation. This is why we believe that the “Beyond ERP” era is here to stay.
The “Beyond ERP” journey will be made possible by redirecting investments in Applications, Middleware and Infrastructure that help your company reduce IT complexity and enable business transformation at a lower total cost of ownership. The strategic roadmap will depend on each company’s specific priorities. What are your most critical needs? Would it be to:
- Reducing IT complexity?
- Deploying flexible and adaptable business processes?
- Improving user productivity?
- Improving business differentiation?
- Delivering actionable business insights?
- Increasing computing power at a lower cost?
- Reducing data center expenses?
Each one of these strategies will need to be enabled by “Beyond ERP” investments.
The bottom line is this: in the “Beyond ERP” era, companies need to allocate their IT funds to projects that will enable them to reduce cost and complexity while enabling agility, velocity and responsiveness. How this principle applies to each company depends on their current situation and strategic goals.
Some companies have already embarked on going “Beyond ERP”. These projects (and the goal they were pursuing) include:
- Optimization and simulation solutions (to increase the profitability of business investments, such as in Trade Promotion);
- Innovative use of solutions such as transportation and network optimization (to deploy assets in a more cost-effective way);
- Increase in computing power (to gain insights into day/store/sku data previously inaccessible overnight due to long processing times);
- Business intelligence and performance management (to gain a forward-looking view into actionable insights);
- Event-driven architecture and complex event processing solutions (to deliver real time alerts from operational systems);
- Business process digitization and role-based cockpits (to improve employee productivity);
- Replacement of current hardware by next generation database machines (to increase computing power at a lower cost);
- Database virtualization and compression (to reduce data center footprint and carbon emissions).
From the short list of projects mentioned above, going beyond ERP can take various forms. The key is to engage in strategic conversations with internal stakeholders and external partners in order to define a roadmap that will make the best use of scarce IT funds and produce the sustainable advantage.