ERP and KPIs

When asked, just about every ERP vendor will say they provide Key Performance Indicator (KPI) reporting.  Yet there still remains confusion between metrics reporting and KPI reporting.  Unfortunately, using terms like KPI and metrics interchangeably does not help.   In the following blog cast and posting I will provide practical guidance regarding KPIs and the role ERP play in supporting KPI management.

Let’s expand upon the above blog cast.  Another method to identify KPIs is to take a bottom-up approach.  Consider the following illustration:

In this scenario, we have a defined scope (i.e. business process) where we desire to improve business process performance from a Capability Maturity Level Integrated (CMMI) level 3 to level 4.  Allow me to simply summarize the key characteristic of CMMI levels 3 and 4:

  • Level 3: The specific business process has “best practices (i.e. common) deployed.
  • Level 4: The management of the business process is data-driven.  Decisions are based on facts.

First, KPIs should be our focus at the end of the performance gap requirements analysis.  The first area should be understanding the organizational change required to mature to a CMMI Level 4.  Becoming a data-driven organization does not happen at a “flip of a switch”.  ERP users and business leaders must trust the ERP solution and building that trust requires time and ERP reliability. 

Second, request the ERP vendor to provide the ERP feature set (i.e. features, reports) that will enable our business process to mature from a CMMI Level 3 to Level 4.  If the ERP vendor cannot provide us with this information then I would question how “invested” is the ERP vendor in assisting us in being successful.  There is a vast difference between an ERP vendor and an ERP partner.  A true ERP partner should be able to easily provide this information (sorry for the tough love).

Third, identify all the relevant operational metrics that we can leverage in monitoring business process performance.  Again, the ERP vendor should be able to provide the metrics and Out-Of-The-Box (OOTB) reporting.

Finally, identify the subset of operational metrics that we will actively manage as KPIs.  Practical guidance I give to my customers is that you should have no more than 3 KPIs per business process.  KPIs are metrics that we actively manage.  KPIs should ONLY be forward looking, in my humble opinion.  Now please do not misunderstand me that I suggest we disregard lagging and trending indicators.  I typically use a car analogy with my customers regarding KPIs and lagging metrics.  My dashboard window represents my KPIs.  KPIs are forward looking.  KPIs should be tied to an incentive compensation plan.  KPIs should be a stretch goal and not “status quo” maintenance.  Just with the rear-view mirror and side mirrors in a car, operational metrics are artifacts we need to view on an “exception” basis.  It is important that we have an ERP solution that can establish an acceptable range for operational metrics and provide OOTB reporting on performance exceptions.  This is a reasonable expectation of any competent ERP vendor.

Key Capabilities ERP can provide to identify KPI performance gaps

Recall the question I asked in the blog cast “What if ERP could automatically identify the gaps?”.  Having done this activity using traditional methods (i.e. manual), following is what I would consider as the foundational requirements that will enable ERP to provide a preliminary KPI gap assessment:

This is by no means a comprehensive list but it does highlight some of the “critical path” requirements that we can use to evaluate how committed are ERP vendors to customers’ operational success.

Summary

I download an app on my iPhone called “36,000 KPIs”. 

Now, the appropriate name should be “36K Metrics” but I digress.  It is a neat little (free) application that provide a definition of the metric.  I cannot speak to the complete accuracy but it is a good reference that I have utilized as a metrics dictionary.  The point to make here is that competent ERP solutions must provide a comprehensive set of operational metrics that can be utilized for exception and KPI reporting. Without metrics, one will have a hard time defining performance baselines. The greater the OOTB ERP metrics provided to your business, the more flexibility one has in business process management and strategies. 

Using AI/ML to Build Customer-specific ERP Roadmaps

How much does it cost to create a customer-specific ERP roadmap?  $50k, $200k, $1m+?  This effort typically requires the higher end consultative guidance and advisory role(s).  It also requires a significant amount of customer leaders’ effort/time to support this activity.  What if I can show you an approach where one can automatically generate a custom ERP roadmap? If interested then allow me to elaborate.

Are you a Believer?

Before we start, I will ask you to make an investment.  I have a habit of repeating myself therefore I will ask you to review the following blog postings before I begin:

Now, if you are still interested then I will ask you to stretch a little further.

Model versus Reality

I consider myself more of a pragmatist than a theorist.  Models are great to elaborate upon concept(s) for discussion and argument.  However, conceptual models are limited in the value they provide to customers if there is no method to align reality (i.e., “as is”) with the optimal path.  Consider the following illustration:

Key Points and Observations:

  1. In a majority of cases, there is a difference between potential ERP utilization and actual ERP utilization experienced by customers.
  2. In order to promote repeatability, there should be a logical progression that enables customers to maximize ERP utilization (i.e., roadmap).
  3. To minimize ERP Total Cost of Ownership (TCO) and eliminate cost constraints, ERP cloud vendors should provide customers with the ability to increase ERP utilization without heavy reliance on consulting services ($$).

The goal is to define an ERP utilization approach that is repeatable and reliable.  Far too often, customers spend thousands of dollars on a “point in time” ERP strategy that requires additional funds to revise the strategy as technology changes.  The ERP utilization strategy must start with “where the customer is at” and provide a series of ERP features and prerequisite enablement activities in order to increase utilization.

ERP Utilization Roadmap Model

Based on my experience, I recommend that long-term ERP utilization should be a series of incremental quick-wins (i.e., Business Process Management) and minimal paradigm shifts (i.e., Business Process Re-engineering).  Consider the following illustration:

Key points and observations:

  • Any deployment of ERP features that require a significant organization change is not a quick win.  People do not change overnight.
  • An incremental approach like Business Process Management (BPM) is required when deploying new ERP features at the same CMMI level for a given business process.
  • Set A includes the BPM enablement activities and ERP feature deployments required to align with the logical maturity path.  Note that only incremental change is required to implement targeted ERP features (thus, a quick-win).
  • Set B includes the Business Process Re-engineering (BPR) enablement activities and ERP feature(s) deployment required to align with the logical maturity path.  Set Y is not a quick win.

The practical aspects of this model are (1) the roadmap must start where the customer is at in their business process maturity, (2) utilize an increment (agile) approach to build organization momentum, and (3) realize that organizational momentum will carry a customer through the radical changes required for maximizing ERP utilization.

Automating Implementation Guidance & ERP Roadmap

I will utilize the following illustration to put the previous concepts into view.

There are 3 key automation players in the mix. 

  1. ERP Configuration Manager:  This is a feature of the ERP software that provides an ordered list of data and functional configurations required to implement a feature set within the ERP solution (aka table loading sequence).   A competent ERP vendor should provide this capability out of the box.  Unfortunately, most ERP vendors only provide ERP configuration manager functionality that only provides the “technical” guidance for configuration.
  2. Implementation Advisor:  The implementation advisor compliments the existing ERP configuration manager by providing functional and organizational guidance to the customer during the implementation.  The guidance is harvested utilizing AI/ML recommendations based upon findings and trends identified across the ERP vendor’s customer base.  The implementation advisor would utilize both structured and unstructured learning to provide the most relevant guidance.
  3. Solution Advisor: The solution advisor focuses on providing the iterative and progressive ERP product feature set(s) required to attain the targeted CMMI level for a business process.  The solution advisor must have access to current ERP features implemented but also how effectively business users are utilizing ERP features

The key strategy of the ERP Utilization model and the solution advisor is to provide an incremental, progressive maturity path that is risk adverse and minimizes huge organizational change.

What’s Missing? Challenge to ERP Vendors

As stated earlier, the majority of ERP vendors provide business process models that highlight how ERP vendors define business processes within their software.  The gaps I’ve observed with most ERP business models are there are no relationships defined between the business activity and the corresponding CMMI maturity level and ERP product feature(s).  Adding this metadata to the model will enable an automated approach to implementation and roadmap guidance.

Summary

Implementation costs remain the largest part of an ERP TCO analysis.  The cloud delivery model has greatly reduced the hardware/software/infrastructure costs.  Unfortunately, the ERP market places more focus on vendor capabilities and emerging technologies versus ease of implementation and customer self-sufficiency with ERP services.   No technology adds any business value until its in production.  Second, an automated ERP solution advisor provides real-time guidance to customers versus periodic, manual feedback that generally results in “leap-frog” implementations that have greater risk(s) and cost(s).   Stay safe!

P.S. – Despite my sincere attempt, I did repeat myself.

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