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(ERP Is) A Necessary Evil

February 16, 2024 6 min read
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A Necessary Evil…

I’m going to use an acronym here that I do not want to use, because I’m confident that it will cause a good percentage of readers to click away.  That acronym is: ERP.

For those of you that remain, good on you for being so brave.

No one likes enterprise resource planning (ERP) systems.  Not the people that run them, not the people that configure and deploy them, not the people that use them.  Mentioning an ERP system in conversation will cause at best indifference, more typically some level of concern, and sometimes downright hostility.  They are perceived as expensive, complicated, user-unfriendly and a general source of friction.

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What Draws Us to ERP?

So why do organizations of a given size inevitably deploy ERP systems? The short answer is “scale”.

As things grow, they get more complicated. Families, buildings, cities – their dynamics are different when they are smaller.  They have fewer actors, simpler activities, and can be managed in a very direct way with the basics.

Companies are the same, but unlike these other things, companies are compelled to grow, and when they grow the simpler techniques used for operations when they are small don’t work well.

Small companies can operate well with basic tools to coordinate data and operations.  An office suite, some SaaS apps and some cloud storage are typical early building blocks, with some sweat equity from team members to fill in the rest of the operational needs.  The simplicity at this stage is a benefit, since it allows the company to move quickly and cheaply.  As the company gets bigger, point solutions for specific needs come into play – a CRM for sales, a ticketing tool for support, etc. etc.

For a while, you can plan and manage all of the resource tracking for the business (money, people, inventory) in the same nimble approach.  But at some point, the size of the company outweighs the ability of this approach to support it.  The more people and transactions in the system, the harder it is to maintain consistency and efficiency as you scale.  Which keeps you from scaling – or at least makes scaling much much more expensive, which is usually the same thing.

The great promise of ERP is efficient and integrated growth. The theory of ERP goes something like this: connect key operational centers of gravity like accounts payable, order processing, human resources, and so on within a single platform, creating a consistent model and data set.  When done right, ERPs impose a set of rules about the structure and governance of transactions, which leads to automation through data and process integration, which leads to efficient scale.

At least that’s the theory.

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How Do ERPs Turn Evil?

In most cases, ERPs get their evil reputation when IT teams lose sight of the core goals of ERP: enable scale with both efficiency and accuracy.

ERPs are complicated systems and require strong (and expensive) technical skills to maintain them.  This is true of today’s cloud-based ERP platforms, and it’s even more true for legacy ERPs that run on-premise and can be heavily customized (remember, don’t do it).  Meanwhile, the operating units in an organization need to improve and innovate on their processes in the face of market dynamics, competitive pressure, etc etc.  And they need the ability to integrate their data and processes with the ERP in a manner that scales. This is a key challenge for the IT team, and managing this poorly leads to some painful dynamics.

One common evil ERP “anti-pattern” is to over-govern the situation.  IT makes mandates in the interest of centralizing resource management (like “ERP system X will be the source of truth for all vendors”) and maintaining system integrity (like “all integrations to ERP must be managed by IT through the enterprise integration platform”).  These mandates will come into conflict with innovation.  The need for process improvements from the operating units will translate into resource demand on limited IT resources.  Operating units will either stagnate their processes and suffer the market consequences, or (more likely) find ways to adjust their processes in spite of the ERP.  These rogue operations will compromise the core ERP goals by adding additional, hidden costs to the scaling of the organization.  They will very likely affect data accuracy as well since shadow transactions will now occur outside of the ERP.

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How to Keep ERP on the Side of Good

If you want to break (or even better, avoid) the “evil ERP” dynamic at your company, there are proven things you can do. Consider the following options as you build and add to your technology infrastructure.

Don’t Use It

…at least not until your organization is ready. An ERP is a huge investment and ongoing cost.  The value you get out of it in terms of revenue capture, cost avoidance, risk mitigation, etc. needs to justify the “spend”.  If you can scale and get accurate operational visibility using point systems and manual data management, then keep doing that.

Keep Focus on the Process

Anti-patterns like those I described earlier are a sign that IT has forgotten that scale and accuracy are rooted in process, not technology.  Optimizing and, in some cases, transforming the business processes are the primary means to make them scale and generate an accurate, consistent view of the business operations.  And an ERP is only one technical component to achieving this.

It’s also important to recognize that the “best” process will be one that manages the balancing act between the behavior biases of the users and the requirements of the technology.  If you take a user-driven process that is very expensive and/or inconsistent, and lift-and-shift it into an ERP-based implementation, you will accomplish nothing.  Maybe less than nothing.  Similarly, if you discount the tendencies and dynamics of the users and impose a process that is completely technology-defined, you might manage to make some users follow the process for some time, but eventually adoption will break down and rogue behavior will emerge.  In some cases, shadow IT teams and systems will develop, making local teams happy but breaking scale and accuracy.

Own Your Integrations

An optimal process that is supported by an ERP will almost always depend on users operating in other transactional systems, like CRMs and support systems and partner management systems, to name a few. Ensuring scale and accuracy will inevitably mean integrations with the ERP.

This evolution of operational systems as the business grows also involves an evolution of your enterprise integration strategy, and an effective ERP strategy usually brings with it the need to adopt a universal integration strategy as well. Without comprehensive governance of the integration points with the ERP, it won’t be possible to ensure that processes are well-supported by the integrations, and to ensure that operational data is represented consistently across the enterprise.

IT needs to step up and own these integrations, from a governance perspective.  System integrations need to embody the business rules and data models that support your ERP and allow it to maintain a scalable view of your business operations.

Humanize Your Governance

Another way to describe this point is “don’t forget that people are people”.  Standards and rules and restrictions are definitely a necessary part of effective governance around an ERP (or anything else, for that matter).  But always remember that people need to work in a way that is effective for them and for the dynamics involved in their particular roles.  Don’t expect buyers to slog through thousands of product categories to find the perfect match for the items or services they need – find a way for the data to be set automatically for them, even if that means mirroring reference data in their local systems.  Don’t expect sellers to cross-reference vendor lists to identify customers that are also suppliers – allow these customers to be created in the CRM and find ways to auto-match them in the ERP, or invest in smart algorithms that auto-detect these matches directly in the CRM through ERP integrations.

Keep Things Agile

My last bit of ERP advice is possibly the hardest to follow.  “Agile” and “ERP” don’t sit well in the same sentence, but somehow you need to constantly strive to keep your ERP agile.  ERPs, even in their more modern cloud-based forms, can accumulate a shocking amount of technical debt over time that can grind change and innovation to a halt rapidly.  As you extend the ERP use cases and data models and integrations, you need to take a holistic view of the ERP implementation and constantly post the question, “what if I need to change this eventually?” Change will come from good (innovation, new markets, new products) and bad (competitive threats, market downturns) sources, and good architecture in any context involves being ready for change.  Open the solution aperture a bit and consider the ways you might be able to, e.g., generalize an integration to support future transaction types, or encapsulate a data model behind proxies if you expect the data model to change in significant ways.

Scale, efficiency and accuracy relate not just to how the ERP runs the business today, but also how you will keep the ERP updated to match your business as it evolves.

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Jim is the Senior Director, Head of Enterprise Architecture at Ironclad.