For the past two decades businesses have fought to impose order on their sprawling information technology systems by unifying them under the aegis of now-ubiquitous enterprise resource planning (ERP) systems.
It has never been an easy or an inexpensive option, but ERP has enabled companies to harmonise business processes and even, in the most successful cases, to come tantalisingly close to realising the Holy Grail of enterprise computing – the single, consistent view of a businesses operations and data. However, times change.
Although enterprise IT planners haven’t given up on the pursuit of the ‘single view’ of corporate processes and information, the relentless pace of innovation and the accelerating frequency of business change is creating new priorities. Today, IT agility is at least as key as systems consistency. That represents an important and necessary shift in strategic IT thinking, and it is one that is prompting organisations to ask some awkward questions about the future – even the suitability – of their ERP systems.
Certainly, when ERP’s “agile” credentials are weighed in the balance against those of other elements of enterprise IT infrastructure technologies, they don’t compare well. In recent years, the advent of technologies such as server virtualisation, agile programming, web services and the rise of service-oriented architecture have revolutionised companies’ expectations of IT responsiveness: physical IT resources are more dynamic and scalable; software developers are more productive; and applications are delivered faster, in a more iterative fashion and in close collaboration with the business.
With all this new potential for systems flexibility and responsiveness swirling around it, the perception is growing that ERP, far from being the IT systems panacea that it was frequently billed as in the early 1990s, may actually be part of the problem – a root of systems inflexibility that is anchoring its users’ IT infrastructure to the past as firmly as any other legacy system.
This fact has not gone unnoticed by the ERP vendors themselves. At his company’s recent European user conference in Vienna, SAP’s CEO, Henning Kagermann, conceded that the new realities of business are starting to stretch IT infrastructure to its limits.
“The trend we see for the next 10 years is of accelerated innovation and business change. This will make IT a differentiator, because there can’t be a business decision in the future that is decoupled from IT strategy,” he told his audience of senior IT decision makers. However, the implications of this for today’s business systems are profound. It is now time, he added “to break up [today’s] rigid value chains, and build more adaptive business structures.”
For SAP customers the break-up of “rigid value chains” is synonymous with the need to re-engineer their existing ERP systems. Given how much pain and effort it took many to build these systems in the first place (see Texas Instruments case study) this is hardly a welcome prospect, but one that SAP believes it has prepared for by its early decision to embrace SOA technology as the basis for its next generation products.
Indeed, five years after the company’s co-founder and chairman Hasso Plattner announced its SOA strategy, SAP will finally make good on its promises later this year when it delivers its Enterprise Services Oriented Architecture. Described by SAP as “a blueprint for an adaptable, flexible and open IT architecture”, Enterprise SOA is a software template that, in conjunction with the SAP NetWeaver development platform, should make it relatively simple for SAP customers to connect their existing ERP systems with third-party systems using web services.
In the ‘best’ traditions of the software industry, SAP’s Enterprise SOA is as much an answer to the company’s own problems as it is to those of its customers. As well as providing customers with an incentive to reinvest in their ERP infrastructure, it also strengthens SAP’s credentials as an open infrastructure platform, and has already attracted the interest of Sungard, the banking software giant, which has committed to supporting the Enterprise SOA platform.
Endorsements such as this are important for SAP whose ERP dominance has been successfully challenged by the market consolidation strategy of Oracle, and which has watched Microsoft continue to grow its in presence in the small and mid-sized business space – the market most likely to fuel much ERP sales growth for the next several years.
From the point of view of customers, developments such as SAP’s Enterprise SOA, Oracle’s Fusion strategy and Microsoft’s almost covert support for SOA principles within its enterprise application and .NET development product, are welcome signs that vendors have realised that ERP is not an end in itself.
However, this doesn’t mean to say that customers will also continue to view ERP, as they have in the past, as the essential strategic core of their enterprise information architect-ure – the single, consistent source of corporate “truth”, that it was originally intended to be.
Indeed, although examples such as Texas Instrument’s (TI) impressive implementation of a single ‘instance’ of SAP to achieve process and data consistency throughout its disparate worldwide operations show what ERP can produce in expert hands, TI’s experience is very far from being the norm. Over the years, too many other companies’ experiences of ERP have turned out more like that of Unilever – the global consumer packaged group whose ERP instances at one point threatened to match its collection of household brand names.
Today, Unilever’s ERP adventure is showing every sign of having a happy ending, but only because the company has abandoned the idea of achieving a consistent view of all corporate activity entirely based on ERP. Instead, Unilever’s Latin American businesses, for example, have opted for retaining ERP technology to handle the donkey work of integrating disparate operational systems together, but adopting emerging master data management (MDM) techniques and tools to do the strategically more valuable work of providing a consistent view of the information these generate and feed from.
So far, hybrid MDM/ERP-based approaches to enterprise process and data consolidation are a minority practice, but pioneers of MDM technology, such as Kalido’s CEO Bill Hewitt, believe that this will soon change.
In fact, says Hewitt, MDM technology is even more important to the future relevance of corporate ERP infrastructures than SOA. While the marriage of SOA and ERP is essential to the overall cause of creating tomorrow’s agile business infrastructure, Hewitt believes that without MDM there is a risk of repeating mistakes of the first ERP era.And there are plenty of battle-scarred IT staff who would not want relive those.
The quest for ‘one Unilever
AS recently as two years ago Unilever had around a hundred individual instances of SAP’s ERP package deployed across its global operations, as well as numerous other business applications suites from Oracle, PeopleSoft, Siebel and others.
This proliferation of business systems was the product of years of investment in technology that was supposed to provide Unilever with a single, consistent view of its whole business. In fact, in attempting to engineer a single version of corporate ‘truth’, Unilever had created a multi-faceted model of its business that was difficult to accurately measure, and even more difficult to change.
Starting in 2001, the company’s Latin America division decided to try a new strategy. This time instead of relying on individual technologies or products to build its single view of the business, the company adopted an architectural approach that would combine the powerful process definition and management features found in SAP ERP, with modern master data management (MDM) techniques from Kalido. Using these technologies harnessed with an Accenture methodology, Unilever’s project Orchestra was expected to at last realise the vision of an integrated company driven by harmonised processes acting against a single data model.
From the start, Orchestra was an ambitious 5-year project to create a single instance for its ERP and CRM, covering 34 Unilever Latin America companies, 19 currencies, 5 times zones, in 3 languages.
“Latin America represents a big number to Unilever,” says Daniel Pretti, Unilever Latin America’s head of data modelling. Brazil and Mexico are the company’s third and fifth largest national markets, and as well as being a source of much of the company’s raw materials, the region is also an important market for key Unilever brands, such as Knorr, Omo and Hellmann’s.
In IT terms, the region is also pretty typical of Unilever worldwide. “There were lots of local [operating] companies, with many different systems. We had more than 20 different ERP systems, and more than 80 different data warehouses. To have a consolidated view of just the financials could take more than a month,” said Pretti.
The goal was to consolidate these systems into a single instance of SAP, acting against data governed by a single informational model enshrined within Kalido’s MDM system. Ultimately, said Pretti, “we wanted to have a single company,” but Orchestra began by focussing on the challenge of consolidating Unilever’s operations in Argentina, Uruguay and Paraguay. This River Plate regional consolidation acted as a pilot for Unilever and its three partners – SAP, Kalido and Accenture – and an original proving ground for Unilever’s first Regional Information Office (RIO).
The RIO concept has proven to be central to the success of Unilever’s whole Orchestra initiative. In RIO, Unilever Latin America created an independent group responsible for defining and enforcing common processes and, most importantly, a common data model across all participating organisations. This included the harmonisation of the more than 200,000 codes that Unilever uses to track every component or every product on its journey from raw material to factory, to warehouse palette, to retail outlet and to the customer.
Since the completion of the initial River Plate regional consolidation (in just under 12 months), Pretti and his team have had to deal with a number of technical challenges. In the second phase of Orchestra, for instance, new versions of SAP and Kalido were rolled out across the region to meet extra functional requirements. That meant that for a short period, Unilever was once more working with multiple instances of business software.
However, as successive releases of Orchestra have been deployed across Brazil, Ecuador, Peru, Columbia and, most recently, Mexico, it is RIO that has enabled Unilever to retain its single company, single instance vision intact. As the advantages of working with a common data model have become clear, local objections to adopting common processes and codes have disappeared and, says Pretti, issues that might once have taken months to resolve, can now be finalised in hours.
“We intended to have ‘one Unilever’, and that is what we have achieved,” says Pretti. Thanks to RIO’s harmonised codes and unified data models “everyone talks the same language, everyone understands what everyone else is saying,” says Pretti. This has obvious day-to-day advantages, but it also has great strategic value for the future. “Now, because we all have the same processes, changing something is much easier because you only have to change it once,” says Pretti.
Today, Unilever is preparing to extend Orchestra into its North American region, and in the future Pretti is confident that Orchestra, or maybe a federated version of it, will find its way to Asia and Europe too. Operationally, he says, the project has more than paid for itself already, and it will continue to provide a positive return on investment every time Unilever expands, restructures or introduces a new product.
Indeed, “the implementation of Orchestra is what is enabling [Unilever’s] migration to a service-oriented architecture,” Pretti stresses.
Texas Instrument’s ERP ‘insurance policy’
DIFFICULT to deploy, complex to manage and hard to adapt to changing business needs – ERP projects are the stuff that IT managers are made of.
Jean-Louis Tomas, Texas Instrument’s IT manager in France and author of several books on the critical success factors of ERP projects, has no illusions about the challenges that ERP presents – but neither does he have any reservations about the fact that TI’s ERP system is now a key strategic asset.
For four years from 1999, Tomas led TI’s global implementation of a single instance of its SAP ERP infrastructure, and there were times during this period when Tomas, and his European CIO Barry Cooper feared that TI had “bitten off more that it could chew.”
According to Tomas, as a pioneer of global ERP, TI found itself on a steep learning curve, and some of the lessons it learnt were hard ones. Chief among them was the realisation that “ERP deployment is not just another IT project, it’s an enterprise project.”
The problem was not that TI did not involve business managers in the project. “We had pretty good availability of business and process expertise,” says Tomas. Instead, TI’s mistake was to treat these business experts “like pseudo-IT guys”.
With hindsight, “we had been swallowed by the complexity of the ERP installation,” he says. And, as more business resources became diverted to the project “it was causing difficulties in terms of providing levels of service internally, and to customers.”
TI’s ERP crisis actually reached its peak immediately after the system went live, when the company entered what Tomas calls “the big V” – a transition period characterised by a dramatic fall in business efficiency as users learn to work with the new system. Tomas believes the “big V” cannot be avoided: “All you can do is manage the depth of the V”, which can represent as much as 20% to 25% drop in efficiency.
Today, Tomas is convinced that TI’s ERP system has more than repaid the investment involved. From an operational perspective, “SAP is at the heart of everything we do – one management database, one management system ” – it streamlines and maintains processes.
Whilst strategically, he says, far from being a roadblock to business change, SAP acts more like an “insurance policy” – ensuring that whatever change or acquisition is made is done in a fashion that means TI doesn’t deviate from its core business focus.
Further reading
Information Age feature – ERP roulette
