The Soft Stuff is the Hard Stuff

A colleague of mine correctly points out that Enterprise Resource Planning (ERP) is really about a codified set of principles, policies, processes and practices and not about software. Enterprise software may enable ERP processes, but implementing Enterprise software does not ipso facto deliver the business transformation or disciplines required to truly embrace ERP. There is no software silver bullet. That is not to say that an organization that implements Enterprise software cannot derive benefit from the effort. Many of the ERP processes that are transactional (execution) in nature, such as customer order processing, procurement and production execution, can be enhanced by the integration and best practices delivered by Enterprise software. The planning processes of ERP, such as Sales and Operations Planning (SOP) and Master Scheduling can be enhanced to a degree by Enterprise software, but the real business benefits will only be realized if the enterprise makes the organizational changes and adopts the policies and practices required for ERP.

I have been assisting clients with ERP initiatives for sixteen years. While the scope of the effort has varied from client to client, most have opted for an integrated approach that includes both their logistics planning and execution processes. For example, many of my industrial clients have deployed master scheduling, material requirements planning and capacity planning processes alongside order processing, procurement and production.

It has long troubled me that a minority of my clients has attempted to implement SOP, which is one of the most valuable and powerful ERP processes. I believe that this is largely because the business transformation aspects of the SOP process are more critical to the success of the deployment than the software aspects. SOP is in many ways a "social" process. Many firms lack a cultural framework to enable the cross functional collaboration that is a pre-requisite to SOP. The ability of all the parties involved, including Production, Finance and Sales and Marketing to agree on the "one plan" is predicated upon the active leadership of senior management and willingness to compromise. For all too many organizations, particularly those that see software as a silver bullet, this "soft stuff" really is the "hard stuff."

In recent years I have been following the emergence of social business collaboration (SBC) tools with great interest. I have since refined my point of view. Perhaps the SOP collaboration that has been lacking in the past was partly due to a lack of capabilities. It is possible that this barrier to the effective deployment of SOP can be overcome through the use of SBC tools. I can foresee critical components of the SOP process, such as aggregate demand and supply planning and the pre-SOP meeting being enabled by a collaboration layer that is fed by the underlying Enterprise applications. For example, the demand planning process starts with a forecast and then incorporates the inputs from a variety of stakeholders before a demand plan is generated. A marketing or product manager could subscribe to the demand planning data in his activity stream or dashboard and provide feedback and inputs to the demand planner with a minimum of effort.

The introduction of more technology alone will not solve the problems of an unreformed ERP initiative. However, if the deployment of SBC tools is combined with an effective business transformation initiative then the likelihood of achieving the full extent of the business benefits from an ERP implementation will be greatly enhanced.

From OWS to the Enterprise

The folks engaged in the “Occupy Wall Street” (OWS) movement have used the catch phrase “We are the 99%” to emphasize the income inequality that has arisen in the US in recent decades, as the income of the top 1% households accelerated, while it stagnated or declined for the majority of Americans.  According to a recent Congressional Budget Office report the share of total income that flowed to the top 1% increased to 60% by 2007, up from 50% in 1979.

While the popular movement focuses mostly on the top 1%, there is a broader perspective on the increasing polarization of wages and employment that is relevant for the Enterprise and the path forward as we adjust to new technologies and the new economic realities.

In their recent e-book, Race Against the Machine, authors McAfee and Brynjolfsson describe “How the Digital Revolution is Accelerating Innovation, Driving Productivity and Irreversible Transforming Employment and the Economy”.  It is an excellent book and a must read for anyone involved in information technology or interested in the economy.

In short, the book seeks to “reconcile two important facts. 1) Technology continues to progress rapidly. In fact, the past decade has seen the fastest productivity growth since the 1960s, but 2) median wages and employment have both stagnated, leaving millions of people worse off than before.”

For example, in the following chart we can see that real wage growth in recent decades (1980-2005) is lower than the post-War decades (1950-1980) for each of six occupation groups.  However, in the more recent data we also see that the real returns to the more skilled occupations are increasing while the returns to the less skilled occupations stagnate or decline.

Source: The Growth of Low Skill Service Jobs and the Polarization of the U.S. Labor Market, Autor and Dorn, June 2011.

It is well known that as the nation endured the transformation from an agrarian economy to an industrial economy in the 19^th century, more jobs were created than lost and employment opportunities increased for skilled and semi-skilled labor alike. The authors argue that in our most recent transformation from the industrial to the information age, digital technologies have eliminated jobs faster than enterprises have been able to adapt.  The majority of the resulting impact on wages and employment has been felt in the low to middle range of skills through the automation of routine tasks. 

As we go forward and digital technologies continue to improve we should expect to see even the more abstract work of skilled professionals become subject to automation.  The authors cite Google’s self-driving car and IBM’s Watson computer as examples and harbingers of what is to come.  As was the case with the mighty John Henry, men may win the battle against the machine for a time, but we may not win the war.

But the authors do not end on a sour note.  Instead they restate the problem from “Race Against the Machine” to” Race With the Machine”

“The John Henry legend shows us that, in many contexts, humans will eventually lose the head-to-head race against the machine. But the broader lesson of the first Industrial Revolution is more like the Indy 500 than John Henry: economic progress comes from constant innovation in which people race with the machines. Humans and machines collaborate together in a race to produce more, to capture markets, and to beat other teams of humans and machines.”

All of which brings me to my point.  We must take a very hard look at how we collaborate in the Enterprise.  We are in a race, but not against the machines.  Our race is with our competitors.  The factors driving the polarization of employment and wages will reach our shores before we know it.  We simply can’t stand by as our competitors out-innovate, out-deliver and out-compete us.

Is SBC this decade's ERP?

It is the deterministic nature of transformational work, such as manufacturing fabrication or assembly, which allows a logical business process model to closely approximate the work performed in the real world.  The work to be done, the methods to be employed, the resources to be consumed all can be determined and modeled.  The development first of Materials Requirements Planning (MRP) and then later Manufacturing Resource Planning (MRP II) and Enterprise Resource Planning (ERP) processes reflect this tight relationship between the real world and the logical world.  At the same time information technology capabilities increased dramatically and costs were reduced by several orders of magnitude.  It is no surprise then that software applications emerged to enable and automate MRP, MRP II and ERP planning and execution processes.

During the period of evolution from MRP to ERP the scope of the business processes incorporated into the model expanded and with it the type of work and class of users expanded.  Transactional (clerical) work, such as order processing, was also codified and enabled by software.  In fact, much of the real world work of transactional workers, such as generating orders forms, stuffing envelopes, sending and receiving mail and filing forms has been automated or eliminated.

Over time many organizations took advantage of the efficiencies gained by refining the roles and the nature of the work performed.  For example, the role of a buyer in the purchasing department has shifted from order placing to source selection and negotiation.  The nature of the new work is less transactional and more intersocial and knowledge oriented.  Knowledge work, however, is much less deterministic than either transformational or transactional work.  There are methodologies, best practices and software applications that can be used to guide and enable the knowledge worker, but the tight correlation between how the real work is done and how the business processes model reflects that work has been lost.  Knowledge work is more abstract and less tangible than either transformational or transactional work.

With the more recent advent of specialized applications, such as Customer Relationship Management (CRM) and Supply Chain Management (SCM) that go beyond the scope of traditional ERP processes, many in industry have adopted more general terms like Enterprise Applications or Enterprise Systems in place of ERP software.  While these applications are exceeding useful to the knowledge worker, enabling the manipulation of large amounts of data in service of improving performance, they fail to capture the social component of knowledge work.  To me they represent an extension of the capabilities beyond ERP, but not a new paradigm that addresses the challenges of enabling knowledge work.

This begs my question to the reader – Are the emerging social business collaboration (SBC) tools, such as Jive’s SBS, Salesforce.com’s Chatter and SAP's StreamWork, this decade’s Enterprise equivalent of ERP?

The Happy Path

I have been involved with Enterprise Resource Planning (ERP) and its predecessors (MRP and MRP II) throughout my professional career, first as a practitioner and later as an solution architect and implementer. In recent years I have also developed an interest in the emergence and adoption of Enterprise 2.0 (E2.0) technologies such as the Jive social business software platform. Lately I have been thinking about how E2.0 technologies will change enterprise business processes, with a particular focus on the integration of E2.0 and ERP.

One of the key ERP business processes is Purchasing, a variation of which I have depicted below. If the master data is accurate and complete, and the employees are well trained and equipped and the suppliers cooperate then all should go well. The goods should be requested, ordered, received, inspected, putaway and available for use, without delay. 

In the language of software and ERP we have just described The Happy Path

The challenge is that for even the best run organizations things are not always so happy. There are non-trivial exceptions and problems that arise that need to be dealt with quickly and cost effectively. In some cases the problem scenarios can be anticipated and policies and procedures can be put in place to deal with them. Unfortunately, not all types of problems can be anticipated nor is it cost effective to invest in positioning expert resources throughout the enterprise just-in-case.

In the scenario presented below a problem is found during the inspection process. The inspector would have collected some information, such as a physical measurement, from a sample of the goods received and compared the values with the product specifications. If the difference was greater than the tolerances allowed then the goods would be rejected. In this case two things would happen. A quality notification message or workflow would be generated and sent to the appropriate (pre-determined) expert and the goods would be set aside pending analysis and final disposition.

No matter how much skill and knowledge the particular local expert possesses there will be cases when they will be stumped. Ultimately the goods could be accepted (perhaps under a quality waiver), returned to the vendor, reworked or simply scrapped. Regardless of the disposition there would be delays and higher costs.

So how does E2.0 fit into this scenario?

Imagine an organization with a range of experts scattered around the world. In a typical manufacturing enterprise there would be people in a variety of roles, such as component engineers, buyers, quality inspectors, manufacturing engineers, and production artisans that have knowledge and expertise that is relevant to assessing and resolving non-conformance's. Perhaps the problem has been previously encountered in a sister manufacturing plant and they have a quick rework procedure that they can share. Maybe the specifications and tolerances are too tight for this particular application and the product can be used "as-is" without risk. 

Whatever the outcome social enabled processes can help to resolve exceptions and issues quicker and at a lower cost through enhanced enterprise collaboration. There are real opportunities to integrate social business software solutions and practices with existing enterprise processes and solutions, delivering real business value to the enterprise.