Due to the problematic economic situation and volatile markets, combined with the growing need for transparency for both private and public companies and cost reduction becoming the main driver for ERP strategies, the combination of ERP and BI has become the perfect match between performance improvement and visibility.
Two recent surveys conducted by the Aberdeen Group showed that there are several common characteristics among companies considered leaders in their field:
79% of leading companies use cross-functional teams to implement ERP and its extensions, such as BI.
Leading companies are 56% more likely to succeed in deriving insights from data summaries for actions that translate into financial and operational audit reports.
Leading companies are 114% more likely to provide BI services to stakeholders independently.
To achieve the highest level of performance, companies should:
Integrate ERP and BI projects
Establish cross-functional teams for implementation and continuous improvement of ERP, using BI to extract information at every stage.
Implement an approach that combines BI, workflows, and event management to provide alerts and reports.
Business Context
ERP systems provide essential organizational capabilities, from financial management of products or inventory to human capital management, procurement, and information transactions. The value inherent in ERP investment is traditionally related to the standardization of business processes and centralization of information, which facilitates data collection and management. Recently, there has been a growing understanding among ERP consumers that its value can be dramatically maximized through the analysis of consolidated data collected within and around the ERP system.
Today, companies' process management systems contain mountains of data. The scope and complexity of the data are growing as ERP is surrounded by applications that deepen its ability to reach additional repositories such as customer relationship management, inventory and supplier relationship management, product lifecycle management, and more. Additionally, the need for transparency and visibility is no longer just a lofty goal but a core business necessity.
In recent years, the need for cost reduction, growth, and customer service have been the driving forces behind ERP implementation strategies. BI is essential to achieving organizational transparency and order in potential chaos.
This can be considered a layer covering or interwoven with ERP and other applications, forming a vast data repository. ERP and BI can be implemented together but can also be examined as separate initiatives. The most significant requirement when implementing a BI project indeed joins the need to extract added values from relevant information sources, which is inherent in ERP applications. Improving the speed of data access is the key to achieving transparency, visibility, and informed decision-making.
To connect the decision-maker directly to the data needed for decision-making, access can be expanded to new business areas, or access to data and tools can be improved for more knowledge workers within the organization. Both ways lead to a clearer view of the data, providing a better view of the business.
Strategies of Leading Companies
Since the need for cost reduction is the main driver for ERP strategies, many companies measure the value of ERP by its ability to help them reduce costs. The Aberdeen Group uses five criteria to distinguish between leading companies and all other companies in terms of ERP: reduction of administrative expenses, reduction in operational costs (which may affect the costs of services or products sold), the size of the permanent workforce that can be laid off or redeployed, a better cost-benefit ratio for the organization, number of days to close the month, and time to profit. The first three metrics indicate the company's efficiency capability, while the last two metrics indicate the company's strength.
The leading companies in their field managed to reduce operational and administrative costs by 10% more than competitors, reduce or redeploy four times as many employees, and require 2/3 of the time needed by competitors to achieve profit.
ERP plays a central role in driving and creating standardization of work processes. Many ERP solution providers now provide content in the form of libraries or implementation templates and predefined workflows, reflecting lessons learned and insights. As such, ERP can serve as a tool that provides standards and accelerates processes across departments, functions, and operational sites. However, where we see the point of contact with BI is ERP's role in giving visibility across functions and departments.
The Aberdeen Group clearly distinguishes between the BI strategies of leading companies and all others. Leading companies understand that the key to tool adoption must be intuitive and easy to use. Therefore, these companies are significantly more likely to provide self-service BI solutions that integrate internal and external stakeholders. Leading companies understand that if the solution is not convenient, the user will be forced to bypass it, leading to data duplication. The visibility of incorrect or 'dirty' data leads to decision-making based on insufficient information.
Requirements for Success
The Aberdeen Group analyzed and ranked the accumulated metrics from the company review. In addition to performing at a similar level, companies in each tier shared identical characteristics in five categories:
Processes - The approach they take to execute daily operations.
Organization - Organizational focus and collaboration between stakeholders.
Knowledge Management - Finding connections between data and exposing them to relevant stakeholders.
Technology - Selecting the appropriate tools and implementing them in the organization.
Performance Management - The organization's ability to measure its results to improve its performance.
Integration of capabilities is essential to derive the most value from BI implementation in an ERP environment.
Process Management
Business dynamics are changing rapidly, and fluid conditions require dispersed organizations to adopt standard processes for accurate performance comparison. Mergers and acquisitions are challenging, as they sometimes leave the organization with multiple ERP systems and processes requiring integration. Fostering informed and timely decision-making is difficult for organizations of all sizes and industries. Organizations of all types face the challenge of refining, integrating, and managing data comprehensively. Standardizing the process of collecting and integrating data for report generation and analysis is critical in making data more usable. Most leading companies in their field have created structured processes for data management and integration for BI projects. Additionally, many companies reap the benefits of investment in structured implementation processes when deploying BI applications throughout the organization.
Organization
Many leading organizations have established integrated functional teams to facilitate the selection and continuous synchronization of ERP systems and their extensions. This creates a situation where decision-making is done consciously rather than under time pressure. The integrated team allows for planning a solution that will meet current and future needs and will consider ongoing support needs.
It was found that there is a large gap between the functional needs addressed by BI system planners and the analytical capabilities of end users. Therefore, a structured training program to accompany the BI system is needed.
Knowledge Management
Leading companies in their field allow end users to explore data and analyze existing deviations, enabling conclusions drawn from report summaries to understand economic and operational reasons. Additionally, leading companies operate an automatic alert system that draws management's attention to exceptional cases.
Performance Management
Before purchasing and implementing any BI solution extension, leading companies in their field define and measure the Return on Investment (ROI) for the BI acquisition. These companies achieve ROI faster than their competitors, on average within six months, compared to one or two years. One way to improve ROI is to expand the user base. Frequent use of the system will help achieve a high ROI.
Technology
The Aberdeen Group conducted comprehensive research to determine which technology will have the most significant impact in the coming years. The study shows that leading companies are increasing their investment in ERP over time. These companies have shifted their purpose from traditional client-server architecture to a web application server environment. Integrating BI within organizational applications will likely be more popular among these companies.
Required Actions
Regardless of maturity or current implementation stage, the Aberdeen Group recommends that organizations adopt an approach that combines ERP and BI. Even if BI tools are currently embedded in the ERP solution, well-integrated or not integrated at all, it is recommended not to treat them as two separate projects. Take an approach of using BI to obtain added value from ERP data and other organizational applications. ERP can turn data into information, but BI tools are necessary to complete the transition from information to knowledge. Whether you are implementing ERP for the first time, replacing or upgrading the tool, or adding users, features, or modules, always consider the implications of extracting usable information along the way.
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