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February 8, 1999

Out Of The Box:
Up The ERP Revolution

When used effectively, ERP can integrate enterprises by breaking traditional boundaries and fostering teamwork

By Michael Hammer

ost CIOs think of themselves as sober, conservative businesspeople, not as revolutionaries. Yet revolutionaries they are, because the technologies they bring into their companies are not just tools for improving business performance, but also agents of enormous organizational change.

For instance, the PC did far more than any edict to push companies toward decentralized management and decision-making. By allowing communications to bypass the chain of command, E-mail may be the greatest flattener of hierarchies ever.

But the most potent and subversive contemporary instrument of business revolution is enterprise resource planning. Although many companies implement ERP systems to ensure year 2000 compliance or reduce maintenance costs, they often drive radical change. Successful ERP implementation depends on understanding and managing these consequences.

ERP is usually described as an integrated system, one that offers a broad range of functional modules that share a common database. While accurate, this description is far from adequate. It's much more important to consider the effect of an integrated system on an enterprise. When different departments share the same system and operate off the same data, they begin to recognize that they are all part of larger business processes. People begin to appreciate the effects of their personal work on each other, on customers, and on the enterprise as a whole. One ERP manager says, "People who use our ERP now have an understanding of end-to-end work. They are starting to recognize that we cannot make decisions that optimize locally but suboptimize for the company." Another puts it this way: "What one organization is doing impacts other groups in more visible ways now. The system forces cooperation among groups. When you receive something on the dock, it automatically creates journal entries and vouchers, touching other parts of the company."

In other words, ERP systems tie together previously isolated departments and the people working in them. To characterize an ERP system as integrated is merely to summarize its principal technical feature; to describe it as integrating is to capture its organizational impact. Executives have long yearned for integrated enterprises and much to everyone's surprise, they are finally taking shape--not through formal programs but as almost unanticipated results of ERP implementation.

An integrated enterprise is different from a conventional one. It demands an unprecedented degree of teamwork, process expertise, and business knowledge. It devolves authority and responsibility from management to the front lines. It blurs job definitions and dissolves the boundaries between previously independent units. To prevent these changes from occurring would obviate the business benefits ERP is supposed to deliver.

The move to an integrated enterprise is nothing short of an organizational revolution. The rulers of functional or geographical fiefdoms will not readily relinquish their independence and authority. Many people trained and raised in narrow silos will not be able to rise to the challenge of broad process work on their own. Old performance-measurement systems will break down in the face of collective work and shared goals. Perhaps most important, senior executives expecting only a new software system will be unprepared for the revolution it unleashes.

In other words, a successful ERP implementation must be managed as a program of wide-ranging organizational change rather than as a software installation effort.

When managed effectively, the ERP revolution yields enormous business benefits. When handled as a software initiative, however, the revolution will founder, with disastrous consequences. Erich Fromm wrote "The successful revolutionary is a statesman, the unsuccessful one a criminal." CIOs must decide which they want to be.

Michael Hammer is president of Hammer and Co. in Cambridge, Mass., which offers conferences and courses on process management and improvement. For information on Hammer and Co., see www.hammerandco.com.