Best-in-Class companies outshine average firms at cutting cost, reducing headcount and gaining returns through ERP deployments. A new report from Aberdeen Group finds that an integrated approach to ERP and business intelligence projects makes the difference.

InformationWeek Staff, Contributor

August 9, 2009

14 Min Read

Prompted by volatile markets and a troubled economy, the need to reduce costs is the top business driver impacting Enterprise Resource Planning (ERP) strategies. Combine this need with the ever-increasing need for transparency at both public and privately held companies and the union of ERP with Business Intelligence (BI) becomes the perfect marriage, yielding improved performance and visibility.

Two recent Aberdeen Group surveys (which drew nearly 1,000 responses) show that firms enjoying "Best-in-Class" performance share several common characteristics:

  • 79% of Best-in-Class firms assign cross-functional teams for selection and implementation of ERP and extensions such as BI

  • Best-in-Class organizations are 56% more likely than all respondents to be able to drill down from summary data to transactions that form the fiscal and operational audit trail

  • Best-in-Class firms are 114% more likely than all respondents to provide self-service BI capabilities to stakeholders.

This article, which is based on the July 2009 Aberdeen Group report "The ERP/BI Connection," serves as a benchmark to those companies seeking better results (to download the free report, click here to register). To achieve Best-in-Class performance, the report concludes that companies must:

  • Take an integrated approach to ERP and BI projects

  • Create cross-functional teams for implementation and continuous improvement of ERP; use BI to extract intelligence at each step

  • Take an exception management approach; use BI, workflow, and event management to deliver alerts and notifications.

BUSINESS CONTEXT

ERP systems provide much-needed capabilities, such as management of financial, product / inventory, human capital, purchasing, and other transactional data within one environment. The value of investing in ERP has traditionally been tied to the standardization of business processes and centralization of information, which makes it easier to quickly collect and manage data across many areas of the business. Increasingly, ERP customers have come to realize that the value from ERP investments can be increased dramatically through analysis of the consolidated data captured within and around the ERP system.

Enterprises of all shapes and sizes today are sitting on mountains of data resident in their transaction processing systems of record. The volume and complexity of that data grows as ERP is surrounded by applications that extend its reach into areas such as Customer Relationship Management, Supplier and Supply Chain Management, Product Lifecycle Management and others. At the same time achieving transparency and visibility is no longer simply a lofty goal, but a core necessity of the business.


Top Business Drivers Impacting ERP

Over the past three years Aberdeen has watched as the need to reduce cost has bubbled to the top as the primary business driver behind ERP strategies (click on the "Top Business Drivers Impacting ERP" chart at right). Together with growth and customer service, these three goals have dominated the pressures driving ERP implementation strategies.

In the context of bringing transparency to the business and order to potential chaos, perhaps the most significant of the extensions to ERP is Business Intelligence (BI). Think of it as a layer on top of or embedded within ERP and other applications, which wind up being giant repositories of data. ERP and BI may indeed be implemented together, but just as often they are viewed as separate initiatives. In the context of the business drivers behind BI projects, we must consider the needs being targeted. The top requirement of a BI deployment indeed coincides with the need to extract additional value from the relevant business data, which is inherent to an ERP implementation (click on the "Top BI Requirements" chart at right). Improving the speed of access to this data is the key to transparency, visibility and informed decision making.


Top BI Requirements

The next two requirements relate to connecting decision-makers directly to the data needed to support those decisions. This may require broadening the scope to new areas of the business, or it may mean providing access to data and tools to more knowledge workers within the organization. Both avenues lead to a clearer view of the data, which leads to a clearer view of the business. BEST-IN-CLASS STRATEGIES

Aberdeen used five key performance criteria to distinguish Best-in-Class firms from Industry Average and Laggard organizations. Given the top business driver impacting ERP strategies, many companies measure the business value of ERP in its ability to help them drive down costs. BI deployments may be measured by speed of deployment, pervasiveness of BI's use throughout the organization and the ability of line of business knowledge workers to serve themselves with little or no support from Information Technology (IT) departments; but the success of ERP is clearly measured by the quantifiable benefits it brings to the business itself.

Aberdeen recorded reductions in inventory reported by survey respondents in manufacturing and distribution industries, but we viewed administrative costs, which will be closely aligned with General & Administrative (G&A) costs, and operational costs, which would reflect cost of good / services sold (COGS), as more universal metrics. We also combined these results with the headcount of full-time employees (FTEs) that could be eliminated or (hopefully) redeployed for higher value-add to the organization. All three of these metrics were captured in the context of savings as a result of the ERP implementation.

We temper these reductions with two additional metrics: number of days to close a month, a sure indication of the strength of the transactional audit trail and confidence in financial numbers stored within ERP, as well as time to benefit. Thus, companies that take many years to produce substantial results from ERP deployments are effectively eliminated from the Best-in-Class category.

The research revealed that the Best-in-Class firms:

  • Reduced operating cost 17% and administrative cost 18%, versus 7% and 6% for average companies, respectively

  • Eliminated or redeployed 12 full-time employees, versus three FTEs for average firms.

  • Required only 19 months to achieve these benefits, versus 27 months for average firms.

ERP plays a key role in both standardizing and streamlining business processes. Several of the major ERP solution providers today also provide content in the form of libraries of implementation templates and pre-defined workflows that reflect best practices. As such, ERP can be a vehicle for providing standards and accelerating processes across departments and functions as well as across operating locations. But it is ERP's role in providing visibility across functions and departments where we see a strong connection with BI.

Aberdeen sees a strong differentiation between the top BI strategies of Best-in-Class, Industry Average, and Laggard companies. Best-in-Class firms understand that the key to pervasive adoption of the tool requires that it be intuitive and easy to use. As a result, Best-in-Class firms are 114% more likely than all respondents to provide self-service BI capabilities to some combination of internal and external stakeholders. When it is hard to work within a solution, the natural tendency is to work around the solution. When that happens, data becomes duplicated and the integrity is compromised. Visibility to the wrong data or "dirty" data leads to decisions made with inadequate information.

REQUIREMENTS FOR SUCCESS

Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the approaches they take to execute their daily operations); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing data and exposing it to key stakeholders); (4) technology (the selection of appropriate tools and effective deployment of those tools); and (5) performance management (the ability of the organization to measure its results to improve its business).

The analysis of Best-in-Class companies shows that a combination of capabilities are necessary to derive the most value from integrating and deploying BI within an ERP environment.

Process Management. A standardized implementation process for ERP is a leading Best-in-Class process management action. Business dynamics change rapidly, and volatile conditions require that a dispersed organization employ standard processes to maintain the ability to see valid comparisons of performance across the business. Difficulties are compounded when mergers and acquisitions occur, often leaving a company with multiple ERP systems and processes to integrate. Best-in-Class companies are 14% more likely to standardize their ERP implementation processes than Average companies, and 33% more likely to do so than Laggard firms.

When it comes to the integration of Business Intelligence with existing ERP assets, 58% of Best-in-Class companies say they have standardized on enterprise-wide deployment procedures, versus 36% of Average firms and just 25% of Laggards.

Fostering better-informed, more timely decision-making is not a turnkey undertaking for any organization regardless of size or industry. Companies of all kinds face challenges when it comes to data cleansing, integration and overall data management. The ability to standardize a process for collecting and integrating that data for use in reporting and analysis is a crucial element for transforming data into a more usable form.

The research shows that Best-in-Class companies are more than twice as likely as Laggard organizations to have a formalized data management and integration process for BI projects. Additionally, as companies look to spread BI functionality throughout the organization, many are reaping the benefit of a normalized procedure for BI deployment that promotes faster and more efficient implementation across the organization. The data shows that Best-in-Class companies are 61% more likely than the Industry Average to have an enterprisewide procedure for deploying BI. Organization. The research shows that Best-in-Class firms tend to establish a cross-functional team (IT and line-of-business management) to facilitate both the selection and continuous improvement of ERP systems and extensions. Too often, interviews with Average and Laggard end-user organizations revealed that these decisions are made in a vacuum where either IT or (less often) business management are solely tasked with the decisions and mandate to "get something implemented now.” A cross-functional team alleviates many of the problems inherent in an implementation and ongoing support by uncovering the business requirements up-front, and allowing the IT organization to implement a system that is designed to meet both current and future needs. This also should include the establishment of accountability for ongoing support, maintenance, and continuous improvement of the implementation and its value across operational areas of the business.

When it comes to Business Intelligence software, Aberdeen has found that a wide gap exists between the functionality provided and the lack of analytical skills among end-users. Therefore, the focus on a formal business intelligence training program is critical to the success of any BI deployment, whether it is integrated with the existing ERP system or deployed as a stand-alone "overlay" application. Best-in-Class companies are 2.4-times more likely to take this approach than Average companies, and 4.5-times more likely to do so than Laggard firms.

Knowledge Management. Modern ERP systems are capable of delivering rapid access to "rifle-shot" data -- information that can be obtained by running either pre-defined reports or a standard query against data within the system. While this is certainly an advance over earlier days when a batch update needed to be run overnight -- or worse, over the weekend -- before information could be aggregated and retrieved, it is still not enough. Best-in-Class companies are deploying BI functionality to enable end-users to drill into the data and go beyond existing static reports to get at the root causes for performance anomalies in the business. Best-in-Class companies are 32% more likely than Industry Average companies to enable drill-downs from summary data to underlying information for the purpose of investigating and determining both fiscal and operational root causes and identification of an audit trail within the data.

Best-in-Class companies are also automating alerts that inform management when anomalies and exceptions occur. Best-in-Class companies are 38% more likely to be pulling automated alerts from their ERP systems than Industry Average companies. An integrated BI solution can also silently monitor the use of reports and information views. This allows organizations to streamline their BI deployment by understanding which information is most needed by operational line-of-business users, and which reports no longer need to be created and maintained within the system.

Performance Management. Before simply purchasing and implementing a business intelligence extension, module or stand-alone software package, top-performing companies are incorporating methods for defining and measuring ROI for the BI purchase. Best-in-Class companies are twice as likely as Average firms to take this approach. The research also found that Best-in-Class companies are achieving 100% (or greater) ROI faster than their peers, reaching this milestone within the first six months, on average, as opposed to timeframes that start at a year and go well beyond two years for Average and Laggard companies.

Measuring the ROI of a BI investment within large- and even medium-scale deployments always carries a risk of under-utilization. Whether the organization is leveraging only a fraction of the functionality or only a small percentage of the intended employees are actually using the solution, this type of investment can be squandered by low utilization. The first step to improving usage levels is gaining visibility into how many employees regularly use the BI solution. Once the utilization levels increase, an organization will be in a better position to realize a strong return on the BI investment. Best-in-Class companies are 63% more likely than the Average firms to monitor BI utilization.


Top Business Impact 2-5 Years

Technology. Aberdeen Group has conducted extensive research across all industries and geographies (see The 2009 Aberdeen Report) to determine the technologies that will have the most impact in the next two to five years (click on the "Top Business Impact 2-5 Years" chart at right).

While BI ranks as the top technology in terms of business impact (for the second year in a row), it is the second item that deserves additional analysis. "Enterprise application enhancements / extensions" refers to the ongoing improvements that drive extended value from ERP (and CRM) investments. A more detailed dive into the data reveals that BI is the top enhancement or extension that companies are planning. This heightens the importance of the connection between ERP and BI, and shows that companies are focusing on adding this capability over time as an integrated technology with their ERP investments.

The research shows that it is a Best-in-Class approach to increasing and extending the value of ERP investments over time (click on the "Best-in-Class BI Deployment" chart at right). Best-in-Class on-premise deployments of BI solutions have begun to migrate away from traditional client-server architectures, and more to Web application server environments. An integrated approach (with BI integrated within enterprise applications) is far more likely to be chosen by Best-in-Class companies than a home-grown proprietary implementation.


Best-in-Class BI Deployment

When it comes to a hosted, "outside the firewall" implementation, companies are seeing value in a SaaS or cloud deployment approach. There are wide ranging definitions of these terms, but Aberdeen simplifies the categories as follows:

  • Software as a Service (SaaS) BI: BI applications hosted offsite by a third-party vendor as a single instance or shared instances

  • BI in the Cloud: Analytical infrastructure that exists in a cloud (virtual Web-based) environment. It can include data warehouse and integration tools, BI application development kits, etc.

The use of SaaS BI is something that Aberdeen measures continually. Though the overall usage rate among this survey sample was roughly 15%, this number has grown by a factor of two since August 2008. Perhaps more importantly, Best-in-Class firms have ventured into SaaS / Cloud territory and are more than three-times as likely as all others to utilize SaaS BI deployment and infrastructure.

REQUIRED ACTIONS

Regardless of current maturity class or stage of implementation, Aberdeen recommends taking an integrated approach to ERP and BI. Whether BI tools are currently embedded within your ERP solution, tightly integrated, bolted on after-the-fact or non-existent, don't treat ERP and BI as separate projects. Take the approach of using BI as a means to extract enhanced value from data within ERP (as well as other enterprise applications). ERP can transform data into information but BI tools are required to complete the transformation from information to intelligence. Whether you are implementing ERP for the first time, replacing it or upgrading, adding users, features or modules, consider the implications for extracting actionable intelligence every step of the way.

Aberdeen's full, 26-page "The ERP/BI Connection" report offers five detailed "steps to success" for Laggard, Average and Best-in-Class firms. The report also includes 14 charts and tables as well as in-depth findings and case examples not included in this executive summary article. To download the free report, register here.

David Hatch is Vice President and Group Director and Cindy Jutras is a Vice President and Research Fellow at Aberdeen Group, a Harte-Hanks company. Aberdeen's underlying research for this article and the "The ERP/BI Connection" report was underwritten in part by BI vendor Dimensional Insight, by ERP and performance management vendor Infor, and by consulting firm EiS Technologies.

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