Next Generation ERP and the Rise of the Agile Organization
January 15, 2007 Jerome Peloquin
Note: This is the third and final article of a series. I recommend reading the first two articles, but it is not absolutely necessary to understand this article. Links to the previous articles are provided at the end of this story.
In the two preceding articles, I put forth our view of the use of ERP technology to leverage human performance. I argued that information is the fuel that feeds the performance engine, and technology is the delivery system. Just as the pipelines and tankers must be available to keep refineries running, so must technology be able to deliver the information that fuels the decision-making process of the organization.
I adopted a behavioral perspective to examine the critical relationship between information and human performance. I reviewed how information is the principle component of decision-making, and, as performance feedback, it is both an initiator and a regulator of human behavior in the workplace. I also put forward my vision of IT as the key player in the execution of strategic and tactical organizational objectives. An organization can only react, move, and respond if it has accurate and timely information. Information, available and up to date–anytime, anyplace, anywhere–is both the hallmark and the underpinning of the Agile Organization.
In order to fully enable this vision, a new generation of ERP software tools is needed. This fact is recognized by every ERP vendor in the world. All of the current, first generation ERP vendors are, at this very moment, racing to convert their aging, first generation offerings to the new, object-oriented, Internet-based, Web browser-native paradigm–a task that is a daunting effort for these older packages, whose internal source code is, fundamentally, unsuited to the Web, nor do they have the ability to make use of the native functionality of the Web browser.
This conversion task, where true, browser-native functionality (remember, terms like “Web-enabled” or “browser-enabled” only mean using the Web browser to present text that was originally designed for older, “green-screen” terminal sessions in a prettier way) will take a number of years to complete, if the vendors even attempt to take on the task of fundamentally redesigning their applications.
In this third and last article of the series, I bring our journey to a final destination. The conclusion: Information is the most valuable asset of the corporation. Information is the means by which organizations determine a path forward in the opaque fog of global competition.
Financial information, market information, production information, regulatory information–all are acquired, routed, and directed by the IT infrastructure. If information management is the overall mission of the IT function, and, as Peter Drucker said, “. . . productivity (and performance) is the first maxim of management,” then improving organizational performance (and productivity) is the râison d’etre for the entire IT establishment.”
It should be noted that these articles were written in a global context, in which America’s and Europe’s position as economic powerhouses are being challenged by other growing economies–economies where the cost of labor is an almost insignificant component of the cost of goods. It is essential that America and Europe remain competitive if it is to maintain an acceptable standard of living. How do they compete with trading partners whose costs are so low, where acceptable wages are in the single-dollar digits, and below, and who have access to the same high-tech manufacturing equipment? Only an adaptive, resourceful, and agile management paradigm will surmount this challenge.
Management agility is the answer, the strategy, and the means if America and Europe are to retain their positions of leadership in a globally competitive marketplace.
It is time to link information technology and behavioral science to leverage human capital.
Innovative management strategies, based upon timely and accurate information, must be the answer. Our implementation of IT, particularly in the late 1980s and 1990s, created the largest and most profound changes in manufacturing since the industrial revolution. American computerized manufacturing and information systems fueled the new age of high-quality, cost-effective production. manufacturing and supply chain management software, enabled by sophisticated MIS functions like manufacturing requirements planning (MRP) and large-scale, integrated management tools such as ERP applications, have been central to this success.
It is time for forward-thinking, competitively focused organizations to move to the “Next Generation” of these IT tools. It is time to strengthen the organization’s manufacturing and management information systems. It is time to link Information Technology to Behavioral Science in the form of Human Performance Technology (HPT), to enable human performance, and not simply focus on replacing it. It is time for engineering and management to see that people are not only a legitimate part of the system, they are the key component of an effective organization. If we will continue to be competitive, it must be through thought leadership and innovation. It has always been thus. It is time for a new management paradigm. It is time for the rise of the Agile Organization.
Agility: The Ultimate Competitive Edge
What is an agile organization? What are its characteristics? The agile organization is one that can move, adapt, and reposition itself in a dynamic response to changes in its global market spaces, and it can do so with speed and effectiveness. An agile organization is “lean and mean.” It has maximized muscle and minimized fat. It has right-sized and downsized to reduce unnecessary layers of bureaucracy, without cutting into the “bone” that supports the ability of the organization to not just survive, but to competitively prosper. It places a premium on skill and knowledge, and it effectively employs all of its assets, harnessing technology along with physical and human capital, to hone the “cutting edge” – a productive, high-performing business unit.
Performance Paradigm believes that the Agile Organization embodies the following principles:
Key Principles of the Agile Organization
The first two attributes of the Agile Organization are: Responds instantly to the needs of the customer; and reacts quickly to the moves of competition. Driving the decision point in an organization out as close to the customer as possible is necessary to react quickly, and is an essential attribute of the Agile Organization. Reaction speed in decision making requires accurate and timely information. To borrow a term from supply chain management, just-in-time information (JIT) is fast becoming the key capability required of information technology. “Real-time data,” possibly another overworked phrase from the last decade, is reborn in the ability of a Next Generation ERP system to instantly transform that data into actionable information, and information into knowledge.
Adding functionality is a historical problem for “first generation” ERP vendors. This is because of the legacy code that provides the underpinnings of current offerings. A “next generation” ERP vendor does not have that problem, due to the use of object-oriented software architectures.
Another principle of agility is to “use information to motivate performance. Performance information cycle time (PICT) is the behavioral management strategy that, when implemented, leads to dramatic improvements in performance. As presented previously, if you provide information to an individual as to how well they are performing, they will, typically, improve their performance without any outside intervention. This applies equally well to individuals, work groups, departments, divisions, or, indeed, an organization. The information that tells us how well we are performing is called “feedback.” This is what informs decision-making, as well as task and procedure execution. It is one of the key behavioral tools necessary to improve performance.
The following table presents an expanded view of tactics used to implement the Agile Organization:
ERP Software Animates the Agile Organization
Global competition has been squeezing the profits out of many American businesses. The Agile Organization has learned that deploying technology to support human performance can go a long way toward leveling the global playing field, by leveraging technology to equalize competitive pressures. Software and hardware technology continue to evolve at an exponential pace, the price performance curves having crossed years ago; software costs now dominate the “80/20” rule-of-thumb for budgeting. As technology becomes more capable, the cost of improved ERP capabilities has begun to fall.
This decline in price linked to improvements in capability has always been true of hardware. Object-oriented software tools have finally brought about the possibility of drastic cost reductions for high-priced, integrated management support software, as embodied by ERP applications. These ERP applications are the highly integrated software tools that drive the biggest and best of America’s economic powerhouses, and which can now be implemented by small- to medium-sized organizations. Today, all organizations, without qualification or size, can achieve agile status and become a global competitor; in fact, all organizations, regardless of size, must perform as global competitors.
Present and future data input devices, and wireless access methods, will give organizations unprecedented opportunities to both extend their boundaries closer to their customers and accelerate the decision-making process through the reduction of the time it takes to recognize and acquire critical information, and to drive that information down in the organization. The faster mission critical information can be recognized and made available, the closer decisions can be made to the line function(s) directly responsible for the relevant performance; the faster the reaction time, the more agile the organization. The ultimate goal is graphic, actionable information whenever and wherever it’s needed to support performance.
Given the object-oriented design architecture of next generation of ERP applications, it is now both possible and practical to integrate JIT information and real-time data into a functional digital dashboard, customized for the individual employee, and available when and where needed on a laptop, PDA, or cell phone. These, and other capabilities, will shortly become as essential as the ballpoint pen was to the manager of the 1950s.
Any related information in the database can be easily accessed using intuitive, “drill down” techniques through the graphical user interface (GUI). Such a tool is needed now to support the innovative strategies of the Agile Organization.
Improving performance includes financial performance, and that means better decisions about capital and expense requirements. The plain truth is that first generation ERP applications have neither the flexibility to easily add or change functionality, nor are they capable of full Web functionality. Another significant negative issue is that the total cost of ownership (TCO) of the first generation ERP applications, with their legacy code burden, thick-client desktop paradigm, and extended server-driven support infrastructure, is simply too great a financial burden for the average organization. The size and composition of the IT workforce needed to support first generations ERP systems is excessive. A large part of this cost is generated by the prevailing thick-client server strategy supported by the leading vendors. As explained our second article, the TCO for a thick-client approach can be reduced factorially by moving to a thin-client strategy. Conversion to a single midrange computer, for example, will go a long way toward reducing infrastructure costs.
Massive Reductions in Training Costs
Because the GUI and intuitive look-and-feel of a truly browser-native ERP application is so easy to learn, the significant cost of training and retraining is greatly reduced. In existing first generation ERP systems, the traditional application training approach is very costly. As the graph to the right clearly shows, after the formal training is over, the learning curve continues on for some time. This is because “use” and “application” are not intuitive.
In a next generation ERP application, the understanding of the system is improved by the use of context-relevant pop-up and pull-down menus–productivity, demonstrated by the ability to accomplish a task, is improved, while errors and frustration are reduced. By the way, training time is also cut dramatically.
First Generation ERP Systems: The Fatal Flaws
First generation ERP software is characterized by a profusion of procedural-type legacy code, a bloated support infrastructure, and pervasive armies of consultants draining the profit from many organizations. As overworked as the term “paradigm shift” may be, even to the point of cliché, the emergence of object-oriented architecture, and associated design and development tools (including visual design methodologies such as UML), have together created a total paradigm shift–a revolution, really, in computer program design and development.
The first article explored how existing ERP vendors cannot, because of their age and procedural code foundations, provide the full range of functionality made possible by new, Internet-native technologies, where the full functionality of the browser (native capabilities within the browser versus “screen-scraping” text presentation using browser), e.g. the ability of a native browser-based application to interact with any device that can run a browser, such as a PDA, cell phone, data capture device, etc., to seamlessly expand the range of I/O devices that can be used for data capture, manipulation, or presentation. In addition, adding or changing functionality required to make use of these extended I/O devices, as a result of new technology, or changes in business practices, is laborious, time consuming, and prohibitively costly.
I have argued that the lack of fully Web-based and browser-based capabilities seriously hamstrings the biggest and best of today’s crop of ERP applications. The principal reason being that, without full access to the worldwide Web and expanding wireless technology, the organization’s ability to extend itself as closely as possible to its customers, and either react to their needs or the action of competitors, is limited. Time and again, it has been shown that an organization’s ability to instantly respond to changes in the marketplace is a key to success; another principle of the Agile Organization.
The “browser,” not the “desktop,” is the access point to the future. Wireless technology extends the organization’s span of control and provides access to a global marketplace from any location. Every corporation has, or shortly will be dedicated to providing, full wireless access to most, if not all, of its employees. The ability to collect and organize information in a global environment, whether it is in the hands of field service technician receiving a software patch at a downlink in remote Kazakhstan, a salesperson’s insight during a discussion with a prospect in Paris, or a text message from product development announcing a new upgrade feature to the CEO prior to a stockholders meeting, the Web extends the power and reach of the organization. Today, the stock clerk at 7 Eleven taking inventory uses a wireless data transcription device (remember, even the boxes have RFID tags). Once again, the browser, not the desktop, points the way to the future.
Do not be confused by marketing techno-babble. Web-enabled does not mean Web browser-native. Simply put, this means that all of the current host of ERP applications available today must be totally rewritten using object-oriented software design. Every vendor is working day and night to accomplish this. It will be at least a few years before any of the ERP software vendors can achieve that goal.
This is because many of these vendors are, essentially, tied to a thick-client strategy, including all its overhead and associated costs. There is another flaw. It lies in the strategy of many vendors to “license and support the customer to the poor house”–it’s easier to drain their clients’ resources in support of redesigning their software rather than make a concerted investment of their own to provide their clients with true, future-oriented value and competitive capabilities. A thin-client strategy enables the use of inexpensive workstations and non-standard I/O devices, and readily allows one to carry the link from the corporate database to anywhere in the world–at a reasonable cost. A fully browser-native, Web-based system cuts today’s umbilical cord to the ERP application–freeing us from the tyranny of the PC, and its desktop operating system vagaries. The result enables implementation of a cost-effective, and highly mobile, thin-client strategy.
The most important benefit of the Agile Organization may well be survival itself. In the sports world, it is said that an agile big athlete will win over an agile small athlete every time. Still, it is unusual for a large person to be agile; the term itself brings to mind the small, compact person. While the physical mechanics of human agility are immutable, the attributes of organizational agility can be created and acquired. Any organization, no matter its current configuration, can “agilize” itself. A key step in the process is determining how to treat information and human capital. The premise that both exist independently of the other is faulty.
Information, as I have presented it here, is the key component in improved human performance. The two critical attributes of information that influence behavior and performance are speed and accuracy.
To the fighter pilot, “. . . speed is life.” In nature it is ” . . . adapt, migrate, or perish.” The mantra of the highly competitive arena of 21st century global economics may well be “be agile, or be gone.”
Jerome Peloquin is the owner of Performance Paradigm, and a whole lot more. We welcome him to the ranks of IT Jungle’s expert commentators. Peloquin is a former U.S. Marine and was a member of the President’s U.S. Marine Band in Washington, D.C., and upon discharge, joined the U.S. Capitol Police. After that, he moved to San Francisco where he helped found one of the most popular bands of the day, Jefferson Airplane. For a time, he had a career as a professional musician, playing with such talent as Nina Simone, Jose Feliciano, Paul Winter, and Chad Mitchel. In the mid-1970s, Peloquin left the music business and went back to school to get a master’s degree in Instructional Systems Design. He studied with the eminent behavioral psychologist, the late Thomas Gilbert, a colleague of B.F. Skinner, the former being the father of the Human Performance Engineering branch of behavioral management, the latter being the most famous behavioral psychologist in the world. Peloquin subsequently founded and managed his own electronic publishing and consulting company, and after 10 years, he sold the business to Sylvan Learning Systems in 1996, and took a position as the director of consulting services at the company. In that capacity, he consulted with numerous Fortune 500 companies, including Ford, Frito-Lay, Gillette, Merck & Co., and Honda America Manufacturing. Peloquin left Sylvan in 1999 when the consulting division was sold, and formed his own practice.