Tuesday, April 10, 2007

Does ERP matter?

Having announced his departure from SAP (apparently quitting the software industry to work on alternative energy and transport) Shai Agassi continues to blog about enterprise software on the SAP Network as well as his personal website The LongTailPipe. His latest post: Does ERP matter?

People in the software industry often use labels like ERP (enterprise resource planning) and CRM (customer relationship management) to refer to computer systems or application packages, such as those purveyed by SAP and its competitors. So most people will probably read Agassi's post as a discussion of the ongoing relevance and value of these packages.

But these packages are merely a software solution to a particular class of management problem. So we might first ask: does enterprise resource planning matter?

This is not such a stupid question as it might seem. Like MRP and MRPii before it, ERP represents a certain management style. Invoicing is integrated with inventory control and logistics not just because data management likes to have all the data in one place, not just because it makes the transaction processing more efficient and effective, but because this integration enables a set of higher-level management capabilities, including planning and coordination. ERP is therefore not just a transaction processing system, it is a command and control system.

In the early days of MRPii, I can remember considerable resistance to the notions of planning and coordination that MRPii entailed, from factory managers who were accustomed to planning next week's production of widgets quite oblivious of the fact that the warehouse was already full-to-overflowing with widgets.

And it is possible to imagine a fictional enterprise in a totally service-oriented world that doesn't need resource planning - because it doesn't possess any resources. Everything it ever needs is invoked from somewhere else in the network, on a just-in-time basis. You would still need systems to handle logistics and invoicing and all the rest, but you wouldn't need ERP.

Enterprise resource planning represents a kind of management coupling between different management functions - sales and marketing, distribution, manufacturing, purchasing. In the past, there were many enterprises where the coupling between these functions was loose and incompetent. There are many enterprises today where the coupling between these functions is now tight and efficient - and some of the credit for this improvement may go to SAP and its competitors.

Clearly we don't want to go back to a loose and incompetent style of management. But is there a real alternative to enterprise resource planning, one that is loosely coupled (as befits a service-oriented world) but still efficient and effective? I think that's the fundamental question as to whether ERP matters.

But this is not the question Agassi is addressing. I'll come back to his argument in another post.

See also Ian Thomas Does ERP Suck?

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