Strategic Competitive Advantage with ICT and ERP

Simon Hartfiel, CIO, Carinity

Simon Hartfiel, CIO, Carinity

Having worked across a number of different industries, in senior IT roles from manufacturing to human services, I have been involved with numerous ICT initiatives. Across all of these different industries, the majority of the business problems being solved through the use of IT are often the same or very similar. Never the less, each business will often say that they are unique and that these problems are industry specific. In a general sense, this is a true statement – the core operations of a steel mill are quite different to the high touch human services of an age care facility. Quite often though, much time is spent discussing process improvements on transactional areas which offer little, if any, strategic competitive advantage for the business within its core market. For example, I have spent many a financial implementation with key business stakeholders intent on “capitalising on their industry uniqueness” to design, configure, and build the most efficient accounts payable process and solution. While a noble goal, most businesses are not going to gain a strategic competitive advantage over their competitors through increased sales, customer satisfaction, or market share through a highly customised accounts payable process.

"A key strength of a well architected ERP solution is that the inter-process plumbing is developed and maintained by ERP vendor"

Too often, people get caught up with the historical process inputs and the coolness of the technology and lose sight of what business outcomes are required and if a particular critical business process/function offers any strategic competitive advantage. This is not to say that Accounts Payable is not a critical piece of business functionality (Accounts Payable could equally be replaced with functions in HR, Safety, Marketing, and Operations). These processes could be more broadly classified as commodity business activities – critical functions similar across most businesses, but on their own offer limited strategic competitive advantage.

Likewise, the complexity and cost of building system interfaces between these pieces of functionality also offers limited strategic competitive advantage.

So how does one extract strategic value from these processes that can help create a competitive advantage? One way this can be achieved is through the integration of these functions in a way that business insight and strategic analysis can be conducted on the resultant process outputs. Using the accounts payable process example, being able to understand the relationship across the different creditors, their payment terms, and cash flows could result in a more strategic understanding and management of the procurement process through consolidated contract arrangements with vendors. This can become a strategic competitive advantage when the business can manage minimum stock levels while maintaining or enhancing customer satisfaction with the delivery of services.

While the necessary levels of integration and consolidated data view can be achieved through a best of breed (or point solution) approach to the IT enterprise architecture, this is often a long and expensive road with significant total cost of ownership factors often not fully accounted for up front. One should never under estimate the effort required in maintaining the technical plumbing between systems purchased from different vendors. Many vendors provide reasonably robust methods of exposing elements of their system’s data for integration with down steam solutions however, patching and software upgrades always require additional time and effort across all of interconnected solutions. A key strength of a well architected Enterprise Resource Planning (ERP) solution is that the inter‑process/inter‑functional plumbing is developed and maintained by the ERP vendor. A considerable amount of the patch and upgrade testing of these interconnections are well tested by the vendor prior to any update being released.

When point solutions are implemented, entire end-to-end business processes need to be designed across the different products and consolidated to enable any detailed strategic analysis on the resultant outputs. In comparison, ERP providers often provide end-to-end process solutions (developed over time from their different customer installations) which can be leveraged to provide an 80% solution fit removing much of the extended discussions geared towards creating highly customised solutions that often look more like the original business practices than streamlined best practices.

Too often, the strategic competitive advantage benefits of an integrated solution are not factored into the analysis presented in the business case justifying the choice or selection of a solution architecture. Instead, the focus tends to be limited to efficiencies to be gained from individual processes. This approach can result in discounting the business advantages that could be gained from an ERP solution.

Capitalising on the strengths of an ERP solution’s architecture means that more of the implementation project activities can be focused on process outputs and how these outputs could be used to drive strategic advantage for the business. It also means that more time is available to determine the most appropriate solutions for delivering business outcomes for processes directly linked to creating a strategic competitive advantage and less time debating the merits of commodity processes.