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Strategically Enriching your ERP

This article introduces critical principles that every executive and manager should know in order to be able to derive full value from their business information systems investments.  These principles apply to your ERP, WMS, CRM and other business information systems, your business intelligence systems and your general operational software systems.

These principles, correctly applied, will enable most organizations to substantially improve the strategic and operational decision support information yield of their business information systems facilitating better decision making and more effective and more profitable enterprise operation.

They are equally applicable to nonprofit and governmental organizations.

This article discusses actions you can take immediately and other actions that will require careful planning and whose implementation will take some time.  It headlines a number of typical problem areas and steps to correct them.  Further articles are planned that will define the fundamental principles that underpin the application of these recommendations and provide recommendations with regard to implementation.

Factors which will indicate whether it is worthwhile to read this article include:

  • Experiencing errors in reports;
  • Different reports on the same information do not agree;
  • You ask what you consider to be a simple question and it takes days or weeks to get an answer;
  • Large amounts of processing in Excel to produce required information including Board packs;
  • Not possible to drill down from management reports without further manual intervention in Excel;
  • You are disappointed with one or more of your systems;
  • Your systems are not delivering all you hoped for;
  • You are locked into “consultants” who should have left years ago and the ongoing maintenance of your systems and reports is a source of frustration;
  • As stated previously, Frank Buytendijk, vice president of research at Gartner Inc is reported to have said at the firm’s Business Intelligence Summit in London that “most organizations are not making better decisions now than they did five years ago.” this article addresses the fundamentals behind this finding.

Ten steps you can take to strategically enrich your business information systems

These notes apply to differing degrees to every module of every business information system from every software vendor on the planet.  The do not relate to technology, they relate to how information is organized to make maximum sense to human beings and in order to facilitate maximum ease of electronic processing.

They relate to principles that are well understood in certain quarters but hardly understood, or if understood, imprecisely applied in the majority of business information system installations.  These factors are the most significant factors behind Gartner’s finding that “most organizations are not making better decisions now than they did five years ago.

These suggestions apply whether we are speaking of financial transactions or product records, whether we are dealing with the General Ledger Chart of Accounts, the Product Class, the Item Master, the Materials Group, Personnel Class or any other database table large or small in any system.

I will primarily use examples from the Chart of Accounts as this is more universally applicable than any other information list and any other Master Data.

Many technologists will look at what is presented here and tell you “but FRED (the name of your system), is so powerful it can handle this!”  Do not listen to them, this is not about technology it is about organizing information in meaningful ways that accurately model the real world so that the full potential of the technology can be unlocked and the data is easily and quickly interpreted by managers and executives.

If you follow the steps set out below and systematically and progressively apply them to your systems you will find in a few years’ time that you are getting much more information faster and easier and that your business is running smoother and better.  You may even find that some of your mid-level administrative personnel are much more gainfully employed or that somehow the headcount has reduced without you really planning it.

The principal requirements of executives

In considering what follows I suggest that the principal requirements of executives for any business information system include:

  • The answers to questions I have not yet thought to ask;
  • Enable me to run the business MY way;
  • Accurately model every aspect of my business;
  • Totally integrated solution;
  • Entirely reliable and dependable;
  • Fundamentally support the essence of the business and how it thrives (strategy);
  • Fully support my day to day operational functions

What is presented here is designed to assist you to reach the above goals.

All that follows relates to the classification lists, attribute lists, Chart of Accounts and other classification and grouping lists that exist in all software to varying degrees.  These are the classifications that are used to order, group and analyze data.  If they are well structured, well designed and well maintained the software is a pleasure to use, if not …!

I stress that this information is relevant at the executive and senior manager level – once you understand the real issues then you can manage the problems referred to above out of your systems.

  1. Ambiguous item names

Account or item names are ambiguous resulting in different personnel posting differently e.g. “Smelting and refining” – Asset or Expense?  Clean up the lists and make names unambiguous “Smelting and refining operating expenses”.

  1. “Clumping” of transactions

A single item or account covers substantial numbers of diverse transactions monthly e.g. the “Smelting and refining operating expenses” example above is a £100 million asset with hundreds if not thousands of expense transactions monthly.  Break this down into five to ten major categories and, in this particular case, break each of those down into between five and ten categories.  Assemble this into a very carefully designed hierarchical list (taxonomy), code it using structured codes and immediately you will be able to analyze your expenses much more exactly.

The level of detail should model the real world at the finest level of detail that you will ever ask questions on.  The computer can only drill down automatically to the finest level of detail that you capture and maintain and it can only group automatically to the extent that there is logic in your code scheme.  Well-designed lists and codes = easy to post accurately, easy to analyze, electronic drill down and summarization.  The opposite = lots of manual work in Excel or complex reports or both.

Consider the following real example:

Typical Credit Note Reason Codes

Versus Strategically and Systematically Designed Reason Codes

With the first list you will struggle to answer most management questions, with the second you will answer any conceivable management question – same software, same business, different classification data.

  1. Cannot get answers to simple questions easily

The example above gives you the answer.  Survey your staff, find out where they are struggling to get answers, examine the classification lists, make changes in line with the example above.  I intend to give more guidance on how to do this in subsequent articles.

  1. The information you need is not there

You are asking questions that are important, for example with regard to market trends, and you cannot get the answers without putting a fairly senior person onto spending days with Excel and direct research to arrive at an answer that no-one has confidence in.

Add the relevant characteristics to the master data e.g. buying patterns for golf clubs are influenced by the sound they make relative to the sound of the clubs used by the top players on the circuit.  Fashions change and it is desirable to monitor trends.  Add “Golf Club Sound” as an attribute on your Product Master record – an hour or two to add the attribute to the database, some days to classify all the products and immediately you have real time tracking of trends for ever at almost no extra cost.  Just make sure you do the job properly first time – the Engineering Approach!

You can quickly and easily add any number of attribute lists to your master files in this way and with a bit of effort you can classify all your products and capture the extra data.  This applies to personnel data, to production data, to equipment spares, you name it you can add attributes and it costs almost nothing to do this relative to what you have spent in total on your systems thus far.  And the return on investment is very substantial!

The key question to executives and senior managers should be “what are ALL the possible attributes that you can possibly think of to describe a … (e.g. golf club)” – brainstorm, classify and, if in doubt, add it anyway.

  1. Duplicate items

Quite frequently different departments define their own sets of classification codes to suit their purposes.  For example I once found an Item Master where exactly the same earth moving machine tyre occurred in three different places.

Evaluate the logic of the list, select a single instance of the item and close the others down.  If you keep getting incomplete reports or reports from different departments do not agree this is frequently the answer.

  1. Lots of spreadsheets with manual manipulation

You have a significant number of mid-level and even senior staff with spreadsheets producing the monthly Board Pack and other management reports.  When you question the numbers the query has to cascade down through the ranks until the operator at the bottom extracts required data and the hierarchy of managers and accountants process the data back up through their spreadsheets.  Expensive, frustrating and a total waste of time.

Look at the data that is giving the problems and develop overarching logical code schemes from first principles that accurately model the real world.  Introduce these into the Transform layer of a new instance of your data warehouse and transform the data into logically structured hierarchical classifications that you can roll up electronically.  A significant project but will give substantial benefits and probably reduce administrative costs.  I plan to discuss how to do this in more detail in future articles.

  1. Different departments have different definitions

I once came across a large multi-national organization where operations, finance and human resources had three different systems – SAP in the finance domain, another instance of SAP in the human resource domain and a completely different operational system used by those who actually produced the output of the business.  The employee classification and grouping in the three systems did not agree at all to the extent that even the most elementary employee category related analysis was to all intents and purposes impossible.  It is vital to have a single harmonized standard across the enterprise, this standard needs to be driven from the office of the Chief Executive as the custodian of the integrated view of the business and must be extremely well engineered to the highest standards of what I am advocating here.  Once in place huge benefits will result.

  1. Cannot correlate measures of customer satisfaction with the hard data

Soft measures like customer satisfaction, employee satisfaction, etc are seldom correlated with actual production and sales data for all of the reasons given above and others.

Modify your customer satisfaction instrument (questionnaire post card, etc) so that it is issued in such a way that it has a unique bar code or other identifying code discreetly printed or in some other way linked back to the specific transaction associated with the issue of the questionnaire.  Scan the results back into your system and use the unique code to join the customer satisfaction data with your operational data.  You will immediately be able to monitor performance of a wide range of matters electronically in ways you previously might only have dreamed of.

  1. Your major lists are badly structured and a nightmare to navigate

Point 6 above will start pointing you in this direction.  Critically examine your Item Class, Product Class, Material Group, Employee Group, Chart of Accounts and other major lists in the light of what you read here and what I plan to share with you in the months ahead.  My experience tells me that you will almost certainly discover that they are extremely badly organized with little or no logic, innumerable haphazard groupings, if there are any groupings at all.

If you dig further you may well find that it takes ages for new staff to learn how to post accurately, that new staff may even give up and leave, that posting errors are prevalent, that supervisors and even managers expend significant time working around the badly ordered data, that no one actually trusts the data and that the people who get the job done rely on their own pieces of software and spreadsheets outside of your core systems.

The following is an example of an extremely badly designed Chart of Accounts, so much so that the client was running their business almost entirely with Excel.

Interestingly the software vendor told me that his software, call it FRED, “is so powerful it can handle this data”.  The client failed to take my advice and went bankrupt. 

The answer is not to buy new software, it is to build new classification lists – by doing this you will dramatically raise the quality of management information and realize the true value of your systems.   This is a classic example of the underlying fundamental behind “most organizations are not making better decisions now than they did five years ago.”

  1. Allocation of overheads to production business units is approximate and highly manual and financial reporting generally is cumbersome

Finally you may find that the allocation of overheads is a source of contention and uncertainty.  You may find that your managers are managing off Excel spreadsheets with little or no regard to the financial system.  In extreme cases you may find that from an operational point of view only the Accounts Department and the Auditors really make use of the Financial Suite.  You may also find that the audit costs much more than you would like it to and takes much longer than you think it should.  Look no further than a badly designed Chart of Accounts that does not accurately model the real world with numerous management journals that have no place in the core financial records.

A Chart of Accounts should accurately model the business in a sophisticated compound code scheme that incorporates every element of the business in distinct code segments comprising Divisions, Locations, Functions and Accounts.  These are fundamental logical entities with information management rules as hard as concrete that must be rigorously and precisely defined in highly structured hierarchies and coded to engineering standards of precision.  I use custom developed software to ensure the consistency of the code scheme when I build such Charts of Accounts.  Be aware that people will tell you that their Chart of Accounts complies with what I have just said, in my experience they almost never approximate the level of engineering rigour that I regard as non-negotiable.

This model then forms the basis of how the entire business is represented to the diverse computer systems that form the administrative backbone of every organization.  Application of this approach can take place in the Transformation layer into the Data Warehouse and, in time, the operational Financial Suite can be reimplemented.


If you recognize that there is NOTHING more important than the configuration data that we have been talking about and that, correctly addressed, remediation of all the above items can make a huge difference.  And your recognize that this should be undertaken to high standards of precision, as you would in any engineering endeavor, you will open the door to add very substantial value to your organization and unlock huge value from your existing business information investment.  

A hundred fold increase in information value is entirely achievable and, coupled to this, greatly improved management efficiency and business competitiveness leading to increase profitability and growth.

I offer advisory services with regard to the application of these principles and would be delighted to discuss how I might be of assistance.  I also offer a light touch diagnostic service to evaluate the state of your information tables and system generally and advise how to remediate them.

Yours sincerely,

Dr James Robertson
The ERP Doctor