Five reasons why business transformation should not be driven by your enterprise resource planning system

This blog explains how to align your business vision with your operating vision by establishing an independent transformation and excellence platform above the IT application systems

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You can align your business vision (how you win in the market) with your operating vision (how you run your business) with the ARIS platform. Read this practitioner’s guide for a successful transformation.

The rules of the game are changing in many industries and not just as a result of the Covid-19 pandemic. Companies in the energy, automotive and financial sectors are feeling immense pressure to adapt their business models in order to remain successful in the face of radically-altered market conditions.

In recent years, many transformation projects have not achieved the desired effect, despite high levels of investment. One of the main reasons for this is the lack of a link between strategic decisions and business operations. Transformation can only succeed if the adapted business model is mapped to the core business processes and if all employees are integrated into the 'new way of working'.

It is obvious that such a reorientation, linking strategic decisions with the company's business operating model, cannot be managed with paper, pencil and slides. It requires a digital platform that encompasses all relevant assets of the company and serves as the basis of the change management process. Gartner uses the term 'digital twin of an organization’ (DTO) to characterize such a platform, and often this is also referred to as an 'enterprise management system’ (EMS).

The question is where this digital platform for business transformation and operational excellence resides. The major vendors of ERP systems are making efforts to position this strategic transformation also as part of the functionality of the enterprise resource planning (ERP) system, but this may not make sense.

Below are five reasons why this platform should be established as an independent business layer, 'above' the IT application systems:

The description of a business model should follow a clear methodology

Approaches such as business model canvas describe the value proposition of your product portfolio, which customer segments are addressed, which key processes and resources are required and how the appropriate partner ecosystem looks. For meaningful documentation, and testing ‘what if’ scenarios, a repository that relates these aspects to each other is needed. However, the strategic orientation of your company should not be influenced by the functionalities of a concrete IT system.

Mapping strategic decisions to key processes is a critical success factor

It makes a big difference whether you position yourself in the market as an innovation driver, via high service quality or cost leadership. In each of these cases, it is important to differentiate yourself by designing processes such as idea-to-product, contact-to-order, order-to-cash and issue-to-resolution accordingly. If you let the strengths of your ERP system dictate the design and focus of these processes, you will not achieve the intended differentiation.

Identify weaknesses and optimization measures by analyzing process execution

This is another essential aspect on the way to operational excellence and falls in the domain of process mining systems. Nearly all companies use a heterogeneous IT landscape, meaning that the analysis of end-to-end processes requires extracting data from different systems and relating the process snippets to each other.

To do this, it is simply not sufficient to use the reporting options that are predefined in a single IT system, as these stop at the system boundaries. A heterogeneous application system landscape requires an independent layer that aggregates the IT data and logs files into process and business oriented insights.

Complex and cumbersome IT systems impose major limitations to process automation

To react flexibly and quickly to business requirements, low-code or no-code platforms have become established in many companies, which allow business departments to implement their requirements without in-depth IT expertise. However, the governance of these applications should be ensured and the central operational excellence platform serves to manage the connection between these flexible apps and the business processes and to document the underlying business requirements in a uniform manner.

Transformation and operational excellence initiatives are unthinkable without taking compliance requirements into account

This is especially true in highly regulated industries such as pharmaceuticals or finance. The fulfillment of all legal requirements regarding aspects such as quality, data security and business continuity is the 'license to operate'. It must be confirmed that controls are defined and effective along all relevant processes. Again, the core processes and not the boundaries of IT systems are the relevant structures for conducting audits. For example, it makes no sense to audit compliance for each IT system; regulatory compliance is an essential aspect of the digital transformation and operational excellence platform.

It is not easier to rely on your dominant software vendor when selecting the transformation and operational excellence platform. It would be like suggesting that all Bundesliga referees should come from Munich because Bayern Munich has been the dominant team in recent years. You should keep in mind that the pressure for change will continue to increase in the coming years and that large ERP systems do not have the flexibility to map your future business requirements in an agile way.

The heterogeneity of your software landscape will increase and composite applications based on an expanding application programming interface (API) ecosystem is the dominant IT trend for the next few years. Therefore, an independent business layer is needed to connect strategy and core processes to IT capabilities.

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