Category: Ideal Realised Strategy

Note to self: do ERP vendors benefit from the sunk cost fallacy and asset specificity?

I’ve never really been very interested in ERPs – so I likely don’t know what I’m talking about…

But over the years there have been many times I’ve heard organisations saying they need to “leverage their investment” in their ERP.  This is usually after they have spent far too much money implementing it in the first place so whenever I hear that phrase I can’t help but hear “we don’t have the expected benefits from this yet so we should invest more in it because we’ve already invested too much not to get any benefits from it”.  This is clearly the sunk cost fallacy at work.

There has been talk of the end of ERPs for some time, and there are certainly many web-based alternatives, much-hyped redesigns, as well as web based versions of classic ERPs.  But at the same time ERPs aren’t going away.  Certainly the companies themselves are far too clever to not evolve.

But I’m more interested in why the benefits aren’t realised.  Because from an enterprise architecture perspective there are certain elements of the ERP value proposition that make perfect sense.  If you think of enterprise architecture as primarily being about finding the capabilities, services, and processes that you want to further integrate or standardise across your organisation (and I haven’t found a better definition) then taking disparate payroll, HR, procurement (etc, etc) processes and standardising them should delivery value.

I’m going to make a leap here and say that ERPs actually do deliver value.  In fact, any critic that suggests otherwise probably has a skewed view of why we use information technology in our organisations in general.  The problem with ERPs isn’t that they don’t deliver value – it’s that they are incredibly overpriced.

Given that organisations pay that price I have to wonder how ERP vendors are able to extract value from organisations so successfully.  Going back to my limited experience with ERP implementations I see three ways ERP vendors extract value from organisations:

1) ERP people are over specialised.  While development and support for software packages from mid-sized vendors, or custom software development can be implemented with a variety of method, tools, and resources, a SAP implementation for example must be staffed with ‘SAP people’.  There are no business analysts, developers, or project managers.  There are instead SAP Project Managers, SAP Developments, SAP Business Analysts.  This of course creates a scarcity of quality resources and the subsequent high price of those resources.

2) ERP vendors force their customers to follow an Ideal Realised Strategy which says your implementation will be simple if you don’t customise your implementation.  However, by virtue of the fact the everybody customises their implementation this doesn’t seem like a feasible strategy in practice.

3) ERP implementation partners take control of both IT change and business change.  However, rather than take the approach that business change is about delivering benefits and increased productivity they appear to take the approach that ‘business change’ is all about making sweeping changes to work practices rather than making small changes to the product.  i.e. by owning business change they are using it to the vendor’s advantage not the client’s advantage.

Long-overdue rant complete.

Ideal Realised Strategies and Enterprise Architecture

There are two important themes in the MWT Model that are used to shift organisational habits.  These are ‘pendulum arguments & something else’ and ‘ideal realised strategies’.  Pendulum arguments are issues like the ‘centralise or decentralise’ debate that cause organisations to continuously cycle through organisational design or financial control models.  These pendulums must be fixed with ‘something else’ – such as an operating model or a collaboration architecture in this case.

Ideal Realised Strategies are a separate category.  These are the problems when a strategy is proposed or in place that only delivers an acceptable balance of benefits and risk if it is implemented perfectly (which of course number happens).  In the context of the MWT Model, these are usually management strategies such as ‘ensure you confirm that you have closed all issues by the milestone date’.

Ideal Realised Strategies often have unstated dependancies or are otherwise unfeasible.  Ideal Realised Strategies also tend to keep people in positions of power because they need to be continuously funded and supported while the strategy endlessly edges towards perfect implementation.

As I spend some time thinking about enterprise architecture I’m starting to see the whole practice of enterprise architecture as an Ideal Realised Strategy.  I was also struck by title of this article (“What to enterprise architecture and socialism have in common”) and as a Mises-head of sorts didn’t like the comparison.

I usually place enterprise architecture (EA) as the anti-thisis of the overtly political approach to organisational design and decision making inherent in the managerial approach.  But not everybody places EA in this context, and it sometimes appears that as EA ‘matures’ to prescribe governance and business architecture approaches it is increasingly making its success dependant on more total control of the organisation.

Any strategy that has its success based on increasingly total control of the organisation that it supports is by definition an Ideal Realised Strategy.

Once I see EA this way I can’t help but think that it’s also evolving into a form of technocracy in the same way I have argued that managerialism is technocratic.  It also risks becoming part of a pendulum argument in the way I have seen organisations swing from sales lead (“if we don’t sell anything it doesn’t matter what we deliver”) to delivery lead (“if our delivery suffers our clients won’t want to buy our product no matter how good our sales people are”).

EA is changing – needs to change – but let’s get this right.

Update: there are some nice hints towards an EA approach less obsessed with centralised power in the Gartner press release I’ve previously referenced.

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