Business Process Management and ERP - Aberdeen Group

Business Process Management and ERP Driving Efficiency and Innovation

June 2013 Nick Castellina

Business Process Management and ERP: Driving Efficiency and Innovation Today’s businesses are increasingly complex, composed of a growing number employees, locations, partners, processes, and business systems. No team of decision-makers could possibly run a business on their own, and no workforce can succeed without a finely tuned operation that can manage so many moving parts. When it comes to managing the data used to run a business from end to end, Enterprise Resource Planning (ERP) has long been a source of visibility, efficiency, standardization, and collaboration for organizations of all types and sizes. In terms of designing, executing, monitoring, and optimizing the actions utilized to run an organization, Business Process Management (BPM) enables organizations to execute and continuously improve. Both are important for managing an organization to produce efficiency and keep costs low, but according to Aberdeen’s research, companies are finding value in the union of ERP and BPM. A recent survey focused on BPM found that 39% of Best-in-Class organizations have both ERP and BPM solutions. This report, based on feedback from more than 400 organizations across the globe, examines the reasons that organizations pair these systems, as well as the benefits that these organizations have seen when it comes to serving customers more effectively and conducting business in a more agile manner.

The Need for ERP and BPM The reasons that organizations implement either ERP or BPM are similar across the two technologies. For example, Aberdeen’s 2013 BPM Benchmark survey studied the top business drivers that impact BPM strategies (Figure 1). Figure 1: Business Drivers Impacting BPM Strategies Lack of innovation and outdated business processes

45%

Improvement of quality and consistency of products and services

41%

Simplification and removal of risks from business processes

June 2013

Analyst Insight Aberdeen’s Insights provide the analyst’s perspective on the research as drawn from an aggregated view of research surveys, interviews, and data analysis.

Aberdeen Methodology The Aberdeen maturity class is comprised of three groups of survey respondents. Classified by their self-reported performance across several key metrics, each respondent falls into one of three categories: √ Best-in-Class: Top 20% of respondents based on performance √ Industry Average: Middle 50% of respondents based on performance √ Laggard: Bottom 30% of respondents based on performance There is occasionally a fourth category: √ All Others: Industry Average and Laggard combined

33%

Maximization of return on assets

28% 0%

20%

40%

60%

Percentage of Respondents, n = 416

Source: Aberdeen Group, May 2013 This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

Business Process Management and ERP: Driving Efficiency and Innovation Page 2

The major focus of these business drivers hinges on improving business processes to become more modern and efficient while providing better quality products and services to customers. Forty-five percent (45%) of respondents indicated that they need to update their business processes. Just because processes have been completed in a certain way in the past, it does not mean that they cannot be improved. The focus of improving these business processes can have two major effects. The first is efficiency. By removing, combining, or improving steps and the number of employees involved in key business processes, organizations can drive down the time it takes to complete the process, reduce risk, and save on costs. In accordance, 28% cite a need to maximize the return on their existing assets. The other major effect is the impact on the customer. Improving business processes can improve the quality of products and the response time to customer requests. This should improve customer satisfaction and ultimately affect revenue. The above pressures indicate that organizations look to BPM to run their organizations more effectively and reduce costs. Concurrently, the key business drivers shaping ERP strategies, uncovered by Aberdeen’s 2012 ERP Benchmark survey, included cost reduction and an ability to perform decisions and processes in a quicker and more agile manner (see sidebar). ERP ultimately becomes the method by which the processes designed in BPM are tracked and executed. Therefore, it makes sense that these two technologies should be strongly related. The data below illustrates the benefits of combining these technologies effectively to create consistency throughout the organization.

Efficiency and Innovation through ERP and BPM Data from Aberdeen’s 2013 BPM Benchmark survey illustrates how integrating ERP and BPM can aid continuous improvement (Figure 2).


Figure 2: ERP / BPM Aids Continuous Improvement BPM and ERP 75%

No BPM and ERP 61%

45% 30%

44% 30%

34%

39%

15% 0% Lean or Operational Cross-functional Ability to capture Excellence continuous and integrate ideas programs are in improvement teams from employees, place across the in charge of customers, and organization improving suppliers performance

Source: Aberdeen Group, May 2013

© 2013 Aberdeen Group. www.aberdeen.com

Respondents to the 2013 Business Process Management Benchmark survey were ranked on the following criteria: √ Improvement in profit margins over the past two years: Best-in-Class – 18%, Industry Average – 6%, Laggard – 0% √ Complete and on-time delivery: Best-in-Class – 96%, Industry Average – 88%, Laggard – 75% √ Change in cycle time of key business processes over the past 12 months: Best-in-Class – 18% decrease, Industry Average – 4% decrease, Laggard – 15% increase

Top ERP Business Drivers Respondents to the 2012 ERP Benchmark survey of 560 respondents cited the following top business drivers driving ERP strategies: √ 43% – Must reduce costs

59%

60%

Best-in-Class Business Process Management

√ 36% – Need to manage growth expectations √ 29% – Delays in decisionmaking from a lack of timely information √ 26% – We need to be easier to do business with √ 24% – Must improve customer response time

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Operationally, organizations that have both ERP and BPM are more focused on continuous improvement. Forty-four percent (44%) of these organizations have Lean or Operational Excellence programs in place across their organization. Companies with both ERP and BPM are 79% more likely than those that do not to use cross-functional continuous improvement teams in charge of improving performance. These teams can be a source of innovation that changes how the organization operates or the products and services it delivers. Of course, these organizations need a mechanism in place, whether in a software repository or through manual processes, to collect these ideas and put them into place throughout the organization. Therefore, 59% of organizations that have both BPM and ERP have the ability to capture and integrate ideas from multiple sources. Organizations with both ERP and BPM also have a leg up on standardizing, executing, and updating processes (Figure 3).


Figure 3: Dynamically Updating and Standardizing Processes BPM and ERP

No BPM and ERP

75% 60%

56%

30%

43%

39%

45% 29%

28% 19%

15% 0% Business processes Business processes Utilize best are reusable and are dynamically practices that were deployed across updated as new included in ERP operations best practices solution emerge Source: Aberdeen Group, May 2013

One of the major benefits that an ERP solution can provide is the ability to standardize and communicate best practices across an organization. BPM helps to design these processes. Accordingly, organizations that have both ERP and BPM are 93% more likely than those that do not to create business processes that are reusable and can be deployed across operations. Additionally, BPM is used to measure the effectiveness of and improve processes (which are then carried out through ERP). Therefore it can be used to create a more agile organization that can react to business change. This is why organizations that have both ERP and BPM are over twice as likely as those that do not to be able to dynamically update business processes as new best practices emerge. Of course, there are some best practices that will be in place at the beginning; BPM can be used to measure the effectiveness of best practice templates that come with many ERP solutions.


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So how does this work in practice for an employee on a daily basis? Several key capabilities are enhanced by implementing both ERP and BPM (Figure 4).


Figure 4: The Impact on Agility and Efficiency BPM and ERP

No BPM and ERP

75% 60%

50%

48% 40%

45% 30%

33%

28% 14%

15% 0%

Process in place to Ability to alert users Centralized manage nonof process repository of work compliance, and deviations instructions recall events across the enterprise


For example, combining ERP and BPM enables organizations to be more agile and minimize the impact of adverse events on the bottom line. Fortyeight percent (48%) of those that have both ERP and BPM have a process in place to manage non-compliance and recall events across the organization. This can help them avoid fines or, in the case of process manufacturers, avoid providing harmful materials to customers. Also importantly, organizations that have both ERP and BPM are 2.9 times as likely as those that do not to be able to alert users of process deviations. This allows them to react immediately and adjust processes to ensure that things continue to run smoothly. Lastly, combining ERP and BPM provides a single, comprehensive guide for employees to perform their jobs as efficiently as possible. As a result, 55% of organizations that have both ERP and BPM provide their employees with a centralized repository of work instructions. All employees are therefore able to access best practices and perform up to standards. For example, field employees can service customers more quickly, increasing satisfaction and decreasing costs.

Performance Improvements The increased capabilities above provide numerous improvements for the organizations that use them. But what are the actual results to be gained in performance metrics? Organizations that have both ERP and BPM have seen greater increases than those that do not in complete and on-time delivery and schedule compliance. This can be linked into the quicker decisions that these organizations are able to make, which ultimately can result in increased profit margins. These profit margins can then justify technology investments. © 2013 Aberdeen Group. www.aberdeen.com

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Table 1: Performing Better with ERP and BPM ERP and BPM

No ERP and BPM

Complete and on-time delivery

89%

86%

Internal schedule compliance

90%

86%

Decrease in time to decision over the past year

12%

9%

Year over year change in the amount of time it takes to respond to customers

7% decrease

1% increase

8%

7%

Performance

Improvement in profit margins over the past two years


Key Takeaways In order for organizations to run effectively, they must carefully map out processes based on available resources and organizational goals. Once that has been done, the employees must execute these processes in the intended manner. Of course, business events can occur that will require intelligent and agile process changes to minimize the impact of adverse events or take advantage of new opportunities. No organization should ever rest on its laurels. As goals change and new best practices emerge, companies must communicate process changes effectively across the organization. Planning how to run a business, and executing on those plans are two very different things. ERP and BPM can enable companies to map out and optimize processes while simultaneously executing on them and tracking the results. Therefore, the research above provides a compelling case for combining these two technologies in order to provide a more comprehensive system to run a business. Examples of the potential benefits can include: •

A 4% increase in complete and on-time delivery of products and services

•

Seven times the year over year improvement in the amount of time it takes to respond to customers

•

A 33% greater decrease in the time it takes to make decisions year over year

•

An 8% improvement in profit margins over the past year

These performance improvements illustrate the strong tie between these two technologies. There is an additional case to be made for effectively integrating the two technologies in order to ensure they work in conjunction. This can enable a single repository for process efficiency and product and process innovation. ERP and BPM are a natural pairing that, when combined, can support an organization from end to end. © 2013 Aberdeen Group. www.aberdeen.com

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For more information on this or other research topics, please visit www.aberdeen.com

Related Research Managing ERP Implementation Projects to Deliver Increased ROI; April 2013 Business Planning and Execution: Aligning Objectives, Processes, and Forecasts; February 2013

Culture, Collaboration and Coordination: Driving High Performance with EPM; January 2013 The Line of Business’ Role in ERP Success; January 2013

Author: Nick Castellina, Senior Research Analyst, Business Planning and Execution ([email protected]) For more than two decades, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen’s research provides insight and analysis to the Harte-Hanks community of local, regional, national and international marketing executives. Combined, we help our customers leverage the power of insight to deliver innovative multichannel marketing programs that drive business-changing results. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. (2013a)


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Business Process Management and ERP - Aberdeen Group

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