BPM or ERP or BOTH?

Today at www.processgenie.com we have a guest blog from Garth Knudson Managing Director at Handysoft, with a common question we all get from our business side executives.  Enjoy!

I just got back from travels in the Middle East. What I discovered is that the MEA Region (Middle East & Africa) is about 3 years and 7 years respectively behind the market in its access to and evaluation of BPM and ERP solutions.

MEA not withstanding, many people have asked me about the differences between ERP and BPM.

Questions include:

• How does BPM compare with ERP?
• Does BPM compete with ERP, does it replace ERP, or can it co-exist with ERP?
• What is the value of BPM to me?
• Which should I do first?

I would like input on this matter.  But I submit the following:

ERP:  In simplified terms, I see ERP as a way to integrate the data layer of different processes (e.g. AP/AR, Payroll, Order Entry) within larger processes (e.g., Financials, HR, SCM). Although workflow is an embedded part of any ERP system, it is not intended to support enterprise processes. The workflow itself is functionally-driven (e.g., materials management) vs process-driven, where the process can potentially span many different functions (e.g., requisitioning, recruiting). The value ERP provides is an integrated system and single view into customer data. The data is updated on demand. Customers expect ERP to support their processes, but often they have to change their process to match ERP best practices. As a result, ERP software and implementation costs are significant. In 2007, the Aberdeen Group found that the average costs (software + services + maintenance) per user ranged from $2K/user (a company with on average 3365 users, 14 modules) and $18K/user (a company with on average 195 users, 11 modules).

BPM : In contrast, BPM enables users to create business applications incorporating different people, data and documents, which in turn span multiple divisions, systems and/or data sources. Process function is almost irrelevant. In a structured BPM scenario, workflow activities derive from specific rules (i.e., roles, responsibilities, policies, procedures, deadlines, escalations). In a dynamic BPM scenario, users completely control routing in run-time. The value BPM provides is a platform to create multiple applications that improve productivity (effectiveness, efficiency), greater business agility (traceability, innovation, optimization), and ensured compliance (auditability). Furthermore, process definition components are reusable and changeable.

Many BPM vendors provide templates that do not mandate workflow but act as accelerators to process execution. I could find no study like the one above, so I will base costs on experience. Say user-based pricing ranges from $500/user to $1500/user. A simple workflow is likely to cost $10K-$25K in professional services to execute, a mid-sized $40-$75K, and a sophisticated workflow $100K-$500K. Because the BPM platform is reusable, the customer only requires an investment in services to create new applications. If the average customer has 200 users with 5 mid-tier live applications, then the cost per user is $1K/user to $3K/user.

BPM might compete with and/or replace ERP on smaller scale projects. BPM absolutely compliments ERP by creating a “single view” into processes spanning multiple groups/systems (e.g., customer on-boarding, purchase requests). BPM also covers processes that fall completely outside of ERP systems such as Correspondence Management, Project Management, and Action Tracking.

Examples: BPM & ERP Working Together

• PT Medco Indonesia - MedcoEnergi (MEDC) is the first Indonesian company operating in the oil and gas exploration and production business. Subsidiary PT Medco E&P Indonesia heads up exploration, production and support services for oil, natural gas, and onshore and offshore drilling. Often the company would need to change orders based on project changes or delays. While PT Medco uses ERP, project managers could not make changes to requisitioning and procurement processes based on new expectations. These processes spanned multiple ERP modules. PT Medco decided to use BPM to manage project life-cycles. Now project managers can initiate and track work items that span contract negotiations, procurement of new equipment, and changes to project deadlines. ERP manages the data. Together management has a single view into data and process.
• Glaxo Smith Kline Latin America – GSK Latin America distributes healthcare products throughout Central America, South America and the Caribbean. They use ERP as an “Address Book” to manage customer, supplier and employee accounts. However, there was no standardized process for creating and/or modifying these accounts. Imagine different departments (e.g., HR, IT, Procurement) in all the different countries (e.g., Guatemala, Dominican Republic, Venezuela) approaching Address Book changes in a different way. Having little control over the process, they had little visibility into workflow status and thus often lost items, missed deadlines and compromised customer service. The IT team, supported by the Controller’s office, initiated a project to standardize Address Book changes across all regions. Following a Six Sigma methodology, they used BPM to create a new model and set of business rules to improve overall effectiveness and efficiencies. The result is a BPM application that streamlines the add/change/delete process in ERP. Once logged-in, users initiate a work item. Initiators can represent virtually any department such as HR, sales, IT or Purchasing. The initiator fills and submits the form, which is sent to the appropriate approving authority within the Accounts Payables Department. The work item then moves through Finance and Pay Control for additional reviews and approvals. From Pay Control, the work item is passed via XML to the ERP system where the actual record is created or modified. Upon completion, ERP replies via XML, which is picked up by BPM, which in turn triggers an email notification to all workflow participants that the process has been completed. When modifying a record, the process starts by allowing the initiator to search for a name within ERP. Matches are returned to the initiator who then selects one, which populates the corresponding BPM form. Subsequent steps are the same.

In summary:

• ERP provides very good embedded workflow, but poor enterprise workflow. BPM supports both functional and enterprise workflow scenarios.
• BPM is far more agile than ERP systems, where BPM requires on average 3 months to implement versus 20 months for ERP. Change management is also faster with BPM.
• ERP often needs BPM to help realize its full value.
• If BPM isn’t for use with ERP, why do so many vendors provide adapters?

So again I ask, BPM or ERP or both?