EPM should drive ERP because: a) EPM is much faster to implement, and b) because EPM lets you know what you don’t know so you can implement ERP correctly.
Enterprise performance management (EPM) and enterprise resource management (ERP) perform complementary, yet somewhat overlapping, roles. Invented at different times to address different needs, however, the two enterprise systems serve decidedly different purposes. The upshot is that if you understand the role each system plays best and how the two systems relate to each other you can get the most value from both. More importantly, you can get the most value from your business. Part of that understanding comes from recognizing that you don’t want to run your EPM and ERP systems in separate silos — just like you don’t want to run other parts of your business in separate silos. It also comes from recognizing that only one of these systems, EPM, is purpose built to maximize long-term enterprise value, which includes the value of ERP software.
In other words, the best way to optimize ERP is within an environment you are already performance optimizing with EPM.
Different Origins — Different Roles
Like its names implies, EPM is more about managing and performance optimizing the entire enterprise. ERP, on the other hand, is more about operating diverse resources effectively as a unit. ERP was invented in the early 1990s as part of the business process reengineering movement, the goal of which was to break through functional and data barriers separating departments. Accounting, purchasing, manufacturing, logistics, sales, human resources, and other departments could all share common data as needed and interoperate within workflows called value streams. A lot of human error and redundant data entry would thus be eliminated and most inter-departmental operations would be streamlined. Making that vision a reality required a new kind of software — ERP — where a module serving a given department not only serves that department but also shares data and interoperates with modules serving other departments.
ERP’s accounting module, for example, accelerates general ledger, accounts payable, accounts receivable, management reporting, consolidations, reporting of budget versus actuals, and so on. Accounting software obviously existed prior to ERP but with ERP now these functions are integrated with the rest of the enterprise, rather than implemented as standalone appliances.
EPM, which came about in the 2000s, implements these same accounting functions. Like ERP it also integrates accounting with operational data. But in 2018 the mere fact that accounting would be accelerated and that accounting data would also integrate with operational data can be considered a “so what?” But a “so what?” (like a “what if?”) is not a question that ERP is designed to answer — but EPM is. In other words, even if you had an accelerated and integrated enterprise, what would you do with it? And in the process of answering that question EPM also helps answer these: What goals will you set? What investments will you make? What innovations will you pursue? What companies will you acquire, or divest? What promotions will you run, and where? What will your pricing strategy be? And so on.
To answer these questions EPM must perform tasks that ERP either can’t do at all or can’t do with sufficient detail and speed. Those tasks include:
- Real time visualization, modeling, and correlation of financial and operational data for complex what-if analysis and decision support
- Rapid collection of financial and operational results across all owned entities
- Complex before-and-after modeling of potential mergers and acquisitions
- Rapid financial integration following mergers and acquisitions
- The most challenging accounting processes such as complex account reconciliations, transfer pricing, and unified hierarchies and dimensions across all systems
- Support for all of the above with real-time collaboration and messaging across the enterprise
And here’s another question: so how can EPM optimize ERP?
Do EPM First
Before you can operate resources efficiently with ERP, you must first allocate them strategically, which is what EPM is all about. Another reason to do EPM first is that it is much faster to implement. Your cloud-based EPM system can be helping you make strategic allocation decisions many months before you can deploy ERP. But if you implement ERP first, you’ll not only wait longer for both, you’ll risk major accounting and finance disruptions — when you could already have been accelerating and modernizing accounting and finance with EPM. Part of that acceleration occurs due to stakeholder self-service reporting and access to information that today’s EPM provides.
Another way EPM can optimize your ERP deployment is through tight integration between the two systems — to the point where (as in the Oracle/Hyperion case) they operate seamlessly as one environment. So you get the best of both EPM and ERP — the right resources in the right place at the right time and operated in the right way.