Knowledge management appears on ERP radar

Tuesday Feb 22nd 2000 by Alan Radding
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Although some companies aren't calling it knowledge management, many are reaping the rewards of useful business information.

As organizations plot their future use of enterprise resource planning (ERP) systems, knowledge management will increasingly pop up on the radar screen. Once relegated to the realm of obscure academics or touchy-feely corporate reformists, knowledge management--a sometimes fuzzy term that incorporates many business intelligence tools--is latching onto ERP systems and finding a measure of mainstream acceptance.

"Once organizations have their ERP systems up and running, they start thinking about what they are going to do with all the information being captured by the systems," observes Phillip Russom, director/data warehousing and business intelligence, Hurwitz Group, a research firm based in Framingham, Mass. This thinking inevitably follows the path of the information processing chain from query and reporting to online analytic processing (OLAP) to business intelligence to, ultimately, knowledge management.

Pyramid
Knowledge management proponents see knowledge as the top of a hierarchy (pyramid) that begins with raw transactional data. At each level, the data undergoes transformation, augmentation, and abstraction until it becomes knowledge and, ultimately, wisdom.

That was the case at Kennametal, a Latrobe, Penn., manufacturer of tools for the metalworking industry. Kennametal implemented all major modules of SAP R/3 and brought up its last major site in August 1998. "We were so focused on putting up SAP that we put reporting and decision support on the back burner," recalls Michael Taccino, manager/information resources. When the organization finally turned its attention to SAP reporting, it was shocked and disappointed. "We thought the reporting built into SAP would be adequate, but it wasn't," he reports. The company found itself, in effect, building its own SAP executive information system (EIS) using about 100 custom ABAP reports it wrote itself.

But even this solution quickly proved inadequate. "Users exhausted what they could do with the system in about two months," Taccino notes. The problem revolved around the flat data structures and the difficulty in joining different types of data from different SAP modules. The company found itself scrambling to build intermediate data structures to support each different type of analysis.

Finally, the company turned to SAS Institute, of Cary, N.C., for tools to create a flexible information warehouse that would support a range of knowledge management functions, such as predictive data mining, ad hoc reporting, and a robust EIS. The new SAS-based system rolls out for production usage late in 1999.

The Kennametal experience illustrates the frustration organizations face when they try to tap into in an ERP system for information and knowledge. SAP is good for accessing data used in daily operations, Taccino explains, but it is not good for long-term knowledge management or for the information companies need for long-term planning and decision making. "There is a tremendous wealth of knowledge in SAP; the challenge is getting it out and turning it into something you can use for decision making," he concludes.

Knowledge management refers to everything from simple reporting functions to capturing best practices to real-time information sharing and collaboration. In the ERP arena, knowledge management typically refers to efforts to extract and transform the core transaction data that the ERP systems capture into something useful to managers charged with making strategic decisions. The transformation, which may involve summarizing, correlating, presenting, or augmenting the data in a variety of ways, ideally leads workers and managers to new insights or knowledge.

Knowledge management theory suggests a hierarchy of knowledge, starting with raw data at the lowest level. Basic filtering and summarizing converts raw data into information at the next level up the hierarchy. That information subsequently can be dimensioned, augmented in various ways, and correlated with other information to produce business intelligence, which resides further up the hierarchy. For this, organizations implement data warehouses, OLAP, data mining, analytic applications, and business intelligence products. Finally, the business intelligence gets wrapped up with the insights that reside in workers' heads to produce corporate knowledge, the pinnacle of the knowledge hierarchy.

What you call it is up to you

Organizations pursuing knowledge management through their ERP systems usually are aiming at something a little more modest than knowledge. "They really want highly detailed reporting or OLAP analysis or data mining or business intelligence," suggests Russom. While this may not constitute knowledge as purists understand knowledge management, it meets the needs of many organizations.

For example, Arvin Industries, of Columbus, Ind., a global manufacturer of automotive parts, uses a variety of data warehousing and data analysis tools from New York-based Information Builders to create a data warehouse containing information from its J. D. Edwards system as well as other legacy data. The company doesn't specifically call this knowledge management, but "it is one piece of knowledge management," acknowledges Perry Lipe, Arvin's vice president/information technology.

Arvin is taking an incremental approach. Other pieces, as they fall into place, will include using the corporate intranet to enable people to share information and insights gleaned from the data, capturing knowledge of business processes and making everything accessible through a single Web portal. Is this knowledge management? Lipe's goal is to bring more and better information and more sophisticated analysis to Arvin employees along with capturing insights into how to apply the information to the particular job at hand. What you call it is up to you.

Similarly, Carolina Power & Light has implemented the PeopleSoft human resources system and is in the process of adding Oracle Financials. Now, working with SAS, the company is embarking on a project to tap the information contained in its core ERP systems, beginning with human resources, to create a decision support system for strategic decision making. Although the company hasn't dubbed the initiative knowledge management, it is certainly moving in that direction. "Right now this is focused on helping managers make strategic human resources decisions, such as analyzing how many linemen will be eligible for retirement next year and what the impact will be. But we're not precluding anything down the road," notes Gregory Wiley, manager/HRIS.

Many IT managers prefer to steer clear of calling anything knowledge management, at least as the purists think of it. "CIOs recognize the political danger in knowledge management. Too many people have been burned. It is like AI (artificial intelligence); people have a lot of scars," says Joshua Greenbaum, an analyst with the Enterprise Applications Group, of Berkeley, Calif., explaining the cool reception knowledge management receives in IT organizations and in corporations in general. Like AI, knowledge management suffers from a perception of being too grandiose and too abstract. While managers endorse knowledge management in theory, they aren't convinced it can deliver actual business value.

Yet, knowledge management is critical in organizations today, Greenbaum continues. Companies are being inundated with information from ERP systems and a host of other sources. Knowledge management offers a way to extract and propagate what is useful from this flood of information. But, he adds, "knowledge management is arriving through the back door--the ERP system."

And why not? ERP systems provide as good a candidate as any to become the foundation for knowledge management. "The ERP system already is the repository of most of the business critical information in the organization," suggests Jim Shepherd, vice president/research, AMR Research, of Boston. In addition, they are already widely deployed, widely used, and widely accepted.

Information aids strategic decision making

Driving the latest interest in knowledge management, Shepherd confirms, is the massive amount of information confronting organizations today. "Organizations struggle with how to manage and disseminate information, with issues around strategic decision making," he explains.

The strategic decision-making implications of the information contained in the ERP system led DTE Energy, formerly Detroit Edison, to undertake what amounts to a major knowledge management initiative. The $4.2 billion diversified energy company was struggling to make the shift from a vertically integrated electric utility--a regulated monopoly--to an effective competitor in deregulated global energy markets.

Suddenly, the company had to shift focus from managing by rate case, in which management decisions are based on how they are justified to the regulators who approve rates and guarantee a fixed level of profit, to managing for business profitability in a competitive environment. DTE managers for the first time faced questions they never had to answer before about markets, customers, profitability, channels, and such, explains Janet Seefried, DTE's director of cost management.

The company had implemented a PeopleSoft financial package. The information managers needed was there in the form of raw data, most of it contained in the G/L. The problem was getting it out in a form that was useful to managers faced with making decisions that would impact profitability.

DTE, partnering with KPMG Consulting of Chicago turned to PeopleSoft's Activity-Based Management (ABM) module, which implemented activity-based costing (ABC). This would give managers a true understanding of costs and how those costs related to profitability, according to Seefried. Initially, the company created five cost models for three different lines of business--power generation, transmission and distribution, and corporate support. Using these models, managers were able to identify process improvements and cost reduction opportunities worth millions of dollars in savings, she reports.

While any number of reporting tools could have extracted cost information from DTE's G/L, it was the knowledge of ABC and the knowledge of the DTE operation built into the PeopleSoft ABM cost models that appealed to DTE managers. ABM enables the system to serve up knowledge--something that can be used to make a strategic decision--rather than just delivering raw data or even aggregated information.

Knowledge management appears on ERP radar

American Century Investments of Kansas City, Mo., has taken the PeopleSoft approach to knowledge management one step further by implementing the vendor's Enterprise Performance Management (EPM) offering. EPM is a set of analytical applications running on top of the core PeopleSoft modules that extract key cost and profit information for use in balanced scorecards.

The 41-year old diversified investment firm has grown rapidly, from about $23 billion in assets in 1993 to over $90 billion in assets under management last year and foresees no letup in sight. During this rapid growth, managers found themselves making decisions based more on intuition than on solid information or proven knowledge, notes Roby Shay, director/information technologies. The company found itself scrambling to provide managers with solid information about its products, customers, and channels--knowledge they could use to make decisions.

A long-time PeopleSoft shop, the company jumped at the EPM offering. Previously, American Century manually constructed the kind of models provided by EPM using spreadsheets. The effort generated useful results, but it was labor-intensive and still only produced two-dimensional views of the information. Deeper insights from the information required multidimensional analysis. At the least, managers wanted to look at the customers, the channels, and the products, Shay explains.

The company has not yet rolled out a full production implementation of EPM, but the pilot results look promising. "With this software we will be able to more clearly define the business and the things that sustain a piece of the business and, ultimately, get better cost information. This will help us determine if a piece of business truly is profitable," concludes Shay. Maybe this isn't classic knowledge management, but it is far more than the seat-of-the-pants intuition managers relied on previously.

The foundation is already in place

Business process knowledge, however, consists of more than just information, insists Greenbaum. It forms another major component of knowledge management. ERP solutions typically capture both information and process, although most knowledge management efforts focus primarily on the information part.

The process knowledge in ERP solutions takes the form of business rules. "Business rules are encapsulated in the software," Greenbaum points out. A business rule, for instance, can define how orders are prioritized and scheduled for production or how customer credit is handled.

To date, Arvin has handled the process side of business knowledge manually. "ERP systems capture business process knowledge, but we haven't tried any of the automated tools to work with process knowledge," Lipe notes. The latest release of JDE offers automated process mapping, but Arvin hasn't implemented it yet. Still, process knowledge capture and sharing is on Lipe's agenda for future initiatives.

With an ERP system and a network in place, organizations already have the foundation for knowledge management. All that is really required, suggests Shepherd, is a flexible database, a network, and a set of applications to capture knowledge from both information and business processes. From there, organizations can elaborate as desired, adding multiple internal and external sources of information, support for non-conventional data types, collaboration and knowledge sharing capabilities, and more. But at the least, once the organization has its ERP system up and running, it is ready to start leveraging its knowledge.


ERP vendors move in on knowledge management

Baan
www.baan.com
Baan Business Intelligence Suite (BaanBIS) provides online analytical processing (OLAP), tools to navigate complex data warehouses, data extraction/transfer/loading (ETL), and reporting.

J.D. Edwards
www.jde.com
ActivEra Knowledge Management strategy ties together business intelligence functionality, balanced scorecards, EIS, analytics, and a data warehouse.

Oracle
www.oracle.com
Offers a broad set of business intelligence (BI) tools. These include traditional BI tools such as Oracle Reports, Oracle Discoverer, and Oracle Express; Oracle Business Intelligence System (BIS), a suite of BI tools for Oracle Applications; and Oracle Strategic Enterprise Management (SEM) Suite, including Activity Based Costing/Activity Based Management (ABC/ABM), Balanced Scorecard, and Value Based Management (VBM) modules.

PeopleSoft
www.peoplesoft.com
Enterprise Performance Management (EPM) provides activity based costing/activity based management (ABC/ABM) accounting and other analytics to create balanced scorecards and track other key performance indicators for decision support, EIS, and knowledge management efforts.

SAP
www.sap.com
Knowledge Warehouse (Info DB version 4.0) brings together content and tools for authoring, modifying, translating, distributing, and managing knowledge content.

Source: Vendors

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