Knowledge management appears on ERP radar: Page 2

Posted February 22, 2000
By

Alan Radding


(Page 2 of 3)

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.


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