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This paper appears in the publication, Journal of Cases on Information Technology, Volume 11, Issue 2 edited by Mehdi Khosrow-Pour 2009, IGI Global

ITJ 4873

Enterprise Resource Planning Implementation in an Institution of Higher Learning:

A Case Study of Drummond University
Randall B. Hayes, Central Michigan University, USA Kathleen M. Utecht, Sam Houston State University, USA

EXECUTIVE SUMMARY
Enterprise Resource Planning (ERP) software systems are implemented in major corporations because of their unique design which enables the integration of information across the functional areas of a business. Implementations of ERP software, such as SAP or Oracle, are most commonly documented in the manufacturing sector. This case study, however, describes the implementation of ERP in an institution of higher learning. In particular, issues pertaining to implementing SAP in a university structure, measuring the return on an ERP investment in an educational institution, and managing organizational change are discussed. [Article copies are available for purchase from InfoSci-on-Demand.com] Keywords: Change Management; Enterprise Resource Planning; Higher Education

ORGANIZATIONAL BACKGROUND
Drummond University (DU) was founded in 1892 in a small town in the Midwest. The university began as a teacher preparatory school, but over the years added both professional and liberal arts programs. Capitalizing on its small-town setting and diverse educational programs, the university has grown to become one of the largest regional universities in the Midwest. The university now enrolls approximately 18,000 students, of which 15% are graduate students. The school attracts students from 35 different countries: a signicant achievement for a rural institution. Currently, the university has nearly 2,500 employees on the staff. Much of the attraction of Drummond is due to its mission of offering a high value education. In the context of the universitys mission statement, high value means an excellent education at a reasonable price. The universitys tuition rates are among the lowest in the state,

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Journal of Cases on Information Technology, 11(2), 42-55, April-June 2009 43

and the university has been cited in one national news magazine as representing one of the top10 values in higher education in the Midwest. Tuition increases in recent years have been near the rate of ination, a notable achievement when competing institutions have increased tuition at two or three times this amount. A president, who answers to an eight member Board of Trustees, governs the university. The governor of the state appoints the Board, and board members serve 8-year terms, although they can be reappointed. The president is responsible for a $300 million budget of which 57% goes for salaries and wages, 33% pays for supplies and equipment, 4.3% is for salable merchandise, 2% goes for debt service, and 4% is for miscellaneous purposes. About a third of the universitys revenues come from state appropriations, while tuition and room and board payments from students provide about half of the total revenues. The rest of the universitys income comes from a variety of sources, including donations and income from athletic events. Four divisions report directly to the president: Academic and Student Affairs, Business and Finance, University Advancement, and Athletics. The president selects the provost (who manages Academic and Student Affairs) with the advice of the faculty. The president can appoint the managers of the other divisions directly, but all division heads (including the provost) must receive Board of Trustees approval. The Board of Trustees selects the president, with some advice from the faculty.

SETTING THE STAGE

Bob Stewart was concerned about a call he had just received. Stewart was a senior professor in the Information Systems Department at DU and was acknowledged as one of the more capable people on campus in the area of databases and networking. The call was from Allen Carpenter, one of the senior members of DUs Board of Trustees. Carpenter wanted Stewarts evaluation of the SAP R/3 system that had been installed on campus 10 years earlier. Specically, Carpenter wanted Stewart to consider whether DU had made the right choice in adopting an Enterprise Resource Planning (ERP) system and whether DU was using the software effectively (Martins & Kambil, 1999). Stewart knew Carpenter slightly through a previous presentation to the Board regarding an unrelated issue. Carpenter was the CEO of a mid-sized publishing company, and he had the reputation of someone who wanted to bring a serious business-like approach to the way the university conducted its affairs. Carpenter always wanted detailed cash ow data regarding any new university initiative, and he wanted tight accountability for any new projects success or failure. As he was a senior member of the Board, Carpenters approach was adopted by the Board of Trustees. Before Carpenters arrival almost 12 years ago, the Board had acted very much like a Board of Directors of a not-for-prot or charitable institution. The focus of the Boards decisions was on the attainment of educational goals, and in the enhancement of the research reputation of the university. Success measures for educational initiatives were normally expressed in terms of student achievements, enrollments, and applications to the university. Success measures for research efforts were counts of the numbers of articles published and research grants received. Financial measures of success, when they were used at all, mainly comprised summaries of budgeted expenditures versus actual expenditures. With his MBA training and long business experience, Allen Carpenter found these traditional methods of project evaluation incomplete at best, and supercial at worst. Carpenter had set out to change the approach, and largely he had succeeded. Now the university evaluated educational and research initiatives more like a

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corporation, that is, the university tried to judge projects by nancial measures of success. The philosophy was that good academic projects normally would produce good nancial returns. While Stewart had a background in the technical side of the universitys SAP implementation, he felt he would need help with the economic evaluation that he knew the Board wanted to see. He recruited his friend, Carl Elliot, an accounting professor who had experience in business valuation. Together, Stewart hoped they could give the Board an answer to Carpenters request in a manner that made sense to them. Stewart was not sure how to go about evaluating the returns from an SAP implementation, but he was sure that he and Elliot were in for an interesting time.

CASE DESCRIPTION
The ERP Decision at DU
Stewart had watched the adoption of SAP with interest. While a large number of big corporations had adopted SAP since it entered the United States market in 1992, DU was one of the rst not-for-prot organizations to adopt the program, and the rst university. Subsequent to DUs acquisition, almost 30 other institutions of higher education in North America, such as Massachusetts Institute of Technology, Johns Hopkins University, Purdue University, and the University of Toronto, also adopted SAP. (A more representative list of these institutions can be found at the SAP Web site. See Representative List of Higher Education and Research Institutions Using SAP Solutions). ERP programs like SAP (others include Oracle, PeopleSoft, and J.D. Edwards) promise to integrate all of the operations of the company or institution in one program. Rather than using several separate stand-alone programs to administer operations in accounting, sales, production, and human resources, ERP programs include modules that enable the organization to administer each of these functional areas and, in addition, allow each module to seamlessly transfer and acquire information from other modules (Sandoe, Corbitt, & Boykin, 2001). For example, the logistics module of SAP allows the organization to procure raw materials, schedule and organize production, oversee quality, manage inventories, and handle distribution of nished goods. As these events proceed within the logistics module, information is shared automatically on a realtime basis with the accounting module to update ledger accounts and with the sales module to provide tracking of customer orders. The sharing involves not only sharing in multiple languages but also conversion into multiple currencies. This sharing of information is made possible by the use of a common database which the ERP program constantly updates. When Stewart teaches ERP concepts and procedures, he assigns an article, Putting the Enterprise into the Enterprise System written by Thomas Davenport (1998). In this article, Davenport provides an excellent description of how an ERP system operates in a complex international organization: Lets say, for example, that a Paris-based sales representative for a U.S. computer manufacturer prepares a quote using an enterprise system. The salesperson enters the basic information about the customers requirements into his laptop computer, and the enterprise system automatically produces a formal contract, in French, specifying the products conguration, price, and delivery date. When the customer accepts the quote, the sales rep hits a key; the system, after verifying the customers credit limit, records the order. The system schedules the shipment; identies the best routing; and then, working backward from the delivery date, reserves the necessary materials

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from inventory; orders needed parts from suppliers; and schedules assembly in the companys factory in Taiwan. The sales and production forecasts are immediately updated, and a material-requirements-planning list and bill of materials are created. The sales reps payroll account is credited with the correct commission, in French francs, and his travel account is credited with the expense of the sales call. The actual product cost and protability are calculated, in U.S. dollars, and the divisional and corporate balance sheets, the accounts-payable and accounts-receivable ledgers, the cost-center accounts, and the corporate cash levels are all automatically updated. The system performs nearly every information transaction resulting from the sale. (Davenport, p. 123) Stewart understood the allure of systems like these. Large organizations create, store, and compile huge amounts of data each day. Without an ERP program, these data are kept on a number of computer systems, each located in and maintained by different business units. Each business unit runs its own system to support its own operations, and it can be a horrendous or sometimes impossible job to transport data between these legacy systems. Moreover, the total systems maintenance costs can be substantial: the costs include not only running the individual systems, but also updating multiple systems as operations change, devising means to transport data between ever-changing system congurations, and establishing recoverable daily archives for the whole dataset. Beyond these costs are the indirect costs imposed by such inefciency. These costs would include, for example, lost sales because of poor order tracking, the costs associated with poor management decisions caused by faulty protability reports, and the costs of poor coordination between divisions due to the inability to communicate important business data on a daily basis. Faced with these profound problems, any system that promised a comprehensive solution would be greeted with enthusiasm. The efciencies offered by ERP systems have driven their success: currently virtually all of the Fortune 500 companies have adopted an ERP system to rationalize their business operations and improve internal communications. The adoption of an ERP system, however, is not without its own set of problems (Anderegg, 2000). Perhaps the most important of these is the need to modify the organization to t the system. The functional processes built into ERP systems are derived from established business techniques, sometimes called best business practices. If these embedded functional processes do not align with established practices of the organization, the organization has two choices. First, the organization can change the way it does business in order to conform to the processes assumed by the ERP program. This can be a costly procedure, and the organization must be careful that it does not lose some strategic activity that provides the organization with a competitive advantage. The second choice is to modify the ERP program itself. This type of customization is difcult to do because of the complexity of ERP programs. Because of the tight integration of the programs code, it is not easy to modify one modules procedures or functionality without altering other areas that derive data from it. The programming difculties are such that most companies implementing an ERP program opt for the rst choice and re- engineer their processes to t the program. This can generate, and has in too many instances, a turmoil of organizational change.

DUs Adoption of SAP

In some respects, the universitys adoption of an ERP program like SAP was a curious event. ERP programs are written with business in mind, that is, the embedded functionality assumes a for-prot business that manufactures goods and services for customers. Whether the transac-

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tional processes embodied by the program would translate well to a not-for-prot, educational environment was an open question. Moreover, the size of the university would make the institution one of the smallest adopters of SAP. Finally, since DU operations were located primarily on one campus, the multilanguage, multicurrency capabilities of the program were irrelevant to the university.

Budget Restructuring
The adoption was made in the context of two concurrent initiatives on campus that began in 1996. The rst was a Budget Restructuring program instituted by the president of the university at the behest of the Board of Trustees. The central purpose of this program was to decentralize the functional processes of the university into centers of responsibility. The president established a Budget Restructuring Committee to review the business and academic operations of the university. The goal of the committee was to reorganize the university into activity centers, each headed by one individual who would then have budget responsibility for the center. The committee rst identied revenue centers for those activities that had an identiable source of income. Under the plan established by the president, these centers would be allowed to retain control over the revenues received. These centers would then decide how to spend their income, and each center manager would be responsible for staying within the budget constraint imposed by the centers revenues. Academic colleges, for example, were allowed to keep the revenue raised through tuition payments for their courses, and they were allowed to decide how best to spend the money received. While faculty and staff salaries were controlled by universitywide union contracts, the colleges could decide for themselves how much to spend on new hires and how much to spend on new academic programs and other fund-raising initiatives. The committee also identied a number of service (or cost) centers across campus that, like the revenue centers, would be given control over how to spend their budgets. While budget allocations would continue to be done by a centralized budgeting process, the cost centers were rewarded for reductions in their annual operating expenditures. The aim was to eliminate the old spend the budget or lose it mentality with incentives to nd ways to perform their activities in a more cost-effective manner. The budget for the Benets Ofce, for example, was established by an overall budget committee. When the Benets Ofce found ways to reduce their information dissemination expenditures using the Internet, the Benets Ofce was allowed to keep a large portion of the savings for new programs, and selected staff members in the ofce were directly rewarded for their economizing. This Budget Restructuring initiative represented a signicant change in management philosophy for the university. Previously, the central administration took in appropriations from the state, tuition and room and board payments from the students, and donations from the alumni into one general fund. The presidents ofce then distributed budgetary dollars to the universitys business, academic, and administrative organizations, using the previous years budget levels to guide the allocations. In this environment, there was little reward for economizing, and it was difcult to identify how to alter budgetary resources in response to changes in the universitys operational environment or changes in student demand for academic programs. The committee charged with making the allocations simply could not acquire, process, and compare all of the information necessary to make effective budgetary decisions. Budget restructuring, then, moved control of much of the monetary resources down to those closest to the operational and academic environments of the university. While central administration kept the state appropriation to fund the universitys service centers (such as the Library and the Benets Ofce), the academic units kept their tuition revenue, and other centers that

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had revenue sources (like athletics) were allowed to keep any monies they raised. The legacy accounting systems possessed by the university did not lend themselves to the decentralized nature of the new organization. There was no way, for example, for the dean of any college to interface directly with the centralized accounting program. The dean could receive reports that he or she requested from the central accounting ofce, but only with a delay of hours or days. There was no way to query the database on anything approaching a real-time basis. Moreover, it was not possible for the dean to modify the accounting reports in a manner that might prove more useful from a managerial standpoint. The formats, classications, and calculations were established by the legacy system, and there was no way to readily change the procedures. The president, as well as the Budget Restructuring Committee, realized that for the restructuring effort to succeed, the legacy systems would have to be replaced. What was needed was a program that could facilitate a decentralized environment by giving revenue and cost center managers the ability to monitor and plan their operations. The program also had to have the ability to consolidate the budget results and plans of the decentralized units with the results and plans of central administration in order to prepare budgets for the university as a whole. This was necessary because the president still had to monitor the university as a whole and report university-wide nancial results to the Board of Trustees. The president could not, therefore, have each center adopting its own accounting program. A comprehensive solution was needed, and an ERP system like SAP seemed to be an attractive choice.

Technology Upgrades
In 1995, the president convened a Technology Task Force to develop a comprehensive information systems plan for the university. Prior to this initiative, the university was spending about $2 million each year on computers, network infrastructure, and telecommunications in an uncoordinated fashion. Not surprisingly, the computer systems on campus were a hodgepodge of networking programs and protocols, and whole areas of campus could not communicate with other areas. Complicating the problem was the Year 2000 issue. Many networking and production programs were not Year 2000 compliant, and the effort to make them so was going to be expensive. The disjointed nature of the programs meant that different teams of individuals would be necessary to do the Year 2000 upgrades and verications, and most of the needed talent to accomplish this would have to come from outside. The amounts of money that would be necessary to make the universitys programs Year 2000 compliant varied widely, but no estimate was less than $500,000, and many estimates were a good deal more. The situation was frustrating to the president and the Board. The university had prided itself on its technology, and the consensus on campus was that technology was an area of competence and competitive advantage. The university had spent generously in the area, and now it seemed that much of the effort had been ineffective because of a lack of direction. Moreover, the administration felt that while the Year 2000 problem was entirely predictable, earlier technology initiatives had ignored the problem, and now the university was largely unprepared and vulnerable. The Technology Task Force was explicitly instructed to develop a plan that would ensure past errors would not be repeated. The members of the task force saw that much of the problem lay with the adoption of programs that were not maintained or updated by their vendors as new operating systems and new protocols (like distributed computing) were developed. The members also saw that there was a strong disincentive to upgrade networking and operating programs because once one area had successfully upgraded a program and had it communicating with other programs, other programs in the network could change as well and cause the communication effort to be repeated.

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It quickly became evident that the university had to replace the patchwork of production and networking programs that were in place with a common system that could be used by all. Whatever common system was acquired had to have active support by the vendor, both in regard to ongoing technical support and to future upgrade development. Needless to say, the system also had to be certied Year 2000 compliant. Finally, the system had to be robust enough to accommodate the production and communication needs of the universitys users. The Task Force believed that the system had to have a certain threshold of capability for everyone, although the new comprehensive solution may not be as capable to certain users as the legacy stand-alone programs that were to be eliminated. Like the Budgeting Restructuring Committee, the Technology Task Force felt that an ERP system provided the necessary functionality, at least in the production and database areas. Moreover, the Task Force felt that dealing with one established vendor like SAP would eliminate much of the support frustrations, including the Year 2000 issue.

DUs Implementation of SAP

In early 1996, DU sent a request for proposals (RFP) to a number of companies offering ERP systems. In terms of functionality, DU wanted an ERP nancial and human resources package that would support the fund accounting model used by DU, be adaptable to different data structures, be comparatively easy to use, and have user-dened processing and reporting capabilities. The university also wanted vendors to offer a range of support, from user training to guaranteed periodic upgrade plans. In this review process, the committee overseeing the selection wanted to avoid any repeat of the systems dead-end in which the university currently found itself. After a year-long selection process, the university chose SAP and signed a contract for SAP R/3 Version 3.0F (a Windows-based version) and associated technical implementation support. The university initially estimated that the total cost of the SAP implementation would be $3.9 million. Of this amount, only 7% represented the cost of the software. The largest cost (55%) was for consultants and training. Other costs included additional hardware (15%) and payroll costs (23%) for new DU employees dedicated to the SAP implementation and ongoing system support. The selection of SAP was made in early 1997, and a target date for full operation of the nancial module was December 1, 1997. The target operational date for the human resources module was a month later. Given the lack of experience on campus, this was an ambitious schedule. The organizational restructuring, which would be going on concurrently, would only make the challenge greater. The university elected to purchase two entire modules: the nancial accounting (FI) module and the human resources (HR) module. The administration formed an SAP oversight committee to guide and coordinate the implementation effort, and the committee created two individual project teams for the two modules (Pifer & Vautrin, 1998). The FI team worked closely with the ofce of the vice president for Business and Finance to adapt their processes to the SAP processing procedures. The HR team worked with the Benets Ofce to store demographic, personnel, and payroll data on the SAP system. The oversight committee approached the training problem by following a train-the-trainer model. The committee hired SAP consultants to teach DU personnel who would work on SAP system maintenance full-time. These individuals were then tasked to teach the procedures they had just learned to the HR and accounting staffs who would be inputting data and operating the SAP system. Throughout the spring and early summer of 1997, most of the accounting and HR staffs attended lengthy training sessions, most conducted in a $200,000 classroom specially built to facilitate the task. During this period, the staff tried to maintain their service levels to the rest of campus, but this effort was not always successful. The

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ongoing processing problems were signicant at times, but catastrophic problems were avoided, often by putting in long overtime hours. The intensive training effort lasted almost 5 months, but once the HR and accounting staffs were trained in the system, implementation began in earnest. In a sense, the organizational rearrangement caused by budget restructuring proved benecial to the implementation. SAP, like any ERP program, requires the adopting institution to have an organizational structure that conforms to the models embedded in the program. Some exibility was possible, of course, but it was incumbent on the university to modify the position and denition of certain on-campus organizations, such as student groups, into units that SAP could identify. Terminology was also a problem. SAP was designed with a business model in mind and used nancial accounting terms such as accrued revenues, cost of goods sold, depreciable assets, and contingent liabilities. No equivalency for these terms and concepts existed in the fund accounting model used by the university. Again, it was incumbent on the university to change many of their accounting procedures to allow it to process nancial information within the program. This caused some confusion within the business division regarding how to interpret the nancial reports it was receiving, particularly when it was important to compare current nancial data with data derived from legacy systems of previous years. The most serious problems were encountered in the HR implementation. Most were due, once again, to the lack of t between the business model assumed by the SAP program and the operating characteristics of a not-for-prot university. For example, the 10-month contracts of faculty caused a host of problems. SAP had difculty dealing with full-time employees who had partial year contracts. Another problem involved how university faculty and staff are often compensated. Many faculty and staff received portions of their pay from several different organizations, both on and off campus. Since the payroll systems embedded within SAP only allowed for wage payments to come from one source, the SAP programming had to be modied, causing additional expense and some delay in implementing the payroll system. A host of similar problems made the HR system troublesome, but with a good deal of effort both the HR and FI modules did go-live on their target dates.

ASSESSMENT OF SAP AFTER FIVE YEARS

By the summer of 2002, SAP had been in use for over 5 years, and the president asked Stewart to evaluate the implementation and effectiveness of the system. At the time, it was evident to Stewart that the university was slowly becoming familiar with SAP. The Business and Finance Division used SAP to generate all of its university-wide budgets and nancial statements. The Division also maintained the accounting for the revenue and cost centers across campus. Center managers could sign onto the SAP system, not only to see their current status relative to budget targets, but also to track past expenditures. The Division had also purchased portions of SAPs materials management modules that enabled the Division to automate the payment of invoices from certain vendors. The modules also automated certain inventory ordering and monitoring procedures. The vice president in charge of the Business and Finance Division had gradually become satised with the operation of SAP within his organization. The system had enabled the university to reduce its inventories from $400,000 at the end of each month to about $350,000. The cost of processing certain invoices was also reduced. The outside auditors, people who passed judgment on the performance of the vice president, were also pleased with the reliability and internal control structure of the system and with the automatic archiving programs for daily transactions.

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Despite its troublesome past, the HR system was nally operating at an acceptable level. The payroll system was generating accurate wages and salaries, and the social security and tax withholding subsystems were reliable. The university had been forced to modify the terms of certain benet packages in ways that would enable SAP to process them, but this process was nished in 2000, and most of the employee benet packages were being handled adequately by SAP. In January, 1999, the university decided to spend $650,000 to upgrade the SAP system to the more advanced 4.5B version. In large part, this upgrade was due to new functionalities SAP had built into its R/3 system. The expense was also due to the failure of DU to adopt any of SAPs legal change packages. (These packages are modications in the underlying code that SAP develops and provides to its customers to correct program bugs and improve functionality, much like Microsoft issues service packs to its customers to update the code of Microsoft operating systems.) While costly, the expenditure had been anticipated. To avoid being stuck with obsolescent production systems again, the university explicitly adopted a policy of upgrading its SAP program every 2 years. So, while the additional expense for the 1999 upgrade fell under the upgrade policy, this particular upgrade had happened earlier than expected. Stewart was aware that the FI and HR implementation teams had found this change frustrating. Soon after they had installed the 3.0F version, they were asked to repeat the process with the 4.5B version. While not as traumatic as installing SAP for the rst time, the installation of 4.5B caused many late nights and did disrupt users who had only just become used to 3.0F. Training efforts for the new version were substantial, and at the time Stewart wondered whether extensive upgrade efforts were going to be continuing events in the future. The university was considering adopting version 4.5F, although Stewart (and the SAP system team) did not have a good idea of the extensiveness of the changes such an adoption would cause on campus. Like the 4.5B conversion, adopting 4.5F would be expensive. Beyond the upgrade question, Stewart was disappointed with limited use of SAP across campus. By 2002, only the smaller cost centers were using the program and its database as their main accounting tool. The larger cost centers, and all of the revenue centers, only used SAP to track their past expenditures and give measurements regarding compliance with budgetary allotments. No revenue center (and this included all six colleges) used SAP to track their internal expenditures and revenues by academic department. The internal budgeting by all of the revenue centers (and the departments located within these centers) was done using spreadsheets or other legacy accounting packages. While SAP was not irrelevant to these centers, the SAP program was used only to provide some of the accounting data necessary to run the centers. Campus-wide, the only department of any signicant size to use SAP to run their operations was the Business and Finance Division. The other centers on campus seemed satised with their own legacy programs and procedures and saw little reason to adopt SAP. Extensive use of the HR system was also conned to one organization, the Benets Ofce. This was useful and meant that DU was probably using the most important functions of the program (e.g., payroll and employee record-keeping). But Stewart was aware that SAP had much more functionality than DU was using. The HR module could schedule campus-wide workow, training, and faculty and staff recruitment. The program could also accommodate Employee Self-Service, a function that allowed employees to enter directly their benet records, change some benet choices, and monitor the status of others. Using these functionalities would mean involving organizations outside of the Benets ofce, and Stewart was unaware of any attempt to broaden the involvement. Stewart had had a discussion with Joy Weller, the manager of the nancial implementation team, about this issue. Joy was not disturbed by the lack of success in broadening the use of

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SAP on campus. She felt that adoption of these additional capabilities would take time and be an evolutionary process, particularly since she did not have the authority to demand a change in the internal accounting and personnel procedures of the revenue centers. The people who had the authority, the president and his executive council, were largely passive observers in the effort to facilitate the use of SAP. Stewart and the implementation team knew the effective installation of an ERP system like SAP would require extensive changes in contracting procedures, personnel management, and performance reporting protocols. These changes would be traumatic for many units in the organization, and resistance to these changes was to be expected. Unfortunately, nowhere in the implementation plan, Stewart knew, was any real attention paid to formulating a change management strategy for campus. Stewart was aware that he had to provide a well-considered, fair response to the Board about the effectiveness and nancial return of the SAP system. Stewart had little to guide him regarding the nancial return aspect. The university had distributed a publication called the ROI Report, a report series written by a Boston consulting rm but sponsored by SAP (Plazonja & Olukotun, 2000). The publication had run a featured article about the DU SAP implementation, and they had provided a return on investment calculation. Plazonja and Okukotun (2000) said they had measured the return on investment from the SAP purchase at 7%. The numerator in the return on investment calculation was determined by estimating and projecting forward the annual gains in savings achieved from the more productive utilization of invested capital in inventories, the reduction in transaction costs associated with processing purchase orders and a reduction in materials acquisition cost (Plazonja & Olukotun, 2000, p. 14). The denominator in the calculation was the $3.9 million original investment and the $650,000 upgrade cost, offset by DUs cost avoidance of $240,000 from not having to x their Y2K problem (Plazonja & Olukotun, 2000, p. 14). Stewart wondered how accurate this was, but since he had received it from the university, he decided to let this report document the nancial success of the system. As for the effectiveness of the system, the Executive Summary of his report to the president had the following points: 1. In the departments where SAP is used, it is performing in a satisfactory manner. 2. After installing the SAP system and one major upgrade, the SAP implementation team (including the trainers) possesses signicant expertise. 3. A relatively small number of organizational units are using the system to manage their dayto-day operations. 4. The departments are using only a few of the capabilities of the modules that the university has purchased. 5. Past upgrades have consumed substantial staff time for installation and training. Stewart knew that this was a good newsbad news type of approach, but it was honest in regard to the impact and effectiveness of the SAP system on campus. He did not address the change management issue. He was an information systems professor, and he did not feel he had the educational background to talk about this area authoritatively. He sent the report to the president, and while he surmised that it had been shared with the board, he heard nothing further.

ASSESSMENT OF SAP AFTER TEN YEARS

Stewart wondered whether the request from Allen Carpenter had anything to do with the report he had led 5 years earlier. Carpenter had not mentioned it during their conversation and, be-

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cause Stewart was unsure whether the president had shared the report with the board, he had not volunteered any information about it. Stewart set to work interviewing the staff on campus who worked with SAP and getting their reaction to the progress DU had made in utilizing the programs capabilities. In general, he found that after climbing a steep learning curve in the rst 5 years, the campus had become more comfortable with the system. Departments, particularly in the administrative areas, were using additional capabilities well beyond where they were 5 years ago. (A complete list of the SAP modules utilized is included in the Appendix.) Interestingly, the Human Resources Department, which Stewart previously criticized for its inability or unwillingness to use more than SAPs payroll and record-keeping capabilities, had expanded its applications tremendously. The modules in the HR function currently in use included personnel administration, organizational management, time management, payroll, benets, managers desktop, and ad-hoc query for reporting. In addition, HR had created an SAP database to serve as a skills inventory for compensation decisions for specic employee groups. But there were still important areas in the HR function that were not used. Recruitment was still on the shelf, and the training, personnel development, and travel modules were only used for a limited number of transactions. Still, the small, gradual steps taken in embracing the SAP functionality into human resources had nally proved rewarding and benecial. This was particularly evident in the use of the SAP database which has helped reduce the cycle time for salary calculations by almost 30%. Similar transitions in other functional areas could be identied as well. More specically, the current use of SAP now included extensive applications in accounting (e.g., nancial accounting, controlling, and project systems). A number of applications in materials management (purchasing, inventory management, and logistics) were widely used as well. In addition, a few departments used selected applications in sales and distribution, and in plant maintenance. The administration had also initiated the use of grants management, but after hearing the comments from those using the module, Stewart doubted it was being used effectively. The most notable improvement in SAP usefulness was in the active use of the campus management module. This was a recent solution developed by SAP to assist in student administration in higher education. Interestingly, DUs adoption of SAP was the driving force behind the development of this application. The university shared its implementation problems and frustrations with SAP AG, the company, and this provided the impetus for the company to develop specic solutions unique to institutions of higher education. The campus management solution went live in July, 2006, and staff in the registrars and billing ofces considered it a welcome addition. The modules capabilities included student accounting, student administration, admissions, and event planning. Students can use the module to register for courses, pay fees, check grades, and update personal information as a self-service function. Additionally, the system can enforce prerequisites for courses, prevent undergraduate students from enrolling in graduate courses, and prevent students from taking a course more than three times. The module also had the capability to handle transactions dealing with distance learning, study abroad programs, and on-campus housing. However, these were still in the development stage on campus. The one major failing Stewart found was in the continued limited use by the six colleges on campus. The college deans and their staffs continued to use legacy programs to manage their units. There were exceptions to be sure, but generally the colleges used SAP only when it was required. Colleges used their own idiosyncratic systems to do budgeting, scheduling, cost assignment, travel, and training. Stewart did note that this was changing slowly, largely because the administrative staff members who were familiar with SAP occasionally transferred to jobs in the colleges.

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Journal of Cases on Information Technology, 11(2), 42-55, April-June 2009 53

The most difcult problem for Stewart remained the cost benet analysis. He had shown the earlier ROI Report to Carl Elliot, his colleague in accounting. Both Elliot and Stewart were worried about Carpenters business approach to the SAP adoption. Elliot thought that Carpenter wanted to consider evaluating the SAP purchase as an investment in plant and equipment, that is, justify the purchase before the fact with a net present value calculation, and then track the success of the investment using an economic value-added or residual income calculation. At this point in time, Elliot thought Carpenter wanted an economic value-added calculation which would compare the total investment in SAP with the cost savings engendered by the program. This approach was similar to the one adopted in the ROI Report. Stewart and Elliot knew that the additional modules that DU had purchased, including the campus management package, had cost the university about $250,000. They also knew that the ongoing maintenance fee with SAP was now about $500,000 a year. This fee had paid for the upgrades in the modules on hand in 2002, and it had paid for the move to version Enterprise 4.7. (The university had declined to adopt version 4.5F.) The university also had six specialists who maintained the SAP system. Elliot estimated that these individuals cost the university about $65,000 each. With these data, Stewart and Elliot guessed they could estimate almost all the annual cash payments needed to support and upgrade the system. The growing level of expertise on campus had meant that few outside consultants were needed to help implement the upgrades and new modules installed since 2002. In addition, the six specialists now did almost all training on system improvements in-house. Because of the expertise on campus, there had been little need to import outside trainers or send staff off to classes at distant locations. Stewart understood the essentials of how to use these costs in the economic value-added analysis, but he wondered whether the calculations were a fair way to evaluate the nature and use of the SAP adoption. He also wondered about the usefulness of the calculations. What would be gained? His earlier analysis 5 years ago had been no picnic, and he had seen little result. Would the response to the latest request even justify a walk in the park? He wondered whether there was a better way to respond to Carpenters request. And, would the response make sense to Carpenter and the rest of the Board of Trustees?

REFERENCES
Anderegg, T. (2000). ERP: A-Z implementers guide for success. Eau Claire, WI: CIBRES, Inc. Davenport, T.H. (1998, July-August). Putting the enterprise into the enterprise system. Harvard Business Review, 121-131. Martins, L.L., & Kambil, A. (1999). Looking back and thinking ahead: Effects of prior success on managers interpretations of new information technologies. Academy of Management Journal, 42(6), 652-662. Pifer, B.L., & Vautrin, C.R. (1998, November). CMU/SAP R/3 implementation project. CMU Project Document, 1-15. Plazonja, L., & Olukotun, L. (2000). SAP R/3 addresses higher education industry challenges at central michigan university. ROI Report, 5(2), 1-15. Representative list of higher education and research institutions using SAP solutions. Retrieved November 2, 2008, from http://www.sap.com/usa/industries/highered/pdf/BWP_SAP_HER_Overview.pdf Sandoe, K., Corbitt, G., & Boykin, R. (2001). Enterprise integration. New York: John Wiley.

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APPENDIX
List of SAP Modules Utilized at Drummond University HR Modules Utilized:
PA Personnel Administration OM Organizational Management TE Training & Events PA Payroll TM Time Management TimeLink PA-BN Benets MDT Managers Desktop PD Personnel Development Travel

Financial Modules Utilized:

FI Financial Accounting CO Controlling Public Sector Management

Management Modules Utilized:

MM Materials Management Project Systems SD Sales & Distribution PM Plant Maintenance

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Journal of Cases on Information Technology, 11(2), 42-55, April-June 2009 55

Randall B. Hayes received his bachelors degree from Colgate University, and his MBA and PhD degrees from the University of Michigan. He is currently professor of accounting. He has taught accounting courses in accounting and systems at the MBA and undergraduate levels, and he has taught in several executive education programs. His research interests include the management uses of accounting information and he has published numerous articles in the area. He also supervises the consulting concentration within the MBA program of Central Michigan University. He has been the recipient of many teaching awards at a number of academic institutions. Prior to joining Central Michigan University, he served as an ofcer with the US Navy and as staff consultant with Coopers and Lybrand. He has taught at Michigan State University and the College of William and Mary. Kathleen M. Utecht is a professor emeritus at Central Michigan University, and an associate professor of management at Sam Houston State University. She received her BA from Elmira College, MA from the University of Lancaster, England, and PhD from Michigan State University. Her research interests include human resource management, enterprise resource planning, and six sigma, and she has publications in journals pertaining to these areas. She teaches both undergraduate and graduate courses in human resource management, and her courses include interactive applications using SAP R/3 software. In 2001 she was named an SAP Distinguished Scholar. Prior to joining the academic profession, she worked in human resources at the Scott Paper Company.

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Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.