Chapter One Why Study ERP Systems?: "Enterprise Resource Planning Systems", D. E. O Leary, 2000 ©

1
Enterprise Resource Planning Systems, D. E. OLeary, 2000

Chapter One

Why Study ERP Systems?
2
ERP Affects Most Major
Corporations in the World
SAP is used by more than 60% of the major
firms.
Almost every company is more or less in
its hands. Arthur D. Littles Global
Strategy Leader.
3
ERP Impacts Small and
Medium Enterprises (SME)
In 1995 SAP generated 90% of their
revenues from global companies
In 1997, roughly 35% of SAPs revenues
were from customers with revenues less
than $200 million
4
ERP Affects Competitor
Behavior
On June 24, 1996, Oracles Application Division
announced that Several companies went live with
their Oracle Applications implementations during
the quarter, including Silicon Graphics, Inc. and
Quantum Corporation, both of whom successfully
deployed large-scale implementations. at the
same time, Oracles Application Division
announced that among the customers added that
quarter included ... Western Digital .... Western
Digital was a direct competitor of Quantum.
5
ERP Affects Business Partner
Requirements
Adopting an ERP system makes firms more
information agile, able to more easily
meet the information demands made upon
them
As they become more agile they expect
more from their customers, possibly
integrating across the supply chain
6
ERP Provides A Key
Reengineering Tool
In 1990 Hammers highly influential article on
reengineering, got the corporate world interested in
obliterating existing processes. Unfortunately, after
things were obliterated many firms had no idea what to
replace them with.
ERP provides perhaps the primary tool to guide those
efforts, so much so that Gendron (1996) called ERP
(particularly SAPs) the electronic embodiment of
reengineering and Hammer (1997) commented that
SAP equals forced reengineering.
7
ERP has Diffused Many Best
Practices
ERP systems are based on so-called best practices - the
best ways of doing processes. SAP has over 1,000 of
them! What this means is that any firm that installs has
access to a wide range of best practices. Further, business
practices are being added all of the time. As new best
practices are found and embedded in particular
applications, they can become available for inclusion in
new versions of SAP. As they become available, other
firms install them. As a result, there is this cycle of finding
best practices, building them into the software and
diffusing them out to new users.
8
ERP Facilitated Adoption of
Client Server Computing
In the early 1990s client server computing
was an available technology, that offered
many advantages over existing mainframe
solutions. Unfortunately, there was limited
software available to exploit the advantages.
ERP changed all that becoming one of the
dominant, initial corporate applications of
client server computing.
9
ERP Changed the Nature of the
IS and Accounting Functions
ERP systems are replacing major portions of most
firms software needs. This changes the basic
nature of the information systems function from
one where systems analysts and programmers are
needed, to one where knowledge of existing
software packages is now critical.
Not only have needs changed, but personnel have
become more mobile.
10
ERP has Changed the Nature of
Jobs in All Functional Areas
IT (information technology) professionals in
manufacturing say ERP systems are blurring the lines
between IT and users. There is a huge demand for users or
line-of-business personnel who also have professional
level IT skills. But traditional IT types who know only
about technology and nothing about the business are
not needed now as they once were. Understanding the
business is probably the most critical (aspect) Its more
important to understand how you want things to flow
through your factory than [to have] the skill of
programming -- except for the few places where SAP
doesnt do whats needed so you need coders.
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Cost is High
After cost of ownership is $15 million,
typically at a cost of $53,320 per user,
according to a Meta Study.
ERP costs can run 2-3% of revenues
12
ERP Systems Can Create Value
Integrates Firm Activities
Allows Use of Best Practices
Enables Organizational Standardization
Eliminates Information Asymmetries
Provides On-Line and Real-Time
Information
Facilitates Intra and Inter Organization
Communication and Collaboration
13
ERPs Integrate Firm Activities
As noted by Hammer, Integration is the
defining characteristic of SAP
ERP processes are cross functional, forcing
the firm out of traditional, functional and
locational silos.
Formerly diverse systems are integrated in
ERP systems
14
ERPs Employ Best Practices
ERPs employ processes that are known to
work and that integrate with each other
Those processes can be used to improve the
way that firms do business.
15
ERPs Enable Organizational
Standardization
The same best practices can be employed at
multiple locations.
This allows firms to bring those locations with
substandard processes in line with other more
efficient locations.
Now clients can see the corporation the
same way, even if a firm has multiple
locations.
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ERPs Eliminate Information
Asymmetries
What is an information asymmetry?
Since all information goes into a single
database, accessible to many, means that
many information asymmetries disappear.
If you dont do your job, I can see that
something hasnt been done
17
ERPs Provide On-Line and Real
Time Information
Since data is widely available and available on-
line and in real time, all have access to the same
information
As a result,
information is available
Anytime!
Anywhere! to
Anyone!
which can facilitate more consistent planning.
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ERPs Facilitate Inter/Intra Organization
Communication and Collaboration
Increasingly firms are opening up their
databases to facilitate procurement and
other functions, thus ERP facilitates
collaboration
Since the ERP has all the transaction
processing information in it, communication
is facilitated.
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Chapter 2

Systems and Technology
Background
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What Technologies Are Of
Direct Interest?
Networks
Relational Databases
Software
Reengineering
Systems Analysis
21
SAPs client server system has its root in its
mainframe system
SAP was one of the first client server
packages generally available
Nature of client differentiates some ERP
systems
E.g., Oracle is thin client oriented
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Client/Server Configuration
Data
Management
Application
Function
Presentation
Presentation
Data
Management
Application
Function
Presentation
Data
Management
Application
Function
Presentation
Data
Management
Application
Function
Presentation
Data
Management
Presentation
Data
Management
Application
Function
Application
Function
Distributed
Presentation
(Thin Client)
Distributed
Presentation
(Fat Client)
Remote
Presentation

Distributed
Application

Remote
Data Mgmt

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Networks
Local Area Networks (LAN) link computers
together over small geographical areas, such
as a building
Metropolitan Area Networks (MAN) link
computers together across a city.
Wide Area Networks (WAN) link
computers together over larger geographical
areas, such as across different states
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Bandwidth and TCP/IP
Bandwidth is a networks transmission capacity.
The greater the bandwidth, the greater the
capacity.
Capacity and availability are key issues
TCP/IP - Transmission Control Protocol and
Internet Protocol, are standards associated with
transmissions across networks.
SAP uses TCP/IP standards
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Relational Databases
ERP systems sit on top of a database
Currently, ERP software is organized based
on relational databases
A relational data base is a set of related
tables
Related using key attributes
For examples ...
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... Salesperson # Last Name Address
A Table
Primary Key
attribute is a
unique identifier
for each row
0001 Jones 123 Sunnyvale .
A row is a set of related attributes
Non-key
attribute represents a
unique characteristic
of the salesperson or
entity instance
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Customer # Customer ...
Lastname
Salesperson # Last ...
Name
Sales Order # Customer # Salesperson # ...
0001 0005 0001
0005 OLeary 0001 Jones
A set of
related tables
Customer Table
Sales Person Table
Sales
Event
Table
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Data Warehouse
Is a single place located across a
corporation where a user can get the latest
data, efficiently organized
They are large repositories of data
Typically, they include multiple years of data
so that trend analysis can be done
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Software
Legacy Software
Package Software
Versions of Software
Database Management Software
Operating Systems

30
Legacy System
Typically refers to the software that is in
use prior to the new ERP software
Oftentimes, the legacy system is mainframe
software
31
Package Software
In the same sense that personal computing
software has moved toward a standard set of
package options, corporate enterprise
computing also has moved toward
packages.
Now, some argue that the primary problem
is one of choosing the right package
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Versions of Software
Software has different versions
Windows, 3.1, 95, 98, 2000, ME
SAPs R/3 has a number of different
versions, 3.0, 3.1, 4.0, 4.5, 4.6
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Database Management Software
DBMS is designed to facilitate use of
database structures, e.g., relational database
systems.
SAP supports a number of database systems
Oracle is most frequently used
There is a cost associated with having a data
base work with an ERP system
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Operating Systems
ERP systems are designed to run under
different operating systems, e.g., Windows
and Unix
For some systems, the operating systems for
presentation, application and database can
be all different
35

Software Layers
ERP Applications
Database Management System
Operating System(s)
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Reengineering
ERP can be used as a tool for reengineering
Technology Enabled
ERP contain many best practices
What is a best practice?
Reengineering provides one theory base
for viewing ERP
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Systems Analysis
Understanding and modeling flows of
information
Many different tools used to model different
views of enterprise models
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Chapter 3

Enterprise Resource Planning
Systems: Background
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Some Selected Questions ...
What is an Enterprise Resource Planning (ERP) System?
What does it look like?
MAPs (Models, Artifacts and Processes)
What are some sample modules?
How Does An ERP System Work?
What does it mean to talk about best of breed?
What is the basic ERP Life Cycle?
Who are the ERP Companies?
Which Consultants Do ERP Systems?
Why the demand for ERP?
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What is an Enterprise Resource
Planning (ERP) System?
Ideally, ERP is seamlessly integrated
software for the entire organization,
including financials, human resources,
operations and logistics and sales and
marketing
Generally, all in the firm access portions of the
same underlying relational database, where
information is gathered once and the database
has few redundancies
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What does it look like?
Typically, screens look just like regular
Windows applications
Reports look like reports ...
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How Does An ERP System
Work?
Information is input one time and selected
information cascades through the system, rather
than requiring re-inputting
e.g., Sales call information, cascades to sales
information, which cascades to billing info.
Business events are integrated into processes
Associated with order processing are a number of
functions, including Sales and Distribution, Planning
and Production, Materials Management, and Financials
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Order Management Process
Propose Commit Configure
Check
Credit
Deliver Bill Collect
Sales & Distribution
Production
Planning
Financial
Accounting
Materials
Mgmt
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MAPS: Models
A number of models are embedded in ERP
systems, e.g., Organizational Models.
Benefits, include ability to model substantial
detail and capture reality
Costs, include development and maintenance of
those models. Firms with volatile models may
find that keeping them up-to-date can be costly
Can force structures and accountability into
organizations (e.g., Microsoft)
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MAPS: Artifacts
Examples include documents
Formally, an interface between the
computer program and the world in which
the system functions.
Provide structure the unify the enterprise,
e.g., chart of accounts, vendor lists, etc.
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MAPS: Processes
Processes are flows of activity and
information to accomplish a particular task
or set of tasks.
Typically, there are multiple ways to do things.
Some will work better than others in particular
organizations.
Typically, cut across functional areas.
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What are Some Sample
Modules?
Names of modules depend on the particular
package, e.g., SAP
AM (fixed asset management)
CO (controlling), which includes CCA (cost center
accounting), PC (product cost controlling) and ABC
(activity-based accounting)
FI (financial accounting), which includes GL (general
ledger), AR (accounts receivable) and AP (accounts
payable)
HR (human resources), ...
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What does it mean to talk about
Best of Breed?
Mix and Match, choose modules from
multiple vendors in order to get the best of
each module
HR from PeopleSoft, Accounting from SAP,
Advantage: ideally maximal functionality
Disadvantages: search costs, interface costs,
look and feel differences, need for a
diversified implementation team, ...
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ERP Life Cycle
Deciding to go ERP
Choosing an ERP
Designing an ERP
Implementing ERP Systems
After Going Live (Stabilization Period)
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Who Are The ERP Companies?
SAP is the dominant player, with 35% -
40% of the market
Big five (BOPSE) Baan, Oracle
(Applications) PeopleSoft, SAP and, J.D.
Edwards
Additionally, other firms have generated
interest, e.g., QAD and Lawson, Great
Plains
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Which Consultants Do ERP
Systems?
You name them and they probably do something
in the area!
Generally, Accenture and the Big 5
accounting/consulting firms each specialize in a
few ERP systems.
However, some of them have consultants that deal
with all of the ERP systems
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Why The Demand For ERP?
Demand for tools to increase productivity
Reengineering gained headway, just when
client server came on the scene at a time
when many mainframes were due for
replacement.
Change in to whom software is sold
Y2K was one of the big reasons
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Chapter 4

ERP Data Input
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Data Input
Sources of Benefits and Costs Due to Data
Input
Too Many Screens, Too Much Time to
Input Data?
ERP System Design
Data Input as Ease of Use Measure
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Sources of Benefit and Costs Due
to Data Inputs
How Much Data?
Gather Data Once!
Gather More Data!
Gather Data Straight into a Computer-based
Environment!
Gather Data where it is generated!
Gather Data with a process focus!
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How Much Data?
How much data?
Huge! A sample system had over 40,000 tables
in a relational database system
How many attributes in a table?
...
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Gather Data Once
It generally is more cost effective to gather
data once
All use the same data
In a relational environment only need it once
Gathering once may decrease the number of
people required for data input
Have to make sure it is correct
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Risks of Gathering Data Once
... pre ERP, warehouse clerks knew they could let a truck
leave the loading dock without checking off the goods
shipped on the packing slip; the slip would be there and if
the clerks forgot about it, at some point, accounts
receivable would call them up and yell. Not anymore. If
the clerks dont account for everything when the truck
leaves, the customer will never get an invoice, because the
ERP system has no record of the goods being shipped.
Accounts receivable wont ever know that the customer
received the goods and wont be able to act as a sweeper
upper anymore -- no more wake up calls to the loading
dock.
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Gather More Data
What data is gathered?
Generally, a broader base of information
e.g., data can include time spent on a sales call
60
Gathering Data Straight to the
Computer
How is data gathered?
We are taking folks who have recorded some
information on pieces of paper, and putting
them on PCs
At the end of the day, many data input
requirements are similar to legacy systems
... To the average PC user (SAPs) R/3 looks like
any other database entry form. Blank cells are
labeled quantity, price or description.
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Where is data gathered?
Where it happens ... e.g., on the loading dock
In some cases pushes data input out of accounting
to operational departments
Gets rid of cleric accountants
... workers can look in the new system and make
certain decisions themselves -- and record them
straight from the shop floor.
However, this may cause problems, e.g., SAPs user
interface was confusing to loading dock workers who
had to enter the quantity of chemicals coming in or
going out.
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Gathering Data with a Process
Focus
Sample triggers ... Classic Events
Sales Activity from contact of customers
Goods receipts
Reservations of material for planned use
Goods Issues, i.e., withdrawal of material
Transfer postings (title change among
departments)
Goods movements
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Too Many Screens, Too Much
Time?
ERP systems are general system structures,
designed for implementation across a broad
number of system requirements
Not surprisingly, many firms do not need all the
capabilities
Configuration may expand the number of
screens required to input data. For example,
prior to SAPs R/3 4.0, it was not possible to
move data fields to a single screen.
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Too Many Screens, Too Much
Time?
At one firm, the legacy system took about
20 seconds to process each order, with all
the data on a single screen. When the SAP
system was adopted, the processing time
increased to 90 seconds, with data on six
screens. Since the firm had ~ 1,500 per day,
there was a substantial change in order
processing time
65
Process Change and Data
Personnel Change
ERP system changes can lead to changes in
processes and who does data gathering
There is a double edge sword between
benefit in shifting data gathering and
change from legacy systems
See next slide
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Data Gathering Personnel
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Process Change and Data Input People Change
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Too Many Screens and Too
Much Time to Input
At Hydro Agris Canadian stores, it used to take about 20
seconds to process a farmers order. However, after they
installed SAPs R/3, the processing time went to roughly 90
seconds. Since Hydro Agri has about 30,000 orders every four
weeks, the new system was requiring huge resources for data
input. Prior to R/3 every four weeks required 600,000
seconds, but after R/3 required 2,700,000 seconds of order
processing time. Information technology staff were forced to
take orders.

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Number of Data Entry Transactions
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Number of Input Screens (or Time Difference)
and Number of Transactions
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Why did the Number of Screens
and Time Increase?
Change from a functional approach to a
process approach can change the number of
screens.
In some cases legacy systems may be
developed to exploit functional information
specialization.
70
ERP System Design
There have been at least two criticisms
leveled at ERP system builders and there
why their system designs are not easy to use
Insufficient focus on user interface
Design focus is from the database outward,
rather than the user inward.
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Insufficient Focus on User
Interface
The developers of these (ERP) packages,
without exception, approach things from a
system point of view, not a user point of
view. ... (The system forces the users to
decrease productivity by requiring window
thrashing) ... The software drives people
back and forth, and it is driving them nuts.
72
Design is Database Out
(ERP developers) ... generally have
designed from the database out, and not the
user interface in.
As a result, the screens have been the last
part of the whole process.
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Data Input as Ease of Use
ERP Vendors have incentive to make
systems easier to use
If not as easy to use as other ERP systems, then
that might lead to lost sales
Systems are sold based on number of seats.
If users find the system difficult then they may
not sell as many seats, since firms may try to
get information out in other venues (e.g.,
intranets)
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Some ERP systems are easier to use
PeopleSoft is very appealing when you look at
the screens, while R/3 looked rigid
However, PeopleSoft is not necessarily easier
to use than legacy systems
Workers have to contend with a dozen PeopleSoft
screens compared to just two or three with the old
system.
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ERP Developers are Trying to Make ERP
systems easier to use
I want people to be able to use parts of SAP
with zero training
Has led to the EnjoySAP designed to make
the system easier to use
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Is Ease of Use in Eye of Beholder?
I didnt know how the old system worked ... in
my mind thats an advantage.
Either way, perception is reality, hence, if
users believe that a system is difficult to use
then it is!!!
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Chapter 5

Output: ERP Reports, Data
Warehouses and Intranets
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ERP Input Issues and Tools
Value Creating ERP Information
Capabilities
ERP reporting capabilities
ERP query capabilities
Data Warehouses
Intranets
Integrating ERP and Knowledge
Management Capabilities
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Capabilities
Information drives the processes
If the information breaks down, we break
down
In contrast to classic accounting systems, where
in some cases, reports are generated and never
used
Information is available faster
Firms cut end of year closing time from three
weeks to four or five days to 6 hours (Cisco)!
80
Capabilities
Information is available providing
empowerment
Workers can look in the new system and make
certain decisions for themselves -- and record
them straight from the floor.
Information is integrated
Systems are based relational database systems
so data can be made made available in an
integrated form
81
Capabilities
Information is Transparent
If you dont do your job, I can see that
something hasnt been done
Accordingly, ERP systems facilitate
elimination of asymmetries of information
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ERP Reporting Capabilities
ERP systems have a wide range of standard
reporting capabilities.
However, use of ERP systems can be hard to use
for anyone other than expert users and firms may
incur costs as a function of number of seats.
As a result, firms have pursued other alternatives,
such as database queries, data warehouses and
intranets
83
ERP Database Query Capabilities
Database Queries
ERP systems sit on top of a relational database
system, so queries can be built to provide report
capabilities
ERP systems have database query capabilities
so that the database can be bypassed
84
Downside of Queries
reports are taking a heavy toll on ERP systems
everywhere because for the first time hundreds, even
thousands of employees are going to ERPs single,
integrated database and pulling out huge piles of
data ... This is the number one technology fire that
ERP project teams have to put out after the new
system goes in.
In some cases, queries are treated as transactions. However, the
more queries that run, the higher the probability that the system
will become over loaded.
85
What if reporting and query
capabilities are not enough?
Intranets
Data Warehouses
86
Intranets
A number of firms, basically differentiate
expert and casual user groups, allowing
experts to have direct access to ERP
systems and casual users intranet access to
reports.
Can be facilitated through Lotus Notes or
Web technology.
Typically, reports are updated each day
87
Data Warehouses
Data warehouses provide a way of
facilitating generation of non-standard
reports
We needed something that would allow an
inventory manager to track inventory without
running a report request through the IS
department.
Typically on another computer so they dont
put strain on transaction processing systems
88
Data Warehouses
Data warehouses can serve as a meeting
point between ERP and other applications
... the impacts of the (ERP) project were so
much greater than expected .... Before the
systems had tended to communicate directly
with one another (i.e., point to point), a new
approach would now be employed in which all
data communication would take place via a data
warehouse.
89
Integrating Reporting and
Knowledge Management
As firms have begun to employ database
queries, data warehouses and intranets, ERP
firms have pushed to maintain control
The approach is to integrate knowledge
management and some electronic commerce
with the ERP systems
90
Knowledge Management and
ERP -- Portals
Portals have many definitions, but generally
are jumping off points for information and
knowledge, aimed at specific users
Can make a range of information available,
including discovered knowledge
91
92
Electronic Commerce and ERP
Some ERP firms see portals as an
opportunity to make information about
related product information available to
users through the portals
E.g., mySAP.com has forms that vendors
can fill in to make information about them
available through the portals
93
Chapter 6

Technology Enabled vs. Clean
Sheet Reengineering
94
ERP and Reengineering
SAP implementation equals forced
reengineering
its rare when you dont have to do some
kind of reengineering
ERP is the electronic embodiment of
reengineering
95
Reengineering Tools and
Technologies in 1994 (CSC Index 1994)
Tool USA Europe
None 41% 36%
Process Value Analysis 36 27
Benchmarking 34 36
Competitive Analysis 25 28
Activity-Based Costing 20 17
Other 16 17
Currently, ERP is the dominant tool!
96
Technology Enabled
(Constrained) Reengineering
Enabled vs. Constrained
Which term? Why?
A particular technology (or portfolio of
technologies) is chosen as a tool to facilitate
reengineering.
Thus, reengineering choices are a function of
the technologies chosen.
The technology drives the reengineering.
97
Clean Slate Reengineering
Process design starts with a clean slate
Also referred to as starting from scratch
Theoretically, no limits
98
Somewhere Between the Two
In actuality, there are few projects that are
purely clean slate or technology enabled
More of a spectrum
Technology
Enabled
Clean
Slate
99
Advantages of Technology
Enabled
ERP provides a tool to facilitate change
ERP helps structure complex reengineering efforts
Tools help explain and rationalize efforts
ERP bounds the design, limiting overload
Design is feasible
There is Evidence that the design will work
Designs likely are cost effective
Designs likely can be implemented in a timely manner
There is software available
100
Advantages of Clean Slate
Not constrained by a particular tool
Not constrained to a limited set of processes
Evolution is not limited by a particular technology
Can develop a design that others cannot access
There is evidence that firms think they should
reengineer and then implement
May be the only option
101
Which Firm Should Use Which
Approach?
Depends on
Firms Size
Available Resources
Time Pressure
Strategic Gain
Uniqueness of solution
102
Large Firms
Have the resources to do clean slate
Are often industry leaders and thus,
generally have time
Are likely to use processes as a competitive
advantage
Are more likely to need a unique solution
103
Firms with Deep Pockets
Clean slate requires substantial resources
In some cases, clean slate will lead to many
starts and stops before the final design is
found
104
Firms with Time
Clean slate takes longer so only firms that
have the time can really do clean slate
approaches.
105
Firms for which Processes are a
Strategic Advantage
The more unique a firm in terms of its
industry, processes, customers or other
factors, the more likely that they see their
specific processes as a competitive
advantage, and thus use some clean slate
approach.
106
Firms that Seek a Unique
Solution
Technology enabled approaches are easily
copied and diffused
Clean slate approaches are not as rapidly or
as easily copied.
107
Which Approach is Used the Most?
(Original Implementation Strategy)
Approach Original After
BPR and SAP Simultaneously 48% 51%
BPR before SAP 16 35
BPR after SAP 3 33
BPR before and after SAP 1 1
No BPR Needed 33 10
108
Chapter 7

Deciding to Go ERP
109
Business Case Rationales
Business case rationales typically fall into
four categories
Technology
Business Process
Strategic
Competitive
110
Why is the Rationale or business
case important?
Want to make the right decision, so
develop a good business case
Business case can facilitate choice of
processes or evaluative measures
Gives guidance to the design team
Business case can provide a basis for the
evaluation of the quality of the
design/implementation
111
Technology Motivations
Motivation No. of Firms Percent
Systems not Y2K Compliant 42 27%
Disparate Systems 37 24
Poor Quality Systems 26 17
/Visibility of Information
Business Processes or 19 12
Systems Not Integrated
Difficult to Integrate 12 8
Acquisitions
Obsolete Systems 11 7
Unable to Support Growth 8 5

112
Technology Rationales: Y2K
We really sold (ERP) on the Year 2000. ... If you have
systems that are 20, 25 or 30 years old, the Gartner Group
... has indicated that it will cost you anywhere from $1.10
to $1.65 per line of code to change for year 2K. If you
have 4,000,000 lines of code you are talking about a lot of
money. Additionally, the legacy systems are not there,
there is nobody there to maintain them and there is nobody
who understands them. So if you had to fix it up for the
year 2K it would take you millions and millions of dollars,
with a terrific risk. In essence we sold this system on a
year 2 K basis.
113
Technology Rationales:
Disparate Systems
Disparate systems limit the ability of firms
to integrate different business units. Recall
Geneva Steel
we have ... a mainframe ... (and)... a primitive accounting
system ... we have lots and lots and lots of different kinds
of computers. They have a hard time talking to each other.
We have a large number of mini computers out there that
are different kinds, that have different software .... Our
system is a road map from hell. ..
114
Poor Quality Existing Systems
We (Microsoft) had just had a very bad budget
process. ITG (the Information Technology
Group) and Finance had developed a new budget
tool and it didnt work. .... It was not fun. ... I
was just back from vacation, and Steve Ballmer
was just back from Wal-Mart. Steve knocked and
opened my door. I knew it was Steve, he has a
really distinctive knock. He walked in and said,
You guys [expletive deleted]! I got the
message.
115
Difficult to Integrate Acquisitions
We wanted more insight into how our
processes were doing. ... Your processes
have to change. As a company that
acquired so many companies, [Brown
Ferris] didnt have uniform processes. Part
of our challenge was to get 500 places using
standard procedures.

116
Measurement
Oftentimes technology rationales are measured on
a yes-no basis
Is the new system Y2K compliant?
Does the new system allow us to eliminate this road
map from hell?
Can we get rid of our existing budgeting system with
this new software?
Typically can specify particular measurement
goals.
117
Business Benefits
Benefit Number of Firms Percent

Personnel Reductions 44 20%
Inventory Reductions 42 19
IT Cost Reduction 27 13
Productivity Improvements 23 11
Order Management Cycle Time 19 9
Cash Management 16 7
Revenue/Profit 15 7
Procurement 12 6
Financial Cycle Close 10 5
Maintenance 8 4
118
Business Process Rationales
Designed to aim at specific improvements
in efficiencies or cost savings or revenue
enhancements.
Typically include a specific number
For example, decrease inventory by 40%
Can provide guidance regarding design
119
Business Process Rationales:
Personnel Reduction
We will have fewer accountants and
probably have fewer information systems
people. Because one of the things we are
considering is contracting out a chunk of
that function. A great deal of what we do,
we have cost accountants do, lots of things,
not just by hand, it is not that primitive, they
do a lot of work that wont need to be done
once SAP is implemented.
120
Productivity Improvements
To get the project (cost) justified we intentionally
focused on the tangible items the board would
understand and that we could clearly articulate and
make commitments to deliver. (Owens Corning)
A one percentage point cost reduction deriving from global
economies of scale in raw material purchases
A one percentage point cost reduction deriving from fewer
warehouses and lower freight cost
Improvement in reliability-oriented maintenance generating
lower plant maintenance costs
121
Financial Close
Firms often specify speeding the closing
process as a goal
One firm wanted to cut their closing time from
24 days to 6 days.
122
Strategic Rationale
Choose ERP to implement a specific
strategy
As part of an E-business strategy, a firm could
implement an ERP system
As part of a strategy to focus on the consumer,
a firm could implement Available to Promise
(ATP)
123
Competitive Rationale
A lot of ERP purchases are premised on
the need to just stay in business.
The competition has it can take two
approaches
Implement because the competition has it
Focus on why the competition has it and see if
it fits your company and what benefits can be
gathered
124
Competitive Rationale
On June 24, 1996, Oracles Application Division
announced that Several companies went live with
their Oracle Applications implementations during
the quarter, including Silicon Graphics, Inc. and
Quantum Corporation, both of whom
successfully deployed large-scale
implementations. In addition, at the same time,
Oracles Application Division announced that
among the customers added this quarter included
... Western Digital .... (Quantums Competitor)
125
Business Case Rationale
Can be used as a guide to help design and
evaluate success.
Why is it being implemented? Use this as a
basis to assess the quality of the
implementation
126
How Does a Firm Decide
Whether or Not to Go ERP?
Hard vs. Soft Data
Use of the Measurement Criteria
Organization Culture
127
Role of Top Management
What is the role of top management in
deciding to go ERP?
Only a few executives in a firm can make such
a big decision
Voice of Change must include domain area
since processes will change
128
Hard vs. Soft Data
Whether the data is hard or soft can
influence the decision
The Y2K data was hard data. They (top
management) believed that data.
129
Measure Costs Throughout the
Life Cycle
Measurement of project costs is necessary
to provide a budget and actual for the
project
Costs start in the decision to go ERP and
move in thru the rest of the life cycle,
through the stabilization period
130
Organization Culture
Some organizations use detailed analysis,
whereas others do not
In some cases it is a matter of the
organizations culture

131
Cost Benefit Analysis
Use it, but keep in mind ...
Costs can be disguised or hidden or
inaccurate
Benefits can be fuzzy or unanticipated
132
Chapter 8

Choosing an ERP System
133
Two Basic Approaches
There are two basic approaches that are
used as bases of choosing ERP software
Requirements Analysis (As Is)
Best Practices Analysis (To Be)
134
As Is Analysis
As is refers to the current system and its
current capabilities
The system as it is right now
135
Requirements Analysis (As Is)
As Is the ways things are.
Organization determines what their
processes and artifacts currently are and use
that as is model to establish requirements
that software is judged against.
Typically, the software that best meets the
requirements is the one chosen by the firm
136
Requirements Analysis -
Evaluating Features
Typically, requirements are features that the
software must have
In addition, sometimes would like to have also is
gathered.
Likely to use a numeric scale of say 1-5 for each
feature, based on how important the feature is
For missing features, typically changes to the
software are seen as a gradation of change, e.g.,
enhancement or customization
137
How many requirements?
Timberjacks requirement analysis took six
months and generated > 1,000 requirements
Another firm took eight months and
generated 1,500 requirements
If it takes a long time, then requirements
can (will?) change
138
How long will it take?
Can be a substantial effort and take a while!
Typically 1 - 3 months
139
Who Should Be Doing Analysis?
Trade-off between current employees who
know how work is done, and managers,
who see work from a different perspective.
...
Which processes should be captured:
Past
Current, or
New?
140
Help for Doing Requirements
Analysis
Consultants specialize in requirements
analysis, e.g., Big 5
There are existing packages that facilitate
requirements analysis, e.g., The
Requirements Analyst
141
Requirements Analysis -
Granularity
Requirements are not equal granularity.
Some are whole best practices, while others
are fields (e.g., date)
Able to manage orders following best practice
methods of placement, control and expediting
Able to Use EDI with Certain Vendors
Able to set up vendor schedules
Able to track actual date
142
Advantages of Requirements
Analysis
Classic System Choice Process, so it is
generally understood
Establishes a bench mark that can be used
to judge fit of software
Provides a document that can be used for
communication and to generate buy-in
143
Disadvantages of Requirements
Analysis
As Is analysis can be very
time consuming, slowing the implementation
costly (e.g., one firm spent $100,000)
May (will) be impossible to specify all
software requirements
If there are too many requirements then
vendors may not fully respond to the RFP
144
Disadvantages of Requirements
Analysis
Lose chance to reengineer by focusing on
the As Is model
Cements existing processes without evaluation
as to their quality
Requirements are not stable, so it is likely
that requirements can only chase reality
Requirements are only a snap shot
145
Format
Typically a list, along with a relative
ranking of the importance (1,2,3,4,5)
Scripted
Loosely Scripted -- show me what you have
Tightly Scripted -- can you handle this data?
146
To Be Analysis
Process of determining which best practices
should be used by a particular organization, i.e.,
how should the organization process information,
and choose the software on that basis
Focuses, not on where the organization is, but
where it wants to be.
Search often includes Big 5 best practices, and
ERP best practice capabilities
147
Gap Analysis
Match AS IS and TO BE to determine
if any gaps.
How do we evaluate gaps?
Count them?
Rate importance?
...
148
Both Requirements Analysis and Gap Analysis
Ignore Important Issues
Cost
Installation time
Flexibility
User interface
Upgradability
Implementation Personnel
Reliability
149
Cost Factors - Mini Case:
Which Do You Choose?
Upgrade Oracle SAP
Implementation $3-5 M $4-8 M $6-10 M

Software Development $2-4 M $1-3 M minimal

No. of Users (Seats) 15-20 10-15 8-10

150
Both approaches ...
basically assume that majority wins. How
do you choose, the software that has the
most requested features or the most
valuable features or ..?
can focus on artifacts (e.g., invoice) rather
than processes
151
Emerging Approach
Increasingly, consultants are promulgating
the approach where no as is model is
developed, no gap model is developed
Go straight to the to be model, since that
is what really counts
Typically, with this approach the consultant
knows both your organization and the
software
152
Emerging Approach
Instead, just choose one of the better ERP
packages and choose the best practices
available within that package.
Systems are so good that any of the systems
will have processes that are good enough
153
How do firms choose?
A Case Study
Company: Chesapeake Display and Packaging
(CDP)
They used a five step approach, including a vote
as to which everyone preferred.
Form Blue Ribbon Committee
Contact Vendors to Arrange Demos
Ask Vendor for Proof of Rapid Implementation
Vote
Make Choice
154
1. Form Blue Ribbon Team
A Blue Ribbon Team (BRT) was chosen for
their knowledge of the business and
business processes
There were some big picture people
The committee was limited to no more than
ten people
155
2. Contact Vendors to Arrange
Demos
A limited number of first tier vendors were
chosen, contacted and asked to prepare a
demo for the BRT
Vendors were given unlimited access to the
BRT for three weeks.
Demos lasted 1-2 days
Vendors choose the hardware and software
that they preferred
156
3. Ask the Vendor for Proof of
Rapid Implementation Ability
Vendors were asked ...
Show your software can handle our business
Show you can implement in the time required
Show expertise in understanding the industry
157
4. Vote
After the demos, there were three
candidates, Baan, J.D. Edwards and SSA.
In order to choose, the BRT was asked to
rank 1 to 3 based on Best functional fit
and Best implementation personnel
158
5. Software Recommendation
J.D. Edwards was seen as offering
Superior financial capabilities
One integrated solution
Human resources and payroll
Advanced object oriented tool set
A planning module that allowed for scheduling
on a cost basis
159
So, What do you ...
Like about the way they selected their
system?
Not like about the way that they selected
their system?
160
Chapter 9

Designing ERP Systems

Part I
161
Customize Applications or Change
Business to Fit Software?
Choose Application to fit 37%
business and customize a bit

Customize Applications to fit business 5%

Reengineer Business to fit application 41%

No Policy 17%
162
On the Relevance of As Is and
To Be Modeling
Since As Is analysis generates models of
existing processes, the relevance of As Is
modeling is dependent on the extent to
which processes stay the same
Since To Be analysis generates models of
processes chosen to be implemented, its
relevance depends on the extent of change
to be made in existing processes.
163
As Is
If a firm is planning extensive reengineering
(>40%) from survey were, then the As Is
model is not very important. Instead the to
be model drives the process.
However, if minimal reengineering is
planned then it can be critical to do an As
Is model so that the proper software can be
chosen.
164
Extent of Change to Organizational Processes Planned
Minimal Extensive
Q
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F
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As Is Requirements
Analysis is Critical
As Is Requirements
Analysis is not
Necessary
165
As Is
Consider a firm that performs an as is analysis
and finds a loose fit between existing processes
and the ERP software they choose.
If minimal reengineering is planned, then there may be
a lost chance to choose software that matches their
processes
If extensive reengineering is planned and there is a tight
fit with existing processes, then that close match can
limit their ability to do reengineering and may result in
backsliding.
166
Extent of Change to Organizational Processes Planned
Minimal Extensive
Q
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o
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Lost Chance to
Choose Software
that Meets Needs
Potential to Back-
Slide to Existing
Processes
167
To Be
If there is only limited change of the
software planned then the To Be model is
basically constrained to the processes
available in the software
If the software is to be modified, then the
to be model becomes more like a clean
slate analysis, since the choices are beyond
the software.
168
Extent of Change to Software Planned
Minimal Extensive
Q
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To Be Analysis is
Technology-Enabled
Portfolio Choice
To Be Analysis
is Clean Sheet
Reengineering
169
Two Dimensions ...
There are two dimensions of change
Change in Software
Change in Organizational Processes
Resulting in reengineering ranging from
little r to big R reengineering.
170
Extent of Change to Software
Minimal Extensive
E
x
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Small r
Big R
171
Minimal Organization and
Software Change
Small r reengineering offers fast and
cheaper implementation
However, with small r, you miss the chance
to be a champion
Minimal Extensive
C
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t
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M
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i
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Small r
Big R
172
Extensive Organizational and
Minimal Software
SAP customers often have to change their
businesses to use the software, but the cost
and the change is worth it because the
software lets the company operate more
efficiently.
Minimal Extensive
C
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a
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t
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M
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Small r
Big R
173
Extensive Organizational and
Minimal Software
Trash Hauler industry taking SAP software to the
dump. Allied Waste and Waste Management have
abandoned their SAP initiatives because
SAP expects you to change
your business to go with
the way the software
works.
Minimal Extensive
C
h
a
n
g
e

t
o

O
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g
.

P
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M
i
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i
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a
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Small r
Big R
174
Minimal Organizational and
Extensive Software
A project manager at Nestles indicated that their
choice of processes for their SAP implementations
included best practices beyond those included in
the software.
Some of their existing processes
and best practices from their consultants
database of best practices
were chosen, forcing a
change in the software.
Minimal Extensive
C
h
a
n
g
e

t
o

O
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g
.

P
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M
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Small r
Big R
175
Disadvantages
We have learned the hard way, if you modify the software
there will be a cost. The cost comes when you do the
modification initially, when you do an upgrade, and when
you support the software over time. ...
Customization to different divisional requirements also can
make it difficult to implement the software in other
divisions. Although the manager of SAP services at Deere
Co. indicated that for their ERP project, the customizations
went well, it was also noted (Lamonica 1998)
... what hasnt worked well is establishing standards and templates
that can be rolled out to other divisions.
176
Extensive Organization and
Extensive Software
Boeing and BAAN What was the payoff?
As noted by one Boeing
consultant (Busse 1998),
Prior to ... (the new system)
... people had tunnel vision,
now people see up and
downstream ...
Minimal Extensive
C
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a
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g
e

t
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g
.

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Small r
Big R
177
Extensive Organization and
Extensive Software
Advantages: First mover advantages for the
adopter; development of a package that can
be sold to similar firms to the ERP firm;
costs and risks are shared by both
Disadvantages: Changing software is
expensive and inhibits ability to get to next
version. Adopters are likely large firms
with market power.
178
Evolution from Big R to Small r
Reengineering
In some cases, ERP firms partner with
implementing firm in an effort to expand
the product capabilities.
Extensive software changes can result in
industry specific versions of the software
As the software is made to conform with
unique industry requirements, it becomes
small r for those on the third or fourth wave.
179
Implementation Failure and
Success Factors
The highest probability of a successful
implementation is when there is minimal
change to both organization and software.
This does not mean all organizations should
pursue that approach.
Change to organization processes can mean
resistance to change, choice of the wrong
best practices, etc.
180
Implementation Failure and
Success Factors
Extensive change to software draws heavily
on the organization to implement large IT
projects and IT change management
See diagram
Bottom line, firms must assess what will
make their implementation successful?
181
Which Quadrant Which
Approach?
Depends which is best for your firm?
Highest Probability
of Successful
Implementation

Small r
Potential Project
Failure because of
Process Changes
Potential Project
Failure because of
Process Changes and
IT Changes to Software
BIG R
Potential Project
Failure because of IT
Changes to Software
Minimal Extensive
C
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O
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182
Chapter 10

Designing ERP Systems

Part II
183
Models
Organization models (e.g., B2C, B2B,
Auctions, Centralized, Decentralized)
Artifacts
(e.g., Charts of accounts and Vendor numbering
schemes)
Processes
(Sales order, Customer management,
Procurement)
What are MAPs?
184
Why are MAPs important?
MAPs (Models, Artifacts and Processes)
The quality of the MAPs will have a huge impact
on the overall success of the ERP implementation.
MAPs that are not efficient or effective for a particular
firm can drag down the overall performance of that
firm.
Similarly, MAPs that meet the needs of a firm can push
it to better performance, giving it a competitive edge.
185
Where do MAPs come from?
Nestles decided that it would implement common MAPs
in all three of its United States divisions.
Each of the three divisions existing MAPs became
candidates, that would be evaluated.
Both SAP and the advising consultants best practices
databases were used to generate candidates MAPs.
In some cases, hybrid MAPs were developed, based on
multiple sources of information.
A multifunctional team used both sets of inputs to decide
on company standard artifacts and business processes.
186
Why didnt firms have common
MAPs prior to ERP systems?
There are at least three reasons:
1) technology,
2) exploitation of local differences, and
3) divisional control.
Technology limitations meant each division made their own
decisions
Since each made their own decisions they exploited local
phenomena (e.g., few vendors)
Even common software and computing was hard to integrate.
187
Why do firms need common
MAPs for ERP?
Basically, the software requires it
Improved customer response
To get control of an out of control process
Generate a common view of the data
Create value and reduce costs
188
Software Requires it
Owens-Corning traditionally had operated as a
collection of autonomous fiefs. Each plant had
its own product lines, says Domenico Cecere,
president of the roofing and asphalt units. Each
plant also had its own pricing schedules, built up
over the years of cutting unique deals with
customers. ... (SAPs) R/3, however, effectively
demanded that Mr. Ceceres staff come up with a
single product list and a single price list.
189
Improved Customer Response
Up until now, customers called an Owens -
Corning shingle plant to get a load of shingles,
placed a separate call to order siding, and another
call to order the companys well-known pink
insulation.
(The companys new vision was that) Owens -
Corning should offer one stop shopping for all the
exterior siding, insulation, pipes and roofing
material that builders need.
(SAPs) R/3 will give Owens-Corning the ability
to make that happen by allowing sales people to
see what is available at any plant or warehouse
and quickly assemble orders for customers.
190
Get Control of Out of Control
Processes
Vandelays sites operations practices were as varied as
their information systems. There was no uniformly
recognized best way to invoice customers, close the
accounts at month end, reserve warehouse inventory for a
customer order or carry out an of the hundreds of other
activities in the production process that required computer
usage or input. ...To alleviate ... problems with systems and
practices, Vandelay decided to purchase and install a single
ERP system, which would incorporate the functions of all
the previously fragmented software. The company would
also standardize practices across sites.
191
Common View of the Data
Elf Atochem North America Inc.,
Philadelphia ... is moving 13 business units
over to SAP software. ... he came to SAP
because its various companies had been
reorganized to work as one. (As a result,
the company) ... had inherited a lot of
different computer systems, a lot of
different ways of doing business, and a lot
of hand-offs. A common view of diverse
data was important ...
192
Value Creation and Cost
Reduction
As noted by Pirellis director of information
technology The more standardization there is, the
easier it is to implement new ideas and respond to
new opportunities. In addition, Andreoni notes
that standardization can reduce costs. As an
example, before standardization, Pirelli had a full
service back office and customized software in
each of five countries. ERP software was used to
replace the multiple back office staffs with a
single back office staff in Switzerland, cutting
costs by 25%.
193
Why is it difficult to choose
common standards?
A Vice President of Red Pepper Software, who
admits that standard ERP artifacts are ... useful
where financial viewers want to consolidate
information across diverse operating units, but ...
the common view may not be optimum for
individual divisions.
Although standardization coming from
implementation of enterprise software by
standardizing processes and artifacts has global
benefits, it comes from sacrificing local
customized capabilities.
194
How seriously do divisions take
the choice process?
SAP, however, effectively demanded that
Mr. Ceceres staff come up with a single
product list and a single price list. The staff
initially fought ceding control over pricing
and marketing to a computer-wielding
central command. My team would have
killed if wed let them, he says.
195
What are some choice
motivations?
Maximize corporate benefits (global good)
Minimize divisional change costs (self
interest)
Rather than maximizing corporate benefits, a
division may work to minimize its change
costs, such as training or hiring.
Divisions unsuccessful in getting their MAPs
adopted can still work to get the MAPs closest
to theirs adopted
196
Choosing Standard Artifacts and
Processes
Within an ERP, virtually the same processes and artifacts
are used in all locations, i.e., processes and artifacts are
standardized
As a result, potentially this can lead to conflicts
between different business units regarding the choice of
processes & artifacts
Firms refer to this choice as common ... and global
Firms make the choices to facilitate communication and
coordination

197
Chapter 11

Implementation:
Big Bang vs. Phased
198
Big Bang vs. Phased
Implementation
Big Bang and Phased are two primary
ways of implementing ERP systems
What do these terms mean?
What are properties of each?
What are the advantages and disadvantages of
each?
How do we take into account organizational
factors with respect to big bang or phased?
What are some additional terms?
199
Big Bang
In a full big bang, an entire suite of ERP
applications is implemented in all locations
in a matter of days.
Big Bang employs a three step process.
Virtually all processes and artifacts are chosen and
implemented in the software (e.g., 8 months)
System is tested by process and then by interfaces
between processes (e.g., 8 months)
Old system is turned off. New system is then
implemented and minor changes made.
200
Phased
At the extreme, modules are implemented one at a
time, possibly one location at a time
For example, one implementation did the following:
Phase 1 - Finance, controlling, accounts receivable, accounts
payable, and purchasing (12 months)
Phase 2 - Materials management, production planning and quality
planning (7 months)
Phase 3 - Remainder (5 months)
Using a phased approach, the new system is implemented in
a structure of legacy systems.
201
Advantages of Big Bang
No Temporary User Interfaces
Limited Need to Maintain and Revise Legacy
Software
Some Risk is Lower
Functionality Linkage
Shorter Implementation Time
Continuity of Personnel
Cost
202
No Temporary User Interface
Temporary interfaces must be developed
and maintained for the duration of the
multiple systems with a phased approach,
however, with a big bang approach, there is
no need to build legacy system interfaces
and there is no need to change legacy
systems
203
Limited Need to Maintain and
Revise Legacy Software
With Big Bang there is limited need to
maintain and revise legacy software.
As a result, all resources can be spent on the
development and testing of the new system.
204
Some Risk is Lower
The phased approach is riskier, because
you wont get everyone involved.
Since people are not involved they can lose
interest
There is no back-up system with big bang,
so there is little risk of the attitude, Oh,
lets just forget it.
Attrition of critical personnel is lower
205
Functionality Linkage
ERP systems modules are tightly linked.
Some capabilities require multiple modules
be implemented
As a result, in some cases the fastest way to
get full functionality is a big bang approach.
206
Shorter Engagement
Implementation Time
Since there is no time spent on temporary
interfaces, the engagement duration time
can be shorter
As a result, there is less time for legacy system
maintenance is required
First Movers advantage is more rapidly attained
Catch-up can be facilitated
207
Continuity of Personnel
Since engagement duration time is shorter
there is less likelihood of workers leaving in
the middle of the engagement
Also, since experience is not whole till
implementation, there is likely to be less
turnover, during the actual implementation
208
Cost
Which approach is least costly?
If all goes well the big bang approach is
least costly since there are fewer costs for
interfaces, etc.
209
Advantages of Phased
Peak Resources are Lower
More resources can be devoted to a particular
module
Some risk is lower
Legacy System Fallback
Personnel gain knowledge in each phase
Project managers can show the system works
Time between development and use is small
210
Peak Resources are Lower
If a firm has limited resources, then a big
bang approach may not be feasible.
With a phased approach resource
requirements can be spread across multiple
time periods.
211
More Resources can be Devoted
to a Particular Module
If the organization is resource constrained
then a big bang approach may not be
possible because of those resource
constraints
However, with Phased, the resource
requirements can also be phased.
212
Some Risk is Lower
One malfunctioning module in a big bang
can make the implementation fail. Since the
phased approach puts in one module at a
time, that risk is mitigated
If the implementation fails, the phased
approach always has the legacy system in
place until the very end.
213
Legacy System Fallback
In a big bang, the legacy system is turned
off, there is no alternative if things dont go
well.
With a phased approach an organization can
see if the system works and then turn it off,
or it can run the systems in parallel in order
to check the results.
214
Personnel gain Knowledge in
Each Phase
In a phased approach, workers gain
knowledge with each phase.
They can use knowledge gained in phase i,
in phase i+1.
215
Project Managers can show the
System Works
With a phased approach, managers have a
chance to show that the implementation is
working and/or being accepted. As a result,
they can use these results to demonstrate the
quality of the investment to top
management.
216
Time Between Use and
Development is Small
The linkage between doing the work and
when the module goes live is much tighter
with phased than big bang.
As a result, developers can more easily see the
linkages and the results of their work.
217
When should you use Big Bang?
When you have top managements support
When there are sufficient peak resources
available
When capabilities are needed ASAP.
When there is limited time to implement the
system, e.g., first mover or catch up.
218
When should you use Phased?
When you need to generate support from
top management
When there are insufficient peak resources
When the all or nothing risk of Big Bang is
too high
When there is plenty of time
219
Organization Characteristics and
Implementation Approach
Size vs. Complexity
Complexity derives from a number of sources
including an organizations products and
customers. Large customers can dictate
processes, artifacts, etc.
Size of a firm can relate to a number of factors,
such as revenues, number of offices, geographic
regions, number of products or number of
customers.
220
Large and Complex
Organizations
Its too difficult--especially for large (and
complex) companies--to run a big project ...
and the risks in terms of project
management are huge. ... Huge do-it-all at
once deals are quite tough, and most people
are looking for smaller piece-by-piece
implementations.
221
Small Large
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Big Bang
Phased
Linkages Between Organization Size and
Complexity and Implementation Approach
Organization Size
222
Organization Characteristics and
Implementation Approach
Both Organization Structure vs. Organization
Controls influence whether a big bang or phased
would work better.
Organization structure can be very flat or tall and
hierarchical
Organizational controls can be loose or tight
If a company has a flat organization that is not tightly
controlled, its very difficult to sustain commitment
throughout a phased implementation.
223
Extent of Controls
Loose Tight
O
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Big Bang
Phased
Linkages Between Organization Hierarchy
and Control, and Implementation Approach
224
System Change and
Reengineering
Number of Modules
Firms dont always put in all the modules.
With few modules, they can almost guarantee
the ability to go big bang
Extent of Reengineering, e.g., System Fit
To what extent does the system meet the needs
of the company as is?
225
Extent of Change To Be Made
To ERP Modules
Minimal Extensive
N
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o
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M
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M
a
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F
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Linkages Between Implementation
Approach and ERP Modules
Big
Bang
Phased
226
Alternative Implementation
Issues
Waved Approach
Aggressive Implementation
Running in Parallel
Many big bangs
227
Waved Approach
Each wave delivers functionality to a
different business unit or geographical area
Example:
Year One - implement G/L
Year Two - Convert A/R and cost management
228
Waved Approach
Advantages of Waves
Waves provide feedback as to how the
implementation is proceeding
Employees learn in the beginning of the wave
and leverage that learning
Each successful wave keeps momentum going
Waves are flexible. If new releases occur then
they can be embedded in the waves
229
Aggressive Implementation
Not big bang, but more aggressive than
phased
Temporary links really are temporary.
Aggressive plans are made to release legacy
system
230
Run in Parallel
If the legacy system is allowed to run at the
same time as the new system then the two
systems can run in parallel.
There are some advantages and
disadvantages of this approach
Advantages: can go back, can check results
Disadvantages: costly, may inhibit new system
231
Multiple Big Bangs
Increasingly, firms are beginning to say that
they are doing a big bang implementation,
in phases.
This is a break from the classic big bang
and phases, basically big banging around
the world, from one division to another.
232
Chapter 12

Post-Implementation
233
The Stabilization Period
Lasts from 3 to 9 months
Most companies should expect some dip in
performance at the time they go live and should
expect that theyll need to manage through that
dip.
Why?
New software and processes for users
System bugs
Technical issues
234
Post-Support from ERP Team
Detecting and responding to system bugs
Answering user questions
Changing system parameters
Responding to changing reporting needs
Upgrading the software/hardware
235
What Remains to be Done?
Data conversion (migration of data from
legacy to ERP system)
Cleansing data
Reconciling data
Process Bottlenecks
Talk to users about problems
Analyze error and complaint logs
Documentation and Training
236
Linkages, Upgrades &
Extensions
Creating interfaces and linkages to other
systems
Upgrading to different system versions must
be made so that additional features can be
implemented
Building-in new features and functions
beyond upgrades

237
Evaluate Success
Timing
When benefits could be realized and measured
During the 1
st
or 2
nd
year AFTER going live
Determining if the system meets the criteria
set out for it in the beginning (choice
rationale)
Independent measures or a weighted
portfolio of measures?

238
Weighted Portfolio
Attribute Rating Weighting Product

Ease of use 4 .10 .40
Speed of closing 3 .20 .60
Internal Integration 5 .15 .75
Customer Satisfaction 4 .20 .80
Duration 4 .10 .40
Cost 2 .15 .30
Benefit 3 .10 .30
Total (Possible 5.0 points) 1.00 3.65

(1-5 Scale)
239
Actual vs Expected Project Factors
(Austin and Cotteleer 1999)
Duration Cost Benefit

< 50% 0.0 0.0 6.0
50% - 100% 25.0 13.5 65.5
100% - 124% 5 27.5 43.0 8.5
125% - 149% 4 25.0 24.5 14.5
150% - 174% 3.0 8.0 0.0
175% - 199% 16.5 2.5 3.0
> 200% 3.0 8.0 3.0

240
Balance Scorecard
Financial Customer
Learning &
Growth
Internal Business
Processes
241
Post-Implementation Budget
There must be a budget and corresponding
plan to support the complete project.
Complete project management means
managing through the entire project life
cycle.

242
Chapter 13

Training
243
Importance of Training
The easiest mistake to make is underestimating
the time and cost of training end users.
An implementation will be a failure if the software
runs perfectly, but employees dont know how to
use it.
Despite the importance associated with the need
for ERP training, a recent survey found that in a
Benchmarking Partners survey of 150 sites, 43%
indicated that the amount of training was the
biggest surprise encountered.
244
FAQ Regarding Training
How should user training be timed?
How much training should users get?
How do you make up time spent on training?
When should you do training?
How do you get employees to do training?
How much should training cost?
What is in the training material: information technology or
business materials?
How should you structure training?
Can you develop faster training?
245
How Should Training Be Timed?
Training that occurs too early before the go
live date will be forgotten.
Training that occurs too late, will not be
done in time, and can cause a lengthy
stabilization period.
As one example of trying to find the right
time, Purina Mills started to train users four
months in advance on SAPs R/3.
246
How Much Training Should
Users Get?
The amount of training required is a function of
the particular module for which users are being
trained.
In some cases it can take up to six months for users to
get comfortable and proficient with the ERP software.
As another example, at Purina Mills during their SAP
R/3 implementation, a group of finance workers spent
seven hours per day during the last month before the
system went live.
247
How Do You Make Up Time
Spent on Training?
Time spent on training is time not spent on day-to-
day activities.
Not surprisingly there have been a number of
different solutions used to ensure that workers get
enough time off for training.
At Purina Mills managers put in extra hours in order to
accommodate training hours.
At Microsoft users were expected to do both jobs by
putting in extra hours.
Still other firms have made use of temporary
employees.
248
When Should You Do Training?
Training scheduled during working hours
indicates the importance of the training. Training
scheduled outside working hours suggests training
is not as important as day-to-day responsibilities.
A CIO was told by corporate that eighty hours of
education was necessary. However, he felt that the
eighty hours of education would not be necessary for
his employees and that the training could not be done
during normal working hours. As a result, he was
planning for his employees come in on Saturday and
Sundays on three successive weekends in order to the
training.
249
How Do You Get Employees to
Do Training?
User ERP training might get pushed aside if firms
do not ensure that users take it seriously. As a
result, firms have introduced different penalties
and incentives.
For example, during Microsofts SAP implementation,
training was deemed mandatory for certain critical
users. Users that did not attend training were
threatened with having their computer accounts turned
off. As noted by a senior accounting manager (Bashein
et al. 1997, p. 71), We only had to turn of 20 or so
accounts.
250
How Much Should Training Cost?
How close was the cost of user training and other ERP
deployment expenses to your original estimate?
More than 50% above expectations 8%
10% to 50% above expectations 26%
Within 10% of expectations 58%
More than 10% below expectations 6%
Dont Know 2%

Based on 50 large United States Companies surveyed in August 1998.
Source Forrester Research. Inc., Cambridge Massachusetts.
251
What is in the Training Materials:
IT or Business?
Training users on how to use an ERP system is a
mix of technology, processes and domain area
content in order to provide a context for the
system.
ERP Hokey Pokey, where users are advised, you put
your right hand on the ...,
As part of the Microsoft SAP implementation, a senior
accounting manager noted (Bashein et al. 1997, p. 71),
Ive taught a six hour course on entering journal
entries into SAP 20 times now. It was as much a
general ledger course as a system tool course.
252
How Should You Structure
Training?
One approach that consistently is well accepted is
when a member or a group of members of the
client organization are chosen as super users,
who then can be responsible for training others.
This approach has been found to facilitate buy-in from
the users, because the people doing the training are
people that the users know.
Because there are super users, the other users see that
learning about the system can be important.
Developing super users develops an important
understanding at the user level.
253
Can You Develop Faster Training?
Because ERP engagements often are behind
schedule, firms try to speed their training.
The ability of firms to speed up training depends on the
firms needs, personnel and previous training. Some
personnel are likely to be quicker learners or able to
spend more time than other personnel. Further, in some
cases if system use is similar to other systems that have
been used then training is likely to be able to go faster.
However, trying to speed training is potentially
dangerous, with a high cost of failure.
254
Chapter 14

ERP: The Backbone of
Electronic Commerce
255
Purpose of this Talk
The purpose of this talk is to discuss how
... ERP is a building block of E-business
(Director of E Business Applications-3Com)
Outline
Building Blocks of E-commerce
ERP and Customer Ordering
ERP and Vendor Managed Inventories
Integrating with Resellers

256
Building Blocks of E-Commerce
E-commerce functions best if there is
Real Time Information
Ability to Communicate System to System
System Use is Widely Available
Can ERP meet those demands?

257
Real Time Information
ERP provides a clearing house of real time
up-to-date information necessary for
e-commerce
Inventory Information (so they know what is
available to sell)
Pricing Information
Configuration Information (necessary for
requirements planning)
258
Communication Between
Systems
Historically, EDI (electronic data
interchange) has been the source of
communication of information
Increasingly, WFT (web forms technology)
is the source of communication of
information
259
EDI
EDI uses data in standard chunks, sequence and
format (e.g., invoices)
EDI is typically done using a VAN (value added
network)
EDI is so important that in one survey it was
found to be the added on to ERP systems more
than any other additional solution.
Large-scale business-to-business customers will
integrate their purchasing and ERP systems with
our systems, so it will be completely computer-to-
computer. (Dell Computer)
260
Problems with EDI
Since EDI is really a serial process and basically
dictates certain times that you do things, we will
eventually have to migrate to an Internet/web-
based type of transaction with our suppliers and
our customers. (Compaq)
Midsize and small businesses wont have
elaborate hookups ..., so theyll use Premier Pages
(WFT) as one of their predominant methods.
(Dell)
Traditional EDI is too costly. Increasingly firms
are using EDI over the Internet.
261
WFT
WFT is typically used in an Internet/
Intranet/Extranet environment
WFT may not be directly interfaced with
other applications and databases
WFT use has exploded
262
Problems with WFT
WFT is primarily useful in those settings were the
originator has only a few orders, but the receiving
firm has many orders.
If the originator firm has many transactions then
the WFT ordering process may be too costly and
time consuming.
Not only must the order be made using WFT to the
vendor by the customer, but then the originator must
update their own system.
Thus, using WFT can cause double the data entry time,
and require a larger number of people.
263
Widely Available and Easy to
Access
Ideally, users can access the ERP system
over the Internet in order to place orders.
Fujitsu PC Corporation uses its ERP and other
configuration software to allow the user (either
a Fujitsu sales representative, a reseller or end
user) to order over the web.
Cambridge Partners recently commented
that at the moment you need to be in the
office to use ERP.
264
Emerging Environment
One approach has been to provide a different kind
of access to client server in an environment where
the user only needs a browser and Internet access.
The user has Internet access to a time shared
client, that interacts directly with a server in an
appropriate standard environment.
Using this approach, eliminates much of the
standardization that can be required at the user level in
client server computing. This approach also extends
classic client server to a timesharing model that is
analogous to mainframe computing.
265
ERP and Customer Ordering
Facilitating commerce is one of the most
important tasks in commerce
Unfortunately, it often is filled with errors.
For example, Cisco found that 25% to 33% of
the orders made by faxes had errors in them.
How could e-commerce solve the problem?
What was the problem?
266
What is the Impact of Errors?
Errors ultimately can delay the shipment or cause
an error in the pricing.
As customers found out about errors in the orders,
they found it necessary to contact Cisco about
their orders to make sure that orders got in the
system correctly
These requests required increases in Ciscos personnel
in order to respond to customer inquiries, raising costs
and slowing down the process of getting goods to the
customer.
267
One of Ciscos first E-Commerce
Applications
Using the web, customers were able to gather
information from Ciscos ERP system that would
allow them to track and price their orders to see if
they were correct and to see what the status was
Information was available seven days a week and
twenty-four hours per day.
This reduced Ciscos need to have personnel available
to help track the orders and answer customer questions.
Customer support had been shifted to the customer.
268
What was the next step?
Should it have been first?
Perhaps a more important question was
How can you eliminate errors to begin
with? In Ciscos second year, their goal
was to eliminate the errors and allow the
customer to make anytime anywhere
ordering over the Internet
Accessing information from the ERP
customers were permitted to originate,
configure, price and place the order.
269
How did they get customers to
use it?
Cisco guaranteed that pricing and
configuration would be accurate, if the
customer used the web application. Within
only four months in 1996, 10% of the orders
were done over the Internet. By 1999, 85%
of the orders came in over the Internet
270
How did they do it?
The systems accuracy derives from the
configuration engine (CE). The CE
examines orders to find common errors. If
errors are found then the engine wont let
the customer make the order. The CE
examines all available account information
and purchase information, in order to find,
e.g., incorrect part numbers.
What else can be done to facilitate orders?
271
Problem
Purchasing is done using Ciscos system
and not the customers system so the
customer needs to put the same information
in their own ERP system.

272
Solution: Eliminate Need for
Duplicate Entry
Cisco began working with their biggest customers
to integrate order information into the customers
purchasing system, e.g., the customers ERP
system.
Once a day, new configuration, order and pricing
information is made available to those special
customers.
Now those customers can place orders from the
familiar systems that they use every day.
273
ERP and Vendor Managed
Inventories (VMI)
Under Ciscos model, the customer does the
ordering.
However, in many settings, the order
process has been shifted from the customer
to the vendor.
For example, in the case of Procter & Gamble
(P&G), P&G ultimately monitored demand and
took responsibility for keeping its products on
the shelves
274
How is VMI Accomplished?
VMI is accomplished by providing vendors real
time access to necessary information.
Access must be electronic and the information must be
up-to-date or else the quality of the inventory decisions
can be limited, a particularly important limitation when
the vendor is managing the inventory.
In an ERP-based world there are two solutions
designed to facilitate VMI:
Integrating through access to ordering data
Direct ERP to ERP connection.
275
Provide Vendor with Direct
Access to Data Warehouse
Weve also custom-developed some tools
that sit on top of the SAP ... system to give
us a data warehouse capability. ... We
developed an EDI capability that feeds into
our data warehouse. Every week our
suppliers use EDI to report on their delivery
capability and status (Compaq)
276
ERP to ERP Connections
Colgates plan is to use its network to get a
peek at customers stockpiles, while
allowing its supplier to look at Colgates
inventory as well. The company is even
supplying its most critical suppliers with
computers loaded with R/3 system and
plugged directly into the Colgate system.
277
BTF or BTI vs. BTO
BTF--Build to Forecast; BTI--Build to
Inventory
BTO -- Build to Order
Wait till there is an order before the goods are
built, e.g., computers.
BTO replaces inventory with information
systems technology
278
BTO and ERP
A critical part of BTO is the configuration engine,
that provides the detailed inventory items in the
product that is being built. For example, if a
computer is being built the configuration engine
would detail the processes, hard drive, etc.
The new configuration model links to Compaqs
SAP model with information on capacity to build
and components on hand. On-line real time
capability of ERP is necessary to provide the
information needed for BTO.
279
ERP to ERP BTO
Now picture an integrated world, where
essentially the ... customers ERP system
automatically creates an order. It is by definition
correct. The order cant be technically incorrect
because the systems are talking to each other --
theres no human element. The order goes straight
down to the production line and, potentially 20
seconds later, the machine starts getting built, so
youve eliminated a terrific amount of cycle time.
280
ERP to ERP BTO
On the back end of that, the moment the
machine is finished being built, it gets
shipped to the customer. The invoices get
electronically transmitted right back into the
customers system, so the credit collection
period starts immediately. The only limit is
how long it takes to physically build the
machine. (Dell)
281
Integrating with Outsourcers or
Resellers
Rather than forwarding resellers orders
directly to the plants, orders can be routed
to a distributors ERP system. That way a
distributor can add features, such as offering
the reseller a discount if it purchases a
certain number of products. (Cisco)
282
E-Commerce
Effective e-commerce happens because of
information availability
ERP provides a wide range of information
availability in real time
ERP is the backbone of E-commerce
283
Chapter 15

ERP Risk
284
Types of Risk
Risk occurs throughout the ERP life cycle
Types of risk and extent of their impact vary as
we move through the ERP life cycle
Three basic types of risk
Technical
Business
Organizational
285
Technical Business Organizational
Deciding to
go ERP

Choosing an
ERP System

Designing

Implementing

After Going
Live

Training
Risk Matrix
286
Risk Definitions
Technical risk - risks arising due to
information processing technology, sensor
technology, and telecommunication technology
Business risk - risks deriving from models,
artifacts and processes adopted as part of ERP
Do they match? Are they consistent? Do partners
processes match up?
Organizational risk - risks deriving from the
environment in which the system is placed -
including personnel and organization structure
287
What is the perceived risk of
ERP projects? (%s)
Risk Technical Business Organizational

Very Low 10.5 4.5 1.5
Low 22.5 23.0 8.5
Moderate 39.5 32.5 18.5
High 15.0 26.0 37.5
Very High 11.5 14.5 35.0
288
Summary of Survey Findings
Organization risk is the biggest risk -- the
most likely to be seen as high or very
high
Business risk is the next biggest risk
Technical risk is the smallest of the bunch,
with 72.5% rated very low to moderate.
Technical risk is also the easiest to fix, e.g., just
choose more power.
289
Technical Risks
As the firm adopts new technologies, there
are a number of risks that are common to
each phase of the life cycle
Operating Systems
Network Capabilities
Database
Links to other systems
290
Operating Systems
Operating systems include Unix, Linux,
Windows NT, Windows 2000
Different systems require different
knowledge
Need to employ people who understand that
operating system
Microsofts SAP implementation was the
first to use NT as an operating system
291
Client Server
Dominant form of computing used in ERP
However, firms expertise may be with mainframe
computing
As a result, there may be a limited set of personnel for
the new computing environment
Mainframes are typically bullet-proof, whereas
client servers are frequently at the opposite end of
the spectrum in terms of controls.
292
Client/Server Configuration
Data
Management
Application
Function
Presentation
Presentation
Data
Management
Application
Function
Presentation
Data
Management
Application
Function
Presentation
Data
Management
Application
Function
Presentation
Data
Management
Presentation
Data
Management
Application
Function
Application
Function
Distributed
Presentation
(Thin Client)
Distributed
Presentation
(Fat Client)
Remote
Presentation

Distributed
Application

Remote
Data Mgmt

293
Network Capabilities
Issues include security and capacity of the
network to facilitate use of the ERP system
294
Not Linked Linked
Highest Risk
(Highest Potential Gain)
Lowest Risk
(Lowest Potential Gain)
Integrated
Stand Alone
Linked to Other Applications
C
o
m
p
u
t
i
n
g

a
n
d

N
e
t
w
o
r
k

E
n
v
i
r
o
n
m
e
n
t

295
Technical Risks and
ERP Life Cycle
Deciding to go ERP
Firms that have kept up with technology are likely to
better understand the risks associated with ERP
systems.
Try to see what has worked in the past
Deciding

Choosing

Designing

Implementing

Going Live

Training
296
Technical Risks and
ERP Life Cycle
Choosing an ERP system
Virtually all software choice can be manipulated, since
it is a political process
Requirements change as new technology becomes
available.
Deciding

Choosing

Designing

Implementing

Going Live

Training
297
Technical Risks
and ERP Life Cycle
Designing
One company designed an ERP contract based
on computing capacity, so the vendor had to fix
any problems with insufficient capacity
Deciding

Choosing

Designing

Implementing

Going Live

Training
298
Technical Risks
and ERP Life Cycle
Implementing and Going-Live
Upon implementation and going-live, capacity
six transactions a minute 360 per hour
or 3600 for a ten hour day was not enough
Needed more network capacity
Deciding

Choosing

Designing

Implementing

Going Live

Training
299
Technical Risks
and ERP Life Cycle
Training
Risk that mainframe IS personnel might have to
be re-tooled to client-server technology
ERP system may require different technical
people with different skills
Deciding

Choosing

Designing

Implementing

Going Live

Training
300
Business Risks
Deciding whether or not to do ERP
Must have the resources to do the project
Firms get going on ERP and then find that they
dont have the resources.
This typically means that either the organization
fails or the project fails.
Must meet needs of the business
What is needed by the firms partners?
Deciding

Choosing

Designing

Implementing

Going Live

Training
301
Business Risks
Determine specific requirements, e.g.,
transaction handling capabilities
Fox Meyer - system could do 10,000 invoice lines,
but they needed 420,000
The business risk is that the ERP Vendor can
not meet the companys needs
Deciding

Choosing

Designing

Implementing

Going Live

Training
302
Business Risks
ERP Design
Design is a political process. As a result, there is a risk
that the design is sub-optimal.
There is also the risk that processes designed by one
group in the organization will not interface well with
processes designed by other groups.
There is the risk of project stopping
This project would have changed how people work and
reduced staffing by half. It was the easiest thing to cut because
people did not have the stomach for it
Deciding

Choosing

Designing

Implementing

Going Live

Training
303
Business Risks
Implementing
The project will take longer than expected
The project will cost more than expected
Deciding

Choosing

Designing

Implementing

Going Live

Training
304
Business Risks
Going Live
If the ERP is not working properly, there could
be problems with customers and suppliers.
Hershey Foods Inc. lost most of their
Halloween, Thanksgiving and Christmas sales
due to a poorly functioning ERP system.
Deciding

Choosing

Designing

Implementing

Going Live

Training
305
Business Risks
Training
Training should provide users with process and
system information
The main business risk is that timing is too
short and too late.
Deciding

Choosing

Designing

Implementing

Going Live

Training
306
Organizational Risks
Deciding whether or not to do ERP
Reportedly, one of the biggest risks is that top
management is not involved.
Another risk is that the domain areas are not
involved and committed (Microsoft)

Deciding

Choosing

Designing

Implementing

Going Live

Training
307
Choosing the right consultant is the biggest
challenge (Risk)

Deciding

Choosing

Designing

Implementing

Going Live

Training
308
ERP Design and Implementation
Models of organizations are built into the
software, as a result, there are risks that the
models do not match (e.g., Microsoft)
Deciding

Choosing

Designing

Implementing

Going Live

Training
309
Going Live
Cultural issues that relate to big R
reengineering create organizational risk.
One firm went from compensation based on number
of units sold to salary to accommodate the ERP
system
Deciding

Choosing

Designing

Implementing

Going Live

Training
310
Training
Employees not accustomed to data input will
take on the task.
If users dont know how to use the system, it
will fail.
There may be inadequately trained personnel
after implementation due to poor training or
attrition.
Deciding

Choosing

Designing

Implementing

Going Live

Training

Chapter One Why Study ERP Systems?: "Enterprise Resource Planning Systems", D. E. O Leary, 2000 ©

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