IS5600 - 4

Global ERP Cases:

Integration and Planning for the
Extended Enterprise

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 Background
• IT has the potential to integrate information
• IT can enable distributed people to
communicate with ease
– Indeed, it is hard to imagine life without IT
• IT can extend the enterprise beyond its
traditional borders
– Li & Fung, Amazon, HSBC, etc.
– These organisations are truly IT-dependent.
– They also leverage IT to ensure their
competitive advantage

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However,…
• IT-based change is not without problems
• Indeed, the changes associated with
implementing major systems is a bit like
‘open heart surgery’, without the
anaesthetic!
– You are cutting away at the very core
(culture) of the organisation, implementing
new systems and processes – while the
organisation is still functioning.

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ERP: Enterprise Resource
Planning
Potentially integrated systems that
• allow information to enter at a single
point in the process (e.g., at the
materials receiving stage of a
manufacturing process), and
• update a single, shared database in
real time for all functions that
directly or indirectly depend on this
information.
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For Example
• CityU has an ERP called AIMS (v.7.2)
– Staff, Student, Alumni
– Payroll, leave, benefits
– Course management, contacting students
– Various tools, reports, documents, etc.
• The data in this ERP is integrated – there is
a single set of databases, which all
programmes access.

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ERP…
• Is common in manufacturing and production
• It is also increasingly frequently encountered in
finance, banking, trade, services
• It tends to be expensive and large
• Information integration is often a ‘good thing’, but
ERP is about much more than integration
– Despite popular wisdom, ERP may not be a good idea – it
might destroy your organisation

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Does your organisation (try to)
integrate information?

How?

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Integration?

• Integration should take place in

real-time – now!
• This means that databases must
be updated continuously.
• ERP can be extended to support
EC, CRM & SCM functions.
• ERP systems typically do not
provide management reports –
unless you customise.
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Why ERP?
• To improve control over data (from
distant locations)
• To improve control over the
organisation
– And reduce factionalism
• To reduce chaos and data
redundancy

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 ERP systems are only part of a complex
systems solution

ERP Systems Operational

Middleware
Data Stores

CRM & SCM Data Marts

&
Warehouses

Reports
Legacy Systems &
Analytical Programs Analyses

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 ERP Illustration
Re-order Send Shipping Issue
miscellaneous date estimate Payment to
supplies to customer Suppliers Update A/R

Customer
Order: ERP System Managed Process Flow
2,000 PCs

Order 2,000 Update Track order Ship Order Bill

MBs, CPUs, Order completion Customer
RAMs, … Book

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ERP Vendors 1
• SAP – the market leader
– 40,000+ customers, 120+ countries,
106,000+ installations
• SAP R/3 released from 1992-2005
• SAP ERP 6.0 (Business Suite), 2005-
– Also CRM, SRM, SCM and PLM applications
• Oracle – the market contender.
– Has bought up many smaller firms including
Peoplesoft (2004: $10.3B), Siebel (2005:
$5.8B), Hyperion Solutions (2007: $3.3B)
and BEA Systems (2008: $7.2B).
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ERP Vendors 2
• Baan – Smaller, European player,
sold in 2000.
• Microsoft – ERP is not a major area.
• Kingdee – Major Chinese player
– 500k customers, mostly Asia-Pacific
– Strong focus on SME sector
– Global alliance with IBM

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SAP ERP
• A set of business applications designed for
a client/server environment.
• Runs on many different hardware
platforms.
• Consists of ~80 highly integrated modules.
• Supports major business functions such as:
HR, F/A, Manufacturing, Logistics, Sales &
Distribution on a real-time basis.
• Can be configured to map the
organisation’s processes onto software.
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 Integration & Bar IM
Interoperability Coding Billing Investment Multi-company
EH&S
EH&S
FI
Mgt Support
“Configurable” SD
Sales & Financial
Accounting
Comprehensive
Packaged CS Cable Distribution
IS functionality
Solution Retail
MM CO
IA Materials Controlling
Imaging and Mgt IS P Process
Archiving
Client/ PP AM Oriented
Fixed Assets
Server Production

Layered
Planning
SAP Mgt
Modular Design
Architecture
EDI
Enterprise AFUDC
& “Plug-In”
SFA
QM Quality
Solution PS Projects
Capability
Sales
Mgt System
Force Telecom
Autom- MSM
ation
Maintenance WF Extensions
and Service Workflow
RF / Mobile Mgt IS RE
Dispatch
HR Human IS LEGEND
Scalable Resources Industry
Solutions IS-T / RF - R/3 Core
Network & NF
Open Mgt - R/3 Core
Financials
- R/3 Core HR
Logistics
Systems IS-T CCS - R/3
CAD - Industry
Workforce AM/FM Technology
GUI & Internet Mgt GIS - Partner Soluti
Solutions
Enabled C/W
Certified
Enterprise data 16
Interfaces
(Existing,
model/databases Developing,
Planned)
Industry Overview
• Software vendors sell a vision of an
integrated package.
• Systems integrators & consultants
are big and have ample resources
• Development of SME market
segment.
– This is recognised as an area of huge
potential, so the major developers are
trying to ‘downsize’ their products
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Why ERP Systems are
interesting (and potentially
useful)
• Many businesses lack integrated
systems (especially global
businesses)
• Language and currency support
are valuable
• Contemporary businesses are
often decentralised

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What did it look like pre-ERP?
• Redundant systems (e.g., 24 different general
ledgers)
• Huge software maintenance expenses
• Lack of common data structures (e.g., 140
different definitions of “full-time equivalent
employee” or 225 different job titles)
• Difficulty consolidating information (e.g.,
exactly how many business locations do we
have - 175 or 250?)

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The Potential Solution?
• Common systems
• Decision-support capabilities
• Cheaper and faster than in-house development
• Lower maintenance costs
• Automatic currency conversions and
consolidations
• Multiple language interfaces
• Built-in international “best practices”

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Potential Drawbacks
• Individual modules often not “best of
breed”.
• Limited flexibility.
• Loss of internal strength and agility.
• Cultural clash – 'open systems' ERP and
'closed systems' organisation.
• Risk of implementation failure.
• Software lock-in.
• Not cheap!
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Furthermore
• ERP packages may be cultural
“misfits”
• Multiple sites make
implementations challenges
worse
• The “extended enterprise”
must also be integrated
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SAP in Singaporean hospitals,…
• Company-specific misfits
– System’s patient management module does not allow
for billing individual patients on an installment plan
• Public sector-specific misfits
– System uses internally generated patient ID, instead of
government issued ID number
• Country-specific misfits
– Package did not provide reports needed for government
reports
– System requires names entered in Western name
format (first, middle, last): operators had trouble
parsing Indian, Malay and Chinese names

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 Multi-Site Implementations Are Worse

Local autonomy:
G l o b a l B u s
•i n Legitimate
e s s , I n c .
country differences?
• Or an obstacle to progress?
C E O
• Cultural values.
P r o d u c t D P i rv o i s d i ou nc t A D P i rv o i s d i ou nc t BD i v i s i o n C

G e r m a U n Ky F r a n c e

P l a n Pt Al a n t B

SAP Baan
Consolidated Information
One Face to the Customer ??
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Organizational Implications of ERP
Implementations
• Individual departments begin to
recognise they are all part of larger
business processes (“visibility”)
• Dissolves boundaries between
previously independent units.
• Blurs job definitions (job broadening)
• Changes power structures
• Standardises processes

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 Organizational Implications of ERP
Implementations

• Creates demand for:

– team work,
– process expertise,
– business knowledge.
• Devolves authority/responsibility to
front line employees.
• Hub, or multi-point?
• How much chaos would you like?

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Hub-and-Spoke Integration

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Source: www.elemica.com
 How to Succeed in Implementation
• This project is a business initiative, not IT!
• Put the company’s best people on the project!
• Have a strong project leader (VP).
• Continued commitment of senior management.
• Get all affected parties to “buy in”.
• Communication about expected change is essential;
prepare the organization for change.
• Smart contracts with vendors, consultants.
• Provide the necessary resources.

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The Future of ERP
• ERP’s are getting easier:
– to use
– to implement
– to adapt to individual user needs.
• ERP’s are moving away from being a
product towards being a service
– ASP style

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• Hosted E-business platform
solution (on SAP’s computers)
–Link organization to supply chain
–Link organization to consumers
–Exchange (B2B Hub)
• Expands ERP use
to medium sized
companies.

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Nestlé (source: cio.com - 15-5-02)
• June 2000 – Nestlé signed a US$200M
contract with SAP (+80M
consulting/maintenance fees)
– To centralise an empire with 200 operating
companies in 80 countries
• HSBC Securities: “should have long term
benefits, but what will happen along the
way?”
– “It touches the corporate culture, which is
decentralised, and tries to centralise it. …
That’s risky”.

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Primary Lessons
• “No major software implementation project
is really about software. It’s about Change
Management. … Just to install the software
might take 18-24 months.”
• And the changes can be very detailed.
• Pre-integration (1997), Nestlé’s various independent
companies were buying the same vanilla flavouring
from the same vendor at 29 different prices!
• No one knew – because each company used a different
order code to order the same item.
• In 1997, the changes started…

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Integration…
• … was seen as essential because top
management finally realised how ugly
the situation was
– Nine general ledgers
– 28 points of customer entry
– Multiple purchasing systems
– No basis of comparison or control
– Each company was a law unto itself
• The Solution?
– Software, BPR and a 3-5 year project

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Strategic Plans…
• 50 top business executives and 10 top IT
people focused on best practices – to be
standardised Nestlé-wide
• A smaller team spent 18 months looking at
every piece of data in the system
– So as to be in a position to implement a
common set of standards
• By March ‘98, they agreed to buy five SAP
modules: purchasing, financials,
sales/distribution, accounts payable, and
accounts receivable
• In 1999, they were ready to install, but not
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all was well…
Resistance
• None of those who would be affected by the new
processes had been involved in the design process
– No one knew what they were doing or why
– Demand forecasters had turnover of 77%
– Planners did not want to abandon their old
spreadsheets
– The modules were not integrated properly
• If a sales person offered a discount rate to a customer, the
accounts receivable dept wouldn’t know about it.

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Changes to Processes?
• By April 2001, things were getting clearer – the
end was in sight
• A new Director for Process Change
• Regular meetings between users and the
project team
• Finally running, the system is proving its value.
Much of the $325M savings (by 2002) comes
from Supply Chain improvements.
• Next time?
– First fix the business processes, then achieve
employee buy-in, then think about installing the
solution.

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SinoForce
• A local (HK) HQ-ed home entertainment
product manufacturer
• Annual revenues – HK$5Billion +
• Late 1990s – boom in DVD players helped
push the market share up.
• Business processes still 1970s style
– Patched up, unintegrated, manual
– The business was changing - fast
• New features in each product cycle
• Retail costs down 80%
• Top Mgt realised that change was needed
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Oracle…
• … selected as an ERP provider
– “because it is famous”
– “because the software is available”
– “because the consultants recommend it”
• Then the consulting firm died, so they
employed the lead consultant directly
• No customisation to reduce costs
• After two years, the project was stopped.
HK$15M spent.
• Many causes of the failure.
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Critical Failure Factors
– Business practices grossly misaligned with
Oracle’s software
– Considerable employee resistance
– No attempt to re-engineer old business processes
• And so no real understanding of what they wanted to
change to
• No one person at SF actually understood all the business
processes
• Most unit managers spent all their time fighting fires
– Oracle was not just a process shift. It was a cultural
shift as well: centralisation and control.

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The IT Manager was a Dinosaur
• He chose to focus only on IT issues
– Ignoring the rest of the business issues
• He made no attempt to secure buy-in
from functional managers
– Later on all the functional managers
refused to do anything that was requested
– The IT manager was powerless

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More Problems
• Data conversion
– A very messy process
• Useful data scattered all over the place
• Much of it offline in old paper documents
• Lots of errors, questionable integrity
• Skills
– All staff needed to learn new skills
• But many lacked the education or
willingness to do so

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And…
• All this time, the old legacy system
was kept running
– So the staff could just point at the old
system and say “Look! It works! It’s
better!”
– There was no appreciation for the
benefits of the new system at all.

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ERP in China
• Some common lessons from a
survey of eight firms
– (4 Joint Venture; 4 State Owned
Enterprise)
• Lenovo’s Positive Experience
• Olmec’s Positive Experience
• Farina’s Negative Experience

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Common Characteristics I
• Seldom completed on time
• Seldom exceed the planned budget
• Lots of information resource allocation –
even though this is inconsistent with the
usual ERP mantra of a core team
• Projects seldom improved cycle times or
customer satisfaction
• Most benefits are reduced labour costs
and inventory levels

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Common Characteristics II
• Projects initiated by the CIO/CTO
usually fail.
• Projects initiated by top
management usually succeed.
• CIOs/CTOs seldom have the
political clout and business
knowledge to resolve disputes
between functional managers
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Private Venture vs SOE?
Primary Project Aims
Improving Competitiveness through process streamlining & integration in PVs.
Cutting costs and automating processes in SOEs.
Role of Top Management
Hands-on leadership to demonstrate commitment in PVs.
Tendency to delegate ERP responsibilities in SOEs.
Role of Steering Committee Role of Consultants
More frequent meetings and sharper focus on Greater reliance on outside help and more
problem resolution in PVs emphasis on ERP-specific expertise by PVs.
Scope of Implementation Pace of Implementation
Broader and more cross-functional ERP Faster implementation with more
application in PVs. simultaneous modules in PVs.
Implementation Problems
Less frequent, less serious problems in PVs, due to differences in employee reward systems
& data maintenance. SOEs characterised by Acc-Fin & Pur-Mfg squabbles
Evaluation & Outcomes
PVs undertake more systematic evaluation and control,
achieving more substantial quality and SC improvements 46
Lenovo’s SAP R/3 Experience 1
– Recognise that we need
• a clear Information Strategy
• to understand that an ERP may conflict with
our established procedures.
– Use the ERP project as a way of
• re-engineering the business and improving
internal management
– Many PRC organisations have poor information
management
• creating both internal and external value
chains 47
Lenovo’s SAP R/3 Experience 2
• Extensive knowledge transfer is essential
– From consultants to local champions
– From local champions to all end users
– It has to be done right – or errors will perpetuate
for ever
• But Knowledge Transfer is not easy!
• And many end-users are rather “passive”,
showing little interest in either information or
the ERP.

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Lenovo – User Perspectives
• 联想刚开始上 ERP 时，大家都认为这只是一个软件
系统，把 ERP 当做一个 IT 项目来做，
• When Lenovo began their upgrade to ERP,
many people thought that it was only a
software system. They classified ERP as an
IT project and assigned the technical
department to lead the project.

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Lenovo - Leadership
• … 企业信息总管 CIO 的领导艺术对信息化的推进非
常重要，他（她）不必是信息技术专家，但他
（她）一定要懂业务，懂管理。
• … the art of leadership of the CIO was critical
to the informatisation process.
• S/he did not need to be a technical specialist
but s/he had to have a good understanding of
the business and its management.  

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 Lenovo – Generalise, then Optimise
• … 牵涉到业务流程的时候，实际业务流程与 ERP 业务流程还
是有一些矛盾，创造性地解决这些矛盾非常重要。有些时候只
能先按照 ERP 流程去做，再逐步优化，也就是所谓的 ‘先僵化
后优化 ’”。联想在实施在整个 ERP 项目中，成功清理、规范
和优化了 77 个业务流程。
• … when dealing with business processes, the actual
business processes conflicted with ERP workflows.
Without creative solutions, we would not be able to solve
these problems. Sometimes, we had to follow the ERP
processes at the beginning, and then optimize them. This
was what ‘first generalize and then optimize’ means.
Lenovo finally successfully cleared, standardized and
optimized 77 business processes in the whole ERP
project. 51
Olmec – Nationwide Shoe
Manufacturer
• Old IT infrastructure cannot cope with
increased data and new processes
caused by rapid expansion.
– 2000 products (shoes) in over 10 sizes
• Need for org. change recognised by top
management

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Olmec
• One year planning in advance
– Strong top mgt support
– Clarification of individual team
member responsibilities
– Alignment of business processes via
BPR with IT and software

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Farina – Luxury Fashions
• Nationwide luxury goods retailer (not
manufacturer)
• IT project
– IT manager is the champion
– Poor communication with other parts of the
firm
– Many unresolved internal conflicts, which top
mgt failed to contain/resolve
– IT Mgr resigned; Vice-IT mgr promoted

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Farina
• No attempt to align software with internal
processes
– Top mgt refused to change business processes
• No customisation initially
– Later, many modifications to software needed
• Systems failed during use and no back-up,
so reinstallation is necessary
• Eventually, the project was abandoned.

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Plan for the Worst – and then
Expect Worse Still!!!
• It is impossible to predict all the variables, all
the contingencies.
• But one can be better prepared
• One can have spare supply at hand
– Whether in order processing or manufacturing
• CIOs tend to rely on excellent project
management skills to get the job done.
• Perhaps a more flexible approach is needed.
– Contingency is not only an IT issue, but a whole-
of-business issue as well. The contingency plan
must be holistic too.

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ERP Lessons Learned
• ERP system implementations are
not just technical projects
• They’re strategic business
decisions and major organizational
changes, involving
– International and business culture
– Corporate governance
– Extended enterprise issues
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 Lessons for IT Based Org Change
• Top Management must be the change architects
• IT cannot transform an organisation – IT enables
transformation
• Enterprise-wide business-IT Partnerships are needed
• The pace of change must match the rate of acceptance
• Individual transformation is as important as organisational
transformation
• Change champions must be diverse, yet work together
• Offshoring IT development sounds attractive, but it is not
just an IT project.

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Consequences of Transformation
• Organisational culture and identity
– There will be pressure for change here too
– People who support ‘the old way’ will feel left
out, marginalised or discriminated against
• A new, more flexible set of cultural norms
may be necessary
– Guided by new principles, new values, … and
perhaps new managers?
– A Culture of Blogging? The CEO’s blog-desk?

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Technology Changes
Business...

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