UNIT 1: OVERVIEW OF SYSTEMS INTEGRATION: CHALLENGES AND DRIVERS

The Systems Integration Architecture provides a bridge between the heterogeneous operational applications and platforms.
This architecture ties together the mix of platforms, operating systems, transports, and applications. Integration of business
applications between agencies and vendors or other agencies supports electronic commerce. This Architecture encompasses the
multiple layers of new and existing systems and the middle ware in between. Systems Integration Architecture enables new
applications to use existing resources with minimal disruption.

LEARNING OUTCOMES

After reading this chapter, you should be able to:

➢ understand the information systems evolution and its historical role in organizations leading to systems integration and eventually
Enterprise Resource Planning (ERP).
➢ learn about ERP systems and their evolution, components, and architecture. Understand the benefits and drawbacks of
implementing ERP systems and how they can help an organization improve its efficiency and worker productivity.
➢ have an overview of the implementation process (e.g., the ERP life cycle, business process reengineering, project management,
and change management) and understand the role of staff, vendors, consultants, and the organization in making the ERP
implementation process successful.
➢ comprehend the ethical, global, and security challenges while implementing an ERP system as well as get an overview of ERP
vendors and industry trends.

CONTENT

CASE 1.1
Opening Case: Hershey’s Enterprise 21 Project

Hershey Foods, Inc., completed an upgrade to their SAP/R3 enterprise software installation on schedule in September 2002, and they
did it below their projected budget. This was considered a big achievement for a company that had experienced $150 million in lost sales
due to problems associated with its new ERP system just a few years earlier in 1999. Hershey’s CIO, George Davis, wondered why things
went so smoothly with the upgrade compared with the original installation. Was it a technology problem? Or was it a people and organization
change problem?

Hershey began its ERP journey with the Enterprise 21 Project late in 1996 when management approved the project in an effort to fix
the Y2K problem and, at the same time, upgrade Hershey’s IT environment to a twenty-first century system. This system was supposed to
be an integrated system that used the client–server architecture and an SAP/R3 application suite. This was a complete overhaul of existing
legacy enterprise system involving replacements of current Information Systems (IS) with packaged software solutions with the following
goals:
➢ Establish a single company-wide supply chain strategy across all divisions.
➢ Streamline entire business process by reengineering all the functional areas throughout the company.
➢ Use new supply chain efficiencies to help increase gross margin.
➢ Maintain sales growth of at least 3–4 percent per year.
➢ Save $75–80 million by the end of 2002 through corporate restructuring and the closing of older distribution sites.
➢ Replace existing legacy software due to Y2K date-related problems.
➢ Replace legacy mainframe IS with an enterprise client–server architecture.
The initial plan of implementation was for four years with a budget of $112 million. Although Hershey’s management vision was
excellent, they lacked the necessary people at the top management level to make proper decisions on the implementation plan. Hershey
did not have any high-ranking IT executive before hiring George Davis sometime in early 2000. They had lower-level managers making
decisions that were aligned to their functional areas of business with no one at the top integrating these decisions to create a system that
would work for the whole business. They had lots of committees with little or no oversight. As a result, Hershey’s confectionary
manufacturing and distribution operations’ entire supply chain system ground to a halt in 1999, making it impossible to fulfil $100 million
worth of orders.

The initial implementation was riddled with several problems from the beginning. First, Hershey tried to implement too many changes
too fast. The Enterprise 21 project went for a complete discarding of the older mainframe legacy system used at Hershey and replacing it
with the following three new software applications at the same time:
➢ SAP/R3 enterprise application suite
➢ Manugistics (demand planning and transportation) Systems
➢ Siebel Systems (CRM and sales tools)

The complexity of integrating SAP with Manugistics software and Seibel software was so overwhelming even with the help of an
experienced consulting firm that this integration was dropped. In addition, due to project delays and Y2K, the Hershey’s IT department
decided to go with a direct cut over strategy (Big-Bang implementation) instead of a phased-in approach during their peak sales season
right before Halloween.
 Data entry in the new ERP system was another problem. SAP is very rigid software in terms of how, when, and where the data must
be entered into the system for inventory tracking and management. Hershey’s employees were not trained for this rigid data entry because
their legacy system was flexible in terms of how the data were stored. This created a major crisis when the new system was used during
the Halloween season. Customer orders were missed despite sufficient inventory on hand. System workarounds caused many headaches
for workers. Extra capacity in warehouse space was not recorded into the SAP system, which caused communication failure between
logistics and IT.

Finally, a lack of top management support and involvement also played a role in the Enterprise 21 project. In addition to lacking a CIO
at the top decision-making level, Hershey’s management took a hands-off approach by not getting involved in the decision-making process.
For example, some managers recommended supplementing the major consultants for this project, IBM Global Services, with another
consulting firm that had more experience with SAP–Manugistics. Top management stayed away from making any decision in this area. In
general, Hershey’s management did not understand the amount of effort necessary for both the technical and organizational change issues
for this project.

What do you think about Hershey’s ERP strategy? What lessons can be learned from the Hershey experiences?

PREVIEW

Hershey’s strategy shows the complexity of implementing ERP systems in organizations. In the early days of ERP implementation,
management generally did not understand the magnitude of the issues an organization has to consider before, during, and after
implementing ERP systems. Although they are packaged software, ERP systems are very different from such conventional packaged
software as Microsoft Office and others. An ERP implementation goes beyond the technical issues of infrastructure and incompatibility of
systems to management and people issues of process change and change management that will be discussed throughout this book. Any
manager thinking about implementing or planning to implement ERP can take away two valuable lessons from the Hershey case: (1) test
the business processes and systems using a methodology designed to simulate realistic operating scenarios and (2) pay close attention
to ERP scheduling.

This initial failure in 1999 opened the eyes of Hershey’s management to the problems and issues with implementing ERP software.
Management stayed involved with the project from beginning to end during the 2002 upgrade phase and hired a CIO to oversee the project.
The following are some key lessons learned from Hershey’s ERP implementation:
➢ Go slowly and stick to the initial implementation plan
➢ Using a phased strategy can be a slow but safe choice.
➢ Spend appropriate time and resources to test the new system thoroughly.
➢ Keep things simple by limiting the number of software applications.
➢ Functional groups must communicate their specific data requirements to the implementation team. Spend extra time to ensure
that all of the data requirements from all groups are mapped correctly before proceeding with the implementation.
➢ Definitions of basic business processes that should be addressed by insiders are often left for outsiders (e.g., consultants).
➢ Oversight matters, especially with a project of this magnitude.
➢ A steering committee must include such top management as the CEO and CIO

Hershey’s successful upgrade of SAP/R3, after the initial disaster, clearly shows that the company learned from its mistakes and has
moved forward. Hershey has also met its business and IT goals since the full ERP implementation took place. Other companies can use
the Hershey case to their advantage as they embark on their own ERP journeys. There are no shortcuts when it comes to implementing
an enterprise system similar in scope to Hershey’s. The most important lesson that Hershey learned might have been to proceed with the
project slowly so nothing is left out during implementation.

ENTERPRISE SYSTEMS IN ORGANIZATIONS

Business organizations have become very complex. This is due to an increased layer of management hierarchy and an increased
level of coordination across departments. Each staff role and management layer have different information needs and requirements. As
such, no single information system can support all the business needs. Figure 1-1 shows the typical levels of management and
corresponding information needs. Management is generally categorized into three levels: strategic, middle or mid-management, and
operational. At the strategic level, functions are highly unstructured and resources are undefined, whereas functions are highly structured
and resources are predefined at the operational level. The mid-management level is somewhere in between depending on the hierarchy
and organizational size.

The pyramid shape in Figure 1-1 illustrates the information needs at each level of management. The quantitative requirements
are much less at the strategic level than they are at the operational level; however, the quality of information needed at the top requires
sophisticated processing and presentation.

FIGURE 1-1 Management Pyramid with Information Requirements

 Enterprise systems, therefore, are a crucial component of any successful organization today. They are an integral part of the
organization and provide computer automation support for most business functions such as accounting, finance, marketing, customer
service, human resource management, operations, and more. In general, they play a critical role in both the primary and secondary
activities of the organization’s value chain.

Information Silos and Systems Integration

In today’s globally competitive environment, an organization will find it very difficult to operate and survive with silo information
systems. Organizations need to be agile and flexible, and will require the same from their information systems. These systems need to
have integrated data, applications, and resources from across the organization. Integrated information systems are needed today to focus
on customers, to process efficiency, and to help build teams that bring employees together that cross functional areas.

Today’s competitive business is cross-functional, dynamic, and global. Since the early 1990s, most organizations have tried to
remove the functional barriers that had existed for decades. The business process reengineering gurus and others have convinced
management that compartmentalization is inefficient and ineffective in today’s interconnected world. To compete effectively in today’s
market, organizations have to be customer focused and cost efficient. This demands cross-functional integration among the accounting,
marketing, and other departments of the organization. This has led to the creation of business units (BU) within organizations that integrate
personnel from the various functional units to work together on a variety of projects within an organization. Business units are dynamic
suborganizations created and eliminated depending on need. BUs can be in existence for a few weeks or a few years, which makes it
impossible physically to locate the personnel in an adjacent geographical space. This demand that the information systems be flexible and
fluid across the departmental boundaries. In addition, it requires that systems are accessible anyplace and anytime. These business
requirements ultimately created the need for enterprise systems to support the multifunctional needs of the organization

ENTERPRISE RESOURCE PLANNING SYSTEMS

What Is An Enterprise Resource Planning (ERP)?

• specific kind of enterprise systems to integrate data across and be comprehensive in supporting all the major functions of the
organization
• ERP systems are comprehensive software applications that support critical organizational functions
• these systems are “Web enabled,” meaning that they work using Web clients, making them accessible to all of the
organization’s employees, clients, partners, and vendors from anytime and anyplace, thereby promoting the BUs’
effectiveness.

Goals of ERP?
• to make information flow be both dynamic and immediate, therefore increasing the usefulness and value of the information.
An ERP system acts as a central repository eliminating data redundancy and adding flexibility
• to integrate departments and functions across an organization onto a single infrastructure that serves the needs of each
department.

In summary, ERP systems are the mission-critical information systems in today’s business organization. They replace an
assortment of systems that typically existed in those organizations (e.g., accounting, finance, HR, transaction processing systems,
materials planning systems, and management information systems). In addition, they solve the critical problem of integrating information
from various sources inside and outside the organization’s environment and make it available, in real time, to all employees and partners
of the organization.

Evolution of ERP

During the 1960s and 1970s, most organizations designed silo systems for their departments. As the production department grew
bigger, with more complex inventory management and production scheduling, they designed, developed, and implemented centralized
production systems to automate their inventory management and production schedules. These systems were designed on mainframe
legacy platforms using such programming languages as COBOL, ALGOL, and FORTRAN. The efficiencies generated with these systems
saw their expansion to the manufacturing area to assist plant managers in production planning and control. This gave birth to material
requirements planning (MRP) systems in the mid-1970s, which mainly involved planning the product or parts requirements according to
the master production schedule.

Later, the manufacturing resources planning (MRP II) version was introduced in the 1980s with an emphasis on optimizing
manufacturing processes by synchronizing the materials with production requirements. MRP II included such areas as shop floor and
distribution management, project management, finance, job-shop scheduling, time management, and engineering. ERP systems first
appeared in the early 1990s to provide an integrated solution to the increased complexity of businesses and support enterprise to sustain
their compatibility in the emerging dynamic global business environment. Built on the technological foundations of MRP and MRP II, ERP
systems integrated business processes across both the primary and secondary activities of the organization’s value chain, including
manufacturing, distribution, accounting, finances, human resource management, project management, inventory management, service
and maintenance, and transportation. ERP systems’ major achievement was to provide accessibility, visibility, and consistency across all
functions of the enterprise. ERP II systems today have expanded to integration of inter-organizational systems providing back-end support
for such electronic business functions as business-to-business (B2B) and electronic data interchange (EDI). From the technological
platform perspective, therefore, ERPs have evolved from mainframe and centralized legacy applications to more flexible, tiered client–
server architecture using the Web platform.

Business Process and ERP

A crucial role of ERP in business, beside integration of functional applications and organization information, is to better position
the organization to change its business processes. As defined, a business process is a series of tasks or activities grouped to achieve a
business function or goal. For example, order processing may include such tasks as taking an order, checking inventory, and preparing
invoices. Most organizations have a set of policies and procedures to guide their business process. The ERP software has hundreds of
business processes built into the logic of the system. These processes may or may not agree with the organization’s current business
processes. An organization has two choices when implementing ERP: change business processes to match the software’s functionality or
modify the ERP software. The consequences of selecting either option have a long-term impact on the organization in terms of its bottom
line and the performance of its employees, customers, and other stakeholders.

Vendors assert that they have embedded the “best practices or leading practices” of a business process in their software. It is
therefore possible for organizations to maximize their benefits by taking advantage of these best practices. This occurs only when
organizations do not make major modifications to their ERP software during implementation. In reality, there are other negative
consequences for an organization when modifying the ERP system to match existing processes. For example, any future upgrades to the
system once it has been modified become cumbersome and expensive due to the fact that the modified system logic needs to be updated
separately on every new version of the software. Thus, every time an organization has to upgrade the ERP system, the IT staff will have
to upgrade the application and upgrade the modifications. Modifications will have to be reengineered into the system when they are
incompatible with the new version.

On the other hand, if the organization decides to implement the ERP system “as-is” (aka. vanilla implementation), disruptions will
occur with the functioning of the organization. Employees, business partners, and clients will have to be retrained in the new business
processes (in addition to the ERP system). This does generate resistance from the users, adding to the training expense for the
implementation. Thus, management must pay very close attention to the organizational consequences of modifying or not modifying the
ERP software to match their organizations’ business process. This is not an easy decision. A wrong decision can bring down the entire
organization, whereas a right decision can reap enormous benefits. We will later discuss several ERP implementations examples (e.g.,
Hershey Foods, Microsoft, and Cisco Systems) that will highlight the consequences of early management decisions on their organization.
A good understanding of ERP technology and its implementation process can significantly improve efficiency and effectiveness of the
organization’s business processes.

ERP System Components

As shown in Figure 1-3, an ERP system, like its information system counterpart, has similar components such as hardware,
software, database, information, process, and people. These components work together to achieve an organization’s goal of enhanced
efficiency and effectiveness in their business processes.

An ERP system depends on hardware (i.e., servers and peripherals), software (i.e., operating systems and database), information
(i.e., organizational data from internal and external resources), process (i.e., business processes, procedures, and policies), and people
(i.e., end users and IT staff) to perform the input, process, and output phases of a system. The basic goal of ERP, like any other information
system, is to serve the organization by converting data into useful information for all the organizational stakeholders.

The key components for an ERP implementation are hardware, software, database, processes, and people. These components
must work together seamlessly for the implementation to be successful. The implementation team must carefully evaluate each component
in relation to the others while developing an implementation plan. Hardware, software, and data play a significant role in an ERP system
implementation. Failures are often caused by a lack of attention to the business processes and people components. Both people
involvement and process integration will need to be addressed from the very early stages in the implementation plan. Staff must be allowed
to play a key role in the project from the beginning. As shown in Figure 1-4, each component must be layered appropriately and each layer
must support the efficiency of the other layers. The layered approach also provides the ability to change layers without significantly affecting
the other layers. This can help organizations lower the long-term maintenance of the ERP application because changes in one layer do
not necessarily require changes in other layers.

ERP Architecture

The architecture of the ERP implementation influences the cost, maintenance, and the use of the system. A flexible architecture
is best because it allows for scalability as the needs of the organization change and grow. A system’s architecture is a blueprint of the
actual ERP system and transforms the high-level ERP implementation strategy into an information flow with interrelationships in the
organization. The ERP architecture helps the implementation team build the ERP system for an organization. The role of system
architecture is similar to the architecture of a home, which takes the vision of the homeowners with the system components similar to the
wiring, plumbing, and furnishings of a home.

The process of designing ERP system architecture is slightly different from other IT architectures. Whereas other IT architectures
are driven by organizational strategy and business processes, if purchased, ERP architecture is often driven by the ERP vendor. This is
often referred to as package-driven architecture. The reason for this reversal is that most ERP vendors claim to have the best practices of
their industry’s business processes captured in their system logic. This argument has proven very powerful in convincing organizations to
spend millions of dollars for the ERP package. In order to leverage this investment and maximize the return on investment, an ERP
implementation is driven by the requirements contained in the package.

The architecture must therefore be conceived after the selection of ERP software, whereas the architecture is conceived well
before buying or developing software in other IT implementations.

An ERP package can have a very different implementation outcome from one organization to another. In the architecture of a
large university, an ERP system can be very complex and must be designed and tested thoroughly before implementing it in the
organization (Figure 1-5). The architecture sets the stage for modifications or customizations to support an organization’s policies and
procedures, data conversion, system maintenance, upgrades, backups, security, access, and controls. Many organizations often make the
mistake of ignoring the system architecture stage and jumping directly into ERP implementation because they have planned a “vanilla” or
“as-is” implementation. This can be disastrous because the organization will not be prepared for long-term maintenance and upkeep of the
system.

The two types of architectures for an ERP system are logical (see Figure 1-6) and physical or tiered (see Figure 1-7). The logical
architecture, shown in Figure 1-6, focuses on supporting the requirements of the end users, whereas the physical architecture focuses on
the efficiency (cost, response time, etc.) of the system. The logical architecture provides the database schemas of entities and relationships
at the lowest tier, followed by the core business processes and business logic handled by the system at the second tier. The third tier
provides details on the applications that support the various business functions built in to the ERP system. The end users do not ever see
the first and second tiers because they interact primarily with the client–user interface application tier that provides them access to the
functional applications.

e-Business and ERP

Both e-Business and ERP technologies have pretty much evolved simultaneously, since the 1990s. Hence, during the early days, many
people thought only one would survive for the long term. With the initial enthusiasm and support for e-Business, many analysts predicted
the doom of ERP. Instead, both have flourished beyond everyone’s expectation from those early days. One reason for their success is this
simultaneous growth. The early predictions were based on the assumptions that these two technologies were competing for the same
market. Yes, there are some similarities between the two, namely, both provide platform for systems integration or data sharing. While e-
Business systems are better for sharing unstructured data and collaboration, ERP are better for sharing structured or transaction data;
also, e-Business focus was on external integration (interorganizational), while ERP systems’ initial focus was on internal data integration.
Therefore, e-Business and ERP are more of complementary technologies (see Figure 1-8) rather than competing technologies as predicted
earlier. Norris et al. provide the following major reasons for this.
1. e-Business technology focus has been on linking a company with its external partners and stakeholders, whereas ERP focus
has been on integrating the functional silos of an organization into an enterprise application.
2. e-Business is a disruptive technology, whereas ERP is adaptive technology.
3. Finally, the early focus of e-Business was on communication (e-mail), collaboration (calendaring, scheduling, group support),
marketing and promotion (Web sites), and electronic commerce. These can all be considered front-office functions that involve user and/or
customer interactions. In contrast, the focus of ERP systems was mainly on data sharing, systems integration, business process change,
and improving decision making through the access of data from a single source. These functions can all be considered back-office functions
helping the operational efficiencies of employees, vendors, and suppliers.

The above reasons show why these two technologies have successfully cohabitated in organizations for the last decade, thereby
refuting the earlier claims that one will replace the other. Even in intranet applications, the functionality is one of ERP applications only,
and it is delivered via Internet-based protocols. Today, both technologies are evolving toward a single model in which ERP vendors provide
e-commerce and e-Business modules as part of the system. In future, e-business Web site implementation will become a part of ERP
implementation.

Benefits and Limitations of ERP

The system benefits and limitations of ERP systems are as follows:

➢ Integration of data and applications across functional areas of the organization (i.e., data can be entered once and used
by all applications in the organization, improving accuracy and quality of the data).
➢ Maintenance and support of the system improves as the IT staff is centralized and is trained to support the needs of
users across the organization.
➢ Consistency of the user interface across various applications means less employee training, better productivity, and
cross-functional job movements.
➢ Security of data and applications is enhanced due to better controls and centralization of hardware, software, and
network facilities.
➢ Complexity of installing, configuring, and maintaining the system increases, thereby requiring specialized IT staff,
hardware, network, and software resources.
➢ Consolidation of IT hardware, software, and people resources can be cumbersome and difficult to attain.
➢ Data conversion and transformation from an old system to a new system can be an extremely tedious and complex
process.
➢ Retraining of IT staff and personnel to the new ERP system can produce resistance and reduce productivity over a period
of time.
 The business benefits and limitations of ERP systems are as follows:
➢ Increasing agility of the organization in terms of responding to changes in the environment for growth and maintaining
the market share in the industry.
➢ Sharing of information across the functional departments means employees can collaborate easily with each other and
work in teams.
➢ Linking and exchanging information in real time with its supply chain partners can improve efficiency and lower costs of
products and services.
➢ Quality of customer service is better and quicker as information flows both up and down the organization hierarchy and
across all business units.
➢ Efficiency of business processes are enhanced due to business process reengineering of organization functions.
➢ Retraining of all employees with the new system can be costly and time consuming.
➢ Change of business roles and department boundaries can create upheaval and resistance to the new system.
➢ Reduction in cycle time in the supply chain from procurement of raw materials to production, distribution, warehousing,
and collection (see example in Box 1-1).

ERP IMPLEMENTATION

ERP systems are continuously changing and evolving to provide the organization with a new way of looking at business processes
and decision making. Organizations are also continuously changing to match their environments. Both need the flexibility to adapt with
each other in order to be successful. System implementations are generally very complex, time consuming, and resource intensive.
Because of its size and impact on the organization, an ERP system only increases this complexity; therefore, before implementing ERP,
an organization has to plan and understand the life cycle of these systems. This section will provide a quick overview of the ERP
implementation process, which begins with business process management (BPM). BPM lays the foundation for the remaining chapters;
the ERP implementation concepts introduced in this section will be discussed in more detail later.

Business Process Management

Business process management is the understanding, visibility, and control of business processes. A business process represents
a discrete series of activities or tasks that can span people, applications, business activities, and organizations. BPM is similar to other
process improvement disciplines, such as Lean Six Sigma, which are used by companies like General Electric to improve organizations’
performance and employee productivity. BPM has a prescribed process or methodology that should be followed to help an organization
document their business processes and understand where they are being used throughout their business. The initial stage of BPM is to
create an “as-is” process map that defines the current process. The as-is process is then used as a baseline for determining where the
process may be improved. However, simply documenting the current process does not give the business managers control over the
process.

The real value of BPM comes from gaining visibility and control of the business process. BPM can activate the process, orchestrate
the people, data, and systems that are involved in the process, give the business managers a detailed view into how the process is
operating and where the bottlenecks are occurring, and highlight possible process optimization. Process operational metrics are
automatically collected by the BPM software. Armed with data on how the current process is operating, business process managers can
use various process improvement techniques to optimize the process. The impact of an improved business process can be realized in
many ways, including improved customer satisfaction, reductions in cost, and increased productivity by allocating resources to more value-
added activities. One way of achieving these improvements is through implementing ERP system, which has embedded business process
designed to improve employee and organization’s performance. Taking a life cycle approach will help organizations achieve their process
improvement goals with ERP. BPM would be part of this ERP life cycle.

ERP Life Cycle

Understanding an ERP system life cycle and its effects on today’s organizations is fundamental to fulfilling the long-term
investment in an ERP system. As shown in Figure 1-9, ERP implementation is not a onetime implementation. It requires a continuous cycle
of product release and support. The key to a successful implementation, therefore, is to use a proven methodology, to take it one step at
a time, and to begin with an understanding of the ERP life cycle. When a system implementation does not have a well-defined methodology,
deadlines will likely be missed, budgets will be overspent, and functionality will not meet the client’s needs and requirements.

ERP system implementations are very risky, and using a well-defined project plan with a proven methodology will assist in
managing those risks.
ERP Implementation Strategies

Implementing an ERP system is problematic without first considering current business processes and changes to those processes
based on the functionality of the new system. If business processes are not analyzed and compared with what the new system can do, it
is very likely the implementation will require significant system modifications after implementation. In developing the business case for an
ERP implementation, one must make a decision on the number of modifications to be made to address business requirements. An
implementation with considerable modifications to the ERP software package, sometimes referred to as “chocolate” implementation, can
increase the chances of success with the users because the package has been customized based on user requirements; however,
modifications increase the investment in the system and introduce higher implementation risk.

In a purchased system like ERP, modifying the system means that every modification will have to be addressed each time the
system is upgraded. It is like paying for the modification over and over again. Most purchased ERP systems today are minimally modified
(or as-is) to protect the investment in the system. This is sometimes called a “vanilla” implementation. Every ERP vendor upgrades their
system on a regular basis, adding functionality, fixing problems, and generally keeping the product current with the ever-changing
technology innovations to remain competitive. Product life cycles are shown in Figure 1-11.

Software and Vendor Selection

Before selecting a vendor, the organization must carefully evaluate its current and future needs in enterprise management
systems. This needs assessment can begin very simply by looking at the size of the organization in terms of the number of employees that
will be accessing the ERP applications. The assessment must look at the industry that the organization belongs to and the functional areas
that the ERP application will be supporting. In addition, it must review the organization’s existing hardware, network, and software
infrastructure and, finally, the resources (i.e., money and people commitment) available for the implementation. The criteria developed
from this need’s assessment can help the organization narrow down the vendors to a select few (i.e., three or four). These vendors should
be invited to submit their bids for the project. During this phase, vendors should be asked to install their application (sandbox) on the
company’s IT infrastructure and to have it made available to potential users for testing. In addition, the vendor needs to be evaluated on
the following:

➢ Business functions or modules supported by their software

➢ Features and integration capabilities of the software
➢ Financial viability of the vendor as well as length of time they have been in business
➢ Licensing and upgrade policies
➢ Customer service and help desk support
➢ Total cost of ownership
➢ IT infrastructure requirements
➢ Third-party software integration
➢ Legacy systems support and integration
➢ Consulting and training services
➢ Future goals and plans for the short and long term

These criteria should help narrow down the selection to one ERP vendor that best fits the organization. The purchasing and
contract discussions should then start with that vendor.

Operations and Post-Implementation

Going live (“Go-live”) is one of the most critical points in a project’s success. A lot of time and resources have been spent to get
to this point. In assessing an ERP project’s readiness for Go-live, it is vital to focus the efforts of the teams to ensure that task and activities
are completed before going live. This allows project management to address any outstanding issues that may jeopardize the Go-live date.
This involves a readiness process that needs to include as many team members and appropriate users and managers as possible because
it helps the overall organization understand that the implementation is near and that changes will be taking place. During a project it seems
like the system will never be implemented. An effective readiness process lets the teams and organization know that going live is close.

Many ERP implementations have turned into disastrous endeavors during or after the Go-live stage. For instance, FoxMeyer Drug
actually collapsed during the stabilization stage, following SAP implementation, in late 1990s, and filed a $500 million lawsuit against
SAP/R3. Much of the success of the implementation, therefore, is in the stabilization and postproduction support processes. Stabilization
is the time from Go-live to about 90 days after, or until the number of issues and problems has been reduced. An effective response to
stabilization issues will determine how well the system is accepted by the end users and management. Five areas of stabilization are
important:

1. Training for end users

2. Reactive support (i.e., help desk for troubleshooting)
3. Auditing support to make sure data quality is not compromised by new system
4. Data fix to resolve data migration and errors that are revealed by audits
5. New features and functionalities to support the evolving needs of the organization

Daily and continual monitoring of the implementation issues will provide an appropriate time to move to the postproduction support
phase. This phase also addresses the backlog of development issues, evaluates new business processes, and provides more updated
training, all of which are a part of the continued implementation.

PEOPLE AND ORGANIZATION

Project Management

For an ERP system to be implemented successfully, project management must provide strong leadership, a clear and understood
implementation plan, and close monitoring of the budget. Project management is the glue that holds the project together. Project
management must also follow a process that leads to sound decision making and creates a high level of trust and accountability with all
involved in the implementation.

Figure 1-12 depicts the fundamental balance of project management. Any change to one side of the triangle will require a change
to one or more sides.

The role of the project manager is one of the most exciting yet risky jobs in an implementation. A successful project manager
must be process driven and understand the value of an implementation methodology. The project manager role is the single most important
role in an ERP system implementation. To be successful one must be prepared to work long hours in a highly charged environment.

A key component to project management is to understand and communicate the ERP system application management life cycle.
The system, whether purchased or “homegrown,” has the cycle

shown (see Figure 1-13). One of the foundations in an implementation is communication of the different project life cycle phases to senior
management and staff. All decisions made during an implementation phase will have an effect (i.e., cost and staffing) on the application
management phase. The product life cycle application management phase is by far the more costly phase.

Role of Consultants

Many organizations are quite sophisticated at implementing systems, whereas others only do it once or twice every 10–15 years.
As stated previously, ERP systems implementations are high risk. It is critical to assess and understand the organization’s capacity for
implementing such a complex system. The costs of failure are great, and the number of failures is much too high. The development of a
credible implementation plan, budget estimates, and deadlines is critical to a project’s success.
 Before trying to implement a major ERP system, organizations must assess their ability to be successful. There is a model that
exists to help organizations understand and assess that ability: The Capability Maturity Model. This model has five levels of organizational
capability, with level one being the least capable and level five the most capable. If an organization’s assessment criterion is on the lower
end of the model, the organization should look seriously at hiring a consulting company as an implementation partner to assist and possibly
lead the organization through the implementation.

Change Management

For major system implementations, the change management role is essential because it prepares an organization for changes to
how its business is done. In implementing any new system, communicating, preparing, and setting expectations are just as important as
training and supporting the implementation. Effective communication of expectations will reduce risk and better ensure that the system is
accepted once it is implemented. Change management was historically always thought of as important, but it was rarely funded or staffed
appropriately. Today that is changing, and there is an increased awareness that the success of a project is the result of a well-planned and
thorough change management process. Research has shown that many projects fail due to lack of communication between technical staff
and customers, and this one factor is often cited as a component overlooked in implementations. It is essential to develop, understand,
and communicate the return on investment, business processes, and the need for change. It is rare that an ERP system implementation
failure is based on hardware or software not working appropriately.

Business Process Reengineering

While the phrase business process reengineering is overused, it is often the case that current business processes will need to be
changed to use the functionality of an ERP system fully. It is best to make it clear to clients and users that processes will need to be
changed, adjusted, or adapted as the ERP system is implemented. A business process is a group of activities or tasks that are coordinated
for achieving a business goal. A business process can be ordering supplies or designing a new product for the market. Most organizations
have defined policies or procedures for a business process. For example, in order to buy office supplies the administrative assistant has
to collect order requests from the department members, consolidate them into one order, find prices from the vendor manuals, fill out
purchase order forms, get manager’s approval, and so on. The business process task for ordering supplies may not work in the same way
after the ERP system is installed. The way decisions on ordering supplies are made may also change after the installation of the system;
therefore, an organization has to prepare its employees, IT staff, suppliers, managers, and other affected parties for the arrival of the new
system.

Global, Ethical, and Security Management

Between the years 1997 and 2007, the IT industry has experienced massive globalization of its services. Outsourcing and
offshoring have become common themes across all industries when it comes to IT development, maintenance, and support. Whereas
large companies have been outsourcing for a number of years, small and medium-size companies have only recently come to rely on
outsourcing partners for a majority of their IT support. Globalization has impacted ERP systems in many ways. First, a majority of ERP
vendors are global. SAP, Oracle, Microsoft, and others have support offices and development teams spread around the globe. Second,
large ERP implementation consultants have global offices and staffs to help clients in ERP implementation projects all over the world;
several consultants are emerging from countries like India. Finally, software leasing or Software as a Service (SaaS) is an emerging model
for outsourcing for many companies that do not want to invest large amounts of money on in-house ERP implementations.

Ethics and security are other areas that have attracted a lot of attention. There has been a widespread increase in corporate
white-collar crimes such as unscrupulous accounting and marketing practices, privacy violations, unauthorized data sharing, spam mail,
viruses, snooping, phishing, and identity theft. All these unethical practices have indirectly impacted ERP systems due to their centrality in
organization and direct integration with the database. Compliance management due to such regulations as the Sarbanes–Oxley (SOX) Act
and the Health Insurance Portability and Accountability Act (HIPAA) are fast-growing software support areas, and several ERP vendors
have started providing software modules or tools to support compliance management.

Along with additional modules, organizations are implementing security services to manage access and control in ERP systems,
and they are developing awareness programs across their organizations to help staff and management understand the seriousness of
security breaches within an ERP; however, security unfortunately remains an afterthought. The seamless integration of ERP software only
increases the risk of both hackers who break through perimeter security and insiders who abuse system privileges to misappropriate assets
through acts of fraud. The ERP world requires a new way of thinking about security, namely, about business transactions that inflict financial
losses from systems-based fraud, abuse, and errors, and not just the bits and bytes of network traffic.
Key ERP Vendors

The competition among ERP vendors has become fierce, and mergers and acquisitions have become the latest trend. The key
ERP vendors (i.e., SAP, Oracle, Microsoft, and Infor) are likely to hold on to their 46 percent of the ERP applications market. Many
organizations who are shopping for a system will opt for a vendor who is a leader in the industry, whereas others take the time to examine
products from many vendors before making a decision. The ERP industry is continually changing and evolving as more and more
businesses have started using packaged solutions to support their enterprise functions. The following is a brief description of the current
major ERP vendors.

SAP
Founded in 1972, SAP is the recognized leader among ERP vendors, claiming the largest current market share. Its solutions are
for all types of industries and for every major market. SAP is headquartered in Walldorf, Germany, with 12 million users, 88,700 installations,
and more than 1500 partners. It employs more than 32,000 people in more than 50 countries. Its products include mySAP Business Suite,
SAP NetWeaver, and solutions for small and midsize companies (e.g., SAP Business One and SAP All-in-One) (www.sap.com).

ORACLE
Oracle technology can be found in nearly every industry around the world and in the offices of 98 of the Fortune 100 companies.
Oracle is the first software company to develop and deploy 100 percent Internet-enabled enterprise software across its entire product line,
which includes databases, business applications, and application development and decision support tools. Oracle provides solutions
divided by industry category and promises long-term support for customers of PeopleSoft, which was acquired in 2004. They have 40,000
professionals, working in more than 100 countries around the world. Their three business principles are Simplify, Standardize, and
Automate. Oracle is headquartered in Redwood Shores, California (www.oracle.com).

INFOR
This company is the world’s third-largest provider of enterprise software, with approximately $2.1 billion in revenue. It delivers
integrated enterprise solutions in supply chain, customer relationship and supplier management, workforce, asset management, product
life cycles, operational and business performance, and more. Headquartered in Alpharetta, Georgia, Infor is the tenth-largest software
company in the world with 8,100+ employees, 70,000 customers, and offices in 100 countries worldwide (www.infor.com/infor).

MICROSOFT
Formerly Microsoft Business Solutions or Great Plains, Microsoft Dynamics (MD) is a comprehensive business management
solution built on the Microsoft platform. MD integrates finances, e-commerce, supply chain, manufacturing, project accounting, field service,
customer relationships, and human resources. The key benefit of MD is that users across your organization can use skills and products
that they already know (e.g., a Web browser, Microsoft Office System products, and Microsoft SQL Server) to access and communicate
information managed within the system. Another benefit of MD is vertical integration—Microsoft strategy is to provide an ecosystem of
software on back office and front office for an end-to-end solution. In addition, MD is easy to deploy and configure
(www.microsoft.com/dynamics).

LAWSON
Founded in 1975, Lawson provides industry-tailored software solutions that include enterprise performance management,
distribution, financials, human resources, procurement, retail operations, and service process optimization. Lawson is headquartered in St.
Paul, Minnesota, and has offices and affiliates serving North and South America, Europe, Asia, Africa, and Australia (www.lawson.com).

SSA GLOBAL
SSA Global acquired Baan in 2004 and doubled the company’s size globally. They claim to offer solutions that accomplish specific
goals in shorter time frames and are more efficient with time. SSA Global is headquartered in Chicago, Illinois, with offices all over the
world (www.ssagt.com).

EPICOR
This company provides enterprise software solutions for midmarket companies around the world. The company claims to have
solutions to a variety of needs, whether a customer is looking for a complete end-to-end enterprise software solution or a specific
application. It provides solutions for a limited number of specific industries, including nonprofit, distribution, manufacturing, and hospitality.
Epicor is headquartered in Irvine, California (www.epicor.com).
The ERP market has matured to a point where heightened competition has brought declining sales. As a result, ERP vendors are
committed to bundling new functionality (e.g., CRM, SCM, and Compliance) to provide more value to their customers.

Software Extensions and Trends

Intense competition and fluctuating sales have forced the ERP vendors to expanding their software functionality to add value and
to support new organizational needs from compliance management, customer support, global supply chain, and such emerging technology
platforms as open-source software (OSS) and service-oriented architectures (SOAs). Open source addresses a key concern in this
instance. ERP vendors often pitch packaged applications to smaller enterprises that they can run as is, requiring little or no IT investment.
It’s a logical pitch in environments with scarce technological resources, but a substantial percentage of smaller companies want or need
to customize the applications to fit their specific business needs, much like larger enterprises.

Another trend among big vendors has been the expansion of their software market for small to medium-size businesses. The
saturation of the demand in big business and the lucrative nature of the small and midsized business markets have led vendors like SAP
and Oracle to enter the small business market, which was originally the target of Microsoft and Epicor. For example, Oracle Corp. and its
development partner NetLedger Inc. are providing hosted software suites for small and midsize businesses. Net Ledger’s NetSuite provides
portal views into a suite of applications geared for smaller companies. SAP similarly launched its CRM on-demand solution for its small
business customers. A Gartner Group study found that attracting and retaining new customers will be the No. 5 business priority for
organizations.

Similarly, SOA implementation will continue to grow as a factor in ERP purchase decisions because vendors are using creative
marketing around product strategies versus buying what is currently available. Vendors are making their pitches with a subliminal message:
“If you want to stay current with the rush toward SOA, you need to be on our platform.” Another shift is toward recurring and variable
revenue models—with maintenance charges driving industry growth— companies like Oracle earn about 50 percent of their revenue from
maintenance. Finally, the other major revenue shift is toward software as a service or hosted subscription-based application. Although this
strategy is causing difficult adjustments for the big vendors, they are adjusting their pricing models so that they can get incremental license
revenue through higher levels of usage. Looking ahead, social networking and open-source software solutions are poised for significant
growth. For example, Facebook has become the number one social network software worldwide in 2010, with 500+ million users and
growing. Soon, we may see an integration of social networking system with ERP systems. Similarly, open-source software vendors, like
Compiere (www.compiere.com) and Open Bravo (www.openbravo.com), have emerged by focusing on reducing the total cost of operations
(TCO) of ERP implementation and by enabling high-level customization due to access to source code, which is not possible with traditional
ERP software.

IMPLICATIONS FOR MANAGEMENT

Managers implementing ERP systems in their company should remember the following:

• ERP systems implementation is a complex organizational activity.

• ERP systems implementation requires strong project management oversight.
• ERP systems provide improved and added functionality for an organization.
• ERP systems are set to proliferate globally.

Learning Activities

Review Questions

1. How is the role of ERP systems different from traditional TPS, MIS, DSS, and others? Can an ERP system support all levels
of management?
2. Discuss the evolution of information systems in an organization. How can the use of ERP systems remove information or
functional silos in organizations?
3. Discuss the role of ERP in organizations. Are ERP tools used for business process reengineering (BPR) or does BPR occur
due to ERP implementation?
4. Why is the design and selection of ERP architecture crucial for the implementation project? What are the long-term implications
of selecting a wrong architecture?
5. Discuss the criteria for selecting ERP vendors. Which is the most important criterion and why?

Discussion Questions (Refer to the Hershey Case)

1. What were the goals and details of the Enterprise 21 project?

2. What were some of the key problems that Hershey encountered when choosing, integrating, and implementing their new ERP
system?
3. What difficult lessons did Hershey learn from this entire process? Did Hershey ultimately achieve its original goals by
implementing this new ERP system?
4. Provide examples of ERP components in an organization that you know of or where you are working. Provide examples of the
hardware, software, people, processes, and databases.
5. If you had a choice between customizing an ERP application to meet the organization processes and modifying organization
processes to meet the ERP functionality, which would you choose? Explain.

CASE 1.2
Real-World Case: Rolls Royce’s ERP Implementation

Rolls Royce (RR) is a global company with several divisions in more than 14 countries. It operates in four global markets: civil
aerospace, defense aerospace, marine, and energy. In 1996, Rolls Royce outsourced 90 percent of its IT functions to a contractor called
Electronic Data Services (EDS), which meant that EDS was responsible for overseeing the existing IT structure as well as providing
adequate IT solutions for the future prosperity of the company. RR used more than 1,500 legacy (mainframe) systems that were inaccurate,
expensive to operate, and difficult to maintain.

A need for an enterprise resource planning (ERP) system was noted during the late 1990s at RR to handle the volume of data
being produced and processed from the new acquisitions and overall growth experienced by the company. In 2001, RR decided that
SAP/R3, an ERP platform consisting of 12 functional modules, would be implemented at its aerospace division. There were multitudes of
challenges that RR had to overcome in order for a successful implementation to occur.
 To conquer the challenges presented, RR had to have an excellent IT team in place with a viable implementation strategy. The
ERP project consisted of a management team of specialists from EDS who in turn hired SAP consultants to provide specialized technical
help with the implementation. Within the project team there were subject matter experts (SMEs) and staff that had vital knowledge of cross-
functional business relationships and experience of the old legacy systems. In conjunction with this team there were operational business
units (OBUs), each with its own ERP change management team, which was responsible for implementing working changes and training.11
The ERP team at RR could be classified into three categories: cultural, business, and technical.

The cultural team’s challenge was to overcome the problems that stemmed from whether or not SAP (1) would be accepted by
users throughout the company and (2) would provide similar functionality as the prior legacy systems. The cultural team decided to illustrate
the benefits to the company as a whole in order to quell concerns. They did so by training individuals throughout RR. Specialist users were
trained, and they, in turn, trained expert users. Along with meetings and presentations, they allowed users fully to understand and utilize
functionality.

The business team had to overcome the problems that stemmed from the fact that SAP required a rigid business process structure
that necessitated a vanilla implementation. This meant that working practices at RR would have to change in order to meet the functional
demands of SAP. The business team used process mappings of current procedures and remapped them to show how they would have to
be changed organizationally in order to meet the demands of SAP. Overall, expensive modifications to the SAP software were avoided.

The technical team had to overcome problems mainly to avoid the possibility of inaccurate data. Their main challenge was cleaning
data during the migration. Mr. Uwe Koch, the technical lead at RR, says: “We didn’t achieve all our targets and still haven’t finished cleaning
the data. We are in a stabilization period. Making enough people available for these tasks has been difficult.”12 Data had to be screened
and stored while avoiding duplication - a major concern for RR. RR built interfaces with the old legacy systems for some special
circumstances, so some legacy systems weren’t taken offline immediately. Interfacing required that data be retrieved from the prior legacy
systems, which of course meant that it had to be accurate after being run into SAP. This was so because the reports generated from SAP
had to be precise. This was accomplished by validating the data before putting it into the SAP data warehouse. The system required
multiple weekly “runs” via a UNIX server, which bridged the data from the legacy systems.

The system rollout was another technical challenge. The ERP was designed in three phases, of which the third stage was actually
the “implementation.” The implementation was done in two waves. The first wave was focused around the replacement of the legacy
systems. The second wave was done in order to implement such leftover elements as logistics and human resources that were not
converted until wave one was completely successful.

The implementation team at RR, including EDS personnel and SAP consultants, identified problems that would be pertinent to
the implementation of SAP as the ERP for the company before they could develop into issues that would impede and possibly cause the
implementation to fail. Hence, a sound implementation strategy made the endeavor possible. This case is surely proof positive that having
a solid and knowledgeable ERP implementation team that can anticipate problems during an implementation, while putting forth a solid
strategy, is the key to success. RR continues to look into the future to adopt new technologies, methodologies, and processes to take them
to the next level.

CASE QUESTIONS

1. What do you think of RR’s ERP implementation project? Did they select the right implementation strategy?
2. Discuss the critical success factors of RR’s implementation strategy and the role of SMEs in the project.
3. What advice can you give to RR’s technical team on their approach of migrating legacy system with the SAP software?