Professional Documents
Culture Documents
CITATIONS
DOWNLOADS
VIEWS
501
129
257
1 AUTHOR:
Thomas H. Davenport
Babson College
96 PUBLICATIONS 15,384
CITATIONS
SEE PROFILE
Davenport.FM_i-xii
12/9/99
12:56 PM
Page iii
Mission
Critical
Realizing
the Promise of
Enterprise
Systems
THOMAS H. DAVENPORT
H ARVARD B USINESS S CHOOL P RESS
B OSTON , M ASSACHUSETTS
Davenport.FM_i-xii
12/9/99
12:56 PM
Page iv
5 4 3 2 1
Davenport.FM_i-xii
12/9/99
12:56 PM
Page v
Contents
Preface
vii
Acknowledgments
ix
6
7
135
169
203
265
Appendix
A Technical Overview of Enterprise Systems
Notes
313
Index
321
29
299
335
v
Davenport.1_1-28
12/9/99
12:44 PM
Page 1
1
What Are
Enterprise Systems
and Why
Do They Matter?
AROUND THE GLOBE COMPANIES ARE QUIETLY AND STEADILY
Davenport.1_1-28
12/9/99
12:44 PM
Page 2
Mission Critical
Davenport.1_1-28
12/9/99
12:44 PM
Page 3
Davenport.1_1-28
12/9/99
12:44 PM
Page 4
Mission Critical
but what if the information differs from one part of the organization to another? For the most part, this is prevented in ESs
through the use of a common database for the entire organization. Not only can one track customers through marketing,
sales, and service activities, but the customers identification
number and address are constant across those different applications and business functions. The Babel-like information environments of most large organizations, in which the same term
might mean different things in different parts of the company,
can be avoided altogether through the use of an ES.
In short, these systems offer just about everything businesses
want from a computer. They serve up information in a format
that anyonenot just technologistscan understand. They
employ client/server technologythe state of the commercial art
in information systems. They even work well with the Internet.
If these systems are so good, why wouldnt every organization
want one?
In fact, they do. With a few exceptions Ill discuss later,
large, medium-sized, and increasingly even small organizations
are installing enterprise systems: from Iowa Spring, which has
about $11 million in revenues, to its customer General Motors,
which is more than ten thousand times larger. Public-sector
organizations ranging from the city of Round Rock, Texas, to
the Victoria Department of Education in Melbourne, Australia,
have them. In some industries, such as petrochemicals, every
company has an ES. In others, such as the electrical utilities business, ESs are being adopted at a rapid rate. Even in financial services, one of the industries in which these systems have been less
popular, hundreds of organizations from Bank One to Dai-Ichi
Life Insurance have them in place.
The software and hardware spending alone for ESs is well
over $15 billion per year worldwide, and professional services
fees add another $10 billion. Revenues for ES vendors have
grown between 50 and 100 percent a year. Very large companies, such as Hewlett-Packard, Procter & Gamble, and Intel,
speculate that their ES expenditures will easily top $1 billion
before they are finished. (As I describe later, they will never be
Davenport.1_1-28
12/9/99
12:44 PM
Page 5
Davenport.1_1-28
12/9/99
12:44 PM
Page 6
Mission Critical
Business processes, the way work gets done in an organization, change dramatically. Organizational structure and culture,
the behaviors of workers throughout the company, and even
business strategy all have to be restructured. The reengineering
movement of the early 1990s, with all its radical approaches to
reorganizing companies, turned out to be a mere preamble to
the ES era, which has brought even more ambitious (and complex) changes. In fact, the business process reengineering movement has largely been replaced by ES initiatives. Given their
breadth and technical complexity, ES projects are even more difficult and consuming of time and resources than the largest
reengineering projects. The most ambitious ES projects can take
a decade or more of a companys time.
Implementing new mission-critical systems, then, is hardly
just a matter of installing an ES. Business processes and information must be made common around the world within the
implementing organization. Idiosyncratic ways of doing business must be abandoned. Informational linkages between business functions and units must be tightened. Employees must be
educated about the broad implications of simple actions like
pressing a key within an ES. Perhaps most difficult of all, senior
managers must be persuaded of the wisdom of changing virtually everything in a company at once. In short, organizational
change represents a huge part of a successful ES project. Managers at Steelcase, for example, estimate that up to half of the
companys project resources went for organizational change
issues. A Monsanto manager felt that change management activities constituted 75 percent of the total project effort there.
Despite these difficulties, ESs are the answer to the Information Ages wildest dreams. The concept of an integrated set of
information technology (IT) applications that could meet all of
an organizations information needs has been with us since the
beginning of information systems in business, but has been unrealizable before the modern ES. We have gotten what we wished
for; now we only need to make the business and organizational
changes necessary to take advantage of our fulfilled dreams.
Davenport.1_1-28
12/9/99
12:44 PM
Page 7
BUSINESS BENEFITS
OF
ENTERPRISE SYSTEMS
Ive already pointed out that ESs are difficult to put in place
from both a technical and business change standpoint. Why go
to all the trouble and expense of implementing an ES? In an
ideal world, ES-enabled organizations would be seamlessly
interconnected both internally and externally. Excess inventory
and waste would be nonexistent. Demand and supply would be
perfectly coordinated. It would be just as easy to transact business with suppliers and customers as with another department
of your own company. Customers would have perfect information about not only the products and services theyve ordered
from you, but also about how every aspect of your business
affects theirs. Managers could understand any aspect of a companys operations and performance with a few clicks of the
mouse.
These benefits arent purely hypothetical. Many companies
have already realized substantial business benefits from their ES
projects, even if they are not completely finished installing them.
Several examples of these benefits are described in the following
paragraphs.
1. Cycle time reduction. Autodesk, a leading manufacturer of
computer-aided design software, has achieved substantial
benefits in terms of cost and time reductions in key business
processes. Whereas the company used to require two weeks
on average to ship to customers, 98 percent of products are
now shipped within twenty-four hours. Financial closing
times were cut in half, from twelve days to six. Autodesk
calculates that it has saved more on reduced inventory alone
than its SAP system cost to install.
2. Faster information transactions. IBMs System Storage (disk
drive) division achieved a reduction in the time to enter pricing information from five days minimum to five minutes,
replacement part shipping went from twenty-two days to
three, and credit checks that previously took twenty minutes
Davenport.1_1-28
12/9/99
12:44 PM
Page 8
Mission Critical
are now accomplished in three seconds. Crediting a customer for a returned disk drive used to take three weeks; it
now happens immediately. The division once spent thousands of hours reconciling management reporting data; this
now happens automatically. IBM in general has twenty-one
SAP projects underway, covering 80 percent of its core business; eight projects are up and running.
3. Better financial management. Microsoft is installing an ES
to bring about common financial and procurement systems
worldwide. The fast-growing software company has already
saved $2 million in equipment depreciation (it previously
took three months to start the depreciation schedule for a
new asset; now it can begin immediately). The companys
ES has allowed it to receive $14 million per year in earlypayment discounts from vendors. Microsofts managers also
report substantial benefits in improved management and
reporting systems, and the financial closing cycle has been
reduced from twelve days to four.
4. Laying the groundwork for electronic commerce. Cisco Systems put in an ES to structure and rationalize its back-office
business transactions systems, which were previously unable
to support the companys rapid growth. Without the system,
Cisco also wouldnt have been able to offer customers Webbased access to product ordering, tracking, and delivery
processes. Ciscos system cost it over $15 million, and the
company spent another $100 million connecting it to the
Internet. Today, however, Cisco believes that the combination of its ES and its Internet applications yields more than
$500 million in annual operating cost savings.
5. Making tacit process knowledge explicit. Monsanto was
concerned that decades of knowledge about plant operations existed only in the minds of an aging workforce. After
successfully implementing its ES, company managers now
feel that key processes, decision rules, and information
structures are well understood and documented in its sys-
Davenport.1_1-28
12/9/99
12:44 PM
Page 9
BUSINESS LIFE
BEFORE
ENTERPRISE SYSTEMS
In order to better understand the value of ESs, its useful to contrast them with the way that organizations previously met their
information needs. In 1954, when the first business application
of computers was developed (by what is now Andersen Consulting for General Electric), and for most of the following forty
years, when a business function needed computerized information it used a stand-alone application. The first application created was for payroll processing; later ones would be created for
general ledger, accounts payable, inventory management, or customer billing. Each system had its own application logic, its own
information, and its own user interface. An individual company
might have hundreds of individual applications. Even when software vendors began to sell application packages of broader
functionality in the 1980s, they were almost always within individual business functions, for example, finance and accounting.
We havent totally left this approach behind today. Companies
that dont have an ES still have a variety of standalone systems.
Chopping up information systems this way makes it impossible to coordinate planning across different business functions.
Say, for example, that a company wants to compare information
from its manufacturing and sales functions so that it doesnt
Davenport.1_1-28
10
12/9/99
12:44 PM
Page 10
Mission Critical