ERP4 All in One

Chapter One
Why Study ERP Systems?
1
“Enterprise Resource Planning Systems”, D. E. O’Leary, 2000 ©
ERP Affects Most Major
Corporations in the World
• SAP is used by more than 60% of the major

firms.
• “Almost every company is more or less in
its hands.” Arthur D. Little’s Global
Strategy Leader.
2
ERP Impacts Small and
Medium Enterprises (SME)
• In 1995 SAP generated 90% of their
revenues from global companies
• In 1997, roughly 35% of SAP’s revenues
were from customers with revenues less
than $200 million
3
ERP Affects Competitor
Behavior
• On June 24, 1996, Oracle’s Application Division
announced that “Several companies went live with
their Oracle Applications implementations during the
quarter, including Silicon Graphics, Inc. and
Quantum Corporation, both of whom successfully
deployed large-scale implementations.” … at the
same time, Oracle’s Application Division announced
that “among the customers added that quarter
included ... Western Digital ....” Western Digital was
a direct competitor of Quantum.
4
ERP Affects Business Partner
Requirements
• Adopting an ERP system makes firms more
“information agile,” able to more easily
meet the information demands made upon
them
• As they become more agile they expect
more from their customers, possibly
integrating across the supply chain
5
ERP Provides A Key
Reengineering Tool
• In 1990 Hammer’s highly influential article on
reengineering, got the corporate world interested in
obliterating existing processes. Unfortunately, after
things were obliterated many firms had no idea what to
replace them with.
• ERP provides perhaps the primary tool to guide those
efforts, so much so that Gendron (1996) called ERP
(particularly SAP’s) the electronic embodiment of
reengineering and Hammer (1997) commented that
“SAP equals forced reengineering.”
6
ERP has Diffused Many Best
Practices
• ERP systems are based on so-called “best practices” - the
best ways of doing processes. SAP has over 1,000 of them!
What this means is that any firm that installs has access to
a wide range of best practices. Further, business practices
are being added all of the time. As new best practices are
found and embedded in particular applications, they can
become available for inclusion in new versions of SAP. As
they become available, other firms install them. As a
result, there is this cycle of finding best practices, building
them into the software and diffusing them out to new users.
7
ERP Facilitated Adoption of
Client Server Computing
• In the early 1990’s client server computing
was an available technology, that offered
many advantages over existing mainframe
solutions. Unfortunately, there was limited
software available to exploit the advantages.
ERP changed all that becoming one of the
dominant, initial corporate applications of
client server computing.
8
ERP Changed the Nature of the
IS and Accounting Functions
• ERP systems are replacing major portions of most
firms’ software needs. This changes the basic
nature of the information systems function from
one where systems analysts and programmers are
needed, to one where knowledge of existing
software packages is now critical.
• Not only have needs changed, but personnel have
become more mobile.
9
ERP has Changed the Nature of
Jobs in All Functional Areas
• IT (information technology) professionals in
manufacturing say ERP systems are blurring the lines
between IT and users. There is a huge demand for users or
line-of-business personnel who also have professional
level IT skills. But traditional IT types who know only
about technology and nothing about the business are
not needed now as they once were. “Understanding the
business is probably the most critical (aspect) … Its more
important to understand how you want things to flow
through your factory than [to have] the skill of
programming -- except for the few places where SAP
doesn’t do what’s needed so you need coders.”
10
Cost is High
• After cost of ownership is $15 million,
typically at a cost of $53,320 per user,
according to a Meta Study.
• ERP costs can run 2-3% of revenues
11
ERP Systems Can Create Value
• Integrates Firm Activities
• Allows Use of Best Practices
• Enables Organizational Standardization
• Eliminates Information Asymmetries
• Provides On-Line and Real-Time Information
• Facilitates Intra and Inter Organization
Communication and Collaboration
12
ERP’s Integrate Firm Activities
• As noted by Hammer, “Integration is the
defining characteristic of SAP”
• ERP processes are cross functional, forcing
the firm out of traditional, functional and
locational silos.
• Formerly diverse systems are integrated in
ERP systems
13
ERP’s Employ Best Practices
• ERP’s employ processes that are known to

work and that integrate with each other
• Those processes can be used to improve the
way that firms do business.
14
ERP’s Enable Organizational
Standardization
• The same best practices can be employed at
multiple locations.
– This allows firms to bring those locations with
substandard processes in line with other more
efficient locations.
• Now clients can “see” the corporation the
same way, even if a firm has multiple
locations.
15
ERP’s Eliminate Information
Asymmetries
• What is an “information asymmetry”?

• Since all information goes into a single
database, accessible to many, means that
many information asymmetries disappear.
• “If you don’t do your job, I can see that
something hasn’t been done”
16
ERP’s Provide On-Line and Real
Time Information
• Since data is widely available and available on-line and
in real time, all have access to the same information
• As a result,
– information is available
– Anytime!
– Anywhere! to
– Anyone!
– which can facilitate more consistent planning.
17
ERP’s Facilitate Inter/Intra Organization
Communication and Collaboration
• Increasingly firms are opening up their

databases to facilitate procurement and
other functions, thus ERP facilitates
collaboration
• Since the ERP has all the transaction
processing information in it,
communication is facilitated.
18
Chapter 2
Systems and Technology

Background
19
What Technologies Are Of
Direct Interest?
• Client Server Computing
• Networks
• Relational Databases
• Software
• Reengineering
• Systems Analysis
20
Client Server Computing
• SAP’s client server system has its root in its
mainframe system
• SAP was one of the first client server
packages generally available
• Nature of client differentiates some ERP
systems
– E.g., Oracle is thin client oriented
21
Client/Server Configuration
Distributed Remote Distributed Remote Distributed
Presentation Presentation Application Data Mgmt Presentation
(Thin Client) (Fat Client)
Data Data Data Data Data
Management Management Management Management Management
Application Application Application

Function Function Function Data
Management
Presentation
Function Function Function
Presentation Presentation Presentation Presentation Presentation

22
Networks
• Local Area Networks (LAN) link
computers together over small geographical
areas, such as a building
• Metropolitan Area Networks (MAN) link
computers together across a city.
• Wide Area Networks (WAN) link
computers together over larger geographical
areas, such as across different states
23
Bandwidth and TCP/IP
• Bandwidth is a network’s transmission capacity.
The greater the bandwidth, the greater the
capacity.
– Capacity and availability are key issues
• TCP/IP - Transmission Control Protocol and
Internet Protocol, are standards associated with
transmissions across networks.
– SAP uses TCP/IP standards
24
Relational Databases
• ERP systems “sit on top of a database”
• Currently, ERP software is organized based
on relational databases
• A relational data base is a set of related
tables
– Related using key attributes
– For examples ...
25
A Table
Salesperson # Last Name Address ...

0001 Jones 123 Sunnyvale ….
A row is a set of related attributes
Primary Key
attribute is a Non-key
unique identifier attribute represents a
for each row unique characteristic
of the salesperson or
‘entity instance’
26
Customer Table Sales Person Table
Customer # Customer ... Salesperson # Last ...
Lastname Name
0005 O’Leary 0001 Jones
Sales Order # Customer # Salesperson # ...

A set of Sales
related tables 0001 0005 0001 Event
Table
27
Data Warehouse
• Is a single place located across a
corporation where a user can get the latest
data, efficiently organized
– They are large repositories of data
– Typically, they include multiple years of data
so that trend analysis can be done
28
Software
• Legacy Software
• Package Software
• Versions of Software
• Database Management Software
• Operating Systems
29
Legacy System
• Typically refers to the software that is in
use prior to the new ERP software
• Oftentimes, the legacy system is mainframe
software
30
Package Software
• In the same sense that personal computing
software has moved toward a standard set
of package options, corporate enterprise
computing also has moved toward
packages.
• Now, some argue that the primary problem
is one of choosing the right package
31
Versions of Software
• Software has different versions

– Windows, 3.1, 95, 98, 2000, ME
• SAP’s R/3 has a number of different
versions, 3.0, 3.1, 4.0, 4.5, 4.6
32
Database Management Software
• DBMS is designed to facilitate use of
database structures, e.g., relational database
systems.
• SAP supports a number of database systems
– Oracle is most frequently used
– There is a cost associated with having a data
base work with an ERP system
33
Operating Systems
• ERP systems are designed to run under
different operating systems, e.g., Windows
and Unix
• For some systems, the operating systems for
presentation, application and database can
be all different
34
Software Layers
ERP Applications
Database Management System
Operating System(s)
35
Reengineering
• ERP can be used as a tool for reengineering
– “Technology Enabled”
• ERP contain many “best practices”
– What is a “best practice?”
• Reengineering provides one theory base
for viewing ERP
36
Systems Analysis
• Understanding and modeling flows of
information
– Many different tools used to model different
views of enterprise models
37
Chapter 3
Enterprise Resource Planning

Systems: Background
38
Some Selected Questions ...
• What is an “Enterprise Resource Planning” (ERP) System?
• What does it look like?
• MAPs (Models, Artifacts and Processes)
• What are some sample modules?
• How Does An ERP System Work?
• What does it mean to talk about “best of breed?”
• What is the basic ERP Life Cycle?
• Who are the ERP Companies?
• Which Consultants Do ERP Systems?
• Why the demand for ERP?
39
What is an “Enterprise Resource
Planning” (ERP) System?
• Ideally, ERP is seamlessly integrated
software for the entire organization,
including financials, human resources,
operations and logistics and sales and
marketing
– Generally, all in the firm access portions of the
same underlying relational database, where
information is gathered once and the database
has few redundancies
40
What does it look like?
• Typically, screens look just like regular
Windows applications
• Reports look like reports ...
41
How Does An ERP System
Work?
• Information is input one time and selected
information cascades through the system, rather
than requiring re-inputting
– e.g., Sales call information, cascades to sales
information, which cascades to billing info.
• Business events are integrated into processes
– Associated with order processing are a number of
functions, including Sales and Distribution, Planning
and Production, Materials Management, and Financials
42
Order Management Process
Check
Propose Commit Configure Deliver Bill Collect
Credit
Sales & Distribution
Production
Planning
Financial
Materials
Mgmt
Accounting43
MAPS: Models
• A number of models are embedded in ERP
systems, e.g., Organizational Models.
– Benefits, include ability to model substantial
detail and capture “reality”
– Costs, include development and maintenance of
those models. Firms with volatile models may
find that keeping them up-to-date can be costly
• Can force structures and accountability into
organizations (e.g., Microsoft)
44
MAPS: Artifacts
• Examples include documents
• Formally, an interface between the
computer program and the world in which
the system functions.
• Provide structure the unify the enterprise,
e.g., chart of accounts, vendor lists, etc.
45
MAPS: Processes
• Processes are flows of activity and
information to accomplish a particular task
or set of tasks.
– Typically, there are multiple ways to do things.
– Some will work better than others in particular
organizations.
– Typically, cut across functional areas.
46
What are Some Sample
Modules?
• Names of modules depend on the particular
package, e.g., SAP
– AM (fixed asset management)
– CO (controlling), which includes CCA (cost center
accounting), PC (product cost controlling) and ABC
(activity-based accounting)
– FI (financial accounting), which includes GL (general
ledger), AR (accounts receivable) and AP (accounts
payable)
– HR (human resources), ...
47
What does it mean to talk about
“Best of Breed?”
• “Mix and Match,” choose modules from
multiple vendors in order to get the best of
each module
– HR from PeopleSoft, Accounting from SAP, …
• Advantage: ideally maximal functionality
• Disadvantages: search costs, interface costs,
look and feel differences, need for a
diversified implementation team, ...
48
ERP Life Cycle
• Deciding to go ERP
• Choosing an ERP
• Designing an ERP
• Implementing ERP Systems
• After Going Live (Stabilization Period)
49
Who Are The ERP Companies?
• SAP is the dominant player, with 35% -
40% of the market
• Big five (BOPSE) … Baan, Oracle
(Applications) PeopleSoft, SAP and, J.D.
Edwards
• Additionally, other firms have generated
interest, e.g., QAD and Lawson, Great
Plains
50
Which Consultants Do ERP
Systems?
• You name them and they probably do something
in the area!
• Generally, Accenture and the Big 5
accounting/consulting firms each specialize in a
few ERP systems.
• However, some of them have consultants that deal
with all of the ERP systems
51
Why The Demand For ERP?
• Demand for tools to increase productivity
• Reengineering gained headway, just when
client server came on the scene at a time
when many mainframes were due for
replacement.
• Change in to whom software is sold
• Y2K was one of the big reasons
52
Chapter 4
ERP Data Input
53
Data Input
• Sources of Benefits and Costs Due to Data
Input
• Too Many Screens, Too Much Time to
Input Data?
• ERP System Design
• Data Input as Ease of Use Measure
54
Sources of Benefit and Costs Due
to Data Inputs
• How Much Data?
• Gather Data Once!
• Gather More Data!
• Gather Data Straight into a Computer-based
Environment!
• Gather Data where it is generated!
• Gather Data with a process focus!
55
How Much Data?
• How much data?
– Huge! A sample system had over 40,000 tables
in a relational database system
– How many attributes in a table?
– ...
56
Gather Data Once
• It generally is more cost effective to gather
data once
– All use the same data
– In a relational environment only need it once
– Gathering once may decrease the number of
people required for data input
– Have to make sure it is correct
57
Risks of Gathering Data Once
• ... pre ERP, warehouse clerks knew they could let a truck
leave the loading dock without checking off the goods
shipped on the packing slip; the slip would be there and if
the clerks forgot about it, at some point, accounts
receivable would call them up and yell. Not anymore. If
the clerks don’t account for everything when the truck
leaves, the customer will never get an invoice, because the
ERP system has no record of the goods being shipped.
Accounts receivable won’t ever know that the customer
received the goods and won’t be able to act as a sweeper
upper anymore -- no more wake up calls to the loading
dock.
58
Gather More Data
• What data is gathered?
– Generally, a broader base of information
– e.g., data can include time spent on a sales call
59
Gathering Data Straight to the
Computer
• How is data gathered?
– “We are taking folks who have recorded some
information on pieces of paper, and putting
them on PC’s”
– At the end of the day, many data input
requirements are similar to legacy systems
• “... To the average PC user (SAP’s) R/3 looks like
any other database entry form. Blank cells are
labeled ‘quantity,’ ‘price’ or ‘description.’”
60
Where is data gathered?
• Where it happens ... e.g., on the loading dock
• In some cases pushes data input out of accounting to
operational departments
– Gets rid of cleric accountants
• “... workers can look in the new system and make
certain decisions themselves -- and record them
straight from the shop floor.”
– However, this may cause problems, e.g., “SAP’s user
interface was confusing to loading dock workers who had
to enter the quantity of chemicals coming in or going out.”
61
Gathering Data with a Process
Focus
• Sample triggers ... Classic Events
– Sales Activity from contact of customers
– Goods receipts
– Reservations of material for planned use
– Goods Issues, i.e., withdrawal of material
– Transfer postings (title change among
departments)
– Goods movements
62
Too Many Screens, Too Much
Time?
• ERP systems are general system structures,
designed for implementation across a broad
number of system requirements
– Not surprisingly, many firms do not need all the
capabilities
– Configuration may expand the number of
screens required to input data. For example,
prior to SAP’s R/3 4.0, it was not possible to
move data fields to a single screen.
63
Too Many Screens, Too Much
Time?
• At one firm, the legacy system took about
20 seconds to process each order, with all
the data on a single screen. When the SAP
system was adopted, the processing time
increased to 90 seconds, with data on six
screens. Since the firm had ~ 1,500 per
day, there was a substantial change in order
processing time
64
Process Change and Data
Personnel Change
• ERP system changes can lead to changes in
processes and who does data gathering
• There is a double edge sword between
benefit in shifting data gathering and
change from legacy systems
• See next slide
65
Process Change and Data Input People Change
Different
ERP vs. Legacy Process
f it
ne
Be
l n t
ti a e
n le m
o te p
g P I m
sin t to
e a u l
n cr ff i c
I i
Same
e D
or
M
Same Different
Data Gathering Personnel
66
Too Many Screens and Too
Much Time to Input
At Hydro Agri’s Canadian stores, it used to take about 20
seconds to process a farmer’s order. However, after they
installed SAP’s R/3, the processing time went to roughly 90
seconds. Since Hydro Agri has about 30,000 orders every four
weeks, the new system was requiring huge resources for data
input. Prior to R/3 every four weeks required 600,000
seconds, but after R/3 required 2,700,000 seconds of order
processing time. Information technology staff were forced to
take orders.
67
Number of Input Screens (or Time Difference)
Screens (or Time Difference): ERP/Legacy and Number of Transactions
Ratio of Number of Data Input
Large
n t
e
l em
p
I m
o
tl t
u
Small
f ic
if
e D
o r
M
Small Large
Number of Data Entry Transactions
68
Why did the Number of Screens
and Time Increase?
• Change from a functional approach to a
process approach can change the number of
screens.
• In some cases legacy systems may be
developed to exploit functional information
specialization.
69
ERP System Design
• There have been at least two criticisms
leveled at ERP system builders and there
why their system designs are not easy to use
– Insufficient focus on user interface
– Design focus is from the database outward,
rather than the user inward.
70
Insufficient Focus on User
Interface
• “The developers of these (ERP) packages,
without exception, approach things from a
system point of view, not a user point of
view. ... (The system forces the users to
decrease productivity by requiring “window
thrashing”) ... The software drives people
back and forth, and it is driving them nuts.”
71
Design is “Database Out”
• “(ERP developers) ... generally have
designed from the database out, and not the
user interface in.
• As a result, the screens have been the last
part of the whole process.”
72
Data Input as Ease of Use
• ERP Vendors have incentive to make
systems easier to use
– If not as easy to use as other ERP systems, then
that might lead to lost sales
– Systems are sold based on “number of seats.”
If users find the system difficult then they may
not sell as many seats, since firms may try to
get information out in other venues (e.g.,
intranets)
73
• Some ERP systems are easier to use
– “PeopleSoft is very appealing when you look at
the screens, while R/3 looked rigid”
– However, PeopleSoft is not necessarily easier
to use than legacy systems
• “Workers have to contend with a dozen PeopleSoft
screens compared to just two or three with the old
system.”
74
• ERP Developers are Trying to Make ERP
systems easier to use
– “I want people to be able to use parts of SAP
with zero training”
– Has led to the “EnjoySAP” designed to make
the system easier to use
75
• Is Ease of Use in Eye of Beholder?
– “I didn’t know how the old system worked ... in
my mind that’s an advantage.”
• Either way, perception is reality, hence, if
users believe that a system is difficult to use
– then it is!!!
76
Chapter 5
Output: ERP Reports, Data

Warehouses and Intranets
77
ERP Input Issues and Tools
• Value Creating ERP Information
Capabilities
• ERP reporting capabilities
• ERP query capabilities
• Data Warehouses
• Intranets
• Integrating ERP and Knowledge
Management Capabilities
78
Value Creating ERP Information
Capabilities
• Information drives the processes
– “If the information breaks down, we break
down”
– In contrast to classic accounting systems, where
in some cases, reports are generated and never
used
• Information is available faster
– Firms cut end of year closing time from three
weeks to four or five days to 6 hours (Cisco)!
79
Capabilities
• Information is available providing
empowerment
– “Workers can look in the new system and make
certain decisions for themselves -- and record
them straight from the floor.”
• Information is integrated
– Systems are based relational database systems
so data can be made made available in an
integrated form
80
Capabilities
• Information is Transparent
– If you don’t do your job, I can see that
something hasn’t been done
– Accordingly, ERP systems facilitate
elimination of asymmetries of information
81
ERP Reporting Capabilities
• ERP systems have a wide range of standard
reporting capabilities.
• However, use of ERP systems can be hard to use
for anyone other than expert users and firms may
incur costs as a function of number of “seats.”
• As a result, firms have pursued other alternatives,
such as database queries, data warehouses and
intranets
82
ERP Database Query Capabilities
• Database Queries
– ERP systems sit on top of a relational database
system, so queries can be built to provide report
capabilities
– ERP systems have database query capabilities
so that the database can be bypassed
83
Downside of Queries
In some cases, queries are treated as transactions. However, the
more queries that run, the higher the probability that the system
will become over loaded.
• reports are taking a heavy toll on ERP systems
everywhere because for the first time hundreds,
even thousands of employees are going to ERP’s
single, integrated database and pulling out huge
piles of data ... This is the number one technology
fire that ERP project teams have to put out after the
new system goes in.
84
What if reporting and query
capabilities are not enough?
• Intranets
• Data Warehouses
85
Intranets
• A number of firms, basically differentiate
expert and casual user groups, allowing
experts to have direct access to ERP systems
and casual users intranet access to reports.
• Can be facilitated through Lotus Notes or
Web technology.
– Typically, reports are updated each day
86
Data Warehouses
• Data warehouses provide a way of facilitating
generation of non-standard reports
– “We needed something that would allow an
inventory manager to track inventory without
running a report request through the IS
department.”
• Typically on another computer so they don’t
put strain on transaction processing systems
87
Data Warehouses
• Data warehouses can serve as a meeting
point between ERP and other applications
– “... the impacts of the (ERP) project were so
much greater than expected .... Before the
systems had tended to communicate directly
with one another (i.e., point to point), a new
approach would now be employed in which all
data communication would take place via a data
warehouse.”
88
Integrating Reporting and
Knowledge Management
• As firms have begun to employ database
queries, data warehouses and intranets, ERP
firms have pushed to maintain control
• The approach is to integrate knowledge
management and some electronic
commerce with the ERP systems
89
Knowledge Management and
ERP -- “Portals”
• Portals have many definitions, but generally
are jumping off points for information and
knowledge, aimed at specific users
• Can make a range of information available,
including “discovered” knowledge
90
91
Electronic Commerce and ERP
• Some ERP firms see portals as an
opportunity to make information about
related product information available to
users through the portals
• E.g., mySAP.com has forms that vendors
can fill in to make information about them
available through the portals
92
Chapter 6
Technology Enabled vs. Clean

Sheet Reengineering
93
ERP and Reengineering
• “SAP implementation equals forced
reengineering”
• “it’s rare when you don’t have to do some
kind of reengineering”
• ERP is the “electronic embodiment of
reengineering”
94
Reengineering Tools and
Technologies in 1994 (CSC Index 1994)
• Tool USA Europe
• None 41% 36%
• Process Value Analysis 36 27
• Benchmarking 34 36
• Competitive Analysis 25 28
• Activity-Based Costing 20 17
• Other 16 17
Currently, ERP is the dominant tool! 95
Technology Enabled
(Constrained) Reengineering
• “Enabled” vs. “Constrained” …
– Which term? Why?
• A particular technology (or portfolio of
technologies) is chosen as a tool to facilitate
reengineering.
– Thus, reengineering choices are a function of
the technologies chosen.
– The technology drives the reengineering.
96
Clean Slate Reengineering
• Process design starts with a clean slate

• Also referred to as “starting from scratch”
• Theoretically, no limits
97
Somewhere Between the Two
• In actuality, there are few projects that are
“purely” clean slate or technology enabled
• More of a spectrum
Technology Clean
Enabled Slate
98
Advantages of Technology
Enabled
• ERP provides a tool to facilitate change
• ERP helps structure complex reengineering efforts
• Tools help explain and rationalize efforts
• ERP bounds the design, limiting overload
• Design is feasible
• There is Evidence that the design will work
• Designs likely are cost effective
• Designs likely can be implemented in a timely manner
• There is software available
99
Advantages of Clean Slate
• Not constrained by a particular tool
• Not constrained to a limited set of processes
• Evolution is not limited by a particular technology
• Can develop a design that others cannot access
• There is evidence that firms think they should
reengineer and then implement
• May be the only option
100
Which Firm Should Use Which
Approach?
Depends on
• Firms Size
• Available Resources
• Time Pressure
• Strategic Gain
• Uniqueness of solution
101
Large Firms
• Have the resources to do clean slate
• Are often industry leaders and thus,
generally have time
• Are likely to use processes as a competitive
advantage
• Are more likely to need a unique solution
102
Firms with Deep Pockets
• Clean slate requires substantial resources
• In some cases, clean slate will lead to many
starts and stops before the “final” design is
found
103
Firms with Time
• Clean slate takes longer so only firms that
have the time can really do clean slate
approaches.
104
Firms for which Processes are a
Strategic Advantage
• The more unique a firm in terms of its
industry, processes, customers or other
factors, the more likely that they see their
specific processes as a competitive
advantage, and thus use some clean slate
approach.
105
Firms that Seek a Unique
Solution
• Technology enabled approaches are easily
copied and diffused
• Clean slate approaches are not as rapidly or
as easily copied.
106
Which Approach is Used the Most?
(Original Implementation Strategy)
Approach Original After
• BPR and SAP Simultaneously 48% 51%
• BPR before SAP 16 35
• BPR after SAP 3 33
• BPR before and after SAP 1 1
• No BPR Needed 33 10
107
Chapter 7
Deciding to Go ERP
108
Business Case Rationales
• Business case rationales typically fall into
four categories
– Technology
– Business Process
– Strategic
– Competitive
109
Why is the Rationale or business
case important?
• Want to make the “right’ decision, so
develop a good business case
• Business case can facilitate choice of
processes or evaluative measures
– Gives guidance to the design team
• Business case can provide a basis for the
evaluation of the quality of the
design/implementation
110
Technology Motivations
Motivation No. of Firms Percent
• Systems not Y2K Compliant 42 27%
• Disparate Systems 37 24
• Poor Quality Systems 26 17
/Visibility of Information
• Business Processes or 19 12
Systems Not Integrated
• Difficult to Integrate 12 8
Acquisitions
• Obsolete Systems 11 7
• Unable to Support Growth 8 5
111
Technology Rationales: Y2K
• We really sold (ERP) on the Year 2000. ... If you have
systems that are 20, 25 or 30 years old, the Gartner
Group ... has indicated that it will cost you anywhere from
$1.10 to $1.65 per line of code to change for year 2K. If
you have 4,000,000 lines of code you are talking about a lot
of money. Additionally, the legacy systems are not there,
there is nobody there to maintain them and there is nobody
who understands them. So if you had to fix it up for the
year 2K it would take you millions and millions of dollars,
with a terrific risk. In essence we sold this system on a
year 2 K basis.
112
Technology Rationales:
Disparate Systems
• Disparate systems limit the ability of firms
to integrate different business units. Recall
Geneva Steel
• we have ... a mainframe ... (and)... a primitive accounting
system ... we have lots and lots and lots of different kinds
of computers. They have a hard time talking to each other.
We have a large number of mini computers out there that
are different kinds, that have different software .... Our
system is a road map from hell. ..
113
Poor Quality Existing Systems
• We (Microsoft) had just had a very bad budget
process. ITG (the Information Technology
Group) and Finance had developed a new budget
tool and it didn’t work. .... It was not fun. ... I
was just back from vacation, and Steve Ballmer
was just back from Wal-Mart. Steve knocked and
opened my door. I knew it was Steve, he has a
really distinctive knock. He walked in and said,
“You guys [expletive deleted]!” I got the
message.
114
Difficult to Integrate
Acquisitions
• We wanted more insight into how our
processes were doing. ... Your processes
have to change. As a company that
acquired so many companies, [Brown
Ferris] didn’t have uniform processes. Part
of our challenge was to get 500 places using
standard procedures.
115
Measurement
• Oftentimes technology rationales are measured on
a “yes-no” basis
– Is the new system Y2K compliant?
– Does the new system allow us to eliminate this road
map from hell?
– Can we get rid of our existing budgeting system with
this new software?
• Typically can specify particular measurement
goals.
116
Business Benefits
Benefit Number of Firms Percent
• Personnel Reductions 44 20%

• Inventory Reductions 42 19
• IT Cost Reduction 27 13
• Productivity Improvements 23 11
• Order Management Cycle Time 19 9
• Cash Management 16 7
• Revenue/Profit 15 7
• Procurement 12 6
• Financial Cycle Close 10 5
• Maintenance 8 4
117
Business Process Rationales
• Designed to aim at specific improvements
in efficiencies or cost savings or revenue
enhancements.
• Typically include a specific number
– For example, “decrease inventory by 40%”
• Can provide guidance regarding design
118
Business Process Rationales:
Personnel Reduction
• “We will have fewer accountants and
probably have fewer information systems
people. Because one of the things we are
considering is contracting out a chunk of
that function. A great deal of what we do,
we have cost accountants do, lots of things,
not just by hand, it is not that primitive,
they do a lot of work that won’t need to be
done once SAP is implemented.”
119
Productivity Improvements
• “To get the project (cost) justified we intentionally
focused on the tangible items the board would
understand and that we could clearly articulate and
make commitments to deliver.” (Owens Corning)
 A one percentage point cost reduction deriving from global
economies of scale in raw material purchases
 A one percentage point cost reduction deriving from fewer
warehouses and lower freight cost
 Improvement in reliability-oriented maintenance generating
lower plant maintenance costs
120
Financial Close
• Firms often specify speeding the closing

process as a goal
– One firm wanted to cut their closing time from
24 days to 6 days.
121
Strategic Rationale
• Choose ERP to implement a specific
strategy
– As part of an E-business strategy, a firm could
implement an ERP system
– As part of a strategy to focus on the consumer,
a firm could implement “Available to Promise”
(ATP)
122
Competitive Rationale
• “A lot of ERP purchases are premised on
the need to just stay in business.”
• The competition has it can take two
approaches
– Implement because the competition has it
– Focus on why the competition has it and see if
it fits your company and what benefits can be
gathered
123
Competitive Rationale
• On June 24, 1996, Oracle’s Application Division
announced that “Several companies went live with
their Oracle Applications implementations during
the quarter, including Silicon Graphics, Inc. and
Quantum Corporation, both of whom successfully
deployed large-scale implementations.” In addition,
at the same time, Oracle’s Application Division
announced that “among the customers added this
quarter included ... Western Digital ....”
(Quantum’s Competitor)
124
Business Case Rationale
• Can be used as a guide to help design and
evaluate success.
• Why is it being implemented? Use this as a
basis to assess the quality of the
implementation
125
How Does a Firm Decide
Whether or Not to Go ERP?
• Hard vs. Soft Data

• Use of the Measurement Criteria
• Organization Culture
126
Role of Top Management
• What is the role of top management in
deciding to go ERP?
– Only a few executives in a firm can make such
a big decision
– Voice of Change must include domain area
since processes will change
127
Hard vs. Soft Data
• Whether the data is ‘hard’ or ‘soft’ can
influence the decision
• The Y2K data was hard data. They (top
management) believed that data.
128
Measure Costs Throughout the
Life Cycle
• Measurement of project costs is necessary
to provide a budget and actual for the
project
• Costs start in the decision to go ERP and
move in thru the rest of the life cycle,
through the stabilization period
129
Organization Culture
• Some organizations use detailed analysis,
whereas others do not
– In some cases it is a matter of the
organization’s culture
130
Cost Benefit Analysis
• Use it, but keep in mind ...
• Costs can be disguised or hidden or
inaccurate
• Benefits can be fuzzy or unanticipated
131
Chapter 8
Choosing an ERP System
132
Two Basic Approaches
• There are two basic approaches that are

used as bases of choosing ERP software
– Requirements Analysis (“As Is”)
– Best Practices Analysis (“To Be”)
133
“As Is” Analysis
• As is refers to the current system and its
current capabilities
• The system “as it is” right now
134
Requirements Analysis (“As Is”)
• “As Is” the ways things are.
• Organization determines what their
processes and artifacts currently are and use
that “as is” model to establish requirements
that software is judged against.
• Typically, the software that best meets the
requirements is the one chosen by the firm
135
Requirements Analysis -
Evaluating Features
• Typically, requirements are features that the
software “must have”
– In addition, sometimes “would like to have” also is
gathered.
– Likely to use a numeric scale of say 1-5 for each
feature, based on how important the feature is
• For missing features, typically changes to the
software are seen as a gradation of change, e.g.,
“enhancement” or “customization”
136
How many requirements?
• Timberjack’s requirement analysis took six
months and generated > 1,000 requirements
• Another firm took eight months and
generated 1,500 requirements
• If it takes a long time, then requirements
can (will?) change
137
How long will it take?
• Can be a substantial effort and take a while!
• Typically 1 - 3 months
138
Who Should Be Doing Analysis?
• Trade-off between current employees who
know how work is done, and managers,
who see work from a different
perspective. ...
• Which processes should be captured:
– Past
– Current, or
– New?
139
Help for Doing Requirements
Analysis
• Consultants specialize in requirements
analysis, e.g., Big 5
• There are existing packages that facilitate
requirements analysis, e.g., “The
Requirements Analyst”
140
Requirements Analysis -
Granularity
• Requirements are not equal granularity.
• Some are whole best practices, while others
are fields (e.g., date)
– Able to manage orders following best practice
methods of placement, control and expediting
– Able to Use EDI with Certain Vendors
– Able to set up vendor schedules
– Able to track actual date
141
Advantages of Requirements
Analysis
• Classic System Choice Process, so it is
generally understood
• Establishes a bench mark that can be used
to judge fit of software
• Provides a document that can be used for
communication and to generate buy-in
142
Disadvantages of Requirements
Analysis
• “As Is” analysis can be very
– time consuming, slowing the implementation
– costly (e.g., one firm spent $100,000)
• May (will) be impossible to specify all
software requirements
• If there are too many requirements then
vendors may not fully respond to the RFP
143
Disadvantages of Requirements
Analysis
• Lose chance to reengineer by focusing on
the ‘‘As Is” model
– Cements existing processes without evaluation
as to their quality
• Requirements are not stable, so it is likely
that requirements can only chase reality
– Requirements are only a snap shot
144
Format
• Typically a list, along with a relative
ranking of the importance (1,2,3,4,5)
• Scripted
– Loosely Scripted -- “show me what you have”
– Tightly Scripted -- “can you handle this data?”
145
“To Be” Analysis
• Process of determining which best practices
should be used by a particular organization, i.e.,
how should the organization process information,
and choose the software on that basis
• Focuses, not on where the organization is, but
where it wants to be.
• Search often includes Big 5 best practices, and
ERP best practice capabilities
146
Gap Analysis
• Match “AS IS” and “TO BE” to determine
if any gaps.
• How do we evaluate gaps?
– Count them?
– Rate importance?
– ...
147
Both Requirements Analysis and Gap Analysis
Ignore Important Issues
• Cost
• Installation time
• Flexibility
• User interface
• Upgradability
• Implementation Personnel
• Reliability …
148
Cost Factors - Mini Case:
Which Do You Choose?
Upgrade Oracle SAP
Implementation $3-5 M $4-8 M $6-10 M
Software Development $2-4 M $1-3 M minimal
No. of Users (Seats) 15-20 10-15 8-10
149
Both approaches ...
• basically assume that majority wins. How
do you choose, the software that has the
most requested features or the most
valuable features or ..?
• can focus on artifacts (e.g., invoice) rather
than processes
150
Emerging Approach
• Increasingly, consultants are promulgating
the approach where no “as is” model is
developed, no gap model is developed …
• Go straight to the “to be” model, since that
is what really counts
• Typically, with this approach the consultant
knows both your organization and the
software
151
Emerging Approach
• Instead, just choose one of the better ERP
packages and choose the best practices
available within that package.
– Systems are so good that any of the systems
will have processes that are “good enough”
152
How do firms choose?
A Case Study
• Company: Chesapeake Display and Packaging
(CDP)
• They used a five step approach, including a vote
as to which everyone preferred.
– Form Blue Ribbon Committee
– Contact Vendors to Arrange Demos
– Ask Vendor for Proof of Rapid Implementation
– Vote
– Make Choice
153
1. Form Blue Ribbon Team
• A Blue Ribbon Team (BRT) was chosen for
their knowledge of the business and
business processes
• There were some big picture people
• The committee was limited to no more than
ten people
154
2. Contact Vendors to Arrange
Demo’s
• A limited number of first tier vendors were
chosen, contacted and asked to prepare a
demo for the BRT
• Vendors were given unlimited access to the
BRT for three weeks.
• Demos lasted 1-2 days
• Vendors choose the hardware and software
that they preferred
155
3. Ask the Vendor for Proof of
Rapid Implementation Ability
• Vendors were asked ...

– Show your software can handle our business
– Show you can implement in the time required
– Show expertise in understanding the industry
156
4. Vote
• After the demos, there were three
candidates, Baan, J.D. Edwards and SSA.
• In order to choose, the BRT was asked to
rank 1 to 3 based on “Best functional fit”
and “Best implementation personnel”
157
5. Software Recommendation
• J.D. Edwards was seen as offering
– Superior financial capabilities
– One integrated solution
– Human resources and payroll
– Advanced object oriented tool set
– A planning module that allowed for scheduling
on a cost basis
158
So, What do you ...
• Like about the way they selected their
system?
• Not like about the way that they selected
their system?
159
Chapter 9
Designing ERP Systems
Part I
160
Customize Applications or Change
Business to Fit Software?
Choose Application to fit 37%
business and customize a bit
Customize Applications to fit business 5%
Reengineer Business to fit application 41%
No Policy 17%
161
On the Relevance of “As Is” and
“To Be” Modeling
• Since “As Is” analysis generates models of
existing processes, the relevance of “As Is”
modeling is dependent on the extent to
which processes stay the same
• Since “To Be” analysis generates models of
processes chosen to be implemented, its
relevance depends on the extent of change
to be made in existing processes.
162
“As Is”
• If a firm is planning extensive reengineering
(>40%) from survey were, then the “As Is”
model is not very important. Instead the “to
be” model drives the process.
• However, if minimal reengineering is
planned then it can be critical to do an “As
Is” model so that the proper software can be
chosen.
163
Quality of Fit of Software to “As Is” Processes
“As Is” Requirements
Analysis is not
Loose Fit
Necessary
Tight Fit
“As Is” Requirements

Analysis is Critical
Minimal Extensive
Extent of Change to Organizational Processes Planned
164
“As Is”
• Consider a firm that performs an “as is” analysis
and finds a loose fit between existing processes
and the ERP software they choose.
– If minimal reengineering is planned, then there may be
a lost chance to choose software that matches their
processes
– If extensive reengineering is planned and there is a tight
fit with existing processes, then that close match can
limit their ability to do reengineering and may result in
backsliding.
165
Quality of Fit of Software to “As Is” Processes
Loose Fit
Lost Chance to
Choose Software
that Meets Needs
Potential to Back-
Tight Fit
Slide to Existing
Processes
Minimal Extensive
Extent of Change to Organizational Processes Planned
166
“To Be”
• If there is only limited change of the
software planned then the “To Be” model is
basically constrained to the processes
available in the software
• If the software is to be modified, then the
“to be” model becomes more like a clean
slate analysis, since the choices are beyond
the software.
167
Quality of Fit of Software to “To Be” Processes
“To Be” Analysis
is Clean Sheet
Loose Fit
Reengineering
Tight Fit
“To Be” Analysis is

Technology-Enabled
Portfolio Choice
Minimal Extensive
Extent of Change to Software Planned
168
Two Dimensions ...
• There are two dimensions of change …
– Change in Software
– Change in Organizational Processes
• Resulting in reengineering ranging from
“little r” to “big R” reengineering.
169
Extent of Change to Organizational Processes
Extensive
Minimal “Big R”
“Small r”
Minimal Extensive
Extent of Change to Software

170
Minimal Organization and
Software Change
• Small r reengineering offers fast and
cheaper implementation
• However, with small r, you miss the chance
to be a champion
Extensive
Change to Org. Processes
“Big R”
Minimal
“Small r”
Minimal Extensive
Extent of Change to Software 171
Extensive Organizational and
Minimal Software
• “SAP customers often have to change their
businesses to use the software, but the cost
and the change is worth it because the
software lets the company operate more
efficiently.”
Extensive
“Big R”
Minimal
“Small r”
Minimal Extensive
Extent of Change to Software 172
Extensive Organizational and
Minimal Software
• Trash Hauler industry taking SAP software to the dump. Allied Waste and
Waste Management have abandoned their SAP initiatives because
“SAP expects you to change
your business to go with
the way the software
works.”
Extensive
“Big R”
Minimal “Small r”
Minimal Extensive
173
Minimal Organizational and
Extensive Software
• A project manager at Nestles indicated that their choice
of processes for their SAP implementations included
best practices beyond those included in the software.
– Some of their existing processes
and best practices from their consultants’
database of best practices
were chosen, forcing a
Extensive
change in the software.
“Big R”
Minimal
“Small r”
Minimal Extensive
174
Disadvantages
• We have learned the hard way, if you modify the software
there will be a cost. The cost comes when you do the
modification initially, when you do an upgrade, and when
you support the software over time. ...
• Customization to different divisional requirements also can
make it difficult to implement the software in other
divisions. Although the manager of SAP services at Deere
Co. indicated that for their ERP project, the customizations
went well, it was also noted (Lamonica 1998)
– ... what hasn’t worked well is establishing standards and templates
that can be rolled out to other divisions.
175
Extensive Organization and
Extensive Software
• Boeing and BAAN … What was the payoff?
• As noted by one Boeing
consultant (Busse 1998),
“Prior to ... (the new system)
Extensive
... people had tunnel vision,
“Big R”
now people see up and
Minimal
downstream ...” “Small r”
Minimal Extensive
176
Extensive Organization and
Extensive Software
• Advantages: First mover advantages for
the adopter; development of a package that
can be sold to similar firms to the ERP firm;
costs and risks are shared by both
• Disadvantages: Changing software is
expensive and inhibits ability to get to next
version. Adopters are likely large firms
with market power.
177
Evolution from Big R to Small r
Reengineering
• In some cases, ERP firms partner with
implementing firm in an effort to expand
the product capabilities.
– Extensive software changes can result in
industry specific versions of the software
– As the software is made to conform with
unique industry requirements, it becomes
“small r” for those on the third or fourth wave.
178
Implementation Failure and
Success Factors
• The highest probability of a successful
implementation is when there is minimal
change to both organization and software.
– This does not mean all organizations should
pursue that approach.
• Change to organization processes can mean
resistance to change, choice of the wrong
best practices, etc.
179
Implementation Failure and
Success Factors
• Extensive change to software draws heavily
on the organization to implement large IT
projects and IT change management
• See diagram …
• Bottom line, firms must assess what will
make their implementation successful?
180
Which Quadrant … Which
Approach?
• Depends …which is best for your firm?
Potential Project
Potential Project
Failure because of
Extensive
Failure because of Process Changes and

Process Changes IT Changes to Software
“BIG R”
Highest Probability Potential Project
Minimal
of Successful Failure because of IT

Implementation Changes to Software
“Small r”
Minimal Extensive

181
Chapter 10
Designing ERP Systems
Part II
182
What are MAPs?
• Models
– Organization models (e.g., B2C, B2B,
Auctions, Centralized, Decentralized…)
• Artifacts
– (e.g., Charts of accounts and Vendor numbering
schemes…)
• Processes
– (Sales order, Customer management,
Procurement…)
183
Why are MAPs important?
• MAPs (Models, Artifacts and Processes)
• The quality of the MAPs will have a huge impact
on the overall success of the ERP implementation.
– MAPs that are not efficient or effective for a particular

firm can drag down the overall performance of that
firm.
– Similarly, MAPs that meet the needs of a firm can push
it to better performance, giving it a competitive edge.
184
Where do MAPs come from?
• Nestles’ decided that it would implement common MAPs
in all three of its United States divisions.
• Each of the three division’s existing MAPs became
candidates, that would be evaluated.
• Both SAP and the advising consultant’s best practices
databases were used to generate candidates MAPs.
• In some cases, hybrid MAPs were developed, based on
multiple sources of information.
• A multifunctional team used both sets of inputs to decide
on company standard artifacts and business processes.
185
Why didn’t firms have common
MAPs prior to ERP systems?
• There are at least three reasons:
• 1) technology,
• 2) exploitation of local differences, and
• 3) divisional control.
– Technology limitations meant each division made their own
decisions
– Since each made their own decisions they exploited local
phenomena (e.g., few vendors)
– Even common software and computing was hard to integrate.
186
Why do firms need common
MAPs for ERP?
• Basically, the software requires it
• Improved customer response
• To get control of an out of control process
• Generate a common view of the data
• Create value and reduce costs
187
Software Requires it
• Owens-Corning traditionally had operated as a
collection of autonomous fiefs. “Each plant had
its own product lines,” says Domenico Cecere,
president of the roofing and asphalt units. Each
plant also had its own pricing schedules, built up
over the years of cutting unique deals with
customers. ... (SAP’s) R/3, however, effectively
demanded that Mr. Cecere’s staff come up with a
single product list and a single price list.
188
Improved Customer Response
• Up until now, customers called an Owens - Corning
shingle plant to get a load of shingles, placed a separate
call to order siding, and another call to order the
company’s well-known pink insulation.
• (The company’s new vision was that) Owens - Corning
should offer one stop shopping for all the exterior siding,
insulation, pipes and roofing material that builders need.
• (SAP’s) R/3 will give Owens-Corning the ability to
make that happen by allowing sales people to see what is
available at any plant or warehouse and quickly
assemble orders for customers.
189
Get Control of Out of Control
Processes
• Vandelay’s sites’ operations practices were as varied as
their information systems. There was no uniformly
recognized “best” way to invoice customers, close the
accounts at month end, reserve warehouse inventory for a
customer order or carry out an of the hundreds of other
activities in the production process that required computer
usage or input. ...To alleviate ... problems with systems
and practices, Vandelay decided to purchase and install a
single ERP system, which would incorporate the functions
of all the previously fragmented software. The company
would also standardize practices across sites.
190
Common View of the Data
• Elf Atochem North America Inc.,
Philadelphia ... is moving 13 business units
over to SAP software. ... he came to SAP
because its various companies had been
reorganized to work as one. (As a result,
the company) ... had inherited “a lot of
different computer systems, a lot of
different ways of doing business, and a lot
of hand-offs.” A common view of diverse
data was important ... 191
Value Creation and Cost
Reduction
• As noted by Pirelli’s director of information
technology “The more standardization there is, the
easier it is to implement new ideas and respond to
new opportunities.” In addition, Andreoni notes
that standardization can reduce costs. As an
example, before standardization, Pirelli had a full
service back office and customized software in each
of five countries. ERP software was used to replace
the multiple back office staffs with a single back
office staff in Switzerland, cutting costs by 25%.
192
Why is it difficult to choose
common standards?
• A Vice President of Red Pepper Software, who admits
that standard ERP artifacts are “... useful where
financial viewers want to consolidate information
across diverse operating units, but ... the common view
may not be optimum for individual divisions.”
• Although standardization coming from
implementation of enterprise software by
standardizing processes and artifacts has global
benefits, it comes from sacrificing local customized
capabilities.
193
How seriously do divisions take
the choice process?
• SAP, however, effectively demanded that
Mr. Cecere’s staff come up with a single
product list and a single price list. The staff
initially fought ceding control over pricing
and marketing to a computer-wielding
central command. “My team would have
killed if we’d let them,” he says.
194
What are some choice
motivations?
• Maximize corporate benefits (global good)
• Minimize divisional change costs (self
interest)
– Rather than maximizing corporate benefits, a
division may work to minimize its change
costs, such as training or hiring.
– Divisions unsuccessful in getting their MAPs
adopted can still work to get the MAPs closest
to their’s adopted
195
Choosing Standard Artifacts and
Processes
• Within an ERP, virtually the same processes and artifacts
are used in all locations, i.e., processes and artifacts are
standardized
– As a result, potentially this can lead to conflicts
between different business units regarding the choice of
processes & artifacts
– Firms refer to this choice as “common ... and global”
– Firms make the choices to facilitate communication and
coordination
196
Chapter 11
Implementation:
Big Bang vs. Phased
197
Big Bang vs. Phased
Implementation
• “Big Bang” and “Phased” are two primary
ways of implementing ERP systems
– What do these terms mean?
– What are properties of each?
– What are the advantages and disadvantages of
each?
– How do we take into account organizational
factors with respect to ‘big bang’ or ‘phased’?
– What are some additional terms?
198
Big Bang
• In a full big bang, an entire suite of ERP
applications is implemented in all locations
in a matter of days.
– Big Bang employs a three step process.
• Virtually all processes and artifacts are chosen and
implemented in the software (e.g., 8 months)
• System is tested by process and then by interfaces
between processes (e.g., 8 months)
• Old system is turned off. New system is then
implemented and minor changes made.
199
Phased
• At the extreme, modules are implemented one at a
time, possibly one location at a time
– For example, one implementation did the following:
• Phase 1 - Finance, controlling, accounts receivable, accounts
payable, and purchasing (12 months)
• Phase 2 - Materials management, production planning and quality
planning (7 months)
• Phase 3 - Remainder (5 months)
– Using a phased approach, the new system is implemented in
a structure of legacy systems.
200
Advantages of Big Bang
• No Temporary User Interfaces
• Limited Need to Maintain and Revise Legacy
Software
• Some Risk is Lower
• Functionality Linkage
• Shorter Implementation Time
• Continuity of Personnel
• Cost
201
No Temporary User Interface
• Temporary interfaces must be developed
and maintained for the duration of the
multiple systems with a phased approach,
however, with a big bang approach, there is
no need to build legacy system interfaces
and there is no need to change legacy
systems
202
Limited Need to Maintain and
Revise Legacy Software
• With Big Bang there is limited need to

maintain and revise legacy software.
• As a result, all resources can be spent on the
development and testing of the new system.
203
Some Risk is Lower
• “The phased approach is riskier, because
you won’t get everyone involved.”
– Since people are not involved they can lose
interest
• There is no back-up system with big bang,
so there is little risk of the attitude, “Oh,
let’s just forget it.”
• Attrition of critical personnel is lower
204
Functionality Linkage
• ERP systems modules are tightly linked.
• Some capabilities require multiple modules
be implemented
• As a result, in some cases the fastest way to
get full functionality is a big bang approach.
205
Shorter Engagement
Implementation Time
• Since there is no time spent on temporary
interfaces, the engagement duration time
can be shorter
– As a result, there is less time for legacy system
maintenance is required
– First Movers advantage is more rapidly attained
– Catch-up can be facilitated
206
Continuity of Personnel
• Since engagement duration time is shorter
there is less likelihood of workers leaving in
the middle of the engagement
• Also, since experience is not “whole” till
implementation, there is likely to be less
turnover, during the actual implementation
207
Cost
• Which approach is least costly?
• If all goes well the big bang approach is
least costly since there are fewer costs for
interfaces, etc.
208
Advantages of Phased
• Peak Resources are Lower
• More resources can be devoted to a particular
module
• Some risk is lower
• Legacy System Fallback
• Personnel gain knowledge in each phase
• Project managers can show the system works
• Time between development and use is small
209
Peak Resources are Lower
• If a firm has limited resources, then a big
bang approach may not be feasible.
• With a phased approach resource
requirements can be spread across multiple
time periods.
210
More Resources can be Devoted
to a Particular Module
• If the organization is resource constrained
then a big bang approach may not be
possible because of those resource
constraints
• However, with Phased, the resource
requirements can also be phased.
211
Some Risk is Lower
• One malfunctioning module in a big bang
can make the implementation fail. Since the
phased approach puts in one module at a
time, that risk is mitigated
• If the implementation fails, the phased
approach always has the legacy system in
place until the very end.
212
Legacy System Fallback
• In a big bang, the legacy system is turned
off, there is no alternative if things don’t go
well.
• With a phased approach an organization can
see if the system works and then turn it off,
or it can run the systems in parallel in order
to check the results.
213
Personnel gain Knowledge in
Each Phase
• In a phased approach, workers gain

knowledge with each phase.
• They can use knowledge gained in phase i,
in phase i+1.
214
Project Managers can show the
System Works
• With a phased approach, managers have a

chance to show that the implementation is
working and/or being accepted. As a result,
they can use these results to demonstrate the
quality of the investment to top
management.
215
Time Between Use and
Development is Small
• The linkage between doing the work and

when the module goes live is much tighter
with phased than big bang.
– As a result, developers can more easily see the
linkages and the results of their work.
216
When should you use Big Bang?
• When you have top management’s support
• When there are sufficient peak resources
available
• When capabilities are needed ASAP.
• When there is limited time to implement the
system, e.g., first mover or catch up.
217
When should you use Phased?
• When you need to generate support from
top management
• When there are insufficient peak resources
• When the all or nothing risk of Big Bang is
too high
• When there is plenty of time
218
Organization Characteristics and
Implementation Approach
• Size vs. Complexity
– Complexity derives from a number of sources
including an organization’s products and
customers. Large customers can dictate
processes, artifacts, etc.
– Size of a firm can relate to a number of factors,
such as revenues, number of offices,
geographic regions, number of products or
number of customers.
219
Large and Complex
Organizations
• Its too difficult--especially for large (and
complex) companies--to run a big project ...
and the risks in terms of project
management are huge. ... Huge do-it-all at
once deals are quite tough, and most people
are looking for smaller piece-by-piece
implementations.
220
Linkages Between Organization Size and
Complexity and Implementation Approach
Phased
Organization Complexity
Complex
Simple
Big Bang
Small Large
Organization Size 221
Organization Characteristics and
Implementation Approach
• Both Organization Structure vs. Organization
Controls influence whether a big bang or phased
would work better.
– Organization structure can be very flat or tall and
hierarchical
– Organizational controls can be loose or tight
– “If a company has a flat organization that is not tightly
controlled, it’s very difficult to sustain commitment
throughout a phased implementation. …”
222
Linkages Between Organization Hierarchy
and Control, and Implementation Approach
Phased
Organization Structure
Tall
Flat
Big Bang
Loose Tight
Extent of Controls
223
System Change and
Reengineering
• Number of Modules
– Firms don’t always put in all the modules.
With few modules, they can almost guarantee
the ability to go big bang
• Extent of Reengineering, e.g., “System Fit”
– To what extent does the system meet the needs
of the company as is?
224
Linkages Between Implementation
Approach and ERP Modules
Number of Modules in the Implementation
Phased
Many
Few
Big
Bang
Minimal Extensive
Extent of Change To Be Made
To ERP Modules 225
Alternative Implementation
Issues
• Waved Approach
• Aggressive Implementation
• Running in Parallel
• Many “big bangs”
226
Waved Approach
• Each “wave” delivers functionality to a
different business unit or geographical area
• Example:
– Year One - implement G/L
– Year Two - Convert A/R and cost management
227
Waved Approach
• Advantages of Waves
– Waves provide feedback as to how the
implementation is proceeding
– Employees learn in the beginning of the wave
and leverage that learning
– Each successful wave keeps momentum going
– Waves are flexible. If new releases occur then
they can be embedded in the waves
228
Aggressive Implementation
• Not big bang, but more aggressive than
phased
• Temporary links really are temporary.
• Aggressive plans are made to release legacy
system
229
Run in Parallel
• If the legacy system is allowed to run at the
same time as the new system then the two
systems can run in parallel.
• There are some advantages and
disadvantages of this approach
– Advantages: can go back, can check results
– Disadvantages: costly, may inhibit new system
230
Multiple Big Bangs
• Increasingly, firms are beginning to say that
they are doing a big bang implementation,
in phases.
• This is a break from the classic big bang
and phases, basically ‘big banging’ around
the world, from one division to another.
231
Chapter 12
Post-Implementation
232
The Stabilization Period
• Lasts from 3 to 9 months
• “Most companies should expect some dip in
performance at the time they go live and should
expect that they’ll need to manage through that
dip.”
• Why?
– New software and processes for users
– System ‘bugs’
– Technical issues…
233
Post-Support from ERP Team
• Detecting and responding to system bugs

• Answering user questions
• Changing system parameters
• Responding to changing reporting needs
• Upgrading the software/hardware
234
What Remains to be Done?
• Data conversion (migration of data from
legacy to ERP system)
– Cleansing data
– Reconciling data
• Process Bottlenecks
– Talk to users about problems
– Analyze error and complaint logs
• Documentation and Training
235
Linkages, Upgrades &
Extensions
• Creating interfaces and linkages to other
systems
• Upgrading to different system versions
must be made so that additional features can
be implemented
• Building-in new features and functions
beyond upgrades
236
Evaluate Success
• Timing
– When benefits could be realized and measured
– During the 1st or 2nd year AFTER going live
• Determining if the system meets the criteria
set out for it in the beginning (choice
rationale)
• Independent measures or a weighted
portfolio of measures?
237
Weighted Portfolio
Attribute Rating Weighting Product

(1-5 Scale)
• Ease of use 4 .10 .40
• Speed of closing 3 .20 .60
• Internal Integration 5 .15 .75
• Customer Satisfaction 4 .20 .80
• Duration 4 .10 .40
• Cost2 .15 .30
• Benefit 3 .10 .30
• Total (Possible 5.0 points) 1.00 3.65
238
Actual vs Expected Project Factors
(Austin and Cotteleer 1999)
Duration Cost Benefit
• < 50% 0.0 0.0 6.0

• 50% - 100% 25.0 13.5 65.5
• 100% - 124% 5 27.5 43.0 8.5
• 125% - 149% 4 25.0 24.5 14.5
• 150% - 174% 3.0 8.0 0.0
• 175% - 199% 16.5 2.5 3.0
• > 200% 3.0 8.0 3.0
239
Balance Scorecard
Financial Customer
Learning & Internal Business

Growth Processes
240
Post-Implementation Budget
• There must be a budget and corresponding

plan to support the complete project.
• Complete project management means
managing through the entire project life
cycle.
241
Chapter 13
Training
242
Importance of Training
• “The easiest mistake to make is underestimating
the time and cost of training end users.”
• An implementation will be a failure if the software
runs perfectly, but employees don’t know how to
use it.
• Despite the importance associated with the need
for ERP training, a recent survey found that in a
Benchmarking Partners survey of 150 sites, 43%
indicated that the amount of training was the
biggest surprise encountered.
243
FAQ Regarding Training
• How should user training be timed?
• How much training should users get?
• How do you make up time spent on training?
• When should you do training?
• How do you get employees to do training?
• How much should training cost?
• What is in the training material: information technology or
business materials?
• How should you structure training?
• Can you develop faster training?
244
How Should Training Be Timed?
• Training that occurs too early before the go
live date will be forgotten.
• Training that occurs too late, will not be
done in time, and can cause a lengthy
stabilization period.
• As one example of trying to find the right
time, Purina Mills started to train users four
months in advance on SAP’s R/3.
245
How Much Training Should
Users Get?
• The amount of training required is a function of
the particular module for which users are being
trained.
– In some cases it can take up to six months for users to
get comfortable and proficient with the ERP software.
– As another example, at Purina Mills during their SAP
R/3 implementation, a group of finance workers spent
seven hours per day during the last month before the
system went live.
246
How Do You Make Up Time
Spent on Training?
• Time spent on training is time not spent on day-to-
day activities.
• Not surprisingly there have been a number of
different solutions used to ensure that workers get
enough time off for training.
– At Purina Mills managers put in extra hours in order to
accommodate training hours.
– At Microsoft users were expected to do both jobs by
putting in extra hours.
– Still other firms have made use of temporary employees.
247
When Should You Do Training?
• Training scheduled during working hours indicates
the importance of the training. Training scheduled
outside working hours suggests training is not as
important as day-to-day responsibilities.
– A CIO was told by corporate that eighty hours of
education was necessary. However, he felt that the
eighty hours of education would not be necessary for his
employees and that the training could not be done during
normal working hours. As a result, he was planning for
his employees come in on Saturday and Sunday’s on
three successive weekends in order to the training.
248
How Do You Get Employees to
Do Training?
• User ERP training might get pushed aside if firms
do not ensure that users take it seriously. As a
result, firms have introduced different penalties
and incentives.
– For example, during Microsoft’s SAP implementation,
training was deemed mandatory for certain critical
users. Users that did not attend training were
threatened with having their computer accounts turned
off. As noted by a senior accounting manager (Bashein
et al. 1997, p. 71), “We only had to turn of 20 or so
accounts.”
249
How Much Should Training Cost?
• How close was the cost of user training and other ERP
deployment expenses to your original estimate?
• More than 50% above expectations 8%
• 10% to 50% above expectations 26%
• Within 10% of expectations 58%
• More than 10% below expectations 6%
• Don’t Know 2%
• Based on 50 large United States Companies surveyed in August 1998.

• Source Forrester Research. Inc., Cambridge Massachusetts.
250
What is in the Training
Materials: IT or Business?
• Training users on how to use an ERP system is a
mix of technology, processes and domain area
content in order to provide a context for the
system.
– “ERP Hokey Pokey,” where users are advised, “you put
your right hand on the ...,
– As part of the Microsoft SAP implementation, a senior
accounting manager noted (Bashein et al. 1997, p. 71),
“I’ve taught a six hour course on entering journal
entries into SAP 20 times now. It was as much a
general ledger course as a system tool course.”
251
How Should You Structure
Training?
• One approach that consistently is well accepted is
when a member or a group of members of the
client organization are chosen as “super users,”
who then can be responsible for training others.
– This approach has been found to facilitate buy-in from
the users, because the people doing the training are
people that the users know.
– Because there are super users, the other users see that
learning about the system can be important.
– Developing super users develops an important
understanding at the user level.
252
Can You Develop Faster Training?
• Because ERP engagements often are behind
schedule, firms try to speed their training.
– The ability of firms to speed up training depends on the
firm’s needs, personnel and previous training. Some
personnel are likely to be quicker learners or able to
spend more time than other personnel. Further, in some
cases if system use is similar to other systems that have
been used then training is likely to be able to go faster.
However, trying to speed training is potentially
dangerous, with a high cost of failure.
253
Chapter 14
ERP: The Backbone of

Electronic Commerce
254
Purpose of this Talk
• The purpose of this talk is to discuss how
“... ERP is a building block of E-business”
(Director of E Business Applications-3Com)
• Outline
– Building Blocks of E-commerce
– ERP and Customer Ordering
– ERP and Vendor Managed Inventories
– Integrating with Resellers
255
Building Blocks of E-Commerce
• E-commerce functions best if there is
– Real Time Information
– Ability to Communicate System to System
– System Use is Widely Available
• Can ERP meet those demands?
256
Real Time Information
• ERP provides a clearing house of real time
up-to-date information necessary for
e-commerce
– Inventory Information (so they know what is
available to sell)
– Pricing Information
– Configuration Information (necessary for
requirements planning)
257
Communication Between
Systems
• Historically, EDI (electronic data
interchange) has been the source of
communication of information
• Increasingly, WFT (web forms technology)
is the source of communication of
information
258
EDI
• EDI uses data in standard chunks, sequence and
format (e.g., invoices)
– EDI is typically done using a VAN (value added
network)
• EDI is so important that in one survey it was
found to be the added on to ERP systems more
than any other additional solution.
• Large-scale business-to-business customers will
integrate their purchasing and ERP systems with
our systems, so it will be completely computer-to-
computer. (Dell Computer)
259
Problems with EDI
• “Since EDI is really a serial process and basically
dictates certain times that you do things, we will
eventually have to migrate to an Internet/web-
based type of transaction with our suppliers and
our customers.” (Compaq)
• “Midsize and small businesses won’t have
elaborate hookups ..., so they’ll use Premier Pages
(WFT) as one of their predominant methods.”
(Dell)
• Traditional EDI is too costly. Increasingly firms
are using EDI over the Internet.
260
WFT
• WFT is typically used in an Internet/
Intranet/Extranet environment
• WFT may not be directly interfaced with
other applications and databases
• WFT use has exploded
261
Problems with WFT
• WFT is primarily useful in those settings were the
originator has only a few orders, but the receiving
firm has many orders.
• If the originator firm has many transactions then the
WFT ordering process may be too costly and time
consuming.
– Not only must the order be made using WFT to the vendor
by the customer, but then the originator must update their
own system.
– Thus, using WFT can cause double the data entry time,
and require a larger number of people.
262
Widely Available and Easy to
Access
• Ideally, users can access the ERP system
over the Internet in order to place orders.
– Fujitsu PC Corporation uses its ERP and other
configuration software to allow the user (either
a Fujitsu sales representative, a reseller or end
user) to order over the web.
• Cambridge Partners recently commented
that “at the moment you need to be in the
office to use ERP.”
263
Emerging Environment
• One approach has been to provide a different kind
of access to client server in an environment where
the user only needs a browser and Internet access.
• The user has Internet access to a time shared client,
that interacts directly with a server in an appropriate
standard environment.
– Using this approach, eliminates much of the
standardization that can be required at the user level in
client server computing. This approach also extends
classic client server to a timesharing model that is
analogous to mainframe computing.
264
ERP and Customer Ordering
• Facilitating commerce is one of the most
important tasks in commerce
• Unfortunately, it often is filled with errors.
– For example, Cisco found that 25% to 33% of
the orders made by faxes had errors in them.
• How could e-commerce solve the problem?
• What was the problem?
265
What is the Impact of Errors?
• Errors ultimately can delay the shipment or cause
an error in the pricing.
• As customers found out about errors in the orders,
they found it necessary to contact Cisco about
their orders to make sure that orders got in the
system correctly
– These requests required increases in Cisco’s personnel
in order to respond to customer inquiries, raising costs
and slowing down the process of getting goods to the
customer.
266
One of Cisco’s first E-Commerce
Applications
• Using the web, customers were able to gather
information from Cisco’s ERP system that would
allow them to track and price their orders to see if
they were correct and to see what the status was
– Information was available seven days a week and
twenty-four hours per day.
– This reduced Cisco’s need to have personnel available
to help track the orders and answer customer questions.
Customer support had been shifted to the customer.
267
What was the next step?
Should it have been first?
• Perhaps a more important question was
“How can you eliminate errors to begin
with?” In Cisco’s second year, their goal
was to eliminate the errors and allow the
customer to make anytime anywhere
ordering over the Internet
• Accessing information from the ERP
customers were permitted to originate,
configure, price and place the order.
268
How did they get customers to
use it?
• Cisco guaranteed that pricing and
configuration would be accurate, if the
customer used the web application. Within
only four months in 1996, 10% of the
orders were done over the Internet. By
1999, 85% of the orders came in over the
Internet
269
How did they do it?
• The system’s accuracy derives from the
“configuration engine” (CE). The CE
examines orders to find common errors. If
errors are found then the engine won’t let
the customer make the order. The CE
examines all available account information
and purchase information, in order to find,
e.g., incorrect part numbers.
• What else can be done to facilitate orders?
270
Problem
• Purchasing is done using Cisco’s system
and not the customer’s system so the
customer needs to put the same information
in their own ERP system.
271
Solution: Eliminate Need for
Duplicate Entry
• Cisco began working with their biggest customers
to integrate order information into the customer’s
purchasing system, e.g., the customer’s ERP
system.
• Once a day, new configuration, order and pricing
information is made available to those special
customers.
• Now those customers can place orders from the
familiar systems that they use every day.
272
ERP and Vendor Managed
Inventories (VMI)
• Under Cisco’s model, the customer does the
ordering.
• However, in many settings, the order
process has been shifted from the customer
to the vendor.
– For example, in the case of Procter & Gamble
(P&G), P&G ultimately monitored demand and
took responsibility for keeping its products on
the shelves
273
How is VMI Accomplished?
• VMI is accomplished by providing vendors real
time access to necessary information.
– Access must be electronic and the information must be
up-to-date or else the quality of the inventory decisions
can be limited, a particularly important limitation when
the vendor is managing the inventory.
• In an ERP-based world there are two solutions
designed to facilitate VMI:
– Integrating through access to ordering data
– Direct ERP to ERP connection.
274
Provide Vendor with Direct
Access to Data Warehouse
• “We’ve also custom-developed some tools
that sit on top of the SAP ... system to give
us a data warehouse capability. ... We
developed an EDI capability that feeds into
our data warehouse. Every week our
suppliers use EDI to report on their delivery
capability and status” (Compaq)
275
ERP to ERP Connections
• Colgate’s plan is to use its network to get a
peek at customer’s stockpiles, while
allowing its supplier to look at Colgate’s
inventory as well. The company is even
supplying its most critical suppliers with
computers loaded with R/3 system and
plugged directly into the Colgate system.
276
BTF or BTI vs. BTO
• BTF--Build to Forecast; BTI--Build to
Inventory
• BTO -- Build to Order
– Wait till there is an order before the goods are
built, e.g., computers.
– BTO replaces inventory with information
systems technology
277
BTO and ERP
• A critical part of BTO is the configuration engine,
that provides the detailed inventory items in the
product that is being built. For example, if a
computer is being built the configuration engine
would detail the processes, hard drive, etc.
• “The new configuration model links to Compaq’s
SAP model with information on capacity to build
and components on hand.” On-line real time
capability of ERP is necessary to provide the
information needed for BTO.
278
ERP to ERP BTO
• Now picture an integrated world, where
essentially the ... customer’s ERP system
automatically creates an order. It is by definition
correct. The order can’t be technically incorrect
because the systems are talking to each other --
there’s no human element. The order goes straight
down to the production line and, potentially 20
seconds later, the machine starts getting built, so
you’ve eliminated a terrific amount of cycle time.
279
ERP to ERP BTO
• On the back end of that, the moment the
machine is finished being built, it gets
shipped to the customer. The invoices get
electronically transmitted right back into the
customer’s system, so the credit collection
period starts immediately. The only limit is
how long it takes to physically build the
machine. (Dell)
280
Integrating with Outsourcers or
Resellers
• Rather than forwarding resellers’ orders

directly to the plants, orders can be routed
to a distributor’s ERP system. That way a
distributor can add features, such as
offering the reseller a discount if it
purchases a certain number of products.
(Cisco)
281
E-Commerce
• Effective e-commerce happens because of
information availability
• ERP provides a wide range of information
availability in real time
• ERP is the backbone of E-commerce
282
Chapter 15
ERP Risk
283
Types of Risk
• Risk occurs throughout the ERP life cycle
– Types of risk and extent of their impact vary as
we move through the ERP life cycle
• Three basic types of risk
– Technical
– Business
– Organizational
284
Risk Matrix
Technical Business Organizational
Deciding to
go ERP
Choosing an
ERP System
Designing
Implementing
After Going
Live
Training “Enterprise Resource Planning Systems”, D. E. O’Leary, 2000 ©

285
Risk Definitions
– Technical risk - risks arising due to
information processing technology, sensor
technology, and telecommunication technology
– Business risk - risks deriving from models,
artifacts and processes adopted as part of ERP
• Do they match? Are they consistent? Do partners
processes match up?
– Organizational risk - risks deriving from the
environment in which the system is placed -
including personnel and organization structure
286
What is the perceived risk of
ERP projects? (%’s)
• Risk Technical Business Organizational
• Very Low 10.5 4.5 1.5

• Low 22.5 23.0 8.5
• Moderate 39.5 32.5 18.5
• High 15.0 26.0 37.5
• Very High 11.5 14.5 35.0
287
Summary of Survey Findings
• Organization risk is the “biggest” risk -- the
most likely to be seen as “high” or “very
high”
• Business risk is the next biggest risk
• Technical risk is the smallest of the bunch,
with 72.5% rated very low to moderate.
– Technical risk is also the easiest to fix, e.g., just
choose more power.
288
Technical Risks
• As the firm adopts new technologies, there
are a number of risks that are common to
each phase of the life cycle
– Operating Systems
– Client Server Computing
– Network Capabilities
– Database
– Links to other systems
289
Operating Systems
• Operating systems include Unix, Linux,
Windows NT, Windows 2000
• Different systems require different
knowledge
– Need to employ people who understand that
operating system
• Microsoft’s SAP implementation was the
first to use NT as an operating system
290
Client Server
• Dominant form of computing used in ERP
• However, firm’s expertise may be with mainframe
computing
– As a result, there may be a limited set of personnel for
the new computing environment
• Mainframes are typically bullet-proof, whereas
client servers are frequently at the opposite end of
the spectrum in terms of controls.
291
Client/Server Configuration
Distributed Remote Distributed Remote Distributed
Presentation Presentation Application Data Mgmt Presentation
(Thin Client) (Fat Client)
Data Data Data Data Data
Management Management Management Management Management

Function Function Function Data
Management
Presentation
Function Function Function
Presentation Presentation Presentation Presentation Presentation

292
Network Capabilities
• Issues include security and capacity of the

network to facilitate use of the ERP system
293
Computing and Network Environment
Highest Risk
Integrated (Highest Potential Gain)
Stand Alone
Lowest Risk
(Lowest Potential Gain)
Not Linked Linked
Linked to Other Applications

294
Technical Risks and
Deciding
Choosing
ERP Life Cycle

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

Designing
Implementing
Going Live
Training
• Choosing an ERP system

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

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

Designing
Implementing
Going Live
Training
• Implementing and Going-Live

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

Designing
Implementing
Going Live
Training
• Training
– Risk that mainframe IS personnel might have to
be re-tooled to client-server technology
– ERP system may require different technical
people with different skills
299
Deciding
Choosing
Business Risks Designing

Implementing
Going Live
Training
• Deciding whether or not to do ERP

– Must have the resources to do the project
• Firms get going on ERP and then find that they
don’t have the resources.
• This typically means that either the organization
fails or the project fails.
– Must meet needs of the business
• What is needed by the firm’s partners?
300
Deciding
Business Risks
Choosing
Designing
Implementing
Going Live
Training
• Choosing an ERP System

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

Implementing
Going Live
Training
• ERP Design
– Design is a political process. As a result, there is a risk
that the design is sub-optimal.
– There is also the risk that processes designed by one
group in the organization will not interface well with
processes designed by other groups.
– There is the risk of project stopping
• This project would have changed how people work and
reduced staffing by half. It was the easiest thing to cut because
people did not have the stomach for it
302
Deciding
Business Risks
Choosing
Designing
Implementing
Going Live
Training
• Implementing
– The project will take longer than expected
– The project will cost more than expected
303
Deciding
Business Risks
Choosing
Designing
Implementing
Going Live
Training
• Going Live
– If the ERP is not working properly, there could
be problems with customers and suppliers.
– Hershey Foods Inc. lost most of their
Halloween, Thanksgiving and Christmas sales
due to a poorly functioning ERP system.
304
Deciding
Business Risks
Choosing
Designing
Implementing
Going Live
Training
• Training
– Training should provide users with process and
system information
– The main business risk is that timing is too
short and too late.
305
Deciding
Organizational Risks
Choosing
Designing
Implementing
Going Live
Training
• Deciding whether or not to do ERP

– Reportedly, one of the biggest risks is that top
management is not involved.
– Another risk is that the domain areas are not
involved and committed (Microsoft)
306
Deciding
Choosing
Designing
Implementing
Going Live
Training
• Choosing an ERP System

– Choosing the right consultant is the biggest
challenge (Risk)
307
Deciding
Choosing
Designing
Implementing
Going Live
Training
• ERP Design and Implementation

– Models of organizations are built into the
software, as a result, there are risks that the
models do not match (e.g., Microsoft)
308
Deciding
Choosing
Designing
Implementing
Going Live
Training
• Going Live
– Cultural issues that relate to “big R”
reengineering create organizational risk.
• One firm went from compensation based on number
of units sold to salary to accommodate the ERP
system
309
Deciding
Choosing
Designing
Implementing
Going Live
Training
• Training
– Employees not accustomed to data input will
take on the task.
– If users don’t know how to use the system, it
will fail.
– There may be inadequately trained personnel
after implementation due to poor training or
attrition.
310

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ERP4 All in One

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Chapter One

Why Study ERP Systems?

• SAP is used by more than 60% of the major

• ERP’s employ processes that are known to

• What is an “information asymmetry”?

• Increasingly firms are opening up their

Systems and Technology

Application Application Application

Presentation Presentation Presentation Presentation Presentation

Salesperson # Last Name Address ...

A row is a set of related attributes

0005 O’Leary 0001 Jones

Sales Order # Customer # Salesperson # ...

• Software has different versions

Database Management System

Enterprise Resource Planning

Sales & Distribution

ERP Data Input

Output: ERP Reports, Data

Technology Enabled vs. Clean

• Process design starts with a clean slate

• Personnel Reductions 44 20%

• Firms often specify speeding the closing

• Hard vs. Soft Data

Choosing an ERP System

• There are two basic approaches that are

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

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

• Vendors were asked ...

Designing ERP Systems

Customize Applications to fit business 5%

Reengineer Business to fit application 41%

“As Is” Requirements

“To Be” Analysis is

Extent of Change to Software

Failure because of Process Changes and

of Successful Failure because of IT

Extent of Change to Software

Designing ERP Systems

– MAPs that are not efficient or effective for a particular

• With Big Bang there is limited need to

• In a phased approach, workers gain

• With a phased approach, managers have a

• The linkage between doing the work and

• Detecting and responding to system bugs

Attribute Rating Weighting Product

Duration Cost Benefit

• < 50% 0.0 0.0 6.0

Learning & Internal Business

• There must be a budget and corresponding

• Based on 50 large United States Companies surveyed in August 1998.

ERP: The Backbone of

• Rather than forwarding resellers’ orders

Training “Enterprise Resource Planning Systems”, D. E. O’Leary, 2000 ©

• Very Low 10.5 4.5 1.5

Application Application Application

Presentation Presentation Presentation Presentation Presentation

• Issues include security and capacity of the

Not Linked Linked

Linked to Other Applications

ERP Life Cycle

ERP Life Cycle

• Choosing an ERP system