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IS6600 - 6

Enterprise Resource Planning (ERP)

Global Cases: Integration and Planning for the

Extended Enterprise

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Information Systems Change Business...

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Learning Objectives

• Explore systems integration• Appreciate potential problems

associated with the design, implementation and use of ERP systems– Culture, People, Process

• Case based illustration of what works and what fails in organizations

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Background• IT has the potential to integrate

information• IT can enable distributed people to

communicate with ease– Indeed, it is hard to imagine life without IT

• IT can extend the enterprise beyond its traditional borders– Li & Fung, Amazon, HSBC, cTrip, Alibaba,

SoleRebels, Adexus, etc.– These organisations are truly IT-dependent.– They also leverage IT to ensure their

competitive advantage

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However,…• IT-based change is not without problems• Indeed, the changes associated with

implementing major systems is a bit like ‘open heart surgery’, without the anaesthetic!– You are cutting away at the very core

(culture) of the organisation, implementing new systems and processes – while the organisation is still functioning.

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What is ERP?

Potentially integrated systems that• allow information to enter at a

single point in the process (e.g., at the materials receiving stage of a manufacturing process), and

• update a single, shared database in real time for all functions that directly or indirectly depend on this information.

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ERP…

• “provides a unified view of the business, encompassing all functions and departments by establishing a single enterprise-wide database in which all business transactions are entered, recorded, processed, monitored and reported”. (Umble & Umble, 2002)

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ERP• Administrative ERP usually focuses on

– human capital management– finance and – procurement

• Operational ERP often refers to:– business operational systems such as CRM,

SCM and product life cycle management (PLM).

• Operational and Administrative ERP are closely linked

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SAP Enterprise Solutions

Client/Server

LayeredArchitecture

Modular Design& “Plug-In”Capability

- Partner Solutions

Integration & Interoperability

Scalable Open

Systems

Enterprise datamodel/databases

Comprehensivefunctionality

EH&SEH&S

- Core Financials - Core Logistics - Core HR

- Industry Solutions

LEGEND

- Technology

SFASales Force Autom-

ation

“Configurable”PackagedSolution

ProcessOriented

GUI & Internet Enabled

TelecomExtensions

Source: SAP

FI Financial

Accounting

IM Investment

Mgt

IS-P

IS Retail

COControlling

RF / Mobile Dispatch

AFUDC

AMFixed Assets

Mgt

WF Workflow

IS REIS

Industry Solutions

IS-T CCS

IS-T / RF & NF

CAD AM/FM GIS

Workforce Mgt

EDI

PS ProjectsSystem

QM Quality Mgt

Network Mgt

PP Production Planning

MM Materials

Mgt

MSM Maintenance

& Service Mgt

HR Human Resources

BillingEH&S

SDSales &

DistributionCS Cable

Hand Helds & Bar

Coding

IA Imaging & Archiving

Multi-companySupport

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Why ERP?• To reap benefits from integrated data

– Including control over remote data• To create an integrated, not fragmented,

organisation– Which is centrally controlled, not broken

into factions– With organisational functions mapped onto

software• To reduce or eliminate organisational chaos

and redundancy

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For Example• CityU has an ERP called AIMS (v.8.5)

– Staff, Student, Alumni– Payroll, Leave, Benefits– Course management, Contacting students– Various tools, Reports, Documents, etc.

• The data in this ERP is integrated – there is a single set of databases, which all programmes/functions access.

• Moderate level of security

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AIMS

• Is designed to support many academic administrative functions

• It incorporates best practices– Are these culturally specific? How?

• Does everyone like AIMS? • Does anyone try to subvert AIMS,

or just ignore it?

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ERP is…• Commonly seen in

– manufacturing and production– finance, banking, trade, services, education

• Often perceived as expensive and large scale

• Adopted mimetically– “Because our competitors have it”

• Not always carefully planned– Integration is important, but ERP is much

more than integration alone– Poorly implemented ERP can destroy an

organisation

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ERP Failures

• Gartner Research stated “we estimate that 20% to 35% of ERP projects fail and that 50%-60% are considered compromised”.

• Failure usually means that the project did not achieve its business goals, or that it was late, its scope was limited or incorrect, or it was over budget.

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ERP Failures in China • Zhu and Ma (1999) estimated that the

ERP success rate in China was as low as 10%!

• “ERP implementation is especially challenging in China because of high implementation costs, technical complexity, lack of information technology infrastructure, lack of well-trained employees, lack of incentives to state-owned enterprises and with corporate culture” (He Xin, 2004).

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What about Integration?

• Integration is continuous, not finite.– Databases must be updated

continuously.– No more reports, just online

information– Most business functions can be

integrated• But while it is **relatively** easy to

integrate technology, it is **not at all** easy to integrate people and the way they interact with technology

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ERP Illustration

Order 2,000 MBs, CPUs, RAMs, …

Update Order Book

Track order completion

Ship Order Bill Customer

Update A/R

Issue Payment to Suppliers

Re-order miscellaneous supplies

Send Shipping date estimate to customer

ERP System Managed Process FlowCustomer Order: 2,000 PCs

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Industry Overview• ERP vendors like SAP and Oracle

sell a vision of an integrated package.

• Systems consultants are big and have ample resources

• Development of SME market segment.– This is recognised as an area of huge

potential, so the major developers are trying to ‘downsize’ their products

Major ERP Vendors in China

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Source: Credit Suisse China Technology Research, 2011

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ERP & Culture

• ERP packages may be cultural “misfits”

• Multiple sites make implementations challenges worse

• The “extended enterprise” must also be integrated

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SAP in Singaporean hospitals,…• Company-specific misfits

– System’s patient management module does not allow for billing individual patients on an installment plan

• Public sector-specific misfits– System uses internally generated patient ID,

instead of government issued ID number

• Country-specific misfits– Package did not provide reports needed for

government reports– System requires names entered in Western

name format (first, middle, last): operators had trouble parsing Indian, Malay and Chinese names

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Multi-Site Implementations Are Worse

G lo b a l B u sin e ss, In c.

P ro d uc t D ivis io n A

P lan t A P lan t B

G e rm a ny U K F ra n ce

P ro d uc t D ivis io n B P ro d u c t D iv is io n C

C E O

SAP OracleConsolidated InformationOne Face to the Customer

Local autonomy:• Legitimate country differences?• Or an obstacle to progress?• Cultural values.

??

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Organizational Implications of ERP Implementations

• Individual departments begin to recognise they are all part of larger business processes (“visibility”)

• Dissolves boundaries between previously independent units.

• Blurs job definitions (job broadening)

• Changes power structures• Standardises processes

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Organizational Implications of ERP Implementations

• Creates demand for:– team work,– process expertise, – business knowledge.

• Devolves authority/responsibility to front line employees.

• Hub, or multi-point? • How much chaos would you like?

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Hub-and-Spoke Integration

Source: www.elemica.com

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ERP Cases

• SinoForce (pseudonym)• 8 Chinese Cases (Survey)• Lenovo

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SinoForce• A local (HK) HQ-ed home entertainment

product manufacturer• Annual revenues – HK$5Billion +• Late 1990s – boom in DVD players

helped push the market share up.• Business processes still 1970s style

– Patched up, unintegrated, manual– The business was changing - fast

• New features in each product cycle• Retail costs down 80%

• Top Mgt realised that change was needed

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Oracle…• … selected as an ERP provider

– “because it is famous”– “because the software is available”– “because the consultants recommend it”

• Then the consulting firm died, … so they employed the lead consultant directly

• No customisation to reduce costs• After two years, the project was

stopped. HK$15M spent.• Many causes of the failure.

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Critical Failure Factors– Business practices grossly misaligned

with Oracle’s software– Considerable employee resistance– No attempt to re-engineer old business

processes• And so no real understanding of what they

wanted to change to• No one person at SF actually understood all the

business processes• Most unit managers spent all their time fighting

fires– Oracle was not just a process shift. It was a

cultural shift as well: centralisation and control.

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The IT Manager was a Dinosaur!

• He chose to focus only on IT issues– Ignoring the rest of the business

issues• He made no attempt to secure

buy-in from functional managers– Later on all the functional managers

refused to do anything that was requested

– The IT manager was powerless

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More Problems• Data conversion

– A very messy process• Useful data scattered all over the place• Much of it offline in old paper documents• Lots of errors, questionable integrity

• Skills– All staff needed to learn new skills

• But many lacked the education or willingness to do so

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And…

• All this time, the old legacy system was kept running– So the staff could just point at the old

system and say “Look! It works! It’s better!”

– There was no appreciation for the benefits of the new system at all.

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ERP in China

• Some common lessons from a survey of eight firms *– (4 Joint Venture; 4 State Owned

Enterprise)• Lenovo’s Positive Experience with

SAP

• * Martinsons, M.G. (2004), "ERP in China: One package, two profiles", Communications of the ACM, 47, 7, 65-68.

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Common Characteristics I• Seldom completed on time• Seldom exceed the planned budget• Lots of information resource allocation –

even though this is inconsistent with the usual ERP mantra of a core team

• Projects seldom improved cycle times or customer satisfaction

• Most benefits are reduced labour costs and inventory levels

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Common Characteristics II

• Projects initiated by the CIO/CTO usually fail.

• Projects initiated by top management usually succeed.

• CIOs/CTOs seldom have the political clout and business knowledge to resolve disputes between functional managers

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Private Venture vs SOE?Primary Project Aims

Improving Competitiveness through process streamlining & integration in PVs. Cutting costs and automating processes in SOEs.

Role of Top ManagementHands-on leadership to demonstrate commitment in PVs.

Tendency to delegate ERP responsibilities in SOEs.

Role of Steering CommitteeMore frequent meetings and sharper focus on

problem resolution in PVs

Role of ConsultantsGreater reliance on outside help and more

emphasis on ERP-specific expertise by PVs.

Scope of ImplementationBroader and more cross-functional ERP

application in PVs.

Pace of ImplementationFaster implementation with more

simultaneous modules in PVs.

Implementation ProblemsLess frequent, less serious problems in PVs, due to differences in employee reward systems

& data maintenance. SOEs characterised by Acc-Fin & Pur-Mfg squabbles

Evaluation & OutcomesPVs undertake more systematic evaluation and control,

achieving more substantial quality and SC improvements

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Lenovo’s SAP Experience 1

– Recognise that we need • a clear Information Strategy• to understand that an ERP may conflict with

our established procedures.– Use the ERP project as a way of

• re-engineering the business and improving internal management

– Many PRC organisations have poor information management

• creating both internal and external value chains

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Lenovo’s SAP Experience 2• Extensive knowledge transfer is

essential– From consultants to local champions– From local champions to all end users– It has to be done right – or errors will

perpetuate for ever• But Knowledge Transfer is not easy!• And many end-users are rather

“passive”, showing little interest in either information or the ERP.

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Lenovo – User Perspectives

• 联想刚开始上 ERP 时，大家都认为这只是一个软件系统，把 ERP 当做一个 IT 项目来做，

• When Lenovo began their upgrade to ERP, many people thought that it was only a software system. They classified ERP as an IT project and assigned the technical department to lead the project.

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Lenovo - Leadership• … 企业信息总管 CIO 的领导艺术对信息化的

推进非常重要，他（她）不必是信息技术专家，但他（她）一定要懂业务，懂管理。

• … the art of leadership of the CIO was critical to the informatisation process.

• S/he did not need to be a technical specialist but s/he had to have a good understanding of the business and its management.  

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Lenovo – Generalise, then Optimise

• … 牵涉到业务流程的时候，实际业务流程与 ERP业务流程还是有一些矛盾，创造性地解决这些矛盾非常重要。有些时候只能先按照 ERP流程去做，再逐步优化，也就是所谓的‘先僵化后优化’”。联想在实施在整个 ERP项目中，成功清理、规范和优化了 77个业务流程。

• … when dealing with business processes, the actual business processes conflicted with ERP workflows. Without creative solutions, we would not be able to solve these problems. Sometimes, we had to follow the ERP processes at the beginning, and then optimize them. This was what ‘first generalize and then optimize’ means. Lenovo finally successfully cleared, standardized and optimized 77 business processes in the whole ERP project.

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Implementation Success Factors 1

• This project is a business initiative, not IT!

• It involves strategic business decisions and major organizational changes– International and business culture– Corporate governance– Extended enterprise issues

• So, we need the company’s best people on the project, a strong project leader (VP)– With excellent project management skills.

• Continued commitment of senior management.

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Implementation Success Factors 2• We need all affected parties to “buy in”.

– They have to be a part of the project, not just users.

• Communication about expected change is essential; prepare the organization for change.– You can only change at the speed of the

slowest– If that is too slow, people have to go

• Smart contracts with vendors & consultants.– You control the budgets, not them

• Try not to customise.

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Broader Lessons for IT Based Org Change

• Top Management must be the change architects• IT cannot transform an organisation – IT enables

transformation• Enterprise-wide business-IT Partnerships are

needed • The pace of change must match the rate of

acceptance• Individual transformation is as important as

organisational transformation• Change champions must be diverse, yet work

together• Offshoring IT development sounds attractive, but

it is not just an IT project. It is a business issue.

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Consequences of Transformation• Organisational culture and identity

– There will be pressure for change here too

– People who support ‘the old way’ will feel left out, marginalised or discriminated against

• A new, more flexible set of cultural norms may be necessary– Guided by new principles, new values,

… and perhaps new managers?

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To Discuss • You need to look at the Nestlé case

– http://www.cio.com/article/31066/Nestl_eacute_s_Enterprise_Resource_Planning_ERP_Odyssey

• What were Nestlé’s original set of problems

• What kind of risks did they face in creating a solution?

• What lessons can we learn about large-scale systems change?

• What do you see as the critical success factors (CSF) for this kind of project?

• What else is interesting about this case?