Why ERP?

Individual Paper

SAI KIRAN PEDDAGOPU (BIS658-19)

STUDENT ID: 473380

04/04/2011

BIS 658S

BIS Department
Central Michigan University
Date: 04/04/2011
Why ERP? throws light on the basic concepts and architecture of ERP systems. The story is of

a manager in a furniture company who is charged with learning about and implementing a new

ERP system, SAP R/3 in his plant. Before going into the actual issues in the story let us start

with Introduction of ERP.

ERP is the process of integrating all the business functions and processes in an organization to

achieve numerous benefits. First, a single point of data entry helps to reduce data redundancy

while saving employee’s time in entering data, thereby reducing labor and overhead costs .

Second, the centralization of information, decision-making, and control leads to increases in

efficiencies of operations and productivity, as well as coordination between departments,

divisions, regions, and even countries. This is especially true for multinational corporations

(MNC), in which global integration could result in better communications and coordination

around the world. The global sourcing and distribution of parts and services could also provide

appropriate benchmarks for operations around the world. Third, the sharing of a centralized

database provides business managers with accurate and up-to-date information to make well

informed business decisions. Further, it reduces data redundancy while improving data integrity

at the same time. Fourth, functional integration will consolidate all sorts of data, such as

financial, manufacturing, and sales, to take advantage of bulk discounts. ERP is especially

important for companies who are “intimately connected” to their vendors and customers, and

who used electronic data interchange (EDI) to process sales transactions electronically.

Therefore, the implementation of ERP is exceptionally beneficial to businesses such as

manufacturing plants that mass-produce products with little changes (1). Nevertheless, the

revolutionary and innovative ERP software system quickly expands into other business areas

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such as finance and retailing. ERP also provides companies with a competitive advantage over

their competitor.

Billy is a manager at a furniture company at North Carolina. He has been chosen as the primary

person to lead the internal investigation of SAP by his chairman Mr. Mcdougal. The main reason

behind this is that Mr. Mcdougal is in a position to acquire his brother’s company which is

located in Ohio. The Ohio plant is successfully implementing the ERP software and Mr.

Mcdougal wants implement the same in his plant located in North Carolina. For this he asked

Billy to carry out the investigation on ERP because he felt that as a manager Billy would possess

the required skills for carrying out the investigation and also billy has some outside contacts such

as the professor (who has thorough knowledge about ERP systems) who can help him in his

investigation.

Billy went through the learning process for some days. He attended several seminars to gain

thorough knowledge about ERP. Billy came to know that implementing ERP in an organization

requires the following steps to be performed in the correct order. The steps include:

1. Education and training. Educate everyone to understand what is going to be achieved with the

new system. Additional education should include Total Quality Management, Change

Management Strategies. Train process owners (department managers) in how to use the system.

Have them train the users.

2. Business Analysis to streamline the current processes.

3. Planning, training and education for the IT Support staff to understand the new hardware,

software and network imperatives.

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4. Business Process Redesign (Match business processes with the new software).

5. Software Modifications only when Business Processes that do not differentiate you in the

marketplace are not supported by the software.

6. Business Simulation (on a department level and a global level).

7. Go Live - (a phased approach may be indicated based on the amount of change dictated by the

new system.

8. Implementation Review (Performed after users are competent with the system. The goal is to

ask the software vendor to suggest better ways to use the system.).

Keeping all this in mind Billy made a recommendation to Mr.Mcdougal of not implementing

SAP R/3 in the North Carolina Plant at least not so early. But Mr.Mcdougal went against the

recommendation and decided to implement SAP R/3 in his company. This strategy would

backfire and the company faced huge difficulties in its manufacturing process. The main reason

for this in my view would be that Mr. Mcdougal failed to consider the main issues that are

involved before integrating the business functions.

Before integrating business functions, managers must consider several important issues that will

help them decide whether an ERP integration is the right choice for their organization. These

pertinent issues are classified under the following categories: fundamental issues, organizational

change process, people, and the different approaches to implementing ERP.

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Fundamental Issues :

First, managers must consider the fundamental issues of system integration by analyzing the

organization’s vision and corporate objectives. For instance, does management fully understand

its current business processes, and can it make implementation decisions in a timely manner? Is

management ready to undertake drastic business process reengineering efforts to yield dramatic

outcomes? Is management ready to make any changes in the structure, operations, and cultural

environment to accommodate the options configured in the ERP system? Is the organization

financially and economically prepared to invest heavily in an ERP implementation?

Next, management needs to decide on the key related implementation and business issues and

how to proceed. Certainly, ERP is not suitable for companies that are experiencing rapid growth

and change in an unstable environment, are undergoing change in the corporate management and

philosophy, or that will be experiencing merger or liquidation in the near future. Understandably,

there will be more foreseeable system integration problems if one of the merging companies is in

the midst of an ERP upgrade because it must deal with scalability, a new IT infrastructure, and a

different corporate culture simultaneously. Further, ERP integration is not recommended for

companies which require a lot of flexibility to succeed or which manufacture products that are

constantly changing. Similarly, companies that have very little experience with formal

information systems or have constantly changing information systems requirements will not

benefit from an ERP implementation.

Finally, organizations need to exploit future communication and computing technology to

integrate the ERP system with e-business applications. Oftentimes, additional new hardware and

specialized professionals are needed to run the powerful software system. Depending on the size

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of the company and the modules installed, the cost of implementation can range from one million

to five hundred million dollars, and will take as long as two years for a mid-size company and

seven years for a large, multinational corporation to complete.

People :

People-related issues such as corporate philosophy and leadership style can play an important

role in the ERP implementation process. Research has concluded that active top management

support and commitment are essential to the success of any system implementation. Frequently,

executive councils and steering committees consisting of top managers are developed to plan and

manage the IT initiatives. Such senior managerial involvement tends to increase the optimization

of IT business values.

Employees can be quite wary of any kind of change in the business processes, particularly during

periods of economic downturn. Ill-trained employees who fight the changes in the business

process tend to be poor performers. Therefore, to increase the chance of a successful ERP

implementation and to reduce users’ resistance to change, end users, especially those who are

very knowledgeable with the operations, must be involved in all stages of the implementation

process. Employees must also be educated about the ERP installation. Such educational

endeavor should include a concise introduction to the basic concepts and architecture of ERP

systems, including actual screen shots of the function modules. During these training sessions, it

is important to discuss the managerial issues involved and to build a basic understanding of the

integration concepts prior to the actual installation of the ERP system. Further, any Business-to

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Business initiatives, reengineering projects, alliances, and the introduction of new technologies

should also be addressed.

Project managers must take charge of the implementation process at all times. They must

oversee the reengineering of the key business processes, reassign job responsibilities, restructure

the organization’s chart, and redefine work relationships. Further, they must also learn how to

manage the software vendors and any outside consultants.

The Organizational Change Process

ERP implementation requires organizations to reengineer their key business processes in

fundamental ways, revamping old ways of conducting business, redefining job responsibilities,

and restructuring the organization. For major multinational corporations (MNC), the ERP

systems must be customized to address global issues where different countries have different

ways of doing business, and to incorporate country-specific business practices pertaining to

accounting, tax requirements, environmental regulations, human resources, manufacturing, and

currency conversion into the integrated systems. While integrating the information systems

across various countries, three types of misfits (relating to data, process, and output) can occur

due to incompatibilities between software functionality and organizational requirements as well

as differences in cultural and regulatory environments. The unique context of each country in

which an organization operates must be carefully enmeshed into the traditionally Western-biased

business practices inherent in the ERP systems.

Diese, et al. (2000) describes an eight-level process that managers can use to manage change.

The first step is to create a comprehensive change vision and to make the vision operational.

Then, a change strategy is defined to assess readiness change within the organization, to select

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the best change configuration, and to establish change governance. The third process is to

develop leadership, in order to lead the change program and to develop leadership capability.

Commitment from teams is built through communication, managing resistance, and transferring

of knowledge and skills. The fifth process is to manage employee and stakeholders’

performance by establishing needs, and implementing performance management and people

practices. Business benefits are delivered through the building of business cases, and

quantifying and sustaining benefits. The next process is to develop culture in the organization by

understanding the current culture, and then to design the target culture and to implement cultural

change. The final process is to design the organization by understanding the current

organization, and then to design the target organization and to implement organizational change.

Thus after going through all the above issues we can come to a conclusion that An ERP software

system is a significant investment in time and resources, and committing to this sort of

investment for the sole reason that other businesses (Ohio Plant) like yours are making this

investment is not a logical conclusion. Our goal at this point may be to find the right ERP

solution for your business, but it is important to keep an open mind. We should not invest in such

a wide-reaching system if your business could be better served through process improvements or

a redesign of your organizational structure.

Before we embark on the ERP planning process, it is useful to perform a process study on the

existing functions within our business. This evaluation will act as a baseline from which you can

evaluate potential improvements during the ERP planning process and actual improvements after

the ERP system integration.

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According to my view Mr. Mcdougal took the wrong decision of implementing SAP software in

his company and that too so suddenly.

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 REFERENCES

1. Brady, Joseph, Ellen Monk, and Bret Wagner (2001). Concepts in Enterprise Resource

Planning. Boston, MA: Course Technology, Inc.

2. Buck-Emden, Rudiger, (2000). The SAP R/3 System: An Introduction to ERP and Business

Software Technology. Reading, MA: Addison-Wesley.

3. Diese, Martin, et al. (2000). Executive’s Guide to E-Business: From Tactics to Strategy. New

York, NY: John Wiley & Sons, Inc.

4. Jacobs, Robert, and Clay Whybark (2000). Why ERP? A Primer on SAP Implementation.

New York, NY: Irwin McGraw-Hill.

5. Lau, Linda K. (2003). Implementing ERP Systems Using SAP, Proceedings of the

14thAnnual Information Resources Management Association (IRMA) International Conference,

Philadelphia, PA, May 18-21, Information Technology and Organizations: Trends, Issues,

Challenges, and Solutions, 732-734.

6. Radcliff, Deborah, and Alice LaPlante (Nov 29, 1999). When Merger Mania Hits ERP,

Computerworld, 44.

7. Ross, Jeanne, and Peter Weill (2002). Six IT Decisions Your IT People Shouldn’t Make,

Harvard Business Review, 87.

8. Soh, Christina, Siew Kien Sia, and Joanne Tay-Yap (2000). Cultural Fits and Misfits: Is ERP

a Universal Solution? Communications of the ACM 43 (4), 47.

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