ERP Systems

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Enterprise systems integrate business activities across the organization and with business partners

Chapter 7 - Enhancing Business Processes Using Enterprise Information Systems

Chapter 7 Learning Objectives

Core Business Processes and Organizational Value Chains

Explain core business processes that are common in organizations.

Enterprise Systems

Describe what enterprise systems are and how they have evolved.

Enterprise Resource Planning

Describe enterprise resource planning systems and how they help to improve internal business processes.

The Formula for Enterprise System Success

Understand and utilize the keys to successfully implementing enterprise systems.

Core Business Processes and Organizational Value Chains

Explain core business processes that are common in organizations.

Enterprise Systems

Describe what enterprise systems are and how they have evolved.

Enterprise Resource Planning

Describe enterprise resource planning systems and how they help to improve internal business processes.

The Formula for Enterprise System Success

Understand and utilize the keys to successfully implementing enterprise systems.

Organizations and Functions

Corporations are made up of different functional areas.

These different functions need to work together to maximize the efficiency and effectiveness of the organization.

Core Business Processes

Order-to-Cash

The process of selling goods or services and collecting revenue for them

Procure-to-Pay

The process of ordering goods or services and paying for them

Make-to-Stock/Make-to-Order

The process of manufacturing goods, either based on forecasts or based on orders

There are several core business processes every company has and must execute.

These include Order-to-cash and Procure-to-Pay.

Manufacturing companies also have the Make-to-Stock and Make-to-Order processes.

Core Business Processes: Order-to-Cash

Functional Areas in Order-to-Cash

Marketing and Sales

Accounting and Finance

Manufacturing and Operations

The Order-to-Cash process includes every aspect of receiving an order, fulfilling it, and receiving payment for the same.

It involves multiple steps as well as multiple business functions to be completed successfully.

Organizational Activities Along the Value Chain

A corporation is comprised of both core and support activities.

Core activities are focused on the actual value creation processes within the organization, including Inbound Logistics, Operations and Manufacturing, Outbound Logistics, Marketing and Sales, and Customer service.

These core activities form the organization’s “Value Chain”.

Different industries can have significant variance in their core activities.

Support activities are those activities that enable the core activities (and the other support activities) to function efficiently and effectively, but don’t directly create value for the customer.

Enterprise Systems

Core Business Processes and Organizational Value Chains

Explain core business processes that are common in organizations.

Enterprise Systems

Describe what enterprise systems are and how they have evolved.

Enterprise Resource Planning

Describe enterprise resource planning systems and how they help to improve internal business processes.

The Formula for Enterprise System Success

Understand and utilize the keys to successfully implementing enterprise systems.

The Rise of Enterprise Systems: Stand-alone systems

When organizations first started using information systems, they typically implemented proprietary systems from multiple vendors on a department-by-department or process-by-process basis.

This resulted in multiple information systems optimizing the practices of each department or process independent of the rest of the organization, with a marked lack of data-flow between business departments or processes.

This lack of continuous data-flow created large inefficiencies.

These older stand-alone systems are now typically referred to as legacy systems, reflecting their advancing age and lack of upgradability.

The Rise of Enterprise Systems: Integrated Enterprise Systems

Enterprise systems perform all the functions legacy systems used to perform, but with the added benefit of being integrated across the value chain with a consolidated database.

This ensures all departments and processes have access to both their internal information and the information of upstream and downstream processes and functions.

This integrated approach streamlines operations across the entire value chain, eliminating road blocks and enhancing efficiency.

Improving Business Processes Through Enterprise Systems: Software Types

Packaged Software

Also called “off-the-shelf”

May or may not require significant configuration

Enterprise software often divided into modules

Special functionality may require customizing the packaged (or vanilla) version

Custom Software

Designed and developed exclusively for a specific organization (Chapter 9)

Packaged software is preprogrammed software a business buys to meet business needs. It may range from simple word-processing software to very complex enterprise systems.

Simple software is typically used as-is, while complex or enterprise software requires configuring.

When configuring alone won’t meet a businesses unique needs, either custom software can be written from scratch, or an existing module can be customized by the software vendor.

Customizing software typically entails significant cost, and often creates a version that cannot be upgraded without reprogramming the customizations.

Hence, a cost-benefit analysis needs to be performed before undertaking any customizations to ensure the value is really there.

Improving Business Processes Through Enterprise Systems: Best Practices

Packaged Enterprise Software

Typically Designed to operate with Industry Standard Best Practices

May not accommodate unique organizational practices that provide a competitive advantage

Modifying Enterprise software can be a long and costly process depending on the inherent flexibility of a given system

Implementing enterprise software provides an opportunity for organizations to migrate under-performing processes to industry best practices, which are typically built into the software implementation.

However, if an organization has unique practices which are superior to industry standard best practices, the enterprise software may be unable to support them without significant customization.

An organization needs to understand how it is performing against industry benchmarks to know when it should adopt industry best practices and when it should keep unique business practices in place.

Improving Business Processes Through Enterprise Systems: Benefits & Costs

56% of Implementation costs over budget

Average over budget is by US$2Million

Typically costs underestimated

Scope expanded

Unexpected technical & organizational change management issues

Many potential Costs & Benefits make implementation planning complex & uncertain

Enterprise systems are, by their very nature, highly complex with significant impacts throughout an organization.

This complexity and wide impact makes budgeting for their implementation and forecasting benefits both complex and difficult.

As a consequence, there are often unanticipated costs that can push an implementation over budget.

Enterprise Resource Planning

Core Business Processes and Organizational Value Chains

Explain core business processes that are common in organizations.

Enterprise Systems

Describe what enterprise systems are and how they have evolved.

Enterprise Resource Planning

Describe enterprise resource planning systems and how they help to improve internal business processes.

The Formula for Enterprise System Success

Understand and utilize the keys to successfully implementing enterprise systems.

Integrating Data to Integrate Applications

It is difficult to integrate applications when all the overlapping data needs to be continuously passed between them.

ERP systems resolve this be using a common integrated database to support the information needs across the system, ensuring that data is always consistent and shared in common.

Responding to Compliance and Regulatory Demands

ERP systems have built-in control systems

Mirror organizational processes

Support segregation of duties

Monitor business activities

ERP systems were designed for organizations needing to meet modern regulatory requirements; they have the functionality necessary to support the implementation and documentation of internal controls, procedures, and policies.

Choosing an ERP System

ERP Control

Centralized or Decentralized across business units

Policies and Procedures

Do they need to be flexible?

Do they need to be standardized?

ERP Business Requirements

What modules are available?

How well do they meet specific business needs?

Choosing an ERP system is a difficult task which needs to take into account both business needs and system functionality.

The system selected must support the business management practices of centralized or decentralized control, which often hinges on how much flexibility and independence individual business units have.

In addition, each ERP system has different built-in functionality which will meet business needs to varying extents.

The ERP system selected should met all the business needs, and should be particularly good at meeting the most critical business functions.

Key Players: The Titans of ERP

Oracle

Best known for database software

Grew ERP capabilities both through in-house development and acquisition

18% of the ERP market in 2010

Microsoft

Gained ERP software through acquisition

11% of the ERP market in 2010

SAP

German company founded in 1972

Many of the worlds largest companies use SAP software

24% of the ERP market in 2010

Enabling Business Processes Using ERP Core Components

ERP systems support core business processes

Often Packaged Industry Specific ERP versions

Support Industry Specific core processes

Healthcare

Automotive

Construction

Retail

Specialized manufacturing industries

ERP systems often have versions tailored to individual industries, with customizations already integrated to support the core business processes as practiced in that specific industry.

Implementing an industry specific ERP package, which includes all the core components that industry needs, can simplify and streamline ERP selection and implementation.

Core Business Process Support

This is a screenshot of the Microsoft Business Dynamics NAV system supporting the Order-to-Cash Process.

ERP Installation

Configuration is critical

Specifying the data to be in the underlying database

Thousands of decisions related to business processes

Companies need to understand how they do business to implement and configure their ERP system

All ERP systems require extensive configuration to map to a specific business. A company needs to understand its processes to make the thousands of necessary configuration decisions. Often, companies will hire outside experts to help them understand their own business and then implement the ERP based on this understanding.

ERP Limitations

ERP systems are internally focused

Managing the Value Chain requires externally focused components (Chapter 8)

ERP systems, for all their benefits, are essentially focused on the internal workings of an organization.

To achieve benefits in external functions such as Supply Chain Management or Customer Relationship Management companies need to implement externally focused modules or systems designed to handle that aspect of the business.

Who’s Going Mobile: Big ERP Systems Embracing Small Mobile Devices

ERP users originally used client PCs to access ERP systems

Mobile ERP now being developed to allow users to access ERP systems on the road

There are many benefits to mobile ERP

Improved service quality

Improved productivity

Strengthened customer relationships

Improved competitive advantage

Improved data timeliness and accuracy

The Formula for Enterprise System Success

Core Business Processes and Organizational Value Chains

Explain core business processes that are common in organizations.

Enterprise Systems

Describe what enterprise systems are and how they have evolved.

Enterprise Resource Planning

Describe enterprise resource planning systems and how they help to improve internal business processes.

The Formula for Enterprise System Success

Understand and utilize the keys to successfully implementing enterprise systems.

ERP Recommendations

Recommendations

Secure executive sponsorship

Get help from outside experts

Thoroughly train users

Take a multidisciplinary approach to implementations

Look beyond ERP

ERP installation is a complex and involved process. It needs top level support in the form of active executive sponsorship. The lack of executive support is believed to be the primary reason ERP installations fail.

Beyond executive sponsorship:

Hiring experts who know how to implement ERP systems is very beneficial. Companies may only install an ERP system once a decade, while Experts do it for a living, and understand the unique challenge specific ERP systems may present.

Users need training before and after the implementation to ensure they can use it when deployed, and then as they become proficient can learn advanced features specific to their job functions.

When implementing an ERP system, it typically affects large portions, if not the entire organization. Involving all the business functions affected helps ensure needs are met and buy-in is achieved.

End of Chapter Content

Secure Executive Sponsorship

Executive Sponsorship is Critical

Primary reason for ERP failure

Critical for buy-in

Dictates resource availability

Necessary to authorize business improvements

Key to removing obstacles

Executive Support and Sponsorship is the most critical aspect of a successful ERP implementation.

It dictates whether managers will prioritize the implementation and if the required resources will be available.

When opportunities arise to make process changes and improve the business these changes need authorization to be implemented.

When unexpected roadblocks crop up, executive sponsorship can pave the way to success.

Get Help from Outside Experts

ERP systems are very complex

Typically IS departments aren’t familiar with new systems

Experts can help

Specify needs

Select a suitable vendor

Manage the implementation project

Provide technical expertise

ERP systems are typically very large and complex, and may take years to master. By hiring experts to help select a vendor, then help manage the vendor and execute the installation, companies can leverage the knowledge of experts who do implementation for a living without having to develop the expertise in-house.

Thoroughly Train Users

ERP systems are complex from the user perspective as well

Training costs are often poorly judged

When systems go live it takes employees time to regain productivity

Proper training can alleviate concerns

Proper training can mitigate productivity loss

Proper training can set expectations

Training is critical to ERP success but often poorly planned for and executed.

ERP systems are more complex to use than stand-alone systems, and users need to be prepared for that.

Proper training can, not only show users what to do, but can prepare them for expected hurdles like a temporary drop in productivity as they get up to speed and become proficient with the system.

Take a Multidisciplinary Approach to Implementations

ERP systems often affect the entire organization

The entire organization is a stakeholder

The entire organization needs involvement

Failure to have representatives can result in unmet critical needs

The project team can’t be experts in every aspect of user needs

Departments may become hostile if left out of the implementation and needs assessment

ERP systems affect entire organizations. To ensure that the needs of the organization are met, representation is needed from all affected parties. This can, not only surface critical requirements, but can also ensure that there is buy-in and understanding of the system and the implementation goals.

Evolving the ERP Architecture

One trend is to evolve the ERP architecture away from the large installations to smaller installations that can also take advantage of online services. This approach, leveraging a “Service Oriented Architecture” or SOA, allows online services to take over non-critical aspects of the system that support the business, simplifying the remaining requirements and installation.

Value Systems: Connecting Multiple Organizational Value Chains

Companies purchase goods and services from other companies, and often sell to other companies as well.

Multiple organizations working together form a value system.

It is necessary for information to flow between companies for the smooth and efficient operation of the value system.

When companies tie their information systems together, they can send and receive information with other companies up and down the value system.

Supporting Business Processes: Internally Focused Systems

Internally focused systems integrate and automate information flows between departments and processes, streamlining operations and facilitating smooth business operations.

Supporting Business Processes: Externally Focused Systems

Externally focused systems focus on improving communication and coordination with other businesses in the overall value system.

These externally focused systems include Supply Chain Management and Customer Relationship Management systems, which will be specifically addressed in Chapter 8.

Improving Business Processes Through Enterprise Systems: BPM

Business Process Management

Actively managing business processes

Using a structured approach

May be ongoing

May include radical process reengineering

Business Process Management involves actively managing a companies business processes.

This typically includes functions such as process modeling, redesign, and improvement.

At some points in time, when companies have fallen behind their competition, a complete reengineering of the company may be necessary to make the radical changes necessary for it to be competitive again.

When properly supported by management with realistic expectations and clear goals, BPM can be very beneficial.