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Enterprise Resource Planning

Enterprise Resource Planning. OEMBA Spring 03. What is ERP?. Software that links applications across enterprise with shared data Most notable characteristics? Expensive, complex, difficult to implement. Major Players?. SAP: Systems, Applications and Products (30%)

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Enterprise Resource Planning

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  1. Enterprise Resource Planning OEMBA Spring 03

  2. What is ERP? • Software that links applications across enterprise with shared data • Most notable characteristics? • Expensive, complex, difficult to implement

  3. Major Players? • SAP: Systems, Applications and Products (30%) • R/2 – Mainframe integration of financial and operational applications (1979) • R/3 – Unix-based client-server (1994) • Oracle (10%): Financials • Peoplesoft (7%): HR • JD Edwards (10%) • Baan (6%)

  4. Why move to ERP? • Stabilize and improve business processes • Standardize manufacturing (21%) • Reduce inventory • Improve level of systems integration • Financial (36%), customer orders • Improve IT responsiveness & information quality • Y2K

  5. Key Issues/Risk? • Implementation and Cost • Standardization of business processes • Diminish competitive advantage? • End-user acceptance of process change? • Typically requires new technologies • Especially if migrating from legacy system • History of budget/schedule overruns • High “not successful” rate – 50-70%

  6. What drives cost? • Implementation: 3-10 times software cost • Shortage of experienced people • Only needed for “implementation” • Must upgrade underlying infrastructure • Need “middleware” • Change business processes • Existing processes are not “enterprise-wide”

  7. Other “Hidden” Costs • Training – most underestimated budget item • Integration and testing • Customization • Easy to change business process to match software • Data conversion • Using best and brightest on project • Continual implementation

  8. Cisco Case • Who is Cisco? • Are they an “Information age” company? • Industrial Age: Profit from design, production and sale of tangible products • Information Age: Creating value with technology

  9. Cisco Case • What was their corporate strategy? • Core competencies” • “Customer intimacy” • One stop Shopping - broad product line • Working toward uniform industry standards • Maintain key alliances • Growth through acquisition • Outsource manufacturing (not a core competency)

  10. Cisco • What “triggered” Cisco to move to ERP? • Traditional IT organization did not align with business strategy • Cost Center • Internally focused • Current systems lack flexibility • System capacity will not accommodate growth • Legacy environment failed causing the need for immediate action • Research possibility of an integrated systems application approach • Design the entire IT system then adapt organization structure to support this

  11. Cisco • Resulting ERP System – standardized • 100% UNIX at the server level • 100% Windows NT at the LAN level • 100% ‘Wintel” at the client level • 100% Oracle at the database level • 100% TCP/IP for worldwide network • Standardized software • Web as standard user interface

  12. Cisco • Stated Cost • ERP Investment: $15 m • Web-enablement investment” $100 m

  13. What were the “real” ERP costs? • $15 million, 9 months • Only 20 people on “core” team • Additional people (total of 100) • 80 people * 160 h/mon * 8 mon * $50/h = $5.12m • IT “decommitted” other projects • 100 IT people * 80% committed * 4.5 months * 160 h/m * $50/m = $2.9m • Hardware contract: avoided undersize costs • $15m * 32% hw expenditure * 50% avoided = $2.4m

  14. Key Components of Strategic I-Net? • Real-time messaging • Data warehouse • All workers had client • Browser interface • Web site (18 million pages) • Self-service • Information transparency • Extended enterprise • Minimal knowledge management

  15. “Best people” “Can-do” attitude Mgt Commitment High priority Rapid Implementation Big Bang (not phased) Prototyping Minimal modification strategy Focus on standards Vendor alliances Financially strong Hungry Included on teams Experienced consultants Capability-based hardware contract Cisco: Considers ERP successful.What were key characteristics of implementation?

  16. What were key obstacles? • Poor Testing Strategy • Immature software • Undersized technical architecture

  17. What were the benefits? • After 2 years, identified $550 m in benefits • B2B Sales: 0 in 1996, $18 billion (92%) in 2000 • Reduced Cisco’s cost by 60%, customers by 20% • 80% of customer service requests handled electronically • 65% direct ship (from manufacturer to customer) • Internal EIS • Desktop training

  18. Tektronix • Who is Tektronix? • Information Age vs Industrial Age • What was their corporate strategy?

  19. Tektronix • Analyze the Tektronix infrastructure before ERP • Lack of integration between systems • Problems • Lack of global standards • Relics from when company had 26 divisions • Business Implications • Could not ship immediately – no inventory visibility beyond Beaverton, manual expediting • Multiple entries for each order – errors • Takes weeks to close books

  20. Tektronix Infrastructure (cont’d) • Old Technology • Problem: 1970’s proprietary technologies • Implications: Expensive and difficult to integrate • Non-Standard Business Processes • Problem: Different all over the world • Implications: lost efficiencies • Is Tektronix’s situation typical?

  21. Managing Implementation Risk • What concrete steps did Tektronix take to manage the risks involved in such a large and difficult project?

  22. Risk Management (Cont’d) • Coherent guiding vision • Separability of business • Three divisions are very different • Requirements of one should not drive another • Leverage Shared Services • Consolidate common functions • Need comparable performance measures • Plain vanilla • Minimize changes to ERP software • Change business processes, not the software

  23. Adaptive Implementation • Contrast Cisco and Tektronix implementation approaches. • What are the pluses and minuses of the staging approach? • Was the staged approach a better idea than the big-bang approach for Tektronix?

  24. Characteristics of Adaptive Implementation • Iterative • Outcomes and interactions tested as they occur • Fast cycles that deliver value • Deliver functionality to end-users early in project • Incorporate feedback • Highly skilled project personnel • Must be capable of making mid-course adjustments • Resist ROI

  25. Resist ROI • Allen’s statement • “There was hardly any desire on Carl Nenn’s part to do some big return on investment analysis…” pg 3 • “There are a lot of operational improvement initiatives going on around here. How much cost savings is directly related to the system? I don’t know, and we don’t really care. We know ERP is an enabler, and [these improvements]] wouldn’t have happened without it.” pg 12

  26. Standardization and Customization • How do you manage the perceived need to customize the system? • “We’re special” vs resistance to change? • Local optimization vs company-wide efficiencies? • Issues with customization • Complex and expensive • Generally wiped out when upgrade

  27. How did Tektronix deal with customization? • Used “wrappers” • Layers of code outside the system code • Basically used hooks into the system code • When upgrades, had to account for changes in these hooks, but majority of logic was intact • Today, would use XML • More lines of code in the wrappers than in the ERP product

  28. Was ERP a success at Tektronix? • Relative to Cisco? • What about lack of ROI?

  29. Lessons Learned • Clear definition with a short term goal can drive a multi-divisional solution • adequate expert resources needed • one driver with corporate & divisional sponsorship • IT must be tied to corporate strategy otherwise it will be viewed as ineffective • Partnerships are critical for long term success • Clear sense of vision and strategic fit narrows choices and guides platform development

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