INFO245: Introduction to Enterprise Resource Planning ERP Chapter 7: Deciding to go ERP

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INFO245: Introduction to Enterprise Resource Planning ERP Chapter 7: Deciding to go ERP

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Title: INFO245: Introduction to Enterprise Resource Planning ERP Chapter 7: Deciding to go ERP


1
INFO245Introduction to Enterprise Resource
Planning (ERP)Chapter 7 Deciding to go ERP
2
Deciding to Go ERP Chapter Overview
  • Basic question What are the business rationales
    for ERP?
  • Why are we doing this? How do we know that the
    benefits outweigh the costs?
  • Feasibility? How doable is this?
  • What is the business case for ERP?
  • How do rationales relate to design and success?
  • How do firms measure rationales?
  • How does a firm finally decide to go ERP?
  • Why are firms not or only partially using ERP?

3
ERP Life Cycle
  • The ERP Life Cycle is composed of 5 major Phases
  • Grouping of related activities
  • Three major activities
  • Analysis understanding business needs how do
    we want configure the software (choose from
    software options)
  • Design prototyping, pilots, etc.
  • Implementation final configuration, testing
    (lots), and rollout
  • Two additional phases
  • Project planning
  • Support

4
Planning phase Business Rationale
  • Define business rationale(s) for going ERP
  • Helps set clear, unambiguous objectives
  • Why?
  • Makes the firm commit necessary resources
  • Provides direction for ERP design focus
  • For example, business process improvement
  • Determine how success will be measured
  • This is sometimes critical to whether or not the
    project is approved
  • Metrics examples?
  • Ensure senior management on board
  • Why?

5
Planning Phase Feasibility
  • Feasibility analysis A process to assess
    likelihood of project success. The dimensions of
    the analysis are
  • Economic
  • Organizational and cultural
  • Technological
  • Schedule
  • Resource
  • Mitigate risks of the project
  • Must be kept at a high level

6
Business Rationales
  • Categories
  • Technology Replace outdated hardware and
    software with more scalable, flexible and
    maintainable technology
  • Business Process Replace inefficient legacy
    processes with new processes that are grounded in
    best practices
  • Strategic Implement a technology platform that
    gives the organization abilities it did not have
    before
  • Competitive Provide the organization a better
    ability to compete in their industry

7
Technology Rationales
  • Year 2000
  • The Y2K bug
  • Quoted Y2K costs 1 per line of code (typical
    large organization 10s of millions of lines)
  • Multiple distinct, disparate systems
  • Multiple vendors and platforms
  • Inability to access and share critical
    information
  • Expensive to maintain (muliple DBs, OS,
    programming environments)
  • Staff acquisition and training a big issue

8
Technology Rationales
  • Poor quality of existing systems
  • Often the result of a band aid approach
  • the 10 room shack
  • difficult to fix, impossible to improve
  • Need to integrate corporate acquisitions
  • Different coding schemes, disparate platforms
    cross company integration very difficult
  • Common integration platform

9
Technology Rationales Measurement
  • Often made on yes-no basis
  • Solve Y2K?
  • Facilitate integration of processes? Acquired
    companies?
  • Scalable?
  • More easily maintained and supported?
  • Strong non-monetary motivation (although)
  • Cost avoidance is often sited as rationale
  • Technology an enabler of direct monetary impacts

10
Business Process Rationales
  • Improve business processes with an eye to
    efficiency, new capabilites.
  • Personnel and IT cost reduction
  • especially accounting, clerical and IT personnel
  • Productivity improvements
  • affecting any number of process areas
  • Less paper, handoffs
  • Financial Cycle Close
  • timely official financial information for
    decision-making
  • Real time availability of data

11
Business Process Rationales Measurement
  • There may be specific, quantifiable monetary
    goals
  • But maybe not.
  • Some goals e.g., quality are difficult to
    quantify in monetary terms
  • Predictability / accuracy of measurement depends
    on reengineering method
  • Common monetary goals
  • productivity gains do more with less people
    and associated reduction in costs
  • Increased reliability due to better maintenance
    no unscheduled downtime,
  • Reduction in raw material purchases/less
    inventory
  • fewer warehouses
  • lower freight costs
  • Reduced costs associated with accounting function

12
Strategic Rationales
  • Facilitate new strategies for the organization
  • Reasons beyond process / transaction efficiency
  • better customer satisfaction, quality corporate
    image
  • allow base for emerging technology e-commerce
  • Allow the organization to do things it could not
    do before
  • Allow company to enter new markets
  • Measured in non-monetary terms
  • Employee retention and attraction
  • Project a professional, modern image
  • New revenue generating opportunities

13
Competitive Rationale
  • Our competitor has it, so we need it to stay in
    business
  • Why does our competitor have it?
  • Do we need it too?
  • What happens if we dont?
  • Measured in non-monetary terms
  • cost and impact on business is not certain
  • E.g. - Availability to promise 110 Guarantee
  • Superior customer response

14
Levi Case
  • What rationale(s) did Levi used to justify ERP
    decision?
  • Categories
  • Technology
  • Business Process
  • Strategic
  • Competitive

15
How does a firm finally decide to go ERP?
  • NPV Cost-benefit analysis
  • Year by year costs and benefits, discounted
  • Only as accurate as the data
  • Often used to justify an already-made decision
    decision explaining
  • Hard vs. Soft data/dollars
  • Tangible vs intangible
  • Executive like commitment to specific dollar
    results
  • Choice of measurement method is often a
    reflection of corporate culture

16
Decision
  • How does a firm finally decide whether or not to
    go ERP?
  • By addressing the question..What keeps
    executives awake at night?
  • Is there some crisis (technical, competitive, or
    other) that necessitates a change?
  • Organizations often need to be galvanized into
    action

17
Reasons for Implementing ERP - Summary
  • Replace Legacy Systems
  • Simplify and Standardize Systems
  • Improve interactions with suppliers customers
  • Create a platform for eCommerce
  • Gain Strategic Advantage
  • Solve Y2K problem
  • Pressure to keep up with Competitors
  • Ease of Upgrading Systems
  • Restructure Operations

18
Role of Top Management in the decision?
  • What is Top Management
  • CEO, CFO, Board of Directors (Not the CIO)
  • What is their role
  • Give approval and support for the major
    expenditure
  • Be the vision-setters and drivers of change
  • Active and visible supporters convince people
    ERP is good
  • Ultimately have to be convinced that going with
    ERP is the right thing to do

19
Why are firms not using ERP?
  • Existence of Legacy Systems
  • Older technologies, programming languages,
    mainframes can be difficult to change
  • They may work well in isolation but they tend to
    be difficult to interface with new technologies
  • Companies have invested billions of dollars in
    developing and maintaining legacy systems

20
Why are firms not using ERP?
  • Cost of Ownership
  • Enterprise software is expensive
  • Initial software license cost is only the start
  • Customization, consultant, upgrades etc.

21
Why are firms not using ERP?
  • Cost of Reengineering
  • Organizations have inefficient, redundant and
    dated business practices
  • This can be a painful experience that turns the
    company upside down and inside out
  • Nobody likes process change especially when they
    dont know its coming

22
Why are firms not using ERP?
  • Expertise Required
  • Extensive training required
  • Skilled consultants are in demand
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