Title: INFO245: Introduction to Enterprise Resource Planning ERP Chapter 7: Deciding to go ERP
1INFO245Introduction to Enterprise Resource
Planning (ERP)Chapter 7 Deciding to go ERP
2Deciding 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?
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3ERP 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
4Planning 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?
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5Planning 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
6Business 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- Technology Replace outdated hardware and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
7Technology 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
8Technology 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
9Technology 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
10Business 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
11Business 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
12Strategic 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
13Competitive 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
14Levi Case
- What rationale(s) did Levi used to justify ERP
decision? - Categories
- Technology
- Business Process
- Strategic
- Competitive
15How 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
16Decision
- 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
17Reasons 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
18Role 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
19Why 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
20Why are firms not using ERP?
- Cost of Ownership
- Enterprise software is expensive
- Initial software license cost is only the start
- Customization, consultant, upgrades etc.
21Why 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 -
22Why are firms not using ERP?
- Expertise Required
- Extensive training required
- Skilled consultants are in demand
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