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KMERPklSK RKSOIIRC E i*LANNIN(iAND T H E C O M P E T H I V EADVA NTAfiE: I H E EASE OFI N T E G R A T I N ( ; l N E O R M A T I O NBE r W E E N C O R P O R A T EHEADQU ARTERS IN THE UNITEDSTATES AND FACTORIES IN MEXICO

By Kathktn M. t'tedit, Randall B. Hayes, andPatrick A. Okonkwo

A B S I R A t IThe ciirreii! iniercsi in Enierprise Resource Planning(FM f) .sojhvare s\sh'nis is based priniariiv on fhepnmipie of liic svsiem: generating real lime daia.enabling linkages lU rass fimciional areas and(iivisicns, and. thereby, promoiing the iuiegraiion ofuiforinaiion across alt of ihe iiniis of a business al onelime. Indeed, in praaice. such a system not onlycidii\aies accurate and limelx information which isavailable for all opercuions in a companv. includingthose in globai loirategic planning and decision making are a fuiiction,largely, of having mtorniation thai is accurate, tinieiy.com ple;c, and relevant. indeed, slate of ihe artinformation technology enables ihe generation of such\aiue rich InforniaEion.ii IS 10 he exj)ecied, ther efo re, lliai im prov ing

ihe jniegraiion of iniormaiion or daia across thefunctional areas in a business is vital to effectivedecision making and instrumental in gaining thecomp eutive advaniag e. A software system whichenables this integration of inloimauon is the[nicrprise Resource Planning (I.:RP) sysicm which isl)ased [irnnarily on the principles of generaiing reallime data, enaiiling linkages acro.s>, functional areasand diviMons. and, therefore, promoting iheintegration of information across ail of the units of ahusmcss at one lime. Indeed, in practice, stich asystem nol o\'\\y culii\'a!cs accurate and limelyinforniailon which is available for all ope ratio ns in acompany, b\ii also fosters more effective andvisionary decision making.

One of the most popular lypcs of an FRFsystem is SAP R/3 (Systems. Applicaiions, andProducts in Data Processing! which was developed bySAP AG, a German industry leader iji sofiwaredevelopmcni which is headquartered in Walldorf.Germany, and whicli has offices and installationsIhrouglioui ilie glob e. Ihe u" system is iiased on theprinciples i^! !-,RP and inchides a smie of imtduies amiapplications which laciliiates the sharing amiintegration of" information across the typical umis ofbusiness, such as production, procurement, financeand accounting, sales and distribution, humanresources, as well as a host of oilier areas andj)rocesses. Thousand s of compa nies rejireseniing avariciy of indus(ries, inehithng automotive,healthcare, financial services, retail, aertispace anddefense, utilities and telecommunieaiions, and others,have adopted SAP R/3 . Nol surprisin gly, many ofiliese lop corpt)rations inclutie (k-nerai Motors, F:liLilly, Microsoft, DaimlerChry.slcr, Siemeiis. Sara [.eeCorporation, Hlf Atochein. Dow Chemical Company,Reebok, Procter & Gamble, Amoco, Colgate-Pal rnoiive, Dow C orning Corporation, G IE , andCoca-Cola, lo provide a sample.

Such an iniegrative sofiware syslem hascaptured the attention, especially, of thosecorpo ration s which have expanded gk>l)al]y. Indeed,having an opportunity to integrate information, notonly wiibin corporate headquaners, but also acrossglobal locations, is the ultimate desire of ibe corporateleader who seeks to continue to grow globally, whileai the same lime maintain access lo and control overday-to-day operations through effective

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comnmiiicaHon and Cow of inform ation. Coiitiiiuedexpansion and wise decisions can only serve loguaranlee thai liie industry leader maintains its posturein the future.Of particular iiiteresi is Ihe global expansionpromoted by ihc North American Free Trade

Agrecrnent iN Af TA ) which took effect in 1994. Thisagreement csscniiaily opened up free trade amongorganizations in ihe United States (U.S.), Canada, andMe xieo. Not surprising ly, since ihat time liiere hasbeen a marked increase in the exchange of goods andservices, especially betwx^en the U.S. and Mexico.AddiEiotiaity. many U.S corp oratio ns have becomemore aggressive pariicipants m the market, either byestaltlishing new installations in Mexico, or byexpanding current one s. Indeed, these increasedlinkages have demanded that eomimmieaiion betweencorporate headquarters and the Mexican-based units isopen, limciy, and ihnd . Not surprisin gly, given thebenefits of ERP sys tem s, is could be cxpecled thatadopting such a system would, indeed, guarantee theintegration of informauon aiid the generation ofappropriate business transactions across boib tiiefunctional and global areas.

The purpose of this study, therefore, is toexamine ihe benefits of adopting and using an liKPsystem at both corporate headquarters and their globalope rations . More specific ally, eight (H) LJ.S.corporate leaders have been identified as using ani:RP system, in general, and, in particular, SAP R/3,which is utili/,ed extensively by industry leader s. Inpariicular, the eight (8) companies include AT&.T.Compaq, Eastman Kodak, Hershey I-oods. Hewlett-Pack ard, IBM, Intel, anti M otorola. Each of thesecompanies have installations in Guadalajara, Mexicowhere the SAP R/3 system has been adopted.

Managers who are instrumental in makingimportant decisions, and who use the SAP R/3system, are surveyed . A set of interview tjucstionshas been designed to assess the impact of tising SAPR/? as it pertains to the exchange of information anddecision making across the border, i.e., between theU.S.-based corporate headquarters and the Mexiean-based installation. Particular aspects are examined interms of accuracy of information, integration,consolidation and adaptability, currency and language,aniong other investigations. Dala are analyzed andthe results are presented as an argument for thebenefits of using an ERP system aeioss globallocations, in gener al. In particular, specific referenceis given to the results as they pertain to these eight (H)corporate leaders.

RK \ IKVV OF T Hi; I .ITE RA Tl R EThe development of soptiisticated informationtechnology systems to facilitate the gathering of

information across functional areas of business andglobal locations is essen tial, Eollowing is a review ofliterature, of both a descriptive and prescriptivenature, which pertains to the grovvfli of ERP systems,the popularity o\ ' SAP R/3, and Uie catalyst NAPTAha-s served tor exploring operations between the U.S.and Mexico.ERP (Kntt ' ipri.se Resource PlanningThe basic premise of Ejiterprise ResourcePlanning is quite snnple: integration of relevant dataacross the functional areas of business and acrossretiiote locations lo ensure timely and etlectivemanagerial decision making, A compreh ensivedescription of the components of ERP systems andfunctionality is presented hy a guru on ER P system s.Thomas Davenport (19')81, in his account, heincludes examples of companies wlio haveexperienced the task of implementing such a system.Similarly. I-scalle, Cotieleer, and Austin (1999)present a pers[)cctive on ERP implementation,including the impact on administrative issues anddecision making . Furth erm ore, they include the roleof S.'\P R/3 as a type of ERP system.SAP R/3 (.Systems, Applications, and Products inData Proeessing)

The development of the SAP R/3 softwaresystem, as an excellent example of an ERP system,has occurred over the past few yea rs. Two prim erson SAP AG, the German company which developedthe system, have been made available by MichaelDoane (1996. 1997). The scope of the ERP system ispresented, but the major area of emphasis is on howthe SAP R/3 system functions as an ERP system.Similarly, the CEO of SAP has provided his accountof how the system operates, including itsfunctionality, applications, and future potential(Plattner. 1999). These valuable sources provide thespecifics on the SAP R/3 system and its growth inpopularity.N A U A (Noi th Amer ican Free Trade Agreement)

Finally, it is important to eniphasi/.e thesignificance of the Nortii American Free TradeAgreement which took effect in 1994 and whichpromoted the concept of 'one market' across theborders of the U. S. , Canada, and Mexico. Cooper in

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1997 provides ;in assCiSTncnt of (he econoinic uiipac!nf the atirccincni. Nos surprisuiglv. ihc perceptions otihc hcncliis ;iiid limiuiuons of such an agrcemem arcconiu' \i: rs! al. Oin iou>i\ , H) enhance ihc ellcciivcncs.',ot such a^' ,; R'emeni, sharing inrornKiiHHi amonginsi.illalions \n \arioLis lociiioris is e.ssemial. CiecrlIlotsiede ' arc leaders in iheirrespcelive indusnics ami because they have globalirisiallalioiT.. pariicuhii iy in Ckiathiiaiara. Mexico.

Description ot lhe Resvarth Siirnplc1 he [K>[>ulauon from wliich (he sample is

tirawn i-^ ciinipriscU of execuiive anil manageriaIemploN'ecs m each ol ihe lostailai ions in (luadala iara,Mexico, rtiese efnph)\ees work wiih ihe .SAP R/3sysiem ami are knowle(igeal)le regarding iiscapabilitie s and luncnonahiy . Iniri liermoie, ihe>' arcin constant contact ui ih corporate headquarters in theU.S . and lely on mtorinaiion exchanged lo (acihiaiedecision making across iunelion.s and loealions . Ihcinput Irom iliese individtials is aggregated or groupedso that one sei i)t" data from each instalhition isgeiieraied.

ii ot the Kcscarch .Mcii.suresA loiai of twenty tjuesiions comprise the

interview tjiie-vUonnane which was deveioj>ed based onihe review ol the iiierature, jieisonal experience withSAP R/3 luncnotiahiy, and on informal discussionswith corporate useis in remote locations and wiihcolleagues . The qiiestion.s are organized into ihcinajor categories io reflect the hallmarks of ERP, ingeneral, SAP R/3, m particular, and wish regard toihe relaiionship between ihe corporate headcjuartersand the installation in Ciuadalajara. Mexico. Morespeeilicaily. the categories inciude

hunetionaliiy aiui Inifgraiion, Ci>nsolidation aiu!Adap tabi lii ). Turrencs', and l-aiigiuige. Wiihin eacheategor;, specilie tjuesiions assess the measure o!each For example, with regard to Currency ,i|uestion,s arc presented whicii lequcs! responsesregarding availahiltt>, case, and accuracy of currencyexehanges when both the parent company andMexican lacihts engage id real-iinie businessiraivsaciions AdditionalK. wiih regard to i.anguage,questions explore the avai!abilit\, ease, and aceuracvoi tran.slaung infoiin.uinn WhiM is especial !>impoitant are tiiose t)uestH)ns uhich atidress theacctiracy and timeliness ol inlormauon exchangedbetween L'.S and Mexican based funettons vih iih ,indeed, would atiect strategic deciMon making

Kescrip tion o t t h e Diita (oH ecl ion l*rondents in ihe survey indieate overwhelminglythat what is vital to sticcessfu! decision making is iheaccess !o accurate and itmely information. 1-orexample, comments from managers working atHershey Foods in Ciiiadalajaia refleei the absoluteneed to hiive an mfoimai ion system that is eomm on ts)all locations and whieh allows the exchange ofinformation and data in real tune. These sentimentsare echoed b>' employees from Ilewle lt-Paekard v.hoalso indicate ihat if eorpt)ratc headquarters in the U.S.

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an d ihe tacDuy in Guadalajara were n h.wc lo he made Morespeeitlciilly. with regaril lo Hie ui ih /a t ion ol sof tu jccs_\s!ems. scnne li.atures and a[i|>licatit)m lia\c io beco^^ohda!ed .md tadi>red to tit ,i particular locaiionTheretore, resporiiienis ;i[>[i!auded the use of a eomnions\stc in such as S AP K 3 \ \hich allows enstonH/aiu>nand .idaptive capabililies f'or ex.unpie . M Intel,because o! consumt eisanges ami upgrades, unilNinginlormation and iiisiallin! '. changes enables thec o m p in n lo e\chanL;.e inibrm.uion in real lime andwiiiiout dii i i jp tiors . Similar experiences a! Coinpaqh, i \e been registered, suggesting that due to the natureof cultural differences luiving a eominon svstem isimperative to (aeihtate cliarige and adaptation

1Assessmenl

CategoryInformationFunctionality andIntegrationConsolidation andAdaptabil i tyCurrencyLanguage

Ciifoj^ory ancf C o m p a i n *Coin])an'. Respoji_ses_Available. .Aecuraie, TimelyIn lormationCotnprehensive, CompleteShiirni i i of In lormationConsistent Api>lications,Taikired to Nature of Businessand LocationAccurate and Tnncly CurrencyLxchaneesAccurate and TimelyTranslation of Data

*All eiglil (8) cotnpanies agreed, conceptually andperceptua l ly , on (lie assessment of the five (5} er iier iaa.s indicative of the bcnefJEs of integrating informationbetween cor |X)rate headquarters and their factories inMexico when both use the same HRP sys tem. i,e,,S A P R/3.

C u r r e u c y , h is of no surprise ihac a keyteature of mtegrativc. adaptive sof tware system^: is theabiiiiy lo enable the shar ing of information acrossprocesses a iui locations. In particular , becauset\\'ent> -tirsi ceiu ury societv is a society of globalorganizations, cultural differences in cur rency are animportant par; of tlie s\s iem . I 'his was especiallye m p h a s i / c d b) the rcspondenis i iom IBM who [xjintedou t the thrusi of business at IBM spans several globaliocations. Being able to do business in the respectivecur icnc ies o\ ililfercnt locations, and being able toconduc t by-mess m real time and wiihoui delays inde te rmining cur tency exchange la te s . are the sirenglhsof an !-,RP s \ s i e m . It is not surprising. iherefi>re, thatp r o m o t in g a c o m m o n s \ s t e m of util ization of S A P R,^aeross all toe;itis[e[ii which allows information to be exchangedaccording to ihe r e sp e c in e l a n g u a g e s of varii-'isglobal toeaiions is also a de'-ired feature (if an\'sotiwaie sNSiem f iromotmg mfoiniation exchange.O ne of the s t rengths ol the SAP R/." system is thatmimeiliately informaiioii or data that are t r ansmutedare uanslated mui ilie respective li^nguages of thegU^ha! msi allatio ns. Ag ain, this leatu re only serves tostrengthen subsei |uent decision mak ing. I ' t i l iz ing acommon so t tware s \ s tcm. u t i l ized by botli corporateheadquar te r s aut! rcspec! i\e global locations, cer ta inlypuis into motion (his capabil i ty. As ment ioned bye\eLiinvcs i 'rom ,-\T & 1, ttiis icature is one of the[nost aitractive and one which [nishcJ the enve lope inado[)[mg S.AP R \>,

SLMMAK^ , CONCI.ISIONS, AM)KKC()M\!I;NI)AII()NS

The purpose ot ihis research study is topresent evidence tliat information technology systemsarc critical ui eflcctive decision making incorporations, l-uriheruuHe, systems which enable thesharing of inSormatioii across business processes inglobal locations arc aitraetive in enhancing strategicdecisions in a global society. In particular, HRPsystems. In general, and the SAP R/3 system, inpartienlar. have been fcaiured as one system whichresponds to this need and promote this capability,Additiotially. it is argued thai companies withinstallations in various global locations should adoptone eommon system acrc*ss all iitstailations, e.g.. SAPR/3. Responses to questions which pertain to themerit of using one system, based on information,functional iiv and iiiteiiration, consolidalion and

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adapiahility, L"uricncy. and language are prescnied aiulrcOL-ct ihc views of cxeeuiives and managers trunicighi U.S. hasL-d organl/aIlon^ vviifi insiallaijtms inMe x ic o T I K N C arc idciuij'ied cs]*ecialiy because ofthe mniience M N.AI 'TA and ihe imporiance ofconducling hiisi i tes-s tuiween i l iese iwn geographicloea uon s. Results indica ' .c . as cxpe cied, anoveruhelming nccti in ^utvipt a coinnioii sysiein no ionly across business processes, hui als(> acrossbusiness ioca!ii>ns.

lo lend addil ionai credibil in lo and supportfor [his [_\pc of researcli. additional siudifs assessingoihcr corporalions wiih msialia i iuus in Mexico can beconiiucied. Adttuio nally, i! is reco nnn end ed ihaifur ihcr studies, snnilar lo ihis one, address odier pansof iiic eliihc as well

RI:I I :RI :NCISC'tHiper. il (l ') 'n . Jun e 17). l-cono mic inipaci of

NA i-TA. h ' s a wash , cvpcr ts sav fhe Wnl!Sirvci Journal. Inieraciivc

P la tu ie r. Hasso U9 99 ) . in tegraicd bus inessprocesses are key. SAi^ Insider, 1-4.

Da vcn por i . Ih oi ua s I I i h ' '>8, Jt ily Au gusi i . Futun gthe enieipnse into the enlerpr ise system.U a r v a n l H u s i n e \ s Rt'^ l e ^ \ \ 11 1 I . M .

Doanc. Michael. (!=?M6) In ihe I'aih of ifn-Whirlwind. Siou\ Fa l l s . Sonih Dakota : Thef o n su h m g A l l i a n c e ,

Doane, Miciiael , (19')7( Cupiunn^ ski' Whirlwind.S i o u \ }';ii!s. S(Hiih Dakota: The ConsuUingAlliance

i;, scalle , ( \ \ l r i e .X. . Coile lleer , M ark J, , J t Austin .Ro he n D ( l '>'>9). I 'lne rpri se res ou rceplanning (e rp j : Technology nole . HarvardBusiness School Note,

Kalhlecn M. Dtc-cht recened her B,A. fromColiege, M.A, f rom the UiiKersity ot Lancas te r .I - . ng land . and Fh .D. f rom Michigan S ta te rn i \e r sny .She is etirreiiily A ssocia te Frofe ssor tu theDepar i ine iu ol Manag ement a t Cen na! Michiganrn i \ c r s i ty . and teaches courses m hutnan resourcenKinagemeni and orga in/ati ona l behavio r . She is arecipient of the Ameritech [{xcelienec in 1 caching.Award 20{Kl, and ^^as named an SAP DistinguishedScholar in :sHM.Randall B. Ha>es received liis Bachelor's degree SroiiiColgate ! , 'ni \ersi t \ . and his MR.- \ and Ph.!) . degreeslioni the l iniv ersity of Mich igan, He is currently[)!ofessor of A ccounin ig and Informal ion Sss ieins .He has taughi accounting co urses m accouium g andsyslems ai the \\H\ and undergraduaie levels, andhas laughl in several eKecii[ i \ 'e cducaiion progianis,liis research inicresis include Uic nianagemeni uses sifaccoiinling inform aiion and he has publishedtiumerous ar l ic lcs in the area, l ie a lso st ipc r \ iscs ibeC(>nsulnrig conceniration \^nhin ihe MB.-X prtv^ram oiC e n t r a l Mic h ig a n l ; n i \ e r s i ! \ .I 'a ir ick A- Okonkwo received his B.S. dct ' ree inBusiness Adminis i ra tum f rom Mnrnmgside Col lege .MBA in Marketing from .Syracuse I niversity. and hisP h . D . in Marketing and Logistics f rom MichiganState i ' l i ivcisi ty. We is Professor of Marketing andLogistics in ihe Department oi Marketing at Ccntia lMichigan l in i \ c r s i !y . He a lso se rves as co d i rec ior o\the Center for Supply Chain Management a t CentralMic h ig a n L n i \ e r s iU ' .

! I i )f s tede. C ice ii i lW 3i . ( \ ih ura l cons i ra in ts mniana.oement iheorics. Atiuleinv of

e x e c u i i v e . 7 . 8 i - ^ A KKapLin. K S. A: .Norton, D.F, ( I W .\ January

l-ebruaiy ) . The balanced seorecard-ineaMires ihat dr ive perfo rnian ce.Harvard Business Heview, 7 1 - 7 9 .

Ka | lan . R .S , and Nonon. DJ ' , ( 1 9 9 3 . Sepiember -Octiib eii Full ing the balanced score eard towork . Harvard Business Review. LW-147.

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