Implementing Enterprise Information Systems MIS Lecture 4Prof. Dr. Juliana SutantoD-MTEC, ETH Zurich

Learning Targets

Important managerial decisions when implementing an enterprise information system

Challenges and critical success factors

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Agenda

1. Business cases 2. Packaged software selection3. Building vs. running cost4. Major challenges5. Critical success factors

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> 14 countries, > 1500 systems Expensive to operate and difficult to maintain Did not provide accurate, consistent and

accessible data for good and timely decision-making and performance assessment

Works were functionally orientated Legacy systems disallow establishing direct, on-

line communication with customers, partners and suppliers

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(Yusufetal.2004)

SAP R/3 project team composition

External outsourcing company EDS

Internal managers and staff that have knowledge of cross-functional business relationships and experience of the old internal systems

Each operational business unit has its own ERP planning team for implementing working changes and training

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(Yusufetal.2004)

SAP R/3 implementation issues

Cultural Business

Work practices must be adjusted to fit SAP

BPR and Vanilla SAP

Technical

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(Yusufetal.2004)

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(Yusufetal.2004)

ERP Facts (1)

Gartner: 2008 global ERP market is $22.4 billion; expect to grow to approx. $29.6 billion by 2012 at a compound annual growth rate of 8%

A successful ERP project can: Cut operating costs Improve decision making and planning Improve competitiveness

Owens Corning claims ERP software helped it save $50 million in logistics, materials management, and sourcing

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(Umble etal.2003)

ERP Facts (2) But, the payback may take time

Meta Group: surveyed 63 companiesranging in size from $12 million to $43 billion in corporate revenue

Average implementation cost: $10.6 million Average implementation time: 23 months Average maintenance cost over two-year period: $2.1

million

Companies showed an average ROI loss of $1.5 million over a six-year period

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(InformationWeek1999)

ERP Facts (3) A failed ERP project can:

Cost a fortune Lead to bankruptcy

Unisource Worldwide Inc., a $7 billion distributor of paper products, wrote off $168 million in costs related to an abandoned nationwide implementation of SAP software

FoxMeyer Drug, a former $5 billion drug distributor, went bankrupt in 1996 and filed a $500 million lawsuit against SAP

Dow Chemical, after spending 1/2 billion dollars over 7 years of implementing SAP R/2, the mainframe version, decided to start all over again on the new client/server version (R/3)

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(Bingi etal.1999,InformationWeek1998,ComputerResellerNews 1998)

Agenda

1. Business cases2. Packaged software selection3. Building vs. running cost4. Major challenges5. Critical success factors

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ERP Market LeadersWorldwide:1. SAP 2. Oracle 3. Sage Group 4. Infor5. Dassault Systemes

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(SearchSAP.com2009)

Western Europe:1. SAP 2. Oracle 3. Sage Group 4. Microsoft Business Solution 5. SSA Global (IDC2006)

Choosing the Software (1)

Fit Technology capabilities vs organizations existing

business processes and procedures

More than purchasing softwarebuying into vendors view of best practices

Ultimate goal: to improve the business, not to implement software

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(Umble etal.2003)

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(Wuetal.2007)

If there is(are) misfit(s)

Cancel BPR Add-on Reconfiguration

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(Wuetal.2007)

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(Yusufetal.2004)

Choosing the Software (2)

Affordability ElectricCo initially planned to purchase an ERP

system from SAP, but it gave up this plan because SAPs USD 2 million price was too high

Not long after, FurnitureCo found the maintenance fee for [SAP] system was too high to sustain

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(Xue etal.2005)

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Agenda

1. Business cases 2. Packaged software selection3. Building vs. running cost4. Major challenges5. Critical success factors

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(Total) Costs

Software and hardware Training (Customization) Integration and testing Data conversion Data analysis Consultants Brain drain (employee turnover) Continuing maintenance

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(FinancialExpress,2008)

Maintenance Cost

AMR Research (2009): cost of ERP maintenance has risen from an average 15 % of license fees 10 years ago to a whopping 22 % today

ERP vendors collected ~ > $14 billion in maintenance revenues last year

64 % of the executives surveyed were dissatisfied with their software vendors maintenance policies

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(LogisticsMagazine2009)

What Customer Wants from Vendors Choice

Industry-specific solutions, partner add-ons, 3rd-party maintenance services

Alternative deployment models, e.g., SaaS

Value for money Flexibility in software implementation and operating costs Buy software licenses when needed, reduce licenses

during downturns, unload shelfware maintenance fees

Predictability Maintenance fee pricing Upgrades

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(ForresterResearch2009)

Agenda

1. Business cases 2. Packaged software selection3. Building vs. running cost4. Major challenges5. Critical success factors

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Major Challenges Cultural

Resistance to change

Business BPR

Technical Customization, integration, testing, data conversion

and analysis

Dont forget the multi-site issues!!

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(Umble etal.2003)

CSFs: The People Executive management committee that:

is committed to enterprise integration fully supports the costs demands payback champions the project

Implementation team Top-notch people who are chosen for their skills, past

accomplishments, reputation, and flexibility

Management should constantly communicate with implementation team, and enable empowered, rapid decision making

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CSFs: The Implementation Project management

clear definition of objectives work and resource plans

aggressive, but achievable, schedules tracking of project progress

Data accuracy

Change management education and training must work within the system, not around it all old systems must be eliminated

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CSFs: Multi-Site Issues

Phased approach pilot implementation at one facility module by module department by department

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CSFs: The Evaluation

Management, vendors, implementation team, and users must share a clear understanding of the goal

Measures must also be designed to encourage desired user behaviors, e.g., on-time deliveries, gross profit margin, customer order-to-ship time, inventory turnovers

Must be prepared for initial decline in productivity

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Summary

Management should carefully weight between: BPR & customization Business process (& cultural) change & technical

change

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Journal References Bingi, P., Sharma, M.K., Godla, J.K., Critical issues affecting an ERP

implementation, Information Systems Management (16:3), 1999, pp. 714.

Umble, E.J., Haft, R.R, Umble, M.M. Enterprise resource planning: Implementation procedures and critical success factors, European Journal of Operational Research (146), 2003, pp. 241257

Xue, Y., Liang, H., Boulton, W.R., Snyder, C.A. ERP implementation failures in China: Case studies with implications for ERP vendors, Int. J. Production Economics (97), 2005, pp. 279295

Yusuf, Y., Gunasekaran, A., Abthorpe, M.S. Enterprise information systems project implementation: A case study of ERP in Rolls-Royce, Int. J. Production Economics (87), 2004, pp. 251266

Wu, J-H., Shin, S.S., Heng, M.S.H. A methodology for ERP misfit analysis, Information & Management (44), 2007, pp. 666680

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Implementing Enterprise Information Systems MIS Lecture 4Learning TargetsAgendaSlide Number 4Slide Number 5Slide Number 6Slide Number 7ERP Facts (1)ERP Facts (2)ERP Facts (3)AgendaERP Market LeadersChoosing the Software (1)Slide Number 14If there is(are) misfit(s) Slide Number 16Choosing the Software (2)Slide Number 18Agenda(Total) CostsMaintenance CostWhat Customer Wants from VendorsAgendaMajor ChallengesCSFs: The PeopleCSFs: The ImplementationCSFs: Multi-Site IssuesCSFs: The EvaluationSummaryJournal References