IS5600 - 4

1. IS5600 - 4 Global Enterprise Resource Planning (ERP) Cases: Integration and Planning for the Extended Enterprise

2. Information Systems Change Business...

3. Learning Objectives • See how systems can be integrated • Appreciate potential problems associated with the design, implementation and use of ERP systems • Culture, People, Process • Case based illustration of what works and what fails in organisations

4. Background • IT has the potential to integrate information • IT can enable distributed people to communicate with ease • Indeed, it is hard to imagine life without IT • IT can extend the enterprise beyond its traditional borders • Li & Fung, Amazon, HSBC, cTrip, Alibaba, SoleRebels, etc. • These organisations are truly IT-dependent. • They also leverage IT to ensure their competitive advantage

5. However,… • IT-based change is not without problems • Indeed, the changes associated with implementing major systems is a bit like ‘open heart surgery’, without the anaesthetic! • You are cutting away at the very core (culture) of the organisation, implementing new systems and processes – while the organisation is still functioning.

6. What is ERP? Potentially integrated systems that • allow information to enter at a single point in the process (e.g., at the materials receiving stage of a manufacturing process), and • update a single, shared database in real time for all functions that directly or indirectly depend on this information.

7. ERP 2 • “it provides a unified view of the business, encompassing all functions and departments by establishing a single enterprise-wide database in which all business transactions are entered, recorded, processed, monitored and reported”. (Umble & Umble, 2002)

8. ERP 3 • Administrative ERP usually focuses on • human capital management • finance and • procurement • Operational ERP often refers to: • business operational systems such as CRM, SCM and product life cycle management (PLM). • Operational and Administrative ERP are closely linked

9. Integration & Interoperability Hand Helds Bar Coding Billing IM Investment Mgt Multi-company Support EH&S EH&S “Configurable” Packaged Solution FI Financial Accounting SD Sales & Distribution Comprehensive functionality IS Retail CS Cable MM Materials Mgt CO Controlling IA Imaging and Archiving IS-P Process Oriented SAP Enterprise Solutions Client/ Server Layered Architecture AM Fixed Assets Mgt PP Production Planning Modular Design & “Plug-In” Capability AFUDC EDI SFA Sales Force Autom- ation PS Projects System QM Quality Mgt Telecom Extensions MSM Maintenance and Service Mgt WF Workflow RF / Mobile Dispatch IS RE LEGEND IS Industry Solutions HR Human Resources Scalable Open Systems IS-T / RF & NF - R/3 Core Financials Network Mgt - R/3 Core Logistics - R/3 Core HR - R/3 Technology IS-T CCS CAD GUI & Internet Enabled Workforce Mgt AM/FM GIS - Industry Solutions - Partner Solutions C/W Certified Interfaces (Existing, Developing, Planned) Enterprise data model/databases Source: SAP

10. Why ERP? • To reap benefits from integrated data • Including control over remote data • To create an integrated, not fragmented, organisation • Which is centrally controlled, not broken into factions • With organisational functions mapped onto software • To reduce or eliminate organisational chaos and redundancy

11. For Example • CityU has an ERP called AIMS (v.8.5) • Staff, Student, Alumni • Payroll, Leave, Benefits • Course management, Contacting students • Various tools, Reports, Documents, etc. • The data in this ERP is integrated – there is a single set of databases, which all programmes/functions access. • Moderate level of security

12. AIMS • Is designed to support many academic administrative functions • It incorporates best practices • Are these culturally specific? How? • Does everyone like AIMS? • Does anyone try to subvert AIMS, or just ignore it?

13. ERP is… • Commonly seen in • manufacturing and production • finance, banking, trade, services, education • Often perceived as expensive and large scale • Adopted mimetically • “Because our competitors have it” • Not always carefully planned • Integration is important, but ERP is much more than integration alone • Poorly implemented ERP can destroy an organisation

14. ERP Failures • Gartner Research stated “we estimate that 20% to 35% of ERP projects fail and that 50%-60% are considered compromised”. • Failure usually means that the project did not achieve its business goals, or that it was late, its scope was limited or incorrect, or it was over budget.

15. ERP Failures in China • Zhu and Ma (1999) estimated that the ERP success rate in China was as low as 10%! • “ERP implementation is especially challenging in China because of high implementation costs, technical complexity, lack of information technology infrastructure, lack of well-trained employees, lack of incentives to state-owned enterprises and with corporate culture” (He, 2004: ISJ 14, 2, 153-167).

16. Does your organisation (try to) integrate information? How?

17. Integration? • Integration is continuous, not finite. • Databases must be updated continuously. • No more reports, just online information • Most business functions can be integrated • But while it is **relatively** easy to integrate technology, it is **not at all** easy to integrate people and the way they interact with technology

18. ERP System Managed Process Flow ERP Illustration Re-order miscellaneous supplies Send Shipping date estimate to customer Issue Payment to Suppliers Update A/R Customer Order: 2,000 PCs Order 2,000 MBs, CPUs, RAMs, … Update Order Book Track order completion Ship Order Bill Customer

19. ERP Vendors • SAP – the market leader • 261,000+ customers, 190 countries • SAP R/3 released from 1992-2005 • SAP ERP 6.0 (Business Suite), 2005- • Also CRM, SRM, SCM and PLM applications • Oracle – the market contender • 90,000 Applications customers, 145 countries • Has bought up many smaller firms including Peoplesoft (2004: $10.3B), Siebel (2005: $5.8B), Hyperion Solutions (2007: $3.3B), BEA Systems (2008: $7.2B), Sun Microsystems (2010: $7.4B). • Microsoft, Sage, Kingdee, Ufida

20. Major ERP Vendors in China Source: Credit Suisse China Technology Research, 2011

21. Industry Overview • Software vendors (and consultants) sell the vision of an integrated package. • Systems consultants are big and have ample resources • Development of SME market segment. • This is recognised as an area of huge potential, so the major developers are trying to ‘downsize’ their products

22. ERP & Culture • ERP packages may be cultural “misfits” • Multiple sites make implementations challenges worse • The “extended enterprise” must also be integrated

23. SAP in Singaporean hospitals,… • Company-specific misfits • System’s patient management module does not allow for billing individual patients on an installment plan • Public sector-specific misfits • System uses internally generated patient ID, instead of government issued ID number • Country-specific misfits • Package did not provide reports needed for government reports • System requires names entered in Western name format (first, middle, last): operators had trouble parsing Indian, Malay and Chinese names

24. Multi-Site Implementations Are Worse Local autonomy: • Legitimate country differences? • Or an obstacle to progress? • Cultural values. ?? Consolidated Information One Face to the Customer SAP Baan

25. Organizational Implications of ERP Implementations • Individual departments begin to recognise they are all part of larger business processes (“visibility”) • Dissolves boundaries between previously independent units. • Blurs job definitions (job broadening) • Changes power structures • Standardises processes

26. Organizational Implications of ERP Implementations • Creates demand for: • team work, • process expertise, • business knowledge. • Devolves authority/responsibility to front line employees. • Hub, or multi-point? • How much chaos would you like?

27. Hub-and-Spoke (Supply Chain) Integration Source: www.elemica.com

28. ERP Cases • SinoForce (pseudonym) • 8 Chinese Cases (Survey) • Lenovo

29. SinoForce • A local (HK) HQ-ed home entertainment product manufacturer • Annual revenues – HK$5Billion + • Late 1990s – boom in DVD players helped push the market share up. • Business processes still 1970s style • Patched up, unintegrated, manual • The business was changing - fast • New features in each product cycle • Retail costs down 80% • Top Mgt realised that change was needed

30. Oracle… • … selected as an ERP provider • “because it is famous” • “because the software is available” • “because the consultants recommend it” • Then the consulting firm died, … so they employed the lead consultant directly • No customisation to reduce costs • After two years, the project was stopped. HK$15M spent. • Many causes of the failure.

31. Critical Failure Factors • Business practices grossly misaligned with Oracle’s software • Considerable employee resistance • No attempt to re-engineer old business processes • And so no real understanding of what they wanted to change to • No one person at SF actually understood all the business processes • Most unit managers spent all their time fighting fires • Oracle was not just a process shift. It was a cultural shift as well: centralisation and control.

32. The IT Manager was a Dinosaur • He chose to focus only on IT issues • Ignoring the rest of the business issues • He made no attempt to secure buy-in from functional managers • Later on all the functional managers refused to do anything that was requested • The IT manager was powerless

33. More Problems • Data conversion • A very messy process • Useful data scattered all over the place • Much of it offline in old paper documents • Lots of errors, questionable integrity • Skills • All staff needed to learn new skills • But many lacked the education or willingness to do so

34. And… • All this time, the old legacy system was kept running • So the staff could just point at the old system and say “Look! It works! It’s better!” • There was no appreciation for the benefits of the new system at all.

35. ERP in China • Some common lessons from a survey of eight firms* • 4 Joint Venture • 4 State Owned Enterprise • Lenovo’s Positive Experience with SAP • * Martinsons, M.G. (2004), "ERP in China: One package, two profiles", Communications of the ACM, 47, 7,65-68.

36. Common Characteristics I • Seldom completed on time • Seldom exceed the planned budget • Lots of information resource allocation – even though this is inconsistent with the usual ERP mantra of a core team • Projects seldom improved cycle times or customer satisfaction • Most benefits are reduced labour costs and inventory levels

37. Common Characteristics II • Projects initiated by the CIO/CTO usually fail. • Projects initiated by top management usually succeed. • CIOs/CTOs seldom have the political clout and business knowledge to resolve disputes between functional managers

38. Private Venture vs SOE? Primary Project Aims Improving Competitiveness through process streamlining & integration in PVs. Cutting costs and automating processes in SOEs. Role of Top Management Hands-on leadership to demonstrate commitment in PVs. Tendency to delegate ERP responsibilities in SOEs. Role of Consultants Greater reliance on outside help and more emphasis on ERP-specific expertise by PVs. Role of Steering Committee More frequent meetings and sharper focus on problem resolution in PVs Pace of Implementation Faster implementation with more simultaneous modules in PVs. Scope of Implementation Broader and more cross-functional ERP application in PVs. Implementation Problems Less frequent, less serious problems in PVs, due to differences in employee reward systems & data maintenance. SOEs characterised by Acc-Fin & Pur-Mfg squabbles Evaluation & Outcomes PVs undertake more systematic evaluation and control, achieving more substantial quality and SC improvements

39. Lenovo’s SAP R/3 Experience 1 • Recognise that we need • a clear Information Strategy • to understand that an ERP may conflict with our established procedures. • Use the ERP project as a way of • re-engineering the business and improving internal management • Many PRC organisations have poor information management • creating both internal and external value chains

40. Lenovo’s SAP R/3 Experience 2 • Extensive knowledge transfer is essential • From consultants to local champions • From local champions to all end users • It has to be done right – or errors will perpetuate for ever • But Knowledge Transfer is not easy! • And many end-users are rather “passive”, showing little interest in either information or the ERP.

41. Lenovo – User Perspectives • 联想刚开始上ERP时，大家都认为这只是一个软件系统，把ERP当做一个IT项目来做， • When Lenovo began their upgrade to ERP, many people thought that it was only a software system. They classified ERP as an IT project and assigned the technical department to lead the project.

42. Lenovo - Leadership • … 企业信息总管CIO的领导艺术对信息化的推进非常重要，他（她）不必是信息技术专家，但他（她）一定要懂业务，懂管理。 • … the art of leadership of the CIO was critical to the informatisation process. • S/he did not need to be a technical specialist but s/he had to have a good understanding of the business and its management.

43. Lenovo – Generalise, then Optimise • … 牵涉到业务流程的时候，实际业务流程与ERP业务流程还是有一些矛盾，创造性地解决这些矛盾非常重要。有些时候只能先按照ERP流程去做，再逐步优化，也就是所谓的‘先僵化后优化’”。联想在实施在整个ERP项目中，成功清理、规范和优化了77个业务流程。 • …when dealing with business processes, the actual business processes conflicted with ERP workflows. Without creative solutions, we would not be able to solve these problems. Sometimes, we had to follow the ERP processes at the beginning, and then optimize them. This was what ‘first generalize and then optimize’ means. Lenovo finally successfully cleared, standardized and optimized 77 business processes in the whole ERP project.

44. Implementation Success Factors 1 • This project is a business initiative, not IT! • It involves strategic business decisions and major organizational changes • International and business culture • Corporate governance • Extended enterprise issues • So, we need the company’s best people on the project, a strong project leader (VP) • With excellent project management skills. • Continued commitment of senior management.

45. Implementation Success Factors 2 • We need all affected parties to “buy in”. • They have to be a part of the project, not just users. • Communication about expected change is essential; prepare the organization for change. • You can only change at the speed of the slowest • If that is too slow, people have to go • Smart contracts with vendors & consultants. • You control the budgets, not them • Try not to customise.

46. Broader Lessons for IT Based Org Change • Top Management must be the change architects • IT cannot transform an organisation – IT enables transformation • Enterprise-wide business-IT Partnerships are needed • The pace of change must match the rate of acceptance • Individual transformation is as important as organisational transformation • Change champions must be diverse, yet work together • Offshoring IT development sounds attractive, but it is not just an IT project. It is a business issue.

47. Consequences of Transformation • Organisational culture and identity • There will be pressure for change here too • People who support ‘the old way’ will feel left out, marginalised or discriminated against • A new, more flexible set of cultural norms may be necessary • Guided by new principles, new values, … and perhaps new managers?

48. To Discuss • You need to look at the Nestlé case • http://www.cio.com/article/31066/Nestl_eacute_s_Enterprise_Resource_Planning_ERP_Odyssey • What were Nestlé’s original set of problems • What kind of risks did they face in creating a solution? • What lessons can we learn about large-scale systems change? • What do you see as the critical success factors (CSF) for this kind of project? • What else is interesting about this case?