CHAPTER 1

INTRODUCTION TO
ENTER PRISE SYSTEMS
FOR MANAGEMENT

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Learning Objectives

• Understand the information systems evolution and its historical role in the
organization leading to systems integration and Enterprise Resource Planning
(ERP).
• Learn about ERP systems and evolution, components, and architecture;
understand the benefits and drawbacks of implementing ERP systems and
how they can help an organization improve its efficiency and worker
productivity.
• Gain an overview of the implementation process (e.g., the ERP life cycle,
business process reengineering project management, and change
management). Understand the role of people, vendors, consultants, and the
organization in making the ERP implementation process successful.
• Comprehend the ethical, global, and security challenges while implementing
an ERP system, and look at the ERP vendors and industry trends.

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Discussion:

Question: What do you think about Hershey’s

ERP strategy? What lessons can be learned
from the Hershey experience?
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 Enterprise Systems in Organizations

 Business organizations have become very complex and their business needs
can no longer be supported by one single information system.

 Information Systems are a critical component of a successful organization

today.

 Management is generally categorized into three levels: Strategic, Mid-

Management and Operational.

 Information Systems provide a high level of computer automation to support

business functions such as:
•Accounting •Finance
•Human Resource Management •Customer Service
•Marketing •Operations

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Figure 1-1 Management Pyramid
with Information Requirements

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 Information Silos and Systems
Integration
 Over time, Information Systems create a hodgepodge of independent
nonintegrated systems ultimately creating bottlenecks and interfering with
productivity.

 Organizations need to be agile and flexible and will require their information
systems to have integrated data, applications, and resources from across the
organization.

 To compete effectively, organizations have to be customer focused.

 This requires cross-functional integration among the accounting, marketing and
other departments of the organization.

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 Enterprise Resource Planning
(ERP) Systems
WHAT IS AN ERP SYSTEM?
 Enterprise Resource Planning Systems are the first generation of enterprise
systems meant to integrate data and support all the major functions of
organizations.

 ERP systems integrate various functional aspects of the organization as well

as systems within the organization of its partners and suppliers.

 The goal of an ERP system is to make the information flow dynamic and
immediate, therefore, increasing its usefulness and value.

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Figure 1-2 Integrated Systems
- ERP

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Enterprise Resource Planning
(ERP) Systems (Cont’d)
 Another goal of ERP is to integrate departments and functions across
an organization into a single infrastructure that serves the needs of
each department.

 ERP systems replace an assortment of systems that typically existed in

organizations. (Accounting, HR, Materials Planning, Transaction
Processing, etc.).

 ERP solves the critical problem of integrating information from

different sources and makes it available in real-time.

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Evolution of ERP
Timeline System Platform
1960s Inventory Management Mainframe legacy systems using third
& Control generation software-(Cobol, Fortran)

1970s Materials Requirements Mainframe legacy systems using third

Planning (MRP) generation software-(Cobol, Fortran)

1980s Materials Requirements Mainframe legacy systems using fourth

Planning (MRP-II) generation database software and
manufacturing applications.
1990s Enterprise Resource Mainframe client-server systems using fourth
Planning generation database software and package
software.
2000s Extended ERP or ERP- Client-server systems using Web platform,
II open source with integration to fifth generation
applications like SCM, CRM, SFA.

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 Business Processes and ERP
 A crucial role of ERP in business is to better position the organization to
change its business processes.

 ERP software have hundreds of business processes built into the logic of the
system which may or may not agree with current processes of an
organization.

 When implementing an ERP system, organizations have two choices:

 Change business processes to match the software functionality.
 Modify the ERP software to match the business processes.

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ERP Systems Components
An ERP system consists of:

Hardware Servers and peripherals

Software Process Operating systems and database

Information Organizational data from internal and

external sources

Process Business processes, procedures, and

policies

People End users and IT staff

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Figure 1-3 ERP Components

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Figure 1-4 ERP Components
Integration

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 ERP Architecture
 The architecture of an ERP system influences the cost, maintenance, and the
use of the system.

 A flexible architecture is best – it allows for scalability as needs change and

grow.

 A system’s architecture is a blueprint of the actual ERP system and helps the
implementation team build the ERP system.

 If purchased, ERP architecture is often driven by the vendor but other IT

architectures are driven by organizational strategy and business processes.

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Figure 1-5 Example of Architecture
of ERP at Large University

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Figure 1-6 Logical
Architecture of an ERP
System

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Figure 1-7 Tiered Architecture
Example of ERP System

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 E-Business and ERP
E-Business ERP
Focuses on linking a business with its external Focuses on integrating the internal functional
partners and stakeholders silos of the organization into an enterprise
application

Disruptive technology—Totally transformed the Adaptive technology—Merged the early data

way a business operates in terms of buying and processing and integration efforts within an
selling, customer service, and relationships with organization
suppliers

Early focus of e-Business was on communication Focus of ERP systems was mainly on data
(e-mail), collaboration sharing, systems integration, business process
(calendaring, scheduling, group support), change, and improving decision making
marketing and promotion (Web sites), and E- through the access of data from a single source
commerce (Front office functions) (Back office functions)

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Figure 1-8 e-Business and
ERP

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 System Benefits of an ERP System
 Integration of data and applications across functional areas (i.e., data can be
entered once and used by all applications; thus improving accuracy and quality
of the data).

 Improvements in maintenance and support as IT staff is centralized.

 Consistency of the user interface across various applications means less

employee training, better productivity, and cross-functional job movements.

 Security of data and applications is enhanced due to better controls and

centralization of hardware.

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System Limitations of an ERP
System
 Complexity of installing, configuring, and maintaining the system increases,
thus requiring specialized IT staff, hardware, and network facilities.

 Consolidation of IT hardware, software, and people resources can be

cumbersome and difficult to attain.

 Data conversion and transformation from an old system to a new one can be a
tedious and complex process.

 Retraining of IT staff and end users of the new system can produce resistance
and reduce productivity.

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 Business Benefits of an ERP
System
 Increasing agility of the organization in terms of responding to changes in
environment for growth and maintaining market share.

 Information sharing helps collaboration between units.

 Linking and exchanging information in real-time with supply-chain partners

improves efficiency.

 Better customer service due to quicker information flow across departments.

 Efficiency of business processes are enhanced due to the re-engineering of

business processes.
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 Business Limitations of an
ERP System
 Retraining of all employees with the new system can be costly and time
consuming.

 Change of business roles and department boundaries can create upheaval

and resistance to the new system.

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 ERP Implementation
(Business Process
Management)
 Business process management is the understanding, visibility, and control of
business processes.

 BPM has a prescribed methodology that should be followed to help

document business processes and understand their use throughout the
business.

 Improved business processes may result in:

◦ Improved customer satisfaction.
◦ Reductions in cost.
◦ Increased productivity by allocating resources to more value-added activities.

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 ERP Implementation (ERP Life Cycle)

 The key to a successful implementation is to use a proven methodology, take

it one step at a time, and begin with the planning and understanding the ERP
life cycle.

 ERP system implementations are very risky, and using a well-defined project
plan with a proven methodology will assist in managing those risks.

 There must be a strong well-communicated need to make the change from

the existing information systems/applications to an ERP system.

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Figure 1-9 ERP Life Cycle

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Figure 1-10 ERP
Implementation Methodology

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Figure 1-11 Product Life
Cycle

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Software and Vendor
Selection
 It is best for an organization that does not have the experience in
developing ERP systems to purchase one on the market.

 Before selecting a vendor, the organization must carefully evaluate its

current and future needs in enterprise management systems.

 Review the organization’s existing hardware, network, and software

infrastructure, and the resources available for the implementation.

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 Vendor Evaluation
 Business functions or modules supported by their software.

 Features and integration capabilities of the software.

 Financial viability of the vendor as well as length of time they have been in
business.

 Licensing and upgrade policies.

 Customer service and help desk support.

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Vendor Evaluation (Cont’d)
 Total cost of ownership.

 IT infrastructure requirements.

 Third-party software integration.

 Legacy systems support and integration.

 Consulting and training services.

 Future goals and plans for the short and long term.

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 Operations and Post-Implementation
 Going live (“Go-live”) is one of the most critical points in a project’s success.

 It is vital to focus the efforts of all project teams to ensure that task and
activities are completed before going live.
◦ This allows project management to address any outstanding issues that may
jeopardize the Go-live date.
◦ This involves a readiness process that needs to include as many team members and
appropriate users and managers as possible.

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Five Areas of Stabilization are
Important:
 Training for end-users.

 Reactive support (i.e., help desk for troubleshooting).

 Auditing support to make sure data quality is not compromised by new

system.

 Data fix to resolve data migration and errors revealed by audits.

 New features and functionalities to support the evolving needs of the

organization.

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Figure 1-12 Project
Management

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Figure 1-13 Project Life
Cycle

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 People and Organization
 Project Management
 For an ERP system to be implemented successfully, project management must
provide strong leadership, a clear and understood implementation plan, and close
monitoring of the budget.

 Consultants
 It is often the case for organizations without much ERP implementation experience
to use implementation partners such as consultants.

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 People and Organization
(Cont’d)
 Change Management
 This helps prepare for changes to how business is done. In implementing new
systems, communicating, preparing, and setting expectations is as important as
providing training and support.

 Business Process Re-engineering

 Business processes will need to be changed, adjusted, or adapted to the new
system to use the functionality of an ERP system fully.

 Global, Ethical and Security Management

 Outsourcing overseas, ethical issues, and problems with system security have
also attracted a lot of attention in ERP implementation.

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ERP Market Tiers

Activity:

• Identify the top 10 ERP vendors

• Identify the top 10 ERP software – provide
appropriate description for each software

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 Software Extensions and
Trends
 As e-Business firms started growing bigger with advanced needs in HR,
accounting, and warehousing, non-ERP vendors were unable to support their
requirements.

 ERP vendors were starting to expand their functionality to the Internet and e-
Business.

 Intense competition and fluctuating sales have forced the ERP vendors to
expand functionality to add value.

 The saturation of the demand in big business and the lucrative nature of the
small and midsized business markets have led vendors like SAP and Oracle to
enter the small business market.

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 Software Extensions and
Trends
 SOA (Service Oriented Architecture) implementation will continue to grow as
a factor in ERP purchase decisions because vendors are using creative
marketing around product strategies versus buying what is currently
available.

 Another shift is toward recurring and variable revenue models - Maintenance

charges driving industry growth.

 The other major revenue shift is toward software as a service or hosted

subscription-based applications.

 Social networking and open-source software solutions are also poised for
significant growth.

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 Implications for Management
 ERP systems implementation is a complex organizational activity.
◦ Important to evaluate and learn from the successes and failures.
◦ Managing risk is all about keeping project focus and clear communications
throughout the organization.

 ERP systems implementation requires strong project management oversight.

 ERP systems provide improved and added functionality for an organization.

 ERP systems are set to proliferate globally.

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 Summary

 Whereas the risks for implementing an ERP are greater, the payoff is very
high for organizations.

 The integration of data helps an organization to better meet the demands of

a fast and dynamic business world.

 The use of ERP systems provides for integrated data and business processes,
thereby creating opportunities for organizations to expand and change as
their business changes.

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 Summary (Cont’d)

 ERP components consist of hardware, software, information, process, and

people to perform the fundamental phases of an information system: input,
process, and output.

 ERP system architecture is a blueprint of the actual ERP system. There are
two types of architecture: physical and logical.

 The selection of a system must be based on the needs of the organization

and how well a vendor meets those needs now or in the future.

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 Summary (Cont’d)

 To be successful in implementing an ERP system, an organization and its

management must clearly understand the implementation process.
◦ The key to this is the application of an ERP life cycle and methodology throughout
an implementation.

 People and organizations are an important part of the implementation

process. Without in-house experts, either the software vendor or a third
party should be hired and used to assist or lead the project.

 Whereas ERP implementations are costly in time and resources, the greater
costs are in process change, system maintenance, and remaining current.

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 Review Questions
1. How is the role of ERP system different from traditional TPS, MIS, DSS, and
others? Can an ERP system support all levels of management?
2. Discuss the evolution of information systems in an organization. How can
the use of ERP systems remove information or functional silos in
organizations?
3. Among all the ERP components listed in the chapter, which component is
most critical in the implementation process and why?
4. Discuss the role of ERP in organizations. Are ERP tools used for business
process reengineering (BPR) or does BPR occur due to ERP
implementation?

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Review Questions (Cont’d)
5. Why is the design and selection of ERP architecture crucial for the
implementation project? What are the long-term implications of
selecting a wrong architecture?
6. Discuss the criteria for selecting ERP vendors. Which is the most
important criteria and why?
7. From the examples provided in the chapter on ERP success and
failure stories, what are the critical success failures?
8. What are the critical steps of the ERP project cycle? Discuss the
critical success factors?

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