Enterprise Resource Planning

OEMBASpring 03

What is ERP?

Software that links applications across enterprise with shared data

Most notable characteristics? Expensive, complex, difficult to implement

Major Players?SAP: Systems, Applications and Products

(30%) R/2 – Mainframe integration of financial and

operational applications (1979) R/3 – Unix-based client-server (1994)

Oracle (10%): FinancialsPeoplesoft (7%): HRJD Edwards (10%)Baan (6%)

Why move to ERP?

Stabilize and improve business processes Standardize manufacturing (21%) Reduce inventory

Improve level of systems integration Financial (36%), customer orders

Improve IT responsiveness & information quality

Y2K

Key Issues/Risk?

Implementation and CostStandardization of business processes

Diminish competitive advantage? End-user acceptance of process change?

Typically requires new technologies Especially if migrating from legacy system

History of budget/schedule overrunsHigh “not successful” rate – 50-70%

What drives cost?

Implementation: 3-10 times software cost Shortage of experienced people

Only needed for “implementation” Must upgrade underlying infrastructure

Need “middleware” Change business processes

Existing processes are not “enterprise-wide”

Other “Hidden” Costs

Training – most underestimated budget itemIntegration and testingCustomization

Easy to change business process to match software

Data conversionUsing best and brightest on projectContinual implementation

Cisco Case

Who is Cisco? Are they an “Information age” company?

Industrial Age: Profit from design, production and sale of tangible products

Information Age: Creating value with technology

Cisco Case

What was their corporate strategy? Core competencies”

“Customer intimacy”One stop Shopping - broad product lineWorking toward uniform industry standardsMaintain key alliances

Growth through acquisition Outsource manufacturing (not a core competency)

Cisco What “triggered” Cisco to move to ERP?

Traditional IT organization did not align with business strategy

Cost Center Internally focusedCurrent systems lack flexibilitySystem capacity will not accommodate growth

Legacy environment failed causing the need for immediate action

Research possibility of an integrated systems application approach

Design the entire IT system then adapt organization structure to support this

Cisco

Resulting ERP System – standardized 100% UNIX at the server level 100% Windows NT at the LAN level 100% ‘Wintel” at the client level 100% Oracle at the database level 100% TCP/IP for worldwide network Standardized software Web as standard user interface

Cisco

Stated Cost ERP Investment: $15 m Web-enablement investment” $100 m

What were the “real” ERP costs?

$15 million, 9 months Only 20 people on “core” team

Additional people (total of 100) 80 people * 160 h/mon * 8 mon * $50/h = $5.12m

IT “decommitted” other projects 100 IT people * 80% committed * 4.5 months * 160 h/m

* $50/m = $2.9m Hardware contract: avoided undersize costs

$15m * 32% hw expenditure * 50% avoided = $2.4m

Key Components of Strategic I-Net? Real-time messaging Data warehouse All workers had client Browser interface Web site (18 million pages) Self-service Information transparency Extended enterprise Minimal knowledge management

Cisco: Considers ERP successful.What were key characteristics of

implementation?

“Best people” “Can-do” attitude Mgt Commitment High priority Rapid Implementation

Big Bang (not phased) Prototyping

Minimal modification strategy

Focus on standards Vendor alliances

Financially strong Hungry Included on teams

Experienced consultants

Capability-based hardware contract

What were key obstacles?

Poor Testing StrategyImmature softwareUndersized technical architecture

What were the benefits?

After 2 years, identified $550 m in benefits B2B Sales: 0 in 1996, $18 billion (92%) in 2000

Reduced Cisco’s cost by 60%, customers by 20% 80% of customer service requests handled

electronically 65% direct ship (from manufacturer to customer) Internal EIS Desktop training

Tektronix

Who is Tektronix? Information Age vs Industrial Age

What was their corporate strategy?

Tektronix

Analyze the Tektronix infrastructure before ERP Lack of integration between systems

ProblemsLack of global standardsRelics from when company had 26 divisions

Business ImplicationsCould not ship immediately – no inventory visibility

beyond Beaverton, manual expeditingMultiple entries for each order – errorsTakes weeks to close books

Tektronix Infrastructure (cont’d)

Old Technology Problem: 1970’s proprietary technologies Implications: Expensive and difficult to integrate

Non-Standard Business Processes Problem: Different all over the world Implications: lost efficiencies

Is Tektronix’s situation typical?

Managing Implementation Risk

What concrete steps did Tektronix take to manage the risks involved in such a large and difficult project?

Risk Management (Cont’d)

Coherent guiding vision Separability of business

Three divisions are very differentRequirements of one should not drive another

Leverage Shared ServicesConsolidate common functionsNeed comparable performance measures

Plain vanillaMinimize changes to ERP softwareChange business processes, not the software

Adaptive Implementation

Contrast Cisco and Tektronix implementation approaches. What are the pluses and minuses of the staging

approach? Was the staged approach a better idea than the

big-bang approach for Tektronix?

Characteristics of Adaptive Implementation

Iterative Outcomes and interactions tested as they occur

Fast cycles that deliver value Deliver functionality to end-users early in project

Incorporate feedback Highly skilled project personnel

Must be capable of making mid-course adjustments Resist ROI

Resist ROIAllen’s statement

“There was hardly any desire on Carl Nenn’s part to do some big return on investment analysis…” pg 3

“There are a lot of operational improvement initiatives going on around here. How much cost savings is directly related to the system? I don’t know, and we don’t really care. We know ERP is an enabler, and [these improvements]] wouldn’t have happened without it.” pg 12

Standardization and Customization

How do you manage the perceived need to customize the system? “We’re special” vs resistance to change? Local optimization vs company-wide

efficiencies?Issues with customization

Complex and expensive Generally wiped out when upgrade

How did Tektronix deal with customization?

Used “wrappers” Layers of code outside the system code

Basically used hooks into the system codeWhen upgrades, had to account for changes in these

hooks, but majority of logic was intactToday, would use XML

More lines of code in the wrappers than in the ERP product

Was ERP a success at Tektronix?

Relative to Cisco?What about lack of ROI?

Lessons Learned

Clear definition with a short term goal can drive a multi-divisional solution adequate expert resources needed one driver with corporate & divisional sponsorship

IT must be tied to corporate strategy otherwise it will be viewed as ineffective

Partnerships are critical for long term success Clear sense of vision and strategic fit narrows

choices and guides platform development