ERP

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53E - B u s i n e s s

ERP

Making a Case for Continuous

Support for ERP Systems

© 2008 The Icfai University Press. All Rights Reserved.

Enterprise Resource Planning (ERP) systems result

in efficiency and data consistency in a business. The

major requirement in today’s ever-changing business

situation is the need for a system which can evolve

as per the organization’s requirements. Static

systems can only respond to static situations. So,

the evolution of a new breed of systems like dynamic

ERP is essential. To have rapid change and response

models, it is very important that the ERP and the

actual business processes co-evolve. In such a

scenario, it will require a greater commitment from

the vendors and from mere implementers; the role

has to be that of co-innovators.

ERP

History

Enterprise Resource Planning (ERP) or Enterprise Systems (ES) is employed byorganizations for integrating and automating the business processes which in duecourse, leads to strategic value. Keeping this in mind, ES can be seen as composed oftwo dimensions: Business scope and information processing sophistication. It comprisesthe following elements:

Business DomainThe ES supports three different domainsóinternal to a firm, the value chain and a set ofcollaborative peers. Manufacturing, finance, HR come under the first domain whereassupply chain and peer networks fall under the second and the third domain. The internalprocesses are easy to connect but integration outside the internal area requiresmanagement attention and has to face system hurdles.

Information ScopeThis refers to the kind and level of information that is available. The information isgenerated at three levels ñ transaction automation, process management, and knowledge

Amit Saraswatand

Pankaj Madhani

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S e p t e m b e r 2 0 0 854

Making a Case for Continuous Support for ERP Systems

management. The current generation ERP systems are mostly considered to be passiveand they capture transactional data.

Transaction Automation Typically, ERP works on a model where there are standard business processes definedin the system. The organizational processes are either built or mapped around it. If theprocess in the organization and ERP do not match, they are re-engineered to fit into thesystem. The process becomes very fast as human involvement in transaction becomeslimited.

Process ManagementAt this point, the ability to take action on gathered data comes into picture. Here, theability of a system to work on certain predefined algorithms comes into play. Supposethe inventory gets depleted beyond the critical level, can the system generate an orderthat is optimum in every sense? Process management, of course, requires definingbusiness rules - that is a human beingís capability to understand what will happen in aparticular scenario. The next generation ERP systems, in all probabilities, will consist ofdecision capabilities. Decision capabilities do not mean that these systems will replacehuman beings but they are expected to help in reducing the chances of errors. Here, theamount and need of human intervention is reduced.

Knowledge ManagementThis is what the organizations target ultimately with the implementation of ERP. Theinteraction between systems and human beings becomes more collaborative and thesystem itself will have some decision-making capabilities. It can transform data intoknowledge through statistical processes such as data mining. It also means documentmanagement capabilities. And, in fact, most of the ERP companies have startedincorporating document management capabilities through Application Service Providers(ASPs). The future HR systems would contain detailed information about the knowledgeand skills of an employee, comments about a personís performance, and could evenmake recommendations about the kind of training the employee needs in order toupgrade his skills to meet the next level of responsibilities.

In 1990s, the difficulties with ERP implementation were assumed to stem fromorganizational change. This was mostly due to the time taken by the organization toacclimate to new ways of working and eventually realizing benefits. By the end of thedecade, however, stakeholders began to understand two other sources of implementationproblems. The first was the IT and business activity to understand the role of IT inimproving a process. Shared knowledge between IT and business process managers

Prof. Amit Saraswat is a Faculty Member at The Icfai Business School, Ahmedabad.The author can be reached at [email protected].

Prof. Pankaj Madhani is a Faculty Member at The Icfai Business School, Ahmedabad.The author can be reached at [email protected].

About the Authors


ERP

about how IT could be used for improving the business process was found to have amajor impact on the performance of the particular process. In short, it became clear thata business process transformation would be successful only with the involvement ofthe business process owner.

Why Current ERP Systems have Fallen Short of Expected Returnon Investment

The following five issues have been identified as difficult areas for ERP users:

Increased Complexity of the IT LandscapeThe solutions now span multiple platforms and technologies. The resulting complexityaffects aspects such as IT strategy, implementation, testing, solution development andIT production. Business processes that span multiple functions are another area ofconcern. Without integrated data in the analysis of the productivity or effectiveness ofthe process, it is impossible to make improvements. It means that there is a need tointroduce data mining and other techniques, so that results can be measured and goalscan be achieved.

Increased Interdependence on PartnershipsAs the systems are now involving partners, the dependency of the latter on the formerincreases. Companies are also depending on their partners for certain business functions.A downtime will result in losses, both for the company and the partner. Now the cost ofdowntime is not confined to the company, but it passes down the entire value chain. Ifthe partners have heterogeneous and non-stable systems, business-critical processesmay not be integrated.

Organizational OppositionThe continuous refusal of the organization to adopt new methods of working is alsoone of the greatest risks and this happens mainly due to the lack of training and propersensitization.

Cost Overruns and InefficiencyBecause of the overall process slowing down in an organization, most organizationshave their implementation not being delivered on time. The lag in the implementationof ERP in an organization is due to the slowing down of the overall process.

Underachieving Expected Return on InvestmentProductivity can increase significantly with the extension of business applications. Ifthe implementation keeps pace with ongoing business changes and technologicalinnovations, it can deliver higher Return on Investment (RoI).

Various studies have found that there are four elements that are crucial to maximizingRoI. They are as follows:

ï End-user involvement.

ï Solid governance, backed by senior management.

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ï Focus on business results.

ï A smooth-running project with efficient time and resource management.

Most of the companies have implemented ERP; the challenge faced by these ERPsystems is that they have standardized business processes, whereas the companyís needskeep on changing. This would mean that there is a need for systems are more adaptableto the changing environments.

The implications for the ERP systems would be:

ï The implementation partner and the customer should have long-term agreementsand objective Service Level Agreements (SLAs). They should don the role of a co-innovator. Let us understand this in a different context, when all the companiesadopt ERP or ES, the competitive gain of using an ES is diminished. The situationbecomes worse when the market has most of the implementations from a singlevendor. Example, SAP in India.

ï Most of the firms are now moving towards service dominant logic of marketing.This means there would be more reliance on serviceprinciples for the entire organization. The ERP systemshave to be capable of supporting the logic.

ï The systems should be such that the business processowner should also be involved. That means thearchitecture of the systems should be such that it isaligned to the business process needs.

Continuous Involvement of theImplementation Partner

The resources that are being spent on developing strategiccapabilities through IT, are coming under scrutiny. Theareas of concerns for every CEO are systems coming in late or being over budget.Understanding the need to manage and control risk and costs, SAP recently conducteda market study of more than 500 customer decision makers across 19 industries. Therespondents were asked to rate the potential services a software company could providethat would help mitigate risk and solidify higher returns on investment.

Most responses were in favor of SLAs. The basic principle behind this can beunderstood as guarantee-a guarantee that ensures the involvement of the implementationcompany. The conclusion is that implementation partners must be willing to supporttheir customers throughout their life cycle of the software. To maximize RoI the serviceshould guarantee the following: (Refer Figure 1)

ï An assessment and plan.

ï Proactive assistance with operations and system landscape planning.

ï Full engagement of end users during implementation to ensure their understandingof the business value.

Productivity canincrease with

the extension ofbusiness

applications


ERP

ï Minimized unplanned downtime by resolving problems on the spot.

ï A SLA on response and corrective action.

ï A support advisor who serves as single point of contact.

ï Improvement of operations by maximizing the potential of each application.

Service Management and ERP

Table shows the focus of a service management software and a traditional ERP.

Both software systems have something in common:

They need the same data! (Refer Figure 2)

There is a need to integrate service management and ERP. (Refer Figure 3)

Service Management ERP

IT-Costs Finance

• IT-Reporting • Balance Sheet

• IT-Controlling • Chart of Accounts

IT Operations Production

• Requests • Bill of Materials

• Problem Management • Order Management

Asset Lifecycle Asset Lifecycle

• Configuration and Delivery • E-Procurement

• Change Management • Configuration and Delivery(Information Technology InfrastrcutureLibrary (ITIL)) • Production Inventory Management

• Infrastructure Inventory Management

Service Levels Purchasing

• Relationship Agreement • Vendor Relations

• Service Management • Requisition and Payments

Table: Focus of Service Management and Traditional ERP

Source: Enhancing and Maintaining IT RoI: The Case For Ongoing Support, Sap Insight.

Figure 1: Adding Value Over Time

Source: Enhancing and Maintaining IT RoI: The Case For Ongoing Support, Sap Insight.

Continuous ImprovementRisk Analysis and MitigationInformation

UnderstandCustomerSolution

IdentifyTechnical

Risks

AnalyzeOperations

IdentifySolution

OptimizationPotential

ImproveBusinessProcess

Performance

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The combined business flow between service management and ERP apprehendsprocess optimization.

This brings the real value addition to the leading business process.

This can be understood with an example of an integrated IT process. (Refer Figure 4)

The Case of Architecture Maturity and ERP Usage MaturityAlignment

One important issue that arises is to align ERP and business process needs is therequirement of architecture maturity and ES usage maturity. Architecture maturityensures evolution of ERP systems and makes them dynamic. System usage maturityensures greater involvement of business process owner.

Figure 2: Requirements of ERP andService Management

Source: Service Management and ERP,Remedy Presentation.

Figure 3: Integrating Service Management and ERP

Source: Service Management and ERP,Remedy Presentation.

Source: Service Management and ERP, Remedy Presentation.

Critical detailed business processes

Supporting IT Processes

Figure 4: Key Business Processes

Purchasing Production Storage Shipping Sales

CustomerOrders

A Product

Delivery has tobe within 12

hours

Customer callsLaptop is broken

Analyzethe mistake

Decision: OrderNew Laptop

Open PurchaseOrder

Order at aSupplier

Frictionless IntegrationNo Data Duplication

No Extra Effort Necessary

IT P

roce

ssB

usin

ess

Pro

cess


ERP

ERP from the systems point of view is a system of data warehouses, applications ofenterprise application integration technology and information systems supporting theentire gamut of business processes.

Enterprise Architecture (EA) means constituents of an enterprise at two levels ñ one,the organization level (roles, business units, processes, etc.) the other is technical level(information technology and related technology).

Thus, EA means how the constituents are related and how they jointly create value.In architecture field different maturity models have been developed, they are calledArchitecture Capability Maturity Models (ACMMs). Though these models focus onlyon architecture and various integration possibilities do not come under their purview.

Maturity models for use in ERP are available in the literature, the pioneers beingChristopher P Holland, Ben Light, These models focus on challenges faced by organizationsafter implementation of ERP. So they mainly focus on ES implementation and usage.

Thus, new types of frameworks can be used to create and asses how well businessprocesses and systems are aligned in organizations.

One of the effective models available is the modellinked to balance score cards. The IT Balance scorecard (ITBSC) model jointly considers the IT and business issuesjointly in an organization. The four criteriaís in the IT BSCcould be put as:

ï Customer Orientation ñ how the IT function shouldappear to internal customers and should answerinternal questions.

ï Corporate Contribution is the contribution that IT canhave in the success of the organization.

ï Operational Excellence tells us which service and process should be supported byIT, and

ï Future Orientation focuses on the ability to change and improve the IT to better addup to companyís success.

Conclusion

ES does not exist in vacuum; they are sold with a hope that they will provide value tothe organization that implements them. Business value is the final derivative of ESs.Many companies have achieved strategic advantage out of the ES implementations, andtheir business environments are also demanding certain kind of changes. In this widercontext, the ways in which ERP will deliver value to the organization will change andthese changes will have impacts on the ESs. This article is an attempt to see how the ESswould change in the future. The only way to make them relevant is through seekingcontinuous support from involved parties.

Reference # 07M-2008-09-09-01

EB

ES does not existin vacuum; theyare sold with a

hope that they willprovide value tothe organizationthat implements

them

Documents

ERP