Exploring ERP Implementation Readiness and Risks

1. IS6600 - 6 Enterprise Resource Planning (ERP) Global Cases: Integration and Planning for the Extended Enterprise

2. Information Systems Change Business...

3. Learning Objectives • Explore systems integration • Appreciate potential problems and risks associated with the design, implementation and use of ERP systems • Culture, People, Process • Case based illustration of what works and what fails in organizations

4. ERP… • “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)

5. ERP • ERP usually focuses on • Human capital management • Finance and • Procurement • Sales and distribution • Extended ERP often refers to: • business operational systems such as CRM, SCM and product life cycle management (PLM). • ERP and Extended ERP are closely linked

6. ERP Modules Cover Functions Like: • Financials • Investment Mgt • Fin Accounting • Fin Control • Fixed Assets Mgt • Billing • Logistics • Sales & Distribution • Materials Mgt • Production Planning • Quality Mgt • Sales Force Automation • HRM • Workforce Mgt • Workflow Mgt • Procurement • Network Mgt • CRM, SCM, PLM • KM • Business Analytics

7. 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

8. An ERP Example at CityU • We have an ERP called AIMS (http://www.cityu.edu.hk/esu/aims.htm) • Staff, Student, Alumni • Payroll, Leave, Benefits • Course management, Contacting students • Departmental/central administration • 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

9. Where is the ERP? • Traditionally, ERP systems were large scale, expensive and installed inside the corporate HQ • The ERP vendors sold a fixed ‘licence + maintenance’ package • Over the last decade, this has been changing with the development of the Cloud and SaaS. • Now ERP can be scaled to need and rented

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. ERP Readiness • Readiness is not a word that is much used by CIOs, Project Managers or even Senior Executives • ERP is either seen as being purely technical, or it is seen in cost terms, or how quickly it can be installed • But is the organisation and its people and culture actually ready for ERP?

12. Measuring Readiness • No organization can ever be 100% ready, but can readiness be measured? • Taking readiness seriously can help to increase the chance of success • There are a number of contributors to readiness, each of which needs to be examined in some detail

13. Readiness Factors I • Are the business processes working? • This is not the same as “Is the software working?” • Business process success is what the key business stakeholders experience, not what the CIO thinks

14. Readiness Factors II • Are employees ready for the cultural and organizational changes associated with ERP implementation? • If they are not, then trouble lies ahead • If they don’t want the ERP, then either they go or they change or the project fails • Lots of training needed • But jobs and work will also change

15. Readiness Factors III • Deadlines are dangerous • A strict deadline imposed for political reasons by senior management is a recipe for disaster • If the organization is not ready, forcing completion to a deadline will lead to high levels of risk of failure, as well as potential losses if there are unhappy customers

16. Readiness Factors IV • Executive Support • You need all your senior executives to be on board • An ERP project is a top priority and demands top commitment • Strategy • How will you measure if the ERP is successful? • What are the KPIs for better performance?

17. Readiness Factors V • Project Management Team • It is essential to have the right team in place before you start • The project manager must understand the whole business • Who are the best resources to involve in the project? Are they available freely?

18. Readiness Factors VI • What is the intended ROI, including time period? • Do you need to convert data? Are you ready for that? • Do you have a project governance model? • Do the key team players have budget and personal authority to make decisions?

19. 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.

20. Why Fail? • Confusion about which vendor and product(s) • Lack of transparency about functionality, cost, implementation. • Unrealistic expectations for budget and deadline • Vendors fail to understand the core business operations of the client • Customization >> Complexity

21. What about 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

22. Industry Overview • ERP vendors like SAP and Oracle sell a 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

23. ERP Vendors Tiers (1 of 2) • Client Size and Financials • Tier 1 - generally served large global businesses • Tier 2 - served mainly mid-market businesses • Tier 3 vendors typically served smaller-than-medium-sized businesses. • Scalability and Complexity • Tier 1 solutions could traditionally scale up better than most tier 2 solutions because of the breadth of functionality needed to cover large and often global businesses which generate enormous numbers of transactions daily.

24. ERP Vendors Tiers (2 of 2) • Global Support • Tier 1 vendors were more likely to offer support anywhere in the world • Tier 2 vendors would usually be present in a limited number of countries or regions • Tier 3 vendors were generally local and operated within one country.

25. ERP in China • SAP works with Alibaba Cloud • Oracle works with Tencent Cloud • Yonyou & Kingdee • While on-site implementations still exist, SaaS is seen as the growth market • Oracle bought NetSuite (US$9.3B) and aimed to make it available in China • NetSuite is likely to be localised for the China market

26. ERP and the Cloud • There is a battle between pure-SaaS vendors and traditional ERP vendors who are transitioning to the Cloud • There is likely to be a major shift from on-site ERP implementation to Cloud-based ERP in the next few years • But ERP in the Cloud is not the same as pure SaaS-ERP • What are the differences?

27. Digital Disruption and the ERP Transition • There is a migration underway from expensive and bulky on-site ERP to agile and scalable SaaS • SaaS-based software is more flexible, easily updated, quickly implemented, mobile-friendly, advanced-analytics • Compared to ERP systems designed a decade or longer ago

28. Time and Agility • Traditional ERP takes months to years to prepare for and implement • SaaS ERP is faster, since the software is rented from the vendor and there is no need to buy/install databases, hardware, infrastructure, etc. • But the business processes may need to be modified to fit the software • Some SaaS vendors permit local customisation

29. Upgrades • Upgrading ERP used to be a complete nightmare – expensive, resource intensive, and too time consuming • With SaaS the vendor does the upgrade • Internal staff can now focus on business improvements not ERP maintenance

30. Who Needs SaaS ERP? • Most valuable for firms that need flexibility to grow or change in an era of digital disruption • May not be valuable for large multinationals and firms with complex operational requirements who find Saas too constraining or immature

31. Cloud-SaaS Variants I • A pure SaaS should involve a subscription model, hosted and managed by the software vendor and delivered on a multitenant basis – all clients get the same software that is auto-updated for all at the same time • Examples include: Oracle NetSuite, Intacct, FinancialForce, SAP-Business by Design

32. Multitenancy • All customers get the same software • This reduces costs for the vendor • Upgrades are less disruptive • Minor bug fixes are easier to arrange • But you refuse the upgrades at your own risk!

33. Cloud-SaaS Variants II • Traditional on-site vendors like SAP and Oracle also offer their regular ERP solutions in the cloud, sometimes on a single-tenant basis (with variable updates), hosted in their own cloud or partners’ (e.g. Alibaba, Tencent, Microsoft) or on-site • These are sold on a licence + maintenance, not rent, basis

34. Cloud ERP ≠ SaaS ERP • Cloud ERP involves traditional ERP solutions developed for and hosted in a Cloud (as opposed to on-site) • Users are able to customize and manage the application • SaaS ERP involves a new breed of ERP developed for the Cloud with principles of agility and flexibility in mind • For multitenant, users lose some control over the management and customization of the application

35. Assessment Strategies 1 • Can your current vendor take you to SaaS? • Do you want to stay or move? • Deploy a hybrid model, with a SaaS ERP in subsidiaries, but keep on-site ERP in HQ • The subsidiaries act as pilot test-beds • Added level of complexity for data integration • How will you replace ageing on-site ERP? • Don’t delay for ever!

36. Assessment Strategies II • Choosing the deployment process that is right for you • A multitenant SaaS approach can work well for more agile firms • A single tenant Cloud approach can work better for larger firms or MNCs that require more customisation or flexibility to decide when to upgrade so as to minimise business disruption.

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

38. 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 Oracle

39. ERP Cases • SinoForce (pseudonym) • Lenovo

40. 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

41. 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.

42. 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.

43. 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

44. 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

45. 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.

46. Common Characteristics of Failed ERP Projects • Seldom completed on time • Projects seldom improved cycle times or customer satisfaction • Most benefits were reduced labour costs and inventory levels • 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

47. Lenovo’s SAP 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

48. Lenovo’s SAP 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.

49. 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.

50. 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.