IS605/606: Information Systems Instructor: Dr. Boris Jukic Putting the Enterprise into the Enterprise System Reading Discussion

ERP Challenges Corporate Examples – Merger Issues: Mobil Europe – Management Model Fit: Dell Computer – Architecture Switch: Dow Chemical – Organizational Change: Applied Materials ERP paradigm may be at odds with what is good for an organization – Centralization – Generic Processes Process ceases to be a source of competitive advantage Potential rewards are great but so are the risks

ES (Enterprise Systems) Rationale Data Fragmentation in organizations – Redundancies, multiple points of the data re- keying, storing, updating and maintenance System Fragmentation in organizations – Losses due to the lack of the proper, real-time information flow ES is based on single enterprise-wide database

ES approach success stories IBM's Storage Systems – Product re-pricing time reduced form 5 days to 5 minutes Autodesk – Average order delivery time reduced form two weeks to under 24 hours Fujitsu Microelectronics – Order cycle time reduced to 36 hours from 18 days What do all these companies have in common?

System vs. Strategy Standard way: software fits the business process ES way: business process must fit the software – ES is a generic solution. – Based on assumptions about the way companies operate in general. – ES is supposed to reflect best practices, vendor, not the customer, is defining what "best" means. – In some cases, ES assumptions may run counter to a company's best interests.

ES customization ES systems are modular – Organizations can “mix and match” to some degree Major intra-module modifications are typically not technically or economically feasible "SAP isn't a software package; it's a way of doing business." What if process is THE source of competitive advantage (order filling for spare parts example)

Commoditization of the Business Process SAP's R/3 package is being implemented by almost every company in the personal computer, semiconductor, petrochemical industry. How to compete? – Not a problem if a company's competitive advantage derives primarily from the distinctiveness of its products (Apple Computers) – Proprietary (in-house developed) modules for those processes that are the source of competitive advantage (Compaq) – Do not invest in ES (ERP) and use savings to compete on lower prices and not better service (Air Products and Chemicals) – Industry wide adoption of one package: compete on how well (and how inexpensively) the package is implemented and operated (SAP/Petrochemicals Industry)

Organizational Impact: Two Opposite forces Corporate-wide real time data flow Centralized system structure

Organizational Issues in Multinational Companies Global process model: – Example: Owens Corning Federalist Model – Core common information module – For other needs, roll out different versions of the same system in each regional unit, tailored to support local operating practices – Examples; HP, Monsanto(85% common standards), Nestle Elf Atochem Case: In-class summary and discussion

Final Comments: Role of Management Managerial risk in viewing the installation of an ES as primarily a technological challenge. – ES responsibility pushed down down to IT departments. ES' has profound business implications – technology itself might undermine a company's strategy Off-loading responsibility to technologists is particularly dangerous. General manager should act as the mediator between the imperatives of the technology and the imperatives of the business. If the development of an enterprise system is not carefully controlled by management, management may soon find itself under the control of the system.