Pageiii

MissionCritical
RealizingthePromiseofEnterpriseSystems
ThomasH.Davenport

Pageiv

Copyright2000PresidentandFellowsofHarvardCollege Allrightsreserved PrintedintheUnitedStatesofAmerica 040302010054321 LibraryofCongressCataloginginPublicationData Davenport,ThomasH.,1954 Missioncritical:realizingthepromiseofenterprisesystems/ ThomasH.Davenport. p.cm. Includesbibliographicalreferencesandindex. ISBN0875849067 1.Managementinformationsystems.I.Title. HD30.213.D382000 658.4'038'011dc21 99051644 Thepaperusedinthispublicationmeetstherequirementsofthe AmericanNationalStandardforPermanenceofPaperforPublications andDocumentsinLibrariesandArchivesZ39.481992.

Pagev

Contents
Preface Acknowledgments 1 WhatAreEnterpriseSystemsandWhyDoTheyMatter? 2 ThePromiseandPerilsofEnterpriseSystems 3 ShouldMyCompanyImplementanEnterpriseSystem? 4 LinkingEnterpriseSystemstoStrategyandOrganization 5 LinkingEnterpriseSystemstoBusinessProcessesandInformation 6 AchievingValueduringEnterpriseSystemImplementation 7 TransformingthePracticeofManagementwithEnterpriseSystems 8 UsingEnterpriseSystemstoManagetheSupplyChain 9 TheFutureofESEnabledOrganizations Appendix ATechnicalOverviewofEnterpriseSystems Notes Index AbouttheAuthor vii ix 1

29

55

105

135

169

203

237

265

299

313 321 335

Pagevii

Preface
I'massumingthatyouareamanageroranemployeeinanorganizationthat'sputtinginamissioncriticalenterprisesystem,orperhapsaconsultanttosuch organizations,ormaybesomeonewhoworksforavendorofthesesystems.Youmaybewelldowntheroadofimplementingasystem,oronlybeconsideringgetting involvedwithenterprisesystemsasanorganizationorasanindividual.Youmayhaveevenimplementedasystemthathasn'treallydeliveredthebenefitsyou expected.Inanycase,you'dliketomakeyourselfmoresuccessfulbyhelpingyourorganizationoryourcustomer'sorganizationbesuccessfulwiththistechnology. Iwanttohelpyoubyprovidingabetterunderstandingofwhatenterprisesystemsareandwhattheycanaccomplishinanorganization.I'lldescribehowother organizationshavedonewellanddonepoorlyintheirownimplementationefforts.Theemphasisthroughoutthebookwillbeonachievingthebusinessobjectivesthat thesesystemsmakepossible,notonthetechnicalaspectsofaproject.Forthattypeofadviceyou'llhavebetterluckwithbooksthataddressspecifictypesof enterprisesystems.(Forexample,NancyBancroft's1996bookImplementingSAPR/3[Greenwich,CT:ManningPublications]isagoodsourceonSAP implementations.)HereI'lltakethehighroadandnotdelveintotechnicaldetailsconcerninganyparticularvendor'ssystem. Awordaboutmyexperienceandbiases.Iamaresearcherandconsultantwhoworksattheintersectionofinformationsystemsandorganizationalbehaviorand change.I'veledorparticipatedinthreedifferentmulticompanyresearchprojectsonenterprisesystemsmanagement,andconsultedwithmanyindividualfirmsonhow togetvaluefromthem.Atthetimeofthis

Pageviii

writingI'vedoneresearchorconsultinginoverfiftycompaniesthatareimplementingthesesystems. Mygeneralperspectiveisthatinformationsystemsareworthlessunlesstheyleadtobetterinformationorbetterwaysofdoingbusiness.Ithinkthatenterprisesystems arewithoutdoubtanimpressivetechnicalfeat,butIamprimarilyconcernedthatorganizationsgetbusinessvaluefromthem.Iworkforanorganizationthatmakesa gooddealofmoneyfromimplementingenterprisesystems(or"EnterpriseBusinessSolutions,"asthepracticeiscalledwithinAndersenConsulting),butthisisnota bookdesignedprimarilytopromotemyemployer'sservices(thoughIdothinkhighlyofthem!). Iwilladdressthemessagesinthisbookprimarilytotheorganizationsthatwantstrategicchangeandcompetitiveadvantageandarewillingtotakethetimeandspend themoneytoachievethem.However,ifyou'relookingforafast,strategicimplementation,mostoftheadviceIprovidewillstillapply.You'lljusthavetodecide what'smostimportanttoyouandlimitthebreadthofyourambitions.Everybodyhastocompromisewithenterprisesystemsit'sjustamatterofhowmuch. Onecautionarymessage:Insomecasesit'sstilltooearlytotellwhetherthesesystemswillbesuccessfulwithinagivenorganizationoverthelongterm.Giventhat virtuallynoorganizationisfinishedwithitsproject,it'sstillearlyfordispensingadvice.Ontheotherhand,peopleworkingonthesesystemsneedhelp.It'ssurprisingto methattherearen'tmorebooksonthisveryimportanttopic,giventhatmanyorganizationshavebeenworkingonenterprisesystemsforseveralyears.Althoughno onehascompletedabroadbusinesstransformationbasedonanenterprisesystem,manyhavemadesubstantialprogress.Tomeit'sworthdealingwithabitof uncertaintyinordertogetsomesortofmessageoutwhilemanypeopleandcompaniescanstillbenefitfromit. THOMASH.DAVENPORT NOVEMBER1999

Pageix

Acknowledgments
Thisbookisinmanywaysanextensionofmyworkonbusinessprocessreengineering.WhenIbecameawarethatcompanieswereadoptingenterprisesystemsin ordertoachievetheirreengineeringgoals,Icouldn'tresistfindingouthowitworked.IhaddoneconsiderableworkonreengineeringattheCenterforBusiness Innovation,andthat'swheremyearliestresearchonenterprisesystemsbegan.IworkedwithRudyRugglesonamulticlientprojectthereI'mgratefultohimandtoall thefirmsthatparticipatedinthatandsubsequentprojects.Ithinkenterprisesystemsareoneofthegreatestbusinessexperimentsofthelatetwentiethcentury,andthe managersofthefirmsimplementingthesesystemsarethescientists. WhenImovedtotheUniversityofTexas,weinstalledSAPforinstructionalpurposes,andIbegantodiscussenterprisesystemsoftenwithtwofacultymembers there,LarryLeibrockandJudyScott.WhileIwasatTexas,IbegantoworkwithSAPAGonresearchandeducationalprojects.Duringthattime,SAPsponsored myresearchonhowcompaniesusetheinformationfromtheirSAPsystemstomanagetheirbusinesses,theresultofwhichbecamethenucleusofchapter7.Iam gratefultoSAPforitssupportandtoCarolineSayreofWaggenerEdstrom,SAP'spublicrelationsfirm,forarrangingtheproject. WhileatTexasIwasdraftedasasubjectmatterexpertfortwostudiesonenterprisesystemsimplementationoneattheAmericanProductivityandQualityCenter (APQC),andoneattheConcoursGroup.IwouldliketothankCarlaO'DellandJackGraysonatAPQC,andRonChristmanandBobMorisonatConcours.

Pagex

ShortlyafterIactuallystartedtoapplygraphitetocelluloseforthisbook,ImovedtoBostontodirectAndersenConsulting'sInstituteforStrategicChange,andto teachatBostonUniversity.AtAndersen,PeterFuchsgraciouslyconsentedtosupportthis"legacy"project.UndertheauspicesoftheInstitute,Icompletedthebook withhelpfromseveralpeople.JuliaKirbywrotethefirstdraftofchapter8andhelpedwiththemarketingofthebook.JeffBrooksandSusanCantrell,thenstudents atBostonUniversity(andnowInstituteresearchers),helpedconsiderablywithchapters9and4,respectively.BobBaginskygavemeaccesstotheexperienceand resourcesofAndersen'sEnterpriseBusinessSolutionslineofbusiness,andconnectedmewithitsleaders,KarlNewkirk,HapBrakely,andEileenBasho.My assistant,NoelleMcDonough,assistedwithcheckingquotationsandwithfinalpreparationofthemanuscript. ThisismyfourthbookwithHarvardBusinessSchoolPress,andIthinkthey'rethebestpublisheraroundofseriousbusinessbooks.Igreatlyenjoyedworkingwith HollisHeimbouch,myenthusiasticeditor.ThePresssentthebooktoGaryBanks(thenofXerox),GerryCoadyofJ.D.Edwards,andathirdreviewerwhoseidentity Icouldn'tdeduce.Allreviewerswerehelpful,butGaryBanks'scontributionsweretrulyextraordinary. Mywife,Jodi,helpedmeinanumberofwayswiththisbook,includinginterviewingsomemanagersofenterprisesystemsprojectsandreadingseveralchapterdrafts. Iknowshehadnointerestwhatsoeverinthetopic,sohercontributionswereheroic.Mysons,HayesandChase,arebecomingquiteblasaboutseeingtheirnames inprintinmybooks,butifIleftthemoutthey'dbeoutdone.

Page1

1 WhatAreEnterpriseSystemsandWhyDoTheyMatter?
Aroundtheglobecompaniesarequietlyandsteadilybecomingmoreconnectedonebusinessfunctionwithanother,onebusinessunitwithanother,onecompanyto another.Theyareputtinginformationsystemsinplacethatwillyieldmoreandbetterinformationmorequicklythantheyhaveeverknown.Forthefirsttimesincelarge businesseswerecreated,managerswillbeabletomonitorthedoingsofthecompanyinnearrealtime,withouthavingtowaitformonthlyreportsthatmustbecross referencedwithothermonthlyreports,allofwhichmaybeoutofdateorjustplainwrongbythetimemanagersreceivethem.Managerswillalsobeabletositin frontoftheirworkstationsandknowwhatishappeningateverypointaroundtheglobe. Forthefirsttimeever,informationwillflowseamlesslyacrossdiversebusinessfunctions,businessunits,andgeographicboundaries.WhattheInternetisdoingfor communicationsbetweenorganizations,thesesystemsaredoingwithincompanies.Forbetterorworse,nobusinesstransactionnocustomer

Page2

purchase,nosupplierinvoice,noproductproducedwillgounnoticedbythesesystems.Ultimately,everybitofcomputerbasedinformationusedforrunninga company'soperationscanbesuppliedbythesesystems.Thissituationsoundsutopian,butit'sactuallyavailabletodayifcompaniescanmasterarelativelynewtypeof informationsystem. Let'scallsuchinformationsystemsenterprisesystems(ESs).Alsoknownasenterpriseresourceplanning(ERP)systems,thesearepackagesofcomputerapplications thatsupportmany,evenmost,aspectsofacompany's(oranonprofitorganization's,university's,orgovernmentagency's)informationneeds.TheERPnamereflects themanufacturingrootsofthesesystemsit'samodificationof"MRP"(manufacturingresourceplanning)butinmyviewthesesystemshavesotranscendedtheir originsthatthesomewhatclumsyERPnameisnolongerappropriate. Fromaccountingtomanufacturing,fromsalestoservice,ESmodulessupportthousandsofbusinessactivities.Asidefrompersonalproductivityapplicationssuchas spreadsheetsandwordprocessorsonpersonalcomputers,highlyspecializedproductionsystemssuchasprocesscontrol,andInternetbasedsystemsforinformation andknowledgeaccess,anESmaybetheonlybusinessinformationsystemanorganizationrequires.Thisbreadthisoneofthekeyfactorsthatdistinguishesenterprise systemsfromearliersystems. Enterpriseapplicationsstartedoutas"backoffice"systems,automatingtheworkmanlikebusinesstransactionsthatcustomersneversaworcaredabout.Sure,ledgers neededtobeupdated,supplierspaid,andemployeevacationbalancesdebited,butaccuracyandspeedinthistypeoftransactionrarelyledtoanycompetitive advantageorincreasedcustomersatisfaction.Althoughbackofficesystemsmaynotoffercompetitiveadvantage,theydohaveimportantimplications.Poorly functioningbackofficesystemscanleadtodissatisfiedcustomers,suppliers,auditors,orregulators.Ifacompanycan'tgenerateanaccurateinvoice,meetapromised deliverydate,findamissing

Page3

shipment,orproperlyaccountforcostsandrevenues,itcangetinbigtroublequickly.Wellimplementedenterprisesystemscanmakewellexecutedbackoffice transactionsareality. Morerecently,however,ESshavemovedintothefrontoffice,supportingsupplychainoptimization,salesforceautomation,andcustomerservice.Thesenew functionshavebeenachievedeitherbyinstallingmorecomprehensivepackagesfromESvendorsorbyinstallingcomplementarysoftwareapplicationssometimes calledboltonsystemsfromthirdpartysoftwarecompanies.BecausethegoalistohaveaddedcapabilitiesconnectsmoothlywiththecoreESsystem,I'llreferto theentireentityasanES,eventhoughitmayconsistofseveraldifferentcomponents. Evenmorerecently,anewtechnologyhaslargelyerasedthedistinctionbetweenfrontandbackoffices.TheInternet,andassociatedinternalnetworkscalled intranets,istheidealtoolfordistributingandprovidingaccesstoinformation.Withjustabrowser,employees,suppliers,andcustomerscanallaccessthe organization'sinformation.Butwherewillthatinformationcomefrom?Internettechnologyitselfisnotsuitedforprocessingbusinesstransactionsorforstoringkey datait'saninformationaccesstechnology.Enterprisesystemsare,ofcourse,perfectlysuitedforinformationtransactionsthey'retheunderlyinginformationfactory producingtheinformationforinternalandexternalInternetconsumption.UsingtheInternettogiveemployeesandcustomersaccesstopoorquality,unintegrated informationislikeopeningmorebankbrancheswhenthecurrencyisworthless.Youhavetoworkonbothaccessandhighqualityinformationsimultaneously.The combinationofenterprisesystemsastheprimaryplatformfororganizationalinformationandofInternettechnologyforprovidingaccesstoitwillbethehallmarkof leadingorganizationsinthenewcentury. Whetherfrontofficeorbackoffice,bythemselvesorincombinationwithothertechnologies,ESsaredistinguishedbytheirinformationcommonalityandintegration. It'sgreattohavetheentirebusinesssupportedbyasingletypeofinformationsystem,

Page4

butwhatiftheinformationdiffersfromonepartoftheorganizationtoanother?Forthemostpart,thisispreventedinESsthroughtheuseofacommondatabasefor theentireorganization.Notonlycanonetrackcustomersthroughmarketing,sales,andserviceactivities,butthecustomer'sidentificationnumberandaddressare constantacrossthosedifferentapplicationsandbusinessfunctions.TheBabellikeinformationenvironmentsofmostlargeorganizations,inwhichthesametermmight meandifferentthingsindifferentpartsofthecompany,canbeavoidedaltogetherthroughtheuseofanES. Inshort,thesesystemsofferjustabouteverythingbusinesseswantfromacomputer.Theyserveupinformationinaformatthatanyonenotjusttechnologistscan understand.Theyemployclient/servertechnologythestateofthecommercialartininformationsystems.TheyevenworkwellwiththeInternet.Ifthesesystemsare sogood,whywouldn'teveryorganizationwantone? Infact,theydo.WithafewexceptionsI'lldiscusslater,large,mediumsized,andincreasinglyevensmallorganizationsareinstallingenterprisesystems:fromIowa Spring,whichhasabout$11millioninrevenues,toitscustomerGeneralMotors,whichismorethantenthousandtimeslarger.Publicsectororganizationsranging fromthe''city"ofRoundRock,Texas,totheVictoriaDepartmentofEducationinMelbourne,Australia,havethem.Insomeindustries,suchaspetrochemicals,every companyhasanES.Inothers,suchastheelectricalutilitiesbusiness,ESsarebeingadoptedatarapidrate.Eveninfinancialservices,oneoftheindustriesinwhich thesesystemshavebeenlesspopular,hundredsoforganizationsfromBankOnetoDaiIchiLifeInsurancehavetheminplace. ThesoftwareandhardwarespendingaloneforESsiswellover$15billionperyearworldwide,andprofessionalservicesfeesaddanother$10billion.Revenuesfor ESvendorshavegrownbetween50and100percentayear.Verylargecompanies,suchasHewlettPackard,Procter&Gamble,andIntel,speculatethattheirES expenditureswilleasilytop$1billionbeforetheyarefinished.(AsIdescribelater,theywillneverbe

Page5

finished,sotheirtotalcostswillultimatelybeevenhigher!)InsuchfirmsthecostofimplementinganESisordersofmagnitudehigherthan,forexample,themoney spentontheInternet,Websites,andelectroniccommerce. Ofcourse,witheverybenefitthereisrisk.AfewcompanieshavefailedatimplementingESsmanymorehavespentmorethantheyintendedorencountered resistancefrommanagersandworkerswhowereunpreparedforthechangesESsbring.Companiesarewillingandcorrecttotakethesekindsofrisksbecauseofthe impactthesystemscanhaveonquality,costreduction,andcustomersatisfactionandloyalty. Enterprisesystemsofferthefirstgreatopportunitytoachievetrueconnectivity,astateinwhicheveryoneknowswhateveryoneelseisdoinginthebusinessalloverthe worldatthesametime.Andbecausetheyrepresentthefirstgreatopportunityforconnectivity,theyposeoneofthegreatestthreatstothestatusquothatcompanies haveeverfaced.Becausecompaniesaremadeupmostlyofpeople,ESsmeanyouwillhavetochangepeopleandthewaytheydothingsatthesametimethatyou changeallthecomputersandthesoftware.ThatiswhyESsmaybemorerewardingandmorechallengingthananycomputersystemacompanyhasevertriedto install. BigSystems,BigChange Beingsuccessfulwithenterprisesystemsisnotsimplyamatterofwritingbigchecks.What'sreallyimportantanddifficultaboutthesesystemsisthedramatic changetheybringtoabusiness.I'llarguethroughoutthisbookthatanenterpriseprojectisasmuchaboutchangingthewayabusinessoperatesasitisabout technology.SuccessfulimplementationofanESdoesinvolveprobablythegreatesttechnologicalchangemostorganizationshaveeverundergone,nottomentionthe largestemployingclient/servertechnologies.Evenmoredifficultandimportant,however,arethemajorchangesinbusinessthatcomewithanESproject.

Page6

Businessprocesses,thewayworkgetsdoneinanorganization,changedramatically.Organizationalstructureandculture,thebehaviorsofworkersthroughoutthe company,andevenbusinessstrategyallhavetoberestructured.Thereengineeringmovementoftheearly1990s,withallitsradicalapproachestoreorganizing companies,turnedouttobeamerepreambletotheESera,whichhasbroughtevenmoreambitious(andcomplex)changes.Infact,thebusinessprocess reengineeringmovementhaslargelybeenreplacedbyESinitiatives.Giventheirbreadthandtechnicalcomplexity,ESprojectsareevenmoredifficultandconsuming oftimeandresourcesthanthelargestreengineeringprojects.ThemostambitiousESprojectscantakeadecadeormoreofacompany'stime. Implementingnewmissioncriticalsystems,then,ishardlyjustamatterofinstallinganES.Businessprocessesandinformationmustbemadecommonaroundthe worldwithintheimplementingorganization.Idiosyncraticwaysofdoingbusinessmustbeabandoned.Informationallinkagesbetweenbusinessfunctionsandunitsmust betightened.EmployeesmustbeeducatedaboutthebroadimplicationsofsimpleactionslikepressingakeywithinanES.Perhapsmostdifficultofall,senior managersmustbepersuadedofthewisdomofchangingvirtuallyeverythinginacompanyatonce.Inshort,organizationalchangerepresentsahugepartofa successfulESproject.ManagersatSteelcase,forexample,estimatethatuptohalfofthecompany'sprojectresourceswentfororganizationalchangeissues.A Monsantomanagerfeltthatchangemanagementactivitiesconstituted75percentofthetotalprojecteffortthere. Despitethesedifficulties,ESsaretheanswertotheInformationAge'swildestdreams.Theconceptofanintegratedsetofinformationtechnology(IT)applicationsthat couldmeetallofanorganization'sinformationneedshasbeenwithussincethebeginningofinformationsystemsinbusiness,buthasbeenunrealizablebeforethe modernES.Wehavegottenwhatwewishedfornowweonlyneedtomakethebusinessandorganizationalchangesnecessarytotakeadvantageofourfulfilled dreams.

Page7

BusinessBenefitsofEnterpriseSystems I'vealreadypointedoutthatESsaredifficulttoputinplacefrombothatechnicalandbusinesschangestandpoint.Whygotoallthetroubleandexpenseof implementinganES?Inanidealworld,ESenabledorganizationswouldbeseamlesslyinterconnectedbothinternallyandexternally.Excessinventoryandwaste wouldbenonexistent.Demandandsupplywouldbeperfectlycoordinated.Itwouldbejustaseasytotransactbusinesswithsuppliersandcustomersaswithanother departmentofyourowncompany.Customerswouldhaveperfectinformationaboutnotonlytheproductsandservicesthey'veorderedfromyou,butalsoabouthow everyaspectofyourbusinessaffectstheirs.Managerscouldunderstandanyaspectofacompany'soperationsandperformancewithafewclicksofthemouse. Thesebenefitsaren'tpurelyhypothetical.ManycompanieshavealreadyrealizedsubstantialbusinessbenefitsfromtheirESprojects,eveniftheyarenotcompletely finishedinstallingthem.Severalexamplesofthesebenefitsaredescribedinthefollowingparagraphs. 1.Cycletimereduction.Autodesk,aleadingmanufacturerofcomputeraideddesignsoftware,hasachievedsubstantialbenefitsintermsofcostandtimereductions inkeybusinessprocesses.Whereasthecompanyusedtorequiretwoweeksonaveragetoshiptocustomers,98percentofproductsarenowshippedwithintwenty fourhours.Financialclosingtimeswerecutinhalf,fromtwelvedaystosix.AutodeskcalculatesthatithassavedmoreonreducedinventoryalonethanitsSAP systemcosttoinstall. 2.Fasterinformationtransactions.IBM'sSystemStorage(diskdrive)divisionachievedareductioninthetimetoenterpricinginformationfromfivedays minimumtofiveminutes,replacementpartshippingwentfromtwentytwodaystothree,andcreditchecksthatpreviouslytooktwentyminutes

Page8

arenowaccomplishedinthreeseconds.Creditingacustomerforareturneddiskdriveusedtotakethreeweeksitnowhappensimmediately.Thedivisiononcespent thousandsofhoursreconcilingmanagementreportingdatathisnowhappensautomatically.IBMingeneralhastwentyoneSAPprojectsunderway,covering80 percentofitscorebusinesseightprojectsareupandrunning. 3.Betterfinancialmanagement.MicrosoftisinstallinganEStobringaboutcommonfinancialandprocurementsystemsworldwide.Thefastgrowingsoftware companyhasalreadysaved$2millioninequipmentdepreciation(itpreviouslytookthreemonthstostartthedepreciationscheduleforanewassetnowitcanbegin immediately).Thecompany'sEShasallowedittoreceive$14millionperyearinearlypaymentdiscountsfromvendors.Microsoft'smanagersalsoreportsubstantial benefitsinimprovedmanagementandreportingsystems,andthefinancialclosingcyclehasbeenreducedfromtwelvedaystofour. 4.Layingthegroundworkforelectroniccommerce.CiscoSystemsputinanEStostructureandrationalizeitsbackofficebusinesstransactionssystems,which werepreviouslyunabletosupportthecompany'srapidgrowth.Withoutthesystem,Ciscoalsowouldn'thavebeenabletooffercustomersWebbasedaccessto productordering,tracking,anddeliveryprocesses.Cisco'ssystemcostitover$15million,andthecompanyspentanother$100millionconnectingittotheInternet. Today,however,CiscobelievesthatthecombinationofitsESanditsInternetapplicationsyieldsmorethan$500millioninannualoperatingcostsavings. 5.Makingtacitprocessknowledgeexplicit.Monsantowasconcernedthatdecadesofknowledgeaboutplantoperationsexistedonlyinthemindsofanaging workforce.AftersuccessfullyimplementingitsES,companymanagersnowfeelthatkeyprocesses,decisionrules,andinformationstructuresarewellunderstoodand documentedinitssys

Page9

tem.Furthermore,theknowledgeisnowmorecommontotheindustry,sothatnewemployeesaremorelikelytounderstandtheworkprocess.Supportofthe processandthesystemcanalsobeoutsourcedtoexternalsuppliers. TheprimarylessonfromtheseexamplesisthatkeybusinessprocessescanbeimproveddramaticallythroughtheimplementationofanES.Whethertheprocessis financial,managerial,oroperationalwhetheritinvolvesinternalactivitiesorcustomersandsupplierswhethertheprocessrunsfasterorleanerenterprisesystems aretheprimaryvehiclesformakingbusinessprocessesbetter.It'svirtuallyinconceivabletotrytoreengineertodaywithoutthem. BusinessLifeBeforeEnterpriseSystems InordertobetterunderstandthevalueofESs,it'susefultocontrastthemwiththewaythatorganizationspreviouslymettheirinformationneeds.In1954,whenthe firstbusinessapplicationofcomputerswasdeveloped(bywhatisnowAndersenConsultingforGeneralElectric),andformostofthefollowingfortyyears,whena businessfunctionneededcomputerizedinformationitusedastandaloneapplication.Thefirstapplicationcreatedwasforpayrollprocessinglateroneswouldbe createdforgeneralledger,accountspayable,inventorymanagement,orcustomerbilling.Eachsystemhaditsownapplicationlogic,itsowninformation,anditsown userinterface.Anindividualcompanymighthavehundredsofindividualapplications.Evenwhensoftwarevendorsbegantosellapplicationpackagesofbroader functionalityinthe1980s,theywerealmostalwayswithinindividualbusinessfunctions,forexample,financeandaccounting.Wehaven'ttotallyleftthisapproach behindtoday.Companiesthatdon'thaveanESstillhaveavarietyofstandalonesystems. Choppingupinformationsystemsthiswaymakesitimpossibletocoordinateplanningacrossdifferentbusinessfunctions.Say,forexample,thatacompanywantsto compareinformationfromitsmanufacturingandsalesfunctionssothatitdoesn't

Page10

producemoreinventorythanitcansell.Theinformationistherewithinthecompany,butit'snotaccessibleorcomparablemakingthingsfrustratingforthosewho needit.Inmostcasesinthepast,thiscoordinationsimplycouldn'tbedoneinanyautomatedfashionbecausecompanies'manufacturingsystemswereseparatefrom theirsalessystems.Thesalesforcedidn'tknowwhatmanufacturinghadproducedrecently,andmanufacturingdidn'tfindoutuntillaterwhatthesalesforcehadsold. Theideaof"availabletopromise"inventory(i.e.,stuffacompanyhasmadeorcouldmakethatisn'tpromisedtoanyoneelse,soisavailabletobesold)justdidn't exist.Connectionsbetweenfunctionsandoftenbetweendifferentgeographicalareaswerelooseandslow.Whenconnectionsdidtakeplacetheyinvolvedmany middlemanagers,whosejobsentailedcollatingandpassingthisinformationaroundtheorganization. Themostinsidiousaspectofthisprobleminvolveddifferentinterpretationsofthesameinformationentities.Thetermcustomer,forexample,mightappearinmanyof thesedisparatesystemsaroundafirm.Inonesystemitmightincludedistributors,inanotheronlyendcustomers.Inoneversionitwouldincorporateprospects,in anotheronlyexistingcustomers.IftheCEOaskedforalistofthetop100customers,itcouldtakeweekstocometoconsensusonthelist(ashappenedatone computercompanywithdiversesystemsaroundtheorganization).Havingdiverseformsofinformationhassomepositiveattributesaswell(e.g.,everypartofthe organizationgetstheinterpretationofcustomerthatbestsuitsitsneeds),butthereisnodoubtthattheproliferationofinformationmeaningscancauseconsiderable confusion.Onedepartment'sinterpretationofhowmuchhasbeensoldthroughwhatchannelsmaydifferfromanother's.Everydepartmentcouldhaveitsown interpretationofhowmuchmoneywaspassingthroughbasedonwhatinformationtheyeachbelieveddescribedacustomer.Obviously,thisdisparitymadeitdifficult tomakegooddecisionsaboutwhichcustomerstoserve,whichsellingapproachesweremosteffective,andwhethertobuildthebusinessorholdback.

Page11

Havingmultiplesystemsthatcouldnottalkdirectlytoeachotherwasandstillisforthoseorganizationswhohaven'tmovedfullytoESsamaintenancenightmare. Managinghundredsofdifferentsystemsmeansmanagingtensofcomputerlanguages,hundredsofdifferentmaintenanceandupdateschedules,andthousandsof piecesofdocumentation.Inmostorganizationsthereisliterallynoonewhounderstandshowallofthepiecesfittogether.Whenonesystemneedstobeconnectedto another,adhocconnectionsmustbemade,themaintenanceofwhichbecomesanotherproblem.Becauseofthesedifficulties,manycompaniesspendmorethanhalf oftheirinformationsystemsbudgetsonmaintenance.Managingcommunicationsbetweencomputersystemsthatwereneverdesignedtotalktooneanotherrequires enormous,continualworkoninterfaces.Whenanyofthesystemsischanged,alloftheinterfaceshavetobechangedaswell. Ifamajorproblemoccursinthesemultiplestandalonesystemsregardingsystemdesignorfunctionality(say,purelyhypothetically,ofcourse,thatthedatefieldin manysystemsheldonlytwodigitsastheyear2000wasapproaching),findingandcorrectingtheproblemacrosssomanysystemsisextremelydifficult.Infact,the Year2000(Y2K)problemhasbeenamajordriverformanycompaniestoinstallanES.Companiesadopteda"killtwobirdswithonestone"approach,solvingtheir Y2Kproblemswhileinstallingamorefunctionalandintegratedsystem.CurrentversionsofESsfrommajorvendorscanalldealwith2000andsubsequentyears(at leastuntiltheyear10,000!).Anotherexampleofthis"simplificationthroughintegration"approachisconversiontothenewcommonEuropeancurrency,theeuro. ThoseorganizationswithmultiplenonintegratedsystemsneedtoincorporatethenewcurrencyacrosseachsystemcompanieswithanESneedonlyinstallonesystem (oranewreleaseoftheirexistingES)thatcanhandletheeuro. Itispossible,ofcourse,forcompaniestobuildproprietaryESsjustastheyhavewrittenproprietarystandalonesoftwareprograms.Afewcompanieshavesucceeded inthisregard.

Page12

VeriFone,forexample,whichprovidesbanksandretailerswithtransactionautomationviaitscardswipedevices,haslonghaditsownfullyintegratedsystemfor internalbusinesstransactionsusingacommondatabase.VeriFone'smanagersandprogrammersdesignedandbuiltthesystem,anditworkswell.However,the successrateforcompaniestryingtobuildtheirownsystemsisquitelow,andthepricequitehigh.Manylargebanks,forexample,haveattemptedtobuildintegrated systemsonlytofail.EvenatVeriFone,thecompany'ssystemrunsonanobsoletecomputingplatformandneedstoberewritten.Further,thecompanyhasbeen acquiredbyHewlettPackard,whichisimplementinganESfromalargevendor.HencethefutureofVeriFone'shomegrownESisindoubt.Mostorganizations shouldnotevenconsiderdevelopingtheirownsystem.Fewcompaniesdobusinessinauniqueenoughfashiontobenefitfromsuchamove. BusinessLifeTodaywithEnterpriseSystems WithESs,youdon'thavetobuildyourownintegratedsystem.Youcanbuyitfromoneofseveralvendors.Eachvendoroffersmoreorlessthesameoverallproduct: asetofapplicationmodulesthatallfittogether.Eachmoduleincludesavarietyoffunctionsforexample,theaccountingmodulefromalmosteveryvendorincludes generalledger,accountsreceivableandpayable,fundsmanagement,financialconsolidationandreporting,foreignexchange,andcashmanagement.Mostofthe informationproducedbythesemodulesisalreadyInternetorintranetaccessibleallofitwillbebeforelong. Acompanyneednotinstallallpossiblemodules.Somemodules(e.g.,thoseforfinanceandaccounting)areimplementedbyalmostallfirmsothers(e.g.,human resourcemanagement)maynotbeincludedinaparticularESproject.Thecompanymayalreadyhaveserviceablesystemsinthatpartofthebusiness,or

Page13

itmaychoosetousestandalone"bestofbreed"functionalityratherthanasomewhatlessfunctionalESmodulethatisfullyintegratedwithothersystemsandbusiness processes.Thegreaterthenumberofmodulesselected,thegreatertheintegrationbenefits,themoreneedforbusinesschange,andthehigherthecostandtheriskof theimplementationproject. Companiesassembletheirchoicesofmodulesandinstallthemasacompletesystem,perhapsaddingoneormoreadditionalapplicationsfromthirdpartyvendors.All oftheapplicationsworkwiththesamedata,definedinthesamewayandstoredinacommondatabase.Abusinesstransactionrecordedinoneapplicationripples throughtheentiresystem,andallrelevantdatavaluesareupdated. Forexample,let'sassumethataSouthAfricabasedsalespersonforaU.S.multinationalcomputerfirmpreparesaquoteforacustomerusinganES.Thequote specifiesalegallybindingproductconfiguration,price,deliverydate,shippingmethod,andsoforth,alldeterminedinrealtimefromthesystem.Whenthecustomer acceptsthequote(viatheInternet,let'ssay),asalesorderisrecorded.Thesystemschedulestheshipping(includingshippingpointsandtruckroutes),thenworks backwardfromtheshippingdatetoreservematerialavailability,orderneededpartsfromsuppliers,andschedulethecomputerassemblyinmanufacturing.The customer'screditlimitischecked.Thesalesandproductionforecastsareupdated.MRPandbillofmaterialslistsarecreated.Thesalesperson'spayrollaccountis creditedwiththecorrectcommission,andhisorhertravelaccountcreditedwiththeexpensesofthesalescall.Actualproductcostandprofitabilityarecalculated. Thedivision'sandfirm'sbalancesheets,accountspayableandreceivableledgers,costcenteraccounts,cashlevels,andanyotherrelevantfinancialsareautomatically recalculatedinaninstant.Virtuallyeveryinformationtransactionresultingfromthesaleofthecomputeristakencareofexceptfortheimpactonthecompany'sstock price(alas,ESscannotyetcalculateinvestorpsychology).

Page14

AKeyChoiceinImplementingEnterpriseSystems AllESsworkinroughlythemannerjustdescribed,butcompaniescanimplementtheminseveraldifferentways.Thetwokeydimensionsthatdifferentiateapproaches toESimplementationarethetimeittakestoimplement,andtheamountofbusinesschangeandvaluetowhichacompanyaspires.Thesedimensions,when combined,formthematrixofapproachesinfigure11. Enterprisesystemscanbeimplementedquicklyorslowly,dependingonhowambitiousthecompany'sgoalsare,howpressinganydeadlinesare,andhowwell implementationproceeds.Afastimplementationmighttakeasfewassixmonthsaslowonecantakeuptofiveyearsormore.Enterprisesystemscanbeinstalledfor technicalreasonsortoenhancestrategyandcompetitiveness.Atechnicallyfocusedimplementationisintendedonlytoprovidecoreinformationsystemsfunctionality toanorganization,withaslittlebusinesschangeaspossible.A

Figure11 AlternativeImplementationApproaches

Page15

strategicimplementationattemptstomaximizepositivebusinesschangeandbusinessvalue. Theonlycombinationofthesedimensionsthatitmakesnosensetostriveforistheslow,technicaloption.Sincethetechnicalfocusprovideslittlebusinessvalue,it makessensetocompleteitasquicklyaspossible.Ifyoufindyourselfinthiscategory,itprobablymeansyou'vejustexperiencedapoorimplementation. Afast,technicalimplementationcanmeanquickrelieffrompressingtechnicalproblemsorinadequatelegacysystems.Thisapproachisprobablytheleastexpensive implementationoption.Itprovidesnodirectbusinessvalueotherthanremovinganytechnicalbarrierstobusinesseffectiveness.Somecompaniessaythattheyare startingwithafast,technicalapproachbutareplanningtolaterachievesignificantbusinessvaluefromtheirsystems.(''We'llputthesysteminquickly,andthenlateron optimizeittofitourbusiness.")Iwonderjusthowmanywillevergetaroundtotheoptimizationphase.It'stooearlytosaywhetherthisisavalidapproach,butIdon't reallyadvocateitunlesstheorganizationistrulythreatenedbyitstechnicalproblems. Instead,IadvocatethatcompaniesstriveforbusinessvalueintheirESimplementations.It'sonlylogicalthatwhenacompanyspendsthemillionsittakestoputinan ESitshouldtrytoachieveasmuchbusinessvalueaspossiblefromtheproject.AndevidencefromanAndersenConsultingsurveyof200CEOsofcompaniesthat haveimplementedESssuggeststhatprojectsviewedprimarilyasbusinessinitiativesaremorelikelytobeperceivedasleadingtosatisfactorybusinessresults. Fortunately,85percentoftheCEOsinthissurvey,atleast,didviewtheirESprojectsprimarilyasbusinessinitiatives.1 Inanidealworld,companiescouldtransformtheirstrategiesandenhanceoverallcompetitivenesswhilecompletingESimplementationswithinafewmonths. However,thecomprehensivelystrategicandfastprojectprobablydoesn'texist.Itispossible,however,toadoptaquickapproachandachievesome

Page16

competitivedifferentiation.Thissimplymeansthattheimplementationmustbeheavilyfocusedonaspecificbusinessprocessormeansofcompetitiveadvantagefor example,thesupplychainorcustomerservice.Mostoftheremainingbusinessprocesseswouldhavetobeviewedinthesametermsaswhenconsideringafast, technicalimplementation. Companiesdon'tliketoadmitthattheirimplementationsareslow,butitmaybeworthadrawnoutimplementationifitleadstoconsiderablebusinessbenefitor competitivedifferentiation.Infact,ifyou'relookingtochangeabroadrangeofprocesses,improvethewayyourelatetocustomersandsuppliers,createanew organizationalculture,andmodifythebehaviorsofmanyworkers,it'sgoingtotakealongtime.Don'tworryaboutit. CriticismsofEnterpriseSystems Fromboththetechnicalandbusinessperspectives,ESshavetheirfaults.Ifyouaretryingtodecidewhethertoimplementone,youshouldbeawareofboththe opportunitiestheyprovideandtheproblemstheyportend.Evenifyou'vealreadycommittedtoanES,youshouldreadthissectionbecauseyoumaydiscover difficultiesthatliedowntheroad.Onbalance,however,IbelievethecriticismscanbeovercomeandthatsomeESisagoodfitformostlargeorganizations. Inflexibility.Somewouldarguethattoday'senterprisesoftwareofferingsaretooinflexible.Itisjusttoodifficult,thisviewpointwouldhaveit,tofitanEStoa businessbothforthefirsttimeandforsubsequentchanges.Further,manytimescompaniesendupdoingbusinessinawaythattheydon'treallywantjustbecause thesystemrequiresit.AnotheraspectofthissupposedinflexibilityisthatonceanESisinstalledinyourorganization,it'stoodifficulttochangehowyouworkandare organized.ESsarelikecement,thecriticssayhighlyflexibleinthebeginning,butrigidlater.

Page17

Thereissometruthtothesecriticisms.OneofthegreatestdifficultiesinanyESprojectistomatchthesystemtoone'spreferredwaysofaccomplishingabusiness processoractivity.Andmostcompanieshaveonlyexperiencedthisproblemoncefutureupdatesofthesystemtomeetchangesinthebusinessmaybeasdifficultas thefirstgoround.Intel,forexample,hasalreadyfoundthatitneededtwelveadditionalpeopletoadaptitsSAPsystemtodaytodaychangesinitsorganizationaland financialstructure. Inresponsetothisinflexibilitycharge,Iaskcompanies"Comparedwithwhat?"Ahypotheticalobjectoriented,highlymodularsystemmaysomedayprovidegreater flexibilitythantoday'sESs,butnosuchsystemisavailabletoday,orevenontheimmediatehorizon.AnotheranswertotheflexibilityissueisthatsomeESsaremore flexibleandeasilymodifiedthanothers.Ingeneral,thereisatradeoffbetweenthecomprehensivenessandbreadthofanESpackageandtheeasewithwhichitcan beconfiguredandmodified.Thus,organizationsdohaveachoice,obviatingsomeofthecriticism.Anditiscertainlytruethattoday'sESsaremoreeasilyconfigured thanthoseofthepast:ESvendorsandthirdpartyfirmshavebothdevelopedtoolstohelpcompaniestailorasystemtotheirbusinesses.Finally,thereareanumberof companieswhohavearguedthatputtinginanESactuallymadethemmoreflexibleinresponsetoachangingbusinessenvironmentsimplybecausetheyhaveonlyone systemtochange,notmany. Longimplementationperiods.ArelatedcriticismisthatimplementinganESsimplytakestoolong.There'safactualbasistothisassertionaswell.Athreetofive yearprojectdurationisfairlycommonforimplementinganESinalargecompany,andformanyfirmsthatisoverlyoptimistic.CriticsofESschargethatintherapidly changingbusinessworldweinhabit,fiveandeventenyearprojectsareinsupportable. Again,what'sthealternative?Tobuildone'sownsystemfromscratchwouldalmostcertainlytakelonger.Evento

Page18

assembleacollectionof"bestofbreed"softwareprogramsandinstallallofthemwouldtakeseveralyears,andthentheywouldn'tbeintegratedorifyoucould connectthemthroughinterfaces,doingsowouldtakeyears.Further,itshouldbepointedoutthatwhattakessuchalongtimeisnotinstallingthesystem(atthe UniversityofTexasbusinessschoolweinstalledafullyfunctionaleducationalversionofSAPoveraweekend!)butmakingtherequiredbusinesschanges.It'svery timeconsumingtodefineandadoptnewbusinessprocesses,toestablishcommondefinitionsofkeyinformationentities,andtosetupdesiredreportingand informationaggregationstructuresacrossbusinessunits.Thesystemsthemselvesthusshouldn'tbeblamedfortardiness. Forthosecompaniesthatareobsessedbyspeed(ratherthanachievingbusinessvalue),itispossibletoraminanESinamatterofmonths.BecauseESvendorshave beencriticizedforthelengthofimplementationprojects,theyhavecreated"preconfigured"versionsoftheirsystemsthatcanbeinstalledoutofthebox.Oneofthe firstcompaniestoinstallSAPrapidly,forexample,wastheSeattleTimesnewspaper,whichinstalledtheSAPR/3system(largelyrestrictedtofinancialmodules)in sixmonths.Manyothercompanieshavedonesosincethen. Ofcourse,suchrapidinstallationsmeanthatacompanyhastoforgoagoodfitbetweentheirsystemandthewayinwhichitwouldliketodobusiness:Ithastoadopt outoftheboxbusinessprocessesaswellasasystem.Inotherwords,it'sa"fast,technical"implementation.Butthefactthattheseimplementationsarepossible bluntsthiscriticism. Overlyhierarchicalorganizations.AthirdcriticismofESsisthattheyimposeahierarchical,"commandandcontrol"perspectiveonorganizations.Accordingto thisargument,centralizedmonitoringandcontrolofinformationisanoutdatedperspectiveinorganizationsinthiseraofempowerment,employeesasfreeagents,and bottomupcomplexitytheory.

Page19

Thischaracterizationistruetoagreaterdegreethantheothercriticisms.Enterprisesystemsdopresumethatinformationwillbecentrallymonitoredandthat organizationshaveawelldefinedhierarchicalstructure.Forbetterorworse,however,mostorganizationsIhaveencounteredintheworldarestillquitehierarchical. It'sfairlyclearwhoreportstowhom,andthecarpetisthickerandthemoneyalotbetterintheExecutiveSuite.Suchconceptsasbottomupcomplexitytheory,self organizingsystems,andempoweredemployeesareintriguing,butfewlargeorganizationshaveadoptedtheminlargemeasure.Thereare,ofcourse,truly decentralizedcompaniesthatdoallowtheirbusinessunitsthefreedomtodoastheywish(aslongastheymakemoney!).Inthiskindofcompany,theobviousanswer istogiveeachbusinessunititsownES,assomecompanieshavedone. Antiquatedtechnology.AlastcriticismofESsisthatmostarebasedonobsoletetechnologythatis,thattheyarethinlydisguisedmainframeprogramsportedinto theclient/serverworld.It'struethatvirtuallyallESshavesomedegreeofmainframederivedprogramcodeinthem.Further,it'struethattheuserinterfacesofmostof thesesystemsisnotasgraphicanduptodateasonemightlike.However,againthereisnoobviousalternativetothesituationmoremodernobjectorientedsystems don'tyetofferthebreadthandintegrationofESs.Furthermore,thepracticalimplicationsofthisissuearenegligible. WhyareEnterpriseSystemsParticularlyImportantToday? Inanimportantsense,organizationshavecurrentlyarrivedatawatershedwithregardtoESs.ThosewhohadtoinstallthemforYear2000compliancehavenow doneso.ThesecompaniesandmanyothershavenowinstalledatleastsomecomponentsofanESinsomepartsoftheirorganizations.Nowisthetimetodo

Page20

somethingusefulwiththem.Companiesmustbegintoturnthemajorinvestmentstheyhavemadeinthesesystemsintoimprovedperformance,betterdecisionmaking, andcompetitiveadvantage. InadditiontothisgeneralneedtotakebetteradvantageofESs,companiesfaceabusinessenvironmentthatmakesthistechnologyessentialforalmosteveryfirm today.Someaspectsofthebusinessenvironmentarenewothersaresimplycontinuing.ThereareseveralgeneralbusinessissuesdrivingtheneedforESs: globalization,overcapacityandreengineering,theriseofelectroniccommerce,andconstantchange. Globalization.Globalization,asanyoneotherthanRipVanWinklesurelyknowsbynow,isapowerfulforceinfirstworldeconomies.Companiesareincreasingly likelytocrossglobalboundariesintheiroperationsthosethathavebeenglobalforalongtimearetryingtocoordinatetheiractionsbetteracrossgeographical boundaries.2 Enterprisesystemsareanaturalresponsetothissituation:Theyallowmanagerstokeepmuchclosertabsonfarflungoperationsthantheywouldbe abletodootherwise.AsonemanagerinachemicalcompanywithanESnoted,"Countryandbusinessunitmanagersthatarefarfromheadquarterscannolonger hidebehindpoorinformationsystems." Indeed,ESsmayleadtosuchclosemonitoringthattheyviolatebasicmanagementprinciplesofgrantingsomeautonomytofarflungmanagersit'stooearlytotell exactlyhowthey'llbeusedinthisregard.Inprinciple,seniorexecutivescouldfighttheimpulsetomicromanagefrombehindtheirESscreens.Withtheavailabilityof uptodate,accurateinformationaboutthebusinessperformanceofremoteoperations,however,theymaynotbeabletoresist. ThewidespreadadoptionofESsinglobalfirmsmayevenleadtoneworganizationalforms.Perhapsfirmswillneedfewerincountrymanagersbecauseheadquarters executivesareabletocheckonproduction,inventory,andsalesresultsfromtheirdesks.ButmanagerswhorelytooheavilyonESscouldlose

Page21

trackofthehumansideofremoteoffices.Therealfeelingsofemployees,customers,andsuppliersarenoteasilydetectedatleastintheirearlystagesindata providedbyESs.TherearethussomerisksinvolvedinusingESstomanageglobalenterprises,butthegreatestriskofallwouldprobablybenotemployinganESat all. Overcapacityandreengineering.Mostmanufacturingindustriestodayhavesubstantiallymorecapacitytoproducethanthereisglobaldemand.Asaresult,they havetocontinuallyimprovetheirproductsandprocessesinordertocompeteeffectively.Intheearly1990stheneedtoimprovetooktheformofbusinessprocess reengineering.Thistopdown,startfromscratchapproachtoradicalprocesschangebecamesomewhatdiscreditedwhencompaniesdiscoveredhowdifficultand expensiveitwas. Becauseoftheirbusinessenvironments,companiesstillneedleanerandfasterprocesses.However,managers'thoughtsonhowtogoaboutreengineeringkey businessprocesseshavechangeddramatically.Insteadofviewingprocessdesignsasablankslatetobedesignedfromscratchandthensupportedbyinformation systems,companiesnowthinkaboutnewprocessesandnewinformationsystemsatthesametime.3 Nowwhencompanieswanttoreengineer,theyviewESsasa meansofdoingso.Insteadofstartingfromscratch,theystartfromwhatispossibleoreasilyaccomplishedinSAP,Baan,Oracle,orPeopleSoft. Thistrend,whichI'lldescribeingreaterdetailinchapter5,hasbothpositiveandnegativeimplicationsforthebusinessworld.Let'sgetthebadnewsoutoftheway first.Nolongerarecompanieslikelytodreamofvisionaryprocessdesignsandthenmakethemareality.Onecompany'sprocessesarelikelytobesimilarto another's.Theprocessdesignsthatbestfitacompany'sstrategyandbusinessenvironmentwillfallpreytothosethatbestfitasystemcreatedbyafaroffsoftware vendor.Firmsthatdohaveradicallydifferentprocessesfromtherestoftheir

Page22

industryDellandAmazon.comcometomindarelikelytohavecompetitorswhofeelconstrainedtorespond. Isthisprocesssamenessatragedyformankind?Notreally.Manyvisionaryprocessdesignsinreengineeringprojectswereneverimplementedanyway,whichiswhy firmshavemovedtoanalternativeapproachtoimprovingtheirprocesses.TheprocessdesignsthataresupportedbyESsareperfectlyrespectabletheyarebasedon agenericsetof"bestpractices"thatarebetterthanwhatmostfirmsemploytoday.Businessesaremorelikelytoachievebetterprocesseswhentheysimultaneously reengineerandsupportthosenewprocesseswithnewsystems.AsI'lldiscusslater,therearegoodwaystogoaboutESenabledprocesschangeandpoorones,but theimpulseitselfisfundamentallysound. Layingthefoundationforelectroniccommerce.Mostpeopledon'tthinkaboutESswhentheythinkaboutecommerce.TheyviewInternetaccess,Web servers,browsers,andsoforthasbeingfrontofficetechnologies,andESsasresidinginthebackandneverthetwainshallmeet.Lifemightbeeasierfor technologistsifthisweretrue,butit'snot.Ifyouwantyourcustomers,yoursuppliers,andyouremployeestohaveeasyWebconnectionstoyourmostimportant information,you'regoingtoneedbothagoodESandInternet/intranetconnectionstoit. WhatdocustomersdowithyourbusinessontheWeb,forexample?Placeorders?Thenthey'llneedtogointotheEStomakesurethatyouhavetherightshipping address,thattheircredithasbeenchecked,thatproductsareavailableininventory,andsoon.Arrangeshipping?ThatgoesthroughthelogisticalmodulesoftheES. Checkwhethertheirbillhasbeensettled?Theyhavetohaveonlineaccesstofinancialsystems.VirtuallyallInternettransactionshavetobeconnectedwithbasic transactionsystemsanddatabases,anditwon'tdoiftheyareunintegratedandunresponsive. ManycompaniesareplanningcloseelectronicinterfacesovertheInternetwithsupplychainpartners,includingcustomers,suppliers,anddistributors.These relationshipswillbe

Page23

mucheasiertobuildandmaintainiftheunderlyingtransactionsystemsareinorder.ItmayevencometopassthatcompaniesshareESsacrossanindustryorasupply chainanyonewhodoesn'thaveoneorevensomewhodon'thavetherightonemaybeleftbehind. Dealingwithconstantchange.It'scertainlyaclichthatchangeinbusinessisconstanttoday,butaclichcanbetrue,andthisoneis.Virtuallyeverycompanyhas tobepreparedforrapidchangesinstrategy,organizationalstructure,alliances,andmarketrelationships.AndsinceinformationandITarebecomingincreasingly integratedwithbusinessactivities,companieswillrequireflexibilityintheirinformationsystemsaswell. AsImentionedearlier,ESshavebeencriticizedforbeinginflexible,andtheycanbedifficulttochange.However,thereisaparadoxicalaspecttotheflexibilityissue: Standardizationcanleadtoincreasedflexibility.Manycompaniesfeelthatbyhavingasingle,logicallystructured,andcommoninformationtechnologyplatform worldwide,theycanmoreeasilyadapttochangesintheirbusinessenvironments.CertainlyawellimplementedESwillbemoreflexiblethanahodgepodgeoflegacy systemswithcomplexinterfacesbetweenthem.AndESvendorsareworkingonmakingtheirsystemsmoreflexible.IbelievestronglythathavinganESinplacewill beaconsiderableadvantagetocompaniesthatneedtochangetheirwaysofdoingbusinessfrequentlyandrapidly. There'severyreasontobelievethatESswillbeevenmorevaluableinthefuturethantheyareinthepresent.Justincaseyou'renotyetsoldontheimportanceofthese systems,I'llgiveyouaquickpreviewofwhatIthinkwillbethefutureofESsandthebusinessesthatusethem,whichistheprimaryfocusofchapter9aswell. WhereAreEnterpriseSystemsLeadingUs? Let'sthinkbigforamoment.WhatarethebusinessandeconomicimplicationsofESs?Otherthanamassiveshiftof

Page24

resourcesfromindustrialfirmstosoftwareandconsultingorganizations,whatdifferencedoesitmakethatESswereinvented?Mostofthenews,Ibelieve,ispositive. Enterprisesystemscanleadtogreaterproductivityandefficiencyinadvancedeconomies.Theycanhelpcompaniessqueezeoutunneededinventory,cuttimeand costoutofcorebusinessprocesses,andproduceonlywhatthemarketdemands.Callitwhatyouwant:"leanproduction,""masscustomization,"or"justintime'' manufacturing.AndwhencompaniesfigureouthowtoemploytheinformationresidentintheirESs,they'llbeabletomanagebetter,makingchangesinreportingand othermanagementprocesses,withfewermanagers.CompaniesandeconomiesthatmakebroaduseofESscanexpecttogrowfaster,bemoreprofitable,and increasetheirproductivitymorethanthosethatdon't. Enterprisesystemscanalsoleadtointerorganizationaltransformationsandempiresofbusinessalliances.TodayfirmsimplementingESsarelargelyinternallyfocused tomorrowtheycanbedirectedtocreatinglinkagesbetweenfirms.Enterprisesystemscanleadtocloser,moreefficientrelationshipsamongcompaniesandtheir customersandsuppliers.Newclustersoforganizationsandnewformsofrelationshipsbetweenfirmswillemerge.ESenabledkeiretsuthetightrelationships betweencustomerandsupplierfirmslongadmiredinJapancanoccuronadifferentbasisintheWest. Thereisapossibledownsidetothesechanges,however.ThegreatestriskistothepeoplewhoworkinthecompaniesandsocietiestransformedbyESs.Such organizationsmayrequiresubstantiallyfeweremployeesbecausetheyaremoreefficient.Employeeswhodoremainwillprobablybeaskedtomasterabroaderrange ofinformationenabledtasks.Thislearningwillbebeneficialforthem,butdifficulttoaccomplish.Ihopethatcompanieswillgrowsufficientlyrapidlybecauseofthe positivebenefitflowsfromESsthatanynegativeeffectsonemployeesareminimized.Becauseincreasingskillscantakealongtime,companiesneedtobeginplanning fortheimpactofanESonpeopleattheearliestopportunity.

Page25

New"virtualindustries"formedbyESconnectionsmayleadtoinflexibility.Whencustomers,vendors,andvendors'suppliersarealllinkedelectronically,theymay finditdifficulttodisentanglethemselves.Japanesekeiretsunetworks,oncepraised,arenowbeingpointedtoasareasonbehindthecountry'sextendeddownturn. Anotherscarylongtermoutcomeoftheenterpriseapplicationmovementisthatthebasisforcompetitioninindustrieswillchangedramatically.Today,most companiescompeteondistinctivebusinessstrategiesandprocesses.Onecompanyinanindustrymightofferhighlevelsofcustomerservice,forexample,whereas anotherfocusesonproductinnovation.InindustriesinwhicheverymajorcompanyisadoptinganES,oreventhesamevendor'sES,it'squitepossiblethatidentical strategiesandprocesseswillresult.Everycompanywillbefocusingonleannessanddon'tmakeoneuntilweselloneefficiencies.Everycompanywillbefocusingon gettingbetterinformationaboutwhat'shappeninginitsdistributionchannels.Everybodywillbetryingtobethemostintegrated,costefficientproducerintheindustry. Somedataexistsaboutwhathappenswheneverybodyinanindustryhasroughlythesameinformationenabledbusinessstrategyandcapability.Theairlineindustry atleastintheUnitedStates,butincreasinglyworldwideaswelloffersaninterestingcasestudy.Wheneveryairlinegotholdofthesamebasicreservationsystems, yieldmanagementsystems,andfrequentflyerprograms,thebasisforcompetitionchangedquickly.Thecompaniesthatsucceededwerethosethatreducedservice, wenttohubandspokedistributionnetworks,andmanagedcostsdown.Thenearperfectairlineticketinformationmarket,inwhicheverycompetitorknowsthrough theirinformationsystemswhateveryoneelseischarging,shrunkmarginsconsiderably.OnlyoneairlineSouthwestdepartedfromthatstrategy,anditistheonly airlinetoremainconsistentlyprofitableoverthepasttenyears. UnlesscompaniesaresmartabouthowtheirESssupporttheirstrategies,andviceversa,theymayfindthemselvesinthe

Page26

samesituationsasthemajorU.S.aircarriers(which,thankstoaboomingeconomy,aredoingwelltodaybutnooneknowshowlongthissituationwilllast).There mayalsobeopportunitiestoprosperthroughtheavoidanceofindustrywidesystems,asSouthwestdidwithitsminimalairlinereservationsystemanditsmanual,but highlyefficient,businessprocesses.WhatisclearoverthelongrunisthatcompanieswillhavetodevoteconsiderablethoughttohowESsaffectthebasisfor competitionintheirindustries. TheStructureofThisBook InthischapterI'veintroducedyoutowhycompaniesadoptESsandgivenanoverviewofhowthesesystemswork.Moredetailedinformationaboutthetechnology itselfcanbefoundinthebook'sappendix.Thischapterwaslargelyatthebigpicture,strategiclevel.However,ifyou'regoingtodiscusshowtoreallygetvaluefrom enterprisesystems,attimesyouhavetogetspecificconcerningwhatworksandwhatdoesn't.InthisbriefoverviewI'llidentifywhichchaptersaremorestrategicand highlevel,andwhichgetintolotsofdetail. Inchapter2Idiscuss,alsoatabroad,strategiclevel,thepromiseandperilofESs,usingexamplesfromfirmsthathaveimplementedorinsomecases,attemptedto implementthem.InthischapterIdiscussindetailthetypesofbusinessbenefitsthatareavailablefromESsandbegintolayouthowtoachievethem.Inchapter3, thefocusiswhethertoimplementanESwithinyourorganization,withdetaileddiscussionofdoingabusinesscaseandselectingaspecificvendor'ssoftware.Notethe word"detailed"ifyou'vealreadydecidedtoputinanES,aquickskimofthischapterwillprobablybeallyou'llwant. Inchapters4and5,IcontinuethethreadofhoworganizationsneedtothinkaboutESsbeforeimplementingthem.Chapter4addressesstrategyandorganizational structureissues.Chapter5isdirectedatprocessandinformationchangewithinESenabledfirms:Arethesesystemsbeingusedtochangehow

Page27

firmsdotheirworkandhowtheycommunicatewithcommoninformation?Bothchaptersarewrittenatahighlevelandshouldn'tboganyonedown. Inchapter6Iassumethatyou'vedecidedtogoforitandactuallyputanESinplace.Thechapterisallabouttheimplementationprocessitself.Avarietyof implementationoptionsandissuesareaddressed,withseveralindepthexamplesofcompanyexperiences.Asyoumightguess,it'satopicthatrequiresalotofdetail again,ifyoursystemisalreadymoreorlessinplace,skimmingisrecommended. ThenextseveralchaptersdiscussspecificaspectsoftheorganizationthatneedtochangeifanESisgoingtobringbusinessvalue.Veryfewfirmsandmanagerscan saythattheyhavemasteredthesubjectsinthesechapters,whicharegenerallyhighlevelandfutureoriented.Inchapter7Ifocusonneededchangesinhowmanagers useESinformationtoactuallymanagedifferently.Chapter8addressessomeactualandpotentialchangestosupplychainsakeypotentialbenefitformanyfirms. Chapter9looksintothefuturebothofESsthemselvesandoforganizationsthatusethem.AfterreadingityoumaynotknowwhethertobuystockinESvendors, butyou'llhaveabetterideaofwhythey'llbesellingtheirwaresinthenextfivetotenyears. AnappendixdiscussinghowESsworkanddescribingsomeoftheirmoretechnicalaspectsis,well,appendedattheend.It'sintendedfornontechnicalreaderswho wanttolearnabitmoreaboutthetechnology.

Page29

2 ThePromiseandPerilsofEnterpriseSystems
Enterprisesystemprojectscanyielddramaticbenefits,mostlyintheformofmoreefficientbusinessprocesses.Ortheycanyieldnobenefitatallwhilestillcosting hundredsofmillionsofdollarstoinstall.Thechoiceisyours.Whatwillitbe? Mostcompanieswould,allotherthingsbeingequal,choosethebenefits.Butallotherthingsarenotequal.ChoosingtogetbusinessbenefitsfromanESproject meanstreatingitasabusinessproject,notatechnicalone.Itmeanssettingupclearlydefinedobjectivesatthebeginning,andmonitoringtheirachievementthroughout thelifeoftheproject.Itmeansputtingbusinessexecutivesinchargenottechnicalmanagerswhocanmaketheorganizationalchangesnecessarytoachieve benefits.Andlikeallbusinessprojects,achievingbenefitsfromESprojectsrequiresatoughmindedness:Whenbenefitsaren'tachieved,paychecksmustbesmaller andheadsmustroll.Putmorepositively,theremustbeincentivesfortheprojecttobesuccessful,andtheymustaffectallmanagers,notonlythoseinvolvedinthe project.

Page30

ThereisanequallyclearrecipeforbenefitsdisasterinESprojects.First,makethegoaloftheprojectjusttogetthesystemin.Justifythelackofbusinessbenefitswith referencetoYear2000problemsoranimpendingmergerorwhateverworksforyou.Don'teventhinkaboutwhatkindsofbusinessprocessesyouneedorwantjust adoptthosethatworkmosteasilywiththesystem.KeepseniormanagementoutofthewholeprocessinvolveonlyITpeople.Turneverythingovertoconsultants, anddon'tprovidethemwithincentivestofinishquicklyortosharetheirknowledgewithyou. I'mmakingitsoundasifit'seasytostayonthesideofbusinessbenefits.Butoftenitisn'tthewatersgetmuddiedquickly.Mostcompanieshavemultipleobjectivesin mindwhentheyimplementanES,objectivesthatarebothbusinessandtechnicallyoriented.TheywantbetterbusinessprocessesandtosurviveY2K.Theywantto linkupwithsuppliersandalsotoreplacethatantiquatedbillingsystem.Becausefocusingonbusinessbenefitsmeansredesigningprocesses,organizationalstructures, andstrategies,itcantakesubstantiallylongertoimplementanESwhenbusinessobjectivesaretheprimaryfocus.Butwhat'sthealternative?Spendingmillionsfor purelytechnicalbenefitsisnotveryappealingeither. CaseStudiesofEnterpriseSystemPromise Mostcompaniesmustkeepafinebalancebetweengettingthesysteminandgettingbenefitfromit.Forsomecompanies,successmightbedefinedasgettingthe systeminquicklywithminimalbusinessdisruption.Forothers,substantiallyimprovedbusinessprocessesortheabilitytoconductbusinessinanentirelynewway wouldbenecessaryforsuccesstobedeclared.Let'slookatthreeconcreteexamplesofhowcompanieshavewrestledwiththeseobjectives.Keepinmindthateven themostpromisingESimplementationscanfeelperilousattimes.

Page31

BayNetworks BayNetworks,alargenetworkingequipmentcompanyformedbythemergerofsmallerfirmsandrecentlyacquiredbyNorthernTelecom(formingthenewcompany NortelNetworks),illustratesthefastimplementationscenario.1 Theprofessedobjectiveoftheprojectwasnotanyspecificbusinessorprocessgoal,butrather puttinginthesystemquicklyandoperatingthemergedbusinessononesystem.Thecompany'sprevioussystemswerestretchedtothelimitby1995andwere perceivedasabarriertofuturegrowth. Bay'smanagersmadeanexplicitdecisiontodeemphasizeprocessreengineeringinfavorofafastinstallation.Astheprojectmanagerputit,"WetookSAPandmade changes[toourbusinessprocesses]asrequiredbySAP.IfSAPwaslackinginsomeareas,wemadesomeminortweakstoit,butmostlywekepttowhatSAP coulddo."Thisstrategyisnotrecommendedifyouwantauniqueoperationsstrategyororderofmagnitudeprocessimprovements,butitisprobablyessentialifyou wanttoinstallacomplexESquicklyandBay'simplementationwaspartiallycompleted(installedandworkinginseveralgeographicalareas)inonlyninemonths. BayNetworksdidhavesomesubsidiarybusinessgoals,primarilyintheareaofordermanagementandcustomerservice.Thecompanydidimproveitsabilityto scheduleordersandmatchthemtoproductioncapabilitiesacommongoalforahightechnologyESimplementation.Orderschedulinghadpreviouslytakenfourto fivedays,butafterSAPwasinstalled,asamedayturnaroundinthisprocessbecameroutine.Becauseofsystemconstraints,thecompanyhadpreviouslybeenunable togeneratefinancialreportsatbusytransactiontimes(e.g.,endsoffinancialquarters),andthatconstraintwaseasedwiththenewsystem. Ofcourse,justascompaniesseekingbusinessbenefitsneedtomanagetheirachievementcarefully,youdon'tputinSAPinninemonthswithoutcarefulproject management.Eachphaseof

Page32

theprojectwascarefullyplanned,andscopechangeswereresisted.ModificationstoSAPwereminimized."Fridaynightfights"addressedanyoutstandingscope issues,sincenoonecouldgohomeuntiltheywereresolved.AndAndersenConsulting,Bay'ssystemsintegratorfortheproject,wasgivenspecialincentivestogetthe systeminontime. ElfAtochem ElfAtochemNorthAmerica,an$11billionpetrochemicalbranchoftheFrenchoilgiant,struckacompromisebetweenareasonablyfastinstallationandastrong focusonmeasurablebusinessbenefits.2 Infact,thecompany'sESprojectisoneofthestrongestIhaveseenwithrespecttobenefitmanagementandmeasurement. ElfisinitsfifthyearofworkwithSAP'sR/3andisapproximately90percentcompletewithitsproject.Itsprimaryfocushasbeenonprocessimprovementbenefits. Thecompanydefinedfournewbusinessprocessesandsetupimprovementgoalsforthem.Inseveralcases,thecostofdoingbusinessbeforethenewsystemwas calculated.Forexample,reconciliationsamongtheseveraldifferentcostsystemsacrossthecompanycost$3.4millionperyear.Underleveragedpurchase agreements,thecompanyfigured,werecostingit$200millionperyear.EliminatingthesecostsbecameabigpartofElf'sjustificationforthenewsystem. PerhapsthemostimportantbenefitstoElf,however,involvedcustomerserviceissues.Thecompanycompetesinmanycommoditychemicalmarketsinwhichservice andpricearetheonlypossiblesourcesofdifferentiation.Forexample,itpreviouslytookseveralcallsforanElfcustomertoplaceandconfirmanordernow"onecall doesitall"inmostcases.Thisisexpectedtoleadtobothbettercustomerretentionandslightlyimprovedsales. Eachoftheprocessbenefitswasconvertedintoafinancialreturn.Noindividualcategoryisoverwhelmingintermsofthelevelofbenefit,butoverallthebenefitsfrom changedprocesses

Page33

andthenewsystemthatsupportsthemareexpectedtoincreasenetearningsbymorethan20percent,or$45million.Thecompanyisalreadysavingmorethan$10 millionperyearandhasalreadypaidbackitsinvestmentbeforefinishinginstallation. SurelyonereasonwhyElfhasachievedthesebenefitsthusfarisitsapproachtomanagingbenefits.Themoneyandotherorganizationalresourcesrequiredtoputthe ESinplaceareviewedasaninvestmentlikeanyother.Everycostandeverybenefitisitemizedandtracked.Newmetricshavebeendevelopedtoassessthingsthat werepreviouslyunmeasurable,suchasforecastaccuracy.Afulltimeprojectteammemberisdevotedtocostandbenefitmeasurementissues.Executive compensationistiedtoachievementofbenefits. DowChemical DowChemical'sSAPimplementationisoneoftheearliest,longestlasting,andmostglobalESprojectsintheUnitedStates,butthecompanyhasclearlyachieveda commensuratelevelofbusinessbenefittoshowforitsefforts.Dow'sobjectivewastoachievecommonprocessesandinformationworldwideinitsfinancialand administrativeprocesses.Itreplacedahodgepodgeofexistingsystemswithasingleglobaloneandcreatedaplatformfortheintegrationofmanyacquisitions. Incustomerfacingprocessessuchasordermanagement,DowmanagersreliedontheESprojecttosupportanewsetofcustomerserviceconceptscalled"Diamond Service."Substantialimprovementsinserviceprocesseshaveresultedandarevisiblebothinternallyandtocustomers. DowhasalsoachievedoneofthegreatestESenabledtransformationsofanycompanyI'veseenintermsofusingitsSAPdatatomanagethecompany.Enterprise systemdatahasbeenusedtostockabroadsetofdatarepositoriessupportingaprocessviewoftheorganization.Ithasalsobeenusedasthebasisforinformation supportofanewmanagementapproachcalledvaluebasedmanagement,inwhichshareholdervalueand

Page34

profitabilityareemphasized.LiterallythousandsofusershavebeentrainedintheuseoftheSAPdatatounderstandbusinessoperationsandtomakebetterdecisions. Inshort,althoughtheESimplementationatDowwasquiteexpensiveandtimeconsuming(dueinparttothecompanybeinganearlyadopterofthetechnology),the company'smanagersarequitepleasedwiththeresults.TheESinitiativeinvolvedsubstantiallysuccessfulchangesinbusinessprocesses,atighter,moreintegrated organizationalstructure,andmuchbettermanagementinformation.ManagersatDowrecentlyfinishedapostimplementationevaluation(ararityinitself)thattooka conservativeapproachtotheissueanddidn'tconsidercostsaverted,onlyactualcostsavings.Theanalysisstillfoundthattheprojectachieveda15percentreturnon investment(ROI)andapositivenetpresentvalue.Dowexpectsthattheprojectwillleadtohundredsofmillionsofdollarsinfreecashoverthelifeofthesystem.The projectisclearlyasuccessstoryandanillustrationthatsuccessdoesn'tcomeeasily. CaseStudiesofEnterpriseSystemPerils ThecasestudiesthatfollowareoforganizationsthatachievednopositivebusinessoutcomesfromtheirESprojects.Theyaredramaticcasesinthattheyinvolve outrightfailuretocompletelargeESinitiatives.However,keepinmindthattherearemanylessdramaticexamplesofcompaniesthatdidputsystemsinbutachieved littleornobenefitfromtheirefforts.Thesequietfailuresarejustasworrisomeasthemorevisibleones. AEuropeanOilCompany Euroil(notitsrealnameIpromisedthecompanyconfidentiality),theEuropeanrefiningandmarketingentityofalargeU.S.oilfirm,hadamodelimplementationofits ESunderway.Thebusinessunithadpreviouslybeenaloosecollectionoftwelvecountrybasedorganizations,withlittlecoordinationbetweenthem.Someofthe twelveneedednewsystems,andsomehad

Page35

adequateinformationenvironments.CoincidentwiththeriseofEuropeasasingletradingentityintheearly1990s,Euroil'smanagementteamdecidedto''merge"the differentcountriesintoonehighlycoherentoperation.Theyrealizedthattheyneedednewsoftwaretosupporttheintegratedorganization,andbeganapilotproject withthemainframeversion(R/2)ofSAP'sES.Inthecourseofthetrial,EuroilmanagersrealizedthatthesystemneededtobehighlysimilarthroughoutEuropeto achieveefficienciesofscaleandcommonalityinbusinessprocesses.WhencountrylevelvariationsinhowSAPwasbeingimplementedbegantooccur,Euroilsenior managersreasonedthatiftheydidn'thavecountrymanagersanymore,thenthosemanagerswouldn'ttrytocustomizetheEStotheirneeds.Sotheysimplyeliminated thecountrymanagementrole. Thingsweregoingfairlyswimminglyinthecompanyuntil1996,Euroil'seighthyearofSAPimplementation.AlmostalloftheEuropeanbusinesswasnowsupported bySAP,andcommondataandprocesseshadbeenpropagatedthroughoutthecontinent.Euroilbegantoseecostsavingsfromsomeoftheselargescalecommon processes,suchaspurchasingforexample,whichcouldnowbehandledonacentralizedbasis.Butin1996,executivesoftheparentcompanydecidedtocombineits Europeanrefiningandmarketingbusinesswithanotheroilcompany'sinEurope.Apparentlythenegotiationsaboutwhichsystemtousewerebrief.TheCEOofthe othercompanywasonrecordasbeingverynegativeaboutlarge,complexESs,preferringsmaller,interconnectedapplications.Andhistechnicalstaffarguedthatits ownhomegrownclient/serversystemsweretechnicallysuperiortoEuroil'smainframesystem.IfEuroilhadinsistedonpreservingSAP,onemanagertoldme,"It wouldhavebeenadealbreaker."Soeightyearsofworkandabout$250millionwentdownthedrainwiththismerger. Itwouldbedifficulttosaythatlongtermbusinessbenefitswereachievedintheproject.Ishouldpointout,however,thatthecombinedfirmssaytheyexpectto achieveabout$500millioninannualcostsavingsfromthemergeroverall,soperhapsthemonetarylossisnotastroublesome.Interestingly,whenthe

Page36

combinedfirmacquiredathirdfirm,anotherSAPuser,anewstudywasundertaken(notyetcompleteasIwrite)aboutwhethertousethepackagethroughoutthe firmafterall. Sowhat'sthelessonhere?Weknowthatallsortsofthingschangedramaticallywhencompaniesdecidetomerge.Couldtheproblemwiththemergerhavebeen anticipated?Somemanagerstoldmethatthependingmergerhadbeendiscussedathighlevelsforseveralyears,butthesystemsimplicationswereneveraddressed untilthemergerdiscussionswereveryfaralong.Inthepast,postponingthediscussionofsystemsissuesuntilthelastminutemaynothavebeenwise,butitwasrarely afatalerror.Now,however,withESstheantehasbeenraisedconsiderably.Ifacompanydoesn'tforeseeorganizationalchangesthatmightthreatenitsESproject,it riskslosingthousandsofpersonyearsandhundredsofmillionsofdollars. However,thereissomegroundforoptimisminthisstory.WhenfirmswithdifferentESpackagesmergeandoneisthrownaway,allisnotlost.It'slikelythatthetwo firmssharesimilarbeliefsaboutthevalueofanEStoabusiness:integrationacrossfunctions,commondataandprocesses,andthevalueofrealtimeinformation availability.AchievingsimilarviewsoftheseissuesinamergedorganizationcanbemuchmoredifficultthanreplacingoneESwithanother,evenifthecostsof achievingconsensusaremuchlessvisiblethanthewriteoffsresultingfromcancellingtheinstallationofaparticularpackage. APersonalComputerFirm UnknownComputer(analiasbyrequestofthecompany),asuccessfulmanufacturerofpersonalcomputers,hasbeensomewhatlesssuccessfulintherealmof enterprisesystems.In1994,UnknownjoinedthefirstwaveofU.S.companiestoadoptSAP'sR/3enterprisesoftware.The"BigSys"project(nottherealname) calledforthesoftwaretobeinstalledinthreesuccessivephasesineachofUnknown'sgeographicunits:firstEurope,thentheAmericas,andfinallyAsiaPacific.

Page37

ThebusinessjustificationforinstallinganESwasthatUnknownwasaglobalcompanywithconsistentbusinessoperationsaroundtheworldthatcouldallbenefitfrom theintegrationthatanESoffered.Inalettertoemployees,theseniorvicepresidentandchiefoperatingofficer,theprimarysponsoroftheproject,wrote,"[Project BigSys]isacornerstoneoftwoofourcorporateprioritiesinfrastructureandsystems,andglobalization."TheCOOandothersatUnknownimaginedbeingableto assessworldwideinventorypositionsandforecastproductneedsusingasingleviewofallthecompany'sdifferentregions.Tohelpcreatethatsingleview,Unknown wouldtrytostandardizeitsbusinessprocessesaroundtheworldandcapturetheminR/3. Thoughaworthyandambitiousgoal,itwasmostlytechnical.AsidefromcreatingaglobalviewthroughSAP,Unknowndidn'tdeclareanyoperationalgoalsotherthan ageneraldesiretosupportitsgrowth.TheprevailingsensethatUnknownneededtoreplaceitscurrentcomputersystemsalsodistractedtheprojectleadershipfroma firmbusinessrationale.Theexistingmanufacturingsystem,forexample,waslimitedinitsabilitytohandlelargenumbersofdigitsinpartnumbers.AsUnknowngrew, thesystemranoutofavailablepartnumbers,forcingmanagerstoretireoldpartnumberstohandlenewcomponents. Makingmattersworse,Unknown'soverallbusinessstrategyshiftedduringthecourseoftheSAPproject.TheCOO,whohadcometothecompanyfromanother firmwithahighlydecentralizedstructure,droppedhisoriginalgoalofachievingglobalizationthroughcommonprocessesandbeganfocusinginsteadonamore decentralizedapproachinwhichgeographicandproductunitsretainedtheirautonomy.Hedidn'treconcilethenewvisionofUnknownwiththecontinuingSAP project,atleastnotforseveralyears. Withoutclearbusinessgoals,theSAPprojectteamhaddifficultyfocusingonclear,achievablebenefits.Projectmemosspokeofvagueoutcomeswithoutdefining clearmetricstotrackprogresstowardthoseoutcomes."[BigSys]willresultin

Page38

significantlyreducedexpense,increasedrevenueopportunities,andimprovedcustomersatisfaction,"saidoneprojectmemo."Additionally,[BigSys]willprovidemore accurateandtimelyinformationaboutourbusiness,andwillestablishanenvironmentthatcanmorereadilyadapttochange."Unknowndidn'tattachanyspecific numberstoitsexpectedfinancial,process,orcustomersatisfactionoutcomes.Veryspecific,however,wasthedramaticlevelofresourcesdevotedtotheproject:160 peopletotal(100internal,60consultants),allworkingfulltime.Thecostinactualdollarsapproached$225million,butthatdidn'tfactorinthelossesfromtakingall thosepeopleawayfromtheirregularjobsataveryfastgrowingcompany.Inaddition,thatcostwastofinishwhatwasestimatedtobeonlyathirdoftheproject. Meanwhile,mostofUnknown'scompetitorswerealreadyusingorinstallingSAP."Howdoes[Unknown]gainacompetitiveadvantageifothercompaniesareusing thesamesoftwaretodothesamething?"asksamemberoftheSalesandDistributionmoduleteaminaprojectnewsletter."Toleverage[Unknown's]strengthsand maximizeourcompetitiveadvantages,wemustusethesoftwaretouniquelydesignandsupportourbusiness."Trueenough,buttherewasnoclearideaofhowtodo that. Findingandexpressingthoseuniqueprocessestookalongtime.Unknown'sconsultantrecommendedthatthecompanyundertakethreedifferentanalysesofthe relevantprocesses:wheretheywerenow,wherethey'dliketobeoptimally,andwheretheycouldbewiththecapabilitiesofSAP.Theplanwastoevolvetowardthe optimalstateovertime.Ittookmorethanayeartodoalltheseanalysesonpaper,however.TranslatingthemintoSAPcompliantprocesseswithinthesoftware promisedtotakeevenlonger. AsUnknownbeganbuildingthoseprocessesintothesoftware,itranintoanothercommonproblemwithESs:Thesystemputanextraordinaryloadonthecompany's networksandcomputerservers.ThegreatestblessingofESsisalsotheirworst

Page39

technologycurse:Asemployeesentertransactionsintothesystem,thesystembeginsautomaticallyroutingthatinformationallaroundthecompany,settingoffakind ofinformationexplosionthatcanwreakhavoconthenetworkandanunderpoweredcomputingarchitecture.Unknownupgradeditsserverstwice(eveneschewingits ownproductstohandlethetremendousloads),buttheresponsetimeoftheapplicationremainedveryslow.Bytheendoftheproject,therewassomeoptimismthat thecurrentEuropeantransactionvolumetargetscouldbemet,butnobodywassanguineabouttheUnitedStates,orfuture,volumetargets. Whenemployeesatthecompanybegantotinkerwithprototypesofthenewsystem,theydidn'tlikewhattheysaw.Customerservicerepresentativessawthenumber ofscreenstheyusedtoprocessanorderjumpfromfourtotwelvewiththenewsystem.That'swhenUnknown'sboardbegantogetjumpyandeventuallycutback theprojectdramatically.Unfortunately,Unknown'sprojectteamdidnotinvolveactualusersinthedevelopmentprocessuntilthelastminute.Theycouldhavesaveda lotofmoneybythinkingaboutwhatitwouldbeliketolivewiththesystemearlieronintheproject. InDecember1996theprojectwascanceled,althoughsomepiecesofSAPhadbeeninstalled.TheHumanResourcesmodulehadalreadybeeninstalledinEurope andwasstillplannedtobeinstalledintheUnitedStates.ButasatrueES,theprojectwasmoribund. ThelessonfromUnknownisnottochangebusinessmodelsinmidstream.Enterprisesystemscanbeusedinhighlycentralizedfirms,andtheycanbeadaptedtohighly decentralizedorganizations.Itdoesn'tworkwell,however,tochangefromacentralizedtoadecentralizedapproachinthesameproject.EvenifUnknownhad succeededinputtingitsESinplace,itwouldprobablynothavereceivedrealbusinessvaluefromitssystembecauseitsbusinessobjectivesfortheprojectwerenever clearinthefirstplace.

Page40

GeneralSemiconductor GeneralSemiconductor(notitsrealname)isoneoftheworld'slargestmanufacturersofsemiconductorequipment(i.e.,machinestomakesemiconductors).The companyisgenerallyquitesuccessfulit'soneofthefastestgrowingfirmsinafastgrowingindustry.However,likeUnknown,Generalhasnotbeenterriblysuccessful inimplementingESs,havingalreadycancelledamajorSAPprojectandfallenbehindscheduleonasecondprojectusingOraclesoftware.I'mnotprivytoallthe detailsaboutwhytheprojectdidn'tsucceed,butIhaveaprettygoodidea. Generalhasaverydistinctiveculture.It'soneinwhichthefirm'sengineerswillworkhard,thinkcreatively,andjumpthroughallkindsofhoopstomakethesaleor shiptheorder.It'sadynamic,aggressive,customerfocusedorganizationbutit'snotterriblydisciplined.Thesehardchargingengineershaveverylittlepatiencefor suchabstractionsasprocess,infrastructure,orcommoninformation.Theirworkisamaddashtogettheproductoutthedoorandgetthecustomerofftheirbacks. Nooneevenwantstospendtimetellingaconsultantorsystemsanalysthowheorshedoeshisorherjobsothatasystemcouldsupportitbetter.Eachprojectis viewedasaoneoffexercise,anditpredictablybecomesone. I'msureitwasdifficulttoexplainwhyGeneralwasspendingover$100milliononinfrastructure,commonality,andprocessbettermentwhennoonereallybelievedin thoseconcepts.Sure,somebodyatthetopmusthavebelievedinthemenoughtosignthechecks,butatGeneraleverybodyseemedtofeeldeepdownthatthe organizationwassuccessfulwithitsexistingculture,sowhychangeit?Ofcourse,Generalisatechnicallyorientedorganization,andtheSAPsystemwascriticized internallyforbeinglackingintechnicalfunctionalityandforhavingpotentialproblemsinmeetingtechnicalperformanceobjectives.Butmyviewisthatthesetechnical argumentsmaskedanunwillingnesstochangetheorganizationinthe

Page41

neededways.EveniftheSAPsystemhadbeeninstalledsuccessfully,theorganizationwouldhavesurelychafedunderitsdaytodayuse.AndIdoubtthatthe somewhatlessstructuredandcomplexOraclesystemwillfaremuchbetterthanSAPR/3didatGeneral. Thelessonhereisthatorganizationswillencountergreatperilwhenthesystemtheyseektoinstalldoesnotfittheirculture.Ifyourcompanydoesn'tcareabout businessprocessesbeforehand,buyinganESpackagewon'tchangethataspectoftheculture.Ifyourcompanydoesn'tcaremuchaboutinformation,anESalsoisn't agoodfit.(ThechiefinformationofficerofonecompanynowinstallinganES,alargeapparelfirm,oncesaidthathiscompanyreallydidn'tcaremuchabout information,preferringto"shootfromthehip"inmakingdecisionsandtakingactions.AnyguessesabouthowthatESprojectwillfare?) LearningfromSuccessandFailure Whatcanwelearnfromthesecases?Howdowegeneralizefromsuccessincreatingbusinessbenefitandavoidthevisibleorthequietfailures?Theremainderofthis chapterwillbedevotedtothespecificlessonsofESimplementationsfromthestandpointofbusinessoutcomesandbenefits. MakeItaBusinessInitiative Inmostofthequietfailurestoachievebusinessbenefits,theculpritisfailingtomaketheprojectpartofthebusiness'soverallobjectivesandtoputbusiness,not technology,managersincharge.ThisisbecomingashopwornmaximinESmanagement,butthereisnomoreaccuratestatementintheESworld.Itmeansthatone shouldgivetheESprojectalltheaccoutrementsofseniorexecutiveinvolvementtimespent,emotionalcommitmentsmade,andmoneyatrisk.

Page42

Atabiotechnologyequipmentcompany,theSAPimplementationprojectwasabusinessprojectfromthebeginning.TheESprojectteamworkedwithbusinessunit managerstodefinesuccessfactors.Thedivisionpresidentmadeitclearthattheprojectwasthetoppriority,notjustinasingledepartment,butintheentiredivision. Manymanagers'bonusesweretiedtothesuccessoftheESproject.Ofcourse,somemanagerswerelesscommittedthanothers,butESvirtuewasrewarded."You couldclearlyseethattheoneswhowerejustpayingitlipserviceorgoingalongbecauseitwaspoliticallycorrectdidn'tgetthesamelevelofbenefitsastheoneswho werecommitted,"theprojectleadernoted.3 AStrongOutcomesOrientation Themostimportantsinglelessonistheneedforanorientationtooutcomesandbenefits,whatevertheirspecificcontent.Outcomesincludesuchbenefitsasfinancial improvements,processimprovements,reductionsininventory,improvementstocustomerservice,orreductionsinproductorservicedefects.Outcomesaredefinable inadvanceandmeasurable.Theyhavevaluetothebusinessortoitscustomers. Whatdoestheabsenceofanoutcomesfocuslooklike?It'seasytofindincompanies.First,theonlyrealgoalseemstobegettingthesystemin,andeventhatmaynot havefirmdeadlinesandprojectplans.AnothersymptomisseenwhencompaniesjustifytheirESprojectonthebasisofdocumentedbenefitsanddocumentedcosts, buteveryoneseemstohaveforgottenaboutthedocumentsseveralyearsintotheproject.InoneworkshopoftwelvecompaniesatwhichESimplementationwas discussed,theinitialbudgetsandjustificationsseemedtobesomethingofajokeinabouthalfofthecompanies.4 Thelackofoutcomesorientationisalsonotablein companieswherevaguecriteriaforsuccessareespoused:"Wewantourprocessestobeconsistentworldwide""Wewantbetterinformationfordecisionmaking" ''Wewanttoupgradeourlegacysystemsenvironment."

Page43

Thereisonlyoneacceptablebenefitsorientationthatinvolvessimplyputtinginanewsystemandnotachievingotherbenefits:thecaseinwhichanorganizationmust putinanewESorgooutofbusiness.ThislogicwasmostcommonlyencounteredinrelationtoYear2000projects.Perhapstherewerecompaniesthatwouldgoout ofbusinessin2000iftheydidnotfixtheirsystems.However,itisnormallycheapertofixexistingsystemsthantoputinanewESpackagetheaddedcostofanES cangenerallybejustifiedonlythroughimprovementsinbusinesscapability. Ifgettingthesysteminstalledisnecessarytostayinbusiness,thenitsinstallationshouldbemadeanobsession.Itshouldbedoneasquicklyandcheaplyaspossible. Everyoneintheorganizationshouldbeinformedthatgettingthesysteminandadaptingtoitsrequirementsisthefirstprioritynodissensionordiscussioncanbe allowedaboutmodifyingthesystemorpreservingidiosyncraticwaysofdoingbusiness. Formostorganizations,however,thesystemisn'tnecessarytostayinbusiness,andtheemphasisshouldbeonachievingrealoutcomes.Theoutcomesmustbe decideduponinadvancebybusinesspeoplewhounderstandwhat'spossiblefromanESandwhat'sneededbythebusiness.Theymayneedsubstantialeducationon theformersetofissues,suchaswhatcanbeaskedofanESintermsofthebetterprocessesitsupportsorthebetterfinancialperformanceitenables.Theyshould treatthedecisiontoputinanESlikeanyothermajorinvestment:Itshouldmeethurdlerates,bemonitoredregularlyatmanagementmeetings,andbecomean essentialpartofmanagementevaluationandcompensationplans. Inadditiontoeducation,thereareseveralothermeansofarticulatinganorganization'soutcomes.Managerscanarticulatetheorganization'scriticalsuccessfactors, thatis,thosethingsthatmustgowelliftheorganizationistosucceed.ThatwilldirectmanagementattentiontothekeyprocessesthatanESimplementationshould support.Anotherapproachistostartexternallytosurveycustomersoranalyzecompetitorswith

Page44

regardtobusinessrequirementsthatneedtobemet.AcompanycouldalsogothroughatraditionalstrategicplanningexercisetoarticulateESprojectgoals,butin suchaneffortmoreenergyshouldbefocusedonoperationalplansthanfinancialorbusinessgrowthobjectives,sincethesemaybedifficulttoconvertintothe implicationsforanES. Theresponsibilityforachievingtheseoutcomesshouldbelongtoeveryseniorexecutiveotherwise,thepervasiveandcrossfunctionalnatureofthebusinesschange engenderedbyanESwon'tbemanagedwell.However,theownershipfortheachievementofresultscan'tbetotallydiffusedthroughouttheorganization.Somesenior executivehastofeelthathisorhercareerisonthelinebasedonwhethertheESprojectsucceedsorfails.DependingonwhichmodulesofESfunctionalityare desired,therightexecutivemaybeachiefoperationsofficer,achieffinancialofficer,or,iftheapplicationissufficientlybroad,eventhecompany'sCEO.Infact,a surveyof200CEOssuggeststhattheyarethemostlikelyroletosponsoranESinitiative,aheadofchieffinancial,operations,orinformationofficers.5 Ofcourse, differentmanagersmayhavedifferentnotionsofwhat"sponsorship"means. Thoughthereneedstobeasingleownerforthebenefits,heorshemusthavethestrongbackingoftheorganization.Everyoneinthecompanyshouldfeelthatthis systemsdrivenreengineeringeffortisoneofthemostimportantprojectsofthetime.Everyoneshouldunderstandthatchangesaregoingtohavetobemade,notfor thegoodofthesystemitself,butforimprovedorganizationalperformanceandabetterfitbetweentheinformationsystemandtherestoftheorganization.The outcomesshouldbepublicizednotonlytoemployees,butalsotoexternalstakeholders,suchasstockholdersandanalysts. AtOwensCorning,forexample,desiredprojectoutcomesforamajorimplementationofSAPwerepackagedforinternalandexternalconsumptioninaninitiative calledAdvantage2000.Thegoalswereprintedonreferencecardsforallemployees,distributedtoanddiscussedwithWallStreetanalysts,and

Page45

summarizedinthecompany'sannualreport.Thegoalofpublicizingtheoutcomestothisdegreewastokeepthepressureoncompanymanagerstoactuallydeliver whattheypromised.Andiftheprojectwasn'trelevanttothecompany'sshareholdervalue,CEOGlenHinerreasoned,itshouldn'tbedoneatall.Therefore considerableenergywasputintomakingtheprojectofimportancetoshareholdersoperationalimprovementsweretranslatedintotheirimplicationsforkeyfinancial performanceindicators. Ofcourse,inaprojectascomplexasalargeESeffort,changesinobjectivesmaytakeplaceovertime.It'sallrighttochangegoalsinmidstreamastheorganization learnsmoreaboutitselfandthesystem.Whatdoesn'tmakesenseistoquietlyforgetaboutgoalsandtoburypreviousstatementsaboutbenefitsandtheirrelationto costs.AnESprojectiscertainlyavoyageofdiscoverynooneshouldpretend,however,thatthevoyageneverhadadestination. AClearVisionof"WhoWeAre" BecauseanESisintimatelyintermingledwiththeorganizationalstructureandfunctionofacompany,it'svitallyimportantthatcompanieshaveaclearsenseofwhoand whattheyarebeforeembarkingonanESproject.Aretheyadiversifiedconglomerateinwhichbusinessunitsshareonlyfinancialinformation?Aretheyanintegrated businessinwhichfunctionsaretightlyknit?Ifthey'reinbetween,whereonthespectrumofintegrationandbusinesscohesivenessdotheylie? AtaworkshoponESimplementation,noneofthemanagersfromtwelvecompaniesfeltthattheirexecutiveshadaclearviewof"whotheywere"beforebeginning theirESprojects.Sixofthetwelvenotedthatthelackofaclearcorporateidentityhadalreadyledtoproblemsintheirprojects.Myworkwithothercompanies suggeststhatthisisasubstantialproblematalmostallorganizations.ItwasakeyfactorinthefailureofUnknown'sESimplementation:Thecompanystartedthe projectbelieving

Page46

thatitwasanintegratedbusinessworldwide,buthalfwaythroughtheimplementation,themanagementteamdecidedthatthecompanywasgeographically autonomous. BeforestartingtoimplementanES,acompanyshouldhaveagoodhandleonthefollowingsetsofissues: Whatkindoforganizationarewetoday?Howstronglyembeddedinthecultureisourcurrentidentity,andhowhardwoulditbetochangeit? WhatkindoforganizationdowewanttobewhenwefinishwithourESprojectandtheassociatedorganizationalchanges? Whatfactorsinourmarketplaceandbusinessenvironmentaremovingusinthisdirection?Whatfactorsmightretardourmovement? Whatspecificallywouldhavetochangeforustogetfromwherewearetodaytowherewewanttobe? Inchapter4I'lldescribesomeofthekeyalternativesforcorporateorganizationandstructureasitrelatestoESs.It'simportanttosayhere,however,thatthekey questionsconcerningorganizationinvolvehowmuchcommonalityofinformation,processdesignandexecution,andbusinessrulesthereisacrosstheorganization. Iftheorganizationisaconglomerate,theonlycommonelementmaybeusingdollarsasthecommoncurrencyforreportingoffinancialresults.OneEuropean conglomerate,forexample,installedmorethan400differentversionsofthesameESandcouldn'tevenconsolidateallofthecorporatefinancialinformationwithout heavymanualintervention.Attheotherextreme,iftheorganizationisafullyintegratedfirm,almosteverythingwillneedtobecommonlydefinedinordertocoordinate operationsacrossfunctionsandunits. Afewwordsabouttheprocessfordeterminingidentityareinorder.Althoughknowingwhatyouareasanorganizationseemsanobviouspoint,therearenoobvious venuesformost

Page47

organizationstodebateanddiscussit.Anissueofthismagnitudeshouldbediscussedbytheboardofdirectorsandtheentireseniormanagementteam.Thediscussion shouldnotbehighlevelandabstractsomeoneshouldgenerateasetofspecificexamplesaboutspecificprocessesorunitsofinformation."Whataretheimplications ofhavingonecustomerlistworldwide?"isanexampleofanappropriateissue. StrategicClarity Inthesamecategoryof"thingsthatneedtobesettledbeforehandifyou'regoingtogetvaluefromanES"isthenotionofstrategicclaritycertaintyastowhat businessthecompanyisin,howitdeliversvaluetocustomers,andhowitdifferentiatesitselffromcompetitorsinthemarketplace.We'lldiscussthestrategy implicationsofESsinchapter4.Hereitisonlyimportanttopointoutthatthestrategicchoicesmustbeclearlydefinedoritisunlikelythattheywillbeadvancedbyan ES.Thisisnotanewissue:CompaniesforyearshavediscoveredwhenthinkingaboutITstrategythattheydidn'thaveasufficientlyclearbusinessstrategyonwhich tobaseITapplications.Enterprisesystemsonlyraisethestakestonewlevelsofcostandinterdependencybetweentechnologyandbusiness. Oneofthesimplerwaystothinkaboutthisissueiswhetherornotthereisclarityandbroadagreementonthecompany'schoiceofvaluediscipline,orprimary strategicgoal.Istheorganizationdevotedtoproductinnovation,operationalexcellence,orcustomerintimacy?AsidefromthefactthatESsmayfacilitatesomevalue disciplinesmorethanothers(thusfar,atleast,ESvendorshavenotdevelopedahighdegreeoffunctionalityintheproductinnovationcategory),whatismost importantisthatthereiswidespreadagreementonthechoice.Ifoperationalexcellenceisthegoal(agoodpairingwithanESinmostcases),thecompanyshould workwithdiligencetodefine,improve,andmeasurethekeyprocessesonwhichitcompetes,andstriveforatightfitbetweentheprocessesitneedsandthose supportedbythesystem.

Page48

If,ontheotherhand,customerintimacyistheprimarygoal,theprocessesonwhichtheorganizationshouldfocuswillprimarilybecustomerfacing(marketing,sales, customerservice),andtheprimaryroleoftheESwillbetoactasarepositoryforcustomerdata.Earlyoninthehistoryofenterprisepackages,therewererelatively fewcapabilitiesforthefrontofficeactivitiesinvolvedinbuildingcustomerintimacy.Now,however,severalESvendorshaveembracedsalesforce,service,and marketinganalyticsapplications.AnothercommonEScapability,ordermanagement,hasalwaysbeenrelevanttothegoalofcustomerintimacy. Thevaluedisciplinesideaisonlyoneexampleofastrategicconcepttheorganizationcanaddress.Itmayalsobehelpfultothinkaboutwhichaspectsofan organization'svaluechainmaybemostaffectedbyanES,orhowtheESmightaffectthePorter"competitiveforces"modelforthebusiness.Lookingexternally,isthe companygoingtogodirecttomarketorworkthroughdistributors?Thisiscurrentlyamajorissueinthepersonalcomputerindustry,wherefirmslikeHewlett Packard,IBM,andCompaq(allofwhichareinstallingESs)arewaveringabitonwhethertheyshouldremainwiththedealerchannelinthefaceofaggressivedirect competitorslikeDell.Itmaybegoodstrategyforthemtoquestiontheviabilityofthechannel,butiftheymakeashiftitwillundoubtedlywreakhavocwiththeirES projects.Again,thekeypointforthischapterisclarity,whichmeansthestrategyissuemustbediscussedbyseniormanagement,someconsensusmustbearrivedat, andwhateverconclusionsarereachedmustbebroadlycirculatedwithintheorganization. ConstancyofPurpose IfanorganizationisgoingtoreceivebenefitfromitsESproject,itappearstobeveryimportanttohavealongtermconstancyofpurpose.Thisvirtueisnotwidely knownorcelebratedtoday.Oursystemforsupplyingcapitaltopubliclyownedcompanies

Page49

forcesthemtotakeashorttermfocus,andnothingseemstobeconstantorinviolate.YetanESrequiresthatanorganizationtakethelongviewaslongasadecade ormoreofitsneedsforinformationanditsdesiresconcerninghowtorunthebusiness.Itdoesnotworkwell,forexample,foranorganization(likeUnknown Computer)todecideinmidprojectthatitwantstogivesubstantiallygreaterautonomytobusinessunits.ItisnotfelicitouswhenacompanysuchasEuroilpicksa mergerpartnerafterfiveyearsofinstallingasystem,andthepartnerdoesn'tlikethatsystem. Likestrategicclarity,constancyofpurposehasalwaysbeenavirtuefromthestandpointofinformationsystems.FordecadesITpeoplehavespokensomewhat ruefullyaboutpouring"COBOLconcrete"aroundtheexistingwayofdoingbusiness,andit'snevereasytochangeafterasystemhasbeenimplemented.ButESsare anorderofmagnitudemorecomplexthansystemsofthepast,andrarelyhavecompaniesspentthekindoftimeandmoneythatcharacterizetoday'sESprojectson systemsofthepast.It'smoreimportantthanever(andperhapsmoredifficultthanever)tohaveastablefoundationonwhichtoerectanenterpriseinformation platform. Constancyofpurposeisaconspicuousaspectofanorganization'sculture.Onecandiagnosewhetheritexistsfairlyeasily.Howmanymajorreorganizationshasthe companyhadinthepastfiveyears?Ifthereweremorethanoneortwo,constancymayhavebeenthevictim.Hasthecompanychangeditsbasicbusinessinthepast decade?Havemergersoracquisitionsbeenundertakenfrequently?Iftheanswertothesequestionsisyes,it'snotnecessarilyabadthingforthecompany,butitcould beabadthingforthecompany'sESproject,atleastifit'sintendedtosupporttheentireorganization.Oneapproachtodealingwithrapidchangeincorporate structureistoimplementanESnotatthecorporatelevelbutratherattheindividualbusinessunitlevel.However,thisstrategyonlyprovidesconstancyifyouare highlyconfidentthatthecurrentbusinessunitstructurewillpersistoveralongperiodanassumptionnotborneoutinmanyfirms.

Page50

IfyourcompanyhasrelativelylittleconstancyofpurposeandyouforsomereasonfeelthatanESisnecessaryanyway,becarefulhowyougoaboutinstallingit.If,for example,businessunitsareoftenacquiredanddivested,youmaywanttoimplementmultiple,relativelyindependentversionsoftheES,eachinitsownbusinessunit. Ifmanagementteamschangefrequently,youmaywanttorecruitverybroadsponsorshipsothatifoneormoremanagersdepartyouwillstillhavethebackingof others.Ifyourcompanyintendstoacquiremanyotherfirms,youmaywanttodiscusswithyourcompany'smanagementteamtheideathateachacquiredcompany willberapidlyconvertedtoyourparticularbrandofES. Inshort,companiesshouldrecognizethatthedemandsofimplementinganESaresomewhatatoddswiththecontemporarybusinessenvironment.AnESneeds stability,whereastoday'sbusinessenvironmentisinconstantflux.Ifyourcompanyorindustryisparticularlychangeridden,you'reprobablybetteroffavoidinga large,complexESprojectinthefirstplace. Ofcourse,it'sdifficulttopredictthelevelofchangeinadvance.SometimestheentireorganizationalstructurecanchangewhileanESprojectisinmidstream.At PerkinElmerAnalyticalInstruments(AI),forexample,managersbegantheirSAPimplementationwiththeideathattheirsystemwouldbelargelycommonwith anothermajordivisionoftheircompany,AppliedBiosystems(AB).AllofthesystemdesignworkwasdonewiththeideathatAIwouldshareinformationand processeswithAB.However,afewmonthsbeforetheyweretogolivewiththesystem,AImanagersweretoldthattheyneededanentirelyseparateimplementation. AsmallerbusinessunitwastobeviewedaspartofAI,butatthelastminuteitwasmovedovertoAB.ThereasonforallthisstructuralchangewasthatAIwastobe soldtoanothercompany,EG&GInc.(whichthenrecentlyadoptedthePerkinElmername). GiventheclosefitneededbetweenorganizationalstructureandtheSAPsystem,it'sverydifficulttoconfigurethisfitwhenoneofthetargetsisconstantlymoving.The priceatAIand

Page51

probablyatanycompanywithsomuchchangeunderwayisthatthebusinesshadtoadoptfairlygenericprocessmodelsandthenadapttheirprocessestothe systemratherthanviceversa.However,atAImanagersdidsucceedingettingthesystemrunning,whichwasamajoraccomplishmentinitselfunderthechanging circumstances. TacticsforBenefitRealization InadditiontothesestrategicissuesingettingbenefitsfromanES,thereareanumberofsmaller,tacticalguidelinesthatorganizationscanadopttoincreasethe likelihoodofbusinessvaluebeingachieved.Mostofthesehavebeenadoptedbyatleastoneorganizationalready.Eachguidelineisdescribedinthefollowinglist, alongwithanexamplewherepossible. Don'tviewgoingliveastheendgoalortheendoftheproject.MostorganizationswithESprojectstendtoviewthe"golive"date(thetimeatwhichthe systemisupandrunningbasicbusinesstransactions)astheendgoalmanyviewitastheendoftheESproject.Butthat'sindicativeofatechnicalfocus,nota businessone.Therealendoftheprojectiswhenbenefitsareactuallyachieved.ItmaybethatsomeofthereportingorientedbenefitsofanESwillnotbe implementedforseveralyearsbeyondwhenthesystemisfirstinstalled.AtDowChemical,forexample,wellafterthesystemwentlivetheSAPteamwasworkingon integratingtheSAPdatawithperformancereportingsystemsandondevelopingmeasuresofshareholderandbusinessvaluethatcouldbeautomaticallyproducedby thesystem. DeductESrelatedsavingsfrombudgets.ItiseasytoputcostsavingsandotherbenefitsintofinancialjustificationsforanESproject,butmanytimesthesewill notberealizedunlessthereareteethforthesavings.Corporatefinanceandaccountingorganizationsshouldsimplydeductplanned

Page52

savingseithermonetaryorheadcountbasedfromtheoperatingbudgetsofunitsandfunctions.Thesegroupswillthenhavenochoicebuttoactually implementtheplannedchangesandsavings.Monsanto,forexample,focusedparticularlyonreductionsinplantfinancialpersonnelwhenitimplementeda centralizedES.Manyplantcontrollerandaccountingpositionswereeliminatedonpaper,andattheappropriatetimeweredeductedfromplantbudgets.The plantshadnooptionsotherthaneliminatingthepositionsorredeployingthecontrollersintootheropenpositions. Provideincentivestoconsultantstohelpdeliverbenefits.SinceconsultantsdoagoodchunkoftheimplementationofmostESprojects,it'sagoodideato motivatethemtohelpachievethebenefits.Again,thegoalisnottomotivateconsultantsmerelytogetthesystemin,butrathertomotivatethemtohelpachieve businessbenefits.Whenprocessperformancetargetsreachacertainlevel,forexample,consultantscouldbepaidabonus.Thisforcesconsultantstoaddressnotonly thetechnicalsideoftheESimplementation,butalsothehumancomponentsandtheoverallbusinesscontextofthework.AtFarmland,a$10billionfarmcooperative, bothprojectteammembersandexternalconsultantsaremotivatedwithanincentivebonusplanbasedonachievementofmetricsinaprojectscorecard.The scorecardmeasuresnotonlyprojectcostsandtimelinessbutalsoachievementofsuchbusinessgoalsasdevelopmentofasharedservicesapproachtoadministrative processes.6 Don'timplementthesoftwarewherebenefitsaren'thigh.GiventheallencompassingnatureofacontemporaryES,thereisatendencytoputiteverywhere withinthebusinessthatitwillfit.Whiletherearebenefitstoahighlevelofintegration,noteverybusinessdomainwillbenefitequallyfromESsuppliedautomation.The mosteconomicallybeneficialapproachistoimplementanESinthoseareasthataremoststrategicallyandfinanciallyrewardingandtoputthere

Page53

mainderoffuntillaterornever.AtOwensCorning,forexample,theESprojectwasinitiallyquitebroad,involvingmostmajorbusinessfunctions.Butwhenthe companyranintofinancialperformanceproblems,managersconcludedthatsomeofthefunctionsalreadyhadsufficientinformationsupport,andsomecouldbe addressedmorecheaplyandwithlesscomplexitythroughstandalonepackages.TheESprojectwasreservedforthoseareasofthebusinesswherevaluewould trulybedelivered. Measurebaselinemetricsatthestartoftheproject.AsI'lldescribefurtherinchapter5,companiesarelesslikelytodaytogothroughamajorexerciseto understandexistingbusinessprocessesbeforemodifyingthemwithanES.However,it'sstillimportanttomeasureexistingprocessesbeforeanESprojectsothatany improvementscanbedetected.Itdoesn'tmakesensetomeasureallprocesses,onlythosethatarekeyobjectivesforimprovementintheESproject. Don'tupgradefortechnicalreasonsalone.Enterprisesystemvendorssupplyfrequentupgradestotheirpackages.Insomecasesthesesupplynewbusiness functionalityinothercasestheimprovementsarepurelytechnical.Thedecisiononwhethertoupgradeshould,likeotheraspectsoftheproject,bebasedonbusiness benefits.Inmostcasestherewillnotbesufficientbusinessbenefittojustifyinstallingeveryupgrade.Eveninthecaseofamajortechnicalupgradefromthe mainframeversionofthesoftwaretoaclient/serverversion,forexampleitmaybewisetodelaytheupgradeaslongaspossible.AtDowChemical,forexample, oneoftheearliestfirmstoadoptthemainframe(R/2)versionofSAP,companymanagersareresistingthetrendtoupgradetotheclient/serverversionsimplybecause theexpenseishighandtheyseenorealbusinessbenefitindoingso.Theywillprobablyultimatelybeforcedintothechangebecauseofvendorsupportpolicies,but theyaredelayingthechangeaslongaspossible.

Page54

I'msurethereareotherpossibletacticsforbenefitrealization.Thepointistocontinuallyviewtheprojectinbusinesstermsandtocontinuallyaskwhetherthereare betterwaystoachievebenefitastheprojectprogresses.Thestrategicandthetacticalissuesinteractit'smucheasier,forexample,toimplementonlyhighvalue businessdomainsandtomeasurebaselinemetricswhenyouhaveaclearbusinessstrategyandcleargoalsconcerningwheretofocusthepowerofanES. Nothinginthischapterisaradicaldeparturefromwhatwaspresumedtobegoodpracticeinthepast.AcademicsandconsultantshavestatedforyearsthatIT projectsshouldbetreatedasbusinessprojects,withconcomitantbenefitmanagementapproaches.Somefirmsactuallyfollowedthisadvice,butnotmany.Thefact thatcompanieshavespentliterallytrillionsofdollarsonITprojectswithlittleapparentfinancialorproductivitybenefitindicatesthatbenefitrealizationisinsufficiently practiced.WiththesizeandcomplexityofESinitiatives,it'sparticularlyimportanttogetone'sacttogetherinthisregard.

Page55

3 ShouldMyCompanyImplementanEnterpriseSystem?
Despitethefactthatalmosteverycompanyseemstobeputtinginanenterprisesystemthesedays,doingsoshouldn'tbeaforegoneconclusion.Maybeyou'vealready beenscaredoffbythesize,complexity,andcostofthesethings.Maybeyou'veheardthatsomecompanieshavefailed.Maybeyoudon'tfeelthatyouknowenough tomakeaninformeddecision. Well,you'vecometotherightplace.InthischapterIdescribeallthefactorsyouneedtoconsiderbeforedecidingwhethertoputinanES,andprovideexamplesof companiesthatdecidedforandagainstimplementingsuchasystem(admittedly,it'sbeeneasiertofindtheformerthanthelatter).ButI'mnottryingtosellyouonthe idea.Enterprisesystemsaren'tforeveryorganization,orforeverypartofanorganization.Thekey,ofcourse,istothinkabouthowanESfitswithyourbusinessand itsneedsforinformation.
InpreparingthischapterIwasgreatlyhelpedbySusanCantrell,aBostonUniversitystudentwhogatheredmaterialsandideasforthechapterandinterviewedReebokandNike managers.

Page56

Maybeyou'vealreadydecidedtoimplementanESmaybeyou'realreadywellalonginimplementation.Holdondon'tskiptothenextchapter.It'slikelythatyou'll benefitbyreadingthischapteranyway,particularlythesectionsconcerningbenefit.KnowingwhatthepossibletypesofbenefitarethatcanbeachievedinESprojects mayhelpyouderivesomeinprocessorevenpostimplementationbusinessvalue.I'msureyou'reaverygoodmanager,butyoumayhaveoverlookedsomepossible sourcesofbenefitalongtheway. Althoughthisbookisprimarilyorientedtobusiness,nottechnical,issues,Iwillconsiderbothbusinessandtechnicalfactorsinthedecisionconcerningwhethertoput inanES.Thefactisthatmanyorganizationsmaketheirdecisionsatleastpartiallyontechnicalgrounds.Theissuesarenotparticularlydifficultorcomplexfroma technicalstandpoint,however,soabusinessorientedreadershouldhavenoproblemcomprehendingthem.ThroughoutthechapterI'lldescribethedecisionprocess ofseveralcompanies,includingsomeintheathleticshoeindustry,justtocomparefirmswithinthesamebusiness. ThischapteralsoaddressestheissueofhowtodecideamongthedifferentESvendors.Ifyou'vealreadymadethisdecision,youcansafelyskipthatsectionunless youareagluttonforpunishmentandwanttoseeifyoumadeanymistakes! EnterpriseSystemPrerequisites BeforeyouevendecidewhetheranESisagoodfitforyourorganizationandbegintoplananimplementation,youneedtohavealotofdiverseinformationatyour disposal.Manyorganizationswon'tbefullyequippedtomakeaninformedESdecisionbecausethiskindofbigdecisiondoesn'tcomealongveryoften.Itmaytake severalmonthsjusttogatheralloftheneededinformationthiseffortwon'tbewastedevenifyoudecidenottoadoptanES,however,becausemostofthe informationisusefulforotherpurposes.Theinformationisneededtoaddressthefollowingtypesofquestions:

Page57

Inwhatshapeisyourdata?Howmuchdokeydataelementsdifferacrosstheorganization?Forexample,howmanydifferentmeaningsofthetermcustomercan youfind? HowstrongisyourcurrentgroupofemployeesintermsofESrelatedskills?Cantheydesignnewprocesses,configurenewsystems,adapttonewwaysof working,andmanageahighdegreeoforganizationalchangeovertime?DotheyunderstandhowspecificESpackageswork?Howmany''Alevel"performersdo youhaveavailabletoworkonanESproject? Inwhatkindofshapeisyourtechnologyinfrastructure?Canyourcurrentservers,desktopsystems,andnetworkssupportamajornewapplication? Whatarethekeystrategiesofyourbusiness,bothatthecorporatelevelandforbusinessunits,geographies,products,andsoforth?Ifyoucan'tarticulateyour strategies,youcan'tsupportthemwithanewinformationsystem. HowmuchcouldyourbusinessaffordtospendonanewES?Howwouldamajorexpenditureaffectyourbalancesheet? HowdomostexecutivesfeelaboutthenotionofanES?Dotheyunderstandthenatureandpurposeofsuchsystems,anddotheyagreethatamoreintegrated, common,andfunctionalsetofbackboneapplicationsisnecessary?Whatdotheysayabouttheidea,bothpubliclyandprivately?Iftheydon'tsupportitnow,will theyeventuallylineupbehindtheidea? Arethereanymajororganizationalchanges,issues,orproblemsthatyoucanalreadyanticipatewilltakeplaceoverthenextseveralyearsthatwouldmakeamajor ESprojectabadidea? KnowingtheanswerstothesequestionswillhelpnotonlywithdecidingonanES,butwithimplementingone.Makesurethatwhenyouaddressthemsomeone recordstheanswersand

Page58

conclusionsforlateraccess.Monsanto,forexample,articulateditsbasicstrategyfordatatechnologyandthefinance,ordertocollection,purchasing,and manufacturingprocessesinoneshortdocumentbeforeitbeganitsESproject.Thedocumentcalledtheproject"manifesto"stated,forinstance,thatFinance woulduseoneledgerworldwide,populatedwithdatadirectfromitssource,innearrealtime,untouchedbylocalmanagement.Themanydesigndecisionscovered bythisdocumentgreatlyshortenedbutdidnotfullyeliminatethesubsequentdebatesaboutimplementationdetails. WhoDecides? WhetherornottoimplementanESshouldn'tbeaprimarilytechnicaldecision.Therefore,thedecisionshouldn'tbemadeprimarilybytechnologists.Thedecision processshouldinvolveinvestigationbyagroupofbusinessandtechnicalexecutiveswithinthecompanytypicallyworkingforseveralmonthsunlesssomefactor makestheoutcomefairlyobvious.Ultimately,becauseofthelevelofcostsandbusinesschangeinvolvedinanESproject,thego/nogodecisionshouldbemadeby theCEOandtheseniorexecutiveteam,andprobablytheboardofdirectorsaswell. Thetechnologistscaneducatethebusinesspeopleonhowthetechnologyworksandtheimplicationsofparticulartechnologychoices.Thebusinesspeoplecan determineorarticulatewherethebusinessisgoingandwhattherequirementsimposedbyparticularbusinessprocessesare.Jointlytheycandeterminehowthe technologymightinfluencetheachievementofbusinessobjectives.Thesmallgroupshouldpresenttheirconclusionstotheentireseniormanagementteam.Theboard ofdirectorsshouldalsobeconsulted,notjustbecausetheamountofmoneyissubstantial,butbecauseofthebusinesschangesinvolved.Aftermakingthedecision,it shouldbecommunicatedtotheentireorganization,butinbusinessratherthantechnicalterms. ButifthedecisiontoadoptanESshouldbemadebybusinesspeople,technologistswillhavetoplayamuchmoreactive

Page59

roleindecidingwhichEStoselect.OnlyhardcoresystemsexpertscanevaluatewhethercertaintechnicalcapabilitiesarereallypresentonlyITpeoplewith substantialexperienceindealingwithsoftwarevendorscanapplythecorrectamountofskepticism.Businesspeopleshouldbeonthepackageselectionteamaswell, however,toensurethattheproperhighemphasisonbusinessobjectivesandvalueiscontinued. BoththebusinessandtechnologyorientedpeoplewhomakethedecisionsaboutESsshouldhavetheabilitytobeforwardthinking.Asonemanagerputit,it's necessaryto"shootaheadoftheduck"inthinkingaboutESs.Afirmmustthinkaboutwhatitwillneedtwoyearsahead,notwhatitneedstoday.Itdoesn'tworkto waitforthechallengetobepresentbeforebeginningtothinkaboutanESproject. DecisionmakersmustalsobepreparedtodecidewhatnottodoinanESproject.Limitingthescopeoftheworkwillbecriticaltothesuccessoftheeffort.Several managershavetoldmethatagreeingnottoimplementaparticularaspectofthesystem,ornottoattemptsomeaddonfunctionality,wasoneoftheirmostdifficult decisions. TogiveaquickoverviewofsomeoftheissuesinvolvedindecidingonanES,I'lldescribeacasestudythatisfairlytypicalofmanyorganizations'decisionmaking processes. DecidingtoImplementanEnterpriseSystem:ACaseStudy EMC,amanufacturerofleadingedgedatastorageproducts,decidedin1998topursueanES.DescribedbyBusinessWeekas"oneofthehottestgrowthstoriesof thehotgrowth1990s,"EMChardlyneededtoputinanEStoholditsbusinesstogether.NordidithaveaYear2000problem.EMC'sdecisiontoadoptanESis ratherastoryofopportunityandgrowth. Inthesummerof1998,aninternal"BusinessProcessDevelopmentCenter"(BPDC)groupwascharteredtolookatthefirm'sbusinesssystems.EMC'sinformation systemshadevolvedovertimewithnoparticularstrategy.Thecompanyhad

Page60

addressedpointspecificproblemswithpointspecificapplicationsby1998therewereover250differentapplicationsbeingusedinthecompany,70ofthemmeeting majorinformationneeds.Adiagramoftheexistingapplicationsarchitecturewascalledthe"spaghettichart"withinEMC.Thecompany'scoremanufacturingsoftware, installedin1991,wasbeingphasedoutbyitsvendor,andthereweretwodifferentversionsofitfordomesticandinternationalbusiness,requiringlaborintensive reconciliationseachfinancialperiod. Despitetheseissues,EMC'ssystemswerenotbrokenandmetthecompany'sneeds,andanymajorYear2000problemshadalreadybeenaddressed.Thedecision toadoptanewESwasmotivatedbythedramaticgrowththecompany'sleadersplanned.MichaelRuettgers,theEMCCEO,hadinformedthecompanyandthe outsideworldthatEMCwouldhave$10billioninrevenuesin2001,fromabaseofjustunder$4billionin1998.HefeltthatthecompanyneededastrongerIT infrastructuretosupportmorethandoublinginsize. Inlate1998theBPDCrecommendedthatthefirmadoptanES.ItalsorecommendedthatthefirmhaveoneglobalESasabackbone,andthatanyexistingsystems thatwerehighlyfunctional(e.g.,itsPeopleSofthumanresourcessystem)orstillnecessarytomeetuniqueEMCfunctionalitybeinterfacedtotheES.Thecompany wouldalsolikelyneed,theBPDCfelt,someboltonapplicationsforsomespecificprocesses. TheBPDCcommissionedaconsultanttodoananalysisofavailablepackages.Aftermappingallkeyprocessesandcomparingthemwiththefunctionalityin alternativeESpackages,ashortlistofthreesystemswasselected.EMCalsoaskedanotherconsultanttoprepareabusinesscaseforimplementinganES.The consultantinterviewedalldepartmentheadsandaddedtogethertheprojectedprocessbyprocesssavingsfromimplementingasystem.Theoverallreturncameto $300millioninsavingsoverfiveyears.However,whenthefigurewaspresentedtoRuettgers,hewasnotimpressed.Hepointedoutthatthesavingsamountedtoonly 1percentofEMC'sspendinglevelsoverfiveyears.

Page61

Ruettgerssuggestedthatmuchgreaterbenefitscouldbeidentifiedandachievedbymakingindividualmanagersresponsibleforthem.Heaskedthefinancial organizationtocalculatetheremainingfundsafterdeductingaspecifiedgrossmarginfromthe$10billionthatEMCwouldgeneratein2001revenues.Theamount wouldbedividedproportionallyamongdepartments.Withthedepartmentheadsknowinghowmuchtheycouldspendby2001,theywerethenencouragedto determinehowtheycouldusetheESsystemtoachievemoreeffectiveandefficientprocessesbythattime.EMC'smanagementteamwasinitiallyresistanttotheidea ofanES,butafterbeingeducatedatakeyteammeetinginearly1999,enthusiasmlevelsrosemarkedly. EMCmanagersexpectbenefitsallacrossthecompany,buttherearesomespecificareasthatarebeingstronglyanticipated.Orderprocessingefficiency,forexample, isakeygoal.Thecompanyalsohasastrongneedtounderstandglobalsalesforagivencustomer.Someofthesebenefitswillprovidebettercustomerserviceothers willallowrapidgrowthwiththeefficienciesthatEMC'sgoalsrequire. EMCisnowonthevergeofselectingaspecificpackage.Thecompanyexpectstoinstallitssystembyearly2001andrefineitthroughouttheyear.Anewgrouphas alreadybeenformedtoimplementthesoftware,newprocesses,andneededorganizationalchanges.ItwillreportdirectlytoRuettgers,andwillhavethesamestatus asthecompany'sfourbusinessunits.Thecompanyisputtinginanorganizationalinfrastructuretoparallelitsnewtechnicalinfrastructure. BusinessandTechnicalFactorsInanEnterpriseSystemEvaluation AstheEMCstoryillustrates,it'simpossibleoratleastundesirabletotreatbusinessandtechnicalfactorsinanESevaluationseparately.Businessfactorscreate theneedfortechnicalfunctionalitytechnicallimitationscreatebusinessrisk.Therefore,I'mgoingtoconsiderthetwosetsoffactorsjointly,andifyou

Page62

can'ttellwhichI'maddressingatanymoment,wecouldevenconsiderthatagoodsign. CostVersusBenefitandtheBusinessCase Perhapsthemostcommonanalysisthatcompaniesmakeiscostversusbenefit:Willitcostmoretoimplementthesesystemsthanthefinancialbenefitsthatwillbe delivered?Thisanalysisisusuallydoneinthecontextofabusinesscase.Thebusinesscasemayincludenonfinancialfactors,aswasthecaseatEMC,butfinancial issuesandcalculationsaregenerallythestarsoftheshow. It'sagoodideatodosomesortofbusinesscase.Eveniffinancialjustificationisn'tthatimportanttoyourorganization(andasurprisingnumberoffirmsfeelthatway), doingabusinesscasewillfocusyouandyourorganizationonthebusinessvalueyouexpecttoachievefromtheESandassociatedbusinesschanges.It'sinthe businesscasethatyouspecifythetypesofprocess,competitive,orfinancialcapabilitiestheorganizationwillhavewhenimplementationisover.Ifyouintendtomake betterandfasterdecisionswithESdata,thatshouldgointhebusinesscase.Ifyouexpectthatyourcustomerswillordermorefromyoubecausetheycanplace ordersfromtheInternet,orderallyourproductsinonetransaction,andfindoutwhetheritemsareoutofstockatthetimeoforder,thenyoushouldsayso(andsay howmuchmoreyouthinkthey'llorder)inthebusinesscase.Granted,it'saloteasiertostatetheseanticipatedbenefitsinabusinesscasethanitistoactuallyachieve them.However,it'snotlikelythatyou'llachievebenefitsifyouhaven'tplannedfortheminadvanceandtoldtheworldaboutitinabusinesscase. Despiteallofthesepotentialbenefits,manyfirmsdon'tevendoaformalbusinesscase.Justwhatpercentageoffirmsdoanddon'tseemstovaryacrosssamples. WhenAndersenConsultinginterviewedabout200CEOsonESissues,62percentsaidtheircompanyhaddevelopedabusinesscase.Thissurveyrevealed substantialbenefitsfromdoingone.Inthecompaniesthathad

Page63

preparedabusinesscase,85percentoftheCEOssaidtheyfeltcomfortablewiththeirunderstandingofESsincompanieswithnobusinesscase,only44percentfelt comfortable.TheCEOswhohadn'tinsistedonabusinesscasewerealso50percentmorelikelytoexpressdissatisfactionwithESbusinessresults.1 Asecond surveyofsixtytwocompaniesfoundanevenhigherpercentageofbusinesscases72percent.2 Oneresearcher,however,reportedsubstantiallylowerlevelsof businesscasevirtue.HefoundthatonlyathirdofthecompanieshequestionedwhoweredoinganESprojecthadaformaljustification,andonly39percentofthose whohaddoneabusinesscasefelttheyhadalreadyproducedquantifiablebusinessvaluewiththeirES.3 Eventhoughit'snotuncommontoskipit,therearefewgoodreasonsfornotdoinganysortofbusinesscase.However,itispossibletodooneafteryou'vealready decidedyou'regoingtoimplementanES.Inthatcase,theobjectiveforthecaseisobviouslynottodecidewhethertoimplementasystem,butrathertounderstand howtoachievemaximumbenefitfromit.Infact,ifyouareseveralyearsintoimplementationorevenifyouhavegonelive,itcanstillbeusefultoformallyassessthe businessbenefitsyoucanachievewithanES. TheBusinessCaseProcess Businesscasesareusuallythoughtofastakingplacebeforeimplementationandasbeingaonetimeevent.Wrongonseveralcounts.First,sinceit'simpossibleto predicthowbenefitswillberealizedovertime,thebusinesscaseshouldbemodifiedcontinually.Second,evenattheinitialstageofanimplementation,thebusiness caseprocessshouldbeabititerative.Initiallyyouneedtoassessthebasicbusinessrequirementsoftheorganizationatahighlevel,withoutregardtoanyparticular system.It'satthispointthatyoucancomparethebenefitsyouanticipatetotheballparkcostofimplementinga"generic"ES.Thegoal,ofcourse,istodecidefroma financialbenefitperspectivewhethertoimplementanES.

Page64

It'snotterriblycommontodecideatthispointnottogoahead,butsomecompanieshavedoneso.Ataconsumerproductscompany,forexample,managersdecided nottoimplementtheESconsideredinitsbenefitcaseincludingasupplychainoptimizationboltonapplicationbecausethefinancialanalysisdidn'tmeasureupto thecompany'sbenefitstandards.Table31

Table31

Value(millions ofdollars)

SampleCostVersusBenefitAnalysisforanEnterpriseSystem Item Benefits Savingsfromapplicationsthatwouldhavetobe implementedwithoutanES SavingsfromnothavingtosolvetheY2Kproblem separately SavingsininfrastructureinvestmentsneededifES notimplemented Onetimesavingsfrominventorycosts Procurementsavings Savingsfromimprovementsinforecastingand operationalplanning Savingsfromimprovementsindemandplanning Annualcustomerserviceproductivityimprovement savings Annualfinanceproductivityimprovements Onetimesavingsfromaccountsreceivablereductions Totalbenefits

7 1 5 11 7 5 4 2 5 0.3 47.3

Costs Labor(internalandconsultant) Hardware(production,development,anddesktop) Software(ES,supplychainbolton,middlewaretools) Communicationsinfrastructureimprovements Totalcosts 22.7 8 7 2 39.7

Page65

listssomeofthecostsandpotentialbenefitsthecompanyenvisionedinitsbusinesscaseoverfiveyears. Inthiscase,eventhoughbenefitsexceededcosts,thecostoutlayswouldhaveprecededthebenefitrealization,bringinganetpresentvaluecalculationintoplay.With timevalueofmoneytakenintoconsideration,thecostsandbenefitswereroughlyequal,andtheinvestmentdidn'tmeetthecompany'sinvestmentcriteria.However, myviewisthatthecompanyhadsubstantiallyunderinvestedininformationsystemsinthepast,andasaresultneededtospendmoretocatchupwithcompetitors.On apurelyfinancialbasis,however,theprojectwasrejected. Ifadecisionismadetogoaheadinprinciple,itmakessensetoassesswhatESvendorshavetoofferandtostartapackageselectionprocess.Whenaspecific packagehasbeenselected,it'spossibletostartgatheringdetailedcostinformationaboutthesoftwareandhardwareenvironmentfortheES.Companiesalsotypically selectimplementationpartnersatthisstageintheprocess,whichyieldscostinformationforconsultingandotherservicesrelatedtotheES. Nowit'spossibletodevelopadetailedbusinesscase.Inadditiontothemoredetailedcostinformationavailableatthisstage,identifyingspecificsoftwareand consultantshelpstofleshoutthebenefitssideoftheequation.Othercompaniescanbevisitedtolearnwhatkindofbenefitstheyachieved.Consultantrelationships canbestructuredpartlyonthebasisofrewardsforspecificprocessorfinancialimprovements.Thisisthepointatwhichallofthecostandbenefitinformationcanbe broughttogetherandanalyzed,andadecisionmadeonwhethertoproceed. Theanalysisofwhatcostsandbenefitsactuallyarerealizedshouldtakeplacethroughouttheproject,andeverystageoftheprocessshouldinvolvedecisionsabout howandwhethertoproceedwiththeES.Thisisusuallynotanallornothingpropositionwithmillionsinvested,itwillnormallymakesensetocontinuewithaproject. However,itmaymakesensetochangethescopeorscaleoftheprojectbasedontheongoingbusinesscase.I'vealreadymentionedOwensCorning'sdecisionto backoff

Page66

fromsomeaspectsofitsimplementation.Fiveyearsintothecompany'sSAPproject,thecompanyencounteredsomefinancialperformanceissues.Managershired consultantstoundertakeastrategicreviewofitsproject.Giventhetimeandmoneyithadinvestedintheimplementationthusfarandtheprogressmadetodate, OwensCorningmanagersrevisitedthequestionofhowbroadlySAPshouldbeimplementedthroughoutthecompany.Certainsubsidiaries,forexample,couldgetby withlessexpensiveandlessintegratedpackages.Themanagersdecidedthattheywouldgettheprimaryshareofbenefitsfromthepartsofthefirmthatwere scheduledforimplementationearlyon,andhencetheydelayedorcancelledplanstoinstallthesystemwherebenefitswouldbemoremarginal. OnewaytobuildintheapproachofongoinganalysisistoemployarealoptionsapproachtofinancingtheESwork.Realoptionsapproachesareanalogoustothe useofoptionsinthestockmarket.Insteadoffinancingtheentireprojectatonce,anoptionisboughttoevaluatetheinvestmentanditsriskovertime.Realoptionsare alookandlearnapproachtofundinginvestments:Youinvestabit,learnsomethingfromtheprogress(orlackthereof)youmake,theninvestsomemoreandlearn somemore.Becauseyouhaveinvestedinstages,theriskoflosingabundleissubstantiallyless. Realoptionsapproachesarebecomingcommoninindustrieswherefirmsmakelongterm,highuncertainty,bigbucksinvestments,suchaspharmaceuticaldrug developmentprojects(Merckwasanearlyadopterofthisstrategy,forexample)andmining.Unfortunately,theideaisonlybeingappliedtoESprojectsbyafew earlyadopters,andit'stoosoontotelltheresults.Forbetterorworse,you'llhavetobeapioneertotryit.4 TypesofCost Costsforenterpriseprojectsfallprimarilyintothreedifferentcategories:thesoftware,thehardware,andthepeople.Asyoumayhaveguessed,peoplearebyfarthe mostexpensiveofthe

Page67

three.Nevertheless,I'lldescribetheothertwofirstjusttogetthemoutoftheway. SoftwarecostsincludelicensestousetheESpackage,ongoingmaintenanceandsupportfeespaidtosoftwarevendors,andthecostofboltonapplicationsusedto supplementthecapabilitiesoftheprimaryESpackage.Dependingonthevendoryouselect,youmaypaybytheuser,thenumberofcopiesoftheserversoftware,or bytheapplicationmodule(e.g.,ifyouonlyusefinanceandinventorymanagement,youmaynothavetopayforthehumanresourcesmodule),oryoumaypayalarge feeforacompanywidesitelicense.LargeESvendorshavewellestablishedpricingstructuressmalleroneswilldodeals,butyou'llpaylateroninimplementationfor anythingyousavenow. Hardwarecoststypicallyinvolvesettingupanewclient/servertechnologyarchitecture.It'sunlikelythatyou'llalreadyhaveallthehardwareandnetworkingcapability thatyouneed.ServersforESpackageshavetobequitebeefy,andforreliabilityandsecurityreasonsyou'llprobablywantyourESmachinetostandalone.Youwill probablywantabackupserverthatcanalsobeusedfortesting.Themajorvendorsofclient/servertechnology(Compaq,HewlettPackard,IBM,andSun,in alphabeticalorder)haveplentyofexperiencespecifyingwhatyou'llneed,andwillbehappytoacceptyourcall(evenifit'scollect)andpurchaseorder. Typicallyfarlargerthanhardwareandsoftwarecostsareimplementationcosts,whichI'lldefineasthecoststoconfigurethesystemtoyourorganization,installitin thecompany,and(mostimportantlyandexpensively)tobringabouttheprocess,organizational,behavioral,andstrategicchangestoreallymakeanESaworthwhile businessinvestment.Implementationcostsaregenerallypeoplecosts.Thepeoplecancomefromwithinyourorganizationor,morecommonly,fromaconsultingfirm. Mostfirmsemployconsultantsbecausetheydon'thavetheinternalskillstoimplementanES,andinfactdon'tevenhavethespareresourcestodeployintolearning thenewskills.

Page68

Implementationcostsvarywidelydependingontheamountofbusinesschangethatyouenvision,butcanexceedtentimesthecostsofothertypes.Ofcourse,ifyou don'tplanonreengineeringanyprocesses,changinghowyourorganizationisstructured,improvingyourcompetitivecapabilities,oracquaintingyourpeoplewitha newwayofworking,youcanprobablygetbywithimplementationcostsbeingonlydoubleyourhardwareandsoftwarecosts.Butyou'llhavetoviewthisspendingas acost,ratherthananinvestment,becauseyou'llbeunlikelytoseemuchpayoff. Evenifcostsareconsiderablyexceededbybenefits,firmsmustevaluatewhethertheyhavethenecessaryfinancialresourcesforanESproject.Unlessyou'reputting inanewESbecausecurrentsystemswon'tallowyoutostayinbusinessforsomereason,thisisnotaprojecttobedoneonthecheap.Makesureyoucanaffordnot onlythehardwareandsoftwarecostsandcostsofpuresysteminstallation,butalsothecoststobringaboutbusinesschange.Returnswon'tberealizeduntil someoftheERPsystemisimplemented. allofthecurrentsystemsarediscarded. allnewbusinessprocessdesignsareimplemented. alldecisionmakersusethesystemtoplanandmanagetheorganization'sresources. alltransactionprocessorsusethesystemtoprocesstheorganization'stransactions.5 TheabsolutecostsofanEScanundeniablybehigh,butthereareotherwaystothinkaboutcost.Monsanto,forexample,calculateda''costperuser"metric.Project leadersfoundthatwhenmeasuredonthatbasis,costscouldbeonefourththecostoftraditional,narrowerscopesystems.Theybelievethatthisbeneficial comparisonholdsforbothinitialimplementationandongoingsupport.

Page69

ThecostsofanESarenotjustfinancial,however.Implementingasystemandbringingabouttheassociatedbusinesschangeswillalsoinvolvesubstantialhumancosts. TheESprojectwillmonopolizethetimeofmanyofyourbestpeopleforseveralyears.Virtuallyeverypersonintheorganizationneedstolearnabouttheimpactofthe newsystemandrelatedchangesonhowtheirworkisdone.Seniormanagerswillbebusyreconfiguringvariousaspectsofthebusiness.Ifyoudon'thavesufficient organizationalslackincludingtimeandattentiontofocusonanESproject,don'tundertakeoneorkidyourselfthatyou'llputinthesystemnowandplanfor businesschangeslater.Thismeansthatifyourorganizationisplanningconsiderableactivitywithregardtomergersandalliances,amajorfinancialturnaround, significantgeographicalexpansion,manynewproductintroductions,andsoforth,yousimplywon'thaveenoughmanagerialattentiontodealwithalltheseissues effectivelywhiledoinganESenabledbusinesstransformation. YoucanalsoincludethepoliticalcostsofanESinyourcalculations.Willthefirm'sleadersbeactiveandvisibleintheirsupport?Theycan'tsupporteverything,you know.Makesurethattheconsentofseniorexecutives,ifyou'renotoneyourself,ismorefervidthanlukewarm.Youmaybeabletoinstallthesystemwithoutsenior executivesupport,butyoucan'tchangethebusinesswithoutit. TypesofBenefit TherearemanydifferentwaysthatanorganizationcangetvaluefromESs.Eachpossiblesourceofsavingsorbenefitshouldbeconsideredbytheorganizationfor inclusioninjustificationandongoing"benefitmanagement"programs.Thefollowingdescribesanumberofalternativetypesofbenefitsinalistthatdrawsheavily(but differsabit)fromonecompiledbytheGartnerGroup.6 Thebenefitsaregroupedwithinthreedifferentcategories:

Page70

SavingsfromNewApproachestoWork Savingsfromautomatingpreviouslyhumantasks.Anexampleismovingtoselfservicequeryingandreportingbycustomersandemployees. Savingsfromdatarationalizationthatis,nolongerhavingtomanuallyreconcileandaggregatedifferentdefinitionsandvaluesforthesameunitofinformation. Savingsfromprocesschanges.Describedinchapter5,thesebenefitsare,Ibelieve,attheheartofthebenefitscaseforESs. Savingsfromorganizationalchanges.Anexampleisadoptingasharedservicesgroupforcommonadministrativeprocessesacrossbusinessunits. Savingsfrominventoryandotherfactorsofproduction.ManycompaniesfindthattheycanrunleanerwithanES,eliminatingexcessinventory,labor,andplantand equipment. SavingsfromDismantlingLegacySystems Savingsfromavoidingadhocsystemschanges.CompaniesthatimplementESsdonothavetomakeYear2000fixes,eurocurrencyconversions,andsoonmany convertedtoanESpurelyforthisreason,althoughinmyviewitdoesnotyieldsufficientbenefitsalonetojustifythecost. Savingsfromlegacysystemsupgradesandsupportfromcontractors.AlthoughESusersincurthesecostsaswell,theymaybeoffsetbysavingsfromlegacy systemsexpendituresnotmade. Savingsfromnothavingtobuildnewsystemswhenadditionalmodulesareimplementedorbecomeavailablefromavendor.

Page71

RevenueEnhancementBenefits Improvementsincustomerservice.Betterorderinterfaceswithcustomersenhancedavailability,pricing,andprofitabilityinformationandtheavailabilityof improvedcustomerservicemayleadtoincreasesinrevenueandprofitability. Easeofexpansionandgrowth.ImplementinganESmaymakeiteasiertoaccommodategrowthincustomers,mergedoracquiredbusiness,orreorganizationto betterfitacompany'smarkets. Betterdecisions.Althoughthisisanunquantifiablebenefit,ESscertainlymakepossiblebetterdecisionandmanagementprocesses,asdescribedinchapter7. ExistingSystemsandFutureBusinessNeed OneofthemostfundamentalanalysesthatanycompanymustmakebeforemovingtoanewESisthetradeoffbetweenexistingsystemscapabilityandfuture businessneed.Bothareslipperyconcepts.Predictingthingsisalwaysdifficult,particularlywhenitinvolvesthefuturetoparaphraseYogiBerra.Thereareplentyof reasonstoditchexistingsystems,includingthefollowing: Year2000noncompliance(thoughifyou'vemadeittonow,you'represumablyOK) Redundantorinconsistentinformation Lackofintegration Doesn'tsatisfyallofthedecisionsupportrequirements Notuserfriendly Costlytomaintain

Page72

Nolongerstateofthearttechnology Duplicatesystems Desperateneedtogotoclient/servermodel Cobbledtogethersystemsfromacquisitions,growth,addons,etc. Nolongersupportedbyvendor Reachedendofusefullifecycle. Virtuallyallsystemshaveoneormoreoftheseshortcomings,butthatinitselfhardlymeansanautomaticdecisiontoadoptanES.Thekeyistothinkseriouslyabout howproblematictheseissuesareandhowtheymightberemedied.HowdoesthecostofupgradingexistingsystemscomparewiththoseassociatedwithanES?If youhavealltheseproblems,thenimplementinganESisclearlyindicated.Youmayhaveahorriblecurrentsystemsenvironment,butatleastyouhaveaneasy decision! AfewinstructivecasestudiesoftechnologybasedjustificationsforESprojectsmaybehelpful.Cisco,thehighlysuccessfulmanufacturerofInternet telecommunicationsequipment,vieweditsgrowthastheprimaryincompatibilitywithitsexistingsystems.7 Thecompany'scontinuedandrapidgrowth(e.g., anticipatedfivefoldrevenuegrowthinthreeyears)couldnotbesupportedbytheirexistingtransactionprocessingsystem,whichtypicallysupportedcompanieswith revenuesinthehundredsofmillions,notbillions.EvenCisco'svendorsconcededthattheycouldn'tmeetthecompany'sneeds.Currentsystemsdidn'tprovidethe degreeofredundancy,reliability,andmaintainabilityneededtosupporteventhecurrentbusinessenvironment.Ciscocouldnolongermakechangestotheapplication tomeetbusinessneeds.Thesystemhadbecometoocustomizedandpatched,andconstantlyrequirednewbandages.Ciscoexecutivescorrectlyanticipatedthatthe companywouldeventuallydealwithitscustomersovertheInternet,andtheexistingsystem

Page73

alsowasincapableofallowingcustomerstoplaceandtracktheirownorders. BecauseofthecompellingnatureofCisco'sbusinessneedsandtheclearinsufficiencyofitscurrentsystems,thecompanydidn'tdoanyseriousbusinesscase.Cisco encounteredsubstantialproblemswhenitturnedonitsenterprisesystem(detailedinchapter6),whichmighthavebeenavoidedwithgreaterattentiontobusiness changeissues.However,thecombinationofanESatCiscoandthecompany'swholesalemovetoonlinecustomertransactionseventuallyyieldedconsiderable businessbenefits. AtChevron,thelargeoilcompany,therationaleforchangewasasmuchthenumberofexistingsystemsastheirpoorquality.8 Chevronhadacollectionofmorethan 200separate,internallydevelopedmainframesystemsinthefinancialareaalone.Thelargestprogram,primarilyageneralledgerandreportingdatabase,waswritten inthe1960sandlaterconvertedtothenewandexcitingcomputerbusinesslanguage,COBOL.Theprogramcodehadbeenmodifiedmanytimesoverthefollowing decadesandbythemid1980scontainedclosetothreemillionlines(foryounontechnicians,that'salargenumber).Themainsystemhadmanyinterfacestosmaller systems,whichweredifficulttomaintainandmodify.Dataextractionforanalysisanddecisionpurposeswasdifficultandrequiredspecializedprogramlanguages.Data wasthusrestrictedtoahandfulofITexperts.Chevrondidundertakeaformalbusinesscase,butbecauseofthesesystemconstraintsthelikelyoutcomewasfairly apparentfromthestart. Acautionarytalemaybehelpfulhere.I'vedescribedUnknownComputerearlierinthisbookasillustratingafailureinESimplementation.However,Unknownisnot outofbusinessinfact,thecompanyisdoingwell.LikeCiscoandChevron,UnknownjustifieditsESprojectonthebasisthatitscurrentsystems(currentin1996, anyway)couldn'thandleitsgrowth.AtthattimeUnknownwasalreadyhavingproblemswithsuchbasicinformationneedsasissuingnewproductand

Page74

componentnumbers,keepingtrackofdiversecustomerinformation,andconfiguringcomplexproducts.WhenWebbasedsalestookoffatUnknown,thecompany hadtomovecustomerordersfromtheWebtoitsinternalsystemsmanuallywhenanautomatedlinkwasfinallydeveloped,itwashardlyelegant.Yetthecompany continuedtogrowandprosperonthesesupposedlyantiquatedsystems. Now,Unknownisputtinginanewsetofsystemsemployingmessagebrokeringtechnologythatswitchesinformationamongasetofbestofbreedsystems.The company'stechnicalpeoplearestillusingtheargumentthatexistingsystemscan'thandlegrowth.They'reevenarguingthatthecompany'sgrowthprecludesitfrom workingwithasingleESvendor.IfIweretheCEOofUnknown,I'dbesuspiciousofthisargument.Andifyou'reaseniorexecutiveevaluatinganESbusinesscase, youshouldalwaysbecarefultoconfirmargumentsthatexistingsystemsorcurrentITarchitectureswon'thandleyourcompany'sgrowth. InformationQualityandVisibility Arelateddeficiencyofexistinginformationsystemsinvolvestheinabilitytoeasilyobtaingood,clearinformationaboutbusinessprocessesandoverallorganizational performance.Evenifcurrentsystemsareabletoperformbasicbusinesstransactions,theymaynotreadilyyieldupinformationforanalysisofthebusinessandfor decisionmakingaboutit.Incompatiblesystemsanddatabaseswithmultipledefinitionsofkeyinformationelementshinderglobalcommunicationsand understanding.Youcan'tmanageaglobalorganizationasoneunifiedfirmwhenyouhavealotofdiverseinformationthatdoesn'tmatchoragree. Infact,intheCEOsurveyI'vedescribed,overcomingthisdeficiencyisthebenefitofESsmentionedmorefrequentlythananyother.WhentheCEOswereasked whytheywereinvestinginanES,"improv[ing]informationaccuracyandavailability"wasmentionedbytwothirdsofrespondents.Arelatedbenefit,

Page75

"improv[ing]managerialdecisionmaking,"wasthesecondmostpopular,citedbymorethan60percentoftherespondents.Theseandotherbenefitcategories mentionedbyrespondentsaregraphedinfigure31. Ofcourse,youdon'tnecessarilyneedanewEStoachievecommoninformation,andit'sentirelypossiblethatevenwithESsyou'llstillhaveadiverseinformation environment.Companiescancreatecommon,integratedinformationwitholdtechnology.AndifyouhavemultipleESs,chancesaregoodthatyou'llendupwith multiplecustomerIDs,partnumbers,andproductidentifiers.However,manycompaniesfindtheessentiallycentralizedstructureofanES,andthe"greenfield"nature ofanewsystem,agoodrationalefordevelopingcommoninformationacrosstheorganization.CertainlytheeasiestwaytoimplementanESistouseoneinstance (copy)ofthesystemfortheentirecorporation,andthatforcesacommonsetofinformationelements.Thekeyistorealizethatthehardworkof

Figure31

Page76

informationintegrationismoreahumantaskthanatechnicalonevariousimportantpeoplearoundafirmhavetobepersuadedtomeanthesamethingwhenthey refertoanentitysuchasacustomer. Theotherdifficultyaboutthisbenefitisthatitishardtomeasure.Betterinformationqualityandvisibilityprimarilybenefitsanalyticalanddecisionmakingprocesses, whicharerarelymeasuredinanyrigorousway.Feworganizations,forexample,measureeitherthequalityorthespeedofdecisionmaking(e.g.,howoftenhavethat particulardecisionmaker'sdecisionsturnedoutright?)doingsowouldrequireahighlevelofmanagementaccountability.Theonlyalternativetothistypeofbenefit frominformationaccessandvisibilityissimplygeneratingthesameinformationthat'savailabletoday,butdoingitfasterandwithlesshumanintervention.The informationmaybeproducedforanalyticaleffectivenesspurposes,butthebenefitisinproducingitinamoreefficientway.Thisis,infact,whatmostcompanieshave donewithESdata,asIwilldiscussinchapter7inmoredetail. Still,manycompaniesareconvincedthattheyhavereceivedsubstantialbenefitsfromgreaterinformationvisibility.Forexample,ProductosCorinter,aleading consumerproductsmanufacturerinMexico,feelsthatitsreputationandrelationshipwithitscustomershavebeenenhancedbecausethefirmnowhasrealtime, accurateinformationonthesalesofallproductsbybrand,storelocation,channel,andregion.Managersandsalespeoplenowhavetimetoanalyzetheeffectsofnew promotionsanddevisenewones.9 OrganizationalStructureandChange AnotherkeyfactortoconsiderwhendecidingonanESprojectishowthesystemmatchestheexistingandfuturestructureoftheorganization.DoestheESpackage encourageacentralizedorganization,whereasyoursisdecentralized?Isyourcompanysmallerorinafewcases,largerthanthetypicalEScustomer,

Page77

atleastforaparticularvendor'sESpackage?Areyounowgoingthrough,ordoyouexpecttogothrough,aseriesofmergers,acquisitions,ordivestitures?Ifso,how easilywillyoubeabletoaccommodateacquiredorganizationswithyourES,andwouldadivestedorganizationbeabletobreakoffeasily?Thesearesomeofthe organizationalstructureconsiderationsyoushouldtakeintoaccountwhenadoptinganES. First,asimple,nobrainerexample.BayNetworkswasformedfromthemergerofSynopticsandWellfleetCommunicationsin1994.Wellfleet,amanufacturerof routers,andSynoptics,amakerofintelligenthubs,hadbothbeeninvestigatingESs.Wellfleetwassomewhatfurtheralong,havingalreadyidentifiedSAPasits preferredvendorandpurchasedasystem.SynopticshaddecidedonanESandhadnarroweditschoicetoSAPorOracle.Theobviousquestionforthecombined organizationwas,whynotgowithSAPacrosstheboard?Thecompanywantedonesystemsothatitcouldpresentonefacetothecustomer.IfSAPpassedaquick validation,they'dgowithit.Ifnot,they'dreopenthesearch.AtwelveweekvalidationprocessidentifiedBay'scorebusinessprocessesandassessedSAP's capabilitytosupportthoseprocesses.Thereweresomegaps,butprocesssupportwasgenerallygood.AnotherfactoratthetimeintheESanalysiswaswhatsystem couldbestsupportgrowth.Bay'srevenues,forexample,grew47percentin1995.Giventhesecriteria,thecompanywentwithSAP. Bayalsowasconcernedabouttheabilitytointegrateorganizationsitmightacquireormergewith.Afterthemerger,Bayacquiredcompaniesattherateofoneper quarter,sointegratingnewacquisitionsintoR/3wasanimportantemphasis.Ironically,BayitselfwasacquiredbyNorthernTelecomin1998,formingthenew companyNortelNetworks.Thusfar,Nortel'sinformationsystemshaveremainedlargelyseparatefromthoseoftherestofNorthernTelecom,whichemployedsome applicationpackagesbuthadnooverarchingESinplace.Thecombinedcompanywillslowlymergesystemsandinformationasbusinessneedsrequire,accordingto Nortelmanagerswith

Page78

whomI'vespoken.Nortel'sexperiencewithESsthroughthesevariousorganizationalchangesmaybeonthemoreactiveendofthecontinuum,butalmostall organizationsshouldthinkinadvanceaboutthewaytheywilldealwiththistypeoforganizationalchangerelativetotheirES. Theworldwideoilindustryiscurrentlyexperiencingmassiverestructuringsduetomergersandacquisitionsandisfindingoutabouttheeaseofturningtwoormore ESsintoone.Forexample,whenBPmergedwithAmocoin1998,andthenacquiredAtlanticRichfield(Arco)in1999,thecombinedfirm'sexecutivesfaced importantdecisionsaboutwhichsystemorsystemstoadopt.BPhaddevelopeditsownsystemforalldownstream(refiningandmarketing)operations,nowbeing comarketedwithOracleasOracleEnergyDownstream.AmocowaslargelyfinishedwithabroadrangingSAPimplementationArcoemployedavarietyofsystems, butprimarilyhadOracleapplicationsinitsupstream(explorationandproduction)business.BPAmocoexecutivesfeltthattheirowndownstreamsystem,calledISP, hadbothalowercostpertransactionandagreatereaseofmovingintoInternetbasedelectroniccommercethanexternalpackagealternatives.Theydecidedto standardizeonSAPfinancialapplicationsintheupstreambusiness(andtooutsourceoperationsinthatareatotwoprofessionalservicesfirms)andtocontinueusing theirownsystemindownstreamoperations,whileconvertingittoInternetbasedtechnologies.Intherapidlyconsolidatingoilindustry,it'sparticularlyimportantthat seniorexecutiveshaveawelldefinedapproachtoESsandhowtodealwiththemwhenanotherbusinesscombinationcomesalong. Mergersaren'ttheonlyconsiderationinthinkingaboutESsandorganizationalissues.Simplesizeisalsoafactor.Largeorganizationssay,$1billioninrevenuesand abovehavebeenthemostactiveadoptersofESsthusfar.Theyhavethescale,complexity,andglobalpresencetotakeadvantageofthemanyfeaturesand functionsofanES,andarealsomostlikelytoneedESenabledintegration.Largefirmsmighthavedifficulty

Page79

supportingtheircomplexitywithaninhousesystem(thoughtheywouldalsobemostlikelytohavethecapabilitiestobuildanESlikesysteminhouse).Largefirms arealsoperhapsmostlikelytohavedevelopedtheirownbestpractices,whichmightworkagainsttheadoptionofanESwithitsownset. Reallysmallorganizations(lessthan$25millionorsoinrevenues)typicallywon'twanttobotherwithanexpensive,timeconsumingES.Sothatleavesmidtier organizationsbymydefinitionthosebetween$25millionand$1billionalargeandimportantcategoryforESvendorstopenetrate.Infact,sellingtothismarketis thecurrentprimarystrategyformostESvendors,soifyouworkinsuchafirmyou'llprobablybehearingfromSAP,Oracle,PeopleSoft,andotherssoonifyou haven'talready. MidtiercompaniescouldadoptESsformanyofthesamereasonsthatlargeronesdo,butthemostcommonreasonistoestablishaplatformforgrowth.These companiesmayberelativelysmall,theirmanagersfigure,buttheywon'tbeforlong,andtheydon'twanttorunintosystemsconstraintsastheygrow. Forexample,BostonBeer(whichinonenamecombinesmyfavoritecityandbeverage),betterknownasthebrewerofSamuelAdamsbeersandales,decidedtoput inanSAPsystemeventhoughconsultantstoldthemthatthepackagewasdesignedforcompaniestentimestheirsize($191millionatthetimeofthedecisionin 1996).JimKoch,theCEO,decidedthatabigcompanysystemwasnecessarybecauseoftheexpectedrapidrateofBostonBeer'sgrowthatthetimethefirm alreadyhadanannualcompoundgrowthrateof46percent.Kochfeltthatthecompanywouldbebetteroffinthelongtermwithamorecomprehensivesystemeven ifitweretwiceasexpensive(anditwas,atleast).Hewantedtoavoidthepainofconversiontwotothreeyearsdowntheroadbyacquiringtechnologythatwould accommodatethecompany'sgrowth. Asforcurrentsystems,itwaspatentlyclearthatBostonBeerhadoutgrownthem.Somanymodificationshadbeenmadeto

Page80

theexistingsystemthatmovingtothenewestreleasewouldbetantamounttoafullscaleconversion.BostonBeerwasspendingthemajorityofitsITbudgetwriting codetoanalyzeandunderstandwhatwasgoingoninthecompany.Replacingthesesystemswasafairlyobviouschoice,althoughatthetimefewcompaniesthatsize selectedapackageaslargeandcomplexasSAPR/3.BostonBeerdidgetitssysteminstalled,andcertainlyithasbeenabletodealwiththecompany'ssignificant growth. AlesspositiveoutcomeoccurredatPowerComputing.Rememberthatcompany?Itwasgrowingatarapidrateinthemid1990ssellingclonesofAppleMacintosh computers.Thepresidentofthecompany(anUnknownalumnus)toldme,''Ineverwanttobeconstrainedingrowthratebecauseofourinformationsystems."Sohe decidedtoimplementSAPatatimewhenthecompanyhadlessthan$100millioninrevenues. Thecompany'sESprojectwasrelativelyquickandsuccessful,andthepresidentgothiswish.Hewasconstrainednotbyhisinformationsystems,butratherbythe denialofatechnologylicensefromApple.ThecompanywasbasicallygivenaliquidationpaymentbyAppleandwentoutofbusinessin1997.Iarguedatthetimeof thedecisionthatPowerwastoosmallanorganization,withtoouncertainafuture,tobeputtinginalarge,complexES.Ifhindsightprovedmecorrectinthisfashion moreoften,Iwouldn'thavetobeworkingforaliving. Insummary,midsizeorganizationsusuallyhavefewerbudgetaryandhumanresourcestopurchaseandoperateanES.Theyareusuallylesstolerantofriskandof ESsthatrequiresignificantcustomizationorlengthyimplementations.Theywantaneartermreturnontheirinvestment.TheirESselectioncriteriaaremoreconcerned witheaseofuse,vendorserviceandsupportcapability,andproductcost,andlesswithdetailedsystemfunctionality.Midsizefirmsshouldbecautiousaboutthelevel ofbusinessevolutiontheymightexperience.Withthesecautions,anEScanworkinmidsizefirms. Forexample,PCConnection,a$700millionmailordersellerofpersonalcomputerhardwareandsoftware,decidedtoimplementtheJ.D.EdwardsWorldERP softwarein1998.10PC

Page81

ConnectionwasalreadyusingIBMAS/400hardware,atypeofminicomputerknownforitssimplicityandreliability.J.D.EdwardssoftwareranontheAS/400, unlikemostotherESpackages.PCConnectionmanagersfeltthatboththesoftwareandthehardwaretheychosewererelativelysimple,andtheyavoidedsubstantial modificationstotheESsoftware.Thecompanydidn'thavealotofresourcestoinstallandmaintainthesystem,andthuskepteverythingassimpleaspossible.The company'smanagersarepleasedwiththesystem,andithassupportedPCConnection'srapidgrowth. Flexibility ThedegreeoforganizationalchangeanticipatedforanESenvironmentis,ofcourse,relatedtotheamountofflexibilityinthesystem.Thereisnodoubtthatfirms desireflexibilityintheirinformationsystems,ESorotherwise.It'simpossibletopredictallofthebusinessandtechnicalrequirementsasystemmightbecalledonto fulfill.WhetherESsleadtogreaterorlesserflexibilityisacomplexandparadoxicalissue,asIdiscussedinchapter1.Butit'salsoanissueforthischapterintermsof whetheranESistherightdecisionforarapidlychangingorganization. Onceimplemented,anESand,evenmoreso,theorganizationitsupportscanbehardtochange.BecauseESsaresotightlylinkedwithorganizationalstructuresand processes,achangeinthebusinessrequiresachangeinthesystemandviceversa.Further,theintegratednatureofESsmakesitdifficulttomakechangeinonearea withoutaffectinganother. Putmorepositively,however,ESsdomakesomeorganizationalchangeseasierandthereforemustbeviewedascontributingtoflexibility.Becausemany organizationsreplacemultipledifferentsystemsandinterfaceswithasingleES,achangeinbusinessorinformationrequirementsmaybemoreeasilymadewithasingle enterprisewidesystem.Enterprisesystemstendtostorekeyconfigurationsandrelationshipstocompanystructuresintables,whicharerelativelyeasytoedit. Enterprisesystemsmayalsoincreaseflexibilitybyprovidingsufficient

Page82

functionalityforalmostanynewbusinessanorganizationmightenter. Forexample,managersatFujitsuMicroelectronicsfeltthatasaresultofhavinginstalledanES,theywerebetterpositionedtoenternewbusinessesthantheyhad beeninthepast.Theirlackofcapabilitytobuildsystemsquicklyenoughtosupportbusinesschangewasamajorlimitation,theybelieved.ThefactthattheirES supportedaverybroadrangeofprocessesandbusinessmodelsmadethemconfidentthattheycouldrapidlyhaveinformationsupportforwhatevertheywantedto do. Enterprisesystemscanalsomakeiteasiertoexitbusinessesthroughspinoffsordivestitures.DepartingbusinessunitscaneithertaketheESfunctionalitywiththem (buyingtheirownlicenseandconfiguringthesystemsimilarlytotheparentsystem)oroutsourcetotheirpreviousparent.DowChemical,forexample,feelsthatits SAPsystemmadeitmucheasiertodivestover$10billionworthofbusinessoveradecade.Monsantomanagersarguethatthecompany'sspinoffofthe$3billion Solutiachemicalsunitwasstraightforwardtechnicallybecausethesystemswere"cleanandwellorganizedinSAP."Further,thenewcompanywasalmostimmediately upandrunningwithfullyoperationalsystemsincreasingitsvaluetoshareholdersanddidnothavetoremaindependentontheparentcompany. SupplyChainLinkages AnaspectofESdecisionmakingthatisrelatedtoflexibilityistheeaseofconnectingtocustomers,suppliers,andchannelpartnersinthesupplychain.Thissubjectis theprimaryfocusofchapter8,butit'sworthmentioninghereasarationaleforattackingmissioncriticalbusinessobjectiveswithanES.Forthemostpart,anEScan easilyfacilitatesupplychainlinkages,particularlyifothermembersofyourownchainareimplementingthesamepackageasyou.Evenwithoutthesamepackage, however,theoverallfocusofESsonsupplychainprocessesandinformationcanhelpcreatetightlinkageswithotherfirms.However,intimesofrapidchangeinboth businessstructure

Page83

andESstatus,dealingwiththesupplychainfactorcanbeconfusing,particularlysincethisistheprimaryareaforInternetESconnections,averyfastchanging technologydomain. Someofthefirmswe'vealreadyconsideredaddressedthisissueaswell.Notsurprisingly,companiesthatsupplyequipmentfortheInternetareamongtheleadersin usingittointerfacewiththeirESsandlinktosupplychains.BothNortelNetworksandCiscoSystemshaveimplementedimpressivecapabilitiesforcustomers, suppliers,anddistributorstoplaceorders,manageinventorylevels,arrangedeliveryandcheckonshipments,receivesoftwareproductsovertheInternet,and generallysynchronizetheirbusinesseswiththoseofthetwocommunicationsequipmentcompanies.BothfirmshavedirectlinkagestotheirESsfromtheWebNortel withitsSAPsystem,andCiscowithitsOraclesystem. Nortelneeded"integrationandsynergybetweendistributorsandsuppliers,andwewouldneedtoshareinformationacrossboundariesasneverbefore.11Managers wantedeverycustomer,employee,andsuppliertobeabletoobtainanyinformationtheyneeded,whentheyneededit,intheformatthattheywanted.Theyviewed theirES,alongwiththeInternet,ashelpingtoenablethislevelofexternalinformationaccess.Ciscoestimatesthatitspentabout$100millionto"Webenable"its majorapplications,butthecompanyfiguresitsavesmorethandoublethatamountannuallyinreducedinventory,distribution,andcustomerservicecosts.Although thesecompaniesareinthebusinessofhelpingtheircustomerstousetheInternet,theonlythingthatotherfirmscan'tdoaseasily,perhaps,istoshiptheirproducts overacommunicationslink. BostonBeerhadthegoalofleadingthe"craftbrewing"industryintheuseoftheInternetasalowcostnetworktolinkwholesalersandcontractbrewerstospeed orderentryandplantscheduling.ThiswasparticularlyimportantforBostonBeer,whichoutsourcedmuchofitsbrewingtootherfirms.Byenablingbusinesspartners toaccessselectedportionsofthecompany'sSAPdatabaseandorderonaweeklyormorefrequentbasis,BostonBeerhopedtoeliminateoverand

Page84

underbuyingandimproveitsabilitytomeettheneedsofitscustomerswithoutcarryingexcessinventory.Anotherhopedforeffectofsuchasystemwasanincrease insalesoutofstockshadoccasionallypreventedcustomersfromgettingtheSamAdamstheydesired.Sinceimplementingthesystem,thecompanyhasexperienced increasedsales,althoughit'salwaysdifficulttotracesuchimprovementstoanyparticularcause.ThisisthemostdifficultaspectofimplementingESswithasupply chainrationale:Manythingshavetochangeinadditiontosystemsinordertosellmoreproduct,reduceinventory,changecustomerbehavior,andsoforth. Onelastwordonsupplychainlinkages.Ifyou'rethinkingaboutanESbecauseyouwanttolinktoothercompaniesinyourchain,itmakesalotofsensetofindout whatthey'redoingwithregardtoESs.AsI'lldiscusstoamuchgreaterdegreeinchapter8,linkingonecompany'ssupplychaintoanother'smayultimatelybe considerablyeasedifbothareusingthesameES.SystemsthattranslatefromoneEStoanotherareemergingtoday,buttheywilladdanotherlayerofcomplexityto analreadycomplexsituation. Forexample,ElfAtochemN.A.,theAmericaspetrochemicalsubsidiaryoftheFrenchoilfirmElf,decidedtoimplementanESanddecidedonSAPasitsvendorin partbecausevirtuallyeveryothercompanyinitsindustrywasdoingso."WethoughtthatatsomepointitwouldbeveryhelpfultobeabletolinkourSAPsystems withtheirSAPsystemsinarelativelyseamlessway,"notesBobRubin,ElfAtochem'schiefinformationofficerandleaderofitsESinitiative.12Althoughthissortof linkagemaytakeyearstomaterialize(asitwillatElfAtochem),it'slikelythatanESwillbeinplaceforadecadeormore,andthecleardirectioninsupplychain managementistowardinterorganizationallinkages. SelectingamongEnterpriseSystemVendors Okay,you'vedoneatleastahighlevelbenefitscaseandforthemomentarewillingtoproceed.Nowyou'rereadytoseewhat

Page85

particularvendorshavetooffer.DecidingwhethertoimplementanESandselectingamongESvendorsareprettymuchtwoseparatedecisions,right?Well,not really.Theyaretwodecisions,buttheyareoftenlinked.I'vealreadymentionedonelinkage,inwhichgettingbenefitsinthesupplychainandcompetitiveadvantage arenasinvolvesnotonlywhetheryouputinanES,butalsowhattypeofESyouandyoursupplychainpartnersandcompetitorsputin. Anotherkeylinkagebetweenthetwodecisionsinvolveswhetheranyvendorofferssoftwarethatisparticularlyfocusedonyourownindustry.Becausetailoringtoa specificindustrycanbeveryexpensive,whetherapreconfiguredenterprisesolutionalreadyexistsshouldaffectnotonlyyourvendorselection,butalsowhetherto putinanESatall. Forexample,theretailbuildingmaterialsgiantHomeDepotwillwaittoseemorefunctionalitybeforeinstallingSAPRetailinitsU.S.stores.Thecustomindustry solution,developedbySAPandsomedevelopmentpartners,hadgonelivewithonlytwocompaniesatthetimeofHomeDepot'sdecisionandlackedkey functionalitythefirm'smanagersthoughtwasnecessary.Forexample,SAPRetailcouldn'thandlethecompany'sapproachoflettingeachstoreplaceitsownproduct orderswithsuppliers.HomeDepotplannedtoworkwithSAPtoallowcustomizationofproductmixesatstoresandtoenabletyingretailstorereportingtofinancial modules.However,althoughthepackagewasn'tdeemedreadyforU.S.implementation,HomeDepotdidinstallSAP'sfinance,logistics,andwarehousemanagement softwaretohelprunitsstoresinArgentinaandChilebecausethesecountries'marketsaresomewhatlessdemandinganddoingsowillhelptheorganization'slearning curveoninstallingandusingthesoftware.HomeDepotcanaffordtowaitonasystemthatbettermeetsitsneedsintheUnitedStatesbecauseitdoesn'thavean immediateneedtoreplacecurrentmainframebasedsystems.13 Despitetheseintertwiningsandcomplexities,let'sfocusonjustthefactorsthatdifferentiateonevendorfromanother.Thefactorstoconsideraren'tterriblydifferent fromthoseusedinmakingothersoftwaredecisions,butthescaleandscopeofthe

Page86

decisionisusuallymuchgreater.Thuseffectivevendorselectionpracticesmakealotofsense,particularlyifyouvalueyourcareer. FactorstoConsiderinVendorSelection Theselectionofaparticularvendor'sESpackageissomethingoverwhichmanyfirmsagonize.However,itneednotbethatdifficultortimeconsumingadecision, andtomymindislessimportantthanmanyotherissuesregardingimplementationandESrelatedbusinesschange.AllofthemajorESvendorsoffersoftwarethat worksandthatallowsthepossibilityofinformationandbusinessintegrationallESpackagesarecomplexanddifficulttoinstall.Anydifferencesbetweenmajor packagesaremarginal.Ibelievethatyouwon'tgetmuchbusinessvaluefromspendingmorethanafewmonthsonthisdecision.Therearealsoseveralgross factorsforexample,yourindustry,particularfunctionsyouwanttoemphasize,yoursizethatcanmakethedecisionprocessmucheasier. Incertainindustries,itmaybearelativelybrainlessdecisiontogowithaparticularpackage.Ifyouareintheoilorpetrochemicalsindustries,forexample,itwould requireasupremeactofwilltoresistimplementingSAP'sR/3,sincemostotherfirmsintheseindustrieshavealreadydoneso,andtherearemanyfeaturesofthe packagethathavebeencustomizedtosupporttheseindustries.Still,therearesegmentsofeventhoseindustries(e.g.,theupstream,orexplorationandproduction, businessandtheretailcomponentofgasolinefocusedoilfirms)inwhichthereisasyetnoclearwinneroftheselectionlottery,anditwon'tbeeasytodecidewhether toadoptadifferentsystemforthatcomponentofalarge,integratedoilcompany. ForsomeindustriestherearealsosocalledbestofbreedESs,whichmayofferintegratedofferingsforthatindustryormaypartnerwithotherleadingedgesoftware vendorstoofferasuiteofapplications.Intheretailindustry,forexample,thereareseveraldifferentprovidersofsuchsoftware,includingJDAand

Page87

RichterSystems.Representativesofthesefirmsarguetoretailersthatgenericsolutionswon'tfittheirneedswell."Byvirtueofdoingitall,thoseERPprovidersarenot focusingontheverticalaspectsofretailing.Thosesolutionsdon'ttendtobeasfunctionrichasindustryspecificapplications.Allweconcentrateonisretail,"explains BrentLippman,CEOofJDASoftware.14"It'sextremelycostlytobuyagenericsolutionandthenconfigureittosuityourspecificneeds,"arguesJimSoenksen, generalmanageroftheAmericasforRichterSystems.15Ifyou'rearelativelysmallfirmthatexpectstostaywithinoneindustryfortheforeseeablefuture,examining bestofbreedpackagesmakessense.Otherwise,youshouldstickwiththemainstreamESs. TheselectionofapackagemayalsobemadeeasierbyheavyrelianceonaparticularmodulewithinanESpackage.If,forexample,humanresourcesapplicationsare yourprimarydriversforimplementinganES,strongconsiderationofPeopleSoftwouldmakesense.Thisistrueinmanygovernment,service,andprofessionalservice industries,forexample,andPeopleSoftprobablyhastheleadinthosesegments.SAP'sfinancialandsupplychainsystemsareverystrongBaanisnotedforits flexiblemanufacturingsoftware. Functionalbestofbreedvendorsalsoexistthatencouragecustomerstobuyindividualapplicationsforspecificfunctionsandthensomehowstringthemtogether.If youthinkthisisagoodidea,Idoubtyou'restillreadingbythistime.However,withtheproliferationofsmaller,morefocusedboltonapplications,andtheembracing ofsocalledcomponentassemblystrategiesbyESvendors(whoportraytheirsystemsastheeventualbackbonesforcomponentstolinkinto),we'llcontinuetosee thespreadoffunctionalbestofbreedsoftware,andatsomepointitmaybeabletobeintegratedaswellasacurrentES.Thatpointisnotheretoday,however.This doesn'tmeanthatgoodcompaniesdon'tconsidertheidea.Ciscooriginallywantedtogothisrouteandleteachfunctionalareachooseasystem,butbecausethe functionalareasfeltthatjustifyinganewsystemwastoomuchworkandtoodisruptive,theyneveractually

Page88

chosenewfunctionalsystems.Eventually,theexistingsystemsbecameoverloadedandmalfunctioned,soCiscomanagersdecidedtogowithanES,andfast. ThesizeofyourcompanymayalsoleadyoutochooseaparticularvendorSAPistypicallychosenbythelargestglobalfirms,forexample.Smallerfirmsaremore likelytoselectsuchvendorsasJ.D.Edwards,Lawson,andRoss.OracleandPeopleSoftareinthemiddleBaanhasoneverylargecustomer(Boeing),andtherest aremostlymidsized. DetailedFeatureAnalysis Inadditiontoabasicfitwithacompany'sindustry,size,businessmodel,andfunctionalemphases,companiesoftenlookforspecifictechnicalorbusinessenabling featuresintheirES.InthissectionI'lldescribesomeofthefeaturescommonlysought.However,it'seasytogetcarriedawayintheanalysisofspecificfeatures.Even ifavendordoesn'tofferthem,thereisusuallysomewaytoworkaroundthemorchangeyourbusinessprocessessothattheyarenolongernecessary.Youhaveto figurethatifthousandsofcompaniesuseaparticularES(asistrueforthemajorvendors'packages),theymusthavefiguredoutsomewaytodowithoutthefeature. Nevertheless,youmaywanttoaskcompetingvendorswhetherthespecificdesiredfeaturesarepresent,andtowhatdegree.Becausethepresenceorabsenceof featuresinvariousvendors'packagesissubjecttobothinterpretationandchange,Idon'tdescribewhichvendorshavewhatfeatures. Dataownership:Centralorlocal?Thisfeaturereferstowhoisresponsibleformaintainingandupdatingdataworldwide.Thekeyissueisnotwhocanmake changestodata,butratherwhohasaccountabilityforthosechanges.ManycompanieshavedecentralizedandheterogeneousITorganizationsinwhicheachIT personisresponsiblefordatainhisorherarea.ThispracticecancontinuewithsomeESpackagesothersforcecentralization

Page89

ofdatachangeaccountability.Thelatterarrangementisdesirablewhenchangesinkeydataaffectmanypartsoftheorganization.Italsoprovidesforeasyauditingof changesinrecords,whichwillappealtoauditorsandregulatorybodies. Procedures:Autonomousordirective?Inautonomoussystems,workprocedurescanbeadaptedtolocalconditions.Thisapproachallowstheuserflexibility aboutwhichprocedurestorunandhow.InoneESpackage,forexample,corporatepoliciesforpayingsupplierscannotbeimplementedinthesoftwarethesupplier paymentfunctionsgivetheusermanychoices,andtheuservoluntarilyfollowscorporatepolicywithoutenforcementbythesystem.Companiestowhichthisapproach isappealingpresumablyassumethatpaymentconditionsandrequirementsvarywidely,andtheywantthepersonmanagingpaymentstotakeintelligentcontrol. Asyoumightexpect,moredirectivesystemslargelyspecifyandconstrainhowaprocedureisdone.Somesystemsallowforamixtureofapproaches.TheES employedbyChevron,forexample,providestheflexibilitytofollowdifferentcentralization/decentralizationstrategies.Whereandhowtransactionsareprocessedcan bedeterminedonacasebycasebasis.InsomeinstancesChevronhaschosentocentralizeinothers,todistribute.Financialprocessingforseveralsmallerbusiness unitshasbeenconsolidatedintoasharedfinancialservicescenterthatalsocontrolsthecorporatemasterdata. Transactionvisibility:Aggregatedortraceable?Thisseeminglyarcaneissuehastodowithhoweasilyusersofasystemcanaccessoriginaldataaboutspecific inventory,financial,sales,orpurchasingtransactionsinanES.Traceabletransactionsystemsallowausertodrilldowntoanytransactiongoodimplementationsofthe featurealloweasyonlinedrilldownaccess.Forexample,atHoechstMarionRoussel(HMR),aglobalpharmaceuticalfirm,oneLatinAmericanmanagerreportsthat "Beingabletodrilldownandanalyzethesalesbyzone,I'vebeenable

Page90

toreorganizethedistributionnetworkandconsolidatesomepharmacistswhowereplacingloworlessfrequentordersbyzone''andtoidentifyHMR'smostprofitable customers.16 Systemsthatallowonlyaggregateddataaccessreportonlytotalstootherpartsofthesystem.Withsuchasysteminplace,youmightbetold,"Youcangetthefreight chargesifyouneedthem,buttheonlinereportoffreightcostsinAsiawouldnotletyoudrilldowntothatlineontheThaiorder."Thisapproachtomanaging informationischeaperandeasiertomanage,butallowslessdirectinspectionofdata(which,dependingonhowyoufeelaboutyourbossandhisorherproclivityto investigatethings,couldbeanasset). Globalormultilocalstructure?Howisthecompanyorganizedregardingnationalboundaries,andhowdoesitdeployitselftosatisfytherequirementsoflocal marketsandregulations?ManyESpackagesclaimtobe"globalsystems,"includingallofthemarketleadinglargesystems.Theyfeatureuserinterfacesinseveral languagesandallowtransactionstotakeplaceinmultiplecurrencies.Theyaresoldandsupportedinmultiplecountriesandmakesomeattemptatsatisfyinglocal regulatoryandmarketrequirements.CompaniesshouldconfirmthatasupposedlyglobalESnotonlysupportsdisplaysandinvoicesinmultiplelanguages(thisis relativelyeasy),butalsodescriptionfields,addressfields,commentfields,andothertextfieldsinmultiplelanguages.Globalcompaniesalsoneedmultilingualdatabase fieldnamessothatprogramswritteninEnglishandprogramswritteninFinnish,forexample,areinteroperable.Multilocalcompaniesneedonlytobeabletodo invoicinginanylanguageorcurrency,andtheircomputerscreensshoulddisplaylabelsinthelanguageoftheuser.Smallervendorsmaynothavetheseglobalfeatures. CompaniescanusegloballycapableESsintwoways:inatrulyglobalfashionthatignores,atleasttosomedegree,geographyasanorganizingprinciple,orinamulti localapproachthatorganizesthecompanybycountryorregion.Globalcompaniesthatignoreboundariesarecomplexintermsofregula

Page91

tionsandmanagement(e.g.,howareapprovalsmanaged?Howarecomponentpartslistsmanagedandroutingcostsanalyzedwhenconditionsindifferentpartsofthe worldarequitedifferent?)TrulyglobalfirmsshouldhaveoneESthroughouttheglobe,oratleastiftherearemultipleinstancestheyshouldnotbeestablishedonthe basisofgeography.Multilocalfirms,ontheotherhand,aremorelikelytoputdifferentfullinstallationsindifferentcountriesandrunthemfromeachcountry individually,withonedatabasepercountry. Variouskeybusinessprocessescanalsobetreatedinaglobalormultilocalfashion,whichalsoaffectsESrequirements.Infinancialprocesses,forexample,reporting entitiescantakeaccountoflegalrequirementsinacountrybutstilldootherfinancialoperationsglobally,includingcurrencyexchange.Multilocalfirmstreateach corporatenationalentityasitsownreportingunit.Financialclosesaredoneineachcountry,andresultssenttoheadquarters.Currencyexchangemanagementisleftto nationalcompanies. Datamanagement:Centralizedordistributed?Acorporationthatwantstomanageasinglemasterdatarepositorybutfindsitselfwithmultipledatabasesforthe sameinformationwillbedissatisfied.Acorporationthatwantseachdivisiontosetupandmanageitsownrelationshipswithcustomersmightfindthatasingle customermasterfilecrampsthedifferentcustomerfacingstylesthatkeepthosedivisionssuccessful.Anotherpossibilitycombinescentralanddistributeddata managementinafederalistapproach:Somedataiscommon,andsomevaries.MostESsassumeasinglecommondatabaseifyouwantdatatobemanagedina distributedfashionacrosstheorganization,makesureyourvendorsupportsit.CertainlyESdatamanagementandstewardshipismorecomplicatedthanthis,buta simplelevelofanalysismaybesufficientformakingtheESdecision. Modifications:Parameterorprogram?Enterprisesystempackagesallowmodificationstotheirsystemsintwodifferentways.Oneinvolvessettingparametersina separateparameterfile.

Page92

Whenthereareseveralreasonablewaystodothings,systemdesignerswillprograminallofthem,thenallowtheimplementertodeterminebehaviorbysetting parameters.Thisslowsdowndevelopment,putsenormousstressontestinganddocumentation,andmakesthesystemhardertoimplement.Butitbringsflexibility, andcustomersdon'thavetorewritesoftware.Theotherapproachinvolvesmodifyingtheprogramcodeitself.Companiesthatpurchasethistypeofsystemmaynot viewthesoftwareproviderasthesourceofmuchnewfunctionality.Companiesmayalsoupgradelessoftenwiththisapproach,sinceitismoredifficult.Some vendorswhoofferprogrammodificationsspendconsiderabletimeandeffortmakingmodificationtoolsavailable. Bestpracticesorientation:Vendororcustomer?Howdoesacompanylearnandincorporatebestpracticesintoitswaysofdoingbusiness?Somevendors believetheyhaveaccesstoindustryrequirementsandindustryexpertisethatgivesthemtheabilitytoleadtheircustomersinbestpractices.Theybelievetheir customersexpectthemtoknowbestpracticesbetterthanthecustomersdo.Othervendorsbelievethattheircustomersknowwhatshouldbedone,andthese vendorswanttogivetheircustomerstheflexibilitytoguidethesoftwareandtoleveragethecorebusinessexpertisethecustomersalreadyhave. TheProcessofVendorSelection InadditiontothinkingaboutthefactorsbywhichtodecidebetweenoneESandanother,there'stheprocessofvendorselectiontothinkabout.It'sacomplicated processinvolvingtheestablishmentofrelationshipsthatwilllikelylastoverseveralyearsandinvolvemillionstohundredsofmillionsofdollars.It'sworthdoingright, butnotworthdoingforever.Mostorganizationsshouldbeabletocompleteselectionofkeyvendors,includingsoftware,hardware,andimplementationpartners,in sixmonthsorless.Makingthechoiceitselfisnotnormallya

Page93

valueaddingactivityforyourbusiness,soyoushouldtrytogetitdoneasquicklyaspossible.You'llprobablyfind,however,thatboththeinternalmanagersandthe externalvendorsyouwantarebusy,soyou'llhavetoworkhardtomovetheprocessalong.Oneotherconsideration:Don'tstriveforperfectioninthefitbetweenyour requirementsandwhatvendorsareoffering.Youwillrarelyfindit. WhichComesFirst? Whichshouldacompanyselectfirstsoftware,hardware,orimplementationpartner?Clearlysoftwareshouldcomebeforehardware,sincethepackagechosen affectsthekindofhardwareenvironmentneeded,andclient,server,andnetworkinghardwareisincreasinglycommoditylike.Thedecisionaboutsoftwarepartner versusimplementationpartnerorconsultantisalittlemorecomplex.Ifyourgoalisaprimarilytechnologyorientedimplementation,withlittleconcernforbusiness valueandchange,thenitprobablymakessensetoselectasoftwarevendorfirst.Yourpreferredsoftwarevendorcanprobablyrecommendaconsultingfirmtohelp youwithimplementation. IfyourprimaryorientationisimprovingyourbusinesswithanES(andyoumayhavedetectedthatIthinkthisistherightchoice),youshouldprobablyselectan implementationpartnerfirst.Theconsultantcanhelpyouthinkaboutwhatyourbusinesschangeobjectivesare,andwhattheymeanforvendorselection considerations.Youmayalsofindithelpfultoemployaconsultantinthevendorselectionprocessitselfeitherageneralmanagementconsultingfirmthatcanassistin bothvendorselectionandimplementation,oroneofthefewfirmsthatfocusspecificallyonESvendorresearchandselectionconsulting. NarrowingtheField It'susuallyfairlyeasytonarrowthefieldofESvendorstoasmallnumber(twoorthree)ofleadingcandidatesbasedonthe

Page94

"macro"factorsImentionedabove,suchasindustry,companysize,orfunctionalorientation.Comingupwithsuchashortlistasquicklyaspossiblesaves considerabletimeandeffortinthatonedoesnothavetoexploredetailedfunctionalityandvendorcapabilitiesformanyvendors.Ifyourindustryisrelativelyunusual foruseofanES,youmayendupwithaveryshortlistthatis,onevendorlong. Youcanalsonarrowthelistofvendorsforwhichtodoacarefulanalysisbyidentifyingwhichbusinessprocesseswillbethedecidingfactorsintheselection.It's unlikely,forexample,thatyou'llwanttousethegeneralledgerfunctionindifferentESpackagesasthedecidingcriterion,sincetheyareallprettysimilarandfew companiesviewgeneralledgerexcellenceasacompetitiveadvantage.Supplychainfunctionality,ontheotherhand,doesvarywidelyacrossESvendorsandcould easilybeviewedasastrategiccapability. Donot,however,considervendorstereotypesasaprimarybasisfordecisionmaking.Somevendors'packageshavethereputationofbeinghardertoimplement,but itain'tnecessarilyso.ArecentanalystfirmstudyofsixtyESimplementations,forexample,suggestedthatpackagesthathavean"expensivetoimplement"reputation don'talwaysturnouttobeparticularlyexpensive,atleastwhenmeasuringimplementationcostsasapercentageofcorporaterevenues.17Nordidthesupposedly mostcomplexanddifficultpackagestakethelongesttimetoinstallinthestudy. FromtheShortListtoOneVendor AsInotedearlier,Idon'tthinkthatadetailed"feature'n'function"analysisservesmostcompanieswell.Ifyoutakethisapproach,you'llprobablyendureatime consumingprocessofrequestsforinformationandrequestsforproposals,andyou'llendupwithalong,complexspreadsheetthatrankseachvendoroneach criterion.Inevitablytherewillbenoclearwinner,orthe

Page95

companyyouwanttochoosewillnotcomeoutontop.(Then,ofcourse,youchangetheevaluationcriteria!) Mostcompaniesarebetteradvisedtohandletheselectionprocessinabitlessstructuredform.Again,youmaywanttoanalyzevendorcapabilitiesindetailfor processesyouconsidercritical,butnotforallprocesses.TheoverallstructureandphilosophyoftheESpackageshouldcarrymoreweightthanindividualfeatures anyway,sincethelatterarealwayschangingwithtimeandnewreleases. Talkingtoandvisitingvendorreferencesitesisaveryimportantstep.You'llwanttointerviewseveralsiteswithcharacteristicssimilartothoseofyourorganization. Youdon'thavetojusttakethereferencesthatvendorsgiveyou.Gotoconferencesputonbythevendors'usergroupsorbythirdparties.Lookinthebusinesspress forreferencestocompaniesimplementingESs.Callthecompaniesmentionedinthisbookbutdon'ttellthemIsentyou! You'llprobablywantademonstrationoftheleadingpackages.Butunlessyoudelivertothevendorthespecificbusinessandtechnicalrequirementsthatyouwantto see(thescript),theywillgiveyouastandardpresentationthatdoesnotaddressyourneeds.Preparingscripteddemosisalotofhardwork,soitmaybedifficultto getvendorstodothem.Youmayalsobeabletoconvinceavendortogiveademonstrationusingasampleofyourowndata. Inadditiontofunctionallyandphilosophicallydrivenselectioncriteria,youalsohavetoconsiderthefundamentalsofvendorselectionforanykindofproductor service.Thesecriteriaincludethefollowing: Cost(butmanycompaniesreportthatsubstantialstickerpricedifferenceserodeduringbidding) Yourbeliefsaboutwhetherthevendor'sclaimsaretruthfulandwellsubstantiated Financingandpaymentalternatives

Page96

Likelihoodthatthevendorwillremaininbusiness Investmentlevelsbythecompanyinimprovingitssystem Capabilitiesforcustomersupport Technicalandimplementationconsultingavailabilityforthesystem Thecriteriaforselectingimplementationpartnersareusuallysomewhatdifferent.Thisisatouchysubject,becauseIamemployedinpartbyaconsultingfirm.ButI cantellyouwhatfactorsCEOsfrom200firmsthathadimplementedESssaidtheyemployedinchoosinganimplementationpartner.18Inorderofrank,thesewere asfollows: 1.Cost 2.Size/reputation 3.References 4.Commitmenttoyourvision 5.Abilitytomanagechange 6.Expertiseinyourindustry 7.Experiencewithsoftwareproduct 8.Availabilityofskilledresources 9.Comprehensiveknowledgeofbusinessprocesses TheonlycriterionIobjecttointhislististhehighestrankedone.Costiscertainlyimportant,buttheratiobetweencostandbenefitisevenmoreso.Perhapsyou couldsaythattheotherfactorsareallbenefitrelated,inwhichcaseI'dputatleastsomeofthemontopifIweredoingtheranking. I'llconcludethischapterwithseveralcasestudies:onefromacompanythatdecideditdidn'tneedtoputinanES,andtwofromcompaniesthatdecidedtheydid.

Page97

CaseStudiesofEnterpriseSystemDecisionMaking ACompanyThatDidn'tImplementanEnterpriseSystem AirProductsandChemicalsisa$5billiongasandchemicalmanufacturerbasedinAllentown,Pennsylvania.19AirProductsisn'tasexycompany,butit'swell managedsolidlyprofitable,withrespectablegrowth.Thefirmisaninnovatorinproductionandenvironmentaltechnologies,aswellasinbusinessinformation systems.MoreHarvardcasestudieshavebeenwrittenaboutAirProducts'informationsystemsthananyothercompany,andnotasingleonedescribesafailure. AirProducts'executives,however,arefeelingabitlonely.TheyaretheonlymajorfirmintheirindustrynottohaveanESinstalledorunderway(onecompetitorhasa limitedESinplaceformanufacturing,butnotafullyintegratedsystem).Still,itsmanagersbelievethattheydon'treallyneedanES,andIwouldagree.Thecompany haseffectivelydevelopeditsownsystemsandsinglefunctionpackagesinsuchawaythatithasalreadyachievedmostifnotallofthebenefitsanESwoulddeliver. AirProductssimplyhadnocompellingreasontoadoptanES,noburningplatformforchange.Thecompanyhadtospendlessthan$20millionforY2Kremediation, sothatdidn'tprovidemuchmotivationforanES.Sharedfinancialservicessupportedbystandardfinancialapplicationswereadoptedin1982,soenablingnew financialprocesseswasn'tafactor.AirProductsisparticularlyfocusedonprocurementasastrategicprocess,butthecompanyalreadyhadaglobalprocurement system. AirProducts'ITmanagershaveadoptedaphilosophyof"scale,simplicity,andsameness."AlmostallapplicationsarecommonintheUnitedStatesEuropehassome ofitsownfinancialsystems,buttherehasneverbeenastrongneedtoconsolidatethem.Customerfacingsystemsinvolvingordersandsalesareintheprocessof beingconsolidated.Desktopsystemsarebeingstandardizedthroughoutthecompany.Interfacesbetween

Page98

systemsareminimized.Aprogramofmanagedreinvestmentinbusinessapplicationskepttheportfolioreasonablycurrentandrationalized.Therearenorealissues involvingexchangeofdatawithothercompanies:AirProductsparticipatesinachemicalindustryEDI(electronicdatainterchange)association,andhasbeenableto exchangedatawhenitneededto. PerhapsthegreatestchallengetoAirProducts'nonESapproachisthedifficultyofintegratinginformationacrossbusinessfunctions.Toaddressthisissue,thefirm's ITmanagershavefocusedconsiderableeffortondatamanagementandintegration.Forexample,theywidelyemploydatawarehousesthatpulltogetherinformation fromdiverseapplicationsforanalysisandreporting.Increasingly,definitionsofkeyinformationentitiesareheldincommonthroughoutthecompany.Considerable attentionisdevotedtodataplanning. NooneatAirProductsisactivelyopposedtoESsit'sjustthateveryhighlevelbusinesscasethusfarhasindicatednoneedforone.Butthecompany'smanagersare alwaysreexaminingtheirsituationwithregardtochangingbusinessandtechnologycontexts.Themostpressingchangeissuetodayiselectroniccommerce:WillAir Productsbeabletogivecustomersandchannelpartnersaccesstokeytransactiondata?Thusfarthecompanyhasmadeprogressinsomebusinessunitsand functionsatsupportingecommerceitisconceivable,however,thatanESmighteventuallybeadoptedtoimproveexternalelectronicaccess. AirProductsisagoodillustrationofhowinformationsystemsthatarewellmanagedovertimeobviatetheneedforanES.Unfortunately,fewotherfirmsareaswell positioned. TwoCompaniesintheSameIndustryThatImplementedEnterpriseSystems Formanyindustries,ESsarebecomingmorethenormthannot.Lookingattwocompaniesinthesameindustrybringsadif

Page99

ferentslanttothequestionofwhetheryoushouldimplementmissioncriticalapplicationswithanES.Thissectionshouldbeparticularlyhelpfulinthinkingabout selectinganESwithhopesofgainingcompetitivedifferentiationandtheabilitytoestablishstrongrelationshipswithESvendorsasselectioncriteria.Thetimingof selectionisalsocovered. ThetwocompaniesI'lldescribearethegiantsoftheapparelfootwearindustryReebokInternationalandNike.20Theyhavefairlysimilarprocessesandcompetein thevaluedisciplineofproductleadership.ThusitisnotsurprisingthatbothNikeandReebokchoseanESasawaytomaintainindustryparityinprocessesthatdo notprovidecompetitiveadvantages.Bothcompaniesfeelthatwithpackagedapplicationstheywouldbeabletoconcentratebetterontheircoreproductinnovation processesinsteadofputtingtimeandenergyintowritingandmaintainingsoftware.Bothcompaniesusecustomdevelopedsoftwaretosupporttheirproductcreation processesandadditionalESboltonstosupportothercompetitiveadvantageprocesses. AlthoughbothNikeandReebokvalueproductcreationastheirprimecompetitiveadvantageprocess,someESenabledprocessesareveryimportantinsupporting thisadvantage.Timetomarket,ortheabilitytogettheproductmanufacturedasrapidlyaspossibleandsentthroughthesupplychain,supportstheirabilitytomaintain productleadershipthroughmarketresponsiveness.Duetothecomplexityandwiderangeofconfigurationchoices,bothcompaniesmaintainthatthisprocessislikely tobedonedifferentlyateachcompanydespitethefactthattheyhavechosenthesamepackage.BothcompaniesalsomaintainthattheiradoptionofthesameESwill probablynotstronglyaffectthecompetitivelandscape. Reebok'sdecisiontoimplementanenterprisesystem.Likemanycompanies,Reebok'sdrivetoimplementanESgrewoutofrecognitionthatitsexistingsystems wereinflexibleandincreasinglyunabletohandlethecompany'sgrowth.Most

Page100

systemshadbeeninstalledwhenReebokwaslessthanatenthitscurrentsize.SinceReebokhadgrownmainlythroughacquisitions,ithadacquiredmanydisparate anddifficulttointegratesystemsalongtheway.Reebokhadbecomeaglobalcompany,butexistingsystemswereencouragingislandsofautomationandalackof globalcommunicationsandunderstanding.AstrategicITplanfirstsuggestedlookingatanESin1991,thoughnoavailablesystemwasviewedassufficientthen. ReebokmanagerslookedagaintotheESmarketin1995,onlytofindthatnoESvendorcouldsupportitsuniqueindustryrequirements,namely,detailedinformation onsize,color,andstyle.Althoughtheydidevaluatebuildingtheirownsystemsorpatchingonetogetherinthebestofbreedapproach,Reebokhaddecidedthatan ESwouldallowthemtoachieveoneoftheirmaingoals:maximumglobalintegration.Moreover,anESwouldallowthemtomoreeasilykeepupwithbestpracticesin theindustry.ReebokalsoconsideredbuyinganexistingESandtailoringittomeetitsneeds.Yetveryquicklyitwasdeterminedthattheamountofcodinginvolved andthedifficultyinupgradingandmaintainingsuchamodifiedsystemwasnotworththeeffort. AnxioustoobtainanES,ReebokdecidedtoapproachSAPwiththeideaofpartneringtocodevelopaverticalsoftwarecapabilitythatwouldsupporttheunique requirementsofitsindustry.SAPatthetimewasgainingmarketshareandseemedtohavethesizeandcapabilitytobeabletohandlesuchaproject.Moreover,SAP haddonesomecustomdevelopmentworkforapparelcompaniesbefore.In1995theApparelFootwearConsortiumwasborn,consistingofSAP,Reebok,and anotherapparelcompany,VanityFair(VF). ByworkingwiththeConsortium,Reebokclaimsseveraladvantages.Firstofall,managershavegainedvaluableinsightintoindustrybestpracticesthroughtheclose relationshipwithVanityFair.Reebokalsohasbeenabletoleverageitsrelationshipswithhardwareandthirdpartyvendors,whosupplyservicesforadiscountin exchangeforthechancetogainexperi

Page101

encewiththesoftware.Ontheflipside,however,Reebokhashadtoenduregoingliveona''beta,"ornotfullycompletedandtested,product.Companymanagers feelthatitwasReebok,notSAP,whodiscoveredmostofthebugsthatSAPthencorrected.Thiscausedamonth'sdelayintheirabilitytogolive. DoesReebokhaveanadvantageoverNikebyvirtueofearlyadoptionandcodevelopment?Perhaps.Reebok'sexperienceincodevelopingthesoftwaremeansthat itsemployeesknowthesystemextremelywellandcanthusmaximizethesystem'scapabilities.Thisisnotatrivialadvantage.Reebok'sexecutiveslikenittoplayinga piano:"Wecanbothhaveapiano.Butbecauseofpractice,onecanplayitbetter.Weare18monthsaheadofourcompetitors."Howlongthisfirstmoveradvantage willlastanditslongtermoutcomearequestionable,however. AlthoughalittlenervouswhencompetitorssuchasAdidasandNikestartedpurchasingthesamesystem,Reebokmanagersfeltthatthiswouldultimatelybetotheir advantage.Withmorecompaniesonboard,SAPwouldhavemoreincentivetocontinuetoimprovetheproduct,aswellasmoreexperiencefromwhichtodraw whenpursuingindustrybestpractices. Nike'sdecisiontoimplementanenterprisesystem.FouryearsaftertheConsortiumwasformedandwellafterthereleaseoftheindustryverticalsystem,Nike electedtogowithSAPtosupportitsreengineeringefforts.RelativelylatetoadoptanEScomparedwithmostcompaniesofitssize,NikechosetowaituntiltheSAP apparelfootwearverticalcapabilitywaswellestablished.Also,Nikemanagersfeltthattheirrapidgrowthspurtbeginningin1992hadputpressureonkeyprocesses. Theyfeltthattheyneededtheirworldwideprocessestomatureabitbeforeanalyzingthemfortheirreengineeringefforts,whichinvolvednotonlyproduct developmentbutalsoextensivechangeintheirinternationalsupplychainprocesses. SimilartoReebok,Nike'sinflexibleexistingsystemsandambitiontobeaglobalcompanydrovetheireffortstoadoptanES.Theyfeltthattheirsystems'lackof integrationcontributed

Page102

totheirfunctionalsilos.ItwasagreedthatsinceintegrationwasmoreimportanttoNikethanfunctionalrobustness,Nikewouldgowithonevendorasopposedtothe bestofbreedapproach.LikeReebok,customdevelopingnewsystemswasneverevenconsidered. BeforedeterminingtogowithanES,however,NikedidconsideranES'seffectonflexibility.ThiswasaparticularlypainfulconcernforNike,adynamicandrapidly changingcompanythatisusedtomakingquickdecisionswithoutconcernforimpactonsystems.KenHarris,CIO,wasevenquotedassayingthatalthoughhethinks thatNiketopmanagementintellectuallyunderstandstheideaofreducedtechnologyuniquenessandflexibilitythroughstandardization,itmaybe"emotionalpoison"for them.21However,RolandPaanakker,ITprogramdirectoratNike,believesstronglythatanESwillhaveapositiveeffectonNike'sdecisionmaking.Hebelieves thatmanagerswillbemoreproactiveandreflectiveinmakingdecisions,andthatanESwillenablemanychangestobemademoreeasilysinceNikewillhaveuniform processesthroughouttheworld. UnlikeReebok'sITplandrivenadoption,Nike'sdecisiontoemployanESwasdrivenbyacompanywidereengineeringeffortthatsoughtfundamentalchangeinthe wayitdoesbusiness.Inordertoavoidthecleansheetofpaperapproach(becauseyoumightneedtothrowoutthatsheetiftheESdoesnotsupportyourvision), NikeselectedtheirESvendorfairlyearlyinthereengineeringprocess.Itidentifiedhighlevelreengineeringstrategies,the"what,"andthenbroughtintheESto determinethe"how."AlthoughfourotherESswereanalyzed,SAPwasselectedbecauseteammembersfeltitwastheonlyESthattrulysupportedNike'sindustry. PaanakkeratNikemaintainsthattheESitselfisn'twhatallowsforsignificantvalueanddifferentiation,butrathertheintegratedrelationshipswithcustomersand suppliersthattheEScanhelpenable.Heexplains,"Weallhavethesametools[ESs].Fromthesetools,wecandevelopdifferentprocesses.The

Page103

relationshipsthattheseprocessessupportiswhatmakesacompanyunique."22 SomewhatsimilartoReebok,NikeisstrivingtodevelopacloserelationshipwithSAP.ByhavinginfluencewithSAP,NikehopestocontributetoSAP'sfuture upgradesinitspackage'sfunctionality.IfNikehasprocesschangesthatdonotaffectitscompetitiveadvantage,Nikecanaskthevendortomakechangestothebase package.Forcompetitiveadvantageprocesses,NikehopestoencourageSAPtoaddanextrafeatureortwotothebasepackage,therebyreducingmodificationsto thesystemthatNikewouldhavetomake.Aclosepartnershipwouldalsoinvolvetrustthatthevendorwouldnotrevealcompetitivesecretsithaslearnedfromdoing anyworkthatsupportscustomizedprocesses. ForbothReebokandNike,decidingonanESandselectingavendorwereviewedasimportantdecisionsthathadpotentialeffectsoncompetitiveness.Senior executiveswereheavilyinvolvedinbothcases.ManagersinbothcompaniesthoughtcarefullyabouthowanESwouldaffectkeybusinessprocesses.However,they adopteddifferentapproachestothetimingoftheirESdecisionsandtheirrelationshipwithanindustryassociation. Othercompaniesintheindustryhadtomakethesamedecisionaboutwhichvendor'spackagetoadopt.Adidas,theGermancompetitortoReebokandNike,chose SAP.NewBalance,asmallerU.S.firm,didn'twanttoadoptSAPbecauseitfeltthattheReebok/VF/SAPpartnershipwouldtaketoolongtoyieldaworking system.NewBalancewasalsoconcernedabouttheinabilityofSAPandotherpackagestohandleinformationaboutproductwidthwidthsizingwasakeymarketing distinctionofNewBalanceshoes.Asaresult,NewBalanceselectedanESfromJBAInternational,whichfocusesonmidsizedcompanies. Thesebriefcasestudiesillustrateafewofthefactorsinvolvedindecidingwhethertoimplementanenterprisesystem

Page104

inaspecificcompany.Theyportraytheinterplaybetweenbusinessandtechnicalfactors,betweencurrentcapabilitiesandfuturebusinessrequirements,andbetween anindividualcompanyperspectiveandabroadindustryview.Onesomewhatsoothingfactorinmakingsuchacomplexdecisionisthattensofthousandsof companieshaveimplementedESpackagesfromthemajorvendors.Youalmostcertainlycanfindsomeotherorganizationthathasfacedthesameissuesandmadea decisionfromwhichyoucanlearn.

Page105

4 LinkingEnterpriseSystemstoStrategyandOrganization
OneofthemostoftenoverlookedtopicsregardingESsisanalysisoftheirimplicationsforbusinessstrategyandorganizationalstructureandculture.Companiesthink theyaremerelyputtinginacomputersystem,andspendlittleifanytimeconsideringthestrategicimplicationsoftheirES.TheyalsodonotrealizethattheirEScan havesignificantimplicationsforthewaythecompanyisorganizedandthedaytodaycultureoftheorganization.Thosewhoareawareoftheorganizational implicationsoftenmakehighlysimplisticassumptionsabouthowthesystemwillchangethecultureasifbymagic. I'lltrytoshedlightontheseseeminglyesotericissues.EverycompanyshouldbethinkingabouthowESswhethertheyhaveadoptedoneornotaffecttheir competitivepositionandthewaythecompanyfeelsandfunctions.Althoughit'sstilltooearlytoknowthelongtermstrategicandculturalimplicationsofESs,I'llgive examplesofcompanieswhodidsomethinkingonthetopicandadjustedtheirESprojectsaccordingly.

Page106

EnterpriseSystemsandCompetitiveStrategy It'snotanewideatosaythatinformationsystemshaveanimpactonbusinessstrategy,butanyoneseekingabodyofknowledgeonhowESpackagesthemost comprehensiveandexpensiveinformationsystemsofallaffectstrategywillbeunfulfilled.DoesimplementinganESyieldcompetitiveadvantageordisadvantage? HowdoesitchangeindustrystrategywheneveryfirminanindustryadoptsthesameESpackage?HasanESsimplybecomeaparitymoveacostofdoing business?Noneoftheanswerstothesequestionsisknownforsurebyanyonewe'llexploretheirkeydimensionsinthissection. WhatarethepossiblewaysinwhichanEScouldaffectbusinessandcompetitivestrategy?Firstofall,giventhehighcostofanES,therecouldbeasignificantimpact onfinancialstrategy.Onemightarguethata"lowcostproducer"strategywouldbemademoredifficulttorealizewhenacompanyisspendinghundredsofmillionson acomplexESproject,althoughitispossibletopursuealowcostapproachtoimplementinganenterprisesystem.Ultimately,however,thecostsofanESeventually havetotrickleorfloodintotheorganization'sproductsandservices. Otheraspectsofanorganization'sfinancialstrategymayultimatelybeaffectedpositivelywhentherearemajorchangesinkeyprocesses.Forexample,ElfAtochem N.A.expectsthatbecauseofitsESitwillincreasenetearningsby20percent,or$45millionperyear.Inthiscase,improvementsinthecompany'sfinancialposition willcomefromreducedinventoriesandlaborcosts,betterabilitytonegotiatewithsuppliers,andlowerdistributioncosts. ButthemoreobviousareasforanES'sstrategicimpactinvolveoperationalstrategyhowacompanygoestomarket,createsitsproductsandservices,andworks withsuppliers,customers,anddistributionpartners.Enterprisesystemscanhaveahugeimpactonoperationalstrategybecauseoftheireffectonkeybusiness processes.Somepopularoperationalstrategies

Page107

mightonlybeachievedthroughthehelpofanES.Take,forexample,theideaofleanproduction.Thisformofoperationalstrategy,firstachievedintheJapanese automobileindustry,hasbecomepervasivethroughoutmanymanufacturingindustries.1 Itisa"sellone,makeone,orderone"approachinwhichlittleinventoryis maintained.Italsotypicallyinvolvesaglobalsourcingapproachinwhichsuppliers,manufacturingplants,anddistributioncentersarescatteredaroundtheglobe. AlthoughsuchastrategyispossiblewithouttheuseofanES(Japaneseautomobilecompaniesdidnothavethemwhentheyadoptedtheapproach),itisdifficultto achievethecrossfunctionalcoordinationnecessaryforleanproductionwithoutintegratedinformationsystems.Ideally,anESwouldnotethatasalewasmade, arrangeproduction,ensurethatsufficientinventorywasavailable,andmakesurethatallnecessaryresourceswereavailable. CompaqComputer'simplementationofanESisthequintessentialexampleofaleanproductionstrategyinthemaking.2 Compaq'sgoalistomovefromabuildto stockproductionmodeltoabuildtoorderapproach.ThiswouldletitcompetesuccessfullywithdirectsellersofcomputerssuchasDell,whichhastakenalower techapproachtoinformationintegration.Compaqmanagersconcludedthatabuildtoorderstrategyconstructingacomputerafteritwasorderedbyacustomer wouldnotbepossibleoratleastefficientwithoutanew,highlyintegratedinformationsystemthatwouldtietogetherordering,configuration,manufacturing,inventory management,anddistributionprocesses.Soin1994CompaqbegantoinstallSAP'sR/3package.Todayithasthesysteminstalledinallitsmanufacturingfacilities, andmostofitssalesoffices.EvidenceofCompaq'sleannessisitsabilitytoordermaterialsfromsuppliersonadailybasis,andtoplanproductiononthebasisofa week'ssales.Previously,bothprocessesweredoneona45daycycle. Ofcourse,anESisnottheonlyfactorinCompaq'snewoperationalstrategy.Thefirmalsoisdevelopingnewrelationshipswithitsdistributionchannel,outsourcing production,andbuildingsomenonSAPapplications.Intermsofthedistribution

Page108

channel,Compaqhasinformeditsdealersthattheywillnolongerbetheexclusivechannelforcomputersales.Compaqhasalsoworkedwithsomelarge distributors/resellers(e.g.,MeriselandInacom)toimplementnewmanufacturingprocessesinwhichtheresellerscustomizetheproducttothecustomer's specifications.CompaqwilluseSAPinconjunctionwiththeInternettomakeexchangesofdatawithsuppliersandcustomersinrealtimeratherthaninabatchbased fashion.Finally,Compaqhasdevelopeditsownapplicationsintheareasofproductionforecastingandorderscheduling,reasoningthatcommonindustrywide applicationswouldhardlyleadtocompetitiveadvantage.There'snodoubt,however,thatanESisanintegralpartofCompaq'soperationalstrategy,andthat relativelyseamlessleanproductionwon'tbeachievedwithoutit. Compaq'sdecisionsillustratesomeoftheissuesinvolvedintryingtoachievecompetitiveadvantagefromtheuseofanES.Companymanagersmustaskthemselvesa seriesofquestionsbeforebeingabletodeterminehowanESwillaffectcompetitiveadvantage.Thesequestionsincludethefollowing: Whataremycurrentsourcesofcompetitiveadvantage?HowwilltheESaffectthesecurrentcapabilities?If,forexample,myprimarybasisforcompetingis excellentcustomerservice,willtheEShelporhurtthatareaofthecompany? WilltheESbringaboutnewstrategiccapabilitiesthatmaybeusefulinthefuture?Forexample,willIbeabletoengageinleanproductionmanufacturing,andwill thatbenecessarytocompete? HowwillthecostsofanESaffectthecostpositionofmyproductsandservicesinthemarketplace?IfI'mthelowcostproducernow,willIstillbeafterpayingthe billforanES? WhatotherfirmsinmyindustryareimplementinganES?Howisitlikelytoaffecttheirownstrengthsandweaknesses?Whatwillbethecompetitivedynamicsif everybody

Page109

getsanES?Whoislikelytoimplementoneparticularlywellorbadly? IfotherfirmsinourindustryareimplementingESs,amIlikelytoneedtoconnectwiththemelectronicallyinthefuture?IfIalreadyfrequentlyworkwith competitors,perhapsthoserelationshipswillbemoreelectronicandautomatedinthefuture. Arethereparticularaspectsofthebusinesswhereitwouldbedamagingtohave"commodity,"orindustrystandard,informationandprocesses?CanIseparate thesefromtherestoftheESimplementation? WillanESprojectdistractmefromdoingwhatisreallyimportantinmybusiness?IfIhavetoassignhundredsofpeopletotheprojectorpayalotofmoneytoa consultingfirm,willIbeabletoaccomplishtheprojectsIneedtobesuccessful? What'sgoodforstrategymaynotbegoodforESimplementation,unfortunately.WhenCompaqmanagersdecidedtobuildtheirownfunctionalityincompetitively importantbusinessdomains,theyknewthatitwouldbedifficulttobuildcustomapplicationsandinterfacethemwiththeirSAPsystem(eventhoughtheywrotethemin SAP'sprogramminglanguageinordertomakethelinkeasier).Buttheydecideditwasworththetrouble.Similarly,whenInteldecidedforreasonsofcompetitive advantagethatitsESimplementationwouldnotincludemanufacturingsystems,managersknewthatinterfacingproprietarysystemswiththecompany'sESpackage wouldbedifficult.ButmanufacturingexcellenceisoneofIntel'scorestrategiccapabilities,andasystemthatcouldalsobeadoptedbyacompetitorwasinconsistent withtheircompetitivegoals. IftheentireindustryisadoptingESs,asisthecasewithsuchindustriesasoil,chemicals,consumerproducts,andcomputers(withafewcompaniesbeingexceptions ineachindustry),thepotentialbasisforcompetitiveadvantageshifts.Itisnolonger

Page110

justhavinganESthatcounts,butratherimplementingitbetterthananyoneelse,orinawaythatbetterfitsacompany.Onecompanymayachieveadvantageby implementingitsESfaster,cheaper,ormoreeffectivelythanothersitmayachieveacloserfitbetweenitssystemandthewayitwantstodobusiness.Therisk, however,isthatimplementinganESwillsimplybecomeaparitymove,thatis,partofthecostofdoingbusiness.Thissituationwouldnotbeunparalleledinthehistory ofinformationtechnology:Certainly,automatedtellermachinesinthebankingindustry,andabrochuretypeInternetpresenceinalmostallindustries,havebecome noncompetitiveinvestmentsthatmostcompaniesmustmake.Butthisisnotastatetobeenvied.CarefulthoughtaboutwhethertoimplementanES,andwhich aspectsofittoadopt,canpreventimplementationfrombecomingaparitymove. Inordertoknowwhereyourcompetitiveadvantagewillcomefrominthefuture,it'shelpfultoknowwhereitcomesfromtoday.AsI'vementioned,it'simportantto knowtowhatparticularvaluedisciplineyourcompanyaspires.Productinnovationorientedcompaniesaren'tlikelytodevelopcompetitiveadvantagethroughtheuse ofanES,atleastwiththecurrentstateofthesoftware(thoughthiscouldbepossibleinthefuture,sinceESvendorsarenowmovingintothedomainofproductdata management).Therefore,productinnovationfirmsshouldprobablyseektominimizethecostsofadministrativeapplicationsadoptinganEScanbeareasonable strategyfordoingso.Intel'sadoptionofanESisacaseinpoint.Thecompanyclearlyexcelsthroughdevelopingnew,morepowerfulmicroprocessorsfasterthan anybodyelse,anditsuseofanESistosupportcommodityprocesses. Thatleavesoperationalexcellenceandcustomerintimacy.AdvantagebasedonoperationalexcellenceisagoodcandidateforbeingenhancedbyanES.Thesupply chainbenefitsIdiscussedearlierareoftencriticaltooperationalexcellencestrategies,forexample.Leaninventorymanagementandwellcoordinatedrelationships betweendemandandsupplyactivities

Page111

arederigeurforanoperationallyfocusedmanufacturingfirm.Excellentfinancialmanagementprocessesandinformationmightbecriticaltooperationaladvantagein financialservicescompanies,althoughESshavenotpenetratedtheindustryyettoalargedegree.ElfAtochemfallsintothiscategoryitsproductsarelargely commodities,anditwantstocompeteprimarilyonexcellentcustomerserviceandsupplychainmanagement. CustomerintimacyhasnotpreviouslybeentheforteofESusers,althoughthisisbeginningtochange.EnterprisesystemvendorsandexternalsupplierssuchasSiebel SystemshavebeguntofocusheavilyonaddingcustomerinformationfeaturestoESs.Ifyourideaofcustomerintimacyinvolvesgivingcustomersaccesstomuchof yourinformation,puttinginanEScanbeessentialtoanintimacybasedstrategy.However,I'darguethatESsarenotyetcapableofcapturing,storing,anddistributing thekindofcustomerknowledgethatisinvolvedinclosecustomerrelationships.Rightnowthatinvolvesseparateapplications,whichshouldbeintegratedwithES customerinformation.Theintegratorofallthisdiverseinformationismostlikelytobeacustomerfacinghumantoday,notanyparticularformofinformationsystem. NotwoESimplementationsareexactlyalike,soit'salsopossibletoachieveadvantagebysimplyconfiguringyoursystemtoyourownbusinessmodelveryeffectively orbyselectingtherightboltonpackagestointerfacewithyourES.Withmorethan8,000differentconfigurationchoicesinanSAPpackage,forexample,many idiosyncraticwaysofdoingbusinesscanbeaccommodated.Theoptionsincreasemarkedlywhenboltonsystemsareadded. Forexample,VFCorporation,themakerofLeejeansandotherformsofapparel,hascobbledtogethermanydifferentpackagestocreatesomethingtrulyunique.3 SAPR/3holdseverythingtogetherandisthebackboneoftheoverallsystem(recallthatVFjoinedwithReeboktoworkwithSAPindevelopinganEStailoredtothe apparelindustry).Productdevelopmentprocesses,whicharenotstronglysupportedbyES

Page112

vendors,aresupportedbyWebPDM,whichlinksavarietyofdesignprogramsandmanagestheprocess.Warehousecontrolandmanufacturingcontrolisdoneby customapplicationsdevelopedinhouse.Capacityandrawmaterialsplanningaredonebyi2'sRhythmpackage.ForecastingisdonewithLogility.Micromarketingis donebyMarketmax,Spectra,JDASoftware,andcustombuiltapplications.AllofthesesystemsinterfacewiththeSAPES(thoughsomedosowithmuchgreater easeandlessmanualinterventionthanothers).SAPandothermajorvendorsmakeiteasiertointerfaceothersystemsbyprovidinghooks,orapplication programinterfaces(APIs),totheirsystems.Also,VFisn'tusingtheboltonsoftwarepackagesoutofthebox.Becauseofthecompany'slargesize,itcanpersuade softwaresupplierstowritenewapparelindustrystandardsoftwaretofititsneeds. Ifyoudecidethatadvantagewillprimarilycomefromotherapplications,eitherseparatepackagesorcustomdevelopedsystems,youofcourseneedtofigureoutthe costsofdevelopingthemandinterfacingthemwithanES.IfyoufeelthatyourEScanbetailoredtosupportyouruniqueadvantage,thattailoringwillprobablycost yousubstantiallymorethanaplainvanillasystemimplementation.Becausethesecostsarehigh,youshouldensurethattheorganizationfollowsthroughonactually deliveringtheproposedbenefitsandadvantages. AllofthesourcesofcompetitiveadvantageI'vediscussedsofarinvolvedifferentiatingyourbusinessfromcompetitors.ButasMichaelPorterpointedoutmorethan twentyyearsago,it'salsopossibletocompeteeffectivelyoncost.YourcompanycouldgainacostadvantageovercompetitorsbynotimplementinganES,orby implementingonemorecheaplythancompetitors.I'vealreadydescribedAirProductsandChemicals'thinkinginthisregardinthepreviouschapter.Thecompany's managershaven'tputinanESbecause,amongotherfactors,theyfearthatthecostofanESmightforcethecompanytoraiseitsprices,leadingtolostsalesinsome ofthecommoditygasmarketsinwhichitcompetes.

Page113

Certainlysomeimplementationscostmorethanothers.Whiletheconceptofcompetingoncostandimplementingasoftwarepackagethatcostsmultiplemillionsof dollarsmayseemoxymoronic,thetwoideascancoexist.Ifyouaregoingforalowcostimplementation,thenofcourseyou'llwantaplainvanillasystem,andyou'll havetobewillingtomakeyourprocessesandinformationquitegeneric.AstheCEOofonelargechemicalfirmsays,''Competitiveadvantageinthisindustrymight justcomefromdoingthebestandcheapestjobatimplementingSAP."Isittooobvioustopointout,however,thatsimplyputtinginanESisnotenoughtoachieve costbasedadvantage?Youalsoneedalotoforganizationaldiscipline,measurementprograms,costorientedsuppliers,andmanagerswhofocusincessantlyoncost. CompetitiveadvantagemightalsoresultfrombeingtheearliestinyourindustrytoimplementanES,sofactorhowearlyyouareintoyourbenefitdeliberations.Ifyou installthesystemfirst,youhaveachancetoalsobethefirsttoimplementthebusinesschangesthatbenefitcustomers,partners,andyourowninternalprocesses.Your organizationmaylearnthepackageandhowtouseiteffectivelybeforecompetitors.Youcouldalsobethefirsttoinstallnewcustomerorientedorproduct developmentrelatedmodulesthatbringadvantageinthosedomainsofbusinessvalue. Competitiveadvantagecomesnotfromsystems,butfromdoingsomethingbetterthancompetitors.BeforesigningoffonanESimplementationthat'sbeingjustifiedon acompetitivebasis,makesureyouknowwhatthe"something"is,andhowmuchbetterit'sgoingtobedone."We'lldeliverinthreedaysinsteadofthreeweeks,and oursurveyofkeycustomerstellsusthatimprovingbythatamountshouldgainustenpointsinmarketshare"that'sthekindoflanguageyouwanttohear.Alsolisten forsuchcommentsas"Ourcompetitorswon'tbeabletomatchourimprovementsbecausewehaveproprietarysupplychainoptimizationalgorithms,"orsomething similarabouthowthecompetitionwillreacttoyourmoves.

Page114

Insomecases,ofcourse,thesmartcompetitivemovemaybetoavoidpackagedESsaltogether.IfthereisnoconceivablestrategicadvantagefromanES,a companymaybebetteroffpullingtogetheraseriesofbestofbreedsystemsoreveninternallydevelopedapplications,orcontinuingtoworkwithitsexistingsystems. EnterpriseSystemsandOrganizationalStructureandCulture IfmatchingESstocompetitivestrategyrepresentsanopportunity,matchingESstoorganizationalstructureandcultureismorelikelytorepresentaproblem.Don't misunderstand:TherearesurelyopportunitiesthatarisefromESsintherealmoforganization.Companiescanimplementthesystemstosupportorganizational structuresthatwerenotpreviouslypossibleortochangetheorganization'scultureinadesireddirection. Onecommonapproach,forexample,istouseanEStosupportthecentralizationofcertainserviceswithinanorganization,typicallyinvolvingfinance,accounting, purchasing,orhumanresources.Suchasharedservicesapproachisnotarevolutionarychangeinorganizationalstructure,butitdoestypicallyallowforsavings througheconomiesofscaleandthroughhavingasinglecommonapproach,orprocess,fordoingwork.AtAmoco(nowpartofBPAmoco),forexample,shared serviceswereamajorunderpinningofthecompany'sSAPimplementation.4 Amocoreorganizedfourteendifferentservicesstaffedbymorethan6,000peopleintoa sharedservicesmode,andsupportedalmostalloftheserviceswithitsES.Morethan1,000financeandaccountingemployees'jobsalonewereeliminatedbecause ofthischangebeforeitsmergerwithBP,Amocoexpectedtosaveover$350millionannuallyfromESenabledsharedservices. ButsuchopportunitiesarenotnormallyhowtherelationshipbetweenanESandtheorganizationinwhichitisbeinginstalledplaysout.Instead,acompany's organizationtypically

Page115

cropsupasanimplementationproblem.Eitherthecompanydoesn'trealizethatorganizationalfactorswillcomeintoplay,oritdoesn'tdowhatisnecessarytorealize theorganizationalobjectivesitwantstoaccomplish.Theseobjectives,iftheyexistatall,usuallyinvolveintegratingthecorporationacrossgeographicalorbusinessunit boundariesorcreatingamoredisciplinedorganizationalcultureinwhicheveryoneusessimilarprocessesandinformation.However,becausemanycompaniesviewan ESprojectasjustacomputersystem,theyneitherarticulatetheirorganizationalobjectivesclearlynormanagetoachievethem. Therearemanyvariationsonthesecommonthemes,butmostorganizationscanbeclassifiedalongone(ormore)ofthem.InthenextsectionsI'lldescribeeachtheme andgiveanexampleofwhereittookplace. The"NoOrganizationalAspirations"Problem ManyorganizationsfailtospecifyanyorganizationalobjectivesatallwhentheyimplementanES.Eitherconsciouslyor(morelikely)unconsciously,theyseparatethe domainofinformationtechnologyfromthatoforganizationalstructureandchange.Inthepast,whenmostsystemsassumednospecificorganizationalmodel,this separationwasnoproblem.Now,however,theintegrationandbreadthofESsalmostforcenewwaystoorganizeonthosewhoimplementthesystems.Generally speaking,theESenabledorganizationdoesbusinessthesamewayworldwide.FunctionalboundariesinorganizationsthatemployESsaredeemphasizedinfavorof crossfunctionalcoordination.Idiosyncraticwaysofdoingbusinessorreportingaboutitaremademoredifficult.Jobskillrequirementsareraised. Ifanorganizationisunawareofthesetypesofchangesanddoesnotmanagetheachievementofthem,itislikelytorunintotrouble.Aleadingelectronicsfirm,for example,implementedanESasatechnicalsolutiontoproblemscausedbypoorlyfunctioninglegacysystems.Thecompanyishighlydecentralized,

Page116

anditactuallyendedupimplementingthesamesysteminseveraldifferentversionsacrosstheorganizationbutnotacrossallofit.Thiswasnotterriblyefficient,butit hadthedesiredeffectofpreservingthecompany'sdecentralizedstructure. Butwherethecompanydidnotanticipateorarticulateitsorganizationaldirectionwasatthebusinessunitlevel.Forexample,severalbusinessunitswereparticularly interestedinthepurchasingandsupplychainmanagementfunctionalityoftheES,becausetheywereinmarketsthatwerefastgrowingandparticularlysensitiveto availabilityofthecompany'sproducts.Theyhadstronghopesthatthepurchasingfunctionofthecompanynevernotedforitssophisticationinthepastwouldbe mademoreprofessionalasaresultofthenewsystem.Thecompanyhadastrongprocessorientationandreferredtothedesiredchangesas"reengineered"purchasing processesorganizationandculturewithinthefunctionwerenevermentioned. Asthesystembegantobeimplemented,however,somemanagerswithinthecompanyrealizedthataproblemhadsurfaced.Theemployeesofthepurchasingfunction weresimplynotuptothetask.Manywerehighschoolgraduatesfewwerecertifiedbytheprofessionalpurchasingassociation(APICS).Theirskillshadbeensuited totheold"lookforitinthewarehouse"approachtosupplychainmanagement,butwithcomplex,ESenabledinformationaboutavailabletopromiseinventory,EDI linkagestosuppliers,anddistributionroutingalgorithms,theywerelost.Fortunatelyfortheworkers(butunfortunatelyforthecompanyinthissituation),thecompany's somewhatpatriarchalculturemadesimplyreplacingtheworkerswithmoreskilledonesoutofthequestion.Theworkerswouldhavetoberemadethrougheducation, APICScertification,andpatience.Asaresult,theESprojectmanagerinonebusinessunitfeltthattheprojecthadbeensetbackatleasttwoyears. Theseorganizationalissuescouldhavebeenanticipatedifthecompanyhadfacedthemsquarely.Butitneverconsidered

Page117

theissueuntilthislackofskillsblockedthecriticalpathfortheimplementationtimeline.Ifyoudon'tknowwhatyourorganizationalobjectivesare,it'sagoodbetthat hiddenoneswillcomealongandbiteyou. The"Let'sGetIntegrated"Problem PerhapsthemostcommonorganizationalprobleminESinitiativesisthefailuretoachieveanenvisionedhigherleveloforganizationalintegration.Asyouknowby now,ESsexisttosupportfirmsthatare,orwanttobe,integratedacrossfunctionsandbusinessunits.Butthesystemdoesnotbringaboutthechangebyitself.Many companiesdonottakethenecessarystepstorealizethelevelofintegrationtheyseek. Let'slookatanexample.Anaturalresourcescompanywashighlydivisionalized.Ithadonedivisionthatsoldtoconsumersthroughretailers,onethatsoldtoindustrial customers,andonethatproducedrawmaterialsforotherdivisions.Foritsentirehistorythedivisionshadbeenlargelyautonomous,bothwithregardtoinformation systemsandinmanyotherrespects. In1994thecompany'sCEObegantotalkaboutachievinggreaterintegrationacrossthedivisions.Someofitsretailerswerealsobeginningtodistributetoindustrial customers,andtheretailersweredemandingmoredivisionalcoordination.Thecompany'schiefinformationofficer,whohadbeenawarethatseveraldivisionswere outofgaswithregardtotheirlegacysystems,heardthetalkofbusinessunitintegrationandwenttotheCEOwithaproposal.IfwegetoneoftheseESs,hesaid, we'dbeabletohavecommoninformationandprocessesacrossallofourbusinessunits,andtheintegrationwouldoccurnaturally.TheCEO,ofcourse,knewlittle aboutinformationsystems,andtooktheCIOathisword. AlargeESprojectwasinitiatedlatein1994.AllthreebusinessunitswereencouragedtoreplacetheiroldsystemswiththenewES.Fromthebeginning,however,the integrationwascompromisedbecauseeachbusinessunitwasallowedtoreplaceits

Page118

systemsseparately.TheyhadsuccessfullyarguedtotheCEOthattheirmanufacturing,ordermanagement,inventorymanagement,andotheroperationalprocesses weretoodifferentfromtheotherdivisionstoallowfullcommonality.Theonlysystemsthatwouldbecommonthroughoutthecorporationwerefinancialandhuman resources(HR)applications. Thelevelofintegrationdeterioratedfromthere.Onedivision,whoseexistingsystemswerehopelesslyinadequatetoitsneeds,implementedtheESwithvigor.The headofthatunitconvincedsecondlevelmanagersthatthechangewasnecessary,andoncetheycommittedtotheESheheldthemaccountablefortheprocess, information,andorganizationalchangesnecessarytocompletetheimplementationsuccessfully.Theothertwobusinessunits,however,wereinmuchlessofahurryto putinthesystemsanddidonlywhatwasnecessarytoplacatetheCEOandCIO. Otherthanoccasionallymentioningthegoalofintegrationatstaffmeetings(andapprovingtheESprojectinthefirstplace),theCEOdidnothingtobringabouta higherlevelofintegration.Nostepswereundertakentobringaboutgreatercommonalityorsimilarityofkeyprocessesorinformation.Nomanagerswhoresistedthe ESwerepunishedorevenscolded.Noeducationwasofferedonwhytheintegrationorthesystemthatsupporteditwasdesirable,orhowintegrationmightbe achieved. Inearly1997theCEOrealizedthatdespiteexpendituresofover$300millionontheES,littleprogresswasbeingmadetowardthegoalofintegration.Hecancelled thecorporatewideinitiativeandbackedawaypubliclyfromthegoalofintegration.TheonedivisionthathadmadeprogresswiththeESnotcoincidentally,theone divisionwithahighlevelofexecutivesupportfortheprojectwasallowedtocontinue,buttheothertwodivisionskilledtheirprojects.Thehumanresourcesmodule, whichreplacedanHRsystemwithsevereYear2000problems,wasalsoallowedtocontinue,anditbecamepartiallyfunctionalinearly1998.Inshort,theproject wasnotatotalloss,butitsachievementsborelittleresemblancetotheoriginalintegrationgoals.

Page119

Thisisactuallyafairlycommonstory.BecauseESsareassociatedwiththeideaofintegration,companymanagersoftenassumethattheintegrationwillhappen automatically.Butachievingprocessandinformationintegrationrequiresahighleveloforganizationalchange.Somepartsoftheorganizationwillundoubtedlyhaveto adoptwaysofdoingbusinessthataresuboptimalfortheirpurposes.Managerswon'tseethebenefitsofmakingthechange,orwillwonderwhytheyhavetochange tofitacomputersystem.Particularfunctionsorunitswillresistordragtheirfeet. It'sperhapsinevitablethatorganizationsbasedintheUnitedStateswouldhavedifficultywiththelevelofintegrationmanyaretryingtoachievewithESprojects.Most Americanfirmshaveallowedfunctionsandbusinessunitsconsiderablelatitudeinhowtheyperformdaytodaybusinessprocesses,definetheirinformation requirements,andembodythemincomputersystems.Withtheadventofminicomputers,andlaterPCsandsmallclient/serversystems,thousandsofcomputer applicationswereallowedtobloomlikeflowers(somemightsayweeds)aroundtheorganization.ToswitchtoacentrallydefinedandcontrolledESinwhich everythingmustbecommonisabracingchange,tosaytheleast.ItisperhapseasierinsomepartsofEurope(Germanycomestomind)andinJapan,wherethe corporatecenterisoftenstrongeranddivisionalautonomylesspronounced.EveninGermanfirms,however,I'veseenhighlydecentralizedapproachesto implementinganES. NowthatweknowthatproblemswithESenabledorganizationalintegrationaresomewhatexpected,howcantheybeaddressed?Theanswershouldbefairly obviousfromthecasestudyjustpresented.Hereareafewsuggestions: Educationisthegreatestsingleneedinthisarea.Managersmustknow(preferablybeforeadoptinganES)whattheyaregettinginto.Theyshouldbetoldwhatthe implicationsofthesystemareintermsofkeyprocesses,organizationalstructure,theinformationtheyuse,andthesystemstheyhavetoday.

Page120

Consensusontheneedforandpaceofintegrationisanimportantstepaftereducation.Ifmanagersagreethattheintegrationisnecessary,theycanbeheld responsibleforthechangesinvolvedincarryingitout.Iftheydon'tagreeoraren'tasked,theyprobablywon'tbeenthusiasticaboutthechangesandmayactively resistthem. Astrongsenseof"whoweare"isnecessary.AsIdiscussedinchapter2,it'scriticalfororganizationspursuingthegoalofintegrationtoknowjusthowmuchofit theywantandwhattheorganizationwilllookandfeellikewhenit'sachieved.ManyoftheproblemsinESprojectshavearisenfromcompaniesthinkingtheywanted tobeanintegratedfirm,butbackingawayfromitwhentherealimplicationsbecameclear. Anotherrequirementisabitobvious,butoftenviolatedanyway:highlevelexecutivesupport.Organizationalintegrationisonlyachievablewhenthereisstrong commitmentfromthosewhosecommitmentcounts.AsoneIntelmanagerputit,usingArthurianlanguage,"Seniormanagementmusthavepurityofheart"onthese issues.AseniormanagementteammaynotfeellikeKingArthurandtheknightsoftheRoundTablewhencontemplatingESprojects,butsimilarlevelsofcommitment andsincerityarenecessary. The"Let'sWipeOutRenegades"Problem ArelatedorganizationalproblemwithESimplementationsinvolvestheobjectiveofcreatingamoredisciplinedculturearoundinformation,processes,orsystems.The firmsthatadoptthisobjectivehaveusuallyhadalaissezfaireapproachtothedomaininquestioninthepast,andrenegadeshavebeenallowedtotakewhatever approachtheypreferred.Theresulthasusuallybeenaproliferationofsystemsandwaysofdoingwork,eachwithitsowninformation.Companiesfindthatsome systemsusersandmanagersarehappywiththisapproach,butit

Page121

makesintegrationacrossbusinessfunctionsandunitsverydifficulttoaccomplish.ItcanalsobequiteexpensivetobuildandmaintainthiskindofITenvironment,since basicfunctionsarereplicatedacrossmultiplepartsofthebusiness. AtypicalofftherecordremarkforESprojectmanagersinthisenvironmentwouldbe,"We'vehadlotsofrenegadesinthepast,butwe'regoingtoputthemoutof businesswithourES."Theexpectationisthatwhenanencompassing,technicallyuptodatesystemisavailable(or,insomecases,whenitsimpendingarrivalis merelyannounced),therenegadeswillbeforced,oratleaststronglyencouraged,toabandontheirrenegadesystems.Centralizedcontroloverinformationand processeswillfinallyberestored. Thissortofenvironmentismostcommonlyencounteredincompanieswheretherearemanyknowledgeworkers,wheretheoverallcorporatecultureisbothloose andentrepreneurial,andwherethecompanyhashadconsiderableearlysuccess.Itisalsomorecommonlyfoundininformationtechnologycompanies,inwhichmany employeesandmanagersfeelthattheyhaveexpertiseininformationsystems(thoughalittleknowledgecanbedangerous).TwoexamplesareAppleComputerand Intel.BothimplementedESsinpartbecausetheywantedtogetcontroloverrenegadecomputersystemsthathadproliferatedaroundtheorganization.Intelwas concernedthatintegrationacrosssuchsystemswasdifficult,andITcostswererisingevenfasterthanthesuccessfulcompany'srevenues.Applehadtheextra incentiveofdecliningbusinessperformance:Systemscostshadtobebroughtintoline.Inbothcompanies,projectmanagershopedthattheprospectortheactualityof anESwouldbringrenegadesintoline. Managersofbothcompaniesfound,however,thattheESalonedidnotchangetheculturetoamoredisciplinedmodel.NeitherfirmisfinishedwithitsESproject,and itissafetosaythatneitherfirmhasyetbroughtallrenegadesundercontrol.Bothfirmshavediscoveredthatthereareseveralotherexplicitstepsthatmustbetakento corraltherenegadesinadditionto

Page122

announcingtheESproject.Inshort,theculturalandorganizationalaspectsoftheprojectmustthemselvesbeviewedasaprogramofchange.Someofthespecific elementsinvolvedinthechangeincludethefollowing: Theremustbeacloseaccountingofwhatsystemsexistwithinthecompany,andwhichhavefunctionalitythatwillbereplacedbyanES(thoughthismaybeamatter ofopinionanddebate!).Simplyfindingalltherenegadesystemswillbemoredifficultandtimeconsumingthanyouthink. Themanagerswho"own"therenegadesystemshouldbegivensomechancetoarguetheircase.Thehigherthemanagerplayingthe"judge"roleisinthe organizationalhierarchy,themoreapparentthevalueofintegration.AtNovaPharmaceuticals,aCanadiandrugfirm,anyonecancontinuetousearenegadesystem aslongastheymeetwiththeCEOandgethisapproval.Ofcourse,hegivesitquitesparingly.Inmostcompanies,thereareatleastsomevalidreasonswhya manageroruserwouldresistthetransitiontoanES.ListentothemandprovideforexceptionstothepolicyofmovingallrenegadestothecorporateES. ThosewhocurrentlyuserenegadesystemsandwillhavetochangeovershouldbeeducatednotonlyonthefunctionsofthenewES,butalsoontherationalefor convertingandthebenefitstothemandthecompanyfromusingthenewsystem. Managersofrenegadesystemsshouldbeofferedsomebenefitinexchangeforwhattheywillloseintermsofprocessesandinformationtailoredtotheirspecific needs.Forexample,fundssavedfromnolongerhavingtosupportandmaintaintherenegadesystemcouldberedeployedtootherpurposeswithinthesame department. ThescheduleforconvertingfromtherenegadesystemmustbeagreeduponbytheESprojectteamandthemanagerand

Page123

usersoftherenegadesystem,andiftheESscheduleslips,don'tbesurprisediftherenegadesystemtransitionscheduleslipsaswell. TheFederalistAlternative ThereisanalternativetotheideathatallpartsofacompanyneedtohavefullycommoninformationandprocessesandasinglecorporateES.Icallitinformation federalism,andit'sperhapsabetterfittomostAmericanfirmsthanthefullintegrationmodel.5 Inthisnationofruggedindividualism,it'susuallyextremelydifficultto geteveryonetodothesamething.Federalisminpolitics,ofcourse,isprettywellinstitutionalizedintheUnitedStates.Itmeansthatthefederalgovernmentcontrols someaspectsofgoverning,andtherestareleftuptothestatesorevensmallergovernmentalbodiestohandleastheyplease. Theanalogytocorporategovernanceisobvious.6 Thecorporatecentercontrolssomepoliciesandprocesses,andremoteunitshavediscretionovertheremainder. Ofcourse,federalismrepresentsacontinuumofapproaches.Ifthecorporatecenterspecifiesmost(butnotall)approachestobusinessandleaveslocalunitswithonly abitofdiscretion,thearrangementmightbecalledamonarchywithaslightdegreeoffederalism.If,asatoneEuropeancompanyIstudied,thecorporateorganization specifiesonlythataparticularESvendor'spackagebeusedbutthenallowsmorethan400differentversionsoftheEStobeinstalledaroundtheorganization,we're reallytalkingaboutinformationanarchywithaslightdegreeoffederalism.Notsurprisingly,thiscompanyhasspentwellover$1.5billiononitsvariousES implementationsthusfar. Althoughtheideaoffederalismisn'tnewevenintheinformationsystemscontext(thoughithasneverreallybeendescribedusingthatterm),howfederalismworksin thecontextofanESisanunfinishedstory.Notallvendorssupportthisapproach,andvirtuallynooneisreallyfinishedwithestablishingESenabledfederalism.There alsoexistan''automated"

Page124

versionoffederalism,inwhichcommoninformationisaggregatedbyacorporatelevelES,anda"manual"federalism,inwhichthemostlycommoninformationis madefullycomparableandaggregatedviasignificanthumanintervention.Withthesecaveats,here'sadescriptionofhowfederalismworks. ThefirstandmostdifficultaspectofinstitutingESfederalismisfortheorganizationtodecidewhichinformationandprocessesneedtobecommonworldwide.Itmight decidethatthetermrevenueshastomeanthesamethingeverywhere,forexample,becausetheyhavetobeaggregatedforfinancialreporting.However,thesame organizationmightdecidethatbecausedifferentdivisionshavedifferentsupplierrelationships,supplierinformationcouldbeallowedtovaryacrossdivisions.Since informationiscloselyalignedtobusinessprocesses,flexibilityinoneareausuallyimpliesflexibilityinanother. Aftertheextentofcommoninformationhasbeendetermined,acompanyseekingautomatedESfederalisminstallsoneinstanceof,say,SAPR/3(oneofthe packagesforwhichfederalismispossible,butonlyinthemorerecentversionsofthepackage)incorporateheadquarters.Thisisthesystemonwhichcorporate financialsarekept,alongwithanyotherinformationthatneedstoberolleduptothecorporatelevel.Theneachbusinessunitcanhaveitsownsystem,supportingits owninformationneeds.Onlythosedataelementsagreedtobecommonneedmatchthoseinthecorporatesystem.Itisevenpossibleforthenoncorporatesystemsto befromadifferentESvendorthanthecorporatesystem,althoughtheresultinginterfaceissuesareobviouslytrickierthanwhenallsoftwareisfromonevendor. Ifdifferentbusinessunitshavedifferentcustomerorsuppliertypes,basicbusinessprocesses,andmanagementapproaches,theycanalsohavedifferentinformation underthefederalistapproach.Thisisthesituationinmanylargefirms,andtheabilitytoaccommodateitistheprimaryadvantageofESenabledfederalism.Previous approachestofederalisminwhicheachbusinessunithaditsownuniquesystemsmadeitdifficulttoaggregateinformationthatneededtobecommon.

Page125

Federalismalsohasitsdisadvantages,however.Theprocessofdecidingwhatinformationshouldbecommoncanbedifficult,timeconsuming,andcontentious.Some managerswillarguethattheirpreferredversionoffederalisminvolvessupplyingheadquarterswiththeinformationitwants,butusingtheirownsystem.Theymayalso advocatesimplyintegratingdiversesourcesofinformationatthedatawarehouselevel.Unfortunately,ifthecompanydesiresrealintegrationandinformation transparencyacrosstheorganization,thesefauxfederalistapproachesdon'treallywork.Further,therebelliousmanagersmaywellbetreatingenterpriselevel informationrequirementsasanextrataskfortodaythatwillbeabandonedtomorrow.It'snotreallyworthdoinganESinthefirstplaceunlesstheentireorganization takestheenterpriselevelinformationrequirementseriously. ESenabledfederalismalsoinvolvesahigherdegreeoftechnicalandimplementationdifficultythanmerelyinstallinganES.Insteadofimplementingonesystemforan entirecompany,federalismmeansputtingmultiplesystemsinplaceandgettingthemtotalktoeachother.Insteadoffittingonelargeorganizationwithitsprocesses, organizationalstructure,andpreferredinformationenvironmenttoonesystem,federalismmeansgoingthroughthefittingprocessseveraltimes.Inshort,federalism meansmorebusinessflexibilityatthecostofgreatertechnicalcomplexity.It'sonlyfeasibleanddesirableifit'strulyimportanttomaintainspecificwaysofdoing businessindifferentpartsofacompany.Mostfirmsshouldn'tevenmentionthepossibilityofESenabledfederalismunlesstheyhavealreadydeterminedthatoneES sizedoesn'tfitall. AtHewlettPackard(HP),forexample,acompanywithastrongtraditionofbusinessunitautonomy,therehasbeenlittleadvocacyforcommonalityacrossthe company'sseverallargedivisionsthatareimplementingSAP.Notallbusinessunitsareevenimplementingthesystemthereisnocorporatemandate.Exceptfora smallamountofcommonfinancialdataacrossalldivisionsthatareimplementingthesystem(necessarytorollup

Page126

resultsforfinancialreportingatthecorporatelevel),HP'sfederalistapproachgivesallthepowertothedivisionsasfarasESdecisionsareconcerned.Thisapproach fitstheHPculturewell,butbecauseimplementationresourcesaren'tsharedandthesystemarchitectureiscomplex,itisveryexpensive:Managersestimatethatwell overabilliondollarswillbespentacrossthecorporationbeforethevariousprojectsarecompleted.HP'sapproachqualifiesasfederalism,butit'salimitedversionof theconcept. EnterpriseSystemsandEmpowerment ItmayseemincongruoustospeakofESsandempowermentinthesamebreath.Thesesystemsareoftendiscussedintermsofstandardwaysofdoingbusiness, hierarchicalorganizations,andforcedmarchestocommonality.Howcantheyallowanysortofempowerment? Thespaceforfreeactionisadmittedlylimited.Itdoesn'tworkverywell,forexample,ifindividualworkersorevendepartmentshaveasayastohowkeyinformation elementsshouldbedefined,orevenhowthesystemshouldbeusedtosupportaparticularbusinessfunction.Thatkindofempowermentwouldplacesevere restrictionsonthefunctionofasystemacrossdisparatepartsofanorganization. Forthisreason,it'simportanttomakeclearfromthebeginningofanESimplementationthatworkersandindividualdepartmentswon'tbeabletodesigntheirown systems.Atonemanufacturingcompany,forexample,workerswereexcitedaboutthenewEStheircompanywasinstalling.MemosfromtheCEOhadbeensentout totheentirefirm,basicallypromisingthattheexpensivenewsystemwouldbeallthingstoallpeople.Plantworkers,whohadsufferedgreatlyfrominflexibleand obsoletemanufacturingsystems,wereparticularlyenthusiasticbecausetheybelievedthattheywouldfinallygetbetterinformationattheplantlevel.Eachplanthad previouslycontrolleditsowninformationenvironment(includingitsownpartnumberingsystem),buttheplants'systemsweremainframebasedand

Page127

difficulttochange.Lookingforwardtothenewsystem,severalplantgroupsputtogetherlistsoftheirinformationpreferencesandofemployeeswhovolunteeredto workwiththenewsystem.Unfortunately,managershadtoinformtheplantworkersthattheirinputswerenotparticularlyhelpful,andthatnosuchlocalempowerment waspossiblewiththenewsystem.It'snothardtoimaginehowtheplantworkersfelt:disappointed,misled,andgenerallyunhappywiththeiremployer.7 However,thereis,asyoumightsuspectfromthetitleofthissection,someopeningforindividualandsmallgroupempowermentwithESs,althoughit'ssmall.It involvesflexibilitynotinthecreationofinformationorprocesses,butintheuseofthem.ThewidespreadavailabilityofinformationinanESenvironmentmeansthat workersanddepartmentscanbeofferedmoreinformationthanthey'veeverreceivedinthepast.Theynolongerneedanintermediarytogetwhateverinformation theyneedoutofthesystem,andtheinformationtheycangetislikelytobebroader,moreaccurate,andmoretimelythananythey'vegotteninthepast. AtUnionCarbide,forexample,themanagersoftheESinitiativetookatypicallystructuredapproachtodefiningprocessesandinformation.Thedemandsofglobal connectivitydictatedcommondataelementsandbusinessprocesses.Butthecompany'sculturelaudsempowermentandindividualinitiative,andmanagersdidn'twant theEStoruncountertothatculturaldimension.Theprojectleaders,therefore,focusedon"informationempowerment,"makingunparalleledamountsofinformation availablethroughouttheorganization(andevenoutsideit,tocustomersandsuppliers).Workersatrelativelylowlevelsoftheorganizationnolongerhadrestrictionson whatinformationtheycouldaccess(otherthanobviousones,suchasthesalarydatabase).Whileit'stooearlytotellatUnionCarbidewhetherthistypeof empowermentissufficienttofitthebroaderculture,it'satleastastepintherightdirection. WorkerscanalsobesomewhatempoweredthroughthesharinganduseofESandprocessorientedknowledge.AnewESgeneratesavarietyofnewwork processesandinformation

Page128

transactionsforworkerstoperform.Inthebeginning,andperhapsforever,someworkerswillknowmorethanothersabouthowthesystemworksandhowitrelates totheirjobs.Ifworkerscansharetheirknowledgewitheachother,andbuildaknowledgebaseaboutprocessandinformationtransactionsoutoftheirown experiences,theywillbeempoweredtoperformtheirownjobsmoreeffectively. Onesoftwarecompany,VentixSystems,hasdevelopedacapabilityforusersofESstocapture,share,andaccessjob,process,andtransactionknowledge.The knowledgeisorganizedalongthelinesofthekeyprocessesoftheorganization.IfworkerscanaccessaknowledgebaseofESrelatedinsights,theirworkcan obviouslybemoreefficientandeffective,aswellasempowering.Anotherkeybenefitofmanagingthistypeofknowledgeisthatinternalhelpdeskpersonnelor"super users"willnotbebotheredasmuchbyquestionsifuserscanconsultaknowledgebase.Enterprisesystempackagevendorsareworkingonsimilarcapabilities,andI believeit'slikelythatallESpackageswillultimatelyincludethecapabilitytomanageknowledgeduringimplementationanduse. EnterpriseSystemsandManagementCulture I'vedescribedESsasprimarilyaffectingculturefromtheperspectiveofworkerswithinacompany.ButanESalsohasimportantimplicationsforthemanagement culturesoffirmsthatadoptone.Unfortunately,thechangesarenotempowering,butratherinvolveahigherlevelofmanagerialdisciplineandaccountability.Most managersatleastsenioronescanalreadygettheinformationtheyneedtodotheirjobs,evenifittakesahordeofanalyststopullittogether.Thebigchangewith anESisthatothermanagerscangetinformationaboutthem. WhenItalktomanagersofESprojectsandoforganizationsinwhichESsarebeingimplemented,acommonthemeemerges.Theysaythattoooftenmanagershave beenabletohidepoor

Page129

performanceoftheirfunctionsorbusinessunitsbehindpoor,unintegratedcomputersystems.Oneexecutivedescribedan"electronicwhiteout"culture,inwhich resultscouldbeeasilymanipulatediftheyweren'tflattering.Whenprocessesandinformationpracticesvarywidelyfromonepartofthecompanytoanother,it'soften truethattheonlycomparableperformancemeasuresarefinancialandanysophisticatedmanagerknowshowtotinkerwithaccountingfigurestomakethemlook moreimpressive. AfteranEShasbeenimplemented,"thereisnoplacetohide,"asanothermanagerIinterviewedputit.Performancefiguresmeanthesamethingacrossthecompany andarereportedwithouthumanintervention.Anyonecanfindoutatanymomenthowaparticularmanager'sunitisperforming.It'seasytoseehowacultureof greatermanagementaccountabilitycoulddevelop.Althoughit'stooearlytosayhowquicklyorhoweasilythistrendwilltakeplace,orhowmanagerswillreacttoit, companiesembarkingonESprojectsshouldbeawareofthisdimensionofculturalchange,andpreparemanagerstodealwithit. OrganizationalChangeduringImplementation Ifthere'sonethingthatmanagersofESprojectssaytheyregret,it'snotdevotingenoughattentiontopeopleandorganizationalchangeduringtheimplementation. Settinguptherightorganizationalstructurefortheproject,asI'lldescribeinchapter6,ispartoftheorganizationalchangeprocess.Aswithanyothermajorbusiness change,theleadersofanESprojectmustalsoidentifythekeychangerolesintheeffort:thechangeleaders,theagents,thetargets,theresistors.It'sagoodideato clearlyidentifythetypesofbehaviorsandattitudesneededbythevariousinvolvedpartiesinanESinitiativeandtoassesstheirreadinesstoadoptthosenew attributes.Theseprinciplesare"ChangeManagement101"ideas,buttheyareparticularlyrelevanttoESprojectsbecauseofthesizeandscaleofthechangeinvolved. An

Page130

ESprojectsponsorandleadershouldregularlyconsultkeytextsonchangemanagementinaninformationsystemscontext.8 ButthemostimportantorganizationalchangeissuesinanyESinitiativehavetodowitheducationandtraining.It'sfashionable,almosthackneyed,topointoutthat mostorganizationsunderestimatetheamountoftrainingandeducationneededbyboththetechnicalstaffandbusinessusersofanewES.It'sstilltrue,however.Afew firmshavenotunderestimatedtheissue,andit'sworthnotingthattheyspendhighpercentagesbetween25and50percentoftheiroverallprojectbudgetson educationalandskillsdevelopmentissues. Onwhatkindsofsubjectsdopeopleneedtraining?Justforexample: Technicalpeopleneedtolearnthenatureofthepackage,thehardwareandnetworkingrequirementsneededtorunit,andtheoverallsystem'sperformance characteristics. Processdesignersneedtolearnwhatprocessdesignsthesystemiscapableofsupporting,andwhattheimplicationswouldbeofseekingachangeinthe configuration. Eachbusinessuserneedstolearnthedaytodayuseofthesystem,howthesystemsupportstheprocessthatheorsheperforms,andhowitaffectsthebroader organizationeachtimeheorshepressesakey. Seniorexecutivesneedtolearntheimplicationsofthesystemforstrategy,organization,andbusinessprocesses,andhowanESenabledorganizationcancompete moreeffectively. EvenifacompanyusesaconsultanttohelpimplementanES,itneedstobesurethattheconsultanttrainsthenecessaryinternalpeopleonhowthesystemworksin thecontextofthebusinessandonhowtomaintainandmodifyit.Thisshouldbespecifiedintheconsultingcontract,andnotlefttogoodwill.Evenifyoudecidethat youwanttolargelyeschewconsultants

Page131

tohelpyouimplementthesystem,youmayfindthattheycanbeveryusefulastrainersofyourownpeople. Trainingoftenstartstoolate,butitcanstarttooearlyaswell.Ithastobegivenjustintime,shortlybeforethelearningisneeded.Thistypicallymeansthatmost trainingmusttakeplaceafterthesystemhasbeeninstalled,sothatuserscanactuallyuseit.Trainingthattakesplacebeforethesystemisreallyavailableoftendoesn't stick. It'sworththinkingaboutbuildingorbuyingatechnologybasedperformancesupportsystemthatwillgiveuserstrainingonthesystemattheirdeskswhentheyneed it.Thesesystemscanbeverytechnologyfocused,aswithtraditionalhelpfunctions.However,theycanalsobequitesophisticatedonbusinessissues,helpingusers learnaboutthetechnology,theprocess,andthebusinessobjectiveallatthesametime. AtIntel,forexample,agroupofadvancedlearningtechnologistsispreparingasetofperformancesupporttoolswhileanESisbeingimplementedatthecompany. Becauseboththesystemandtheprocessesitsupportsarehighlycomplex,thetrainingchallengesarequitedifficult.TheIntellearningexpertssometimessuggesttothe implementersofthesystemthatachangetotheprocessorsystemwouldconsiderablyeasethetrainingproblem.Inteliswisetobegindevelopingthesetrainingtools whilechangesinthesystemcanstillbemade.PerhapsthemostfrequenterrorI'veseenintrainingandeducationotherthannotdevotingsufficientresourcesto themisstartingtoolateinthegame. Onelastwordaboutthehumansideofimplementation.I'vementionedthatESprojectsoftenmeanthatcompaniesdon'tneedasmanypeopletoworkinanES enabledenvironment,buttheyhavetobeconsiderablymoreskilledandeducatedaboutthebusiness:the"halfasmany,twiceassmart"phenomenon.Theemployees havetofigureouthowtodotheirexistingjobswithanewsystem.TheyhavetoknowtheimplicationsoftheiractionswiththeESfortherestoftheorganization, whichentailshavingabroad,crossfunctionalperspective.Theyhavetolearn

Page132

newanalyticalandreportingapproaches.Inshort,theyhavetolearntoliveinadifferent,morecomplexworld.DoIneedtosaythatit'sdifficulttomakeorfind peoplewhoaretwiceassmartandwhocandealwithalloftheseissues?IfyouarecommittedtoupgradingtheskillsofthepeopleyouhaveandIstronglyadvocate thisyouneedtostartveryearlyintheESprocess. EnterpriseSystemsasaWayofLife MostorganizationsfeelthatalthoughESsaredifficulttoimplementandtheorganizationalchangesaresubstantialduringimplementation,thereisalightattheendof thetunnel.Thatis,thedifficultperiodwillcometoanendandtheorganizationcanrelaxagainintermsofstrategic,organizational,andtechnicalchange.Inother words,alittlepainnowwillberewardedbypeacelateron. ButwhileitislikelythatthetypesofchangesfoundinESprojectswillslowdowntosomedegree,I'darguethatalmostallfirmswillneverbefinishedwithESrelated changes.Companiesareembarkinguponnotaproject,butratherawayoflife.Themajorchangesduringimplementationwillsubside,butotherchangeswillcontinue: Adaptationofthesystemtochangesinthestructureandfunctionofthebusiness(e.g.,mergersoracquisitions,developmentofnewproductsandservices) Installationofnewreleasesofthesoftware,whichmayincludenewsoftwaremodulesandcapabilities Trainingnewusersonthesystem,oroldusersonnewfunctionsandcapabilities BringingnewbusinessunitsintotheuseoftheES Dealingwithnewmanagers'opinionsabouthowthesystemshouldfitthebusiness,orviceversa

Page133

Toadapttotheseongoingchanges,companieswillhavetoensurethatresourcesareavailabletostaffandsupportwhatisessentiallyapermanentfunction.Intel managersclaimthattwelvepeoplearenecessaryonanongoingbasisjusttomakechangesinthesystemcorrespondingtothecreationofnewbusinessandfinancial unitsmanymorepeoplewillbenecessarytoinstallnewversionsandmodules.Daytodaysupportofthesystemisalsoaneverendingtaskearlyevidencesuggests thatmany''powerusers,"whoexpectedtoreturntotheirjobsinbusinessfunctions,maybeneededindefinitelyinESsupportroles.Firmsmayalsoneedtokeep projectmanagersandanentireprojectofficeinbusinesstodealwithongoingESchangeissues. Evenwithoutchangesinthesystemorthebusiness,ongoingresourcesarenecessarytomaintainandenforceneworganizationalstructuresandbehaviors.For example,acompanymaydecidethatallcustomerinformationwillbecommonworldwidewithitsES,andthatthecustomermasterdatawillbemaintainedcentrally. Inorderforthiswishtoberealized,however,astrongcentralfunctionmustbeestablishedtocreate,modify,prune,andmaintainthecustomerdata.Moreover,some sortof"informationpoliceforce"mustbepresenttoensurethatremotefunctionsandunitsdon'testablishtheirowncustomerdatabases.Commonalityofeither functionsorprocessesisavirtuethatmustbeinvestedinovertime. It'softensaidthat"theonlyconstantischange,"butcompanymanagersoftenfailtorealizethatthemaximextendstoESprojects.BeforestartinganESproject,they shouldrealizethattheyareembarkinguponanirrevocablydifferentwayoflife.Theneedfororganizationalresources,attention,andchangemanagementwillnevergo away.

Page135

5 LinkingEnterpriseSystemstoBusinessProcessesandInformation
Enterprisesystemsareprobablymostdistinctivefortheirorientationtobroad,crossfunctionalbusinessprocessesandcommoninformation.Unlikeprevious informationsystems,ESsareabletopassinformationfreelyacrossanorganization'skeybusinessfunctions.Nofunctionalstovepipesneedapply.Fordecadesfirms havewantedtointegratetheirinformationsystemsacrossbroadprocessesforjustasmanydecadestheyhavebuiltorinstalledsystemsthataddressonlyasinglepart oftheorganization'sneeds.Salespeoplehavebeenunabletofindoutwhatinventoryisavailableforsalebecausethatinformationresidedinaccessiblyina manufacturingsystem.Manufacturingcouldnotbuildonlywhatthesalespersonhadsoldbecausetherewasnolinkagebetweenthemanufacturingfunctionandthe systemsusedbythesalesforce.Inovercomingthissegregation,ESshavebeenthesinglemostimportantfactorresponsibleforadvancingaprocessviewofthe business. There'sacatch,however.Orratherseveralcatches.Thischapterwillprimarilybedevotedtothecatchesandwhattodoaboutthem.Asapreview,onecatchisthat it'squitedifficultto

Page136

startworkingasiftheorganizationwereprocessorientedjustbecauseaninformationsystemmakesitpossible.AnotheristhatthecomplexityandintegrationofESs makeitinfeasibletomodifythemsubstantiallytherefore,itisnotgenerallypossibletosupporthighlyidiosyncraticprocessdesigns.Athirdproblemisthatit'shardto determinejustwhatthedesignpossibilitiesandconstraintsareforyourbusinessprocesses.Afourthcatchinvolvesthedifficultyofachievingcommoninformation acrossanentireorganization.I'lldiscusseachoftheseproblemsingreaterdetailanddescribesolutions,oratleastcompromises,tohelpdealwiththem. ThegreatoverallcompromiseinusingESenabledbusinessprocessesrelatestothesetofimplementationchoicesIdescribedinthefirstchapter.Itliesbetweenthe twingoalsofgettingasysteminplacethatsupportsorenablesthecompany'sstrategy,andgettingasystemwithbasictechnicalfunctionalityinplacequickly.Ittakes considerabletimeinalargecompany,severalyearstoachievethebestpossiblefitbetweenthesystem'sparametersandthestrategic"tobe"designsofthemany businessprocessesthatanESsupports.Thissortofworkalsousuallyinvolveseitherexpensiveconsultantsorhighlyexpertinternalemployees.Consequently,most companieswillfaceconsiderablepressuretogowithonlyanapproximatefitbetweenprocessandsystem.I'lltalklaterabouthowbesttoaddressthisissue,but compromiseisalmostinevitable. Inadditiontocreatingchangeinprocessdesigns,ESsalsoinvolvesubstantialchangesininformation.AsInotedinthelastchapter,it'scommonforfirmstowant commoninformationtohavethetermscustomer,product,and6.5inchdiameterflangedpipemeanthesamethingacrossanorganization.Inthelatterpartof thechapterI'lladdresssomeoftheissuesinvolvedincreatingcommoninformation. EnterpriseSystemsasProcessware Sinceprocessthinkingisstillsomewhatunfamiliartomanybusinesspeople,itmaybeusefultoreviewbasicprocesscon

Page137

ceptsandtheirrelationshiptoESs.WhatisitthatmakesESsprocessoriented?WhichbusinessprocessesaresupportedbythetypicalES,andwhicharenot?Isit possibletouseanESandnotreallybemanagingbusinessprocesses? In1993Ipublishedabookforwhatit'sworth,thefirstbookon"processinnovation,"orreengineering.1 I'mnotpleasedwithhowreengineeringturnedoutin manyfirms,butIamstillhappywiththedefinitionofprocessesinthatbook:"Aprocessisthusaspecificorderingofworkactivitiesacrosstimeandplace,witha beginning,anend,andclearlydefinedinputsandoutputs:astructureforaction."2 Lessformally,I'dcallprocessesthewaythatworkissupposedtobedoneinan organization.Thisseconddefinitionofprocessesmakesitclearthatprocessesareanabstractionnooneactuallydoestheirworkallthetimeexactlyastheprocess designspecifies.Someresearchershavecalledthewayworkactuallygetsdonepracticewhateverit'scalled,thedistinctionbetweentheabstractionandtherealityof howworkisdoneisimportant,andI'llrefertoitlater.3 Thereisprocessdesignandthenthereistheimplementationofthosedesigns.Implementationcanbeviewedastheattempttoturnprocessintopractice.Thereis plentyofanecdotalevidence,andsomeempiricalresearch,suggestingthattherehasbeenabiggapbetweendesignandimplementationinmanycorporate reengineeringprojects.4 Manyprojectsinvolvedveryambitiouschangegoalsinthedesignphase,butduringimplementationthesegoalswereabandonedorwatered downconsiderably.Onemajorproblemthatmanyorganizationsencounteredwasthedifficultyofsupportingnewprocessdesignswithprocessorientedinformation systems.Buildingtheirownnewsystemswasimpractical,andavailablepackageswerenotwidelyexploredbecausetheydidnotsupportcleansheetofpaper designs. Intheearlydaysofreengineering,ESswerenotwidelyknownonlyafewcompanies(DowChemical,forexample)intheearly1990smadeexplicitlinkagesbetween theirreengineeringprojectsandanES.IreferredtoESsonlybriefly,forexample,inmy1993bookonreengineering(pp.6365ifyou're

Page138

highlymotivated),andIknowofnoothermentionsinthereengineeringliteratureofthetime.Inthemid1990s,whenESsweremorecommon,theycametobe viewedasthesaviorofreengineering.Sincethen,ESshaveincreasinglybeenviewed(bytheircreatorsandbytheirusers)asprocessware. WhatattributesofESsmakethemsupportiveofaprocessorientation?Thereareseveral: Enterprisesystemsprovideastructureforworksimilartothatinprocessthinkingtheflowofactivityandinformationacrosstheorganizationisorchestratedbythe system. Enterprisesystemsareintegratedandlinkdifferentbusinessfunctionsorsubprocessestogether. ThemodulesofESsmoreorlesscorrespondtohoworganizationsdivideuptheirworkintomajorprocesses. Enterprisesystemsallowtheperformanceofprocessestobemeasured(primarilyinthemetricsoftimeandcost)astheyarecarriedout. Enterprisesystemslinkprocessdesignandimplementationthroughdesignaids(templates),thatguideanorganizationinbestpracticeprocessdesigns,forwhich informationsystemssupportisavailablewhentheresultingsystemisimplemented. ThedocumentationofESsandofthespecificconfigurationsofthesystemsselectedbyacompanyforceacertainlevelofawarenessofthatcompany'sbusiness processesthislevelofdisciplineisnotoftenfoundincompaniespriortotheimplementationofanES.5 WhatprocessesdoESssupport?Notsupport?MostmajoroperationalprocessesaresupportedbythelargerandmoresophisticatedESs,includingthosefrom SAP,PeopleSoft,andOracle.Althoughthereissomevariationacrossvendorpackages,theprocessestypicallysupportedbyanESincludethefollowing:

Page139

Allfinancialandaccountingprocesses,includingtreasury,controllership,accountspayableandreceivable,investmentmanagement,andfinancialreporting Allsupplychainprocesses,includingsourcing,procurement,shipping,billing,andpayment,aswellasplanningandoptimizationinthemostsophisticatedES systems Allmanufacturingprocesses(althoughmanycompanieshaveseparateshopfloorsystemsthatareinterfacedwiththeirES) Customerandorderfulfillmentprocesses Customerserviceprocesses(eitherintegratedwithinavendor'sESorininterfacedbutseparatesystems) Salesforcemanagement(again,integratedorinterfaced) Humanresourcesmanagement Maintenanceofplantandequipment Constructionandprojectmanagement Somemanagementprocesses(reporting,adhocanalysis,etc.) Asyoumightguess,thislistincludesthegreatmajorityofprocessesthatcompaniesaspiretoimproveorreengineerandsupportwithinformationsystems(aswellas somethatarerarelyimprovedinWesternfirms,suchasmanagementprocesses).Someprocesses,suchassalesforcemanagementandcustomerservice,havebeen addedonlyfairlyrecentlytoESs,sothesemodulesarenotyetinwideuse. TheonlymajorprocessthathasgenerallybeenuntouchedbymostESsisnewproductdevelopment.Tothedegreethatthatprocessissupportedbytechnologyat all,thecomputeraideddesign(CAD)systemsemployedarealmostalwaysseparatefrom,anddonotcommunicatewith,ESpackages.However,eveninthislatter area,ESvendorshavestartedto

Page140

announcesupportforsocalledproductdatamanagementsystems,whichkeeptrackofproductdesignspecificationsandcomponentsandareoftenalinkbetween productdevelopmentandengineeringdepartmentsandmanufacturinggroups. Thus,adoptinganESdefinitelypredisposesacompanytomanageitselfalongbusinessprocesses.IstheprocessorientationencouragedbyESsachieved automaticallyuponimplementationofthesystem?Theanswerisno.Canacompanythathasimplementedonestilldobusinessbyfunctions,geographies,products, andalltheothernonprocessdimensionsoforganizationalstructure?Toalargedegree,yes.Processmanagementismuchmorethanprocessorientedinformation systems,asMichaelHammerarguesinapostreengineeringbook.6 Itincludesprocessorientedmanagementandleadershipstyles,processorientedcompensation andevaluationstructures,organizationalstructuresthatreflectprocessownershipandmanagement,andmanyotherfacets.PuttinginanSAP,PeopleSoft,Oracle,or otherESsystemdoesnotbringaboutanyoftheseothertypesofchanges.Infact,onlyafeworganizationsofthethousandsthatareimplementingESshavealso adoptedmanyoftheseotherprocessorientedsteps.AllthatanESreallydoesinthecontextofprocessmanagementistoremoveamajorbarriertoit.Ifthe organizationwantstomanageandmeasureitselfalongprocesslines,itwillhavetoundertakeabroadchangeeffortinadditiontoimplementinganES. OnecompanythathasisOwensCorning.ThemakeroffiberglassinsulationandotherbuildingmaterialsmademultiplechangesatoncewhenitinstalleditsSAP system,includingadoptingaprocessorientation.Keyprocesseswereidentified,includingsourcing,finance,andcustomerfulfillment,andthenreengineeringprojects werestartedforeachofthesethree."Processexecutives"wereappointedtoowntheprocessesandleadthechangeprojects(thoughsomeofthesemanagersalso heldfunctionaltitlesthefinanceprocessexecutivewasalsotheCFO,forexample).AnOwensCorningmanagernoted,however,thatdeterminingexactlywhatthe responsibilitiesofthe

Page141

processexecutiveswere,particularlyinrelationtoexistingfunctional,productbased,andgeographybasedroles,wasoneofthemostdifficultaspectsofthe company'sprocessmanagementjourney.OneresponsibilityoftheprocessexecutiveswasdetermininghowtheSAPsystemwouldsupporttheirrespective processes.Theexecutiveforthecustomerfulfillmentprocess,forexample,noted:

ThekeytoournewprocessorganizationistheabilityofAdvantage2000systemstodeliverdata.Withthedataitprovidesacrossourbusinesses,theopportunitiesforprocess improvementaretremendous.Ourcustomerfulfillmentprocess,whichspansallofourbusinessunitsandbusinessregions,willdelivermorethan$30millionincostsavings overthenexttwoyearsthroughgainsinproductivityineachpartofourprocess.7

Inadditiontoreengineeringthethreekeyprocessesjustmentioned(I'llhavemoretosayabouttheselaterinthechapter)andestablishingprocessownership,Owens Corningmanagersundertooksuchprocessorientedstepsaschangingtheirheadquartersbuildingtoallowmorecrossfunctionalcommunications,creatinganew processmeasurementsystem,andevendevelopinganewproductstrategy.Advantage2000,astheprojectwascalled,involvedradicalchangesinvirtuallyeverypart ofthebusiness,andwassupposedtotakeplaceinanambitioustimeframeoftwoyears(theprojecthasalreadytakenconsiderablylongerfiveyearsismore accurate).Theinformationsystemschangesaloneatthefirmhavecostroughly$200millionreengineeringandreorganizationcostsaddconsiderablytothattotal. ThereisnoquestionthatthesechangeswerevaluableandnecessaryatOwensCorning. AnotherexampleofafirmthathasmovedtoamoreprocessorientedorganizationinconjunctionwithanESprojectisNECTechnologies,thedivisionofthe Japaneseelectronicsgiant.OnceNEC'sSAPsystemwassubstantiallyinplace,theorganizationbegantoorganizearoundbusinessprocesses,

Page142

ratherthantraditionalbusinessfunctions.Forexample,onesetofteamswasestablishedbasedonservingparticularcustomergroupsretailers,systemsintegrators, andsoforth.Eachteammanagedtheentireprocessofcustomerrelationships,fromcreditapprovalstoshipmentschedulestoreceivables.NECTechnologies executivespointoutthattwoyearsofeducatingandpersuadingdifferentmembersoftheorganizationwerenecessarytomaketheshift.Somemanagerslostactivities othersgainednewones.Thecompany'sseniorexecutives,however,arenowconfidentthattheorganizationalchangemanagementeffortswereworththetroublein termsofincreasedcustomersatisfactionandmoreefficientprocesses. ProcessOrientedImplementationofEnterpriseSystems Thekeytocreatingprocessorientedinformationsystemsandinformationorientedprocesses,forthatmatterisaneffectiveimplementation.Implementation,in turn,hasseveralkeyaspects,whichI'lldiscussinthissection.OneisthenewconceptionofESenabledreengineeringthatincorporateswhatmanyorganizationshave learnedbyexperiencewiththeseconcepts.I'lldiscusstheroleofcleansheetofpaperreengineeringandthereasonswhyitisalmostobsoleteinthiscontext.I'll describethecriticalnatureoftheconfigurationprocessthepointatwhichESsarealignedwiththeprocessesandorganizationalstructuresofthecompaniesthat implementthem.I'llalsodiscusstheissueofprocesscommonality,andjusthowmuchofitisnecessary.Thischapter'sanalysisofprocesseswillendwithadiscussion ofhowtonarrowthegapbetweenprocessandpracticeafteranEShasbeeninstalled. WhatDoesReengineeringMeanintheESContext? Intheearly1990s,whenreengineeringwasanewidea,theconceptofhavinganinformationsystemconstraindesignchoices

Page143

wasnotwellunderstoodatall.Therhetoricofprocessdesigninvolvednoconstraintsatall,butrathera"cleansheetofpaper."Companieswereencouragedtostart fromscratch,tothinkoutofthebox,andtothrowawayallexistingsystemsandotherconstraints.Reengineering,accordingtoHammerandChampy,entailed "breakthroughs,notbyenhancingexistingprocesses,butbydiscardingthemandreplacingthemwithentirelynewones....Reengineeringisaboutbeginningagain withacleansheetofpaper.Itisaboutrejectingtheconventionalwisdomandreceivedassumptionsofthepast.Reengineeringisaboutinventingnewapproachesto processstructurethatbearlittleornoresemblancetothoseofpreviouseras."8 Obviously,withsucharevolutionaryapproach,therewaslittleroomforthinkingabout thelimitsthatESswouldplaceonprocessdesignstheywouldonlygetintheway. ProblemsatPaperCoandUnknownComputer Butwhathappenedwhencompaniestooktheirrevolutionarynewprocessdesignsandtriedtobuildinformationsystemstosupportthem?Let'sjustsaythey discoveredtheimportanceofgoodsystems,andthedifficultyofreconcilingcleansheetofpaperthinkingwiththeneedtobuildandusesystems.Oneexampletook placeatapapercompany,andUnknownComputerCompanyalsohaddifficultywithreengineeringandESs.Thedifficultiesofbothcompaniesaresymptomaticof thosefacedbymanyotherfirms. PaperCo(companyexecutivesIinterviewedrequestedanonymity)wentthroughafullfledged,cleansheet,thinkoutoftheboxreengineeringengagementwithlittle thoughtabouttheinformationsystemsitwouldeventuallyhavetouse(therewerenorepresentativesoftheITfunctionontheteam).APaperCoteamworkedwitha hotreengineeringconsultingfirmtoidentifyandreengineerkeyprocesses. Theprojecttookmorethanayeartofocusonandredesignthesupplychainandcustomerordermanagementprocesses.

Page144

Thegoalsforthatpartoftheprojectinvolvedorderofmagnitudetimeandcostreductionsandvastimprovementsincustomerservice.Specificnewprocessdesigns werepainstakinglydrawnonbrownbutcherpaperonconferenceroomwalls.Inadditiontoredesigningtheprocessesthemselves,severalotherorganizational activitieswereaddressed,suchasthefollowing: Redesigningthecompensationandrewardsystemtostoprewardinglongproductionruns Stratifyingthecustomerbasetofocusonmoreprofitablecustomers Improvingthemeasurementofcustomerservice Alloftheseactivitiesweredesignedtocreateanentirelyneworganizationandtochangethebasicidentityofthefirmfrombeingapapercompanytobeingatrue consumerproductsfirm.Anotheroverallgoalwastomakethecompanymuchmoreresponsivetocustomers.Obviously,suchbroadchangesrequiredabroad programofchange. Ofcourse,aftertheambitiousnewprocessdesignshadbeencreated,managersfiguredoutthattheyneededmuchbetterinformationsystemsinordertotie manufacturingcapacitytosalesprocessesandtorespondquicklytocustomerrequests.InfairlyshortorderitwasdeterminedthattherighttypeofsystemwasanES, andthecompanyselectedSAPR/3. Allofthisworkhadbeenwiththeoversightandapprovaloftheconsultant,atleastuntilseriousconsiderationofsoftwarewasundertakentheconsultantwasnot technicallyoriented.Infact,adifferentfirmwasbroughtintomanagetheselectionandimplementationofSAP.Andwhentheprocessdesignworkwascompleted,it felltoyetanotherteamtodiscoverhowbesttosupporttheprocesseswithinformationandtechnology. Predictably,thebusinesschangegoalsfromthereengineeringprojectbegantofallbythewayside.Theonlygoalbecame

Page145

toputinthesystemtheonlyprocesschangesactuallyimplementedwerethosenecessarytomakethesystemworksuccessfully.Theonlycustomerorientedchange wasthatPaperCo'slargest,mostimportantcustomerwastransferredovertothenewsystemearlyintheprocess.Amazingly,thecustomerwasnotinformedabout thechangeoveruntilafewweeksbeforethesystemwentlive,whenalowlevelPaperCoemployeeaskedthecustomertoinitiatesomechangesinitsordering processinordertoaccommodatethenewsystem.Needlesstosay,thecustomerwasnotamused,andPaperColostsomeofitsbusinessforayear. Accordingtoonemanagerwhoparticipatedinthereengineeringproject,''OurBPR[businessprocessreengineering]projectwasacompletefailure.Noneofthe thingswediscussedeverhappenedandnoneofthechangeswereeverimplemented."Membersoftheprocessdesignteamfeltbetrayedmoreimportant,noreal businesschangeswererealized. WhatwentwrongatPaperCo?TheproblemwastheseparationbetweenthereengineeringprojectandtheESimplementationwork,andtheuseofacleansheet approachtoreengineeringthathadnothingtodowithinformationsystems.Theuseoftwodifferentconsultingorganizationsoneofwhichknewlotsaboutstrategy andreengineeringbutnothingaboutIT,andtheotherjusttheoppositedidn'thelptheprojectany.Theefforttoinstallthesystemwassuccessful,withthefirstphase oftheSAPinstallationupandrunningwithinonlyninemonths.Theefforttochangethecompanyinamorestrategicsensewasnotsuccessful.Asapostscript, PaperCoranintoevenmoreproblemsacoupleofyearslaterwhenitmergedwithanotherlargecompany.NowtheESprojectisonholduntilafterthecombined companyaddressesitsYear2000problems. Unknownhadadifferentproblemwithreengineering.ImentionedearlierthatthegreatcompromiseinmatchingESandprocessesisbetweentimeandaclosefitwith processdesignsandobjectives.Unknownerredonthesideoftoocloseafitwithprocessesittooktoomuchtimeandmoneytodeterminewhat

Page146

itwantedtodo.Itwasanadmirablestance,butitultimatelyledtothedemiseoftheESproject. Unknown'smanagersanditsconsultantsdecidedthatitwouldtakethreedifferentpassesatanalyzingitskeyprocesses.Thefirstanalysiswasan"asis"cut.Thegoal inthisphasewastoidentifythekeyprocesses,determinethecurrentflowofwork,andmeasuretheexistingprocessesintermsofcostandtime. ThesecondcutatUnknown'sprocesses,doneafterthefirstwascomplete,wasa"couldbe"analysis,focusedondeterminingthebestpossiblewayofperformingkey processes.UnknownmanagersbelievedthatbecauseoftheconstraintsimposedbyitsES,whichitalreadyknewitwantedtouse,itcouldnotstartoutwiththeideal processdesign.However,themanagerswantedtoknowwhattheidealwasinthehopethatthecompanycouldevolvetowarditovertime. Finally,theUnknownprojectteamalsocarriedouta"tobe"analysisofwhatprocessdesignswerepossiblegiventheconstraintsoftheSAPsoftwareitplannedto install.ThisstepwasviewedastherealreconciliationbetweenwhatUnknownwantedtodoandwhatitcoulddowithSAPasthesupportingES.Asasimple example,Unknowninventorymanagersmightwanttobeabletoreallocatescarcecomponentswhenanewordercamein,buttheSAPsystemcommitsinventoryto customersandcompletedproductsasorderscomein,limitingtheabilitytoreallocateit.Thusthe"tobe"processdesigncouldnotincludereallocationofinventory. Whatwaswrongwiththisextensive,multilevelprocessanalysis?Nothingexceptforthetimeandresourcesitconsumed.Thecompletionofallthreeprocess analysestookaboutayearandahalfandconsumedasignificantchunkofthetotal$225millionthatUnknownspentonitsproject.Inretrospect,theprojectmanager feltthatallthreelevelswere"overkill."AndthetimeandexpenseoftheprocessanalysisworkcertainlycontributedtoUnknown'seventualcancellationofmostofthe project,asdiscussedinchapter2.

Page147

InthePaperCocase,thecompanypaidtoolittleattentiontotherelationshipbetweenprocessesandsystems,atleastatfirst.AtUnknown,itmightbearguedthat managerspaidtoomuchattentiontothetopic.Therehastobeahappymedium! TheNewReengineering Itdoesn'thavetobethewayitwasatPaperCoandUnknown.Companiesareincreasinglyusinganewapproachtoprocesschangethatdealswithboththe opportunitiesforsignificantprocessimprovementandtheconstraintsofapackagedinformationsystematthesametime,andrelativelyquickly.Let'scallitES enabledreengineeringalthoughtheapproachisbecomingwidespread,ithasnocommonlyacceptednametomyknowledge.OwensCorningcalleditsapproach "goodenoughreengineering"thatcompany,andmanyothersaswell,simplywantedtogetasysteminplacequicklywithouthavingtomodifyitsEStosuitcustom tailoredprocessdesigns.Buttheterm"goodenough"impliesaratherslipshodapproach,withlittlethoughtgiventomaximizingthefitbetweensystemand organization.Thereisaway,however,toachievemostoftheprocessdesignsanorganizationwants,whilestilltakingareasonableamountoftime.It'sdescribedin somedetailinthissection,andatanoverviewlevelinfigure51. ESenabledreengineeringinvolvesadecisionearlyinthechangeprocessaboutwhetheranESpackageislikelytobeusedastheprimaryvehicleforprocess informationsupport.Unknownactuallyemployedthisaspectoftheapproach.Let'sfaceit:Ifyourcompanywantscrossfunctionalsystemsandyoudon'thaveany today,andifyoudon'twanttobeonthebleedingedgeoftechnology,chancesareverygoodthatyou'regoingtoneedanES.Youmayalsobepredisposedtousing anESifothercompaniesinyourindustryhavealreadyadoptedone.Inmanycases,notonlycanacompanydecideearlyonwhetherit'slikelytoneedanESornot, butitcanalsodecidewhichvendor'spackageisthemostobviousfit.Again,onepackagemaybe

Page148

Figure51 GraphicOverviewofESEnabledReengineering.

Page149

prevalentinanindustry,ortheremaybealikelymatchbetweenapackageandthesizeandstructureofthecompany.Inanycase,ifacompanycandecidenotonly thatitneedsanESearlyon,butalsowhichoneit'slikelytouse,thenit'saheadofthegameinthenewreengineering. SimultaneouslywiththinkingaboutwhetheranESmakessense,acompanyshouldinmostcasesdoaquickanalysisofitsexistingbusinessprocesses.Thishasbeena somewhatcontroversialissuesincethebeginningofreengineering.Whyspendconsiderabletimeunderstandingexistingprocesseswhenthey'reobviouslygoingto change?I'vealwaysarguedthatit'sworthsometimeandefforttomapandmeasureexistingprocesses,forseveralreasons: 1.Itgivesyouabaselineforknowinghowmuchyouhaveimproved. 2.Youmayuncoverprocessproblemsandconstraintsthatwillaffecttheultimateprocessdesign. 3.Youbuilda"caseforaction"thattheexistingprocesssimplywon'tmeetthebusinessneedsofthefuture 4.Youcanstarttoidentifyissuesaffectingwhethertheworkwillactuallybedoneinthewayyouspecifythe"processvs.practice"issuesIdescribedearlierinthis chapter. Thus,theanalysisisworthdoing,buteveninalargecompanyit'sonlyworthdoingforafewmonths. ThenextkeystepistostartreconcilingtheprocessyouwantwithwhattheESpackagewillallowyoutodo.Thisstepcanbeaccomplishedthroughavarietyof ways,andhoweveryoudoitthetaskisdifficult.Oneimportantstartingpointistohaveinmindsomekeyprocessobjectivesordesignprinciplesthewayinwhich yourcompanywouldliketodobusinessifpossible.Perhapsyou'veuncoveredsomeoftheseintheearliersteps,ormaybetheseprinciplesarewhatmotivatedyour companytobeginthissortofthinkinginthefirstplace.Ifnot,you'llhavetodosomeresearchandbrainstorming.Somesampledesignprinciplesthatyourcompany mightarticulatearethefollowing:

Page150

We'dliketobeabletoansweracustomercallandtakeanorderforanyofourproductsorservicesduringthecallincludingpricingit,promisingdelivery, checkingthecustomer'scredit,andarrangingshipping. We'dliketocloseourfinancialbooksinhalfthetimewedoittoday. We'dliketohaveoursuppliersbeabletodeterminewhenshipmentoftheirproductsisnecessary,andhavethemmanageourinventoryoftheirproduct. Whenwebuyfromsuppliers,we'dliketocommitatthattimehowandwhentheproductwepurchasewillbeusedinourownproductsorservices. Anytimewedoanacquisition,we'dliketheacquiredcompanytotakecustomerordersinexactlythewaytherestofthecompanydoeswithinthreemonths. Theseexamplesofprocessdesignprincipleswillprovidesomehighlevelguidelinesforhowtheprocessshouldworkwhenyou'refinished.Youmayhaveto compromiseonsomeofthem,butatleastyoudidn'tspendalotoftimecreatingtheprinciples.You'llrarelygetwhatyouwantifyou'renotsurewhatitwasyou wantedinthefirstplace.Theactivityofcreatingthesedesignprinciplesisagoodwaytoengagetheseniorbusinessexecutivesofthefirm.Theymaynotunderstandall theintricaciesofanES,buttheyshouldknowwhattheywantoutofit. TheCriticalConfigurationProcess TheactualconfigurationofthesystemtothedesiredprocessisdifficultandatthecoreofgettingtheESenabledbusinessprocessesyouwant,butitusedtobemuch moredifficultthanitistoday.Configurationisthestepinthenewreengineeringprocessinwhichthedetailsofthesystemaremappedandfittedtothedetailsofthe process,andviceversa.Intheearlydays

Page151

ofESs,configuringasystemmeantthatcompanieshadtopainstakinglydecidehoweachofthousandsofswitcheswithinthesystemshouldbeset.Thisprocessisstill necessarytoday,althoughtypicallymucheasierandquicker. Configurationisanissuethatislargerthanprocessdesigninthatitstartswithwhatprocessestheorganizationwantstosupportinthefirstplace.InESterms,this meansdecidingwhichofavendor'sapplicationmodulestheorganizationwantstoinstall.Forexample,aservicecompanymaynotactuallyhaveanymanufacturing processes,soinstallingmanufacturingandplantmaintenancemoduleswouldn'tmakemuchsense.Amoredifficultdecisionmightinvolvewhethertogowiththe vendor'scapabilitiesinthehumanresourcesarea,orinsteadtouseabestofbreedHRpackagethathasmorefeaturesdesiredbythecompany. Inmanycases,thedecisionaboutwhethertoimplementanESapplicationmoduleisbasedonhowimportantitistohavethatapplicationintegratedwiththerestof theorganization.Otherfactorsinthedecisionmaybethestateofexistingapplicationfunctionalityinthearea,theabilityofthecompanytomaketheneededbusiness changesinaparticularprocessdomain,andofcoursewhetherthevendoroffersreasonablefunctionalityinthatprocess. Configurationmayalsoinvolvedecisionsaboutwhentoimplementaparticularmodule.Acompanymaydetermine,forexample,thatitdoeswantHRfunctionality eventually,butthatitdoesn'twanttoimplementitrightaway.AsIargueinchapter6,however,it'susuallynotagoodideatopostponeintegrationofmultiple applicationsandinformationinanESproject,simplybecausethatintegrationisusuallyamajorreasonforundertakingtheprojectinthefirstplace. Afteracompanyhasdecidedwhatprocessesit'sconcernedwithinthefirstplace,itmustbeginthemuchmoredetailedworkofdetermininghoweachprocesswill workwiththenewsysteminplace.Thismaymeanabroadarrayoftypesofdecisionsfromtheorganizationalandreportingstructureofthecompanytothetax treatmentofcertainassets.Asonemanager

Page152

ofanESprojectatanoilcompanyoncesaidtome,"Youfeelacertainsenseofvertigoontheseprojects.Oneminuteyou'retalkingaboutthehighlevelstrategyand structureofthecompany,andthenextit'ssometinylittlebitofinformationaldetail." IntheearlydaysofESs,acompanymighthavetomakeliterallythousandsofconfigurationdecisions.Eachlittledetailofaprocesshadtobespecified.Dowewant FIFO(firstinfirstout)orLIFO(lastinfirstout)treatmentofinventory?Dowewantanaliasforthisproductname,andifso,whatisit?Towhomdoesthis particularreportgo?Inmanycases,ittookyearstomakeallofthesedecisions.Insomesituations,itwasn'tclearwhetheraparticularprocessdesignwaspossibleor not.ProcessapproachesthataresomewhatidiosyncraticmaybedifficulttoachievewithanES.Evendiscoveringwhatcanandcan'tbedonewithESenabled businessprocessescanbeastruggle. Visio,arelativelysmallsoftwarecompanywithrevenuesoflessthan$100million,hadtwoidiosyncraticprocessesthatproveddifficulttoaccommodateinitsES project.9 Oneinvolvedthecompany'srevenuerecognitionprocessthecompanyhadpreviouslyrecognizedrevenueswhenproductwasshippedtodistributors,but thenadjustedthembasedonactualsalestoendcustomers.Anotherinvolvedownershipofinventory.Visiooutsourcedmanufacturingandhandledproductthatit didn'ttechnicallyowninthepreESprocess.TheESprocessmodelrequiredthecompanytoeitherownallitsinventoryorsendtwodifferentinvoicestocover changesinownershipthroughtheprocess.Neitheroptionwasviewedaspalatable.Aftermonthsofstudyandanalysis,itwasdeterminedthatbothidiosyncrasies couldbeaccommodated,butonlywithsubstantialextraprogramming. AtCompaqComputer,managershadalwaysdoublecountedrevenuesalongtwoseparatedimensionsoforganizationalstructure:productgroupandgeography.But whentheywereimplementingtheirES,theycouldn'tfigureoutwhethersuchdoublecountingwaspossible.Aftersixmonthsofinvestigation,includingworkwiththe systemitself,allavailabledocu

Page153

mentation,andexpertswithinthevendororganization,theyhadconcludedthatitjustwasn'tpossible.However,justastheywereabouttogolivewithsinglecounting, someonediscoveredacombinationofsystemparametersthatwouldmakethedoublecountingapproachpossible. Templates Configurationismucheasiertodayinpartbecauseoftheavailabilityofprocessandindustrytemplates.Theseconstituteapredefinedsetofanswerstothemany questionsthatusedtobedevilacompanywhenconfiguringasystemtoitsprocesses.Thetemplatesareoftenstructuredbyindustry,sothatifIworkforanoil company,Icanstartwithasetofconfigurationdecisionsthataretypicalforanoilcompany.Iftherearecertainaspectsofthetemplatethatdon'tfit,thenthecompany canperformadetailedanalysisandchangeparticularaspectsofthetemplate. Ofcourse,theriskwithsuchtemplatesisthatcompanieswillsettleforapoorfitbetweentheirenterprisesystemandthewaytheywouldliketodobusiness.Adhering toanindustrytemplatemaymeanthatthecompanylosesabetter,perhapsevenmorecompetitive,wayofperformingakeybusinessprocess.Aswithmoststandard solutions,whatthecompanygainsinexpediencymaybeoutweighedbyturningpartsoftheorganizationintocommodities.Somecompaniessaythattheywillputina templatefirstandthenlater,afterthesystemisinstalled,gobackandcreateabettersetofprocessesandabettersystemconfiguration.ButI'mafraidthatthe exhaustionmanycompaniesfeelafter"successfully"implementinganESwillpreventalotofexpostfactocustomization. ProcessModeling AnotherwaytoenhancethefitbetweenanorganizationanditsESisthroughtheuseofprocessmodelingandmodelingtools.Thesearenot,tobehonest,quiteas welldevelopedasthetemplatesI'vejustdescribed,andoverallitwillprobablytakemore

Page154

timeandefforttoconfigureasystemusingmodelingtoolsthantemplates.Butitmaybeworththetrouble,sincetheuseofmodelingcanleadtoamoretailored businessprocess. Theideabehindmodelingisthatprocessdesignscanbecreatedandmanipulatedatahigh,overviewlevelusinggraphicmodelsandpointandclicksoftware interfaces.Youdesigntheprocessbyillustratinghowyouwanttheworkandinformationtoflowthroughtheorganization.Mostoftheworthwhilemodelingtoolsare linkedtoparticularESpackages,sothatyoucanquicklyrealizeifyou'veviolatedasystemconstraint.Somemodelingtoolsevenprovideguidelinesastobest practicesintheareaofparticularprocesses.Onceyouhavedesignedtheprocesstoyoursatisfaction,themodelingsoftwarewilltellyoutheimplicationsforparticular configurationswitchesandoptions. Theappealofthesetoolsisperhapsobvious:It'sfareasiertodesignprocessesatthisgraphicoverviewlevelthantohavetodescendintothedetailedmuckof systemschoices.Andactuallyspecifyingtheprocessdesignthatbestsuitstheorganizationandseeingittransformed,withinsomelimitsanyway,intoafullyfunctional systemisquiteappealing.Butthestrengthofsuchtoolsisalsotheirweakness.Companieshavetogiveconsiderablethoughttohowtheywanttodobusiness,and that'salwaysdifficult.TheprocessanalystwillstillneedtobesomewhatexpertintheES,themodelingtool,andtheprocessitselfandyoucanimaginehowfew peopletherearewithsuchexpertise.Furthermore,comparedwithaprocesstemplate,thesemodelingtoolsmaynotbeaswellintegratedwithESpackages.Theyare usuallysuppliedbythirdpartyfirmsratherthanESvendors.Butifyouwanttheabsolutebestmatchbetweenyourprocessandyoursystem,thesemodelingtoolsare wellworthinvestigating. Processmodelscanalsobeviewedasavehicleforprocessknowledgemanagement.Theideaisthattheflowoftheprocess,andthefitbetweentheprocessdesign andtheES,representsaformofknowledgethatshouldbecaptured,saved,andreused.OnecompanythathasmadethisconceptarealityisDowCorning,where modelingwasusedtocaptureprocessflows,goodor

Page155

''interesting"practices,anddifferentviewsofprocesses.10SinceDowCorningwasimplementinganSAPsystematthistime,themodelsalsodisplayedthe relationshipsbetweenprocessesandsystemsupport.TheDowCorningmodelsshowed,forexample,whichactivitiesintheprocesswereperformedusingSAP functions,whichwereperformedwithotherlegacysystems,andwhichwereperformedmanually. DowCorningbeganrecordingprocessmodelsusingagraphicdisplaytool(Visio),butlaterswitchedtoprocessmodelingandrepositorysoftwarebasedonresearch doneatMITandmarketedbyacompanycalledPhios.11AftertheVisiomodelswereloadedintothePhiosrepository,theyweremoreeasilymaintained,updated, andviewedinnewcontexts.Forexample,whenDowCorningmanagerswantedtoviewtheirSAPrelatedprocessesinthecontextofanintegratedsupplychain usingtheSupplyChainCouncil'sSupplyChainOperationsReference(SCOR)model,thePhiosbasedprocessesweremodifiedtocreateaDowCorningspecific versionoftheCouncil's"plan,source,make,anddeliver"model. DowCorningfollowedseveralacceptedprinciplesofknowledgemanagementinrelationtoitsprocessknowledge.Itestablisheda"ProcessNetwork"ofprocess ownersandmanagers,whosejobitwastokeeptheprocessmodelscurrent.Two"processknowledgemanagers"weremadeavailabletothenetworktohelpmodify theprocessmodelcontent.DowCorningmanagersbelievethattheprimaryvalueofthemodelsintherepositorywillcomewhenthecompanymodifiesitsprocesses inthefuture.ThecompanyisinvestigatingusingtherepositoryandmodelsforISO9000modelingandforregulatedprocessessuchasthoseforhandlinghazardous materials. HowCommonIsCommon? OneofthekeyissuesinconfiguringESsandbusinessprocessesisdeterminingjusthow"common"asystemorprocessneedstobeinanorganization.Insmall,single businesscompanies,there'snormallynodecisiontobemade.Everymajorprocess

Page156

that'scoveredbythesystem,andeverypieceofinformationthat'susedwithinthesystem,shouldbethesamearoundtheorganization.Butinlarger,morecomplex organizations,commonalityisalsoamorecomplexdecision.Whenproducts,customers,governmentregulations,andemployeemotivationsvarywidelyaroundthe world,itmaynotbereasonabletoexpectthateveryprocessandbitofinformationcanbecommonworldandorganizationwide. AsIdiscussedinchapter4,theideaoffederalismassumesthatsomeprocessesandinformationcanvaryacrosstheorganization.Thegoodnewsisthatthisprovides flexibilityforthecompanythebadnewsisthatyouhavetomakedecisionsaboutwhat'slocalandwhat'sglobal.Theotherbadnewsisthatlettingsomethingsvary meansthatyourorganizationwillprobablyneedmultipledifferentinstancesoftheESpackage.Thiswillcomplementyourcomplexprocessandinformation environmentwithaverycomplextechnicalenvironment! Ifyouwanttoundertakeafederalistconfiguration,youmusthaveanapproachfordeterminingwhichprocesseswillbecommonandwhichwillbevariable.Because localvariabilityhasacostaswellasabenefit,it'sbesttostartwithanassumptionthatunlessthereisacompellingargumentthatsomethingshouldbedifferent,itstays common.Themethodforcommonalityanalysiscomesdowntoreviewingthewayworkisdoneinthekeypartsoftheorganization.Whenvariabilityisdiscovered, theanalystsshouldpushbackandquestionwhetherthecommonsolutionwouldbeworkable.Thepartoftheorganizationthatdesiresan"uncommon"approach shouldhavetodocumentitsrationaleandthebenefitsitwillachievefromitsuniqueness. Another,simplermeansofassessingtheneedforuniquesolutionsistodeclareatthebeginningofimplementationthattheoverallsystemandrelatedprocesseswillbe commonunlessabusinessunit,function,ordepartmentsuccessfullypetitionsotherwise.Inthisapproach,thereasonfordoingsomethingdifferentshouldbequite compelling.RecallthecaseofNova

Page157

Pharmaceutical,whichrequiredthepetitioningtobedonebeforethefirm'sCEO.Notsurprisingly,ahighlycommonsolutionprevailed. Perhapsobviously,commonprocessesandcommoninformationarecloselyrelated,butnotperfectlyso.It'spossiblefortwopartsofafirmtohavesimilarprocesses buttodefinetheinformationdifferently,andviceversa.Sincetheyaren'talwaysthesame,it'simportanttothinkaboutcommonalityinbothcontexts.Laterinthis chapterIdescribesomeissuesconcerninginformationcommonalityandgiveseveralexamplesofhowcompaniesaddressedtheissue. Prototyping,Piloting,andAllThat ThelaststepinconfiguringanewESsystemistotestitinpractice.Whetherit'scalledapilot,aprototype,aprobe,orsomeotherwordbeginningwiththeletterp, it'sextremelyimportanttotestinarealisticenvironmentthesystem,theprocess,andmostimportantly,thepeoplewhoaregoingtouseboth.Nocompany,no managerissufficientlybrillianttothinkaboutallofthecomplexitiesandcomplicationsinherentinacrossfunctionalESproject. It'sdesirabletodothisprototypingasearlyinyourESprojectaspossible.Ifthesystemisn'tgoingtobereadyforawhile,thenprototypetheentireprocessusing paperprintoutsofthecomputerscreenswithwhichuserswillbeworking(thisissometimescalledaconferenceroomprototypeorpilot).Ifyouencounterserious problemswhichareparticularlylikelytooccurattheintersectionofsystemandhumansyoumaystillhavetimetomodifyeitherthesystemorprocess,ortotrain userstodevelopnecessarynewskills.It'sthereforeimportanttousehumanbeingswhowillbetheactualeventualusersofthesystemasyourESprojectguineapigs. Ideally,you'llfirstprototypeeachkeyESmodulewithitsaccompanyingprocess,andlaterthefitbetweenthedifferentmodulesandprocesses.Eventhetestofa singlemajoractivity

Page158

willprobablyrevealsomeproblemsandissuestoresolve.Forexample,Iknowofatleastthreecompanies(Unknown,OwensCorning,andanindustrialdistributor who'drathernotbenamed)thathadsignificantearly(andinUnknown'scase,late)problemswiththeirorderprocessingmoduleandprocess.Eachofthese companiestakesmostofitsordersoverthetelephone.Imaginetheconcernofthesecompanies'managerswhentheydiscoveredthattheirneworderprocessing moduleandsystemwasnotfasterandmoreefficientthantheiroldone,butactuallymuchslower.Infact,forordertakerstonegotiatetheirwaythroughtheseveral (asmanyastwelve)screensrequiredtocompleteanordertookanywherebetweenthreeandeighttimestheamountoftimeneededpreviously. OwensCorningandthedistributordiscoveredthisproblemfairlyearlyintheirESprojects,andwereabletosimplifytheirprocessandinformationrequirementsand speeduptheirsystems(thoughatlastreportthey'restillabitslowerthantheiroldsystems).Unknown,asyouprobablyremember,cancelleditsESprojectandwrote offacouplehundredmillionbucks.Theorderprocessingproblemwasoneofthefinalnailsintheproject'scoffin. LifeafterConfiguration Unfortunately,thereisnolifeafterconfiguration.BythetimetheyfinishconfiguringtheirESandinstallingit,mostcompaniesarequitewillingtowashtheirhandsofthe wholething.Butconfigurationisreallysomethingthatisneverfinished.First,thereisthefine(orinsomecases,gross)tuningofthesystemovertimetofitthewayan organizationworks.Theorganizationitselfmaychangethroughmergers,acquisitions,ordivestituresexternalevents(customers,regulation,etc.)mayforceachange ormaybethesystemneverreallyfittheorganization'sprocessesinthefirstplace.Maybeitjammedthesysteminquickly,anditdoesn'twanttolivewiththeresult forever.

Page159

Thesystemyou'veputinwillalsochangeovertime.Enterprisesystemvendorsarealwaysannouncingnewreleasesorbringingforthnewmodules,andESrelated softwarewillcomeoutcontinually.Youmayaddnewboltonfunctionality.Eachnewprogram,release,ormodulewillrequiresomelevelofconfigurationor reconfiguration. Toavoidchangingeverythingallthetime,thewiseorganizationwillhaveaspecifiedtimeforreexaminingprocessrequirementsandsystemchanges.Youdon'thaveto installeverynewreleaseornewmoduletheanalysisofsystemandprocesschangesshouldincludeanassessmentofwhatkindsofbusinessbenefitswould accompanyanewroundofconfiguration. Inshort,fittingyoursystemstoyourprocessesisamatterofbusinessdrivencontinuousimprovement.Butthenthat'swhatprocessmanagementisallabout.In additiontocreatingbetterinformationsupportforyourprocessesatalltimes,youshouldalsobecontinuallyreevaluatingandreadjustingtheotherfactorsthatleadto goodprocessmanagement.Yourreportingstructure,evaluationandcompensationsystems,peopleskills,andotheraspectsoftheorganizationalsoneedcontinual refinementandshouldthemselvesbemodifiedtofitwithyournewprocessesandinformationsystems. AchievingCommon,HighQualityInformation Inadditiontohavingadramaticeffectonbusinessprocesses,ESshavearadicalimpactonacompany'sinformation.Onekeygoalinorganizationssincethebeginning ofinformationsystemshasbeentoachievecommondefinitionsandmeaningsofkeyinformationentitiesacrossadiverseorganization.Inthepast,manycompanies wouldstriveforcommoninformationbyundertakingdetaileddatamodelingor"informationengineering"acrossmultiplediversesystems.Itusuallydidn'twork, however,andconsumedlotsoftimeofhighlypaidemployeesandexpensiveconsultants.SinceESsbecameavailable,

Page160

companieshavefoundthathavingonebigintegratedsystemisamuchmorefeasiblewaytoaccomplishcommoninformation. Aswithprocesses,it'susuallynecessaryforcompaniestothinkcarefullyaboutthetypeofinformationtheywant,andhowaspecificinformationenvironmentwillfit withcorporatestrategyandstructure.Themostefficientinformationsituationwillbeoneinwhichallinformationiscommonthroughoutthecompany.Thatway,itwill beeasytoaggregateorcompareinformationfromonepartofthecompanywithanother,andtworeportsaboutthesameinformationwon'thavedifferentresults. However,themostefficientsituationmaynotbethemosteffective.Companies'informationenvironmentsshouldreflecttheirbusinessenvironments.Ifonedivision's markets,products,suppliers,employees,customers,andsoforthdiffermarkedlyfromthoseinanother,itmaynotworktousethesameinformationunitstodescribe thediverseelements.Or,ifsomeexecutivedecreesthateveryonemustusecommoninformation,itmaybelowestcommondenominatorinformationsogenerically definedthatitmeetsnoone'sneeds.Thetermcustomermayhavetobedefinedasanyonewhobuysormightbuyanythingfromthecompany,whichincludes customers,prospects,distributors,retailers,consumers,competitors,andsometimesevensalespeople(iftheyareforcedtobuyinventorybeforesellingit).A companythatcollapsesallofthesedifferenttypesofcustomersintoonecategorywillnotbeabletolearnmuchaboutanyofthem. Thefirsttask,then,istodecidewhetheryourorganizationwantseverythingtobeincommonorwhethersomeinformationcanbeallowedtovaryacrossbusiness units,departments,andfunctions.Generally,everypartoftheorganizationwithadifferentinformationenvironmentisgoingtoneeditsowninstanceoftheES software.Themoreinstancesyouhave,themorecomplexyourinstallationandsupportprocesswillbe,soyoudon'twanttomakethedecisionlightly.Youneedto besurethatinformationvariationsarereallynecessarybeforeallowingthem.

Page161

Toillustratetheprocessofdecidingoninformationcommonality,I'llgivethreeexamples.Thefirstcompany,Millipore,decidedthateverythingshouldbecommon. Thesecond,Monsanto,decidedthatmostinformationshouldbecommon.Thethird,Conoco,concludedthatatleastatfirst,notverymuchinformationwouldbe commonacrosstheorganization.I'lltrytoexplainboththeprocessandthecontextthateachoftheseorganizationsfollowed.Makinginformationcommon,however, isn'ttheonlyobjectiveinmanagingESinformation.Afterdiscussingcommonality,I'lldiscussissuesaboutimprovingdataqualityandintegrityadifficultproblemin ESimplementation. CommonInformationatMillipore Intheearly1990s,Millipore,afilteringsystemscompany,wantedtoachieveahigherleveloforganizationalflexibility.12Thecompany'sexecutivesparticularlyits CEO,JohnGilmartinconcludedthatthebestwaytoachieveflexibilitywasthroughcommonbusinessprocesses,information,andinformationsystems.Thusthe companywasoneoftheearliesttoadoptOracle'sESapplicationsuite,andengagedwiththevendorinadevelopmentpartnership. Gilmartinfeltthattoachievethecommonalitywouldrequirestrong,handsonmanagement.Hethereforeappointedaseriesofcommonsystemsczarsinsuchareasas orderentry,manufacturing,fieldservice,andfinance.Theroleoftheczarswastosolicitinputaboutbusinessprocessesandinformation,buttoultimatelydecideona firmwideapproach.Theczarsencounteredsubstantialorganizationalresistancetocommonality.Inthefinancialarea,forexample,"everyonehaddetailedandcomplex explanationsaboutwhytheirfinancialmeasuringprocesswasabsolutelyessentialforthem."Inthetaskforcetodesignthenewsystem,"thelevelofdebategenerated bythechoiceofcodesforproductsorprocesseswassoheatedyouwouldthinkwewereaskingpeopletochangetheirown

Page162

names."13However,Ibelievethatthepresenceoftheczarrolemadeitmuchmorelikelythattheresistancecouldbeovercome. CommoninformationandbusinessprocessesdidleadtobusinessimprovementsatMillipore.Thelogisticsfunction,forexample,reduceditscostswhileimprovingon timeshipments.Customerservicelevelsimproveddramaticallyafterabriefperiodofproblemswiththenewsystemandprocess.Infinanceandadministration, commonsystemsandpracticesledtoa21percentdownsizinginpersonnel,savingover$2millionperyear.Milliporealsofounditeasiertoreorganizethestructureof themanufacturingorganization,torestructuresalesforceterritories,andtocombinepreviouslyseparatedivisions,thusachievingitsgoalofflexibility.However, managersfounditdifficulttomeasurethevalueofthisnewfoundflexibility. AlmostCommonInformationatMonsanto MonsantodecidedearlyoninitsESimplementationthatdataandprocessesacrossitschemical,biotechnology,andpharmaceuticalsbusinessescouldnotbeentirely common.Eachbusinesshaddifferentcustomers,markets,andbusinessprocesses.DuringthecourseofitsESproject,thecompanyevendivesteditschemical businessintoanewcompany,Solutia. TodeterminejusthowcommoninformationshouldbethroughoutMonsanto,thechieffinancialofficerformedan"enterprisereferencedata"teamtostudytheproblem andtotrytomaximizecommondata.Theteamaskedbusinessunitmanagerswhatabsolutelyhadtobeunique.Theteamconcludedthatover85percentoftheES datacouldbecommonacrossthecorporation.Dataonsuppliers,forexample,wasreducedfromtwentyfourseparatecodingschemesacrosstheorganizationto one.Allfinancialdatawasheldcommonthroughouttheorganization.Allmaterialsdatawasmadecommonusinganewsetofsubstanceidentificationcodes. Somecustomerdataremaineduniquesimplybecausedifferentbusinessunitshavedifferenttypesofcustomers.Sellingto

Page163

dairyfarmers,Monsanto'scustomerforitsmilkproductionhormones,requiresdifferentinformationtoberecordedindatabasesthansellingtofoodcompanieswho buyfromtheNutrasweetdivision.Someplantdatawillalsobelocalbecauseofidiosyncraticmanufacturingprocesses(althoughplantmaintenanceprocessesanddata arecommon).Orderingdataforexample,codesusedforcredittermscouldvaryacrossbusinesses.Butevenmostlocallymanageddatahadtoadheretocertain namingandmanagementconventions.Inshort,Monsantomanagersstronglyencouragedcommonality,butallowedexceptionswherenecessary. UltimatelyMonsantomanagerscreatedfivedifferentlevelsofcommonalityforallofitsESbasedinformation.Rangingfrommostcommontoleast,thelevelswereas follows: 1.Fixedbycorporateheadquarters(e.g.,thecorporateChartofAccounts) 2.Chosenfromalistofoptions(e.g.,purchasingtermscodes) 3.Open,butofaspecifiedformat(e.g.,producthierarchy) 4.Openformat,butmandatoryusage(e.g.,descriptions) 5.Optional(e.g.,contactname) Insomecases,Monsantobusinessunitmanagersimposedfurtherrulesonthedatastewardshipfunction.Innocase,however,couldthelocalrulescontradictthe enterpriserules. CommonInformationinGoodTimeatConoco Conoco,a$23billion(in1998)oilcompanythatwasrecentlyspunoutofDuPont,hasatypicalcultureforanoilcompany.ConocowasborninOklahomaand nurturedinTexas,andthecompany'sleadersoftenmanagedoilfieldsitesintheruralSouthwestinanecessarilyautonomousmanner.Thestrongsenseof independencepersistsamongmanagerswhonowleadgeographical,functional(explorationandproduction,or

Page164

refiningandmarketing),orproductbased(chemicals,lubricants)businessunits.Culturallyandhistorically,nooneatthetopoftheorganizationhastoldthemhowto runtheirbusinesses. Intheearly1990s,Conocomanagersfrombusinessunitsaroundtheorganizationwerebeginningtoidentifyaneedformorecapableandmoreintegratedinformation systems.Theirinformationsystemsmanagers,whoweredistributedthroughoutthecompany,startedtotalkwithvendorsofvariousESsaboutemployingtheir softwareinthedifferentConocounitstheyrepresented.Someunitsevenbegantowritetheirownapplications,ontheirownorwithconsultants,tomeetspecific businessfunctionalrequirements. Conoco'scorporateinformationsystemsfunction,whichhadasmallgroupofpeopledevotedtolookingacrossthecompanyanddevelopingstandardswhere feasible,noticedthismovetowardnewsoftwareanddecidedtoseeifonevendor'ssystemcouldmeettheneedsoftheentirecompany.Analystsmappedthe processesofthedifferentbusinessunits,andthefunctionsofexistingandnewsystems,ontothecapabilitiesofSAP'sR/3systemandconcludedthatthegreatmajority ofinformationandprocessrequirementsacrossConoco(atleast,thatis,thosethatwerebeingconsideredwithregardtoanyES)couldbemetwiththepackage. Withrelativelylittledifficulty,Conoco'sbusinessunitmanagerswerepersuadedthattheSAPpackageshouldbeadopted. However,therewasnointenttohaveinformationbecommonacrosstheunits.Instead,everyunitthatwanteditsowninformationenvironmentwouldgetitsown versionofR/3.Itwasclearthatmanagersfeltthattheirbusinessesdifferedsotheirinformationshouldaswell.VariousConocounits,particularlythoseinEurope, begantoimplementtheES,withdifferentversionsbycountry.NotallunitsimplementedthesameSAPmodules.Somecountriesthatwereearlieradoptersofthe packageconfiguredittomeettheirneeds,andthenofferedittoanothercountryunittouseastheydesired.Mostmodifiedthe

Page165

systemsslightlytomeettheirownneeds.TheUnitedKingdomunit,oneoftheearliestimplementers,gaveitssystemawayandthenlateradoptedaversionthat anotherunithadmodifiedfromtheoriginalU.K.version. By1999ConocohadatleasteightdifferentversionsofSAPinplaceacrossthecompany.Somebusinessunitswereworkingongettingcommondefinitionsof informationwithintheunit.Forexample,withintheU.S.RefiningandMarketingunit,analystswereworkingwithmanagersatthefourdifferentrefineriestoget commondefinitionsofmaterialsandsupplies. BythattimeEuropeanunitswerebeginningtothinkaboutwhetheramorecommonsolutionwouldwork,eventhoughtheyhadinsistedontheiruniquenessatthe beginning.Partoftheirinterestincommonalitywasdrivenbyacorporatedemandtosave$50millioninprocurementcosts.Ifeveryonedefinedprocurement informationinthesamewayinonesystem,managersreasoned,itwouldbepossibletoachieveeconomiesofscaleandbettervendormanagementandthusmeetthe costreductiontargets.ItseemslikelythatatleastacommonprocurementsystemwilleventuallycometopassinEurope. Conoco'scorporateinformationmanagersbelievethatmorecommonalityacrossthecorporationwilleventuallybeachievedasmanagersstriveforefficiencies.Butthe processof''commonization"can'tbeforcedorrushed,theybelieve.Thecompany'sindependentcultureforcesthemtoletbusinessunitmanagerscometotheirown realizationthatcommoninformationisdesirable.Abig,topdownbattleforcommonalityatthebeginningoftheESinitiativewouldneverhaveworked,theybelieve. InformationObjectivesOtherThanCommonality Themostpopularinformationobjectiveotherthancommoninformationisinformationquality.SinceESsalmostalwaysinvolveintegrationacrossmultiplepreviously employedsystemsinanorganization,theprocessofputtinginanESinvolveseffortstocombineandintegratedifferentdatabases.Populating

Page166

anESwithhighqualitydatamaynotseemastrategicorvalueaddingactivity,butitisabsolutelyessentialifthesystemisultimatelytoprovideusefulinformation. Thetaskofdatahygienecan'tbeputoffuntillater.Thevariousactivitiesthatarenecessaryharvesting,cleaning,matching,converting,loading,testing,and maintainingdatacantakeuptoanentireyear.Mostofthesetaskscan,andshould,bedoneconcurrentlywithotherESimplementationactivitiessothatthedata environmentisingoodshapewhenit'sneeded. Enterprisesystemdatamanagementandstewardshipareongoing,notfinishedwhenthesystemgoeslive.Sophisticatedorganizationswillalreadyhaveadata stewardshipfunctioninplacepriortoadoptinganEStheymaybeabletoshrinkitabitwitharationalizeddataenvironment,butitcan'tbeeliminated.AtMonsanto, thepostESdatastewardshipfunctionhadonlythreepeopleatthecorporatelevel(whoreportedtothecontroller,nottheITfunction),severalexpertsinparticular subjectmatterareas(e.g.,purchasingormanufacturingdata),andmanydataadministratorsdispersedthroughoutthecompany'sfunctionalandbusinessunits. Aswithbusinessprocesses,it'spossibletodesignaninformationenvironmenttoachieveobjectivesotherthanqualityandcommonality,althoughfirmsarenotyet particularlyskilledindesigninginformationenvironments.14Thestateoftheartissimplytoletindividualbusinessunitsorfunctionsdecidewhatinformationtheywant thiswasthecaseatConoco.Suchanapproachmightbeviewedasaddressingtheobjectiveofagoodfitbetweentheinformationenvironmentandthebusiness. Iwouldalsoarguethatsomefirmsaretryingtomaximizetheefficiencywithwhichinformationisdeliveredtomanagersforanalysisanddecisionmaking.Whenfirms putinanESforpurposesofinformationanalysisandreporting,theyoftendonotthinkindepthaboutexactlywhatinformationtheywant.AsIdescribeinchapter7, theyoftenusethesameinformationtheyusedbeforetheirES,simplyproducingtheinformation

Page167

morequicklyandwithlessmanualintervention.Thereisnothingwrongwithsuchefficiency,butfirmsshouldalsotryforgreaterinformationeffectiveness. Onewaytoachievethateffectivenesswouldbetoarticulatewhattypeofinformationismostimportanttotheorganization.FirmsimplementingESsusuallythinkabout theentirerangeofinformation,notaboutanysingletype.Butjustasbusinessstrategyisaboutmakingchoices,goodinformationstrategyinvolveschoosingwhattype ofinformationbestfitsthebusiness.AnorganizationimplementinganESmightdecide,forexample,thatbettercustomerinformationwasthemostimportant informationobjective.Thatmightdictate,forexample,thatindividualbusinessunitshavetheirowncustomerinformation,ratherthanafullycommonapproach.Itmight alsosuggestspecificaddonapplicationsforcustomerinformationmanagement.Thecompanymighttakemorecareinbuildingacustomerinformationrepository usingESandotherdata.Andifthereisachoiceamongthetypesofdatathatmightbeaddressedfirstintermsofdevelopingcleardefinitions,cleaningdata,and integratingdiversesourcesthecompanycouldthenstartwithcustomerdata. Forbothprocessesandinformation,thekeyistodesigntheenvironmentthatyouwant,ratherthantosimplystumbleintosomething.Achievingagoodfitbetweenan ESandtheorganizationmeansmakingexplicitchoicesaboutthesetwokeyaspectsofthebusiness,inadditiontothosedescribedinotherchapters.Neverbeforein thehistoryofinformationsystemshavethequalityanddesignofprocessesandinformationbeensoboundupwithasystem.Ifyoufailtoexplicitlyconsiderprocess andinformationissuesasyouimplementanES,it'sveryunlikelythatyou'llgettheprocessandinformationenvironmentsthatyouwant.

Page169

6 AchievingValueduringEnterpriseSystemImplementation
Implementationofanenterprisesystemisthemostdifficultpartoftheproject.Itissuchhard,sloggingworkthatmanyorganizationslosesightoftheirbusinessand financialgoalsfortheprojectduringit.Bythetimemanycompaniesreachthemiddleofimplementation,concernsaboutbenefits,budgets,andROIcalculationsseem tohavelittlerelevance.But,asIhopeyouallbelievebynow,ESimplementationisnotagoalinitself.Companiesputinthesesystemsbecauseofthebusiness changestheyenableandbecauseofthefinancialbenefitstheywill(eventually,anyway)makepossible.Stepstakenduringimplementationarecriticalfoundationsfor theultimatevalueanorganizationreceivesfromtheentireproject.Ifyoulosesightofthegoalduringimplementation,youmayneverachieveit. InthischapterI'lltalkaboutanumberofdifferentissuesthatanorganizationneedstoconsiderwhileimplementinganES.Therearealargenumberoftopicsinvolved inthisdiscussion,noneofwhichIhavethespacetoaddressingreatdetail.Ifit'sanycomfort,therearebooksfocusingonESimplementation,

Page170

whichusuallyaddressthespecificsofinstallingparticulartypesofESsoftware.Myfocusinthischapterwillbeontheprocessesandapproachesthathelptoensure thatvalueisachieved.Ofcourse,asI'vearguedthroughoutthisbook,companiesneedtobethinkingaboutvaluebeforeandafterimplementationaswell.Becauseof themanydistractionsduringimplementation,however,I'llstressthetopicevenmoreinthischapter. I'lladmitherethatsomeaspectsofahighqualityESimplementationaresimplygoodprojectmanagement.Othersarechestnutsofbusinessandorganizationalchange ofanytype.Intheinterestofcompleteness,I'llhavetomentionsomeimplementationtacticsandprojectmanagementapproachesthatseemlikecommonsense. However,I'lltrytofocusontheESspecificaspectsofsuchstrategies. TheModelforImplementationThinking Tosucceedwithimplementation,acompanyneedsamodelforhowtheimplementationwillworkatahighlevel.SinceESprojectsaremoreextensivethanother systemsprojectsandinvolvehigherlevelsoftechnicalandbusinessriskthanmostsystems,it'snotreallyagoodideatoviewESprojectsinthesamelightasotherIT initiatives.Onealternative,forexample,istoviewESprojectsasiftheywerenewbusinessventures.AnotheristoviewanESprojectinthecontextofamuch broaderbusinesschangeprogram.Thesearenotmutuallyexclusiveperspectives,althoughIwilldiscusseachseparatelyhere. Inarecentworkingpaper,RobAustinandDickNolan,professorsatHarvardBusinessSchool,arguedthatit'samistaketoviewanESimplementationasjust anothersystemsorcapitalexpenditureproject.ThenatureofESactivity,theyargue,isnotwellsuitedtotraditionalprojectmanagementtechniques."ITsystems management,withitsemphasisonexhaustiverequirementsdefinitionanddetailedplanning,hasneverworkedthatwellonthelargeITprojectsitwasdesignedforand issimplynotarealisticbasisformanagingthehighandmulti

Page171

dimensionaluncertaintyinvolvedinERP."1 (ERPis,asyouwillknowifyouwerepayingattentioninchapter1,anotheracronymforESs.) Asanalternativetotraditionalprojectmanagement,AustinandNolanarguethattheappropriatestyleofmanagementforESprojectsissimilartothatinmanaging newbusinessventures.TakingaventureorientedapproachtoanESproject,forexample,wouldinvolvedividingtheimplementationintostagessothatthenecessary capitalcanbecommittedpiecemealovertime.Venturearrangementsinvolvegivingparticipantssubstantialincentivestobesuccessful,andsharingthefinancialrisk andrewardsbroadly.AustinandNolanalsoarguethatanyventurecapitalistplacesaverystrongemphasisonthepeopleinvolvedinthecompanyaventureoriented ESprojectwoulddothesame. IagreeinmostrespectswithAustinandNolan'sidea.Theyareundoubtedlycorrectinanycaseabouttheshortcomingsoftraditionalsystemsprojectmanagement, andtheuncertaintiesaboutriskandbenefitinESprojectsdoseemconducivetoventurestylemanagement.Myonlyconcerniswiththeissueofstaging.AsIdiscuss laterinthischapter,stagingisappropriateaslongasitdoesn'thinderthedevelopmentofcrossfunctionalintegration. AnotheroverallmodelforimplementationinvolvesviewinganESprojectinthecontextofabroadbusinesschangeinvolvingnotonlyimplementationofanES,but alsochangesinorganizationalstructure,businessprocesses,andcultureandbehaviors.AsI'venoted,anycompanyimplementinganESfacesachoicebetween maximizingeithersystemsoroverallbusinesschange.Focusingsolelyongettingthesysteminstalledwillyieldamorerapid,controllableimplementation,butyou'llbe leavingalotofpotentialbusinesschangeonthetable.Althoughthejuryisstilloutonthefeasibilityoftheselargescalechanges,mostoftheresearchinthisarea suggeststhatcompaniesthatcombinebusinessandsystemschangessimultaneouslydobetterthanthosethatputsystemsinwithoutchanginganythingelse.2

Page172

Animplementationinvolvingmajorbusinesschangewillfeelremarkablydifferentfromonefocusingoninstallingsystemsalone.Thenumberofpeopleandbusiness functionsinvolved,theamountoforganizationalcommunications,andtherolesofseniorexecutivesareallsubstantiallyincreasedoverasystemsonlyeffort.Ideally, thechangeswillinvolvenotonlyinternalactivities,butalsoimprovementsinproductandservicestrategies.Mostoftheorganizationwillneedtobeawareofwhat's goingon,becauseyou'llbelookingforchangesinbehaviorandworkprocesses.It'sprobablyagoodideatorollouttheusualcommunicationsapparatusforsuch changes,includingacatchyprojectname,visionstatements,slogans,memos,videotapes,CEObroadcasts,andsoforth.Seniorexecutivesofmanyfunctionsneedto beonboardinregardtothechanges,sincethey'llhavetosponsoranddirectthebusinesschangeaspectsoftheinitiative.Businesschangesofthismagnitudeshould certainlybereviewedwiththecompany'sboardofdirectors,andmayevenbediscussedwithexternalanalysts.Afterall,thegoalistoimproveperformance,which analystsaresupposedtocareabout. OwensCorning'sAdvantage2000programisoneexampleofsuchabroadbusinessinitiative.TheinternalchangesI'vedescribedinpreviouschaptersweretiedtoan externalstrategyinvolvingbuyingbuildingmaterialsnotindividually,butasacoherentsystem("SystemThinking").Thenewproductstrategytookadvantageofthe ESenabledabilitytoconfigurebuildingmaterialsolutionsacrossproductsandcompanyfunctions.CocaCola'sProjectInfinityisanotherexample,involvingnotonly puttinginanewES,butalsocreatingtighterorganizationalandinformationallinkageswithbottlingcompanies. Thesebroadchangeprogramsusuallyrequireseveralyearstocometofruition,andarerarelysuccessfulineveryrespect.Likeanyotherbroadchangeprogram, you'reluckyifyouaccomplishagoodchunkoftheobjectives.Someofthemostimportantsuccessfactorsfortheseprogramsareexpectationmanagementandlong termjourneymanagement.Theseracesarenotwonbytheswiftestormostboastful.AlthoughI'vejust

Page173

endorsedabroadpatternofcommunicationsforthesebroadprogramsinwhichESinitiativesareembedded,it'susefulnottosaytoomuchabouttheseprogramsto peoplewhowon'tactuallybeaffectedbythem. TheImplementationPlan Youwon'tbesurprisedtohearthatforanefforttypicallycostingtensorhundredsofmillionsofdollars(orpounds,euros,yen,orwhatever)andthousandsofperson monthsofeffort,anorganizationneedsagoodplantoimplementtheprojectwell.Oneofthemostimportantissuesinplanningisthedecisionabouthowmuchofthe corporationtotakeonatoncewithyourESimplementation(figure61).Thetwoextremesinthisregardaretheincrementalandbigbangapproaches,witha phasedrolloutinthemiddle.Asyoumightguess,anincrementalapproachimplementsthesystemandassociatedbusiness

Figure61 ImplementationOptions

Page174

changeinsmallpiecesabigbangapproachinvolvesimplementingeverythingatonce.Aphasedrolloutimplementseithersomefunctionalityonabroadscope,orfull functionalityonanarrowscope.Ifyouhavethecapacitytohandlelotsofsimultaneouschange,thephasescanbeundertakeninparallel,withdesignandcoordination attheenterpriselevel. Idon'trecommendfullyincrementalimplementations.Theytakeaverylongtimeandtendtobeveryexpensive.Unlessthereisastrongneedtoexamineeachpartof thebusinesswithextremecarebeforeimplementation,theincrementalapproachinvolvestoomuchanalysisofdifferencesbetweengeographicalandbusinessunits.At alargechemicalcompany,forexample,anESwasimplementeddifferentlyforeachcombinationofgeography,businessfunction,andproductbasedbusinessunit. Theprojectmanagercalledtheprocess"battlingcubebycube,"referringtothethreedimensionalnatureofthethreefactorsinvolved.Theimplementationtookover tenyearstocomplete(althoughthefirmwasadmittedlyanearlyadopterofthesoftware,whichaddedtime)andcosthundredsofmillionsofdollars. Phasinginlarger,moreconcurrentchunksisamorereasonableapproachabettercompromisebetweenspeedofimplementationandthedifficultyofundertaking ESenabledchange.Phasingmaybeundertakenalongseveraldifferentdimensions: Geographicalphasing.TheassumptionhereisthatnotallgeographicallocationswithinacompanyneedtohavetheirESimplementedatthesametime.Thelogic ofphasingmaybetoimplementthemostimportantlocationsfirst,ortheleastimportantifthecompanyisworriedaboutimplementationrisks.Conoco,forexample, starteditsESimplementationinEurope,whereprocessesweresimplerandthebusinessingeneralmuchsmallerthanintheUnitedStates.HomeDepot,thebuilding materialsretailchain,isimplementingitsESinoutofthewayplaces(Argentina,forexample)firstinordertogetthebugsoutoftheimplementationandchange process.

Page175

Processphasing.Somebusinessprocessesaremoreimportantthanotherstothesuccessofthebusiness.OneESphasingstrategyistoimplementcoreprocesses firstandancillaryoneslater.Itdoesnotnormallymakemuchsense,however,toimplementsomecoreprocessesandnotothers,sinceaprimaryreasontoemployan ESinthefirstplaceistoachieveintegrationacrossbusinessprocessesandfunctions.Feworganizations,forexample,shouldimplementanenterprisesystem's financialmodulewithoutitsmanufacturingandorderprocessingmodules.Suchphasingcanbedone,butitdefeatstheoverallpurposeandvalueofthetechnology. Businessunitphasing.Somebusinessunitsaremorecentralorisolatedthanothers.Itmaybeusefultobeginanimplementationinaunitthatisrelativelysmallor noncoretothemainbusiness.Onelargepharmaceuticalfirm,forexample,decidedtoimplementanewESfirstinasmallmedicaldiagnosticequipmentbusinessunit, ratherthanstartingtheESworkinthecoredrugbusiness.Ifforbusinessreasonsanorganizationdecidestostartinacoreunit,itmightbenefitfromfocusingallefforts thereandleavingancillaryunitsforlateron. Bigbangimplementationsinvolvehighriskandhighreward.Arapidbigbanggetsthesysteminplacequickly,thusdeliveringitsbenefitsquickly.Perhapstherapid implementationisneededtomeetbusinessorsystemdeadlines,forexample,aYear2000problem.Bigbangimplementationsmaycostlessbecauseconsultantsor internalsystemspeoplespendlesstimeontheprojecthowever,thecostsareincurredinashorttime.Businesschangesmaybeminimizedsimplybecausethereisn't timetomakethem(althoughthisisn'tnecessarilyabenefit,itcanbeundersomecircumstances).Thus,ifyourprimarygoalwithanESisensuringthatbusiness changesareachieved,beawarethatafastbigbangapproachcansometimesleadtofocusingongettingthesysteminandworking,withotherobjectivesbeing forgotten.

Page176

Bigbangprojectsarealsothemostlikelytoleadtoproblemswhenthesystemisturnedon.ArecentstudyofESimplementationsnoted,forexample,thatmanyfirms suffersomesortof''performancedip"shortlyafterimplementingtheirsystem.3 Thestudydoesn'tcommentontheimplementationapproachesofthesecompanies,but Iwouldguessthattheyweredisproportionatelylikelytouseabigbangapproach.It'ssimplytoodifficulttoanticipatealloftheproblemsandchangesinvolvedinan implementationwheneverythingischangingatonce. Forexample,atADec,anOregonmanufacturerofdentalequipment,abigbangcutovertoaBaansystemin1997ledtomorethanayearofperformance problems.4 Thecompanycouldn'tprocessitsorders,manufactureproducts,orshiptocustomers."Welostalotofbusiness,"saidthecompany'schiefinformation officer.Workershadtoworkaroundthesystembecausetheydidn'tunderstandit,andtheinitialperformancedidn'tmeetthecompany'srequirements.Afteralong adjustmentperiod,thecompanyisnowgettingsubstantialbenefitsfromitssystem. Aphasedrolloutgivestheorganizationtimetoadjusttothesystemandthechangesitbringstimeforconfiguringthesystemtofittheorganization,timefortesting, timefortraining,andsoforth.Itallowslateradopterstolearnfromearlierones.Itdoesn'trisktheabilitytotakeorders,issuepayrollchecks,orfinishtheannual reportontime.Itallowsforplentyofbusinesschangeperhapstoomuchinsomeorganizations.Asnotedpreviously,aphasedrolloutallowstheorganizationto stagetheinvestmentandriskovertime,whichisalmostalwayspreferable. Theoverallmessagehereisthatphasingisdesirableifyourcompanyororganizationcanaffordtheincreasedtimeitmaytaketoachievefullimplementation.Of course,therearesomedropdeadissuesthatmaymakebigbangapproachesnecessarytheYear2000problemwassuchanissueformanycompanies.Evenin suchcases,however,it'susuallyimportantandbeneficialtolimitscopeorsystemchangesasmuchaspossibleandtofocusonmakingdecisionsrapidly.

Page177

I'vearguedthatimplementationscanbeincremental,phased,orbigbang.InactualESprojects,however,thechoicesareseldomasdefinitiveasthesetermsimply therearemanyintermediatepositionsbetweentheextremes.Acompanymaychoosearelativelyslowrolloutofsomefunctionality,andabigbangimplementationof otherfeatures.Differentpartsofthecompanymayhavedifferentimplementationschedules.Hardlyanyfirm'simplementationcanbecharacterizedastotallyinone categoryoranother. AtBayNetworks,forexample,theimplementationteamconsciouslytookahybridapproachinordertocombinearapidimplementationwithrelativelylowrisk.They mixedbusinessunitphasinginsomeunitswithprocessphasinginothers.Becausethecompany'sCaliforniamanufacturingplantwasgrowingrapidlyandalreadyhad somesophisticatedsystems,itwasn'tincludedatallinPhase1oftheimplementationproject.Ordermanagementinrelativelystandalonesubsidiarieswasalsoputoff untilPhase2.Theprojectmanagerdescribedtheprocessasfollows:"Weimplementedfinancialsworldwide.Wedidaglobaldeploymentonsome(butnotall) modules.Inaddition,atsomesites,weimplementedallthemodules."5 TimingofImplementation TheoverallissueofhowlonganEStakestoinstallisamongthemostcontroversialtopicsinthefield.Iarguedinchapter1thatthetimedimensionisoneofthetwo mostcriticalfactorsinplanningyourapproachtoimplementation.Inthemid1990s,manyfirmsfoundthattheirimplementationswerestretchingoutforseveralyears, andcomplainedtotheirESvendorsandconsultants.Inresponse,thevendorsintroducedmarketingandimplementationapproachesemphasizingspeedofinstallation (e.g.,SAPASAP,OracleExpress).Consultingorganizationsdevelopedindustrytemplatesforprocessdesignsandsystemssettingsthatmadesystemconfiguration mucheasier.

Page178

Asaresultofthese"improvements,"vendorshavearguedwithsomecredibilitythatimplementationcycleshavebeenshortened.Pressreleasesaboundwithstoriesof fullESimplementationinsixtoninemonths.It'struethatgoinglivecanhappeninamatterofmonths,butthesystemistypicallynotcompleteorcrossfunctional.It's alsotruethatarapidimplementationprecludesthepossibilityofasystemthat'scloselyconfiguredtoacompany'sidiosyncraticwaysofdoingbusiness.Perhapsmost important,anextremelyfastimplementationlimitstheabilitytoachievesubstantialbusinesschange. Iworkedwithmanycompaniesduringthereengineeringeraofthemid1990s,andIknowit'simpossibletoredesignandfullyimplementnewcrossfunctional processesinafewmonths.ThedesignofprocessestakesevenlongerwhentheyhavetobesynchronizedwithanES.Neworganizationalstructureshavetobe developed.Inaddition,workershavetobetrainedonnewprocesses,andnewrolesandresponsibilitieshavetobeclearlyestablishedbeforeyou'rereadytodo businessinthenewway.Inshort,formajorbusinesschangeacrossmultipleprocessesandESmodules,we'retalkingyears,notmonths.Inmyview,it'simportantnot tosettleforsystemschangejustbecauseit'savailablequickly.ThekeyvalueofESsisthebusinesschangestheyenable.Thatsaid,asenseofurgencyisalso important.It'seasytospendyearsinvestigatingallthepossibilitiesthatESsenable,andonlysomeoftheinvestigationsreallyaddbusinessvalue. TherearewaystospeedupanESprojectwithoutsacrificingbusinesschange.Forexample,amajorfactorinprojectlengthishowquicklydecisionsaremade.Much timeinESprojectsisspentdecidingonvariousthings(bigandlittleissues),andalongerdecisioncycleisnotalwaysassociatedwithabetterdecision.Companiescan setapolicythatdecisionsaboutconfigurationoranyothermatterwillberesolvedinaspecifiedtimeadayortwo,perhaps.Managerscanalsodecideonan escalationpathforadecision:Ifafrontlinegroupcan'tdecide,whogetstheissuenext?

Page179

AtBayNetworks,projectmanagersresolvedallissuesbytheendofeachweek.Theydealtwiththescopeissuebyissuing"IOUs"tomanagersanddepartments whowerediscoveredduringtheprojecttohavevalidneedsforfunctionality,butwhoserequestswereturneddownbecauseaddingsuchfunctionalitywoulddelaythe projectunacceptably.Someobligationswererepaidinthefirstphaseoftheproject,butmostweredelayeduntilthesecond. It'sparticularlyimportanttomakedecisionsquicklyupfront,atthebeginningofaproject.Ondecisionssuchasselectingapackagevendororaconsultant,thetime scaleisoftenmuchmoreleisurelythanlateronintheproject.Thetimeforthewholeprojectiswhatmatters,thoughit'softenjustthetimeactuallyspentinstalling softwarethatcompaniestrytoaccelerate. ItisimportanttoinstillasenseofurgencyamongmembersofESimplementationteamsandseniorexecutives.Compensationandotherrewardsshouldbetiedto finishingtheprojectontime,alongwiththeaccomplishmentofbusinesschangeobjectives.Scopechangesshouldbelimitedwheneverpossible.Whenanewtaskis added,anoldoneshouldbetakenaway.Withnosenseofurgencyandlimits,theprojectcoulddragonforadecade. CiscoSystemsprovidesagoodexampleofacompanythatexcelledatputtingitsESinquickly,althoughitwasinthecontextofatechnical,ratherthanstrategic, implementationapproach.6 Thecompany'smanagersaccomplishedaninemonthimplementation.Ciscofacedsubstantialtimepressureintheformofalegacysystem thatwasalreadygivingittrouble(infact,itconvenientlydiedonthedaythattheESproposalwaspresentedtotheboard).Afactorinemphasizingsystemschange overbusinesschangewasthatCisconeededtheunderlyingtransactionsystemsinplacebeforebeingabletooffercustomersdirectWebaccesstoorderingand supplychainprocesses. Theprojectwasabigbangapproach,withallsystemsandprocessesbeingimplementedatonce.Theprojectmanagernoted:

Page180 Iknewwewantedtodothisquickly.Wewerenotgoingtodoaphasedimplementation,wewoulddoitallatonce.Wewerenotgoingtoallowalotofcustomizationeither. ThereisatendencyinMRPsystems[thepredecessortoESs]forpeopletowantthesystemtomirrortheirmethodofoperationinsteadofretrainingpeopletodothingstheway thesystemintendedthem.Thistakesalotlonger.7

TheCiscoteamspentseventyfivedayschoosingapackageinthefirstplace(fastcomparedwithmanyfirms,butslowcomparedwiththelengthoftheoverall project),andonlytwodaysdevelopinganinitialconfigurationofitschosenOraclesystem.Theimplementationtimeframewasdrivenlargelybytheneedtoimplement beforethefourthquarterofCisco'sfinancialyear,whenfinancialresultswerereportedandsubstantialamountsofproductshipped. Theimplementationteamusedaseriesofconferenceroompilots,inwhichthesystemandprocesseswerediscussedandprototypedonpaper.Eachpilotrefinedthe prototypesfurthertocreateabetterfitwithCisco'srequirements.Evenwhentheearlypilotsrevealedthatthesystemwouldhavetobemodifiedtomeetsomeofthe company'sbusinessrequirements,theschedulewaspreserved.Modificationswerelimitedasmuchaspossibletheyhadtogototheproject'ssteeringcommitteefor approval. Therapidschedulealsoledtoaproblematiccutovertothenewsystem.Asthecompany'schiefinformationofficerputit:

[Aftercutover]Iwouldn'tsaythatthecompanyhitthewall,butIwouldsaywehadmajordaytodaychallengesthatneededtobesolvedquicklytoavoidsignificantimpact tothecompany.Forexample,ourontimeship[percentage],shippingonthedatewecommittothecustomer,fellfrom95%toabout75%[]itwasstillnotmiserablebutit wasnotgood.8

Thisisanexampleofhowabigbangapproachcanbemorelikelytoleadtoproblemsafterimplementation.Inthiscase,anumberofthingswentwrongforexample, thehardwarecho

Page181

senforthesystemcouldnotinitiallyhandlethetransactionvolume.Ciscoeventuallyrecoveredfromtheseproblems,butabitmoretimeduringimplementationmight haveavoidedtheproblemsaltogether. Preimplementation:CreatinganOrganizationalStructure TheimplementationofanESissosignificantaneventthatitrequirestheestablishmentofitsownorganizationalstructure.Acadreofspecializedrolesmustbecreated toensurenotonlythattheprojectiscompletedsuccessfully,butalsothatitachievessignificantbusinessvalue.Eachofthekeyrolesisdescribedinthefollowing subsections.Ofcourse,it'snotamatteroffillingtheslotswithjustanyone.SuccessfulimplementersofESsystemsalwayspointtoparticularlytalentedindividualsand theirpersonalcontributionstotheprojectasfactorsintheirsuccess. ExecutiveSponsor Enterprisesystemprojectsalmostalwaysrequireaseniorbusinessexecutivetobetheexecutivesponsorfortheproject.Thesweepingnatureofthebusinesschanges, thehighcostsofthesystemimplementation,andtheimportanceoftheprojectstothelongtermsuccessoftheorganizationalljustifytheactiveleadershipofasenior manager.PlacingaseniorbusinessexecutiveintheroleofsponsorratherthanachiefinformationofficerorotherseniorITmanagerconveysthemessagethatanES projectisabusinessinitiative,notmerelyatechnologyproject. Theexecutivesponsorshouldbedrawnfromtheprimarypartoftheorganizationinwhichthesystemwillbeimplemented,thatis,fromthesamedivisionorbusiness unit.Sponsorsaremostfrequently,inmyexperience,chiefexecutives(who,accordingtosurveyresults,aremostlikelytofeelthatthey'reincharge),chieffinancialor operationsofficers,andoccasionallysuchotherrolesasvicepresidentsoflogistics,customerservice,andsales.Thechoiceofasponsorshould

Page182

bebasednotonlyonwhichfunctionalareaismostaffected,butalsoonwhichexecutivesaremostcomfortablewithinformationtechnologyandwhich(ifany)havea historyofeffectivelymanaginglarge,systemsorientedprojectstosuccessfulcompletion. Therolesoftheexecutivesponsorincludethefollowing(illustratedbyquotesorexamplesfromthechieffinancialofficerofInFocusSystems,whosponsoredan OracleESprojectatthemanufacturerofvideoprojectors):9 Relatethesystemtotheoverallstrategyofthecompany.("[B]eingabletolearnfasterthananybodyelse.") Communicatethevalueandimportanceoftheprojecttotherestoftheorganization.("Wecloselymanagedtheprojectwithalotofhelp,alotofbannerwaving, andmonthlymeetingsoftheseniorstaff.") Developandadvertiseperformanceimprovementobjectives.(Reductioninoperatingexpensesfrom30percentofrevenueto18percentgainmarketshare.) Enforcetheinevitabilityofthesystemandrelatedprocesses.("Thistooliscomingyouwilluseitoryoucangosomewhereelse.") Createnecessaryorganizationalchanges.(Anew"superuser"position.) Ensurethattheimplementationproceedsonschedule.(Emphasizedcompletedimplementationoveraddingmorefunctionality.) TheexecutivesponsorshouldalsotaketheleadineducatingotherseniorexecutivesabouttheESprojectandtheirrolesinbringingaboutthedesiredbusinesschange. Somefirmshaveorganizedsuchexecutiveparticipationinaformalsteeringcommitteeothersusemoreinformalmeansofparticipation.Whatsuccessfulprojectsdo haveincommon,however,isahighlevel

Page183

ofparticipationandunderstandingbytheseniormanagementteam. AtUnionCarbide,forexample,theprojectsponsorandleaderconvenedaseriesofmeetingsofthefirm'stoptwentymanagersoverthelifeofthecompany'sSAP project.Thegoalofthemeetingswastoacquaintexecutiveswiththekindsoforganizationalandbusinesschangesthatwouldaccompanyimplementationofthe company'sES.SomemembersofthegroupvisitedothercompaniesthatwerealreadyachievingsuccessintheirESprojects.Foreachmajorbusinessprocessofthe firm,theexecutivesconsideredwhatkindsofhighlevelmodelswerepossibleandmostfeasible.Theyalsoaddressedhowmuchglobalcommonalitywasnecessaryin eachprocessandhowdecisionsaboutprocessandinformationflowswouldbemade.Theemphasisthroughoutthesemeetings,andintheprojectmorebroadly,was thattheeffectiveimplementationofthesystemwastheresponsibilityoftheentiremanagementteam,notjusttheITfunctionortheexecutivesponsor. ProjectLeaderorManager Becauseoftheirsizeandcomplexity,ESsareredefiningthenatureofprojectmanagement.Innootherdomainofbusinessaretheresomanydifficult,intertwined issueswithregardtobusiness,technological,andorganizationalchange.Enterprisesystemprojectleadersatonemomentwillhavetodealwithhighlycomplexand detailedissuesoftransactionvolumes,andatthenextwillhavetoaddresshighlevelchangesinorganizationalstructureandculture. Someorganizationsfeelthatnoonepersoncandealwithsuchvariety,andthereforenameseveralprojectleaders.AtMonsanto,forexample,thecompany'sES projecthasabusinessandprocesschangeleader,atechnologyleader,andanoverallprojectmanager.It'sparticularlyimportantthatallleadershaveafamiliarityand comfortwithinformationtechnology,eventhoughtheoverallgoalsarebusinessrelated.Toachievethose

Page184

businessgoals,theyalsoneedtohaveastrongbusinessbackgroundandcredibilitywiththefirm'sbusinessleaders. OnearticledescribedtheidealESprojectmanagerasacombinationtechnologist,businessexpert,drillsergeant,motivationalspeaker,politician,andpsychologist. Thefirstseveralrolesmaybeselfevidentsomeofthelatteronesmayneedexplaining.Thepoliticianisnecessarybecauseoftheneedtomediateamongthemany differentgroupswhoareaffectedbyanES.Justaspoliticiansneedtomakeaseriesofdealstogetaroadoraschoolbuilt,ESprojectleaderswillalsohaveto constructmanybackroomdealstogetthesysteminsuccessfully("I'llconfigurethesystemthewayyouwantifyou'llgivemethreeofyourbestpeopletohelpwith theimplementation").Theywillalso,however,havetoworkthe"frontroom"andarticulateaswouldamotivationalspeakertheoverallprinciplesormaximsby whichthesystemisbeingjustifiedandputinplace.Atanymomenttheremaybeatensionbetweenupfrontprinciplesandbackroomdealmaking. Thepsychologistaspectoftheprojectleaderroleisnecessarytomanagetheexpectationsoftheorganizationconcerningthesystemandbusinesschangesbeing implemented.ExpectationsareinevitablyhighforwhatanESprojectwillaccomplishbecauseofthecostandtimeinvolved.Theprojectleadershould"underpromise andoverdeliver,"accordingtoseveralorganizationsIinterviewed.10Thisistrueinmanyprojects,butparticularlyimportantinESs.Theprojectleadershouldalso attempttocommunicatethelinkagesandthedifferencesbetweenthebusinesschangesandthesystemschangesintheproject,asthatwillundoubtedlybeasourceof confusion. ProcessOwners AsIargueinchapter5,ESsareprocessoriented,butbythemselvestheydon'tmakeanentireorganizationprocessoriented.Akeychangethatanorganizationmust gothrough,andakeyaspectoftheorganizationalstructureforESimplementation,is

Page185

toestablishprocessownershiproles.SeveralorganizationshavetoldmethatthiswasoneofthemostdifficultchangestheywentthroughintheirentireESjourneys. Thedifficultyisrelatedtotheentrenchednatureofexistingorganizationalarrangementsbasedonbusinessfunctionsanddepartments.Althoughafulldiscussionof processownershipisbeyondthescopeofthisbook(IrecommendMichaelHammer'sbookBeyondReengineering,11whichhasachapteronthetopic),Iwill discussithereinthecontextofESimplementation. WhyareprocessownersnecessaryduringESimplementation?Somebodyhastotakeresponsibilityforhowtheprocessfitswiththesystem.Shouldrevenuebe creditedtoproductgroupsorgeographies?Askthefinancialprocessowner.Howaboutinventory:Whenwillitbecountedasofficiallybelongingtothecustomer whenit'sshipped,orwhenitarrives?Agoodquestionforthesupplychainprocessowner.ThedesignofbusinessprocessesbyprocessownersinanESenvironment isn'texactlyacleansheetofpaperexercise,butthereareclearlydecisionstobemade.Iftherearenoprocessownerstomakethem,acompanywillspendalotof timehashingoutdecisionsthatcutacrossfunctionallinesnoparticularfunctionalmanagerwillbewellpositionedtomakethem. WhatkindofpersonmakesagoodESenabledprocessowner?Duringimplementation,itdoesn'thavetobesomeonewithexperienceinmanagingalargegroupof people.UnlessanorganizationhasadoptedprocessmanagementwellbeforeimplementingitsES,processownershipisarelativelysolitaryactivity.During implementation,whatmattersmorethanpeopleskillsisbusinessdesignskillstheabilitytogatherdata,analyzealternatives,andseethebigpicture.Atthisstage, processownersshouldbeopentoallpossibilitiesinprocessdesign.Iftheyownanexistingsetofpeopleandactivities,theymaybelesslikelytosupportradical changesintheprocess. Afterimplementation,ofcourse,itmakessenseforthepeoplewhoperformaprocesstoreporttotheprocessowner(thoughtherearemanycontraryexamples),and thenpeople

Page186

managementskillsmatteralotmore.It'snotunreasonabletothinkaboutchangingprocessownersafterthesystemhasbeenimplemented.Processownershipcanbe aparttimeroleduringimplementation,buttheprocessownersshouldhaveatleasthalfoftheirtimetoperformit.Onepitfalltoavoidinvolvesensuringthatprocess ownershipdoesn'tconflictwithmanagementofabusinessfunction(e.g.,themanufacturingmanagerbeingputinchargeoftheordermanagementprocess).First, runningafunctionshouldbeafulltimejobsecond,afunctionalmanagermayfinditdifficulttomakeobjectivedecisionsabouthowacrossfunctionalprocessshould work. SuperUsers OneESimplementationrolethatisnotwidelyknowninothercontextsisthatofsuperusers.Thesearetypicallymiddlelevelemployeesormanagersfromthe businessfunctionsordepartmentsthatwillbeaffectedbytheESproject.Theirroleduringimplementationistodeterminehowthesystemwillaffecttheirparticular partoftheorganization,recommendsystemconfigurationanddesigndetails,serveas''typical"usersduringtestingandpilotingofthesystem,andtrainotherswho havejobssimilartotheirown.Whenthesystemisactuallyturnedonintheorganizationandusagebegins,superuserswillbeperhapsthemostcriticalemployeesin thefirmformakingthenewsystemsandprocesseswork. Withsuchanimportantresponsibility,thesesuperusersneedtobereallysuper,thatis,thebestperformersinthefunctionsanddepartmentstheyrepresent.High performerswillnotonlydoabetterjobofgettingthesystemimplementedeffectively,butcanalsohelpsellthesystemanditsbusinessimpactstotheircoworkers.By definition,thehighperformingsuperusersareinveryshortsupplyandareimportanttotheirorganizationsinperformingtheirexistingjobs.Thisisoftenasourceof straininorganizations:Onereasonmanagers

Page187

resentESprojectsisthattheylosetheirbestpeopletothem.C'estlavie. TherearenoindustryguidelinesastohowmanysuperusersaprojectneedsI'veseenfromfourorfivetomorethanahundredonasingleproject.Thenumber shouldbedrivenbythediversityofbusinessfunctionsandorganizationsthatwillbeaffectedbythesystem.Ifadepartmentisn'trepresentedbyasuperuseronthe project,chancesaregoodthatsomethingintheimplementationwillgoawry.Thissetshouldinclude,asIargueinchapter7,representativesofthemanagement functionthosewhowillhelpfigureouthowtousetheEStomanagethebusinessbetter. Whathappenstosuperusersafterimplementation?Youprobablyrealizebynowthatthereisnosuchthingas"after"implementation.Superusersmaynotbeableto gobacktotheirnonESrolesquiteasearlyasyouortheywouldhope.They'llstillbeneededtoreconfigurethesystemandprocessovertime,toanswerdifficult system/processquestionsintheirareasofexpertise,andtooptimizetheperformanceofthenewbusinessprocesses.Still,they'reevenmorecriticaltothecompanyin theirnewroles.TheyknowhowtogetatalltheinformationinanES,andtheyunderstandindetailhowworkflowsthroughtheorganization.Whocouldbemore valuable?Companiesmayhavetodevelopnewfasttrackcareerpathsfortheseindividualsovertimeyoucanbetthatheadhuntersandotherfirmswillappreciate them. TheVisionandPlanningTeam Theimplementationeffortisdividedintotwocategories:avisionandplanningteam,andoneormoreimplementationteams.Thevisionandplanningteam,which shouldincludeindividualswithhighlevelbusinessandtechnologyskills,determinestheoverallfitbetweentheESandtheorganization.Theteam'sdeliberationsmay determinethewaythecompanywill

Page188

workinthefuture.It'sanimportantresponsibility,andhencerequiresveryhighqualitypeople. Theteamwillbebusy.Itshouldbeprimarilyresponsibleforgeneratinginsightsaboutsuchthingsasthefollowing: Theoveralltimeframefortheproject Theprimarycategoriesofbenefitandvalue Howthefirmwantstobeorganizedrelativetothesystem Howkeyprocessesaresupposedtobestructuredandflow Howcommonkeyprocessesandinformationareacrosstheorganization HowtheESenabledorganizationwillleadtoabettercompetitivestrategyandposition HowthechangesfromtheESshouldbephasedovertimeandoverbusinessunitsandprocesses Howmuchthesystemwillbemodifiedtofitidiosyncraticprocesses Ifthisteamhassufficienttechnicalskills,itcanalsoselecttheESpackagethattheorganizationwillinstall.Anditisevenmorereasonableforthevisionandplanning teamtodecidewhichimplementationpartnerorconsultantthecompanywillworkwith.Aftertheconsultantischosen,somehighlevelconsultantsmaybecome membersofthevisionandplanningteam.It'sbestifthevisionandplanningteamisfulltime,butit'spossibletodootherwise.Unlessit'sareallyhugeimplementation, tenorsomembersshouldbesufficient. TheImplementationTeams ThepeoplewhoactuallydotheworkinESimplementationprojectsareontheimplementationteams.Well,creatingvisionsandplansisworktoo,butnotdetailed work,whichiswhattheimplementationteamswillhavetoaddress.Detailedprocess

Page189

designs,detailedsystemconfigurationswitches,detailedtrainingplansallofthesearetheprovinceofimplementationteams. Implementationteamsneedtobefulltime,andtheyneedtobesubstantiallylargerthanthevisionteam.Someverylargeimplementationsinvolveseveralhundred membersspreadovertensofteams.Ihaveheardcomplaintsthatteamswithmorethantwentymembersbecomeunwieldy.Thealternativeistocreateseparateteams foreachbusinessunitormajorprocessinvolvedintheimplementation. Somemembersofthevisionteamshouldcrossovertotheimplementationteamssothatthefundamentalprinciplesofprocessandsystemdesignarepreservedand monitored.Otherwise,it'scommonfortheemphasiswithinthevisionteamtobeonbusinessobjectives,whereaswithintheimplementationteamsitisexclusivelyon gettingthesystemin. TheRoleoftheITOrganization Acompany'sinhouseITorganizationcanplayseveraldifferentrolesduringimplementation.Perhapstheleastdesirableoptionisforittoplaynoroleatall.Some companiesturnoveralltheESworktooutsiders,presumingthatinternalITpeoplearebusywithsupportingexistingsystems,orthattheydon'thaveESexpertise. Bothofthesesuppositionsmaybecorrect,buttheycanberemedied.TraininginESskillsiswidelyavailable.Andit'spossibletooutsourcesupportoftheexistingIT environment,asI'lldescribelaterinthischapter.RelyingtotallyonoutsiderstoimplementanEScondemnsanorganizationtoalifetimeofdependenceandisarguably unfairtocurrentITemployees. MostorganizationsemployamixoftheirownITpeople,internalpeoplefromnonITbusinessfunctions,andexternalconsultants.Informationtechnologypeoplemay playconfigurationroles,inwhichtheymoveclosetothebusinessfunctionsthey'reconfiguringandmayevenjointhosefunctionsafterimplementation.Theymaybe technicalspecialists,designingtheITarchitectureonwhichtheESwillrunandtuningthe

Page190

performanceofthesystem.Thisroleisalsoneededafterimplementation.Ineithercase,theITpeoplewillhavetobeableandwillingtoacquirenewskillsquickly. Theoretically,adoptionofanESmeansthatcompanieswilleventuallyneedfewerITpeople.Iemphasize"theoretically"and"eventually."Onesemiconductorfirm,for example,estimatedthat60percentofitsITpeoplewereperformingtasksthatwouldbereplacedbythefunctionalityinitsES.Allofthe60percentandmore arestillthere,eitherworkingontheESimplementationoronothersystems.InonlyoneorganizationhaveIfoundactualreductionsinITpersonnelafteranES project.NotonlydoESprojectsrequirelongtermsupport,butcompaniesarealsocontinuallyexpandingnonESapplications,suchasWebpages,salesforceand customerservicesystems,andpersonalcomputingtools.BecarefulbeforeyoujustifyyourESinvestmentonthebasisofsavingsinITpersonnel. GettingGoodPeople Regardlessofhowyoustructureyourvariousteams,you'regoingtohavedifficultyfindingenoughreallygoodpeopletostaffyourproject.Idon'thaveanygood answerstothisproblemIjustwantyoutoexpectdifficulty.Theonlysolutionissacrifice:movingyourbestpeopleontotheprojectteam,payingalottogetandkeep thebest,hiringexpensiveconsultants.Theskillstochangeeverythingatonceandsucceeddon'tcomecheaply. EnterpriseSystemsTechnologyChoices EvenafteranESvendorhasbeenselected,anorganizationisnotfinishedwithregardtotechnologychoices.OnekeychoiceiswhethertoemployasingleES packageoravarietyofsystemslinkedtogetherinanenterprisesolution.Enterprisesystemprojectsoftenonemightevensay"usually"involvearangeofsoftware programsinadditiontotheESpackage.Infact,acom

Page191

montermforthefutureofESsoftwareisportfolioassembly,inwhichfirmswillpulltogetherawidevarietyofprogramswithESmodulesasthecoreorbackbone. EveryfirmimplementinganEShastothinkabouthowtomeettheentireorganization'sneeds,andwhatpercentageofthoseneedswillbeencompassedbythebasic ESpackage(figure62).Somenecessarysystemsfunctionalitywon'tbecoveredatallbyanavailablepackageorapplication(thewhitespaceatthetopofthe figure),forcingfirmstoeitherdevelopthecapabilitythemselvesordowithout.Obviously,basicESpackageswillincludealargechunkoffunctionalityfromwhichthe organizationcanbenefit.However,itmaynotchoosetoadoptalloftheavailablefunctions.Someperfectlygoodlegacysystemswithintheorganizationmayalready dothejob(theblocksoffunctionalityatthebottomofthefigure).InsuchcasesitmaybeeasiertointerfacetheexistingsystemwiththeESpackagethantomake usersgothroughthechangeofanewsystem(thoughbuildingsuchinterfacesisn'teasyeither).Inothercases,anorganizationmayfeelthatathirdpartyvendor's solutionisbetterthananythingofferedbytheprimaryESvendor.Theremaybeconsiderableoverlapbetweenthethirdvendor'sofferingandthatoftheESvendor,or theremaybelittleornone.Assuggestedbythe

Figure62

Page192

blocksinfigure62,theoverlapmaybedeeporshallow,narroworbroad. WhattheorganizationmustdoduringimplementationistodecideamongtheseoptionsbasicESpackagealone,orsupplementedwithlegacyapplicationsandthird partyboltons.Asyoumayhaveguessedbynowifyou'vepaidattention,thechoiceshouldbedrivenbybusinessfactors,nottechnologicalones.Ifyou'reputtingin anESprimarilytotakecareofcommodityapplications,youshouldgenerallygowithastraightforwardESpackageinstallationandavoidthesupplementalsystems wheneverpossible.Thegoalinsuchcircumstancesisnottooptimizefunctionality,butrathertomeetbasicneedsasquicklyandinexpensivelyaspossible. If,however,thegoalistouseanEStosupportakeybusinessobjectiveandachievecompetitiveadvantage,ahybridmixofanESpackage,boltonthirdparty systems,andyourbestlegacysystemsislikelytobeagoodbet.Let'sassumethatyou'reinterestedinwinningwithexcellenceinsupplychaindesignandexecution. Perhapsyouhaveaconfigurationsystemthat'salreadybetterthananythinganESvendorcanprovide.Furthermore,someofthesupplychainplanningand optimizationsystemsavailablefromthirdpartyvendorsseemlikejusttheticket.Avanillaimplementationofabasicpackageisn'tgoingtogiveyoutheadvanced functionalityyouneedtoeffectivelycompeteonthisbasis.Similarly,ifyourgoalistouseanEStobebetteratfinancialriskmanagementthananyotherfirminyour industry,itstandstoreasonthatyou'llbedissatisfiedwithastandardsystem.Therearefinancialanalysisandreportingsystemsfromthirdpartyvendorsthatyou'lljust havetohave. Ofcourse,workingwiththirdpartyandlegacysystemsraisestheanteabitonyourESproject.Itmeansthatyouhavetospendtimeandenergydecidingwhatto keepandwhattothrowaway,aswellasevaluatingthestrengthsandweaknessesofavarietyofthirdpartyapplications.Inaddition,buildinginterfacesbetweenyour ESandthirdpartyorlegacysystemsisnotgoingtobeeasy,regardlessofwhatyourITpeopleorven

Page193

dorexperttellsyou.Butthen,beingthebestatanythinghasneverbeeneasy. BuildingtheITInfrastructure TherearemanyotherfacetsoftheITinfrastructurethathavetobebulkedupbeforeanEScanbeinstalled.Thiscantakeplacethroughouttheprocessof implementation,butitshouldallbereadybeforegoinglive,andevensubstantiallybeforethatforpurposesoftesting.Formostfirms,anESwillbethelargestand mostcomplexclient/serverapplicationtheyhaveeverhad.Someofthetechnicalcomponentstoconsiderareasfollows: Somewhatobviously,beefyserversandclientPCswillbeneededfortheentireuserpopulation(foralargeorganization,we'retalkingmanymillionsofdollarsfor these). CommunicationsnetworkswillprobablyhavetobeimprovedsothatonlineaccesswillbeavailabletotheESfromaroundtheglobe. Thehumansideoftechnicalcapabilitieswillrequiresubstantialimprovement,includingoperations,maintenance,andtechnicalsupportandhelpdeskofferings. Akeytechnicalissueinvolveshowmanydifferentinstances,orseparateversions,ofthesystemtoinstall.Thedecisionhasbothtechnicalandbusinessimplications. Technically,themoreinstancesinstalled,thegreaterthecomplexityandcost.AlthoughESvendorsaremakingitincreasinglyfeasibletointegrateinformationacross severaldifferentinstancesofthesamepackageandevendifferentpackagesit'sstillmorecomplexthanasinglesystem. Fromabusinessperspective,multiplesysteminstancesmakeitmucheasiertoletindividualbusinessorgeographicalunitshavetheirowninformationenvironments.If it'sdeterminedthatabusinessunitdoesn'tneedtobetightlyintegratedwiththerestofthebusiness(perhapsithassubstantiallydifferentcustomers

Page194

andbusinessprocesses,ormaybeit'sgoingtobedivestedsoon),it'softenagoodideatogiveititsowninstanceofthesystem.Evenwithaseparateinstanceinsome units,it'sstillpossibletoexchangeinformationthat'scommonforexample,financialinformationforthegeneralledgeracrossseparateinstances.AsIdescribedin chapter4,thisESenabledinformationenvironmentcanbecalledfederalist,andis,inmyview,wellsuitedtomanylargeWesterncorporationsdespiteitstechnical complexity. Fromabusinessvaluestandpoint,however,theonlypurposeofmosttechnicalcapabilitiesistosupportthesoftware,sotheyshouldneverbecometheprimaryfocus oftheproject.Servers,PCs,andcommunicationsnetworksarerapidlybecomingcommodityproductsandservices,soit'snotnecessarytospendsubstantial amountsoftimeselectingthem.It'snotuncommon,andoftenagoodideainmyview,forcompaniestooutsourceaspectsofthetechnicalenvironmenttofreeup humanandfinancialresourcesforother,morebusinessrelatedconcerns. OwensCorning,forexample,outsourcednotitsnewESenvironment,butratheritsoldlegacysystemsanddatacenteroperationstoHewlettPackard.Theideawas toallowallofthefirm'stechnicalresourcestobefocusedongettingthenewsystemin.DowCorning(whichhasnothingincommonwithOwensCorningnowother thanpartofitsname)decidedtooutsourcetheinstallationandmaintenanceofallthedesktopworkstationsinvolvedinitsESeffort.12 FinancialManagementandBusinessChangeTargets Asyouknowbynow,alotoffinancialdecisionmakingisnecessarytodeterminewhetheranESmakessenseforyourorganization.Atthepointofimplementation, you'vealreadydecidedtodothisthing,soagonizingoverthecostdoesn'thelpmuch.However,duringimplementationanorganizationneedsanotherlayeroffinancial analysisthatwillmonitorthespendinglevels

Page195

andlaythegroundworkforthetypeandamountsofbusinessvalueitreceivesfromtheESproject.Thisiswhereongoingcostsandbenefitsarecalculated,andactual benefitsbegintoberealized.Thetypesofactivitiesduringimplementationincludeputtingafinancialandbenefitinfrastructureinplace,determininghowthebenefitswill beachievedovertimeandhowtomeasurethem,andthinkingabouthowtostructureandmotivateactualachievementofthebenefits. Puttinganinfrastructureinplaceforfinancialanalysisandbenefitmanagementisprimarilyaboutrolesanddisciplines.Foralargeimplementation(say,onecosting$50 millionormore,orgreaterthan2percentofayear'srevenuesforasmallormidsizefirm),it'sworthdedicatingsomeonefulltimetofinancialandvaluemanagement throughouttheproject.Theroleofthisindividualincludesmonitoringexpendituresforsoftware,hardware,andconsulting(perhapsincludingnegotiatingcontractsfor these)continuallyrebudgetingcostsand,mostimportant,calculatingbenefitsandensuringthattheyarerealized. Financialdisciplineintheorganizationdrivesthislatterissueofbenefitrealization.It'seasytoenumeratebenefitsonacostvs.benefitanalysis,butactuallyachieving themisanothermatteraltogether.AsnotedearlierinthesectiononmanaginganESasanewbusinessventure,ithelpsifallpartiesinvolvedhavesomestakeinthe game.TheentireseniorexecutiveteamshouldhavebonusestiedtotheachievementofESbenefits(andthisshouldnotendwhenthesystemgoeslive,butcontinueas ongoingbenefitsareachieved).AtFujitsuMicroelectronics,forexample,25percentoftheexecutiveteam'scompensationwastiedtoaccomplishingESprocessand financialperformancegoals.ItisalsousuallyagoodideatocreateperformanceincentivesforESaffectedmiddlemanagers,projectteammembers,andeven consultants.Ofcourse,ifperformanceimprovementsaretobemeasured,someonemustgatherbaselineperformancemetricsbeforethesystemisimplemented,orno beforevs.aftercomparisonscanbemade.Evenconsultantscanbemotivatedthroughbonusesbasedontheachievementofbenefits,although

Page196

careshouldbetakennottoevaluatethemonfactorstheycan'tcontrol. Thebusinesscaseshouldnotbeshelfware,butshouldbereviewedandrevised(ifnecessary)onafrequentperhapsmonthlybasis.Costswillchangeasthescope varies,asproblemsarise,andasbusinesschangesleadtosystemschanges.Perhapsmoreimportant,thebenefitswillchangeregularly.Newaspectsofthesystem andtheprocessesitsupportswillcomeonline.Promisedbenefitswillnotactuallymaterializeunexpectedsourcesofvaluewillemerge.Frequentmonitoringofcosts andbenefits,andbroadcommunicationsabouttheresults,willspurtheorganizationanditsemployeestoachieveitsgoals. Theinabilitytofullyspecifybenefitsinadvanceisaprimaryreasonforemployingarealoptionsapproachtofinancingtheproject.Idiscussedthisapproachbrieflyin chapter3,butit'sworthanothermentionherebecauseofitsrelationshiptobenefitmanagementduringimplementation.Therealoptionsapproachassumesthatbenefit willbeevaluatedatregularintervalsforfundingofthenextstageoftheproject.Eachstageisviewedasbuyinganoptiontolearnmoreaboutthesystemanditsfitwith thebusiness.Althoughdetaileddiscussionofrealoptionsisbeyondthescopeofthebook(andbeyondthescopeofmyfinanceknowledge),Ibelieveitislikelythat manyfirmswilleventuallyadoptthisastheirapproachtofinancinganESproject. ImplementationComponents AdetaileddescriptionoftheentireimplementationprocesswouldhavetovarybythetypeofESbeinginstalled.However,itmaybeusefultodescribesomeofthe keystepsintheprocess,particularlythosethathaveanimportantrelationshiptoachievingbusinessvalue.Inthefollowingdiscussion,I'massumingthatthepackage andrelatedsystemcomponentshavebeenadopted,theITinfrastructureisbeingbuilt,andtheorganizationalandfinancialinfrastructureisbeingcreated.

Page197

Configuration TheprocessofconfiguringtheESisattheheartoftheimplementationprocess.It'swherethesystemisconfiguredtofitthebusiness,andthebusinessis simultaneouslyconfiguredtofitthesystem.It'sthepointinanESprojectatwhichsomeverydifficultdecisionsneedtobemadeabouthowthebusinesswantsto structureitselfandusethesystemtoadvanceitsbusinessobjectives.Italkabouttheconfigurationprocessinsomedetailinchapter5regardingbusinessprocesses andinformationissues. Thekeypointtomakehereisthatitjustdoesn'tmakesensetoshortchangetheprocessofconfigurationifyouwanttogetanybusinessvalueoutofyoursystem. Unlessyourorganizationishugelypressedfortime,it'sabadideatosimplyassume,forexample,thatallprocessesshouldbesupportedbyanoutoftheboxsystem. NodifferentiationinESs,nodifferentiationin(keyaspectsof)businessstrategy.Gettingthesysteminstalledquicklyisimportant,butafullyimplementedsystemwith nobusinessvaluehas...well,nobusinessvalue. InterfaceDevelopment AsubstantialportionofimplementationtimeisgoingtobeoccupiedwithbuildinginterfacesbetweentheESandexistingsystemsofvarioustypes.Thedetailsofthis activityarenotthatgermanetothisbook.Whatisimportanttoemphasizeisthatcertaininterfacesprovidemorebusinessvaluethanothersandshouldbethefocusof earlyeffortstobuild.Forexample,interfacestotheoutsideworldcustomers,suppliers,andchannelpartnerswhethertheyareInternetbasedorusesomeother meansofaccess,allowtheorganizationtobeginusingitsEStomakemoneyandbuildthetoplinethroughincreasedsales.Toomanyorganizationsputoffexternal interfacesuntilafterallthemoreprosaicinternalonesarecompleted. Thesamepointcanbemadeaboutinterfacestoreportingandanalysissystems.Manyfirmsfeelthattheyhavetogetalltheirbasictransactioninformationinperfect shapebefore

Page198

addressinginterfacestoanalyticalcapabilities.YetmanagingthebusinessbetterisakeyreasonforputtinginanESinthefirstplace.Sointerfacestodatawarehouses, decisionsupportsystems,andqueryandreportingtoolsshouldnotwaituntiltheendofaproject. AtBayNetworks(nowNortelNetworks),forexample,theideaofexternalandanalyticalinterfaceswasincludedintheearlydesignandworkofitsESproject. LettingusersbeabletogeneratetheirownqueriesagainstSAPdatawasviewedasakeycomponentofthenewsystem'svalue.Norteldevelopedan''Information Warehouse"withsuchinformationasbookings,unshippedorderbacklogs,andshipmentstatus.SoonaftertheESwasinstalled,managerscouldanalyzesalesby productlineorgeography,andcouldunderstandtheeffectsofpromotionsoralternativechannels. Similarly,NortelmanagersfeltfromthebeginningthatitwasimportanttoallowcustomerandpartneraccesstothesystemfromtheInternet.Theimplementation projectincludeddevelopmentofanelectroniccommercedatabasethatcouldbeaccessedthroughtheWeb.Accordingtothecompany'schiefinformationofficerat thetime:

Electroniccommerceisabigpieceofourlongtermstrategy.Customerscancheckorderstatus,downloadtheirbacklogintospreadsheets,seewhosignedforadelivered product.Thedataisnevermorethanadayold,andwe'reworkingtowardrealtimetransactions.13

PartnerscanaccessNortel'sSAPdatawhetherornottheyhaveSAPthemselvesalltheyneedisabrowser. DataStandardizationandConversion ThedatatopopulateanewEScomesprimarilyfromoldsystems.It'srarelythecasethatinformationcanbeeasilymovedfromtheformatsanddefinitionsofone systemtoanotherconsiderablecleaning,matching,reformatting,andupdatingisgen

Page199

erallyrequired.ManycompaniesunderestimatethetimeandeffortthisrequiresnumerousESprojectshavebeenslowedbecausetheorganizationdidn'tdevote sufficientresourcesoradvanceplanningtodataconversion.Fortunately,thereareexternalcontractorsthatcanhelpwiththetask. Asinotherareas,however,it'simportantnottosacrificebusinessvalueforexpediencyindataconversion.Theremaybevalidreasonswhytheinformationcannotbe rationalizedasmuchasatechnologistmightdesire.Forexample,supposethatadiligentdataconverterfindsthatoneparticularlyfussybusinessunithastwoaddress fieldsforeachcustomer."Strikeonedown,"therationalistcries.Butwaitperhapsthecustomerthatpaysthebillforthisunit'sproductsandservicesisnottheone thatreceivestheshipment.Perhapsthecompanyhasitsvendorsshipdirectlytoitsdistributors.Beforemovingquicklytodeleteseeminglyirrationaldata,it'sworth askingthosewhocreateditinthefirstplace. TestingandPerformanceManagement Youneedalotoftestingandperformancemanagement.Enterprisesystemsinvolveunfamiliarsoftwareandhardwaretechnology,andit'simpossibletoanticipateall wrinklesandproblems.Mostimportant,you'retestingnotjustasystem,butawayofdoingbusiness.Ifinsufficienttestingmeantthatyourcompanycan'ttakeorders ordealwithitssuppliers,somebodyimportantwillprobablynotice.Sohowdoyoudotherequisitetestingandperformancemanagement?What,I'msupposedto knoweverything?Thisiswhattechnicalpeoplearefor. Prototyping It'sbeensaidthatthebestwaytofullyunderstandanESistoactuallyimplementone.Doingasmallscaleprototypeisanincrediblyusefulwaytolearnaboutthe systeminthecontextofyourbusiness.Lessonslearnedinaprototypeareusefulin

Page200

pursuingbroaderimplementations,andbecausemistakesaremadeonasmallscalethey'relikelytobelesscostly.Doingaprototypefirstisalsoagoodmeansof increasingtheaccuracyofbudgetsandplansforalargescaleproject.Inmostcases,you'llwanttopickapartofthebusinessforprototypingthat'srelativelysmall, simple,andselfcontained.Itshouldn'tbesofarremovedfromthemainstreamofthebusinessthatpeoplewillhavedifficultylearningfromit(i.e.,forgetthatsubsidiary intheBahamas). DowCorningdiditsprototypeimplementationinitsrubbersupplychainprocessintheUnitedKingdom.Twentyfivemembersoftheglobalimplementationteam wenttheretoeducatemanagersandexplainnewprocessflows.Focusingcarefullyonsomeoftheoldprocesses(whichhadn'tbeentheteam'splan,buttheyfound outabouttheminmeetingswithstaffmembers)acquaintedtheteamwithsomekeyissuestotakeintoaccountinthenewprocesses,accordingtotheproject's "customerfocus"teamleader:

Wedidn'tknowthatthepersoncarryingthetitleofproductionsupervisorwasdoingprocurement,planning,andscheduling.Wehadnocluewhatelsethispersonwasdoing. Wedidn'tknowtheirrolesintheirpreviousenvironmentandwewerenotpreparedtotellmanagementthatthesearethejobsthatthesepeoplearedoing,thisishowthese jobsareevolvingwiththenewworkflows.Andthathasbeenabottleneck.14

Thisquoteillustratestheimportanceofafirsthandlookatexistingprocesses(andfirsthanddiscussionswiththosewhoperformthem)beforeimplementingnewones. Thebestwaytoacquirethisfirsthandknowledgeisofteninaprototype. ImplementationKnowledgeManagement You'lllearnalotaboutESsandhowtoinstalltheminthecourseofaproject.Thequestionis,willyourememberwhatyoulearned,andapplytheknowledgelater? Mostlargeorgani

Page201

zationswillinstallanESmorethanonce.AsIrecommendedearlier,forexample,theymightdoaprototypeprojectandthenalargereffort.Theymayalsohavea phasingapproachthatimplementsthesameESpackagemultipletimesacrossdifferentbusinessunitsandgeographies.Thepointofmanagingimplementation knowledgeistocapturethelessonslearnedfromearlyinstallationsandapplythemtolaterones.Evenifyouthinkyou'llneverdothisagain,youmaybewrongyour companymayacquireanothercompany,forexamplesoit'sagoodideatocapturetheknowledgefromyourprojectanyway. I'mnotgoingtogointothedetailsofknowledgemanagementhere.15Sufficeittosaythatallthegeneralprinciplesofknowledgemanagementapply.Youneed knowledgemanagers,aknowledgeorientedculture,processesforcapturing,maintaining,anddistributingtheknowledge,andknowledgeorientedtechnology.Your consultingfirmmaybewillingtogiveyousomeoftheirownknowledgeregardingESimplementationthatthey'vecapturedinarepository,butthatshouldn'tprevent youfromcapturingandapplyingknowledgethat'sspecifictoyourownfirm. ThefirstorganizationIobservedthatwasmanagingESimplementationknowledgewasHewlettPackard.Thecompany'sTestsandMeasurementsOrganization(now movingtobecomingaseparatecompany)wasinstallingSAPandhadestablishedpeople,processes,andtechnologiesforanSAPImplementationKnowledgeBase.I commendedthemanageroftheeffort,notingthatmanyotherbusinessunitsatHPplannedtoimplementthesamesoftware,andthattheywouldsurelybenefitfromthe KnowledgeBase.Shereplied,however,thatthepurposeofthisinitiativewastousetheknowledgewithinherdivision,andnotshareitelsewhere.Ishouldn'thave beensurprised,sinceIknewthatHPhadastrongorientationtodivisionalautonomy.Still,Ibelievethatthemorewidelyknowledgecanbesharedwithinacompany (onESimplementationoranyothertopic),thebetter.

Page203

7 TransformingthePracticeofManagementwithEnterpriseSystems
Whencompaniesviewenterprisesystemprojectsastechnologyprojectsratherthanbusinesschangeinitiatives,theymakeseveralkeymistakes.Oneerror,asI've mentioned,isthattheydon'tfocussufficientlyontheprocess,organizational,andstrategicchangesthatshouldaccompanythesystemimplementation.Second,they viewtheprojectasendingwhenthesystemisturnedon,whichgreatlylimitstheirabilitytoachievebenefit.Third,theyviewtheoutputofthesystemasasetof informationtransactions,anddonottakeadvantageoftheinformationtomanagethebusinessdifferently.Correctingthisthirdmistakeismyprimaryaiminthis chapter,thoughIwillalsodiscussthesecondproblem. Enterprisesystemsdoagoodjobofautomatingmanybusinesstransactions,fromtakingorderstopayingsupplierstochanginghumanresourcesbenefitsstatus.There is,however,anothersetofpotentialbenefitsfromESsthathavenotbeenasfullyexploited.Enterprisesystemsoftwareand,moreimportant,informationalsomake possibletheimprovementandeven

Page204

thetransformationofmanagementandreportingprocesses.TheinformationsuppliedbyESisglobalinscope,deliveredinrealtime,andstructuredaroundcross functionalbusinessprocesses.Formostorganizationsitisundoubtedlythemostcomprehensive,highqualityinformationonwhatishappeningintheirbusinessesthat theyhaveeverpossessed.Thequestionis,Whatdotheydowithit? Iaskedthisquestionofmorethanfiftyfirmsina1998researchstudyofhowcompaniesuseSAPinformation.1 Mostrespondents,however,hadlittleornothingto sayontheissueeithertheyhadn'tthoughtaboutthetopicatallortheywerenotfarenoughalonginimplementationtofeelthattheyreallyhadanewsourceof information.Thisconvincedmethattheoverallfrequencyofaddressingtheissueislow,andthatwhencompaniesdothinkabouttheissue,theyarelikelytodosolate intheprocessofimplementation. Still,IwasabletofindfourteencompaniesthathadmadesomeefforttouseESinformationasatooltobettermanagetheirbusinesses,andI'vediscoveredafew moresincethecompletionofthissurvey.ThecompanieswereallrelativelyfaralongintheirSAPimplementations(withatleastasubstantialpartofthebusinesslive withoneormoreESmodules)andagreedtodescribethemwithregardtoinformationuseandmanagementprocesses.Thefourteenfirmsaregenerallyrelatively advancedandsophisticatedwithregardtoinformationuseissuescomparedwiththeaveragecompanyimplementinganES.Thecompaniesincludedinthestudyare listedintable71.2
Table71 CompaniesIncludedintheSAPSurvey

GeorgiaPacific Intel Microsoft Monsanto OwensCorning RockwellInternational UnionCarbide

AllegianceHealthcare AmeradaHess Autodesk DEKALBGenetics DowChemical ElfAtochem FujitsuMicroelectronics

Page205

KeyResearchFindings Thekeyfindingsoftheresearchstudyaredescribedinbriefinthefollowinglist,andtheningreaterdetailthroughoutthechapter.Attheendofthechapter,Ipresenta modelthatembodiesthesefindingsinanoverallapproachfortransformingmanagementwithESinformation. AlthoughmanyorganizationsjustifiedtheirimplementationofanESonthebasisofbetterdecisionmakingandmanagementprocesses,fewhaveyettakenfull advantageoftheinformationprovidedbythesystem. ImprovementofmanagementanddecisionmakingwithanESmaybeasecondorlaterphaseofworkwiththesystem,afterbasictransactionalprocesseshave beenputinplaceandsubstantiallycommoninformationhasbeenachieved. Thosewhoaremakingprogresshavedonesofromthebottomup,withimprovementofdaytodayoperationaldecisionmaking. TheprimaryinformationbenefitsfromanESrealizedthusfarhavegenerallyinvolvedproducingsimilarinformationcontentwithlesstimeandhumaneffort. AfewcompanieshavedesignednewmeasurementandreportingsystemsarounddatafromtheirES. SomefirmshavebeguntoachievemeasurablebusinessimprovementsfrombetteruseofESinformation,notablybyreducingmanagementpersonnellevels. AsistrueofotherkeyfunctionsofESs,akeydivideinimplementingnewmanagerialcapabilitiesiswhethertotaketheESpackage'sreportingapproachesinto accountwhendesigningnewmanagementprocessesortostartwithacleanslate. EffectiveuseofESinformationtomanagethebusinessrequiresasetoforganizationalfactorstobepresentin

Page206

additiontothetechnologicalcapabilitiesthatmostfirmsacknowledge. EvenafterESinformationisusedtomakeadecision,otherfactorsmustbepresenttoensurethattheorganizationactuallytakesactionandgetsresults. ManagementeducationandmanagerialsuperusersmaybeveryhelpfulintheeffectiveimplementationofESinformationuse,thoughtheyhavebeenrarelydeployed thusfar. IfyouwouldliketotakeadvantageofthemanagerialbenefitsthatcanbederivedfromanES,viewuseofthesesystemsnotasaprojectwithadefinedendbut ratherasanongoingwayoflife. TheImportanceofESEnabledInformationTransformation WeknowthatmanycompaniesarealreadygettingsubstantialbenefitsfromthetransactionalinformationinanES.Forreasonsofopportunityandmanagement pressure,itisimportantthatfirmstakeadvantageoftheinformationpotentialofESsformanagementpurposes.Almosteveryrespondentinmyinitialstudy,for example,indicatedthattheyjustifiedtheiradoptionofSAPpartiallyonthebasisofimprovedmanagementinformation.Soonerorlater,managerswillaskwhetherthat promisehasbeenfulfilled.Twofirmsreportedthatseniorexecutiveswerebeginningtoaskabouttheadvertisedimprovementsininformationonerespondentwhose companyhadnotyetadoptedmajorchangesinmanagementinformationnotedthathisCEOhadcommented,"We'respendingallthismoneyforthesame information?" ThereisnoreasonwhythepotentialfromESsforchangesinmanagementprocessesperformancereportingandmonitoring,stakeholdercommunications,managing relationshipswithcustomersshouldnotbetakenjustasseriouslyastheopportunitiesforoperationalprocessimprovements.ESsuppliedinfor

Page207

mationcanleadtofasterandbetterdecisionmaking,lowermanagementheadcounts,andlowercostsforinformationreporting.TouseanEStogeneratethesame reportsasthoseprovidedbylegacysystems,asseveralcompaniesreportedwastheircase"Andtrytogetthemtolookthesametoo,wouldyou?"isawasteof businesscapability. TheCurrentState Asthepreviousdiscussionsuggests,thecurrentstateofESenabledinformationtransformationinmostfirmssurveyedisnotaprettysight.ManyofthefirmsI contacted,someofwhichwererelativelyadvancedintheirimplementations,hadnotyetbegunsubstantialtransformationsofinformationreportingandmeasurement processes.Somearguedthattheycouldnotbeginchangesintheseareasuntilotherbuildingblockswereputinplacefirstgettingthesystemfullyinstalled,making changesinbasicoperationalprocesses,andgettingcommonmasterdata,forexample.Onemanagercolorfullystatedthattoaddressreportingissuesbefore transactionswouldbelike"buyingwineandturningonsoftmusicbeforeyouhaveadate." Therefore,usingESdataforpurposesotherthancompletingbasicbusinesstransactionsisoftenseenasasecondorevenlaterstageintheeffectiveimplementationof thepackage.Certainlyitisunlikelythatchangesinreportinganddecisionmakingwouldbepossiblebeforethesystemisinstalled.Andbecauseinthelate1990smany companieswereattemptingtoimplementESsquicklybecauseofYear2000problems,reportingandbetterinformationfordecisionmakingwouldn'thavebeenfirst ontheirminds.Indeed,oneofthemostadvancedcompaniesinthisstudywasjustgoingliveinitslastgeographicalregionthecompany'soverallimplementation processtookalmostadecade,andtheydidn'tseriouslyaddressreportingandmeasurementwithSAPdatauntilabouttheseventhyearoftheproject.Time,then,is animportantfactorinmanagingbetterwithESinformation.

Page208

Thosefirmsthathadbeguntransformationsintheiruseofinformationweredoingsofromthebottom,oratleastthemiddle,up.Employeeswithinparticularfunctional areas,suchasproductionplanning,customerservice,andaccountingandfinance,werethemostlikelygrouptobeusingtheESinformationtomakedailyoperational decisions.Managerswhowereclosesttoaparticularprocessortransactiontypeforexample,availabletopromiseinventorywerethemostlikelytohave,andbe using,reportsaboutthatareaofthebusiness. SeniorgeneralmanagerswereleastlikelytohaveextensiveinformationfromESpackages.Thiscouldpresentaprobleminthatitisthesemanagerswhomaybemost consciousofthecostandresourceconsumptionofanESproject.Iftheyareamongthelasttoseeinformationbenefits,theirpatiencecouldwearthin.Ihavetoadmit thatthusfar,however,therehasbeenlittledemandfromseniormanagersforbetterinformationornewESenabledmanagementprocesses.AtDowChemical,where sophisticatedreportingsystemsandnewperformancemeasureshavebeendeveloped,seniorexecutivesstillrelylargelyonmiddlemanagersforadhocanalysesand reports,thoughmanyhavebeentrainedintheuseofthesystemthemselves. AfewcompaniesareredesigningtheiroperationalandfinancialmeasurementsystemsaroundthecapabilitiesofSAPorotherESpackages,butmostofthe companiesinterviewedwereapparentlycontentwiththeirexistingmeasuresandmeasurementprocesses.Mostofthecompanieswereusingthesameinformation contentintheirreportsastheydidbeforeimplementinganES,eitherbydesignorbydefault.Mostrespondentsalsoreportedthatthereisrelativelypoorawarenessof whatinformationisavailablethroughtheirESandofhowtogetit.Althoughtheconceptofbestpracticesisclearlyunderstoodwithregardtoapackage'ssupportof transactionalbusinessprocesses,thecompaniessurveyeddidnotseemawareofbestpracticesinESenabledreportingandinformationuse. Thereissomegoodnews,however.Thelowrateofchangesinmeasurementsystemsdesigndoesnotmeanthatthesecompa

Page209

niesreceivednobenefitfromtheirESswithregardtoreportingandinformationuse.Thecontentandtheprocessdesignformeasurementandreportingmaynothave changed,buttheprocessperformancedid.Thatis,theprimaryinformationbenefitsfromESsthusfarinvolveefficiencyininformationaccessandproduction.The sameinformationisnowmoreeasilyavailable,isdeliveredthroughamoreautomatedprocess,andisfurnishedmorequickly.Mostcompaniesreportedthat heretoforemanagementreportingwasahaphazard,laborintensiveprocesswithmanyhandoffsnowitfunctionsmuchmoresmoothlyandefficiently.Maybethat's worththepriceofadmission. Onecommonexampleofthistypeofchangewasimprovementsinfinancialclosingprocessesclosingsattwocompaniesthatpreviouslytooktendays,forexample, arenowdoneinfour.AtCiscoSystems,enterprisefinancialsystemscanbeusedtodoa''virtualclose"everydayifdesired.Afinancialclosingisonthecusp betweenatransactionalprocessandamanagerialprocess.Thesechangesandbenefitsaresomewhatevolutionarythusfarandcouldleadtomajortransformations overtime. TheBenefitsofESEnabledManagementTransformation WhywouldacompanybemotivatedtoadoptchangesinhowitmanagesthebusinesswithanES?Thebenefitsfromtransformingorimprovingmanagement processescanbedifficulttodocument,sincemostorganizationsdonothavemeasuresorevenstructuredprocessesformanagementactivity.Insomecases,however, thebenefitsareobviousandmeasurable. Perhapsthemostmeasurableofalltypesofbenefitsarethoseinvolvingreductionsinmanagementpersonnel.Severalorganizationsareenvisioningsuchreductions somehavealreadyaccomplishedthem.Mostofthereportsofthesebenefitsareanecdotalratherthansystematic.Forexample,atoneMonsantoplant,nineoffifteen accountantswerenolongerneededwhenaccountingprocessesweremadecommonandmovedto

Page210

thecorporatelevel.Overall,thecompanyeliminatedabout40percentofitsaccountingstaffbyimplementinganESenabledsharedservicesorganization.Amerada HessandElfAtochemalsoreportedmeasurablebenefitsfrompersonnelreductionsorredeploymentsthesesavingswereamongthebenefitsusedtojustifythe adoptionoftheirSAPsystemsinthefirstplace,andwerecloselymeasuredandreportedinternally. Otherbenefitsaremeasurableinprinciple,butthecompaniesIstudiedwerelesslikelytomeasuretheminpractice.Thiscategoryofbenefitsincludesthe rationalizationofreportingprocesses.Smootherdataflows,lessdatacomplexity,andfewerhandoffsofmanagementdatacouldleadtosavingsoftimeandcost,but noneofthecompaniesinthisstudythatreportedsuchimprovementshadmeasuredthesavingsthusfar.Microsoftfinancialmanagersdidreportthattheeasy availabilityofgooddatafromitsSAPESsystemhaseasedconsiderablytheadhocreportingburdenfortheirfinanceorganizationuserscannowgettheirown reports.Whileit'sdifficulttoknowhowmuchtimeandmoneyweredevotedtocentralizedreporting,it'sundoubtedlyabenefitforthefinancegroup.The decentralizedcosts,however,areevenmoredifficulttomeasure. Anotherimportantbutdifficulttomeasurebenefitinvolvestakingaprocessorientedviewoftheorganization,orabroadglobalview.OwensCorning,forexample,is relyingonitsEStosupplyinformationaboutitsbusinessprocesses.Amanagertherecitedtheexampleofglobalsourcingasanewprocessthatwouldbeimpossible toadministerwithoutbetterdatafromitsES.Thenewglobalsourcingorganizationcansavemoneybymonitoringworldwideinventorylevelsmoreclosely,negotiating morefavorableworldwidecontracts,andavoidingdisposalcostsforoverpurchasedcommodities.Ofcourse,justputtingtheESindoesn'tensureaprocess orientation,butitdoesmakeitpossible. Perhapsthemostdifficultbenefitstomeasureinvolvebetterdecisionmaking.Mostcompaniestodaydonotrigorouslyassesstheeconomicimpactsofevenmajor decisions,anditis

Page211

unlikelythattheywillstartwhenESdataisusedindecisionmakingprocesses.Buttherecanbelittledoubtthatthemorecomprehensiveandtimelydataavailable fromanEScanleadtobetterdecisionsacrossallsortsofbusinessprocesses.Infact,severalcompaniesinthisstudyreportedexamplesofimproveddecisionmaking. FujitsuMicroelectronics,forexample,discoveredthroughanalysisofitsSAPdatathatitsdistributorchannelsweremoreprofitablethanitsdirectchannels,and decidedtoputadditionalresourcesandattentionintodistributorsales.AmeradaHessfoundthatbecausedataonthevalueofparticularoilwellscouldbeobtained muchmorequickly,itsmanagerscouldmakebetterdecisionsaboutinvestmentsinthem.Theseareonlytwoexamplesofwhatwillpresumablybemanyinstancesof improveddecisionmakingduetoESs. TheProcessforReportingandMeasurementChange PerhapsthemostimportantaspectoftheprocessusedbyorganizationsingettingvaluefromESinformationisthatforthemostparttherewasnoconsciousprocess. "UsingESinformationmoreeffectively"wasrarelythefocusofaspecificproject,taskforce,orimplementationstep.Further,noexecutivewasgenerallyinchargeof achievingsuchobjectives.Thetwomostprominentexceptions,atOwensCorningandDowChemical,wereledbyaprocessmanagementorganizationanda strategicplanninggroup,respectively.Microsoft,whichwasalsosomethingofanexception,hadaninitiativeledbythecontroller'sorganization.Inmostothercases, theideaofmanagingdifferentlywithESinformationwasunplannedandoccurredonlyfromthebottomup.Perhapsotherorganizationswillcreateformalprojectsas theyapproachcompletionoftheirimplementations,particularlynowthattheYear2000issuehascomeandgone. I'vearguedthroughoutthisbookthatafundamentalquestionfororganizationsiswhethertoenvisiontheirbasicbusiness

Page212

processesasacleansheetofpaperorrathertostartwiththecapabilitiesofanESasadesignconstraint.Thesamequestionpresentsitselfwithregardtoreporting andmeasurementprocesseswithESs.Althoughnoneofthecompaniesinthisstudycalledtheiranalysisofreportingprocesses"reengineering,"itisclearthatnew informationprocessesandstructuresarenecessary.Shouldcompaniesthendesigntheirmeasurementsystemsandprocesseswithregardtowhatiseasytodowithan ES,orshouldtheydesignmeasures,reports,andinformationflowswithoutanyconstraints,reconcilingtheirdesiredapproachwithanESonlylater? Thecompaniesresearchedwereroughlyevenlysplitonthisissue.UnionCarbide,forexample,isstartingitsthinkingabouttheissuewithSAP'sreportingand measurementcapabilitiesinmindMonsanto,ontheotherhand,beganitsfocusontheissuebythinkingaboutthebestpossiblemeasurementandreportingsystem. OnemeansofensuringthatafreshapproachwillbetakentotheproblemistoeliminateallpreviouslyexistingreportsthisapproachwastakenbyFujitsu Microelectronicsmanagers.Ifreportingstructuresarenotchanged,companiesmayfindthemselvesseekingoldinformationinlegacysystemsthattheyhadhopedto abandon,astwocompaniesreported.BecausemostmajorESvendorsarecurrentlyenhancingtheirreportingandanalysiscapabilities,itmaybemorereasonablein thefuturetostartwithwhatthesystemmakeseasytodo. Anotherkeyissueinreportingandmeasurementchangeinvolvesthecreationandtimingofrelatedorganizationalchanges.Intwodifferentrespectsorganizations pointedouttheneedfororganizationalchangesbeforeESbasedreportingandmeasurementprocessescouldbecomeeffective.Oneaspectoftheproblemdealswith theeliminationofmanagersandprofessionalsinvolvedinthereportingprocess.SeveralfirmshadadoptedanESwiththegoalofreducingheadcountinmeasurement andreportingprocesses.Twoofthesefirms,MonsantoandAmeradaHess,pointedouttheneedtomakeheadcountreductionsinadvanceofknowingthedetailsof reporting

Page213

changes.Thisearlyactionprovidesmotivationforbusinessunitsanddepartmentstoactuallychangetheirprocessesandactivitiestoreducestepsandneededlabor. MonsantoandAmeradaHessreducedthebudgetsofunitsanddepartmentswhereheadcountreductionswereplanned,whichensuredthatthereductionswouldbe carriedout.DowChemicalreducednotonlythenumberofmanagersbutalsothenumberofmanagementlayers:Themanagerialhierarchywasshrunkfromtwelve layersbeforeSAPtofourorfive.ThisreductionwasamanagementobjectivethatDow'sEShelpedtoenable. Severalcompaniesalsodescribedtheneedtoaddneworganizationalunitsandpersonnelwhennewinformationbasedactivitiesareenvisioned.AtElfAtochemand Fujitsu,forexample,newgroupswerecreatedwhoserolesinvolvedmatchingmanufacturingdemandandsupply.RockwellInternational,nowprimarilyanelectronics manufacturer,combinedaspectsofsuchfunctionsasoperations,finance,marketing,productionplanningandcontrol,warehousinganddistribution,andbillingand collectiontoformanew"fronttoback"supplychainorganization.AtOwensCorning,anewglobalprocurementgroupwascreatedwhereonehadnotpreviously existed.Withouttheseneworganizationalunits,managersfeltthattheinformationprovidedbytheEStoperformthosefunctionswouldnothavebeenused.Indeed,at onecompanywheretheESwassupposedtosupportaglobalpurchasingfunction,thepurchasingprocesshasnotreallychangedlargely,onemanagerreported, becausethereisnoorganizationalunitwithglobalcorporatepurchasingauthority. Inadditiontoneworganizationalunits,thosewhoareinterestedinreportingandmeasurementissuesshouldthinkcarefullyaboutthebasicbusinessprocessesofthe organization.Eachnewprocessdesigncreatesanewinformationneed.Forexample,whenMicrosoftimplementednewfinancialandpurchasingprocesses,the processdesignteamswerealsochargedwithdefiningnew"keyperformanceindicators"tomeasuretheprocess.UnionCarbideisredesigningnotonlyoperational

Page214

businessprocesses,butalsomanagementprocesses.Thecompany'sESimplementationteamismappingoutnewmanagerialworkflowsandhowexisting managementrolesfitintothem.ThegoalistounderstandwhatpercentageofmanagementjobsinvolvesdoingthingsthatarenolongernecessarywhenESinformation iswidelyavailable,andtoeliminateorredeploymanagersinunnecessarypositions. Anothermeansofdeterminingwhatinformationanorganizationneedsistoplanthestructureofadatarepository.Whilethismightseemlikeputtingthecartbeforethe horse,MonsantomanagersinadvertentlydiscoveredthatitwasaveryusefulmeansofconfiguringtheinformationtobedeliveredbyanES.BecauseMonsanto neededafinancialdatawarehouseinadvanceoffinishingitsESimplementation,thecompanyspentconsiderabletimeassessingwhatinformationmanagerswantedin thewarehouse.CreatingthedesignofthewarehousefirstmadeapparentwhatinformationthefinancialmodulesofESneededtooutput. GiventhecomplexityoftheESinformationenvironmentandthechangesinbusinessprocessesmostorganizationsgothroughduringanESimplementation,itmaynot bepossibletopredictchangesinmanagementprocessesinadvance.Familiaritywiththesystemandwithnewwaysofworkingmayleadtonewusesforinformation. AtGeorgiaPacific,forexample,beforetheadventofanESinthePackagedProductsDivision,bothproductionplanningandcustomerservicefunctionsspentmuch oftheirtimejugglinginventoryandreallocatingitfromoneinsistentcustomertoanother.Becausetherewaslittlevisibilityofinventoryinformation,theplanninggroup coulddoverylittleactualplanning.WiththeimplementationofSAP,however,therewasalltheinventoryinformationthesefunctionsneeded.Usersinthesefunctions initiallyreactednegativelybecausetheycouldnolongershuffleinventoryaround.However,theywereabletocommitinventorytocustomersmuchmoreeffectively. Servicepersonnelcouldtellcustomerswheretheirorderwasevenafterithadbeenturnedovertoshippers.Plannersfound

Page215

thattheyhadthetimeandinformationtoplan.Theirinitialreservationsaboutthesystemturnedintoenthusiasmastheyrealizedtheycouldfinallydotheirjobsas logicallydefined. Afinalissuetobeconsideredwithregardtomeasurementsystemprocessesiswhoisthecustomerforthenewmeasures.Companiesmaywanttoidentifyparticular internalcustomersforthechangeeffortforexample,aparticularmanagementlevel,businessunit,orbusinessfunction.Moreimportant,firmsshouldthinkaboutthe relativeimportanceandsequencingofinternalversusexternalcustomers.Severalofthefirmsinthisstudy,includingUnionCarbideandDEKALB,hadobjectivesof eventuallysupplyingcustomers,suppliers,andotherstakeholderswithreports.MicrosoftalreadymakesavailableESderivedinformationonitscorporateWebpage thatisuptodateandproducedwithouthumanintervention. TheContentofESEnabledMeasurementSystems SomeofthecompaniesIstudiedhavebeguntothinkindetailaboutthecontentofmeasurementsystemsinapostESworld.Asmentionedpreviously,forexample, Microsoftisfocusingonthekeyperformanceindicatorsthatitneedstogatherandanalyze.DowChemicalimplementedanewsetofmeasuresaroundvaluebased management.AmeradaHess'sfinancialmeasuresarechangingfromafocusonthebalancesheettoastrongerorientationtotheincomestatement.Itisobviously importanttodeterminethestrategicdirectionforfinancialmeasurementsbeforebeginningtoimplementthemeasuresinanES. Severalfirms,bothusersandvendorsofESs,arebeginningtodevelopadirectrelationshipbetweentheirESinformationandthebalancedscorecardapproachto performancemeasurementandreporting.3 Thebalancedscorecardfeaturesasetofmeasureswithequal(accordingtotheofficialapproach)orunequalweightsfor theareasoffinancialperformance,internaloperations,customermeasurements,and"learningandgrowth."Despitethefactthatsomeofthemeasuresinthescorecard are

Page216

notnow,andwillprobablyneverbe,includedinanES(e.g.,customersatisfaction,andmanyofthemeasuresinthelearningandgrowthcategory),companieswould liketopopulatethescorecardautomaticallywithESdatawhenpossible. ManagersatOwensCorning,onefirmthatisbuildingtiesbetweenitsESandascorecard,reportthatoneofthemostdifficulttasksinapplyingthebalanced scorecardconceptinanEScontextisthetranslationofhighlevelfinancialtargets(e.g.,acertainlevelofreturnoninvestedcapital)intotheoperationalandprocess orientedmeasurescapturedinanenterprisesystem.J.D.EdwardsisworkingondirectinputfromitsinternalES(whichis,ofcourse,itsownESproduct)intoa balancedscorecard,andisplanningtoincorporatethesefeaturesintoproductsforallcustomers.PeopleSoftisworkingwiththecreatorsofthebalancedscorecardto translateoutputfromitspackageintoascorecardformatSAPhasalsoannouncedfunctionalityofthistype. Fewofthecompaniesinthisstudyhadyetexplored,however,thespecificdetailsofreportingprocesses.Oneissuegivenlittleattentionthusfar,forexample,ishow oftentodoreporting,orhowoftentoencouragemanagerstomonitorcertaintypesofinformation.Ciscomaybeabletodoavirtualcloseeveryday,butisitworth doing?Somefirmsreportedthattheyaretryingtogetawayfromregularreportfrequencies,moving,asanAmeradaHessmanagerputit,"fromjustincasereporting tojustintime."MicrosoftproducesaseriesofdailyonlinereportsinkeybusinessareasusingdataextractedfromitsES.Alargelyunexploredtopic,however,isthe issueofwhatlevelofreportingdetailisappropriateforwhatcircumstances.Whichmeasuresshouldberolleduptothecorporatelevel,andwhicharenotappropriate tobeaggregated?AsfirmsgainexperiencewithESenabledreportingtheywillbebetterabletomakegeneralizationsaboutreportingfrequencies. Anotherissueonwhichthereisnotyetaclearbestpracticeishowtodeterminethespecificcontentofmeasures.ManagersIinterviewedinseveralfirmsstatedthat simplyaskingmanagerswhatinformationtheywantisnotveryeffectivetheytypically

Page217

donotknowandhavenotdevotedmuchthoughttotheissue.Otherwise,nofirmsreportedanyparticularlyusefultechniquesortricksforelicitinginformationneeds. OnecompanyrepresentativestatedthatitwouldbehelpfulifconsultantswhowerefamiliarwithboththepotentialinformationinESsandthebusinessenvironmentsof specificindustriescouldspecifythetypesofreportsthatshouldbeadoptedandmonitoredbyacompany. DowChemicalisprobablythefurthestalongofthesurveyedcompaniesintheprocessofspecifyingnewmanagementsystems.Acrossfunctionalsteeringteamledby theheadofStrategicPlanningdevelopedasetofmeasuresandreportsforthebusinessderivedfromSAPdata(DowusestheR/2mainframepackage).Standard informationdeliverablesweredefinedbyprocessexpertsindifferentareasofthecompany,suchasexpensemanagement,inventorymanagement,andsales.Adata mart,orsmallwarehouse,wasdevelopedforeachtypeofdata.Therearemorethantwentymarts,buttheyareallpartofanintegratedsystemforthecompany,so thatnumbersinthe"businessresults"martbalancetonumbersintheexpensesandsalesmarts.Standardqueriesandviewswerebuiltusingathirdpartyreporting tool.Upto10,000concurrentuserscanaccessthereportingsystemalmost5,000usershavealreadybeentrained,rangingfromDow'sCEOtoplantfloorworkers. Dowhasalsoimplementedanewsetofperformancemeasurescenteredonshareholdervalueandactivitybasedcostingcalledvaluebasedmanagement.SAPdata isusedtocomputethesemeasures.Insteadofreportingintermsofproductandincome,theemphasisisoncontributionmarginsandcustomeraccounts.The companyhasdataandreportsthatallowcalculationofcurrentandlifetimeaccountvalue. BehavioralandOrganizationalChangeIssues Companiesparticipatinginthestudygenerallyreportedthattheywouldhavetoundergoconsiderableorganizationalandbehavioralchangebeforetheycouldmakefull useoftheinformationprovidedbytheirES.Insomecases,thesoftwareandthe

Page218

informationitprovidesleadtoadifferentculturebythemselvesinotherrespectsanorganizationanditsemployeesmustchangetotakeadvantageofthenew informationenvironment. IntermsofculturalchangesduetotheinformationfromanES,severalcompanies'representativesarguedthatanewinformationculturewasbeginningtoevolve.Itis amoreopenandvisibleinformationenvironmentinwhichmanagersandemployeesatmultiplelevelsofthecompanycanseeinstantaneouslywhatishappening aroundtheworld.Thereisnomorehidingwhenperformanceispoor,andnomoreexpostfactorevisionsor"electronicwhiteouts."Badnewstravelsquicklyall operationsaretransparent.Alloftherespondentswhoreportedthiseffectfeltthatitwouldbegoodforthecompanyoverall,butthataperiodofadjustmentwouldbe requiredandnewinformationbehaviorswouldbenecessary.Onecompanyreportedthatitmayeventuallyimposelimitsonhowfardownorupintheorganizationan employeecanfinddata. Severalmanagersalsoreportedthattheirfirmswouldneedamoredatabasedandanalyticalculture."Wewillneedtostartmakingdecisionsbasedonfacts,not rumorsandgutfeel,"onereported.Anotherstatedthatbecausehiscompanyisalreadyhighlyanalytical("we'realeftbrainorganization"),itwouldthriveonthebetter dataprovidedbyitsES.Onefirm'sESprojectmanageralsoreportedthatemployeeswillhavetotakemoredecisionmakingriskinthefuture.Anotherreporteda somewhatparadoxicalsetofchangesininformationculture:Itistighteninguponthekindsofbasicinformationtransactionsitallowsforreasonsofcommonalityand efficiencyatthesametimeitislooseningupandempoweringalllevelsofemployeesoninformationanalysisissues.Ofcourse,nooneinthisstudyarguedthata changetoadifferentinformationculturewouldhappenjustbecausenewsoftwarewasinstalledothermanagerialchangesarenecessary,thoughtheyhavenotbeen startedinthesefirms. Similartotheculturalchangesdescribedpreviously,severalfirmsbelievethatindividualworkerswillneedahigherlevel

Page219

ofanalyticalskills.Eventheoveralllevelofintelligenceofworkersmighthavetochange,accordingtoonemanager.Herepeatedtheoftenheardcomment,''We'll needhalfasmany,twiceassmart."Someorganizationssaythatasmallcadreofemployeeswillspecializeindataminingandanalysis.Othersplantoeducatealarge groupofemployeesandmanagerstousetheinformation.However,onecompanymanager'scommentwastypicalwithregardtothecurrentlevelofexpertiseabout ESinformationanditsuse:"Theydon'tknowwhat'sthereandtheywouldn'tknowwhattodowithitiftheydid." TherearealsotwoimplementationissueswithregardtotheuseofESinformation.Oneinvolvestheemploymentofsocalledsuperusers(aroledefinedinchapter6) inimplementationwhoaremanagers,notlineworkers.Thedeploymentofsuperusermanagerswouldseemtobeaneffectivetechniqueforunderstandingthe informationimplicationsofESimplementation.Theirrolecouldbetohelpsystemimplementersdeterminethereportingandmanagementprocessneedsofthe organization.However,inthefirmsstudied,evenwhenmanagerswereemployedassuperusers,theirfocuswastypicallyonrepresentingtheirdepartmentsforbasic processandtransactioninformation,ratherthandesigningreportsandmanagementprocesses.Firmsshouldconsiderusingmanagerialsuperuserswhentheydobegin tothinkaboutreportingissues. ApotentiallydifficultissueregardingESimplementationandcultureinvolvespersonnelreductions,particularlyatmiddlemanagementlevels.Asnotedearlier,several firmsareplanningtousethebetterinformationfromtheirESasarationaleforeliminatingsomeadministrativeandmanagerialpositionssomehavealreadydoneso. However,itisprobablyimportanttoavoidtheperceptionthattheimplementationofanESisanexcuseforwidespreadreductionsinmanagerialoranalyticalstaff.In thatcaseatriskmanagersoremployeesmightwithholdcooperationinusingthesoftware.Thusfar,however,nofirminthisstudyhasreportedthistypeofproblem.

Page220

TechnologyandSystemsIssues ThereisnotypicaltechnologyarchitectureforESenabledreportingandinformationdistribution.OtherthananESitself,nosingleplatformpredominates.AsI mentionedearlier,ESvendorsarebeginningtooffersubstantiallyimprovedcapabilitiesintheareasofperformancemeasurementandreporting.Thesecapabilities werenotavailablewhenItalkedtomanagersaboutreportingandmanagementprocessissues.Sincethen,informaldiscussionssuggestthatthesefunctionsarebeing greetedwithhighlevelsofinterest.Thissoftwarecollectsmanyofthereportingandmanagementprocessfunctionscompaniespreviouslyhadtodevelopthemselves intoapackagedapplication. Atthetimeofthestudy,companieswereusingeitherthelimitedqueryandreportingcapabilitiesfrommajorESvendors,orthirdpartyqueryandreportingsoftware. Severalfirmsreportedthattheywantedanopenqueryandreportingsystem,aswellasanopendatawarehouse,becausetheywantedtointerfacewithseveral differenttransactiondatasources,notjusttheirES.Microsoft,asmightbeexpected,useditsownsoftwareforqueryingandreporting. MostcompanieshadsometypeofdatawarehousingapproachforESdatatheirobjectivewastoavoidbothperformanceproblemswith,andpotentialcorruptionof, theEStransactionsystem.However,threeofthefourteencompaniesinterviewedwereactuallygoingdirectlyintothetransactionsystemfordataaccessand reporting,andwerenotcurrentlyconcernedaboutdataintegrityortransactionvolumeissues.Theyfeltthatanotherlevelofdataarchitecturewouldonlyconfuse users.Amongthosewhouseddatawarehousing,severalbrokeuptheESandlegacysystemdataintoseveralsmallermartsspecifictofunctionalorprocessareas DowChemicalhaswellovertwentymarts,Microsoftfour. Intranetwebswereapopularvehicleforinformationdistributionhalfofthecompaniesplannedtousethattechnologyforaccesstocommonreports.Twofirmshad adoptedtheWebin

Page221

placeofpreviousexecutiveinformationsystems(EISs)onefirm,Autodesk,stillemployedahomegrownEISandwaspleasedwithitsintegrationwithitsES(but evenAutodeskhasrecentlyadoptedWebbasedreporting,anditmayeventuallyreplacetheEIS). AModelforTurningESDataintoESKnowledge ItshouldbeclearbynowthatmanagingwiththeinformationfromanESisnotjustamatterofinstallingone,orofdevelopingadatawarehouseandpopulatingitwith ESdata.It'sachievednotthroughtechnologyalone,butthroughacomplexcollectionoffactorsthatmostorganizationshaveneverevenconsidered.Inabroad researchprojectinwhichIamparticipating,we'vebeentryingtoidentifythefactorsinvolvedinturningdataintoknowledge,whichourteamhasconcludedare basicallythesameissuesinvolvedinmanagingeffectivelywithESinformation.Therefore,I'lldescribetheresearchmodelforthatprojectinthecontextofESs specificallyandpresentacasestudyfromthatproject,EarthgrainsCompany.We'vefoundthemodeltobequiteusefulindescribingenvironmentsinwhichtransaction datafromsystemslikeESsisturnedintoknowledgeandresults. TheoverallprocessbywhichorganizationsturnESdataoranyothertype,forthatmatterintoknowledgeandbusinessresultshasneverbeenarticulated,toour knowledge.Basedonresearchinmorethanadozencompaniesthathavesucceededatit,wehypothesizethatthemodelinfigure71accuratelydescribesthis importantprocess.Themodelconsistsofthreemajorsteps.ContextincludesthefactorsthatmustbepresentbeforeanyspecificattempttotransformESdatainto knowledgeandresults.Thetransformationofdataintoresultstakesplacewhenthedataisactuallyanalyzedandthenusedtosupportabusinessdecision. Outcomesaretheeventsthatchangeasaresultoftheanalysisanddecisionmaking.I'lldescribeeachstepanditsrespectivecomponentsbriefly.

Page222

Context Oneimportant,butperhapsoveremphasized,prerequisitetotheprocessisthetechnologycontext.Theseareallthetechnologicalfactorsthataffectanorganization's abilitytoextractvaluefromdata.TheymightincludethecapabilitiesoftheESitselfforreportingandanalysis,softwareandhardwarefordataextractionandanalysis, theaccessthatpotentialusershavetothedataovernetworksandinfrastructure,andeventheabilitytodistributetheresultsofanalysis. Adesirabledatacontextissubstantiallymoredifficulttoachieve.Thisreferstotheaccuracy,availability,currency,andoverallqualityofthedatatobeanalyzed. Enterprisesystemshaverelativelyhighdataqualitycomparedwithmostapplica

Figure71

Page223

tionprograms.However,thedatathatemergesfromthemisgenerallyintendedtoservebusinesstransactions,notanalysisanddecisionmaking.Further,it'soften necessarytocombineESdatawithotherinformationthatcomesfromdifferentsystemsorperhapsisn'tautomatedatall.Creatinganeffectivedatacontextisdifficult inthebeginningandforeverafterit'saneverending,butnecessary,struggle. SkillsandknowledgearehumanattributesthatareoftenoverlookedineffortstouseESdataeffectively.Therearemanytypesofskillsandknowledgethatare relevanttothisobjective,includinganalyticalskills,technicalskills,andbusinessskills,andgeneralexperiencewiththisprocess.SinceESsareparticularlycomplex systems,knowledgeofthestructureofavailableinformationisparticularlycritical.Noteventhemostsophisticatedanalyticalsoftwareobviatestheneedforahigh degreeofskillandexperienceinthesuccessfulanalysisanduseofESdata. TheorganizationalandculturalcontextincludesmanydifferentfacetsoftheorganizationthataffecthowwellandhoweasilyittakesadvantageofESdata. Fundamentalamongthesefacetsistheorientationtofactbaseddecisionmaking:Doestheorganizationpreferdatatointuition?Therearealsopoliticalfactors involvedinwhetherdataisavailabletobeusedindecisionsandactions.Organizationalfactorsaredifficulttomeasureandchange,butwithoutapositivecontext, successfuldatatransformationisunlikelyonaregularbasis. ThestrategiccontextisthebroaderbusinesscontextinwhichESdataisanalyzedandused.Ifthereisnoclarityaboutwhatstrategicobjectivestheorganizationis tryingtoachievewiththetransformationofESdata,itwillcaptureandstorefartoomuchdatatoeverbeuseful.Thestrategiccontextspecifieswhatquestionsareto beansweredbythedata,thecriticalbusinessandmanagementprocessesinwhichthedataistobeapplied,andtheoverallbusinessvaluetowhichthedata transformationcanlead.

Page224

Transformation AtthecenteroftheoverallmodelaretheprocessesbywhichESdataactuallybecomesknowledgeandisappliedindecisionsandactions.Theanalyticprocess involvesthemeansbywhichESdatabecomesknowledge.Thesearecommonlystatisticalandnumericalanalyses,fromtakingthemeanofadistributiontoaneural networkanalysisalternatively,analysismayinvolvethecombinationofsimple,straightforwardreportswithinsightfulobservationsandthoughtbyhumans. Thedecisionmakingprocessitselfmay,asIimpliedpreviously,bebasedonhighquality,wellanalyzedESdataoramultitudeofotherfactors.Management scholarsoverthepastseveraldecadeshavedocumentedthesometimestenuouslinkbetweendata,decisions,andactions.However,iftheresultsofESdata transformationsarenotusedtoinformdecisions,thenwhatisthepointofthetransformationsinthefirstplace?Somecompaniesarebeginningtotiedecisionstothe dataandknowledgeusedtoassistthem,butthelinkageisn'tacommonone,andIknowofnoinstanceofdoingthisinanEScontext. Outcomes InthisentireprocessofconvertingESdatatoknowledgetoresults,prerequisitesandtransformationcountforlittleunlesssomethingchangesintheorganizationasa result.Changesinbehaviorsofindividualmanagersandemployeesareperhapsthemostbasicpotentialoutcomeofthisprocess.Justaspersonaldecisionsleadto individualbehaviorchange,decisionsbyexecutivescanleadtobroadbehavioralchange.Adatabaseddecisiontofocusoncostcontrol,forexample,canleadto thousandsormillionsofindividualbehaviorstocurtailspending.Ifitdoesn't,thepointoftheanalysisandthedecisionisquestionable. Adecisionandtheaggregationofbehaviorchangesmayalsoresultinanewinitiativeaprojecttoimprovethebusinessinsomeregard,orchangesinanexisting project.Analysisofcus

Page225

tomertransactiondatamayreveal,forexample,thatapromotionisn'tworkingandthatanewmarketinginitiativeisneeded. Theresultsofdecisionscanalsoincludeprocesschangeswhicharethemselvestheresultofmanysmallinitiativesandbehavioralchanges.Adeterminationthatan existingprocessisnotworkingeffectivelycanleadtoanewprocessdesignandtoitsimplementation.IfESdatatransformationsuggeststhatanewproduct developmentprocesstakestoolong,forexample,decisionsmaybetakentoshortenitincrementallyorradically. Ofcourse,theultimateresultofallthisactivityforprofitseekingbusinessesshouldbefinancialimpacts.Decisionsleadtonewbehaviors,whichleadtonew initiativesandprocesses,whichdon'tmattermuchunlesstheyimprovethebottomlineandthereturntoshareholders.Itmaybedifficulttodrawadirectchainof influencefromprerequisitestotransformationtononfinancialoutcomestofinancialresults,butestablishingthatlinkageshouldalwaysbetheobjectiveofan organizationthatinvestseffortandresourcesinESdatatransformation.Financialimpactsshouldn'tbesoughtbythemselves(becausetheywon'tbefound),butonly astheendresultofavarietyofbehavioralandorganizationalchanges. ManagingwithESInformationatEarthgrains Thiscasedrawsononecompany'sexperiencesintryingtoleveragedatafromitsESinvestment.4 Thecaseillustratesaconceptualframework(seefigure71)that managerscanusetoevaluatetheirownsituationandidentifyareasthatneedspecialattentiontomakesuretheirfirm'sESinvestmentenablesimprovementinhowthe businessismanaged. Earthgrainsisa$1.9billionbakeryproductscompanythatwasformerlyasubsidiaryofAnheuserBusch.SincebeingspunofffromthebeergiantinMarch1996, Earthgrainshasbeenapubliclytradedcompanywhosestockhasappreciatedmorethan200percent.Itscorebusinessesareorganizedintwodivisionsbakery productsandrefrigerateddough.

Page226

StrategicContext Earthgrains'U.S.refrigerateddoughproductsdivisionistheonlymanufacturerofprivatelabelrefrigerateddoughproductsintheUnitedStates.Thecompanymakes canneddoughproductsthataresoldinthegroceryrefrigeratedsection,includingbiscuits,dinnerrolls,crescentrolls,cinnamonrolls,cookiedough,breadsticks,pizza crust,andpiecrusts.(Igethungryjustrecitingthem!)Doughproductsaremarketednationwideundermorethan100storebrands.Therefrigerateddoughdivision competesprimarilywithPillsbury,which,astheonlybrandedmanufacturerofrefrigerateddough,dominatesthecategory.Earthgrains'strategyistocopyPillsbury's successfulproductswithprivatelabelofferingsandtocapturesignificantvolumeintheparticularproduct.Salesforthedivision'srefrigerateddoughsegment,including inEurope,werenearly$300million,withmarginsofmorethan10percent,comparedwithapproximately5percentinthebakerysegment. SeniormanagersintheU.S.refrigerateddoughproductsunithadchosentopursueastrategyofoperationalexcellence,asopposedtotakingacustomerorproduct focus.Historically,however,thedivisionhadnointegrationbetweenitsordertocash,picking,delivery,andaccountsreceivableprocessesandsystems.Therewas novisibilityintofinishedgoodsinventoryifacustomerhadaquestion.Andthecompanycouldn'tpriceanorderuntilitwasshipped,whichsignificantlydelayedthe invoicingprocess.Inaddition,productforecastingeffortswerehampered.Managersonlydiscoveredthattheyhadashortageofmanufacturingcapacitywhentheline ranout.Onthesalesside,managementalsohadlimitedvisibilityofwhoitsmostandleastprofitablecustomersandproductswere.Ingeneral,then,management lackedthedetailedunderstandingofitsbusinessneededtoimproveoperations. Therefrigerateddoughdivisionhadaclearstrategyandwasinacompetitivepositionintheindustrytoachieveit.Themanagementteamalsorecognizedwhattypesof decisionshadtobemadetosupportthestrategysothattherecouldbeadirectcon

Page227

nectionbetweendailyoperationsandstrategicobjectives.Butbecausethedivisionlackedtheoperationaldataitneeded,therewasnowaytomakethenecessary decisions,muchlessmeasuretheireffectivenessinstrategicterms.Finally,thereweresomeotherorganizationalcapabilitiesneededtomakethedecisionsnecessaryto supportthestrategy,aswewillsee. TechnologyContext Earthgrains'lackofoperationaldatatosupportdecisionmakingchangedwiththeimplementationofSAP'sR/3.Mostoftheenterprisesystem'smoduleshadbeen implementedbyearly1999,andtherefrigerateddoughdivisionnowhasunprecedentedvisibilityintoitsoperationsandcustomerbase,whichhasdramatically changeditsoperations.Severalmoduleswerealsoinstalledinthebakerydivision,butsofar,deploymenttherehasbeenmorelimited.Inadditiontothehardwareand softwaretechnologiesneededtocreate,capture,andstorethetransactiondatausedtosupportdecisionmaking,severalothertechnologyelementsarepresent,as discussedinthefollowingsubsections. Datacommunications.Whentransactiondatacrossesorganizationalboundaries,thecommunicationstechnologyneededtotransferthedatabetweenentities becomesanimportantfactor.Earthgrainshadinvestedconsiderableresourcestodevelopitselectronicdatainterchange(EDI)capabilitiesfortheinterorganizational transferoftransactiondata. Dataaccesstools.Earthgrainshasgivenitstwentyeightmembersalesforcelaptopstoaccesshighlydetailedsalesdatanowavailablethroughtheenterprisesystem. ThistoolenablesaccesstoSAPdata,butitalsoconstrainsthetypesofquestionsthatanalystsandmanagerscanask.Forexample,thevicepresidentofcustomer servicessays,"SAPisgoodifyouwanttolookatorderXbycustomerbyday,butit'sveryhardtouseifyouwanttoseefivecustomersoverthreedays."

Page228

Dataaccesstoolsareprobablythemostvisibleexampleofsoftwareorhardwarecapabilitiesthatcanimpedetheuseoftransactiondata.Butothertechnical capabilitiesmustalsobepresenttosupportthedata'suse.Forexample,initiallyEarthgrains'salespeoplewhoworkedremotelycouldn'tprintanySAPoutputs becausetheywerenotpartofthecompany'scomputernetworkatheadquarters.Ifnotanticipatedandresolved,technicalbarrierscaninhibittheuseoftransaction data. Dataanalysisandpresentationtools.Earthgrains'businessanalystsuseMicrosoft'sAccessandExceltoanalyzethedataandputitinaformatthatmanagersand salespeoplewillunderstand.ExperiencehastaughtthecustomerservicesVPthathowdataisformattedandpresentedtodifferenttypesofendusersmeans everythingingettingitused.Inaddition,specialdecisionsupportsoftwaremayalsobeneededforparticularapplications.EarthgrainsloadsdatafilesintoManugistics, asupplychainplanningandforecastingsoftwarepackagethattheyuseforanalysisinavarietyofways. DataContext Relevantdataissueswillvarysignificantlyacrossorganizations,buttherearecertainfactorsthatcanimpedetheuseofdatafordecisionmaking. Controllingdataintegrity.Theabilitytodevelopandmaintain"clean"dataisalwaysimportant,butacceptableerrorratesmayvarybetweenindustries.Integrity waslessofaprobleminEarthgrains'refrigerateddoughdivision,wheretransactiondatacapturedintheSAPsystemwascreatedinternallybasedonsalesordersand shippinginvoices.Whereasmanagementcouldcontroltheseprocesses,thecompany'sbakerydivisionwastryingtousescannerdatafromgrocerystorestotransform itsdistributionprocesses.Datafrommanyretailers,however,hadproved

Page229

tobeofvariablequality,limitingitsusefulness.Clearly,itiseasiertocontrolthequalityoftransactiondatacreatedwithinanorganizationthanacrossentities. Synthesizingdatafromothersources.Enterprisesystemtransactiondatamustalmostalwaysbeintegratedwithdatafromothersources,suchasthirdparty vendors,tomakeitusefulformanagementdecisionmaking.Earthgrainsusedcensusdatacombinedwithscannerdatatoanalyzetrendsindifferentproductcategories andtotrytointerpretwhatwashappeninginthemarketplace. Completenessofdata.Tobeuseful,transactiondatamustincludedataelements(orfields)thatcanbeusefullycomparedtoprovideinsightsfordecisionmaking. Forexample,ifthesystemcapturesdataonproductsales,butthespecificitemcannotbelinkedbacktothespecificpromotionunderwhichtheretailerpurchasedit, thentheanalyticinsightsfromthetransactionwillbelimited.Managementmustalwaysthinkthroughindetailthetypesofdataelementsneededtoaddresskey decisions. Completedataalsomeanshavingadequatehistorytodoanalysis.Earthgrainsneededaonetotwoyearhistoryofaretailer'sinventorymovementandstockouts beforetheycouldhelptheretailermakeinventorymanagementdecisions.Inmanycases,justhavingtransactiondataisn'tenough.Itmustexistfortherighttimeperiod tobeuseful. Timelydataextracts.Transactiondatamustalsobeavailableinatimelyfashiontosupportdecisionmaking.AtEarthgrains,salesdataispulleddailyfromtheSAP salesanddistributionmodule.Thisallowsthevicepresidentofsalestoidentifyproblemsearlyandtakeactionbeforetheendofthesalesperiod.Tobeuseful,data extractsmustbeavailableforanalysisonafrequencythatmatchesausefulmonitoringanddecisionmakingcycle.

Page230

OrganizationalandCulturalContext Therearemanypotentialelementsoforganizationandculturethatmustbealignedtosupportabusinessunit'suseoftransactiondata.Someofthoseevidentinthe Earthgrainscontextarediscussedhere. Structuresupportscollaboration.Organizationalboundariescanbebarrierstothehighlevelsofcollaborationoftenneededtoproducehighqualityanalytic outputs.AtEarthgrains,boththesalesandcustomerservicedepartmentsintherefrigerateddoughdivisionhavetheirownsetofdedicatedanalystswhoworkclosely withmanagement,usingSAPdatatosupportdecisionmaking.Managementneedstoconsiderthecomplexityandambiguityoftheproblemsrequiringanalytic support.Morecomplexissues,requiringsophisticatedmodelinganddataanalysis,arebetterservedwhenanalystsanddecisionmakersarecloselylinked organizationallybecauseofthehighlevelsofcommunicationandcollaborationrequired. Realigningrewardsystems.Nothingunderminestheuseoftransactiondatafasterthanrewardsystemsthatdiscourageitsuseindecisionmaking.Historically,the salesforceinEarthgrains'refrigerateddoughunithadbeenrewardedonlyforthequantityofproductssold.AfterSAPwasimplemented,thecompensationsystem waschangedtorewardsalespeople50percentonsalesvolumeand50percentongrossprofit.Thissignificantlychangedthebehaviorofthesalesforce,whobecame muchmoreinterestedinunderstandingthecurrentandpotentialprofitabilityoftheircustomers.Rewardsystemsthataren'talignedwithmanagement'sobjectivesfor creatingandactingoninsightsfromthedataareaseriousimpedimenttoleveragingthisresource.SeveralelementsofEarthgrains'culturealsosupportedtheuseof transactiondata. Orientationtochange.Therefrigerateddoughdivisionhadarelativelynewseniormanagementteam,withnoemotional

Page231

investmentintheoldwaysofdoingthings.Thus,expectationsregardingbehaviorchangeswerehigh. Dataorientedculture.Thecompany'sCEOwasknownbyhiscolleaguesas''datahungry."WhenheobservedtheinformationavailablefromtheES,henoted enthusiastically,"It'slikegettingyourheadblownoffwithdata."Hehadpushedhardtodevelopnormsthatwouldencourageemployeestobehaveasmembersofa datadrivenorganization.Inrecentyears,thequalityofmanagementreviewshadimproved100percent,accordingtooneseniormanager,becauseexecutiveswere nowmuchmorereliantonnumbersinexplainingtheirperformanceandinvestments.Thisbehaviorhadtrickleddownthroughouttheorganizationsothatsalespeople werepushedtobecomeusersofdata.Managementassumedthatifthesalesforceworkedwiththenumbersthemselves,theywouldbemoreconfidentinwhatthey werepresentingtocustomers. SkillsandKnowledge Avarietyofskillsandknowledgeareneededtoleveragetransactiondatafordecisionmaking.AtEarthgrains,boththecustomerserviceandsalesdepartmentshave teamsofanalystswhosecombinedskillsincludethefollowing: Detailedknowledgeoftheunit'sunderlyingbusinessprocesses Strongknowledgeofthegroceryindustry ExtensiveskillsforinterpretingthemeaningoftheSAPdata,whichrequiresunderstandingdefinitionsofkeyelements,howtheyrelate,andtheirlimitationsfor analysis Thoroughworkingknowledgeofseveralanalyticanddatapresentationsoftwarepackages Stronginterpersonalskillsneededtotrainandsupportendusers,particularlythesalespeople,whowerelikelytobecomefrustratedwhentheystartedworkingwith thedata

Page232

AnalyticProcesses Allofthecontextualelementsdescribedpreviouslystrategy,technology,data,organization,culture,andskillsandknowledgecombinetoshapeanorganization's capabilitiesfordataanalysis.AtEarthgrains,thesecombinedinputsprovidedthemotivationandabilitytocreatefivetypesofanalyticoutputs. 1.Standardreports.Thevicepresidentofsaleslookedatadailyreportthatshowedwhatproductshadbeensoldthepreviousday,inwhatvolumes,theirgross margin,andthetotalsalesfortheyeartodate. 2.Simpleanalyticoutputs.ShortlyafterthesalesanddistributionmoduleofSAPwasinstalled,Earthgrains'managementbegandoingbasiccustomerandproduct profitabilityanalysis.Thisanalyticalapproachissimple,althoughitdoesrequirethattheorganizationhavepreviouslyadoptedadisciplinedapproachtoactivitybased costinginordertobesuccessful. 3.Complexanalyticoutputs.Overtime,asmanagement'sunderstandingofthesystemdeveloped,theybeganposingmorecomplexqueriestotheanalystsfor example,howmuchdosalesactuallyincreaseasaresultofdifferenttypesofpromotions? 4.Modeling.Earthgrainshadmadelimitedeffortsinthisarea,buthadbegunforecastingproductdemandtobetterplantheirmanufacturingcapacity. 5.Onetimeprocessanalysis.IntegratingSAPdataalsosupportedoneotherdifferenttypeofanalysis.ItenabledEarthgrainstoevaluatethecashdisbursements goingthroughitsaccountspayableprocessinitsbakeryproductsdivision.Thisonetimeprocessanalysisprovidedsupportformanagement'sdecisiontocentralizeall accountspayableactivitiesfromitsfortyfourbakeries.

Page233

DecisionMakingProcesses Differentanalyticcapabilitiessupportdifferenttypesofdecisionsanddecisionmakingprocesses.Accesstotransactiondata,andtheabilitytointerpretandanalyzeit, canchangethetypesofdecisionsbeingmade,theconfidencemanagementhasinmakingcertainongoingdecisions,andeventhelocationofsomedecisionswithina businessprocess. Newtypesofdecisions.AtEarthgrains,SAPdatamadeitpossibletoidentifywhichcustomersandproductsweremostandleastprofitable.Itisworthnotingthat althoughthedataanalysisrevealedunprofitablecustomersandproducts,themoreimportantmanagementdecisionwaswhattodowiththoseresultsandhowtodoit. Increasingconfidenceindecisions.Usingtransactiondataeffectivelysometimesmeansmakingdecisionsthatwerenotpossiblebefore,butinothercasesitcan changetheconfidencelevelindecisionsthatwerealreadybeingmade.SAPdataatEarthgrainsprovidednewlevelsofconfidenceandsupportinmakingdecisions aboutwheretoinvestinpromotions,wheretoinvestinmanufacturingcapacitygivenexpectedproductdemand,andwheresalesmanagersshouldbefocusingtheir attention. Changingdecisionmakingprocesses.Finally,theavailabilityoftransactiondataalsosometimesenablesmajorchangesindecisionmakingprocessesand,notably, wheredecisionsarebeingmade.AtEarthgrains,twoprocesseswerechangedindistinctlydifferentways.Theaccountspayableprocesswascentralizedand standardizedsothatallinvoiceswerepaidaftertwentyeightdays.Inthiscase,payablesdecisionswerenotonlyshiftedawayfromlocalbakeries,butwerealso embeddedinaseriesofdecisionrulesthatvirtuallyautomatedtheprocess. Intherefrigerateddoughdivision,ontheotherhand,anattempttoimplementavendormanagedinventoryprocess

Page234

meanttakingdecisionsaboutorderingawayfrombuyersintheretailchainsandembeddingtheminaninventorymonitoringsystemmanagedbyEarthgrains.Inboth cases,changingthelocationofdecisionmakingwasintendedtoimprovetheeffectivenessoftheoverallbusinessprocess. Outcomes Convertingtransactiondatatoknowledgeisonlyeffectiveifitproducesbusinessoutcomesthatimprovefinancialperformance,whichusuallyhappensasaresultof newbehaviors,newinitiatives,orredesignedprocesses. Changingbehaviors.Historically,disputedinvoiceshavebeenamajorproblemforfoodmanufacturers,sinceretailersoftendisagreewiththepricestheyare chargedonaninvoice.Retailersalwayspaywhattheycontendwasthepriceagreedto,whichisinvariablylowerthanwhatisontheinvoice.Becausethecostof resolvingdisagreementsissohigh,manufacturershavetraditionallylivedwiththedeductions,whichcostthemmillionsofdollarseachyear. HavingeasyaccesstoinvoicedataandacleartransactionhistoryhasenabledEarthgrainstoimproveprocessessupportingpricesynchronizationbeforetheinvoiceis printed.Theabilitytominimizedisputedinvoiceshasreducedinvoicedeductionsbymorethan$4millionannually. Newinitiatives.Withtheabilitytoanalyzecustomerprofitabilitycameanewinitiativetochangetheproductmixpurchasedbythosecustomersidentifiedas unprofitable.About180oftheselowmarginretailerswereunwillingtochangetheirpurchasingpatterns,andafterninetydaysthesalesforceintherefrigerateddough divisionwastoldtostopservicingthem.Atthesametime,anotherinitiativeresultedintheeliminationof20percentofthedivision'sproductline,whichanalysishad

Page235

showntobeunprofitable.Inthefirstyear,thedivision'soperatingprofitjumpedover50percent. Rethinkingimportantbusinessprocesses.Earthgrainsrecognizedthattransactiondatacouldcreateopportunitiesforredesigningfundamentalbusinessprocesses thatcreateentirelynewsetsofdecisions.Forexample,Earthgrainsisusingdatafromgroceryretailers'inventorycontrolsystems,combinedwithhistoricaldataon stockouts,tosetupavendormanagedinventoryprocessthatsignificantlychangesitsrelationshipswithretailgrocers.Proactiveuseoftransactiondatamayenable theredesignofcoreprocessesoritmaysimplyimprovedecisionmakingwithintheexistingprocess. Finally,SAPdatamadeitpracticaltoredesigntheaccountspayableprocessinthebakeryproductsdivision.Thedecisiontocentralizeandstandardizethisprocess increasedthecompany'sworkingcapitalbymorethan$40millionalmostimmediatelyandprovidedresourcesthatcouldbeusedtosupportthedivision'sstrategyto acquireadditionalbakeries. Conclusion Ofcourse,noteverymanagementprocesssupportedbytheuseofESdataprovidessuchsignificantreturns.Manyactivitieswillhaveamuchmoreindirectfinancial impactonthebusiness.ButonecommoncharacteristicofallthesuccessfulexamplesofleveragingESdataIhaveseenisthatmanagementdemonstratesthepolitical willtoactandfollowthroughinapplyingthenewinsightsandcapabilitiesmadepossiblebybetterESdata.Businessresultswillfollowonlyinaculturethatsupports bold,proactivedecisionmakers.

Page237

8 UsingEnterpriseSystemstoManagetheSupplyChain
Thehottestareainenterprisesystemstodayisthesupplychainandwithgoodcause.Asmoreandmorebusinessescompletetheirinitial,multiyearimplementations ofcoreESsandreflectonthemanymillionsofdollarsithastakentoreachthispoint,toomanyarestillunclearonhowtheywillleverageallthisintegratedinformation intorealcompetitiveadvantage.Thesupplychain,withallitstransactionandinformationintensity,offerslowhangingfruitleftandright.Crossenterpriseintegration reallypaysoffhereinmeasurableoperationalefficienciesthathaveaclearrelationshiptoprofitability.Evenmoresignificantly,theESroleinsupplychain managementneedn'tendatthebordersoftheenterprise.EvengreaterbenefitsbecomeevidentwhenafirmbeginstoconsiderhowitcanextenditsESoutsideits ownwallsanduseittoachievetighterintegrationwithvendors,suppliers,manufacturers,distributors,retailers,andothertradingpartners.Enterprisesystems,it's
JuliaKirby,aresearcherattheAndersenConsultingInstituteforStrategicChange,researchedthistopicandwroteadraftofthischapter.

Page238

becomingclear,arejustastone'sthrowawayfrombeinginterESsthebackboneofthe"extendedenterprise"thatsomanystrategistshaveenvisioned. AWordaboutSupplyChainManagement Whatdowemeanwhenwetalkaboutsupplychainmanagement?Basically,thetermreferstothecloselinkageofactivitiesinvolvedinbuying,making,andmoving product.Themajorgoalsofsupplychainmanagementaretocutcostsbytakingexcesstime,redundanteffort,andbufferinventoryoutofthesystem,andtoimprove servicebygivingcustomersmoreoptions,fasterdelivery,andbettervisibilityintoorderstatus.Mostly,thisisachallengeofinformationintegration.Theideaisto alloweveryoneinvolvedintheflowofgoodstomakedecisionsbasedonthelatestandbestinformationfromeveryoneelsebothupstreamanddownstream.The companythatmanagesitssupplychainbestgetsitsproductfrompointsoforigintopointsofconsumptionintheleastamountoftimeatthelowestcost. Usinginformationsystemsforsupplychainmanagementisnot,ofcourse,anewtopic.Someoftheearliestusesofinformationtechnologyinbusinessweredesigned tomakeoperationsmoreefficientbykeepingclosertrackofprocurement,manufacturing,anddistributionactivitieswithinabusiness.Andelectronicdatainterchange (EDI)hasexistedforacoupleofdecadestolinkindustrialvendorswiththeircustomers.EDI,however,washeavilyconcentratedamonglargefirms,wasrestrictedto prosaicformsofinformationlikeorderquantitiesandbillsoflading,andreliedoncomplexrelationshipswiththirdpartyvalueaddednetworkproviders.The connectionsbetweenfirmsthatitmadepossiblecouldhardlybecalledseamless. Supplychainworkisn'tevenawhollynewtopicinESs.BoltonvendorssuchasManugisticsandi2werefocusedonbuildingcrossenterprisesupplychain applicationsatthesametimethatfirmssuchasSAPandPeopleSoftwereprimarilyfocusedonfinancialandhumanresourcessystems.Whatisnew,

Page239

however,isthebroadeningofinterestandinvestmentinsupplychainmanagementbyESvendorsand,moreimportantly,bycorporatemanagement.New,more powerfulpackagedsolutions,inmanycasesrunningovertheInternet,aresuddenlyputtingsupplychainexcellencewithinthereachofvirtuallyeverycompanyand makingitacompetitiveimperativeforbusinessesofallsizes. WhyFocusontheSupplyChain? Managerslovetodrawthedistinctionbetween"doingthingsright"and"doingtherightthings."Thebestjobofimplementation,inotherwords,endsupcountingfor naughtiftheideabeingimplementedwasmisguidedtobeginwith.InthecaseofESs,happily,firmsarediscoveringtwoequallyimportantreasonstogoforwardwith supplychainsolutions:first,becausetheyarecriticaltocompetitivesuccess,andsecond,becausethetoolsexisttoputtheminplacecompetentlyandcosteffectively. Theyare,inshort,therightthingstodoandincreasinglyeasytodoright. CostCuttinginInternalOperations Atthemostfundamentallevel,ESsofferwaystosqueezecostsoutofinternalsupplychainoperations.Theyaccomplishthismainlybycuttingacrossandlinking togetherthetraditionalfunctionalsilosofthebusiness,inthesamewaythatgoodbusinessprocessmanagementdoes.Infact,it'sfairtosaythatcrossfunctional processmanagementisnotevenpossibleonalargescalewithoutESstoprovideasharedfoundationofinformation.It'seasyfortopmanagementtodeclarethat ManufacturingshouldonlymakewhatSaleshasdiscovereditcansell,andthatProcurementshouldbuytherightquantityofrawmaterialsforwhatManufacturingis abouttomake.Butinmostfirms,thesefunctionsaresupportedbycompletelyseparatesystems,designedtohandleonlytheirownpieceofthebusinessand

Page240

incapableoftalkingtoeachother.ManufacturinghasnoideawhatSalesisseeinginthemarketplace.ProcurementhasnovisibilityintowhatMarketingplansto promote. Lackofinformationintegrationamongsupplychainfunctions,ofcourse,meansthathandoffsfromonepartofthebusinesstothenextarefarfromsmooth.Toavoid lotsofdroppedballs,managersbuildampleredundancyandslackintothesystemwhich,inaproductbusiness,typicallytakestheformofinventory.Andinventory isn'tcheap.ToparaphraseEverettDirksen,abillionunitshere,abillionunitsthereprettysoonwe'retalkingaboutsomerealmoney.Thisisthegreatmotivatorfor manyfirms'useofESsinthesupplychain.Thethemeoftensoundedistoreplaceinventorywithinformation. ThisiswhatDreyer'sGrandIceCreamhadinmind,forexample,whenitundertooktobuilditssupplychainmanagementsystem.Dreyer's,a$970millioncompany basedinOakland,California,hasallthetypicalsupplychainproblemsofafoodmanufacturer,andthensome.Itsrawmaterialsandfinishedgoodsarehighly temperaturesensitiveandperishableanditsproductlineexperiencesseasonalsalespeaksthatwouldgivemostplannersvertigo.Dreyer'susedanEStolinkits forecaststoproductionschedulingandultimatelytoprocurement.Asaresult,itdramaticallycutinventorylevelsakeycostdriver.ItusedtobethatDreyer'sentire finishedgoodsinventoryturnedovertwelvetimesperyear.Thatnumberisnowuptofifteen.Fasterturnstranslatetohigherwarehousecapacity,andnoimmediate needtospendcapitalonanewwarehouseasthebusinessgrows.It'stemptingtosaythatDreyer'shasitsinventoryproblems,well,licked. ImprovingtheefficiencyofinternaloperationswasalsothegoalatEastmanChemicalwhenitlinkeditsSAPR/2softwareintoanewsupplychainplanningand forecastingapplication.Theapplication,madebyLogility,pullssalesdatafromtheEStogenerateforecastsbasedonspecialalgorithmsandpastexperience.Those forecastsarethenpublishedontheES'sdatabasefortheuseofmanagersthroughouttheorganizationincluding

Page241

salespeopleinthefield,whocaninputrevisedinformationviaanintranettoreflectwhatthey'relearningincustomercalls.ForEastman,abusinesstobusinesssupplier ofplastics,fibers,andchemicals,bettersupplychainmanagementkeepsitsresourcesworkinginconcerttomeetcustomerdemandwithmaximumefficiency. EfficiencyacrosstheExtendedSupplyChain Formostcompanies,streamliningoperationswithintheirownwallspresentsenoughofanimmediatechallenge.Butthefirmsthatareknownforsupplychain managementhaveunderstoodforalongtimethatthereallybiggameisexternal.Theinefficienciesinthehandoffsbetweendifferentfunctionsinafirmusuallypalein comparisonwiththosebetweenthedifferentfirmsthatmakeupthebroadersupplychain.Theclassicexampleisthatoldchestnutcasestudyfromthe1980s:the Procter&Gamble/WalMartrelationshipforgedaroundthesaleofdisposablediapers.Bysharingforecastandsalesdata,thetwofirmstookahugeamountof inventoryoutofthetotalsystemwhileatthesametimeimprovinginstockperformanceandtheysharedthefinancialbenefit. Today,thiskindofcooperationacrossthesupplychainisbeingmadeeasierbytheavailabilityofESs.Thisistrueinpartsimplybecausefirmsaregettingtheirown actstogetherinternally.Onceintegrationhasbeenachievedacrosstheenterprise,itbeginstoseempossibletoattackthelargerissuesoftheextendedsupplychain. Onceyouhavegoodinformationonyourownsales,inventory,orproductionfigures,it'smucheasiertosharethatwithothercompanies.Inkeepingwiththeinterests oftheircustomers,majorESvendorsarealsomakingitanexplicitpartoftheirstrategytosupportcrossenterprisecommunicationsintheirpackageofferings. ReebokInternationalisanexcellentcaseinpoint.Initsmainbusinessesfootwear,apparel,andsportsequipmentthecompanyoperatesmainlyasamarketer, producingandselling

Page242

goodsonaglobalbasis.Butwithsome150outletstoresofitsown,Reebokisalsoaretailerinitsownright.IdescribedReebok'sdecisiontoimplementanESin chapter3.Reebokhasfocusedparticularlyonsupplychaincapabilities,bothinternallyandexternally.Tocutinventoriesacrossitsentiresystem,itsimultaneously implementedtwoSAPESsinthemarketingandretailingpartsofthebusiness,andlinkedthemthroughelectroniccommerce(EC)andEDIconnections.The combinationallowsReeboktointegrateeverythingfromnewproductdevelopmenttoanalyzingprofitsinindividualstores.Buttheconnectionsdon'tendwith Reebok'sownretailoperations.It'salsointegratingitsmanufacturingpartnersandcustomersaroundtheglobethroughEC/EDIlinks,andultimatelyplanstotieits systemsdirectlytotheirs.Eventually,ReebokalsoexpectstohavedirectlinkagesthroughitsESwiththeretailersitdoesn'town. ThesituationissimilaratBoeing,whichreliesonhundredsofinternalandexternalsuppliersforthe5millionto6millioncomponentsneededtobuildalargetwinaisle airplane.UsingBaanESsincombinationwithforecastingsoftwarefromi2Technologies,Boeingisfinallygettingafirmgrasponthecomplexityofgettingtheright partstoarrivejustastheyareneeded.AsatReebok,thecommunicationsconnectionsamonginternalpartiesaredirect,fromdatabasetodatabasebutthe connectiontoexternalsuppliersisalmostasseamlessthroughEDIlinkstotheES.Atthesametime,Boeingisgivingcustomersaccesstoenterpriseinformation throughitsPART(PartAnalysisandRequirementsTracking)Page,asecureInternetsitethatitscustomerscanusetoordersparepartsorjustcheckonavailability andpricing.TheWebsiteisespeciallypopularwiththe600orsoairlinesthathaveneveradoptedEDIforpartsorderingfromBoeing. BoththeReebokandtheBoeingexamplesofferaglimmeroftherevolutionjustbeginningincrossenterprisesupplychainmanagementwiththemaininstrumentof changebeingtheInternet.Infact,itissafetosaythattheInternet'spromiseofinstant,platformindependentcommunicationamongsystemsis

Page243

thebiggestthingspurringtoday'sdevelopmentboominsupplychainmanagementsystems.ItoffersconsiderableimprovementoverEDIintermsofthetypesof informationthatcanbetransmitted,thenumberoffirmsthatcanaccessinformationoverit,andthewidespreadavailabilityandeaseofuseofsoftware(i.e.,Web browsers)toaccesstheinformation. EnhancedCustomerServiceandNetworkRelationships Usually,thefirstimpetusforsupplychainmanagementistheopportunityitoffersforcostreduction.Alongtheway,though,companiesgenerallydiscoveritisalsokey togrowingtheirbusiness.Thisistruebecauseexcellenceinsupplychainmanagementcanmakeaprofounddifferencetocustomerservicequality.Somestudieshave suggestedthatthetypicalmanufacturerstandstocutthetimebetweenacustomer'sorderandthearrivaloftheshipmentby15to40percentwithwellimplemented supplychainmanagementsoftware.Andtotalleadtime,theyfind,couldbereducedbyasmuchas75percent.Bettercustomerservicenaturallyleadstoincreased sales. OnefirmthathasprovedthestudiestrueisColgatePalmolive,whichundertooktoinstallESslargelytoachievesupplychainefficiencies.Aspartofamajor turnaroundeffort,itreworkedeverylinkinitsglobalsupplychain,andusedSAPsoftwaretolinkeverythingfrompurchasingtoinventorymanagementto manufacturingtodelivery.Theresults?Colgatereportsithascutdeliverytimestocustomersby25percent.Andtheresultsareclearonthebottomline.Forthefirst timeinitshistory,ColgatesurpassedProcter&Gamble'sU.S.marketshareinitslargestproductline,oralcareproducts.Addingicingtothecake,Colgatealsoput thesystemsinplaceinmodelfashionitisfrequentlybenchmarkedbyothercompaniesembarkingonESimplementations.1 TheserviceadvantagegoesfurtherstillwhenhavingastrongESinplaceallowsacompanytoofferselfservecapabilitiestocustomersandothersupplychain partners.FedExis

Page244

famousforcreatingapackagetrackingsystemthatallowsshipperstoseeexactlywheretheirpackageisinthesystemenrouteonschedule,delayedbybad weather,oralreadysignedforbytherecipient.CompaniesofallkindsarefollowingsuitbycreatingextranetssecureInternetsitesaccessibletoselectedpartners thatprovideaviewintotheiroperations.Heineken,forinstance,launchedasystemthatgivesitsdistributorsaccess,viatheInternet,toinformationhousedinitsES aboutproduct(i.e.,beer)availabilityandsalespatterns.Again,thefactoftheES'salreadybeinginplaceforinternalpurposeswaskey.Oncethebrewer'sownhouse wasinorder,itwasnotsuchahugesteptoopenthedoorstoothers. TheEarthgrainsCompanyisstillanothercompanythatsawcustomerserviceimprovementasakeygoalofitsES.IdescribedEarthgrainsinthepreviouschapteras anexemplarofusingESdatatomanagethebusinessbetter,butitbeganitsESworkfocusingonsupplychainimprovements.Inthepast,thisMissouribased wholesalebakertoooftenmadedeliveriestolargegrocerychaincustomersthatweren'tontimeorinaccuratequantities,orwereinvoicedincorrectly.Earthgrains decidedtocleanupitsactwithenterprisesoftwarethatwouldlinktogetheritsaccounting,reporting,ordermanagement,anddistribution.Infact,Earthgrains'VPof businesssystemstoldInformationWeekmagazinethathiscompanypinneditshopesforaturnaroundonitsES.Thegambleispayingoff:Ontimedeliveryreached 99percentby1997,andoperatingmarginsrosefrom2.4percentto3.9percent.2 GoodPickingsinPackagedSoftware I'vebeenreviewingallkindsofgoodreasonsthatsupplychainmanagementistherightthingtofocusoninthequesttoderivebusinessvaluefromESs.Itiscriticalto competitivenessandprofitability,andisanareawheretheintegrationachievedbyESshasamajorimpact.Itturnsoutthereareevenmoregood

Page245

reasons.Aswellasbeingtherightthingtodo,supplychainmanagementisgettingeasiertodoright,thankstothefactthatsoftwarevendorshavemadeita developmentpriority. Forthemostpart,thisdevelopmenthasbeenspearheadednotbythemajorESvendorstheSAPs,PeopleSofts,andOraclesoftheworldbutbysmaller,more focusedsoftwaresolutionproviders.WhilethemajorESvendorsworkedonprovidingthebackbonesystemstosupportsupplychainmanagementtheoperational transactionprocessingsystemsitwaslefttoothers,usuallyvendorswithdeepfamiliarityandexpertiseinspecificindustries,tocreatethetoolsthatwouldleverage allthatgooddataintostrategicanalysesandtacticaldecisions.Theirtoolsweretheonesthathelpedmanagersdogoodsupplyplanning,demandplanning,plant scheduling,transportationandwarehousemanagement,andsoon,drawingoninformationpulledfromanES'smanufacturingapplicationsandothersources. PeopleSoftfoundthethirdpartyofferingssocompellingthatitboughtoneacompanycalledRedPeppertoincorporatethefunctionalityintoitsownES. Asaresult,therearedozensofgoodpackagedapplicationsonthemarkettochoosefrom,virtuallyallofwhichinterfacetogreaterorlesserdegreesofdifficulty withthemajorESvendors'applications.Someofthesearehighlyspecializedpointsolutions,whichmakesurgicalstrikesonbottlenecksorleveragepointsinthe supplychain.Othersaresuitesofapplicationsinthemselves.Manugistics,Inc.,forexample,offersawholeslewofsoftware,includingtoolsforvendormanaged inventorypointofsaledrivendemandandcollaborativeplanning,forecasting,andreplenishment.Strungtogether,itsproductsenablecompaniestoanalyzeand managetheflowofproductsfromdemand,distribution,andmanufacturingthroughtopurchasing,transportation,andlogistics,notonlyacrossanenterprisebut throughoutthesupplychain. Speakinggenerally,thepackagedsoftwarecurrentlyavailableforsupplychainmanagementfallsintofourbasiccategories:3

Page246

Supplyplanningtools,whichhelptoalignalltheresourcesandactivitiesrequiredtogetgoodstomarketcosteffectively Demandplanningtools,whichhelpcompaniesanticipatemarketdemandfortheirproductswithmoreprecision,thankstosophisticatedmodelingandstatistical analysis Plantschedulingtools,whichtranslateoverallsupplyrequirementsintodaytodayproductionplans Logisticssystemsforsupportingwarehousemanagement,transportation,andordermanagement Giventheexistenceofbestofbreedpackagedsolutionsinsomanyoftheseareas,thefavoredapproachformostfirmshasbeentogowithamajorvendorlikeSAP orPeopleSoftforcoreESsandthenboltonsupplychainsoftwaredevelopedbymultipleothervendors.Nottodiscounttheworkinvolvedincreatingandmaintaining interfaces,butinasenseoperationsmanagersareconfrontedwithanembarrassmentofriches.Whatwasoncetheexclusivecapabilityofonlythebestinanindustryis nowavailableofftheshelf.Insupplychainmanagement,asinsomanyareastouchedbyESs,itmakeslessandlesssensetoputeffortintohomegrownsystems.With vendorstakingoverthehardworkinsystemdevelopment,usercompaniescanshifttheireffortstoredesigningsupplychainprocessestoworkwellwiththesoftware, trainingemployeesandmanagersonadvancedsupplychaintechniques,andinterfacingsupplychainapplicationstotheirESpackages. ComingSoon:TheOneStopSolution Iftheprospectofcobblingtogethersoftwaresolutions,nomatterhowgoodtheyare,holdslittleappealforyou,thenthelastbitofgoodnewscompellingyoutothink aboutsupplychainmanagementisthatthemajorESvendorsarequicklybuildingitintotheirownintegratedofferings.Here,theprospectandin

Page247

manycasesalready,therealityisthatcompanieswillbeabletoimplementasinglesolutionsuite,inwhichadvancedsupplychainfunctions(oftencalledsupply chainplanningandoptimization)willbeseamlesslyintegratedwithmanufacturing,financial,andotherfunctionssuchascustomerservice. What'spavedthewayforthemajorvendorsisthepriorexistenceofsupplychainintegrationsoftware.Othervendorshaveshownwhat'spossibleinareaslike manufacturingschedulingandlogisticsanddemonstratedthepotentialpaybackonsuchimprovements.Atthesametime,thosemorefocusedvendorshavehardly saturatedthemarket.Givenhighpricesandhardimplementations(notsimplyintechnicaltermsbutmoreimportantlyinbusinessprocessandorganizationalchange), thetypicalsupplychainpackagehasmadeitintoonlyatinyfractionofthecorporationswhocouldbenefitfromit.Consequently,thereishugeopportunityforabig playertograbbigmarketshare.Andfinally,makingthebusinessevenmoreirresistible,thereistheInternet.AsGregGirard,asupplychainanalystatAMR Research,toldCNET:''FortheERPplayers,ecommercegivesthemanavenuetotransitionfrombeingtheenterprisebackbonetothesupplychainbackbone.And thatopensupallkindsofverysweetopportunitiesforthemtoextendtheirreachandincreasetheirseatcounts."4 AlltheseconditionsarehardlylostonthemarketforsupplychainsolutionsthebusinessandITexecutivesofcorporations.Infact,it'sfairtospeculatethatuser demandwouldcompelthemajorvendorstoaddressthesupplychaineveniftheydidn'tconsideritagoodbusinesstobein.It'saversionofthatoldtruismabouthow harditistokeepfolksdownonthefarmoncethey'veseenParee.Onceoperationsmanagementhasatasteofintegration,theywanteverythinginthebusinesstobe thatgood.AnddespitetheeffortsofmajorESvendorsandbestofbreedsoftwareproviderstobuildgoodinterfacesbetweentheirproducts,integrationisstill complicatedandrarelyachievestrulycomprehensiveinformationsharingandcommunications.Existingandprospectivecustomersareputtingtheheatonthe

Page248

bigvendorstosupplementtheirinternalfunctionalorientationwithprocessorientedintraandintercompanysupplychainsolutions. Withtheskidsalreadygreasedandahungrymarketawaiting,themajorESplayersarerushingheadlongintosupplychainsolutionsmostthroughacquisitionsaswell asnewdevelopment.Atthetimeofthiswriting,vendorssuchasJ.D.Edwards,Oracle,Baan,PeopleSoft,andSAPareallworkingfuriouslyontheirshortcomings visvisthenichevendors,whichtendtobeinareaslikedecisionsupport,demandanddeploymentplanning,capacityandresourceplanning,warehouse management,networkoptimization,andelectroniccommerce.(AccordingtoSAPcochairmanHassoPlattner,SAP'ssupplychainofferingisthe"mostambitious developmentprojectsinceR/3.")Andeveryoneisplanningfutureversionsthatwillincorporatethebiggestnewsinsupplychainmanagementthecollaborative planning,forecasting,andreplenishment(CPFR)modelrecentlydevelopedandpilotedsuccessfullybyaconsortiumofconsumergoodsmanufacturersandretailers. Thistermreferstosoftwareandbusinessprocessesinwhichsupplychainpartnersexchangenotonlyordersandshipmentnotices,butalsosalesplansandproduction forecastswitheachother,sothattheycansynchronizetheirrespectiveprocessesmorefully. Butevenintheircurrentsuites,allthesevendorsmakeacompellingoffer:acompleteconnectionofthefrontofficetothebackoffice,withthemiddleofficethrownin alongtheway.Everythingmakesitintothepool,fromproductcustomization,orderfulfillment,inventory,anddeliveryinformationtosales,clientservice,and marketing. Theentryofmajorvendorsraisesallkindsofissuesformanagerswhoarealreadyusingthirdpartysoftwareforsupplychainmanagement.Italsocomplicates decisionmakingfornewbuyerswhoneedmoresophisticationthanthebigplayers'productscurrentlyoffer.Butit'sgreatnewsforfirmswhowouldotherwisehave foundsupplychainsoftwaretooexpensiveandoneroustoimplement.ForacompanylikeJoAnnStores,for

Page249

exampleanOhiobasedretailerwith1,100fabricandcraftstoresintegrationmakeseverythingpossible.ItsmanagementoptedforanintegratedsuiteofR/3 applicationsfromSAP,includingSAP'sownversionofmerchandiseplanningsoftware.5 Becauseitcouldstrictlylimitthenumberofboltonsrequiredtomeetits majorbusinessneeds,itcouldjustifyasystemsoverhaulthatmightotherwisebeoverwhelminginasmallmarginbusiness. ThebottomlineisthatfullyintegratedsupplychainmodulesinESsaremakingsupplychainmanagementnotonlytherightthingtodo,butathingthat'sincreasingly easytodoright.Itstillwon'tbelikefallingoffalog,butoncesupplychainsolutionsbecomethisstraightforward,itwon'tevenbeamatterofcompetitiveadvantageto focusonthem.Itwillbeacompetitivenecessity. GettingStartedinSupplyChainManagement Onethingshouldbestatedclearlyatthispoint,ontheoffchancethatitisn'tclearalready:Ifyou'reinaproductbusinessandcostsandcustomerserviceareimportant competitivefactorsinyourmarket(orcouldbe),thenyoushouldbeacceleratingdevelopmentofsupplychaincapabilitiesinyourESs.Andhere'sanotherpieceof advice:Evenasyou'reworkingonthosecapabilitieswithinyourwallsanddesigningalltheinternalwiring,youshouldbeanticipatingthenextstepthebigger challengeofconnectingupwithexternalsupplychainpartners.Inthissection,we'llexploresomekeyissuestoconsiderandsomealternativeapproachestogetting started. BringSupplyChainSolutionsintotheMixasEarlyasPossible Enterprisesystems,clearly,arevastinscopeandcapability.Givenunlimitedtimeandmoney,acompanycanatthispointlayafoundationofintegratedinformation acrossitsentire

Page250

businessandplumbthatsourcewithanynumberofdecisionmakingtools.Unfortunately,though,noonehasunlimitedtimeandmoney,sotherealityisthatenterprise solutionsareappliedselectively,andthelastpartstackledwillcomeonlinemuchlaterthanthefirst.ThiscreatesoneofthebiggestproblemareasconcerningESs:the difficultyofdecidingwhichpartsofthebusinesstosupportwiththemmostthoroughly,andwhichpartstoattackfirst. Itmakessenseasafirststeptowardsortingoutprioritiestothinkaboutbalancingtechnicalcapabilitiesinanenterprisesolutionwithstrategiccapabilitiesakey implementationdecisionthatIdescribedinchapter1.Technicalcapabilitiesareallthosebackofficefunctionsthatareessentiallythefoundationthatneedstobelaid forcrossenterpriseintegration.Inthemselves,however,technicalcapabilitiesprovideverylittleinthewayofrealbusinessvalue.Theyareinfrastructuralcritical, yes,butnotthestuffofwhichcompetitiveadvantageismade.Supplychainsolutionsareanothermattertheycountasstrategic,competitivelyorientedcapabilities. Butgettingmaximumbenefitfromthemreliesontheirbeingabletodrawonacoreofintegratedinformationsystems.It'saCatch22insomesense:Youwon'tget valuefromtechnicalsystemswithoutstrategicapplications,andyouwon'tgetenoughpaybackoncompetitiveapplicationswithouttechnicalsystems. Theanswer,ofcourse,istofindtherightbalancethebestcombinationandtherightiterativeapproachtobringingfoundationalsystemsandsupplychain managementtoolsonlineintandem.ToomanyfirmshavefocusedexclusivelyonthetechnicalsystemsattheoutsetoftheirESinitiatives,intendingtobuildonthe competitivetoolsdowntheroad.Ascostsandtimepressuresmount,theyfindtheyhaven'ttheresourcesleftforapplicationsthatwillturnallthatdataintoinformation and,moreimportant,intobusinessresults.Ifanything,thethinkingshouldbereversed.Technicalcapabilitiesshouldbeprioritizedwithaneyetothesupplychainand othercompetitivetoolstheywillsupport.

Page251

Decidingwhichstrategiccapabilitiestosupportisnosimpletaskinitself.Inthenextfewsections,I'llexploresomewaysofcrackingthatnut.Butthelargerpointhere isthatsupplychainmanagementtoolsareamongtheclearestopportunitiestoconvertESstocompetitiveadvantage.Anyproductorientedbusinesslookingto maximizethereturnonaninvestmentinanESshouldbemakingthempartoftheoverallsolutionandworkingtogetthebenefitofthemassoonaspossible.Itwould havebeeninsanetohavelaidoutacountrywideinterstatehighwaysystembeforethefirstautomobileswereinuse,andnoonewouldstringupphonelinesif householdsdidn'thavephones.Enterprisesysteminitiativesshouldavoidthissamekindoffolly. ChoosingbetweenBestOfBreedApplicationsandPerfectIntegration ForcompanieschoosingtomakesupplychainmanagementafocusoftheirESs,onedecisionloomslarge:whethertoleantowardthebestofbreedsolutionsorthe morethoroughintegrationandrelativeeaseofinstallationofferedbythemajorvendors. Forthemomentatleast,doinggreatthingsinsupplychainmanagementseemstorequireamultivendorapproachsomecombinationofbestofbreedsupplychain applicationsandacoresetofenterpriseapplicationstoboltthemonto.Andsofar,thiskindofsolutionissupportedbythemajorvendors.AsPeterZenckeofSAP hassaid,"Weseesupplychainmanagementasacolorfultapestryandrealizethatourcustomerswillbeusingmanydifferentthreadstomakeit."6 Still,thedecisiontogowithbestofbreedsisdifficultbecausethegroundisshiftingsorapidlyunderfoot.Withmajorvendorsenteringthefrayinfullforce,ashakeout amongthesmallervendorsiscertainasarecontinuingacquisitions.Stockpricesofboltonsupplychainvendorsarealreadysuffering.Willsmallercompaniesbe abletoaddcapabilitiesattherateofmuchlargerESvendorswithhugeR&Dbudgets?Willa

Page252

particularvendor'sproductcontinuetofeatureuptodateinterfaceswithSAPsoftware,forinstance,whenitscreatorisnowownedoutrightbyBaan? TheupshotisthatifyouhavebeenusingoneofthemajorESvendors'applicationsuitestorunbackofficefunctionslikefinanceandmaterialmanagementandusinga varietyofsupplychainsoftwareproductsfromnichevendors,youhaveadecisiontomake:stickwiththepatchworkofapplicationsorgoforthefullyintegrated systems?MottsNorthAmerica,a$650millionfoodmanufacturer,chosethelatterapproachwhenitbecameoneofthefirstcompaniestodeploySAP'sAdvanced PlannerandOptimizer(APO)software(SAP'sentryintothesupplychainplanningmarket).Itdecidedtoforegosomeofthebestofbreedfunctionalityinfavorof betterintegrationwithR/3andeasierinstallation.Colgatehadthesameinstincts,actuallyremovingManugisticssoftwareitalreadyhadinplaceandinstallingSAP's packagetoperformequivalenttasks.ButAustralianfoodmanufacturerGoodmanFieldertooktheoppositetack,choosingtoimplementManugistics'ssupplychain packageeventhoughitwasinthemidstofanSAPR/3implementation.TheESvendor'sversionofasupplychainoptimizationsystemwasn'tyetavailable. Clearly,thehighestfunctioningsystematthemomentisonemadeupofavarietyoftoolsandsoftwarevendorsnoonevendoryetoffersafullyintegratedsupply chainmanagementsolution,andperformanceamongcomparableproductsishighlyuneven.Majorvendorsstilllackthemostdynamic,morestrategicplanningand forecastingtoolsand,moresignificantly,theylackthecapabilitytointegrateacrossenterprises.Butevenwithstrongwillingnesstodaybyallpartiestocreatealliances andintegration,combinationsoftoolspresentdifficulties,particularlyininterfacedesign. Onethingisclear:AsoftwaresolutiondevelopedbyanESvendorismorelikelytotakefulladvantageoftheES'sdata.Thirdpartypackagesmaydrawononly70 or80percentofyourESdata.AndasmainstreamESvendorsfurtherdevelop

Page253

theirownsupplychainofferings,theyprobablywon'tmakeitanyeasierforthirdpartyfirmstogetatcoreESdata.Also,withanintegratedpackage,thereisnoneof thedifficultytypicallyinvolvedinthirdpartyinterfaces.Itwillbeeasiertomaintainversioncontrolandtobesurethetwopackageswillcontinuetoexchange informationwithoutglitches.Youwon'thavetoworryaboutupdatingyourinterfaceseverytimeyouupdateeitheryourESpackageoryourboltonsupplychaintool. Asinallthingstechnological,it'stemptingtowaitforthenextversions,hopingthatmajorvendors'productswillmatchtheperformanceofthebestofbreeds.Ifonly yourcompetitorsweren'tmakingitanecessitytoactnow! Threedifferentapproachesarepossibleinplanningacourseofattackonsupplychainmanagementwithpackagedsoftware.I'lldescribeeachchoiceandmention somestrengthsandweaknessesofeach. CherryPickingtheBestAvailableSolutions Itmaymakesensesimplytobeopportunistic,capitalizingontheavailabilityofsoftwarethatfunctionsextremelywellinspecificareas.Withthisstrategy,you'llhaveto undertakeadetailedanalysisoffeaturesandfunctionsinvarioussoftwareofferings,decidewhichonesyouneedtodayandwhichyoucanwaiton,andfollowvendor progresscarefully.This,inotherwords,isthelandoflowhangingfruit.Thechoicesareeasy,andthepaybackissafe.Theonlyproblemisthat,nomatterhoweasyit istopick,lowhangingfruitdoesdivertresourcessomewhatfromhigherstakesefforts.Andthepayback,whilesafeenough,maybenowherenearashighasafirm wouldrealizebymakingchangeinareasthattrulydriveitscompetitivesuccess. Despiteitschallenges,thisapproachhasmoretorecommenditthanmightseemobvious.Inanenvironmentofuncertainty,itatleastoffersthecomfortofthefastest accesstoworldclassperformance.Itwouldbehard,forinstance,totopaManugisticstoolfortransportationplanning,oran

Page254

i2Technologiesproductifwhatyouneedisadvancedplanningthataccountsformaterialsandcapacityconstraints.Thesemaynotbetheabsolutemostpressing problemsyouhavetodealwith,ortheimprovementsthatwillmeanthemosttoyourprofitabilitybutsurelytheywillprovidesomebenefit,andwhateverbenefits theydoproducewillstartflowingsoon. GoingwiththeFlow Alternatively,itmaybeawisecoursetogoalongwiththepackageselection(s)beingmadebyimportantsupplychainpartners,withtheideathatstandardizationwill makeitaneasierpropositiontoextendthebenefitofintegratedinformationacrossfirms.You'llwanttohaveextendeddiscussionswiththesepartnerstolearnwhat theirstrategiesare,andwhethertheyplantostickwiththeircurrentchoices. Forexample,ifaretailer'smajorsuppliersareonaparticularES,andaretailversionofthatsystemisavailable,theretailermightdobesttoconsidergettingthat software.Constantcommunicationiseverythinginthecontinuousreplenishmentworldofconsumergoods,andifretailersandsuppliersarebothoncommonsystems, communicationswillbethatmucheasier. GoingwiththeindustryflowwillprobablybeincreasinglycommonasthemajorESvendorstargetmiddlesizedandsmallercompanieswiththeirmarketingefforts. Forfirmsaccustomedtofollowingthetechnologyleadofthe800poundgorillasintheirindustry,theargumentforgoingwithanemergingindustrystandardwillnotbe hardtomake.Ifyou'reprimarilyaGeneralMotorssupplier,itwillmattertoyouwithwhatESvendorGMhascastitslot. ThepointhereisnottoimplythatinterenterprisecomputingwillnotbepossibleamongdiverseESs.Quitethecontrary:Therearealreadyimpressive"middleware" solutionsthatfacilitateexactlysuchcommunication,usuallyemployingtheInternet.Whatisatissuehereisonlythedegreetowhichthatinformationtransferis seamlessandcomprehensive.7 Todayit

Page255

doesn'tmakealotofdifferenceifyou'reonSAPandyoursupplierisonOracle,butaslinkagesbetweenfirmsbecomemoresophisticated,itmaybeeasierto connectfirmsthathavethesamevendor'ssoftware. TargetShooting Thethirdapproachmaybethebravestandhardestcoursetopursue.Thatwouldbetoattackthepartsofthesupplychainthatofferthegreatestpaybackforyour ownprofitability,regardlessofwhetherthepackagedsolutionsthatalreadyexistareterrificatwhattheydoorincommonuse. If,forinstance,demandforecastingistheareaaboveallothersthatstandstomakeanimpactonyourprofitability,thenthatshouldbethefirstdoneandmostwell executedcomponentofthesolution.Ifyourwarehousesareatcapacity,perhapsthehighestimpactareaisproductionscheduling,which,donewell,wouldleadto fasterinventoryturnsandavoidtheneedforcapitaltobespentonnewfacilities.Allthebetter,ofcourse,ifyourcriticalneedsmapwelltothelatestandgreatest softwaretoolsonthemarket.Eveniftheydonot,however,thisapproachwouldsayskipthelowhangingfruitandgoforthebenefitbonanza.Ifelectroniccommerce capabilitiesarewhatyouneed,andnobestofbreedsolutionhasyetemergedthatfitsthebill,don'tacceptthedelayandmoveaheadinotherareas.Putallyour energyintogettingthatrequirementserved. Somebravesoulswouldarguethatifthepackagedsolutionsyouneedareinlinefordevelopmentbymajorvendors,butstillonthedrawingboard,thenyouareina goodposition:Asabetasite,youcaninfluencetheirdirectionofdevelopment.Thiswasthethinkingofthefifteenpilotcustomerswhosigneduptotestandrefine SAP'sAPOsoftware.Forallthepainofoperatingonthebleedingedgeoftechnology,theywereabletohaverealinfluenceonapackagethatwasimportanttotheir futureoperations.SAPhaddevotedsome180fulltimedeveloperstothecreationofthesoftware,andwaslisteningintentlytowhatthese

Page256

pilotcustomersthought.Noneofthem,presumably,wouldhaveconsidereditmoreworthwhiletohaveoptedforinhousedevelopmentonsuchascale. Finally,evenifvendorshavenoplanstocreatethepackagesonyourwishlist,youcanstartlobbyingthem,creatingdevelopmentconsortia,andgenerallyagitatingfor theapplicationsimportanttoyou.TakealessonfromReebokandVF,whichformedtheapparelconsortiumIdescribedinchapter3.Managersatbothcompanies lovedtheideaofwhollyintegratedESs,butfoundexistingpackageswoefullyinadequatetodealwiththepeculiaritiesofapparelandfootwearsupplychains. Reebok'schieftechnologyofficer,PeterBurrows,andVF'svicepresidentofreengineering,LeroyAllen,createdaconsortiumwithSAPthatjointlypaidforand managedthedevelopmentofanR/3addonappropriatefortheircompanieswhichSAPwasthenfreetomarkettoothersintheindustry.Burrowssaysitwasn't easytogetSAPtogoalong,becauseitsmanagement"lookedatourindustryandthoughtitwasamess."Butintheend,hispersistencepaidoffthenewsystems arenowupandrunningbasicallyasReebokandVFenvisionedthem.8 TheFutureofEnterpriseSystemSupplyChainSolutions Amidstalltheuncertaintyofarapidlyshiftinglandscape,onethingseemsclearaboutthefutureofsupplychainsolutionsinESs:Theywillcontinuetoenjoyexplosive developmentandsalesgrowth.IndustryanalystsatAMR,whichfocusesonESmarkets,recentlyprojectedthattotalrevenuesfromsupplychainsoftwarewouldrise fromanestimated$2.9billionin1998to$13.6billionin2002.WhileI'msurethey'rewrongontheabsolutenumberprediction,they'renodoubtcorrectthatthat categorywillincreasemarkedly.Italsoseemslikelywewillseeafewmajortrendsinthefunctionalitythatvendorsaddtothesystems,intheuseoftheInternetto achieveextendedenterpriseintegration,andinagrowingrangeofoutsourcingoptions.

Page257

NewFunctionality Forthosewhoappreciatethesoftwareindustryasaspectatorsport,thejockeyinginthesupplychainfieldshouldmakeforgoodviewinginthenextfewyears.We willcertainlyseethemajorESvendorsdoingdoubletimetomatchthesophisticationlevelsofthenichesoftwarevendors.Thiswillmeansignificantdevelopment efforttoreleasehigherfunctioningversionsoftoolsalreadyintheirtoolkits,industryspecificvariationsonthosetools,andnewtoolstheyhaven'tyetdevelopedtheir ownversionsof.Theirultimategoalistokeepcustomersfromhavingtolookelsewhereforanybasicfunctionality.Atthesametime,ofcourse,morefocusedsupply chainsoftwarevendorswillbeworkinghardtomaintaintheperformanceleadtheynowenjoythroughcontinuedinnovation.Forcustomers,allthiswillmakefor confusingpurchasedecisionsbutenjoyit.You'retheultimatebeneficiary. Muchofwhatisontheimmediatehorizonfallsintothecategoryofdecisionsupporttoolstohelpseniorexecutivesmanageandincreaseprofits.Thesewillinclude sophisticatedapplicationsforactivitybasedcosting,togivemanagementanaccurateunderstandingofexactlywhatcostisbeingincurredrelativetothevalueadded byspecificsupplychainactivities.Othertoolswillinclude''supplychaindashboards"thatprovideuptotheminutereadingsonoperationalperformance,fueledby datainESs.Someofthesewillbedesignedasbalancedscorecardapplications,presentingalimitedsetofkeyprocessandoutcomemetricsbasedonthebusiness modelofaparticularcompany. Lotsofbusinesstobusinesssolutionsareonthedrawingboard,startingwithecommercetoolsforprocurement,vendormanagedinventory,andcollaborative demandmanagement.Atthetimeofthiswriting,theraceisontocapitalizeonthenewcommunicationsstandarddevelopedintheconsumergoodsindustryfor collaborativeforecasting,planning,andreplenishmentbetweenmanufacturerslikeNabiscoandsophisticatedgroceryretailerslikeWegman's.9 Enterprisesystem vendorswilldevelopproductstoallowtheiruserstousetheInternetandthe

Page258

ecommercemodelforalltypesofcommunications.Thosecommunicationscouldincludecollaborativedemandmanagementorvendorsupplymanagementand forecasting. Mostimportant,allthevendorswillbelookingforbreakthroughsinwhatpromisestobethenextmajorphaseofsupplychaininitiatives:actualsysteminteroperability amongsuppliers,customers,andotherbusinesspartnerstocreatehighlyleveragedvaluechains.Inthisenvironment,yoursystemwilltalkdirectlytominewithout manualintervention.AlltheenterpriseapplicationpackagesarebeingredefinedtosupportInternetbasedcustomertosuppliervaluechainsforelectroniccommerce. Whetherthirdpartyvendorsareabletoperfectmiddlewaretodothejob,orthemajorvendorsmakesuchaddonsunnecessary,thelinkageswillsoonbebuiltfora customerordertocommunicateseamlesslyacrossthemultiplemembersofthatvaluechain.Expecttoseerealtime,extendedenterprisesynchronizationbecomea reality.WhichbringsustothenextmajorcomponentinthefutureofESs:theInternet. TheImpactoftheInternet TheInternetfigureshugelyinthefutureoffirmsusingESs,asitdoesinthefutureofallbusiness.Becauseitprovidesglobalstandardsandreadyaccessibility,it'san idealnetworkingmechanismfororders,statuschecks,andmanufacturingdesignspecificationsjusttociteafewtypesofrelevantinformationtobepassed betweencustomers,distributors,andsuppliers.Itpromisestoremovemostoftheredundantactivitynowcarriedoutbyfirmsinorderplacingandordertaking,status checkingandinventorytracking,invoicingandpayment. Considerthat,atthispoint,manybusinessessendorderstotheirsuppliersviaemailinspreadsheetform.Atthereceivingend,clerksretypethoseordersintotheir ownmanufacturingsystems.Thesoftwarenowexistsforcustomerstopipetheirordersdirectlyintothesupplier'smanufacturingsystemviaelectronicdata interchange.Beforelong,thatcommunicationwill

Page259

happenviatheWeb.It'stemptingtoimaginethetimecomingwhenabusinesstobusinesssupplierwilltellitscustomers:"HaveyourEScallmyESandwillthelast personinCustomerServiceturnoutthelightswhenyouleave?"IfanyonehadbeenabletoaskEDI20yearsagowhatitwantedtobewhenitgrewup,theInternet wouldhavebeentheanswer. WhyisthepromiseoftheInternetsodifferentfromEDI?Onewordinclusivenessprobablysumsitup.First,becauseEDIrequiredcomplexsystemsoflocalarea, widearea,andexternalvalueaddednetworks,notmanycompaniescouldaffordtodevelopitanduseitextensively.Onlyinsituationsinwhichabusinesshadhigh volumesofstructuredtransactionswithafairlylimitednumberofpartnersdidtheeconomicsreallymakesense.Andunfortunately,nouniformstandardacross industrieswaseverdeveloped(standardsyoumayhaveheardof,suchasANSIX12andEDIFACT,werewidelyemployedinsomeindustries,butothershadtheir ownstandardsandversionsofstandards),sotheknowledgeofhowtouseitdidn'ttransfereasilyfromfirmtofirm.Innovationoftendisseminateswiththemovement oftrainedpeople,buthere,technologybarrierskeptmuchofthatknowledgefrombeinggeneralized.Someanalystsestimatethat,atitshighpoint,EDIwasbeing usedbylessthan1percentofglobalcompanieswhocouldbenefitfromit.ButecommerceovertheInternet,asarelativelycheapandeffectivealternative,is changingthat.Now,anysupplierwhocanaffordaWebpagecancompeteforbusinessfromsuchfirmsasGeneralElectricorTexasInstruments.10 There'sanothersidetotheinclusivenessoftheInternetascomparedwithEDI.Italsoallowscommunicationstoincludemuchmorethanstricttransactiondata.As wellashighlystructuredinformation,theWebalsofacilitatestheexchangeofricherformsofinformationandknowledgeallowingcompaniestoconnectindeeper waysthanameretransactionhandshake.Here'sanexample:Adaptec,Inc.isaCaliforniahardwareandsoftwarecompanythatreliesonpartnersinAsiato manufacturewhatitdesignsandmarkets.Usingapieceof

Page260

middlewaretotranslate,thecompanytransmitsinformationdirectlyfromitsESsintoitspartners'ESs.ThesolutiongoesabigstepbeyondEDIinautomatingthe communicationsamongthefirmsitisnot,forinstance,limitedtoorderplacing,butallowscomplexinformationtobesentaswell,suchasCADdrawingstoguide assembly.AsESsachievegreaterpenetrationintoproductdevelopmentandfrontofficeprocessesinvolvingcustomers,we'llseegreateruseofES/Internet combinationstoshipproductdesignandsalesandmarketinginformationbackandforth. Oneaidtofullexchangeofinformationacrossprogramswillbenewstandardsforinformationexchange.Somesuchstandardswillemergewithinindustriesandwill involvedatadefinitionsforcommonlyemployedtermsandcomponents.AnewgenerationofInternetmarkuplanguages(suchasXML,succeedingthepopularWeb languageHTML)willmakeitpossibleforonecompany'stermandproductnumberfora3Dtitaniumwidgettobetranslatedinrealtimeintowhatanothercompany callsit.BothESvendorsandmanyusercompaniesareinvestinginthistechnology. Asaresultofallthisnewfunctionality,theInternetwillgowellbeyondeventhefondestdreamsofEDItoenablethecreationofextendedenterprises,andeventruly virtualcompanies.Alongtheway,itwillbringawholenewperspectivetoESs,whicharenowviewedasdatarepositoriesandanalyticaltoolstobeusedbyindividual companiestooptimizetheirperformance.OncetheWebisintegratedintoanES,thewholefocusshiftstowardcommunicationandworkflowamongcompaniesina supplychain. Ofcourse,theprospectofinterenterprisesharingofinformationraisesawholehostoftechnicalandbusinessissues.Onthetechnicalside,thereisthenontrivial challengeofdevelopingandenablinginterfacesfromtheESstotheWeb.Andthereistheriskthatresponsetimetointernaluserswillsufferfromoutsideusers'access boggingdownthesystem.Onthebusinessside,managerswonderhowtheycanpossiblyexposeenterprise

Page261

datatobusinesspartnerswithoutplacingtheirbusinessanditsproprietaryinformationatrisk. Issueslikethesewillcontinuetoariseinparticularcircumstances,buttheoveralltrendwillbetowardsupplychainmanagementwritlarge.Companieswillstill competewithcompanies,butonahigher(andhigherstakes)level:Supplychainswillcompetewithsupplychains.Andcompaniesthataren'tconnectedwithpartners, suppliers,customers,andserviceprovidersthroughWebbasedservices,andonlyusetheirESsforinternalmanagement,willfindthemselvesslippingbehind. ButiftheInternetisimportanttoESs,ESsareimportanttotheInternet.Ifcompaniesdon'thavesmoothlyfunctioningandintegratedbusinessprocessesandaccurate, realtimedataaboutinternaloperations,theywon'tbesuccessfulplayersinelectroniccommerce.ScratchahighlyeffectiveecommercecompanylikeCiscoSystems, andyou'llalmostalwaysfindanESunderneath. TheRiseofNewMarketStructuresandNetworks OnefinaldevelopmentthatmayaffecttherelationshipsbetweensupplychainsandESsistheriseofnewnetworkbasedmarketstructuresandinterorganizational alliances.Thesearenotentirelynewphenomenacompaniesinthepasthaveoftenformedallianceswithmembersoftheirsupplychainsbuttheyhavebeengiven newimpetusandshapesbyglobalovercapacityandmegamergersonthebusinessside,andthegrowthoftheInternetandelectroniccommerceonthetechnology side.Enterprisesystemsandtheirfocusonsupplychainswillonlyacceleratethistrend,aswellasthemselvesbeingacceleratedbyit. Thenewnetworkbasedstructuresmaytakeseveraldifferentforms.Insomeindustries,suchasautomobiles,oneortwodominantfirmsmayactashubsofanetwork ofsmallersuppliers.Inotherindustries,suchasindustrialcomponents,newonlinemarketplacesareemergingthatmakeiteasyforanybuyertoreachamuchbroader rangeofsuppliers,eitherdirectlyor

Page262

throughanintermediary.Allthatisclearisthatcompanieswillincreasinglylinktheirsystemsandprocesseselectronicallywithotherfirms,individuallyandingroups. Companiesthatalignintonetworksnowdosoonthebasisofvariouscriteria,whichrarelyincludeinformationsystems.ButasESsandecommercebecomemore centralanddevelopedwithinorganizations,theabilitytoshareinformationeasilyoutsidetheorganizationmaybecomemorecriticalindecidingwithwhomtoalign. HavingsimilarapproachestoESstrategyandtechnologywillundoubtedlyalsobeafactorincreatingandmaintainingrelationships. Enterprisesystems,asI'vediscussedbefore,haveatendencyto"commodify"certainaspectsoforganizationsbecausemanyfirmsinindustriesadoptthesame processes,information,andotherorganizationalarrangements.BecauseoftheseESdrivensimilarities,itmaybecomeeasierfororganizationstoaligninthefuturewith companiesintheirownbusinessesorincloselyrelatedpartsofthesupplychain.Logisticalandsupplyprocesses,forexample,maybecomepartofasharedservices activityacrossfirms,ormaybeturnedovertothirdpartyorganizationsthatexcelatsupplychainprocessesandinformationmanagement.It'salreadythecase,for example,thatseveralCanadianoilcompanieshavecollaboratedtobuildacommonlyownedrefinery,withsharedfinancialmanagementprocessesandasharedES acrosstheconsortium.It'snothardtoimaginetheextensionofsucharrangementstopurchasing,replenishment,delivery,andothersupplychainprocesses. NewESenableddemandandsupplystructuresmayalsobeacceleratedbyashifttowardnetsourcing,orexternalhostingofESsovernetworksbysocalled applicationserviceproviders.I'lldescribethistrendmoreinthenextchapter,butitsimplicationsforsupplychainmanagementareworthmentioninghere.Whilemost outsourcingarrangementstodayarefocusedonthecorebackofficeapplicationsofESs,itwon'tbelongtilltheyexpandtoincludesupplychainapplicationsand thismaybewherethevalueofoutsourcingprovesgreatest.Withtheuseofanoutside

Page263

partytohostapplications,onemorebarriertoextendedenterprisecooperationwilldrop. Anexternalservice,afterall,providedovertheWeb,canequallyservemanydifferentusersofasystem,notjustits"internal"customers.Expecttoseemore companiesoptingforoutsourcingarrangementsastimegoesonandmoreofthemusingtheseflexibleandscalablearrangementstostrengthentheirsupplychain partnerships. It'sPaybackTime Enterprisesystemsarealreadybringingaboutarevolutioninthewaysupplychainmanagersthinkabouttheirwork.Supplychainissueswillsimilarlyrevolutionize whatsoftwarevendorsandtheircorporatecustomersseeastherealworkofESs.Increasingly,it'sbecomingclearthatthegreatestimpactof,andpaybackfrom, ESsisinsupplychainmanagement.Aquickanalogymayhelptodrivethepointhome. InSeptember1998,surgeonsinLyon,France,didanincredibleandunprecedentedthing:TheywereabletogivepatientClintHallamatransplantedhandtoreplace theonehe'dlosttoanaccidentyearsbefore.Theprocedurewasunbelievablycomplexitinvolvedgraftingnotjustskin,butalsomuscle,nerve,andbone.Andit producedanamazingoutcome.Now,whenMr.Hallamthinkstowigglehisfingers,hisfingerswiggle.Whenhishandtouchesahotsurface,hesensesitandpulls back.It'sasimpleandobviouswishtohavesuchseamlessintegrationbetweenacorebeingandanewlyaddedpartthattheycooperateflawlesslyunconsciously, even.Butgettingtherehastakendecadesoflearningandtechnologicalevolution. Thinkaboutthatsurgery:aboutthatdifficulty,andaboutthatwonderfuloutcome.NowthinkabouttheESsyou'reinstallinginyourbusiness.Overthenextfiveyears, thesystemsyou'reinstallingtodaywillallowyoutointegrateseamlesslywithentitiesoutsideyourfirmyourcustomers,yoursuppliers,youroutsourcers,youralliance partners.Whenyougetanorder,

Page264

yoursupplierwon'tneedtobetoldtoreplenishyourrawmaterials.Whenyourdistributordetectsanewpatterninsales,yourmarketerswillinstantlyperceiveit,too. Thetechnologyinvolvedwillbedauntinganditwon'tevenbethehardestpart,comparedwiththeprocessandbehaviorchangerequired.Butthenewcapabilities you'llhaveatyourfingertipsallthepowerandreachofanextendedenterprisewillbenothingshortofamazing.

Page265

9 TheFutureofESEnabledOrganizations
Enterprisesystemsastheyexisttodayrepresentjustasnapshotofonesegmentoftheoverallspectrumofinformationtechnologyatonemomentintime.Changesin thatfieldarerapidandconstantandincludeothertechnologydomainssuchaspersonalcomputingandtheInternet.Giventhespeedandunpredictabilityof technologicalinnovation,itmayseemarroganttopredictthefutureofESs.SomechangestoESswillhaveoccurredevenbythetimethisbookispublished. However,thespeedanduncertaintyoftheprocessmakehavingsomeideaofthelikelydirectionofdevelopmentallthemoreimportanttothosebusinessesalready usingESs,andtothosethatwillusetheminthefuture.Further,assciencefictionauthorWilliamGibsonnoted,"Thefutureisalreadyhereit'sjustunevenly distributed."Somefirmsarealreadyexperimentingwithtechnologiesandapproachesthatwillconstitutethefutureforlateradopters.
IwasgreatlyaidedinthischapterbyJeffBrooks,thenastudentatBostonUniversity,whoresearchedthetopicandwroteadraftofthechapter.

Page266

Enterprisesystemsdon'texistinavacuum:Theyareproductsthataredeveloped,sold,andimplementedwiththehopeandbeliefthattheyprovidevaluetothe companiesthatusethem.BusinessvalueisthuswhatdrivesthedevelopmentofESs,andbylookingatthepotentialforcreatingvalue,onecanmapoutareasof probabledevelopmentforthetechnology.MostcompaniesthathaveimplementedanEShavedonesowithafocusontacticalvalue,andthesamefocusislikelyto prevailintothenearfuture.However,asI'venoted,manycompaniesarepoisedtobegintoachievestrategicvaluefromtheirESs,andtheirbusinessenvironments increasinglydemandthiskindofchange.Asthiswidercontextchanges,thewaysinwhichvalueistranslatedtobusinessprocesseswilllikelyshift,andtheseshiftswill havetheirownimpactsonESs. InthischapterI'llattempttoprovidearoughguidetothefuture.I'lldiscusssomepossibledirectionsforESswithinthecontextofpossiblelargescalechangestothe businessenvironmentwithinthenextseveralyears.Enterprisesystemsastheycurrentlyexistwillonlypartiallysupportcompanies'attemptstorespondtothese comingchangesthegapsbetweenwhatcapabilitieswillbevaluableinthefutureandwhatcapabilitiesarecurrentlyavailablecanbeviewedasdevelopmental imperativesforESs.I'llpresentacapabilitydevelopmentframeworksuggestingthattheESindustrywilladdressthesecapabilitygapsinaparticularorder.Which kindsofcompanieswilldeliverthesecapabilitiestothemarket,andinwhatvehicles,Ican'tpredict.Thatwilllikelybedecidedbythedictatesofmarketposition, customerresponse,andROI.Finally,I'llalsodiscusssomenewbusinesscapabilitiesthatmayemergeinthenearfuture.WithasenseofhowESsarelikelyto developinthefuture,onecanconsidertheimpacttheywillhaveontheconcernsofmanagersandcompanies. ComingChangestotheBusinessEnvironment Ihavenolockonthefutureofbusiness(orIwouldbewritingnovelsandoccasionallymonitoringmyvaststockportfolio).

Page267

However,severalbroadtrendscarrytheweightofgeneralconsensus.Thesetrendsincludeglobalization,rapidsenseandrespondbusinessmodels,overcapacityand corporaterealignment,thegrowthofvirtualorganizations,andacceleratingproductinnovation.Enterprisesystemsserveasplatformsfromwhichcompaniescan pursuethesesourcesoffuturebusinessvalue,buttotrulyenabletherequiredbusinesscapabilities,ESswillhavetoacquirenewfunctionalitythemselves.Thegaps betweencurrentanddesiredESfunctionalitiesrepresentopportunitiesfortheESindustrytoexpandandtocapturesomeofthevalueassociatedwitheachtrend. RapidSenseandRespondBusinessModels Senseandrespondbusinessesprovidevaluebylearningwhatanindividualcustomerwantsataparticulartimeandrespondingbyquicklyprovidingatailored productorservice.Thephenomenonhasbeenwidelypredicted,andisalsoreferredtoasleanproduction,masscustomization,customercentric,andsoforth.1 Companiesthatwishtoprovidethistypeofrapidresponsemustmaintainatightlinkbetweencustomercontactandproductionorserviceprocessesinrealtime.A trulyrobustsenseandrespondcapabilityalsorequiresprocessintegrationthroughoutthesupplychain.Additionalcapabilitiesthatbenefitsenseandrespond businessesareproductionmanagementandproductconfiguration. TheintegratedapplicationsanddatabasesofESsprovidethebasisforthislevelofprocessintegrationwithinindividualfirms,andsupplychainintegrationisamajor areaofdevelopmentforESsatthistime.Productionmanagementsoftwarehasbeenaroundforsometime,butitisbecomingmoresophisticated.MohawkIndustries, forexample,usesaproductionmodelbasedonchaostheorytoscheduleproductiontimeforspecialordersevenbeforetheyarereceived,whichallowsafaster responsetosuchorders.2 Productconfigurationsoftware,whichallowscustomerstoselectproductoptionsandreceiveacustomizedproduct,isavailablefrombolt onvendorssuchas

Page268

Trilogy.Enterprisesystemvendorsarealsorecognizingthevalueofthiskindofflexibilityandarecreatingsolutionsforindustriesinwhichproductoptionsarecentral tothebusiness.SAP,forexample,hasitsownconfigurationmodule. TheexpandingcapabilitiesofESsareincreasingthespeedandflexibilitywithwhichcompaniescanrespondtotheircustomers,makingsenseandrespondprocesses possible,atleastinpilotform.TheclassicexampleofthisprocessintherealworldisLevi'scustommanufacturingofjeans.Thecompanyobtainscustomers'physical measurementsviascanningboothsplacedinretailstores,sendscustomers'orders,includingstyle,color,andpersonalmeasurements,directlytothefactory,and deliversthecustommadejeanswithinseveralweeks.Anexamplethatpointstohowthisprocessmightbeextendedevenfurtherisoneclothingmanufacturer,cited byBradleyandNolan,thatusesfashionexpertswithdigitalcamerastoroamtheworldinsearchofpromisingstyles.3 Thecompanyreceivespicturesfromthe expertsovertheInternet,usescomputeraideddesignandcomputeraidedmanufacturing(CADCAM)programstodesignthegarment,andthencreatesaprototype withfabricprintsmadewithlaserprinters.Levi'ssystemadaptsthecutofastyletoanindividualcustomer'smeasurements.Howlongbeforecompaniesallowthe customertocreatethestyleitself? Globalization Perhapsthemostobviousandcompellingbusinesstrendtodayisglobalizationofcorporations,markets,andcompetition.Multinationalcorporationshaveexisted foralongtime,andglobalizationalreadyhasincreasedascompaniesseekgrowthandasregulatorybarriershavefallenoverthepastseveralyears,soESvendors havehadgoodreasonstoaddressthecapabilitiesrequiredbyglobalcompanies.Enterprisesystemsalreadysupportobvious,relativelystraightforwardcapabilities, suchasallowingtransactionsandreportinginmultiplecurrencydenominations,andreportingonoperationsbycountry.How

Page269

ever,othercapabilities,suchasadaptingtolocalregulatorystructuresorculturalexpectations,aremorecomplexandlesseasilyprogrammed.Indeed,theintegrated databasesandcomplexstructureofESsmaymakeitmoredifficultforcompaniestoadapttheirprocessestolocalconditions.Thiscutsbothways:Standardizing processestendstomakethemmoreefficientoverall,butthefittolocalrequirementsandtheabilitytolocallycustomizeproductsandservicesmaysuffer. Inadditiontoadaptingtomultiplelocalconditions,companiesthatoperategloballymustmanageacrossthelocalconditionswithincountries.AnexampleofhowESs supportmanagingacrosslocalconditionsisprovidedbyglobalproductionmanagementsoftwarecurrentlyfromthirdpartyvendors,andeventuallyfromES vendors.Thissoftwareintegratesglobaldataonsitecapacity,productionandtransportationcosts,tariffs,anddemandinordertoscheduleproductionacrossmultiple sites,maximizingthecostefficiencyofoveralloperations. Finally,asmarketsbecomemoreglobal,companieswithinthosemarketstendtoconsolidateinordertobetterdealwithovercapacityinmarkets.Theincreasedrate ofmergersandacquisitionsleadstoaneedtocombinepreviouslyseparateESs.Similaritiesininformationandprocessenvironmentsmayalsoleadtobusiness combinations.Integratinginformationsystemsfromseparatecompaniesissimilartointegratingsystemsfromseparatebusinessunits,andsotheexperienceislikelyto besimilar,aswell.IfatleastonecompanyhasanESinplace,theoverallchoiceandconfigurationofthefinalsystemmaybeafaitaccompli,butissueswillstillremain regardingdeterminingtheextentoflocalchangesandmergingdatadefinitionsandprocesses(alongwithmanagingtheusualculturalchanges).Additionally,personnel's investmentintheoldESmaybehigherthanitiswithlegacysystems,bothbecausepersonnelmayseetheoldESasmorevaluableandbecausetheylikelyputinan enormousefforttoinstalltheoldES.Ontheotherhand,iftheconsolidatingcompaniesusethesameESpackagewithsimilarconfigurations,thenmergingtheir informationsystemscouldbe

Page270

relativelyeasy,butdetailedanalysisandconfigurationwillstillberequired. HorizontalCorporateRealignment Whiletheglobalizationofmarketsappearstopressforconsolidationofindustries,thecomplexityofmanagingverylarge,globalfirmsanddecreasedcommunications costsacrossorganizationswillpushcorporationstorealignthemselveshorizontally.4 Inotherwords,companieswillsplitoffcertainbusinessfunctionsintonewfirms. Thefunctionsthataresplitoffmaybenoncorefunctions,ortheymaybethosethataredeemedincompatiblewitheachother.Outsourcingrepresentsthiskindof corporaterealignmentinitsnascentstages:Callcentersprovidecustomerservicesformanycompaniesfromasinglesite,FederalExpressprovidedinventory managementservicestocompaniessuchasLauraAshley,andprofessionalemploymentorganizationsprovidehumanresourcesservicesatalevelthatsmaller companiesoftenareunabletoaffordontheirown. Giventhecombinedgoalsofafocusedbusinessandglobalscale,firmsmustnotonlyspinoffcertainfunctions,butthespunoffbusinessesmustcombinetoachieve criticalmass.Toaccomplishthisserialunbundlingandrebundling,corporationswillhavetoseparateandmergedataandprocessesmultipletimes.Enterprisesystems willundoubtedlymakethisprocesseasier,butevenwiththemitwon'tbeawalkinthepark.Integrationacrosssupplychainsisbecomingbetterestablished,but crossfirmintegrationofotherprocesseslagssomewhat.Also,whileESscaninsomewaysfacilitatemergingdataandprocesses,asdiscussedearlier,thereareno clearmodelsofhowtodisaggregateorpullapartdataandprocesseswhenorganizationsbreakthemselvesup.SystemintegrationisatransitioncostforeveryES installation,andthereforeESvendorshaveworkedtoprovideintegrationtools,suchaspreconfiguredpackagesforparticularindustries.Systemdisaggregationor disintegration,ontheotherhand,isonlyanissuewhencompaniesdivest,and

Page271

sountiltheunbundlingbeginstooccuronalargescale,ESvendorsareunlikelytodevotemuchattentiontothedisaggregationissue. VirtualOrganizations Virtualorganizationscouldbedescribedasthefluid,flexiblecombinationofcomponentsofoneormorebusinessestodelivervaluetoamarket.Theyare characterizedbyconnectionsbetweencompaniesthathandlespecificportionsofaprocessconnectionsthatchangeasbusinessopportunitiesarise,aretaken advantageof,thenabandonedastheirvaluediminishes.AswiththemorepermanentcorporaterealignmentI'vejustdiscussed,integrating(anddisaggregating) systemsofdifferentfirmsisanimportantcapabilityforvirtualorganizations.However,sincethelatterorganizationalformsaremoreofteninastateoffluxbundling andunbundlingonamoreorlessconstantbasistransitioncostsbecomeabiggercomponentoftheirbusinessenvironment.Theyarethusmoreofapotentialdriver forESvendoreffortstodecreasethecostandspeedofbundlingandunbundling.Inaddition,sincethepossibleportfolioofrelationshipsismuchlargerthanwith permanentrealignments,evaluatingpossibleportfoliosbecomesamuchlarger,ongoingtask.Finally,sincevirtualorganizationsarenotsimplymergersoracquisitions, therangeofpossiblerelationshiptypesisgreater.Toaccommodatethisrange,ESswillneedtosupportdifferentlevelsofintegrationofdataandprocessesfrom simpleinterorganizationalmarkettransactionstocompleteintegrationandsharingthatareappropriatetothekindofrelationshipbetweenthetwo(ormore) organizationsthatmakeupthevirtualorganization. OnewaytoimaginetheshapeofESenabledvirtualorganizationsistoseethemasextendedvaluechains.5 Competitionwouldbebetweendifferentvaluechains, insteadofbetweenindividualcompanies.Organizationswouldhavetoevaluatethebenefitsofparticipatinginalternativevaluechains,and

Page272

membersofavaluechainwouldhavetoevaluatethebenefitsofallowingapotentialnewpartnertoparticipate.Evaluatingentirevaluechains,andtheroleofanyone companywithinit,suggestsadeepsharingofdataamongthevaluechainpartners.Settingasidetheissuesoftrustwithproprietaryinformation,thatkindofanalysis requiresconsolidatinginformationacrossmultipledatasystems. Amoredynamicviewofvirtualorganizationswouldportraythemnotassimple,onedimensionalvaluechains,butasvaluenetworksthatpulltogethercapabilitiesina nonlinearfashion.Individualcompaniescouldparticipateinmultiplevirtualorganizations,providingcapabilitiesacrossmanyvaluechains.Acompanymightbea supplierinmultiplechains,acustomerinadifferentsetofchains,andasimultaneouscompetitorandcollaboratorinallofthem.Competitionbetweenentirevalue chainswouldstillexistatsomelevel(asitdoestoday),butwouldalsoexistbetweenindividualcompaniesinnichesfocusedonprovidingspecificcapabilities. Dependingontherelationshipsbetweenthevaluenetworkpartners,evaluatingthevalueofparticipatingmaybebasedonastraightforwardmarkettransaction(e.g., feeforservicecontract),oritcouldbeextremelycomplex,basedonsomecalculationofthevalueofthecontributionofeachparticularpartner. Today'sESsclearlydonotsupporttherapid,flexible,andsecureintegrationanddisaggregationofdataandprocessesrequiredbyvirtualorganizations.Neitherdo theysupportthekindsofanalysesthatareneededtoevaluatethebenefitsofparticipatinginparticularvaluenetworks.Thepotentialvalueofvirtualizingorganizations seemsverygreat,however,andthesegaps,whilenotbridgeableintheshortterm,probablywilldriveESdevelopmentinthelongerterm. CurrentEnterpriseSystemCapabilitiesandFutureGaps IntheprevioussectionIdescribedseveralareasoffunctionalityintowhichESsarelikelytogrowasthelargescalechangesto

Page273

thebusinessenvironmentoutlinedtakehold.ThefuturedevelopmentofESsislikelytofollowaparticularsequencethatcanbelaidoutinaframeworkoftwo dimensions:businessscopeandinformationprocessingsophistication.Whilethisframeworkdoesnotrepresenttheworkingsofimmutablenaturallaws,itdoes suggestthatcertaindevelopmentsaremorelikelytooccurbeforeothers.Oncetheframeworkhasbeenlaidout,onecanmapcurrentESfunctionalityontothe frameworkandthenpointtolikelyscenariosforfuturedevelopment. BusinessDomain BusinessdomainreferssimplytothegeneralrangeofbusinesslocationsinwhichanESoperates.BorrowingfromBrandenburgerandNalebuff's''ValueNet" framework,6 anEScansupportthreedifferentdomains:internaltothefirm,alongthesupplychain(theverticaldirectionintheValueNetframework),andamonga setofcollaborativepeers.Internalprocessescanbeaddressed,eitherindividuallyorinanintegratedmanner,byanindividualfirm.Thiswas,ofcourse,thefirst domaintowhichESswereapplied.Supplychainprocesses,describedinthepreviouschapter,connectafirmtoitssuppliersandcustomers.Interpeerprocesses connectafirmtocomplementingfirms(notdirectlylinkedinthesupplychain),andpotentiallytoitscompetitors. TheValueNetframeworkitselfdoesnotimplyaparticularorderingamongthesevariousprocessdomains,buttheorderinternal,supplychain,peernetwork followsfromthedifferingeaseofimplementationandexpectedROIassociatedwitheachdomain.Individual,internalprocessesareelemental,andtheylogically precedeprocessesthatintegrateacrossinternalprocesses.Processesthatconnectthefirmtotheoutsidemustnegotiatemanagementandintersystemhurdles,and thustendtobemorecomplexthanprocessesthatexistwhollywithinfirms.Processesthatconnectthefirmtoitssupplychainpartnersandtoitscustomersprovide obviousrewards,whereasprocessesthatconnectafirmtononsupplychainpeershavelesseasily

Page274

measuredbenefits,sosupplychainprocessesarelikelytobeaddressedpriortopeernetworkconnections.BrandenburgerandNalebuff,inthecontextofthe"co opetition"idea,makethepointthatindividualpeercompaniessimultaneouslycomplementandcompetewitheachotherinavarietyofways.Therefore,thesepeer networkrelationshipsaremorecomplexthanfamiliarsupplychainrelationships,makingmodelsformanagingprocessesamongpeersmoredifficulttocreateand validate. InformationScope Informationscopereferstothelevelofinformationprocessingandanalysisprovidedbytheinformationsystem.Therearethreebasiclevelsofbusinessscope: transactionautomation,processmanagement,andknowledgemanagement. TransactionautomationreferstotheabilityofanEStoprocessdatafromvariousinternalorexternalbusinesstransactions.Thenatureofthetransactionsmay involvethesaleofaproducttoacustomer,thehiringofanewemployee,ortheuseofinventoryinproduction.Theprocessingofdataincludespresentingrelevant existingdataontherelationship,offeringoptionstoauser,andupdatingthedatainadatabase. Fortransactionautomationtosucceed,thesystemneedsa"goodenough"modeloftheprocessesinabusinessdomainalongwiththedatamanagementtasksthat allowthesystemtokeepitsrepresentationofthedomaininternallyconsistentandexternallyvalid.Forexample,whenacustomerbuysaparticularitemoncredit,the ESknowstoaddthedollaramounttoaccountsreceivableandtolowertheinventoryleveloftheitempurchased.Thesystemmustalsoincorporaterulesthatreflect realworldfacts,suchas"Inventorylevelscannotbelessthanzero"and"Thedateofpurchasecannotbegreaterthanthenumberofdaysinthecurrentmonth." Humanscanbeinvolvedintransactionautomation,butusuallyonlyasprovidersofneededinputsthisisnotwherethehigherorderanalyticalfunc

Page275

tioniswellestablishedinbusiness,althoughthebreadthandscaleofthetransactionsautomatedbyanES,andthecomplexityoftheESbusinessmodel,putusinto newterritory. ProcessmanagementreferstotheabilityofanESenabledorganizationtotakeactionondata.Processmanagementbeginstoputdataintocontext,representingnot onlythestateoftherealworldandwhatactionsarepossiblegiventhatstate,butalsowhatactionsoughttobetakeninanalgorithmic,computerbasedsense.Thus, wheninventoryisdepletedtoacritical(nonzero)amount,thesystemcouldissuearecommendationthatapurchaseorderbecut,automaticallysendapurchaseorder totheappropriatesupplier,or,iftheESsofthetwocompaniesareintegrated,automaticallyupdatetheamountoftheitemonorderinthesupplier'sdatabase. Processmanagementincorporatesbusinessrules,thatis,ahumanbeing'ssenseofwhatshouldhappeninaparticularbusinesscontext.Someoneasystemdesigner orprocessownermustdefinetheserulesonthebasisofbestorgoodbusinesspractices.Thesystemeitherincorporatestheheuristicsthathumanspreviouslyused tomanagetheprocessmanuallyorisaugmentedbyahumanuserofthesystemwhoobserveswhatishappeninginaprocessandintervenes.Justasprocesscontrol systemsautomatemanufacturingprocessesinafactory,processmanagementsystemsautomateadministrativeprocessesandlimittheneedforhumanintervention. ProcessmanagementwaspossiblepriortoESs,butwasneverinstitutionalized.Today,manyfirmsarebeginningtooperateattheprocessmanagementlevelwiththe helpoftheirESs. KnowledgemanagementisthemostsophisticateddomaininwhichESscanoperate.Heretheinteractionbetweensystemsandhumansbecomesmorecollaborative whilethesystemitselfcanhavesomedecisionmakingcapabilityprogrammedintoit,thesystemalsoactsasanextensionofthehumanabilitytostoreandprocess knowledge.Fromthestandpointofthesystem'sintelligence,itcanbegintotransformdataintoknowledge

Page276

throughcomplexstatisticalanalyses.Suchdataminingcapabilitiesareavailabletoday,buttypicallyseparatefromanES. Intheknowledgemanagementmiddlegroundbetweenhighlystructureddataandtotallyunstructuredtextaredocuments.Enterprisesystemvendorsarealready workingwithdocumentmanagementvendorstoincorporatedocumentsoneapplication,forexample,allowschemicalfirmstotiestructuredproductinformation aboutasubstanceinanSAPdatabasetothesafetydocumentsdescribingitssafehandlingthatarelocatedinadocumentmanagementsystem.Otherkeydocuments thatcouldbelinkedtoanESincludeinvoices,proceduremanuals,productspecificationsheets,andsoforth.Increasingly,standardESfunctionalitywillincorporate notonlylinkstodocumentsinothersystems,buttheabilitytohandledocumentswithintheESpackageitself. FutureEScapabilitieswillalsoincludetheabilitytocombinedatabasedinformationwithmorevalueaddedobservationsandinsightsfromhumanbeings.A salespersonvisitingacustomer,forexample,wouldbeabletocallupthecustomer'spurchasehistorywiththecompany,aswellasexternalnewsreportsand discussionitemsfromothersalesandservicepersonnelwhohavedealtwiththecustomerallinanintegratedfashion.Ahumanresourcestransactionsystemwillalso containdetailedinformationabouttheknowledgeandskillsanemployeehas,wouldincludecommentsabouttheperson'sperformance,andcouldevenmake recommendationsaboutwhateducationalofferingsmightbeappropriatetoadvancetothenextlevelofskills. Companiesareincreasinglypursuingthesesortsofknowledgemanagementapplicationstoday,buttheyarealmosttotallyseparatedfromthesystemsusedtosupport transactionautomationandprocessmanagement.Successfulknowledgemanagement,however,shouldincorporateknowledgederivedfromdata.TheEScapability ofknowledgemanagementwillunitealloftheinformationprocessingmodesandmakeESsahighlyusefultoolforknowledgeworkers.

Page277

BusinessDomainandInformationScopeFramework Figure91placesmajorcategoriesofESfunctionalitywithinaframeworkofthetwodimensionsofbusinessdomainandinformationscope.Inthecontextofthis framework,ESfunctionalityhasexpandedovertimefromthelowerleftcornertowardtheupperright.Theexamplesdiscussedherearemeanttoillustratedifferent categoriesoffunctionality,andareinnowayexhaustive.Indeed,theseexamplescannotbeexhaustive,becausenewproductswithmorefunctionalitywillbecome availableonanongoingbasis.Ontheotherendofthespectrum,though,ESprehistoryis,atthispoint,notveryinteresting,andsoI'llsavetreesbyforgoingproviding examplesforit. Transactionautomationwithinternal,integratedprocesses.Asnotedinthefigure,thiscombinationrepresentsthebaselinefunctionalityofanESdatabase.Any trueEScouldserveasanexamplehere.Goodstuff,butnothingtostirupexcitementinthetwentyfirstcentury. Processmanagementwithinternal,integratedprocesses.ThissectorrepresentsthestandardfunctionalityofESpackages,andrequirestheintegrateddatabase thatalsocomeswithallESs.Thesophisticationofprocessmanagementapplicationshasincreasedovertime,oftenthroughtheuseofcompanyspecificapplications orthedevelopmentofboltonapplicationsbythirdpartyvendors.Oneoftheprimaryareasforadvancementinthisregardinvolvesembeddingmoresophisticated algorithmsintoESsfromchaosorcomplexitytheorybasedmodelstorulebasedartificialintelligencetomoretraditionaloperationsresearchtechniques. Knowledgemanagementwithinternal,integratedprocesses.KnowledgemanagemententailsamoresophisticateduseofthedatawithinanEStomanage internalprocesses,andalsoentailstheuseofprocessknowledge.Fromoneperspective,knowledge

Page278

Figure91 FutureApplicationsofEnterpriseSystems

Page279

managementinthiscontextamountstoanadvanceddecisionsupportsystem,whichcanpresentmanagerswithhighlyrefineddataontheperformanceofaprocess andrecommendationsforwhattodoaboutit.OneexampleofthiskindoffunctionalityisPeopleSoft's"MyWorld"concept,whichaimstobringtogetherinformation basedontheuser'srolewithinanorganization.7 ThePeopleSoftsystemwillalsoreachbeyondorganizationalboundariestobringinformationfromexternalsources, suchasnewswiresandsupplierdatabases,tothedesktop.AnotherexampleisSAP'snew"mySAP.com"offering,whichalsoattemptstomakeESderived informationmeaningfulattheindividualworkerlevel.However,becausesuchfactorsashowmuchthesystemswillprocessthisinformationandhowintegratedthey willbewithdataderivedknowledgeareunclear,theymaynotreallyreachtheleveloftrueknowledgemanagementwithsupplychainprocesses. Anotherapplicationofknowledgemanagementtointernalprocessesinvolvesthecapture,storage,anduseofprocessbestpractices,workarounds,andshortcutsfor usebythehumanusersofasystem.If,forexample,asystemuseriscalledbyacustomeraskingforaproducttobedeliveredthreemonthsfromtodayandthe systemwon'ttaketheorderbecausethecompany'sorderinghorizonisonlyforonemonth,theordertakerneedstoknowwhatmightbedoneinthesituation.Isthere awaytoentertheorder?Ifnot,canIgetthesystemtopromptmeattheappropriatetimetocallthecustomerandcompletethetransaction?Evenanexplanationof whythecompanydoesn'twanttotakeordersthreemonthsinadvancewouldatleastgivetheordertakersomethingtotellthecustomer.Anyofthesescenarioscould beconsideredprocessknowledgemanagement. Transactionautomationwithsupplychainprocesses.Thiscombinationencompassesautomatedorderingprocesses,suchascentralizedpurchasingapplications. CompanieshavebeendoingthiswithEDIforyears,buttheycanimproveuponthatactivitybyinterfacinginterorganizationalcommunications

Page280

directlytoasystemwithouthumanintervention,byswitchingtotheInternetasacommunicationsplatform,andbyworkingontheefficiencyofsupplychainbusiness processesaswellasbyusingsystemstoimprovetheprocess. Processmanagementwithsupplychainprocesses.Someaspectsofthiscelloftheframeworkhavebeenemployedforanumberofyears,suchasincorporating automatedreorderpointsorotherbusinessrulesintologisticalapplications.Othersareavailablenow,butarenotyetinbroaduse.Anexampleofsuchanapplication iscollaborativeplanning,forecasting,andreplenishment(CPFR)softwarethatallowssupplychainpartnerstoshareinformationonmarketing,sales,andproduction. Atthispoint,themajorvendorsofsupplychainapplicationsofferCPFR,althoughactiveuseofitislargelyrestrictedtotheconsumerproductsandretailingindustries.

8

Knowledgemanagementwithsupplychainprocesses.ThiscombinationrepresentsamoresophisticateduseofESdatainmanagingthesupplychain,andisa leadingedgeforESdevelopment.Suchasystemwouldintegratesupplychainmanagementwithproductlifecycleandcustomermanagement,andwouldprovide toolsforexecutivestoconsidertheseprocessesasasingledynamicsystem.SAP,forexample,isplanningtoofferabusinessintelligencepackagethatincludes businessplanningandsimulation,acorporate"performancemonitor,"andstakeholderrelationshipmanagement.Tothedegreethatthesecapabilitiesareusedto analyzeexternalrelationships,itwouldbeanexampleofworkinthiscelloftheframework. Transactionautomationwithpeerprocesses.Oncecrossfirmtransactionsareautomatedforsupplychainpartnerships,usingthisfunctionalityinpeer relationshipsisasmalltechnicalstep.Althoughpeertopeerautomatedtransactionsarefeasible,theissueisnotwhatispossible,butwhatvaluethereistobegained. Anotherproblemistheestablishmentofthebusinessrelation

Page281

shipsthatwouldmakeESbasedautomationnecessary.Beyondthetraditionalsupplychain,outsourcingotherprocesses,suchashumanresourcesmanagement, providesobviousbenefitsandmightqualifytobeplacedinthissectionoftheframeworkiftheclient'sandsupplier'stwosystemswereintegratedtosomedegree. Integratingthefullrangeofnonsupplychainprocessesbetweenpeersisstilloffinthefutureandwilllikelycoevolvewithvirtualorganizations. Processmanagementwithpeerprocesses.Ifandwhenvirtualorganizationsbecomeareality,ESs(inwhateverformtheytakeatthattime)willenablepeerto peertransactions.Inadditiontoautomatingtransactions,though,ESswillneedtoprovidetoolstomanageinterpeerprocessesandrelationshipsthroughanalysisand controlapplicationsthatareanalogoustotheapplicationsusedforsupplychainrelationships.Realtimechoicesofpartnerswillhavetobemadeonthebasisofsome factor,beitprice,previoushistoryofarelationship,ortheuniquecapabilityofaprovider.Justassomeorganizationsnowcalculatepricinginrealtimeyield managementsystems,theprocesssystemsofthefuturewillcalculaterealtimerelationshipvalue.Virtualorganizationsarelikelytoexistwithinashiftingsetof relationships,soaparticularlyimportantcapabilitywillbetoanalyzethevaluesofpartners'contributionstothevirtualorganizationandthevaluetoaparticularfirmof stayingwithinaspecificvirtualorganization.9 Knowledgemanagementwithpeerprocesses.Thissectoroftheframeworkis,ofcourse,thefurthestoutinthefuture,andthemostspeculative.Knowledge managementinthiscontextwouldneedtoincludeknowledgemanagementprocessesdevelopedearlier,andtogobeyondthembyusingtheanalyticandcontrol applicationsdevelopedspecificallyforpeertopeerprocesses.BrandenburgerandNalebuffsuggestthatgametheoryprovidesakeyanalyticframeworkfor companiesinthepresentperhapsgametheorywillbeincorporatedintofuture

Page282

knowledgemanagementapplicationsforpeertopeerprocessesinvirtualorganizations. Inadditiontothegametheoreticalanalysis,atthislevelcompanieswouldalsocollectandanalyzeknowledgeaboutpeers,collaborators,andcompetitorsand combineitwiththedataonpeerrelationshipstoformanintegratedpictureoftherelationshippotential.Atanymomentanyemployeecouldcomeuptospeedquickly onwhomakesdecisionswithinthepotentialcollaborator,whattheirprimarybusinessissuesandobjectivesare,andwhattheirpredictedcollaborativevaluemightbe. Companiesscarcelyhavethisinformationabouttheircustomerstoday,muchlesstheirpeersorcompetitors. TechnologicalDevelopments Justasbusinesscapabilitiesevolveovertime,thetechnologicalcapabilitiesofESswillchangesignificantlyoverthenextseveralyears.Someofthetechnological changeswillcomeinresponsetobusinessneedothersmayemergewithregardtosomeotherlogic,forexample,theneedforESvendorstosellmoretocustomers. InthissectionI'llreviewavarietyofchangesthatIandotherobserversusuallyemployedbytechnologymarketanalystfirmsanticipatefromESvendorsand relatedthirdparties.Someofthesedirectionshavebeenmentionedinpassingbefore,butit'sprobablyusefultoputthemallinoneplace. NewApplicationDomains Enterpriseapplicationsvendorscan'taffordtostandstilltheyhavetocomeupwithnewreasonstosellESstocustomers,andreasonsforexistingcustomersto upgradetonewversions.Also,theydon'twantvendorsofmorefocusedapplicationstogainaccountcontrol.Asaresult,wewillcontinuetoseeincreasingbreadthof ESfunctionalitybeingintroducedovertime.Thequestion,then,isinwhatareasESfunctionalitywillbeintroduced.

Page283

I'mnotechnologyprognosticator,butfortunatelyitdoesn'ttakemuchinsighttoseethattheprimaryESapplicationsofthenearfuturewillbeintheareasofcustomer relationshipmanagement,supplychainmanagement,knowledgemanagement,andnewproductdevelopment.I'lldiscusseachareabrieflyexceptforsupplychain management,whichwascoveredinthepreviouschapter. CustomerrelationshipmanagementisalreadythefocusofESvendorstosomedegree.Morethanonevendorhasaddedsalesforceautomationtechnology(including suchapplicationsassalescallplanning,callreporting,contactmanagement,salesteamcommunications,productconfiguration,timeandexpensereporting,andsales collateraldatabase)toitsapplicationsportfolioothershavepurchasedvendorsofcustomerservicesoftware(includingcallcenterautomation,fieldservicetracking anddispatch,customerproblemtrackingandresolution,andproductproblemanalysisandreporting)andarebusyintegratingthatsoftwarewiththeirESpackages. VendorswillalsobegintooffercapabilitiesforcustomerselfserviceovertheInternet. We'llseemoreofthisinthefuturemorefunctionality,moreintegrationwiththecoreESpackage,moreESvendorsadoptingthislineofwork.We'llalsoseethe integrationoftraditionallymarketingorientedfunctionsintoESs,includingtoolsforthemanagementofmarketingcampaigns,fortheanalysisofmarketdata,andfor thedesignandoperationofdirectmarketingprograms.Enterprisesystemdatabasesalreadycontainthe''officialcopy"ofcustomertransactioninformation,andthere isconsiderablevalueincombiningcustomeranalyticswiththerecordsofcustomertransactions. Enterprisesystemswillalsobecometheprimaryrepositoryofcustomerknowledge.WhenasalespersonlearnsthatthecustomerhasanewVPofoperations,there willbeawaytorecorditintheES.Rightnowcustomerinformationandknowledgeisscatteredthroughoutvariousdatabases,knowledgebases,andpaperfilesthe knowledgeistooimportanttoleaveinsuchscatteredform.

Page284

It'snotjustcustomerknowledgethatthesesystemswillbeusedtomanage,butratheralltypesofencodedknowledge.Anyknowledgethatwillfitintoacomputer repositorywillbestorableandaccessiblethroughanES,orratheranenterpriseinformationportalthatcombinesESdatawithvarioustypesofknowledge,both internalandexternal.Enterprisesystemvendorsarealreadyexploringhowsuchportalscanbeafrontendtotheirsystems,justasWebsitessuchasYahoo!and NetcenterareportalstotheInternet.Combinedbusinesstransactiondataandknowledgewillbeabigstepforwardwhenit'savailabletodaytheyarelargely separate.Knowledgeaboutproductapplications,forexample,canbetiedto"official"productnumbers.Marketingdocumentscanbetiedelectronicallytothe productstheydescribe.Businessintelligencecanbeattachedtoparticularcompaniesinthecompany'scustomerorcompetitordatabase.Forthefirsttimeinthe historyofinformationsystems,itwillbepossibletoconnectharddataandsoftinformationandknowledge. Consistentwiththeoverallfocusonknowledge,ESswilldevelopanabilitytoidentifywhatinformationisreallyworthitsusers'time.Almosteveryexecutivetodayis burdenedwithmoreinformationthanheorshecanhandle.Whetherit'sthroughinformationfilters,autonomousagents,orpushtechnologies,thereisagreatneedto helppeoplefindtheinformationtheyneedandcareabout.TheearliestdaysofESbasedinformationreportingapproachedthistopicinasimplisticwayusinggreen forwithinrangefigures,yellowforborderline,andredforoutofrange.FuturegenerationsofESinformationreportingwillusemoresophisticatedapproaches. AthirdbusinessdomainforfocusbyESvendorswillbeproductdevelopmentprocessesandapplications.Productdevelopmentfunctionalityhasonlyrecentlybeen incorporatedintoESs,andonlytoafairlysmalldegree.However,likeotherapplicationareasalreadyincorporated,it'susefultohaveproductdevelopmentdatatied tofinancialdata,customerdata,andmanufacturingdatatherefore,we'llseemuchmoreofafocus

Page285

onthisareabyvendorsandcustomers.TherewillbeESapplications,forexample,thatallowstorageifnotcreationintheshortrunofCADdocuments,with linkagestoproductdataintheoverallESdatabase.Customercomplaintsaboutproductswillbelinkedbacktothedevelopmentofnewproductsthatrelatetotheold ones.Fieldengineeringapplicationswillbetiedtofieldservicesystems.TheonlyfunctionalitythatmayneverbeaddedtoESsisproductdesignitself,whichtypically employsCADtools,engineeringanalysistools,and3Dmodelingcapabilities.ThesearesodifferentfromthedatafocusedapplicationsinESsthatcombiningthem wouldbeextremelydifficult. DecisionandAnalyticalFocus Chapter7isallabouttheuseofESdatainmanagementanddecisionprocesses.Itdoesn'thappenmuchtoday,atleastinpartbecausethereareinsufficient capabilitieswithinESpackagestomakeiteasy.Today,mostfirmstrytoextractdatafromtheirESsandthenmassageitwiththirdpartyqueryandreportingtools, thirdpartydatawarehousemanagementtools,orthirdpartystatisticalanalysistools.However,allofthelarge,mainstreamESvendorshaveannouncednew capabilitiesinthearea,andsomehaveevenbeguntodeliverworkingfunctionality.Therefore,inthefutureit'sclearthatthefollowingwillbetrue: Allvendorswillincorporateincreasedquery,reporting,andstatisticalanalysiscapabilities. Allvendorswilllinktheirsystemswithcommonperformancemeasurementframeworks,forexample,thebalancedscorecard. Vendorswilldevelopmoresophisticateddisplayapproachesforexecutiveinformationsystempurposes. LeadingvendorswillintegratedataminingtechniquesintotheirESs,includingneuralnetworkanalysis.

Page286

Afurtherindicationthatthesecapabilitiesarelikelytoappearisthatthereisnowathreeletterdescriptorofthemthatseemstobegatheringsupportthroughoutthe vendorandanalystcommunity.Fromnowon,thisaspectofESswillbeknownasstrategicenterprisemanagement(SEM). TheComponentAssemblyModel AcommonlyheldviewamongESmarketanalystsisthatmonolithicenterpriseapplicationswillbecomemoremodularandflexible.Theywill,accordingtothisview, evolvetoamodelinwhichthebasicESisabackboneintowhichdisparatebestofbreedapplicationscanbepluggedandplayed.Thiswouldrepresentabenefitfor ESusercompaniesifitbecamearealitycompaniescouldchoosethebestfunctionalityforparticularcomponentapplications,andtheywouldallfittogether seamlesslyorsogoesthevision,anyway. However,it'snotclearthatthismodelwouldbenefitESvendors.Presumablymostvendorswouldprefertosellabroadsuiteofapplicationsoversellingabackbone system,becausetheycouldselltheformeratahigherprice.Also,forthisscenariotosucceed,extensivecooperationbetweendifferentvendorswouldberequired. EachESvendorwouldhavetoworkwitheachcomponentvendor,whichwouldbedifficulttoimagine. Intheshortrun,thismodelisbecomingsomewhatmorefeasiblethroughtheavailabilityofthirdpartymiddlewaresystemsthatostensiblyallowdifferentESsto communicatewitheachother,orwithfocusedapplicationcomponents.Inlate1999,however,thislessambitiousversionofcomponentassemblyisstillmorevision thanreality. ExternalHostingofEnterpriseSystems AsESshavebecomemorecomplexandcomprehensive,companiesusingthesystemstypicallyhavecometorelymoreand

Page287

moreonexternalITexpertise.Enterprisesystemvendorsnowdesignthesystem,andvendorsorsolutionsintegratorspartnerwithclientstoconfigureandimplement thesystem,thoughclientsstillmustmaintaintheinternalITinfrastructureandprovidesupportfunctionsinhouse.NowsomeservicecompaniesandESproviders, suchasU.S.Internetworking,Corio,andOracle,areofferingWebhostedESservices.OtherpartnershipsareemergingbetweenESvendors,telecommunications serviceproviders,andIThardwarecompaniestoprovidesuchnetsourcingservices,suchasapartnershipbetweenSAP,QwestCommunications,andHewlett Packard. Whattheseofferingsmeanisthatclientcompaniesnolongerhavetobuy,upgradeorsupportESpackages,butrathercanrentthem.Companieswithlimited resourcesorITexpertisecanstillreceivethecuttingedgebenefitsofESs.Clearly,outsourcingacompany'sESfunctionalityovertheWebinvolvesastrategic decisionthatmustweighfactorssuchascost,convenience,managementfocus,andleadingedgetechnologyagainstpossibleconcernswithdatasecurity,service levels,lossofcontrol,andlossofinternaltechnicalexpertise.It'salsounlikelythatacompanycouldmakemodificationstosoftwarethatisdeliveredbyanexternal providerovertheWeb,unlesstheywererentingtheirownoffsiteinstanceoftheES. Thusfar,fewcompanieshaveavailedthemselvesofthisservice,butit'sonlybeenavailableforaboutayearasIwrite.Thosethatultimatelydotakeadvantageofthe servicearelikelytoberelativelysmallormidsizecompanieswhodon'tconsidertheirinformationsystemstobeastrategicadvantage.Thismaybealowcostoption, butit'snotlikelytobeahighvalueone.Ironically,whenSAPwasformedin1972,thecompany'soriginalservicemodelinvolvedofferingthepackageover timesharingnetworks.Insomewaysthenetsourcingideaisareturntothatnotion. Lookingtothefuture,thelargescalechangestothebusinessenvironmentIoutlinedatthebeginningofthischapterarelikelytotipthebalanceoffactorsassociated withoutsourcingtoward

Page288

aWebbased,sharedservicesmodelforESs.Allofthechangesmentionedsenseandrespondbusinessmodels,globalization,thehorizontalrealignmentof corporations,andvirtualorganizationsrelyonrobustcommunicationsandstrongdataconnectionsbetweendivisions(inthecaseofglobalization)andespecially betweencompanies.Intranetshaveprovidedthiskindofrobustconnectivitywithincompanies,andextranets(intranetsthatallowaccessfromusersoutsidea company)haveallowedsmallsetsoffirmstocommunicatehowever,forglobalcompaniesorinterorganizationalcollaborationsthesetechnologiescanbeprohibitively expensive. Incontrast,theInternetcanprovideconnectivitylevelssimilarto(andevengreaterthan)aproprietarynetworkthatonlythelargestfirmscanafford,andthisfactis alreadydrivingESvendorstomaketheirproductsWebenabled,thatis,accessiblethroughtheInternetandabrowser.Forfirmsthatremainregionalandwhose businessrelationshipsarefewinnumberandrelativelystable,thecurrentclient/servermodel,combinedwithexternalextranetconnectionstosupplychainpartners, maysufficeinthefuturebusinessenvironment.However,forcompaniesthateitherareglobal,havealargenumberofsuppliersandcustomers,orhavesuppliersand customersthatchangefrequently,theconnectivityoftheInternetwillbeessential. Tosurviveinthefuturebusinessenvironment,companieswillneedtocombinetheconnectivityoftheInternetwiththefunctionalityofESsacrossfirmboundaries. Enterpriseapplicationfunctionalityisderivedfromtheintegratedstructurethatthesesystemsimposeonacompany'sdata,andbusinessesinthenewenvironmentwill needtohavetheirdatainsuchanintegratedstructure.Itwillincludenotonlyinternaldata,butalsothedataoftheirpartnersinasupplychainorvaluenetwork. Whilemiddlewareor"betweenware"vendorsarecurrentlytryingtoaddresstheneedforbusinessestosharedata,theincreasingbenefitoftrulyintegratingdata acrossfirmswilldriveESvendorstoofferasharedservicesmodelinwhichthevendorsthemselvesruntheESsandhostclients'datainlarge,inte

Page289

grateddatabases.10Onevisionofthisfuturehasentiresupplychainsbeinghostedonaparticularvendor'sES,withdifferentsupplychainscompetingaswholeunits againstoneanotherinotherwords,ESenabledkeiretsu.Althoughitseemsunlikelythatcompanieswillcommittoasinglesupplychain,integratingdatawillbe easierwithcompaniesusingthesameES,andsointrasystempartnershipswillenjoyanadvantageoverintersystempartnerships. ApplicationandInformationStandards Asvirtualcompaniesbecomemoreprevalent,therewillbemoreincentivetoeliminatethecostofintegratingacrossESsbycreatingasinglestandardthatall companiescanshare.Multiplestandardscouldcontinuetoexist,butthereareseveralpossiblepathstoreachingasinglestandard.Onepossibility,giventheworkings oftheincreasingreturnseconomicsandnetworkeffectscommoninthesoftwareindustry,isthatastandardbasedonasinglevendor'sproductwillcometoprevailin themarketplace,whichwouldputthatvendorinapositionwithrespecttoESsthatissimilartoMicrosoft'spositionwithrespecttoPCoperatingsystems.Asecond possibilityisthatanindustrybodywilldevelopastandardthatcompaniesadhereto,suchaswasdonewithEDI. AnadditionalpossibilityisthatametastandardwillbedevelopedthatwillallowESstoaccessdatadefinitionsdynamicallyandthusbeabletointerpretdatafrom othersystemscorrectly.XML,theeXtensibleMarkupLanguage,anditsassociatedprotocolsforaccessingdatadefinitionsdynamicallyovertheInternet,might providethiskindofmetastandard.Already,somegroups,suchaslibrarians,chemists,andmusicians,havedevelopedtheirownsetsofdatadefinitionsandareusing themtosharestructureddataovertheInternet.Industrygroups,orevenindividualcompanies,couldcreatetheirowndatadefinitions,publishtheseontheInternet, andreferencethemwhensharingdatawithothercompanies.Withthistypeof

Page290

metastandardinwideuse,theInternetwouldcomeclosertobringingtogetherubiquitousconnectivityandanintegrateddatastructure,makingit,ineffect,onebig database. PotentialEffectsofEnterpriseSystemDevelopment EnterpriseSystemsandthePracticeofManagement Enterprisesystemsandcommunicationstechnologiesarebeginningtoenablemanyofthechangesdiscussedatthebeginningofthischapter.Ioutlinedpossible corporaterealignmentstheverticalconsolidationdrivenbyglobalizationandovercapacity,theverticalunbundlingandhorizontalconsolidationenabledbylowered communicationcosts,andtheverticalandhorizontalaggregationanddisassociationofvirtualcorporations.Theseneworganizationalformswillaffecttheworkof managerswithinthemandwillshapetheinformationrequirementsofvarioustypesofbusinesses.However,viewsonhowtechnologicaldevelopmentswillaffectthe practiceofmanagementvarywidely. SteveHaeckelandDickNolan,researchersatIBMandHarvard,respectively,seeimprovedcommunicationsandespeciallyEStechnologiesasenabling "managementbywire,"whichtheylikentoflyingamodernairplanewithsophisticatedflighttelemetry.Theyexpectthatwitha(futuristic)ESinplace,anexecutive crewwouldpilottheorganization"usingcontrolsintheinformationcockpitofthebusiness.Managersrespondtothereadoutsappearingontheconsole,modifyingthe businessplanbasedonchangesinexternalconditions,monitoringtheperformanceofdelegatedresponsibilities,andsendingdirectionstosubsidiaryunitssuchas manufacturingandsales."11 HaeckelandNolanarguethatcompaniesneedan"enterprisemodel"toensurethatinformationisintegratedandconsistentacrosstheorganization.Whentheywrote in1994,thismayhavebeenthecase,butsuchenterprisemodelshavelargelybeensupersededbyenterprisesystems.Theydo,however,pro

Page291

videapreviewofwhatmighthappenwhenanESdoesn'tfittheorganizationwell:"Ofcourse,iftheenterprisemodelrepresentsthewrongrealityorisincomplete, outofdate,oroperatingonbaddatatheoutcomecouldbecatastrophic."12 MyownviewisthatESscertainlymakemanagingbywireamoreplausiblemodelformanagementbehavior.Interestingly,someESvendors(SAPmostaggressively) aredevelopingtheirownvisionsofwhatamanagementcockpitmightlooklike,withscreencoveredwallsfeaturingcomplexgraphicaldisplays.However,this approachtomanagementbehaviorhasrisks,andIdon'tmeanjustthemisconfigurationofyoursystem.Ifmanagersneverstepoutoftheircockpitsandnevertake theireyesofftheirscreens,theymaymissimportantaspectsofwhat'sgoingonintheirorganizations.Fortheforeseeablefuture,notallinformationandknowledge that'simportantwithinorexternaltoanorganizationwillbefoundwithinanESdatabase.Interactionswithothermanagersandemployees,customers,suppliers, regulators,andsoforthwillstillbecriticaltoanycompany'ssuccess. Incontrasttothepictureofexecutivepilotsinaninformationcockpit,MITSloanSchoolprofessorTomMaloneseesdecisionmakingbecomingmore decentralized.13Hesuggeststhatdecisionmakingstructuresmovethroughthreestagesascommunicationcostsarereducedbytechnologicalimprovements.When communicationcostsarehigh,independentdecentralizeddecisionmakers(whomhelabels"cowboys")manageontheirown.Ascommunicationcostsfall, informationcanbeaggregatedmoreeasilysothatcentralizeddecisionmakers("commanders")canuseaglobalperspectivetoinformdecisions.Heimpliesthatmost organizationsareinthisstageatpresent,althoughthemodelsoundssimilartowhatHaeckelandNolanexpectinthefuture.Whencommunicationcostsfalleven further,informationcanbesharedthroughoutanetwork,soconnecteddecentralizeddecisionmakers("cybercowboys")cancombinetheadvantagesofaglobal perspectiveandlocalizedknowledgetoinformlocaldecisions.

Page292

Malonemakestwoadditionalimportantpoints:First,localizedknowledgeisoften"sticky"implicit,contextual,anddifficulttocommunicateandsecond,localized controlprovidesbenefitsintermsofspeedofresponseandthemotivationoflocalpersonnel.Fromthesepointsheconcludesthatagooduseofcommunications technologyistotransferinformationtoplaceswhereinformationisnoteasilyavailableandcannotbeeasilycommunicated. Evenwheninformationisnotinshortsupply,thebenefitsoflocalcontrolmayoutweighthebenefitsofcentralcontrol.Activelyinvolvingfrontlinepersonnelin decisionmakingprocessesgivesthemownership,andprovidingthemwithcentralizedinformationcanhelpthemmakegooddecisions.TheCVSdrugstorechain,for example,hasaninventorysystemthatprovidesadvicetothestoremanagersaboutorderingstock,buthasallowedthemanagerstomaintaindecisionrightsaboutthe ordersactuallyplaced.Thethinkingbehindthisarrangementisfocusedonmaintainingthemotivationforhighlevelsofcustomerservice.AstheCVSseniorvice presidentforMISandCIO,HowardEdels,noted:

If[thestoremanagers]makeamistake[byforgettingtoplaceanorder,forexample],it'stheirmistaketheytreatyounicelyandsay,'I'msorry,I'lltakecareofit.'Butifthey seethecomputerashavingcontrol,theanswerbecomes,'Idon'tknowwhyyourorderisn'there,thestupidcomputerdidn'tbringit.'Itchangesthewholerelationshipwith customers.14

CVSstoremanagersactsimilarlytoMalone'scybercowboys,andtheyaresupportednotcontrolledcentrallybytheinformationprovidedbythecompany's integratedES.CompanieswithmorerigidhierarchiesmayfinditdifficulttocededecisionmakingpowertolocalmanagerswhenESsmakeiteasytodictateactions fromcorporateheadquarters. Infocusingoncommunicationcostsasthemajordeterminantofthedecisionmakingstructure,Maloneoverlooksothervariables,suchasthelimitsofmanagement attentionandthevalueofcoordinatedaction,thatalsoaffecthowdecisionsare

Page293

made.Cybercowboysmustbalancemaintainingaglobalperspectiveagainstattendingtolocalevents,andifmaintainingtheglobalperspectivetakestoomuch managementattention,localdecisionmakersmaypreferthatacentralizeddecisionmakermanagethatperspectiveandmakedecisionsbasedonit.Therearealso situationsinwhichthevalueofcoordinatedactionexceedsthevalueoflocalresponse.Toborrowtheairplaneanalogy,howmanypeoplewouldwanttorideina planecontrollednotbyapilotandcopilotteam,butbyseveraldozencybercowboys,eachofwhomindependentlycontrolledaflap,anengine,oralandingwheel? Managementtheoristsmaytalkaboutthevalueof''selforganizingsystems,"butIforonewouldratherbeflownaboutbyahierarchicalcommandstructure. Ofcourse,actualfuturedecisionmakingstructureswillincorporateelementsbothfromexecutivepilotsintheinformationcockpitandfromcybercowboys.The overallcostsandbenefits(takingintoaccountinformationencoding,communications,computing,attention,time,motivation,andultimatelymoney)ofcentralized versusdecentralizeddecisionmaking,aswellasamanagementteam'sunderstandingoftheoptionsandconsequencesofdifferentapproaches,willlikelydeterminethe locusformakingaparticulardecision. Whilealmosteverysituationwillbesomekindofmix,differenttypesofdecisionstructuresarelikelytoemergeinorganizationswithdifferentvaluedisciplines. Customerintimacycompanieswillputapremiumoncustomerknowledgeandservice,andalthoughmanycustomerattributescanbeencodedandplacedina database,theabilitytosenseandrespondtothechangingmoodsandneedsofindividualcustomersmeansthatcybercowboysmaydominatethedecisionlandscape. Operationalexcellencecompanieswillfocusonprocessefficiency,whichcanbemaximizedthroughanemphasisonstandardizeddataandprocessesandcentralized control.Productinnovationcompanieswillfocusonsensingenvironmentalsignalsandoncreatingnewideas,bothofwhichinvolveaneedforlocalinformationand knowledge,andcybercowboysarethereforelikelytoreign.Ineachcase,however,ESsarelikelytobring

Page294

aboutahigherlevelofaccountabilitybecauseoftheirmorecompleteandreadilyaccessibledata.Executivesinallcompanieswillcontinuetofacethechallengeof creatingmanagementstructuresthatbalanceempowermentandaccountabilityinwaysthatworkbestfortheirparticularsituation. Whilenoexamplesofmanagementfuturesexistinthepresent,wecanenvisionanenvironmentinwhichenterprisesystemshavechangedalmosteveryaspectof management.InthisfinalsectionofthechapterI'lldescribeahypotheticalESenabledexecutivewiththusfarunknownabilitiestomanagebothinternallyand externallywithhighqualityinformation. ADayintheLifeofanESEnabledExecutive Imaginethatyou'rethepresidentofadivisionofalargemanufacturingfirmintheyear2007.Yourdivisionmanufacturesindustrialproductslet'ssayelectronic processcontrolsystemstoprocessmanufacturingfirms,suchaschemicalandoilfirms,locatedallaroundtheworld.Yoursystemsaren'texactlycommodities,but othercompaniesmanufacturesimilarproducts.Therestofyourcompanysellsothertypesofindustrialproducts,generallytodifferentkindsofcustomers. Youliketogettotheofficeearlyinthemorningtoseewhat'shappenedinAsiaandEurope.YourESscreenimmediatelypresentsyourdailyinformationprofilewith informationyou'verequestedfromthosetimezones,andthenupdatesitthroughouttheday.InAsiayounotethatordersareup10percentoverthedailyaveragefor October17inpreviousyears.Europeisaboutaverage,butyouareinformedthatproductsmanufacturedthedaybeforecost7percentmorethanthespecification becauseofsomeoutsourcedproductionofacontrolunit.Yourememberthatthiswastomeethighdemandforanewproductfromasinglecustomer,andwithtwo clicksyouconfirmthatthecustomertookdeliveryoftheproductsandpaida15percentpricepremiumforthem. Yourdailyscorecard,whichtakesallofyesterday'sperformanceindicatorsintoaccount,onlyshowsred(belowtarget)

Page295

figuresforemployeelearning.Thisisthethirdtimethisweekthatthelearningindicatorsshowashortfall.Youassumethattheproblemisrelatedtoashorthandedness ofskilledworkersintheAmericastheydon'thavetimetobetrainedandconfirmthatwithafewclicks.Youquicklyreviewthelinkagestotemporaryemployment agenciesinthesystem,andcontractonlinefor100temporaryskilledworkerssothatthoseinyourowncompanycanworkonaddressingtheirlearningdeficit. Afteraquickchatwithanotherdivisionpresidentovercoffee,youbeginameetingonnewproductdevelopmentprogresswiththeheadofthedivision'sNewProduct Development(NPD)processbasedinGermany.Youlinkyourscreenssothatyoucanbothlookatthesameinformationwhileyoutalkonavideoconference.As youarepresentedwithseveralalternativedesignsforanewformofpumpcontrollerdevelopedbyNPD,youexamineonlinethematerialandlaborcostsprojected foreachdesign,thepercentageofcomponentreuse,andtheskillimpactsinvolvedinmanufacturing,selling,andservicingthecontroller.YouandtheNPDprocess headjointlydecideonthepumpdesignthathascostprojections10percentundertheothers,andyouendthemeeting. Afteranothercupofcoffeeandadoughnut,younoticethatyourworkstationliststhreerequestsforyourconfirmationofunprofitablesales.Thesystemhasrecently beguntocalculatewhetherindividualsalesareprofitable,andyou'veaskedthatitbeconfiguredtorequestconfirmationwheneverasaleiscalculatedtobe unprofitable,sinceyoudon'twantthistohappenoften.Twoofthesaletransactions,youquicklydetermine,areforcustomerswhoareprofitableoverall,soyou approvethem.Theotheroneyoureject,andyounotifythesalesrepthatorderingaverysimilarproducttooneintheorderwouldmakethesaleprofitable.Therep shouldhaveknownthatandcheckedthesystemhimselfyouexpecthewillinthefuture,sinceyourmessagewasabitcurt. You'retemptedtohaveanotherdoughnut,butresistandstartdealingwithaprocurementissuethat'scomeupoverthepastseveraldays.Yourglobalsupplychain managementprocess

Page296

leaderisonvacation,soyouhavetodealwithityourself.Oneofyourkeyvendorshasnoticedthatthevolumeyouorderelectronicallyfromthemisdecliningandhas leftmessageswonderingwhy.Youcheckpricesandsourcesforseveralautomatedpurchasesoverthepastweeksandnotethatthesystemhasbeenrelyingmore heavilyonspotmarketpurchasesofthevendor'sproduct.Younotethatthevendorhadautomaticallynotifiedyoursystemofapriceincrease,andthatledtothe system'ssearchforalternativesuppliers.Youcallthevendor,relatethisinformationwithcoolprecision,andgentlyberateyoursupplierfortryingtopushthrougha priceincrease.Younotethatthevendor,whichhasaccesstoyourorderinginformation,couldhavenoticedthereasonforthedeclinehimself.Afterall,yoursystem senthimanemailnotingthepriceincreaseandsuggestingthat"pricesonproductstenderedmaynolongerbecompetitive."Asyoususpecthe'lldo,hebacksdown onthepriceincreaseandsayshe'llhavehissystemsendnotificationtoyoursystem.Youhaveperfectconfidencethatordervolumesforthisvendorwillpickupwhen thesystemfactorsinthenewprice. Youhavealunchscheduledwiththeprocessheadofcustomerrelationshipmanagement.Shehasaproblemshewantstodiscusswithyou,shesaidinanemail message.Afteryougetyourfoodandsitdowninthecafeteria,shesays,"IthoughtIwouldgettoyoubeforeyougottome.Youmayhavenoticedalreadythatthe systemsaysourcostperservicecallisup."It'sreallynotservicecostincreases,sheargues,butratherinvestmentsinserviceknowledgemanagementthatyou've alreadyapproved.Afewoftheservicerepsareenteringdescriptionsofpastservicecasesintotheknowledgerepository,andthecompanywillbeabletoresolve customerproblemsalotfasteraftertheyfinish.Youdorecallagreeingtothisarrangement,andthendiscusswithherhowtofactorthecostsoftheknowledge managementworkintotheactivitybasedcostingsystemfortheproject. At4P.M.youhaveagolfdate,whichyou'dfeelguiltyaboutifyouhadn'tbeensoproductivethismorningandoverlunch.

Page297

Butbeforeyoutakeoffyouwanttoresolveacouplemoreproblemsthathavebeenbrewingallweek.Oneofyourcompetitorsisthreateningtodropoutofan industrymanufacturingconsortiumthatyouwereinstrumentalincreating.Theconsortiumrunsamanufacturingplantthathandlespeakdemandforprocesscontrol systemswhenanyoftheparticipatingcompaniesrunsoutofcapacity.ItusesyourbrandofES,sowhenyoursystempredictsacapacityconstraint,ordersare automaticallyshiftedtobemanufacturedattheconsortiumplant.You'reproudofhowtheconsortiumsavedyoufromhavingtobuildanotherplant,eventhoughit tookspecialapprovalfromantitrustregulatorstoworkacrosscompetitivefirms. Beforecallingthecompetitor,youcheckintotheconsortium'ssystemtofindoutwhatyoucanaboutwhyhemightbethreateningtowithdraw.You'renotentitledto seeallorderinformationintheconsortiumsystem,butitispossibletoseeaggregatefiguresonwho'susingtheplant'scapacity.Thecompetitor,younote,hasbeen usingtheconsortium'scapabilityonafairlyregularbasis,sotheremustbeanotherreason.Whenyoucallyoufindoutwhatitis:Thecompetitorsaysthere'sagood chancethathe'llbesellingofftheprocesscontrolbusiness,andbytheconsortiumcontracthehastogivethreemonths'noticebeforewithdrawing.Youaskifhemight beinterestedinsellingthebusinesstoyourfirm,andsetupadinnermeetingataquietrestauranttodiscussit. It's3:30andyouhavetogetmovingifyou'regoingtomakeyourteetime.YouareplayingwiththeVPofcustomerrelationshipmanagementforyourESvendorfirm. It'sobvioustoyouandtothevendorthatyouruseofthesystemmakesyoustrategicpartners,andoveragolfgameyouplantodiscussfurtherwaystocooperate.All inall,yourEShasenabledyoutohaveafruitfullybusyday.

Page299

Appendix: ATechnicalOverviewofEnterpriseSystems
InthisappendixanumberoftechnicalissueswithregardtoESsarediscussed.Althoughtheexplanationsofthetechnologyshouldbeaccessibletonontechnologists, thefocusoftheappendixisonhowthetechnologyworksandwhatsomeoftheimportantdifferencesarebetweenESofferings,andnotonthebusinessimplications ofthesystems.Sincetechnologychangesrapidly,letmewarnthatthissectionofthebookmayagefasterthanothersections,andpartsofitwilleventuallybecome obsolete.(Ontheotherhand,therestofthebookistimeless!)I'llbeginwithadiscussionofhowESswork. HowDoEnterpriseSystemsWork? AnESisatechnicaltourdeforce.Itcombinesaveryhighleveloffunctionalityandcomplexitywithdaytodaydependabilityandrobustness.Severaltechnical capabilitiesarekeytohowanESworks,includingthefollowing: Modularconstruction Client/serverarchitecture Configuration Commoncentraldatabase Variableinterfaces Eachofthesecapabilitiesisdescribedindetailinthefollowingsubsections.UnderstandingthewaythatanESfunctionsiskeytoknowinghowitfitsintothe organizationalcontext.

Page300

ModularConstruction Enterprisesystemsarecollectionsofapplicationmodules.SAP,themostcomprehensiveESpackage,hastwelvemodulesthesearelistedintableA1.Themodules cancommunicatewitheachothereitherdirectlyorbyupdatingacentraldatabase. Companiescanselectamongtheavailablemodulesofferedbyavendorandinstallonlythoseneeded.Companiescanalsoaugmentorreplacefunctionalityofferedby anESvendorwithsoftwarefromathirdpartyprovider.Thegoalinsuchcasesisforthethirdpartysoftwaretoactasjustanothermodule,thoughthisisrarelyso straightforwardinpractice.SomesortofcustomizedinterfacemustusuallybedevelopedinorderfortheboltonmoduletoconnectwiththeES. Client/ServerArchitecture ContemporaryESsallrunonaclient/servercomputingarchitecture.Thismeansthatsomepartoftheprocessingisdoneonaserver,andsomeonadesktoppersonal computer(theclient).

TableA1 SAPApplicationModules

FinancialAccounting Treasury Controlling(financialcontrol) EnterpriseControlling(managementreporting) InvestmentManagement ProductionPlanning MaterialsManagement PlantMaintenance QualityManagement ProjectSystem(projectmanagement) SalesandDistribution HumanResourcesManagement AdvancedPlannerandOptimizer

Page301

EnterprisesystemsarelargeandcomplexprogramsrequiringpowerfulserversandrelativelypowerfulPCs.SomebrandsofES(e.g.,SAP)requiretwolayersof serversonefortheapplicationprogramsandoneforthedatabase. EarlierversionsofESs(e.g.,SAP'sR/2system)ranoncentralizedmainframes.Somefirmsstillhavethesemainframeversionsinstalled,butalmosteverycompanyis movingtowardinstallationofclient/serverversions(forreasonsoftechnicalcurrency,notreallyincreasedbusinessvalue).Insomecases,vendorsarewithdrawing supportforthemainframeversionsoftheirsoftware.Tofurthercomplicatetheissue,afewfirms(forexample,thepostagemetercompanyPitneyBowes)have installedonelayeroftheirESonamainframecomputer,butrefertoitasaserver.Manycompaniesstrugglewiththetechnicalcomplexityoftheclient/server environmentandwiththescalabilitytosupporttherequirednumberofconcurrentsystemusers(whichmayrangeintothethousands).Theyoftenseekthemost powerfulserveravailabletoruntheirsystems. Configuration AlthoughanESisastandardsetofapplications,individualcompaniescantailortheirESstotheirparticularbusinessenvironmentthroughconfiguration.A configurationtableenablesacompanytotailorthefunctionalityofthesystemtothewayitchoosestodobusiness.Anorganizationcanselect,forexample,whatkind ofinventoryaccountingitwillemploy(e.g.,FIFOorLIFO),orwhetheritwantstorecognizeproductrevenuebygeographicalunit,productline,ordistribution channel.Thesequenceofconfigurationistofirstestablishanunambiguouscorporatestructureandhierarchythisaffectshowresultsareconsolidated.Thenforeach businessprocess,subprocess,andmajoractivity,thecompanyshouldanswerthefollowingquestions: Howarewedoingthistoday? Howwouldweliketobedoingit? Howdoesthesystemallowustodoit?

Page302

Enterprisesystemprocessdesignsareusuallyquiterationalandtypicallyofferseveralchoices,buttheydonotencompassallpossiblewaysofdoingbusiness.SAP, themostcomplexES,hasmorethan8,000configurationtablesbuteventheSAPconfigurationoptionsarenotunlimited.Companiesthathaveidiosyncraticwaysof doingbusinessmayfindthattheyarenotsupportedintheEStheyselect.Forexample,afirmmaybeabletorecognizerevenuesbyeitherproductorgeography,but notdoublecountbyboth.Acompanymaynotbeabletogivepreferentialtreatmentforexample,shipproductoutofalreadypromisedinventorytocustomers basedonlongtermbusinessrelationships.Itmayrequiremonthsorevenyearsforacompanytodecidehowitwantstoconfigureitssystem.UnknownComputer,for example,spentmorethanayeargoingthroughthismappingofprocessestosystemconfiguration. However,bothESsoftwarevendorsandconsultingservicesareincreasinglysupplyingtemplatesforparticularindustriesorcompanytypes(e.g.,internationaloil companies,smallmanufacturers)thatgreatlyshortcuttheprocessofconfiguringasystemif,ofcourse,thecompanyiswillingtotakeastandardconfiguredsystem ormakeonlyminorchangestoit. CommonCentralDatabase AllESsfeatureacommoncentraldatabasefromwhichallapplicationmodulesdraw,manipulate,andupdatedata.Thisisnotanewconcept,butithasreachedits highestlevelofsuccessfulexecutionintheESenvironment.Thedatabasesaregenerallynotproprietary,butareofferedbyleadingdatabasevendors(e.g.,Oracle, Sybase,Informix).ThedatabasesusedbyESsarealmostalwaysrelationalthatis,theystoredatainaneasytoaccessformatthatdoesnotrequireadvance knowledgeofallthewaysinwhichthedatawillbeaccessed. VariableInterfaces AnimportantaspectofESsistheirglobalnature.Whatmakesitpossibleforonesystemtobeusedinmanydifferentcountriesis

Page303

theinclusionofdifferentinterfacesfordifferentcountries.AuserofanESinBrazil,forexample,wouldlookatESscreensinPortugueseandwouldseefinancial resultsinreals.TheESmightevenbeabletoapplyBrazilianemploymentlawinitshumanresourcessystem.Ofcourse,notalllanguagesandcurrenciesaresupported inallESs,butthereisagoodchancethatifyouareinanindustrializednationyouwillbeabletointerfacewithanESinyournativeterms.Anoccasionalerror messageinthehomecountrylanguageoftheESvendormaysneakthrough,however! OriginsandMajorVendorsofEnterpriseSystems ThemodernESisacreationofsoftwarevendors.However,theconceptofthebroad,modernESdidnotspringfullblownfromtheheadofabrilliantentrepreneur. JustasMicrosoftincrementallyaddedproducts,functionality,andprofitabilitytothepersonalcomputermarket,sodidESvendorsstartwithmuchlessambitious products.Mostofthemwerefocusedonaparticularfunctionatthebeginning,andincrementalcapabilitieswereaddedovertime.Insomecasesthesecompanies grewbyacquisitionandthenintegrationoftheacquiredsystemintotheintegratedES. Inlargeorganizations,SAP,Oracle,andPeopleSoftaretheclearmarketleaders(with28percent,9percent,and7percentmarketsharein1998,respectively, accordingtoInternationalData),togetherconstitutingalmosthalfthemarket.OtherplayersinthelargecustomermarketincludeJ.D.Edwards,Baan,andLawson Software.Insmallerandmidsizedcompanies,thevendormarketismuchmorefragmented.CompaniessuchasGeac,PlatinumSoftware,Ceridian,QAD,andSSA offerenterpriseproductsinthesemarkets,usuallyonthestrengthofoneparticularfunctionalapplication,suchasfinancialsystemsorhumanresourcesapplications. Thelargecompanyvendorsareaggressivelymovingintothemidsizedcompanymarket,however,andgiventheirabilitytomarkettheirproductseffectivelyandtheir greatersystemfunctionality,theywillprobablycometodominatethismarketeventually.

Page304

ForsomeindustriesthereareESpackagesthatwerespecificallydesignedfortheindustry'sprocessandinformationrequirements(thiswasoriginallythecasewithall ESvendorsmostsystemsoriginallysupportedmanufacturingcompaniesbuttheyevolvedtosupportmanydifferentindustries).ClarusandFlexiInternational,for example,focusonserviceindustriesMarcamfocusesonprocessmanufacturingbusinessesJDASoftwareandRichterSystemsaddressretailapplications. SAP ThefirstfirmtointroduceabroadlyfunctionalESwasSAPAG(Systeme,Anwendungen,ProdukteinderDatenverarbeitungSystems,Applications,andProducts inDataProcessing),aGermancompanybasedinthetownofWalldorf.FivesoftwareengineersatIBMinGermanyhadtheideaforacrossfunctionalinformation system.IBM,however,rejectedtheidea,sotheengineersformedtheirownfirmin1972.SAP'searliestintegratedofferingranonmainframesandwascalledR/2. Theclient/serverversionofthesystem,R/3,wasintroducedin1992.SAPhasmorethan17,000customersandjustundera30percentshareoftheESmarket. SAP'sstrengthisthebreadthandextensivecapabilityofitssoftware'sfunctionalityifithasashortcoming,itisthecomplexityofthesystemandofitsimplementation. SAP,beingmorethandoublethesizeofthenextlargestESvendor,spendsmuchmoreonR&Dthananyotherfirm,andismostlikelytointroducenewfunctionality asaresult.SAPtakesastrongindustryspecificfocusinitsmarketingitsstrongestindustriesareoilandgas,processindustries(e.g.,chemicalsandpharmaceuticals), andhightechnology,butitiscomingonstronginavarietyofotherindustries,fromhealthcaretofinancialservices. Oracle OracleCorporationwasfoundedin1977asadatabasecompany,andstillisone.Itsdatabaseofferingisthemostpopular

Page305

repositoryofESdata.Butinthelate1980sthecompanybegantodevelopitsowncomputingapplications.Earlyversionsoftheinternalsoftwarewerethenrefinedin codevelopmentprojectswithcustomercompanies,suchasMillipore.TodayOraclehasjustunder10percentoftheESmarket.ItsESpackagehasalmostfifty differentmodulesinsixcategories:Finance,HumanResources,Projects,Manufacturing,SupplyChain,andFrontOffice(customerorientedapplications).Italso offersindustryspecificofferings,mostofwhichwereacquiredfromcompaniesthathaddevelopedthemtoacertaindegree(e.g.,theOracleEnergyDownstream packageobtainedfromBP). Baan Foundedin1978,BaanisaNetherlandscompanybasedinthetownofPutten.Foritsfirstfifteenyearsitssoftwarewasprimarilymanufacturingoriented.Thenthe companywentpublicandinvestedheavilyindevelopmentofbroadercapabilities.Thecompanynowhasmorethan3,000customersandisheavilyfocusedon manufacturingandlogisticsitsmostprominentcustomers(e.g.,Boeing)arecomplexmanufacturingfirms.Baanhasexpandeditscapabilitiesrecentlythrough acquisitionitboughtAurumforitscustomerservicesoftware,andCodafordetailedfinancialreportingcapabilities.It'srunintosomefinancialdifficultiesoflate,butis generallybelievedtohaveagoodproduct. PeopleSoft BasedinPleasanton,California,PeopleSoftisthenewestofcurrentESvendors.Itstraditionalstrengthhasbeenhumanresources(HR)applications,thoughitnow offersafairlybroadrangeofsoftwarefunctionality.Thecompany'sCEO,DaveDuffield,hadledtwopreviousHRorientedsoftwarecompanies.Hestarted PeopleSoftin1987tocreateaclient/serverversion,andbeganwithsuchHRfunctionsasemployeerecords,payroll,andbenefits.Thecompanydevelopeditsown financial

Page306

applicationslateritbuiltmanufacturingsoftware,andacquiredlogisticssoftwarewhenitacquiredRedPepper.Itssystemisrelativelyflexibleandeasytoinstall,but doesnotsupportthescaleorcomplexityofaverylargeorganizationaswellas,say,SAP.PeopleSofttodayhasabout7percentoftheESmarketuntilrecentlyit wasgrowingrapidly. J.D.Edwards Foundedin1977byexaccountants,J.D.Edwardshaslongbeenfocusedonsystemsthatrunonmidrangecomputingplatforms,forexample,theIBMAS/400 series.Today,however,thecompany'ssoftwarerunsonmanydifferenttypesofsystems,butthemidrangefocuscontinueswiththecompany'sheavypresencein smalltomidsizedcompanies.Becausethecompanyhashadastrongfocusonapplicationdevelopmenttools,theJ.D.EdwardsESpackage(calledOneWorld)is relativelyeasytoconfigureandmodifytoanindividualcompany'sneeds. D&BSoftware/Geac D&BSoftware,nowGeacComputer,wasoneoftheearlydevelopersofanES.Thecompanywasformedfromamergeroffirmswithfinancialandmanufacturing orientedsoftware,andofferedearlypromiseinintegratingthesecapabilities.However,D&BSoftwaredidn'tmakeasuccessfultransitionfrommainframeto client/serverversionsofitssoftwarerapidlyenough,andithasnotprosperedinthelate1990s. ComplementarySoftware Implementinganenterprisesolutionisoftennotjustamatterofinstallingasinglevendor'spackage.WhileESpackagestypicallyofferanamazingdegreeofsoftware functionality,theydon'tyetdoitall,andparticularapplicationmodulesfromanESvendormaynotprovidethebestavailablefunctionality.Asaresult,aseriesofbolt onapplicationsareofferedbyothersoftwareven

Page307

dors.TheboltonsystemsusuallyincorporatesomeabilitytoworkwiththebasicESpackageanduseitsdata.Enterprisesystempackagevendorsareusually workingdiligentlytoaddthefunctionalityprovidedbyboltonsystemstotheirownpackages,buttheymaynothavedonesoyet,ortheirnewofferingsmaybe judgedinferiortoaspecialpurposebolton. Twomajortypesofboltonsystemsareparticularlyimportanttocompaniestoday.Onesetinvolvessocalledsupplychainoptimizationcapabilities.These systems,offeredbysuchvendorsasi2andManugistics,allowconstantfinetuningoftherelationshipbetweendemandandsupply.Ifacriticalsupplier'scomponent becomesunavailable,forexample,thesesupplychainsystemscanhelpmanagersdeterminetheimplicationsoftheproblemforoverallproductionandperhapsevento planawayaroundtheshortage.ThesesupplychaincapabilitiesaresufficientlypopularthatbothSAP(throughinternaldevelopment)andPeopleSoft(through acquisition)haveaddedthemtotheirownofferings. Thesecondtypeofboltoninvolvessocalledfrontofficeapplications.Thesearesystemsthatsupportemployeesworkingdirectlywithcustomers,suchas salespeople,customerservicerepresentatives,andcallcenterworkers.Theymayalsobecalledcustomerassetmanagementsystemsbecausetheyenablethe capturingandanalysisofmanyformsofinteractionsandtransactionswithcustomers.VendorsofthesesystemsincludeVantiveandClarify(primarilyforcustomer serviceapplications),andSiebelSystemsandTrilogyDevelopment(primarilyforsalesorientedapplications).Again,thesetypesofsystemsaregrowingrapidlyin popularity,whichhasmotivatedatleastonevendor(SAP)tomakeanacquisitionintheareaandtoincorporatefrontofficefunctionalityintoitsESpackage. Thespecificfunctionsthatcompaniesseekinboltonsarevaried,butmostfitintotheabovetwocategories.AsurveyofsixtytwofirmsthathadimplementedES packagessuggeststhatwelloverhalfhadimplementedsomethingotherthanabasicpackage,includingthefollowingfunctions:1

Page308

Electronicdatainterchange Distribution/warehouse Datawarehousing Humanresources Tax Barcoding Salesforceautomation Planningandscheduling Transportation

21% 18% 17% 16% 16% 15% 13% 11% 11%

Manyothertypesofsoftwarewereimplementedbylessthan10percentoftherespondents,includingproductdatamanagement,forecasting,financialsystems, customerinformationsystems,engineering,andshopfloorsupport. WhyisanESprojectsuchamultivendorundertaking?Thesurveysuggestssomeanswers.SomeofthenotedsoftwaretypesareincludedinmostbasicESpackages, suggestingthatcompaniespreferredtouseseparatesoftwarefunctionalityfor,say,humanresourcesapplications.SomeareavailabletodayfrommajorESvendors butwerenotwhenthecompaniesbegantoimplementtheymayormaynotreturntotheirprimaryvendor'sfoldwhenthenewcapabilitiesareavailableandmature. SomecapabilitiesaresimplynotavailablefrommainstreamESvendors. AlternativestoEnterpriseSystems TherearereallyonlyafewalternativestoESstodayfororganizationsthatwishtohaveuptodateinformationsystemswithsomelevelofintegration.Mostofthese, unfortunately,areunprovenorprovidefewbenefitstojustifythelackofintegrationortheincreasedtechnicalrisk.However,inordertohelpyoumakeaninformed choice,I'lldescribethreealternativeshere.

Page309

BestofBreedSystems ThefirstandmostcommonlypursuedalternativetoESs,asI'vementionedbrieflyearlier,istopursueabestofbreedstrategy.Thisinvolvesinstallingsystemsthatare thebestavailablefortheparticulartaskathand.ThesystemselectedmaybeastandalonesystemorpossiblyasinglemoduleofanES.Forexample,somefirmshave installedonlythehumanresourcesmanagementcomponentofPeopleSoft'ssystem,believingthatitisthebestpossiblesystemforthatapplication,withnocurrent desireorplantoimplementothercapabilitiesandlinkthemtogether.SomeESvendorsareattemptingtosupportthisapproachbyofferingtheabilitytolinkdiverse vendors'systemstogetherunderonebroadarchitectureorframework. Isthisagoodidea?IthinkinformationandprocessintegrationaredesirablefeaturesofESs,andifyoudidn'tagreeyouprobablywouldn'thaveboughtthisbookor readthisfarinit.Theadditionalcapabilitiesforaspecificfunctionofferedbyabestofbreedsystemareprobablynotworththelossofintegration.Ingeneral,unless thesurvivalandprosperingofyourbusinessreliesonthefunctionalitysuppliedbyastandalonesystem,it'snotworththetrouble. MessageBrokering AsomewhatrelatedalternativetoESsistheconceptofmessagebrokering.Thissystemsarchitectureattemptstoachieveintegrationbetweendiversesystems(either standalonepackagesorcustombuiltapplications)throughthesendingofmessagesbetweensystems.Astandalonesystemthattakesanorderfromacustomer,for example,mightthensendamessagetotheinventorymanagementsystemaskingittoreduceitslevelofinventoryonhand,andamessagetothemanufacturingsystem tellingittobuildasetofproductcomponents.Themessagingconceptisderivedfromobjectorientedsystems,thoughthesystemsthatsendmessagesbackandforth neednotbetrulyobject

Page310

oriented.ThisisalessambitiousapproachtoinformationintegrationthatmayultimatelyprovetobemoreflexibleandeasiertoimplementthananES.Atthemoment, however,it'srelativelyunprovenandtechnicallyrisky. OneorganizationthathasmadeaheavybetonmessagebrokeringisUnknownComputer.AsIdiscussinseveralchaptersofthisbook,Unknowncancelledmostof itsinitialattempttoinstallanES,keepingonlythehumanresourcesmoduleofSAPasasmalllegacyofitsinitialproject.Thecompany'snewchiefinformationofficer helpedtokilltheESprojectandhasbecomeanenthusiasticproponentofmessagebrokering.IfIusedclichsIwouldsay,''Timewilltell." MessagebrokeringcanalsobeusedinconjunctionwithanEStocombineESbasedinformationwiththatfromothersystems.Thistypeofsetupissometimescalled enterpriseintegrationapplications(EIA),andseveralvendorshavebeguntoofferproductsthatconnectmultipletypesofsystems.Theideabehindthese applicationsistoreducetheneedforcustomizedprogramcode.However,theearlyimplementationsofEIAtechnologythemselvesrequireahighlevelof customizationandintegration.SomeoftheEIAvendorsfocusspecificallyonlinkagesbetweenparticularESpackagesandspecificothertypesofsystems,for example,aspecificsalesforceautomationtool.Ifyouhavethatspecificcombination,itmakesitmucheasiertoselectanEIAoffering. ObjectOrientedSystems Theoretically,onecoulduseobjectorientedsystemstoaccomplishthepurposesofanES.Suchsystemsare,allotherthingsbeingequal(andofcoursetheynever are!)moreflexible,maintainable,andsimpletounderstandandinstallthananES.It'sbeyondthescopeofthisbooktodescribetheminanydetail,butifyouare interestedinlearningmore,checkouttheusefulendnote.2 InsomeindustriestherearealreadyobjectorientedsystemsthatwilldosomeofwhatanESwilldo.Inthe process

Page311

manufacturingindustry,forexample,acompanycalledMarcamwillsellyouanobjectorientedEScalledProteanthatissupposedlythewaveofthefuture.How futureorienteddoyoufeel?Sufficeittosaythatithasnotyetcaughtoninthepresent. ObjectorientedsystemshavebeenhypedasthewaveofthefutureforthetwentyyearsorsothatIhavebeeninvolvedwithinformationtechnology.Asafriendand SAPprojectmanagerrecentlynotedtome,"Ifobjectorientedwasreallygoingtorevolutionizetheworld,itwouldhavealreadydoneso."Iagree.Itisconceivable thatESvendorswilluseobjecttechnologytobuildtheirownsystems,butthiswillnotbeofgreatrelevancetotheuserexceptforpossibleimprovementsinES flexibility. Conclusion TheEStechnologyenvironmentischangingrapidly,withvendorsaddingfunctionalityallthetime,andwitheveryoneadjustingtotheroleoftheInternet.Idiscuss somespecifictechnologyfuturesforESsinchapter9.HereI'llsimplynotethatthesesystemswillcontinuetogetbigger,willstayintegrated,andwillevolvetobe moreflexibleandeasytofittoyourbusiness.Theunderlyingtechnologymaychange,butthebasicfunctionalitywon't. Enterprisesystemsmaybecomplex,difficulttoinstall,andinflexible,buttheninformationsystemshaveneverbeennotedfortheirsimplicity,easeofdevelopmentand installation,andflexibility.Slowbutsteadyprogresswillbemadeonthesefronts.Enterprisesystemswillremainthemostcapable,integratedsystemsinthehistoryof theworld.Theymayhavetheirflaws,buttheyarealsotheanswertoourinformationsystemsprayers.

Page313

Notes
Chapter1 WhatAreEnterpriseSystemsandWhyDoTheyMatter? 1AndersenConsultingLLPincooperationwithChiefExecutivemagazine,"EnterpriseBusinessSolutions:TheAndersenConsultingSurveyofChiefExecutive Officers,"1999. 2ChristopherA.BartlettandSumantraGhoshal,ManagingAcrossBorders:TheTransnationalSolution(Boston:HarvardBusinessSchoolPress,1989). 3Isuggestedthatthiswasagoodideainthefirstbookonreengineering,ProcessInnovation:ReengineeringWorkThroughInformationTechnology(Boston: HarvardBusinessSchoolPress,1993).Atthetime,however,thenotionwasnotapopularone. Chapter2 ThePromiseandPerilsofEnterpriseSystems 1InformationabouttheBayNetworksimplementationwasobtainedprimarilyfromacasestudybyBenchmarkingPartnersofCambridge,Massachusetts("Bay NetworksSAPR/3ImplementationCaseStudy,"1997).ThecasestudywaspartiallyfundedbySAP. 2InformationaboutElfAtochemcomesfrominterviewswithcompanyexecutives,acasestudybyBenchmarkingPartners("ElfAtochemNorthAmerica,SAPR/3 ImplementationCaseStudy,"1997),andanarticlebyCraigStedman,"ERPPioneers,"ComputerWorld,18January1999,1. 3InformationandquotefromPEBiosystemscomefrom"TheChiefExecutiveGuidetoEnterpriseBusinessSolutions,"asupplementtoChiefExecutive,May 1999. 4TheworkshopwasorganizedbytheConcoursGroupinAugust1997. 5AndersenConsultingLLPincooperationwithChiefExecutivemagazine,"EnterpriseBusinessSolutions:TheAndersenConsultingSurveyofChiefExecutive Officers,"1999. 6TheFarmlandcaseisdescribedbyVinnieMirchandaniinaresearchnoteentitled"DeliveringPromisedPackagedSoftwareBenefits"(Stamford,CT:Gartner Group,AdministrativeApplicationsStrategies,1997).

Page314

Chapter3 ShouldMyCompanyImplementanEnterpriseSystem? 1AndersenConsultingLLPincooperationwithChiefExecutivemagazine,"EnterpriseBusinessSolutions:TheAndersenConsultingSurveyofChiefExecutive Officers,"1999. 2BenechmarkingPartners,"ROIStrategies:EnterpriseApplications"(Cambridge,MA:BenchmarkingPartners,1999). 3KenSansom,"TheCaseforaBusinessCase,"Context,Spring1998,58. 4MarthaAmramandNalinKulatilaka,RealOptions:ManagingStrategicInvestmentinanUncertainWorld(Boston:HarvardBusinessSchoolPress,1999). ForadiscussionofrealoptionsfromanITperspective,seeMarthaAmram,NalinKulatilaka,andJohnC.Henderson,"TakinganOptiononIT,"CIOEnterprise, 15June1999,4652. 5Thislistismodifiedfromonefoundin"ERPSystemsMakingtheBusinessCaseandSelectingtheRightSystem,"ManagementAdvisoryGuide,Canadian SocietyofManagementAccountants,1999. 6VinnieMirchandani,"TenWaystoJustifyAcquiringPackagedApplications"(Stamford,CT:GartnerGroup,AdministrativeApplicationStrategies,1997). 7CiscoinformationcomesfromconversationswithcompanymanagersandaHarvardBusinessSchoolcasestudy:MarkCotteleer,RobertD.Austin,andRichard L.Nolan,"CiscoSystems,Inc.:ImplementingERP,"Case9699022(Boston:HarvardBusinessSchool,1998). 8ChevroninformationcomesfromemailcommunicationwithcompanymanagersandaBenchmarkingPartnerscasestudy,"ChevronCorporationSAPR/3 ImplementationCaseStudy"(Cambridge,MA:BenchmarkingPartners,1997). 9BenchmarkingPartners,"CorinterSAPR/3ImplementationCaseStudy"(Cambridge,MA:BenchmarkingPartners,1998). 10InformationaboutPCConnectioncomesfromDerekSlater,"TheTiesThatBolt,"CIO,15April1999,64. 11BenchmarkingPartners,"BayNetworksSAPR/3ImplementationCaseStudy"(Cambridge,MA:BenchmarkingPartners,1997). 12RobertRubin,interviewbyauthor,May1998. 13CraigStedman,"RetailersAdoptDifferentStrategiesforInstallingSAPR/3,"ComputerWorld,25January1999,9. 14SusanReda,"TheERPDilemma:PackagedSolutionorBestofBreed?,"NationalRetailFederation,October1998 <http://www.stores.org/archives/oct98cover.html>. 15Ibid. 16BenchmarkingPartners,"HoechstMarionRoussel(Venezuela)SAPR/3ImplementationCaseStudy"(Cambridge,MA:BenchmarkingPartners,1997).

Page315

17Dataisfroman"ERPPaybackStudy"ofsixtyfirmsthathadrecentlyimplementedESs,conductedbytheMetaGroup,Stamford,Connecticut,1999. 18AndersenConsultingLLPincooperationwithChiefExecutivemagazine,"EnterpriseBusinessSolutions:TheAndersenConsultingSurveyofChiefExecutive Officers,"1999. 19InformationaboutAirProductscomesfrominterviewswithcompanyexecutives. 20InformationaboutNikecomesfrominterviewswithcompanyexecutivesbySusanCantrell.InformationfromReebokcomesfrominterviewswithcompany executivesandapresentationbyaReebokITexecutiveatBostonUniversityinMarch1999. 21MarianneKolbasukMcGee,"NikeCIOPlotsITStrategy,"InformationWeek,13April1998,40. 22Ibid. Chapter4 LinkingEnterpriseSystemstoStrategyandOrganization 1TheconceptofleanproductionanditsautomotivemanifestationsaredescribedinJamesP.Womack,DanielRoos,andDanielJones,TheMachineThat ChangedtheWorld(NewYork:RawsonAssociates,1990). 2MostinformationaboutCompaq'sSAPimplementationcamefromaninterviewwithJohnWhite,formerchiefinformationofficerofCompaq,in1997.Iadded somemorerecentinformationfromBillGates,Business@theSpeedofThought(NewYork:WarnerBooks,1999). 3ErynBrown,"VFCorporationChangesItsUnderware,"Fortune,7December1998,115. 4SuzanneDuBois,"SAPatAmocoFromBusinessCasetoRollout"(paperpresentedattheInformationManagementForumMeeting,Charlotte,NC,April 1997). 5Idiscusstheideaoffederalismfroman"informationpolitics"standpointinInformationEcology:MasteringtheInformationandKnowledgeEnvironment (NewYork:OxfordUniversityPress,1997),6872. 6Forinformationoncorporatefederalism,seeJamesO'TooleandWarrenBennis,"OurFederalistFuture:TheLeadershipImperative,"CaliforniaManagement Review34,no.4(Summer1992):7390. 7AsimilarsituationtothisoneisdescribedinAndrewMcAfee,"VandelayIndustries,Inc.,"Case9697037(Boston:HarvardBusinessSchool,1996). 8See,forexample,oneofthemanychangemanagementbooks,DavidA.Nadler,ChampionsofChange(SanFrancisco:JosseyBass,1998).

Page316

Chapter5 LinkingEnterpriseSystemstoBusinessProcessesandInformation 1Thisbook,thefirstonreengineering,iscalledProcessInnovation:ReengineeringWorkThroughInformationTechnology(Boston:HarvardBusinessSchool Press,1993).YouareprobablyalreadyfamiliarwithMichaelHammerandJamesChampy'sReengineeringtheCorporation:AManifestoforBusiness Revolution(NewYork:HarperBusiness,1993). 2Davenport,ProcessInnovation,5. 3MyfavoritesourceonthedistinctionbetweenprocessandpracticeisJohnSeelyBrownandPaulDuguid,"OrganizationalLearningandCommunitiesofPractice: TowardsaUnifiedViewofWorking,Learning,andInnovation,"OrganizationScience2(1991):4057. 4Foragooddescriptionofthegapbetweenprocessdesignandimplementation,seeSirkkaJarvenpaaandDonnaB.Stoddard,"BusinessProcessRedesign:Radical andEvolutionaryChange,"JournalofBusinessResearch41(1998):1527.Unfortunately,bythetimethisimportantworkappeared,manycompanieshadalready abandonedtheirreengineeringefforts! 5CharlesG.CobbandDonnaB.Stoddardmakethispointin"EnterpriseResourcePlanningSystems"(Wellesley,MA:CenterforInformationManagementStudies, BabsonCollege,1998). 6MichaelHammer,BeyondReengineering:HowtheProcessCenteredOrganizationIsChangingOurWorkandOurLives(NewYork:HarperBusiness, 1996).Thisisagoodoverviewofhowprocesscenteredorganizationsmightwork(iftheyevercomeabout). 7InformationfromOwensCorningcomesfromdiscussionswithcompanymanagersandacasestudybyCarolV.Brown,"Advantage2000atOwens Corning"(Indianapolis:KelleySchoolofBusiness,IndianaUniversity,1998).Thequoteinthetextisfromthecasestudy,p.2. 8HammerandChampy,ReengineeringtheCorporation,49. 9MoredetailabouttheVisiosituationcanbefoundinanexcellentarticlebyChristopherKoch,"TheBigUneasy,"CIO,15October1997,4152. 10InformationaboutDowCorning'sprocessknowledgemanagementwasobtainedfromthePhiosWebsite(<http://www.phios.com>)andinterviewswithDow CorningandPhiosexecutives. 11FortheMITresearchthatledtotheDowCorningimplementation,seeThomasW.Maloneetal.,"ToolsforInventingOrganizations:TowardaHandbookof OrganizationalProcesses,"ManagementScience45,no.3(1999):425443. 12InformationaboutMilliporewasobtainedfrominterviewswithcompanyexecutivesandacasestudy.SeeSandyE.GreenandNitinNohria,

Page317

"Millipore:ACommonLanguageforCommonSystems,"Case9494011(Boston:HarvardBusinessSchool,1993). 13BothquotationsarefromGreenandNohria,"Millipore:ACommonLanguage,"11. 14IwroteabookaboutthisissueentitledInformationEcology:MasteringtheInformationandKnowledgeEnvironments(NewYork:OxfordUniversity Press,1998). Chapter6 AchievingValueduringEnterpriseSystemImplementation 1RobertD.AustinandRichardL.Nolan,"EffectivelyManagingERPInitiatives,"workingpaper,HarvardBusinessSchool,Boston,MA,October1998.Quotation appearsonp.3. 2SeeJeffreyLiker,DavidRoitman,andEthelRoskies,"ChangingEverythingatOnce:WorkLifeandTechnologicalChange,"SloanManagementReview28,no.4 (Summer1987):2947. 3BenchmarkingPartners,"RealizingValuefromERP"(Cambridge,MA:BenchmarkingPartners,1998). 4SeeCraigStedman,"ERPPioneers,"ComputerWorld,18January1999,1,24. 5BayNetworksinformationcomesfrominterviewswithcompanymanagers,AndersenConsultingmaterials,andacasestudybyBenchmarkingPartners,"Bay NetworksSAPR/3ImplementationCaseStudy"(Cambridge,MA:BenchmarkingPartners,1997).Quoteisfromthecasestudy,p.8. 6InformationabouttheCiscoexperiencecomesfromconversationswithcompanyexecutivesandacasestudybyMarkCotteleer,RobertAustin,andRichard Nolan,"CiscoSystems,Inc.:ImplementingERP,"Case9699022(Boston:HarvardBusinessSchool,1998). 7Cotteleer,Austin,andNolan,"CiscoSystems,"3. 8Cotteleer,Austin,andNolan,"CiscoSystems,"9. 9InFocuscommentscomefromDerekSlater,"BusinessLineBackers,"CIOEnterprise,15March1998,2532. 10Thesame"underpromiseandoverdeliver"strategywaspraisedbyrespondentsinanOxfordUniversitystudyofinternationalcompanies.SeeGeoffreyMcMullen andDavidFeeny,"InternationalCompaniesandCommonAdministrativeInformationSystems"(OxfordInstituteofInformationManagement,1996). 11MichaelHammer,BeyondReengineering:HowtheProcessCenteredOrganizationIsChangingOurWorkandOurLives(NewYork:HarperBusiness, 1996). 12DowCorninginformationcomesfromcasestudiesbyJeanneW.Ross,"DowCorningCorporation:BusinessProcessesandInformationTech

Page318

nology"and"DowCorningCorporation(B):ReengineeringGlobalProcesses"(Cambridge,MA:CenterforInformationSystemsResearch,Massachusetts InstituteofTechnology,1997). 13BenchmarkingPartners,"BayNetworksSAP/R3ImplementationCaseStudy"(Cambridge,MA:BenchmarkingPartners,1997).Quoteisfromcasestudy,p.5. 14JeanneW.Ross,"DowCorningCorporation(B):ReengineeringGlobalProcesses"(Cambridge,MA:CenterforInformationSystemsResearch,Massachusetts InstituteofTechnology,1997),17. 15Formoreonknowledgemanagement,seeThomasH.DavenportandLaurencePrusak,WorkingKnowledge(Boston:HarvardBusinessSchoolPress,1998). Chapter7 TransformingthePracticeofManagementwithEnterpriseSystems 1ThestudywassponsoredbySAPandpresentedatthatcompany'sannualU.S.usergroupmeetingcompanymanagersallowedmetobeperfectlyobjectiveand didnottrytoinfluencethestudy'sresultsinanyway.ThestudywasfirstreportedattheLosAngelesSapphireusergroupmeetinginlate1998. 2Sincethestudy,Ihaveaddedseveralotherfirmstoitinformally.IfoundoutabouttheminthecontextofanotherresearcheffortattheAndersenConsultingInstitute forStrategicChange.Thislatterstudy,called"ExtractingValuefromBusinessTransactions:DatatoKnowledgetoResults,"seekstounderstandtheorganizational factorsinvolvedwhencompaniessuccessfullytransformtransactiondataintoknowledgethatisusedfordecisionsandincreasedperformance.Enterprisesystemdata is,ofcourse,transactiondata.SomeofthecompaniescontactedinthecontextofthisresearchincludeEarthgrains,J.D.Edwards,andBostonScientific. 3RobertKaplanandDavidNorton,TheBalancedScorecard(Boston:HarvardBusinessSchoolPress,1996). 4AdraftofthiscasewasoriginallywrittenbyDavidD.DeLong,aresearchfellowattheAndersenConsultingInstituteforStrategicChange. Chapter8 UsingEnterpriseSystemstoManagetheSupplyChain 1InformationonColgatecomesfrominterviewswithcompanyexecutivesandanarticlebyLindaGrant,"OutmarketingP&G,"Fortune,12January1998,150152. 2JeffSweat,"ERP:TheCorporateEcosystem,"InformationWeek,12October1998,4252.

Page319

3ThecategoriesaslabeledherearethoseusedbyForresterResearch.See,forexample,J.T.GormleyIII,S.D.Woodring,andK.C.Lieu,"SupplyChainBeyond ERP,"ForresterResearchReportonPackagedApplicationStrategies,Vol.2,no.2,May1997. 4RandyWeston,"ERPVendorsEyeECommerce,"CNETNews.com,8July1998,<"target="_BLANK">http://www.news.com>(8July1998). 5RonMargulis,"JoAnnStoresFabricatesSimplicitywithERP,"RetailInformationSystemsNews,<http://www.risnews.com/archive/Jan99/Jan99_10.shtml> (January1999). 6SAP,"Homepage,"<http://www.sap.com/press/magnews/special/scope_e/s20.htm>. 7Thepossibilityofincreasedinterenterprisecomputingleadingto"lockin"aroundoneortwoESsinanindustryisnotwhollyremote.It'sbeenobservedthatwhereas adecadeagoITpeoplewerelikelytoidentifytheirorganizationsasIBMorDigitalshops,nowthey'redescribingthemselvesasSAPorPeopleSoftshops.Eventhe perceptionofanadvantagefromstandardizationmaydrivesalesawayfromallbutthemarketleader. 8InformationabouttheReebok/VFconsortiumcomesfrominterviewswithReebokmanagersandanarticlebyCraigStedman,"StrongLinksintheChain," ComputerWorld,25January1998,59. 9ForoneaccountoftheNabisco/Wegmanspilotofcollaborativeplanning,forecasting,andreplenishment,seeNancyDillon,"StoryLinkintheChain," ComputerWorld,25January1999<http://www.ComputerWorld.com>. 10GeneralElectricdid,infact,greatlyexpandthenumberofsmallsuppliersitcouldbuyfromwhenitestablisheditsTradingProcessNetworkaWebbased procurementapplication.TexasInstrumentsiswellknownforitscommitmenttodealingonlywithsupplierswhocaninteractwithitelectronically. Chapter9 TheFutureofESEnabledOrganizations 1ManyoftheseconceptsarediscussedinStephenP.BradleyandRichardL.Nolan,eds.,SenseandRespond:CapturingValueintheNetworkEra(Boston: HarvardBusinessSchoolPress,1998),263284. 2StevenL.Goldman,"EnablingtheNextGenerationEnterprise,"ManagementAccountingGuidelinefocusgroup,meetingoftheSocietyofManagement AccountantsofCanada,JerseyCity,NJ,March1999. 3BradleyandNolan,SenseandRespond. 4JohnHagelandMarcSingerarguethatthisdisaggregationwillyieldthreedifferenttypesoforganizations.See"UnbundlingtheCorporation,"HarvardBusiness Review,March/April1999,133141. 5AndersenConsultingEnterpriseResourcePlanningForum,July1997.

Page320

6AdamM.BrandenburgerandBarryJ.Nalebuff,Coopetition(NewYork:Doubleday,1996). 7PeopleSoftpresentationatBostonUniversity,15April1999. 8JenniferBresnahan,"TheIncredibleJourney,"CIO,15August1998,3846. 9Goldman,"EnablingtheNextGenerationEnterprise." 10CraigMacDonaldandRickLawlor,"Wanted!CFOswithERPExperience:EnterpriseResourcePackagesNowDictatetheStructureofFinance"(paper presentedattheWorldResearchAdvisoryTrendTeleconference,12November1998). 11StephanH.HaeckelandRichardL.Nolan,"ManagingbyWire,"HarvardBusinessReview,September/October1994,122132. 12HaeckelandNolan,"ManagingbyWire,"23. 13ThomasW.Malone,"InventingtheOrganizationsoftheTwentyFirstCentury:ControlEmpowerment,andInformationTechnology,"inSenseandRespond: CapturingValueintheNetworkEra,eds.StephenP.BradleyandRichardL.Nolan(Boston:HarvardBusinessSchoolPress,1998),263284. 14Bresnahan,"IncredibleJourney,"44. Appendix ATechnicalOverviewofEnterpriseSystems 1BenchmarkingPartners,"RealizingValuefromERP"(Cambridge,MA:BenchmarkingPartners,1998). 2AgoodoverviewofobjecttechnologyisprovidedbyDavidA.Taylor,ObjectTechnology:AManager'sGuide(Reading,MA:AddisonWesley,1997).

Page321

Index
A accountability,129,294 acquisitions.Seemergersandacquisitions activitybasedcosting,257 Adaptec,Inc.,259260 ADec,176 airlineindustry,2526 AirProductsandChemicals,9798 Allen,Leroy,256 alliances,24. Seealsopartnershipsinterorganizational,261263 AmeradaHess,210,211,212213 Amoco,114 analysis futureofESsoftwarefor,285286 informationfor,166167 analyticprocesses,224,232 ApparelFootwearConsortium,100101,256 AppleComputer,121 applicationprograminterfaces(APIs),112. Seealsohooks AtlanticRichfield(Arco),78 Austin,Rob,170171 Autodesk,7 autonomoussystems,89 B Baan,87,88,303,305 balancedscorecardapproach,215216 BayNetworks,3132,7778 implementationat,177,179 interfacesat,198 behavioralchange,217219,224225,234 benefits,typesof,6971. Seealsogoals bestofbreedsystems,8687,251253,309 bestpractices,22 capture,storage,anduseof,279 systemselectionand,92 BeyondReengineering(Hammer),185 bigbangimplementation,175176,179181 boardsofdirectors,58 Boeing,242 boltonapplications,8788,306308 customerassetmanagementsystems,307 defined,3 frontofficeapplications,307 supplychainoptimization,246,307 BostonBeer,7980,8384 Brandenburger,AdamM.,273274,281 BritishPetroleum(BP),78 Burrows,Peter,256 businesscases,6266 costversusbenefitanalysisand,6263 processfor,6366 reviewing/revising,196 businessdomain,273274 ESfunctionalityand,277282

Page322

businesstobusinesssolutions,257258 businessunits,phasedimplementationbasedon,175 C casestudies: ondecisionmaking,97104 ofESproblems,3441 ofESpromise,3034 oftechnologybasedjustificationofESs,7274 onwhetherornottoimplementanES,5861 centralization,114 versuslocalcontrol,292 ofpurchasing,279280 CEOs,58 Ceridian,303 change,56 behavioralandorganizational,217219 ESs'abilitytodealwith,23 executivesponsor'srolein,182 askeyvalueofESs,178181 matchingESsystemwithdegreeof,7681 organizational,duringimplementation,129132 relationshipof,toreportingandmeasurement,212213 targetsfor,194196 Chevron,73,89 CiscoSystems: componentassemblystrategyat,8788 electroniccommerceat,8 fastimplementationat,179181 financialclosingprocessat,209 supplychainlinkages,83 technologybasedESjustificationat,7273 client/servertechnology,4,300301 CocaCola,ProjectInfinity,172 ColgatePalmolive,243,252 collaborativeplanning,forecasting,andreplenishment(CPFR)model/software,248,280 commandandcontrolstructure,1819 communication,12 betweencomputersystems,11 costsanddecisionmaking,291292 ofdecisiontoimplementanES,58 asESsystemprerequisite,193 byexecutivesponsor,182 futureofESs,257258 inimplementationprocess,172,173 viatheInternet,259260 inmanagementbywire,290 inoutsourcingESservices,288 CompaqComputer,107108,109,152153 competition,changeinbasisfor,25 competitiveadvantage,110114 ''competitiveforces"model,48 competitivestrategy,106114 competitors,ingoalselection,4344 componentassemblystrategies,8788 computeraideddesign(CAD),139 conferenceroompilots/prototypes,157,180 configuration,150153,301302 forcompetitiveadvantage,111112 defined,150 determininginformationcommonalityfor,155157 federalist,156 importanceof,197 ongoing,158159 testing,157158 Conoco,163165,174

Page323

consensus,120 consolidation,vertical,290 consultants: incentivesfor,52 motivating,195196 trainingby,130131 invendorselection,93 context,221,222223 costs,45 versusbenefitanalysis,6266 communication,291292 competitionbasedon,112113 cuttinginternaloperations,239241 deductingESrelatedsavingsfrombudgets,5152 realoptionsapproachto,66 savings,typesof,6971 typesof,6669 crossfunctionalprocessmanagement,239241 culturalcontext,223,230231 culturalexpectations,269. Seealsoorganizationalculture customerassetmanagementsystems,307 customercentricmodel,267268 customerintimacy,48,111 customers: Seealsosupplychain ingoalselection,4344 intimacywith,asgoal,48 performancemeasurementsand,215 relationshipmanagement,283284 selfserve,243244 customerservice: atElfAtochem,32 insupplychainmanagement,243244 customization,112 mass,267268 CVS,292 "cybercowboys,"291293 cycletime,reductionof,7 D data: centralizedversusdistributedmanagementof,91 centralversuslocalownershipof,8889 ascontext,222223 contextfordecisionmaking,228229 disaggregating,270271 evaluatingconditionof,57 management/stewardshipof,166 mining,285 skill/knowledgerequirementstouse,223 standardizing/converting,198199 thirdpartypackages'useof,252253 transaction,8990,231 turningintoknowledge,221225 warehouses,open,220 databases,4 commoncentral,302 planningstructureof,214 policing,133 qualityandvisibilityof,7476 D&BSoftware,306: SeealsoGeacComputer decisionmakers: informationfor,166167 informationqualityand,7476 decisionmaking: decentralizationof,291292 futureofESsoftwarefor,285286 leveragingtransactiondatafor,231 performancemeasurementfor,76 processes,224,233234 structuresandvaluesfor,293294

Page324

decisionmaking(continued) useofESinformationin,203235 onwhetherornottoimplementanES,5859 decisionsupporttools,257,279 demandplanningtools,246 divestitures,77,82 documents,linking,276 DowChemical,3334 analysisandreportsat,208 divestitures,82 newmanagementsystemsat,217 ongoingimplementationat,51 personnelreductionsat,213 systemupgradesat,53 DowCorning,154155,194,200 Dreyer'sGrandIceCream,240 E EarthgrainsCompany,221,225235,244 EastmanChemical,240241 ecommerce.Seeelectroniccommerce Edels,Howard,292 education: todetermineoutcomegoals,43 executivesponsor'srolein,182 organizationalchangeand,130132 fororganizationalintegration,119 electroniccommerce,8,247,257258 ESsasfoundationfor,2223,261 electronicdatainterchange(EDI),238 comparedwiththeInternet,259260 ElfAtochemNorthAmerica,3233,84,106,210,213 EMC,5961 employees: analyticalskillsand,218219 empowermentof,126128 evaluating,57 impactofESon,24 reductionsin,24,131132,190,219 skillrequirementsfor,24,115,116,131 useofESinformationindecisionmaking,208 empowerment,126128 enterpriseinformationportals,284 enterpriseintegrationapplications(EIA),310 enterpriseresourceplanning(ERP)systems.Seeenterprisesystems(ESs) enterprisesystems(ESs): alternativesto,308311 benefitsofversusproblemsfrom,2954 businessbenefitsof,79 choosing,1213 client/serverarchitecturein,4,300301 commonality/integrationofinformationin,34 complementarysoftwarefor,306308 criticismsof,1619 decidingwhethertoimplement,5253,55104 defined,2 demonstrationsof,95 empowermentand,126128 evaluating,6184 externalhostingof,286289 futureof,265297 growthof,45 historyof,23 howtheywork,299303 impactof,2326 implementationchoicesin,1416

Page325

importanceof,1923 linking,tostrategyandorganizationalstructure,105133 managementcultureand,128132 asmanagementtools,203235 modificationof,9192 modularconstructionof,300 ongoingchangein,132133 prerequisitesfor,5658 proprietary,1112 selecting,8496 singleversusmodular,190194 supplychainmanagementwith,237264 tacticsforrealizingbenefitsfrom,5154 technicaloverviewof,299311 technologicaldevelopmentsin,282290 technologychoicesin,190194 upgrading,53 versioncontrolfor,253 versions/instancestoinstall,numberof,193194 environment,futureofbusiness,266272 euro,the,11 Euroil(alias),3436 evaluation,6184: Seealsoperformancemeasurement benefittypesin,6971 businessandtechnicalfactorsin,6162 businesscase,6266 costtypesin,6669 costversusbenefit,6263 existingsystemsandfutureneedsin,7174 flexibilityfactorin,8182 informationqualityandvisibilityin,7476 organizationalstructurematchin,7681 supplychainlinkagesand,8284 ofsystemconfiguration,159 executives: asdecisionmakers,58 determiningattitudesof,towardESs,57 sponsorshipby,44,181183 supportoforganizationalintegrationby,120 trainingforsenior,130 typicaldayofESenabled,294297 expectations,172,184,269 extranets,288 F Farmland,52 FederalExpress,243244,270 federalism,information,123126,156,194 financialclosingprocess,209 financialimpacts,225 financialmanagement,8,194196 financialresources,evaluating,68 flexibility: empowermentand,127 lackof,inESs,1617 organizational,andESselection,8182 standardizationand,23 virtualindustriesand,25 frontofficeapplications,307 FujitsuMicroelectronics,82,195,211,213 gametheory,281282 G GeacComputer,303,306 GeneralSemiconductor(alias),4041 GeorgiaPacific,214215 Gibson,William,265 Gilmartin,John,161162 Girard,Greg,247

Page326

globalization,268270,290 andlocalevents,293 roleofESsin,2021 goals: changesin,45 failuretospecifyorganizational,115117 importanceof,3738 meansofarticulating,4344 vendorselectionand,93,191194 goodenoughprocessmodel,274 goodenoughreengineering,147 GoodmanFielder,252 H Haeckel,Steve,290291 Hammer,Michael,140 BeyondReengineering,185 hardwarecosts,67 Harris,Ken,102 HewlettPackard(HP),125126,201 Hiner,Glen,45 HoechstMarionRoussel(HMR),8990 HomeDepot,174 hooks,112 horizontalcorporaterealignment,270271 humancosts,69 humanresourcesapplications,87 I IBMSystemStoragedivision,78 identity: determining,4547 inorganizationalintegration,120 implementation,137,169201 advantagesofearly,113 balancingtechnicalandstrategiccapabilitiesin,250251 asbusinessinitiative,4142 constancyofpurposein,4851 incontextofbusinesschange,171173 costs,6768 decisionsaboutindividualmodules,151 difficultiesininformationfederalism,125 incrementalversusbigbang,173177 issuesin,219 ITinfrastructurefor,193194 managingtheknowledgegainedduring,200201 modelfor,170173 asongoing,51 organizationalchangeduring,129132 outcomesorientationin,4245 preimplementationtasks,181190 processoriented,142147 speedingup,178181 stepsin,196200 strategicgoalsin,4748 teams,188189 technicalversusstrategic,1416 timerequiredfor,1718 timeversusvaluein,1416,3034 timingof,177181 ventureoriented,171 visionin,4547 incentives,52 incrementalimplementation,173177 industries: ESadoptioninentire,109110 specificESproductsfor,85,8687 information: achievingcommon,highquality,159165 foranalysis/decisionmaking,166167

Page327

businessenvironmentand,160 commonality/integrationof,34 determiningcommonalityfor,124126,155157 distributionviaintranetwebs,220221 effectsofequal,2526 exchangeviatheInternet,259260 fastertransactionsin,78 federalism,123126,156,194 identifyingimportant,284 interpretationof,10 linkingESsto,136,159165 formanagement,206209 fornewprocesses,213214 prerequisitesforchoosingESs,5658 qualityandvisibilityof,3,7476,165166 informationscope,274276 ESfunctionalityand,277282 informationsystems,1.Seealsoenterprisesystems(ESs) beforeESs,912 infrastructure: evaluating,57 forfinancialanalysis/benefitmanagement,195196 initiatives,224225,234235 integration: crossenterprise,237238 globalizationand,269270 organizational,117120 Intel,17,109,121,131,133 interfaces: forboltons,300 developmentof,197198 ES/Web,260261 updating,253 variable,302303 Internet,3. Seealsoelectroniccommerce EDIcomparedwith,259260 externalhostingofESson,286289 supplychainlinkagesvia,8384 insupplychainmanagement,242243,247,258261 supplychainpartnersand,2223 Webbasedreportingand,220221 interorganizationalalliances,261263 intranets,3 informationdistributionvia,220221 useinoutsourcingESservices,288 inventory,240 availabletopromise,10 ITinfrastructure,193194 ITorganization,roleofinimplementation,189190 i2Technologies,238,254 J J.D.Edwards,303,306 balancedscorecardapproachin,216 organizationsizeand,88 WorldERP,8081 JDASoftware,8687 JoAnnStores,248249 K keiretsu,24,25,289 knowledge: capturing/sharingtransaction,128 aboutcustomers,283284 gainedduringimplementation,200201 turningdatainto,221225 turningtacitintoexplicit,89 knowledgemanagement,275284 knowledgeworkers,121123 Koch,Jim,79

Page328

L LawsonSoftware,88,303 leanproduction,107108,267268 legacysystems,192193 futureneedsand,7174 reasonstoabandon,7172 savingsfromdismantling,70 Levi's,268 Lippman,Brent,87 logisticssystems,246 M mainframes,301 maintenance,ofmultiplesystems,11 Malone,Tom,291292 management: constancyversuschangein,50 cultureof,128132 withESs,203235 globalizationand,269 impactofESson,290294 performancemeasurementfor,211215 process,140141 valuebased,3334,217 bywire,290 managers: businessversustechnology,inimplementation,41 globalizationand,2021 implementationproject,183184 improvingdecisionmakingof,7476 realtimemonitoringby,1 reducingnumbersof,205,209210 ofrenegadesystems,122 assuperusers,187,219 manufacturingresourceplanning(MRP),2 Manugistics,Inc.,238,245,253 Marcam,311 masscustomization,267268 measurementsystems,211215 contentofESenabled,215217 mergersandacquisitionsatEuroil,3536 globalizationand,269270 impactof,onESs,4950 implicationsof,forESselection,7778 messagebrokering,309310 metastandards,289290 Microsoft,8,210,215 Millipore,161162 modeling,process,153155 MohawkIndustries,267 Monsanto: changemanagementat,6 datastewardshipat,166 informationcommonalityat,162163 personnelreductionsat,209210,212213 projectleadersat,183 spinoffs,82 strategyplanningat,58 turningtacitknowledgeintoexplicitat,89 MottsNorthAmerica,252 N Nalebuff,BarryJ.,273274,281 NECTechnologies,141142 netsourcing,262263,287289. Seealsooutsourcing networks: asbasisofmarketstructures,261263 peer,273274 insupplychainmanagement,243244 value,272 NewBalance,103 Nike,99,101103 Nolan,Dick,170171,290291 NortelNetworks,7778,83,198 NovaPharmaceutical,156157

Page329

O objectorientedsystems,310311 operationalexcellence,110111 operationalstrategy,106110 Oracle,88,303,304305 orderprocessing,158,279280 viaemail,258259 organizationalcontext,223,230231 organizationalculture constancyofpurposein,4950 creatingmoredisciplined,120123 dataoriented,231 atGeneralSemiconductor,4041 impactofESson,6 informationculture,218 linkingESsto,114126 organizationalstructure: forESimplementation,181190 globalization'seffectson,2021 globalversusmultilocal,9091 hierarchical,1819 horizontal,270271 impactofESson,6 linkingESsto,114126 matchingESswith,7681 understanding,4547 outcomes: Seealsogoals determining,4344 orientationtoward,4245 responsibilityforachieving,44 outsourcing,194 ESservices,287289 netsourcing,262263 overcapacity,2122,290 OwensCorning,53 Advantage2000program,172 balancedscorecardapproachat,216 benefitsanalysisat,6566 neworganizationalunitsat,213 orderprocessingat,158 outsourcingat,194 processmanagementat,140141 processorientedviewat,210 projectoutcomesat,4445 P Paanakker,Roland,102103 PaperCo(alias),143145 parameterfiles,9192 partnerships: intrasystemversusintersystem,289 supplychain,2223 PCConnection,8081 peernetworks,273274 PeopleSoft,303,305306 acquisitionofRedPepperby,245 balancedscorecardapproachin,216 forhumanresourcesapplications,87 "MyWorld,"279 organizationsizeand,88 performancemanagement,199 performancemeasurement,285 balancedscorecardapproachto,215216 baseline,53 ofdecisionmaking,76 ofinformationquality,76 formanagement,211215 technology/systemsissuesin,220221 performancesupportsystems,131 PerkinElmerAnalyticalInstruments,5051 PerkinElmerAppliedBiosystems,50 personalproductivityapplications,2 phasedrolloutimplementation,174175,176177 Phios,155 pilotprojects,157158

Page330

planning: importanceofinformationin,910 manufacturingresource,2 preimplementation,181190 strategic,forESprojectgoals,44 plantschedulingtools,246 PlatinumSoftware,303 Plattner,Hasso,248 politicalcosts,69 Porter,Michael,112 portfolioassembly,191 PowerComputing,80 practice,defined,137 preimplementationplanning,181190 establishingsponsorship,181183 implementationteamin,188189 inhouseITorganizationin,189190 processownershipand,184186 projectleader/managerselection,183184 qualitypeoplefor,190 superuseridentification,186187 visionandplanningteamin,187188 processdesigners,trainingfor,130 processes: analyzingexisting,149 changesin,225 controlof,2 defined,137 globalversusmultilocaltreatmentof,91 impactofESson,6 informationabout,7476 internal,273274,277,279 interpeer,273274 linkingESsto,135159 modeling,153155 ownershipofimplementation,184186 peer,280282 phasedimplementationbasedon,175 reconcilingwithEScapabilities,149150 rethinking,235 savingsfromredesigned,70 supplychain,273274,279280 supportedbyESs,138139 unsupportedbyESs,139140 processknowledgemanagement,154155 processmanagement,140142,275,277,280 crossfunctional,239241 processware,136142 Procter&Gamble,241 productconfiguration,267268 productdatamanagementsystems,140 productdevelopment,111112,139140,284285 productinnovation,110 productionmanagement,267268,269 productivity,24 ProductosCorinter,76 projectleaders/managers,183184 projectmanagement,shortcomingsoftraditional,170171 proprietaryinformation,260261 Protean,311 prototyping,157158,199200 purpose,constancyof,4851 Q QAD,303 querying,220,285 R readiness,assessing,129 realoptionsapproach,66

Page331

RedPepper,245 ReebokInternational,99103,241242,256 reengineering,2122,137138,143147 cleansheetofpaper,142,143 configurationprocessin,150153 ESenabled,142143,147155 goodenough,147 regulatorystructures,269 relationships: calculatingvalueof,281 customer,283284 reporting,285 frequencyof,216 impactofESson,204 management,209 processforchanging,211215 toprocessowners,185186 rationalizationof,210 tostakeholders,215 technology/systemsissuesin,220221 Webbased,220221 resources,68,133 revenueenhancement,71 rewardsystems,230 RichterSystems,87 risk,5 inbigbangimplementations,175176 toemployees,24 inInternetcommunication,260261 Ross,88 Rubin,Bob,84 Ruettgers,Michael,6061 S SAP,303,304 AdvancedPlannerandOptimizer(APO),252,255256 ApparelFootwearConsortiumand,100101 balancedscorecardapproachin,216 financialsystem,87 modulesof,300 mySAP.com,279 organizationalstructureand,5051 organizationsizeand,88 supplychainsystem,87,248 SeattleTimes,18 selectionprocess: inbusinesscases,65 criteriaforvendor,9596 basedonorganizationalstructure/culture,114126 organizationsizeand,7881,88 singleversusmodularsystems,190194 vendor,8496 visionandplanningteamin,188 senseandrespondmodel,267268 servers,193 sharedservicesmodel,114,288289 SiebelSystems,111 sitevisits,95 size,organization,7881 Soenksen,Jim,87 softwarecosts,67 Southwest(airline),26 sponsorship,project,44,181183 spreadsheets,2 SSA,303 standardization: ofESapplicationsandinformation,289290 flexibilitydueto,23 globalizationand,269 insupplychainmanagement,254255 Steelcase,6 strategicclarity,4748 strategiccontext,223,226227 strategicenterprisemanagement(SEM),286

Page332

strategicplanningforESprojectgoals,44 strategy: competitive,106114 financial,106 linkingESsto,106114 operational,106110 superusers,186187,219 suppliers.Seesupplychain supplychain: dashboards,257 Internetcommunicationwithpartners,2223 linkages,inESselection,8284 operationalexcellenceand,110111 supplychainmanagement,237264 application,selectionfor,251256 benefitsof,239249 boltonapplicationsfor,307 defined,238 efficiencyin,241243 futureof,256258 gettingstartedin,249263 goalsof,238 impactofESson,263264 importanceof,249 theInternetin,242243,247,258261 newmarketstructuresandnetworksin,261263 softwarepackagesfor,244246 vendorofferingsfor,246249 SupplyChainOperationsReference(SCOR)model,155 supplyplanningtools,246 T technologists,5859,130 technologycontext,222,227228 templates,138,153,302 testing,system,157158,199 training,130132 transactionautomation,274275 withinternal,integratedprocesses,277 withpeerprocesses,280281 withsupplychainprocesses,279280 Trilogy,268 U UnionCarbide,127,183,213214 UnknownComputer(alias),3639,7374,145147,310 upgrades,53 urgency,instillingsenseof,179 users: super,186187,219 training,130132 V value: aschoiceinESimplementation,1416 asdriverofESdevelopment,266 valuebasedmanagement,217 valuechain: impactofESson,48 virtualorganizationsas,271272 valuedisciplines,4748,293294 ValueNetframework,273274 valuenetworks,272 VanityFair(VF)Corporation,100101,111112,256 vendors,ES,303306 featureanalysisof,8892 industryspecificproductsof,85,8687 productsofferedby,1213 selecting,8496 selectingsingleversusmultiple,190194

Page333

stereotypesof,94 visitingreferencesitesof,95 VentixSystems,128 VeriFone,12 versioncontrol,193194,253 virtualindustries,25 virtualorganizations,271272,290 Visio,152 vision,4547 visionandplanningteam,187188 W WalMart,241 WebPDM,112 wordprocessors,2 X XML(eXtensibleMarkupLanguage),289 Y Year2000(Y2K)projects,43 Z Zencke,Peter,251

Page335

AbouttheAuthor
ThomasH.DavenportistheDirectoroftheAndersenConsultingInstituteforStrategicChange,aresearchcenterinCambridge,Massachusetts.Heisalsoa ProfessorattheBostonUniversitySchoolofManagementandaDistinguishedScholarinResidenceatBabsonCollege.HisbooksProcessInnovation: ReengineeringWorkthroughInformationTechnologyandWorkingKnowledge:HowOrganizationsManageWhatTheyKnow(withLaurencePrusak)were bestsellers.HeisalsotheauthorofInformationEcology:MasteringtheInformationandKnowledgeEnvironmentandcoauthorofReengineeringthe Organization:TransformingtoCompeteintheInformationEconomy.