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Enterprise Resource Planning—Global Opportunities & Challenges Enterprise Resource Planning: Global Opportunities & Challenges ISBN: 193070836x by Liaquat Hossain, Jon David Patrick and M .A. Rashid Idea Group Publishing © 2002 (295 pages) This text offers a present-day analysis of ERP systems, cultural factors, and prospective method variations for organizations of all sizes. Table of Contents Enterprise Resource Planning—Global Opportunities & Challenges Preface Chapter I - The Evolution of ERP Systems: A Historical Perspective The Myth of Integration: A Case Study of an ERP Chapter II - Implementation ERP Systems in Universities: Rationale Advanced for Their Chapter III - Adoption Assessing Enterprise Resource Planning (ERP) Adoption in the Chapter IV - Philippines The Impact of Enterprise Resource Planning Systems on Chapter V - Organizational Effectiveness: An Artifact Evaluation Enterprise Resource Planning and Knowledge Management Chapter VI - Systems: An Empirical Account of Organizational Efficiency and Flexibility Knowledge Management for Enterprise Systems–First Empirical Chapter VII - Insights Implementation Management of an E-Commerce-Enabled Chapter VIII - Enterprise Information System: A Case Study at Texas Instruments Chapter IX - An Object-Oriented Awareness-Based Methodology for ERP A Framework for Assessing ERP Systems’ Functionality for the Chapter X - SMEs in Australia Chapter XI - Selecting and Implementing an ERP System at Alimentos Peru A Framework for the Selection of ERP Packages for Small to Chapter XII - Medium and Large Organizations Chapter XIII - A Study of the ERP Selection Process in New Zealand Using Cost Benefit Analysis for Enterprise Resource Planning Chapter XIV - Project Evaluation: A Case for Including Intangibles Effective Use of External Expertise in Enterprise Systems: A Chapter XV - New Zealand Case Experience Index List of Figures List of Tables -1- ® TEAM FLY TEAMFLYEnterprise Resource Planning—Global Opportunities & Challenges Library of Congress Cataloging-in-Publication Data Hossain, Liaquat. Enterprise resource planning : global opportunities and challenges / Liaquat Hossain and Jon David Patrick, Mohammad A. Rashid. p. cm. Includes bibliographical references and index. ISBN 1-930708-36-X (cloth) 1. Business planning. 2. Management information systems. I. Patrick, Jon David. II. Rashid, Mohammad A. III. Title. HD30.28 .H677 2002 658.4'012dc21 2001059425 eISBN 1-59140-025-2 British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. About the Authors Liaquat Hossain is an assistant professor at the School of Information Studies at Syracuse University. His background is in Bachelor of business administration, 1993 and M.Sc. in Computer and Engineering Management, 1995 from the Assumption University of Thailand. Mr. Hossain completed his Ph.D. in Information Technology and Computer Science, specializing in Telecommunications Management from the University of Wollongong, NSW Australia in 1997. He was invited to conduct postdoctoral research at the Internet Telephony Interoperability Consortium of Massachusetts Institute of Technology in 1997. The exposure to a multidisciplinary education and interdisciplinary research background has helped him in designing IS/ IT courses as well as in the pursuance of both applied and theoretical research in areas like telecommunications management, electronic commerce, information economics, health informatics, and strategic information management. His current research is on the following areas: understanding technological learning capability of small and medium sized SW development companies in Australia and the US, understanding the relationship between IT investment and organizational productivity and understanding tacit knowledge sharing systems in organization. Jon David Patrick holds the inaugural Sybase Chair of information systems in the School of Information Technologies at the University of Sydney, and previously held the inaugural Chair of Information Systems at Massey University, New Zealand. He has been active for many years in language technology which he has combined with his professional activities as a psychotherapist. He now applies those expertises to organizational issues in change management and knowledge management. He holds five degrees from various universities including a Ph.D. from Monash Univeristy in machine learning. Mohammad A. Rashid is a senior lecturer of information engineering at Massey University, New Zealand. Prior to his current position, he was an associate professor of computer and information engineering at the International Islamic University Malaysia, senior lecturer of computer science at the University of Brunei Darussalam, and associate professor at Dhaka University. He received M.Sc. Eng. degree from the Technical University of Wroclaw, Poland in 1978 and Ph.D. in Communications -3- Enterprise Resource Planning—Global Opportunities & Challenges Engineering from the University of Strathclyde, UK in 1986. His research interests are multimedia communication over high-speed networks, mobile wireless multimedia communications, voice over LAN/WAN, multimedia over IP networks, software components and e-commerce technologies. Rosío Alvarez is an assistant professor of information systems at the University of Massachusetts Boston. She has worked for many years as a systems engineer, IT professional and CIO. She is currently serving as associate chancellor for information technologies at the University of Massachusetts Amherst. Her research interests include discourse analysis and sociocultural issues of technology implementations. Frederick D. Amores is president of Third Wave Software Associates, a management information systems consultancy group in the Philippines. He was a former faculty and chair of the computer science department of Cebu Doctor’s College and a former lecturer in management and computer science at the University of the Philippines Cebu College. An active member of the Cebu IT industry, he serves as a resource person in IT-related workshops. His fields of interest are management, information technology, and business reengineering. Edward W. N. Bernroider is an assistant professor at the Vienna University of Economics and Business Administration, Institute of Information Processing, in Austria. He holds a master of science degree in applied informatics from the University of Salzburg and a Ph.D. degree in business administration from the Vienna University of Economics and B.A., where he teaches in the undergraduate and M.B.A. programs. His current research and industry projects focus on the international software industry, enterprise resource planning systems and the evaluation of IT/TK systems and architectures. Andreas Borell is a master student at the School of Economics, Department of Informatics, Lund University, Sweden and he is also a former employee of the dot.com world. He has been published jointly with Jonas Hedman in several conferences. O. Maxie (Max) Burns is a professor of information systems at Georgia Southern University’s college of business administration and a visiting professor at the Institute of Information and Mathematical Sciences, Massey University, Auckland, New Zealand. He received his Ph.D. in management information systems from Georgia State University. Dr. Burns has taught and conducted research in Sweden, Australia, New Zealand, Korea and the USA. His primary research focus has been in technology adoption and enterprise system integration. His work has appeared in journals such as eServices Journal, Journal of Small Business Management, International Journal of Computer Applications in Technology, and Production and Inventory Management Journal. Roy Chan is a Ph.D. student at Queensland University of Technology, Australia. He completed his information technology degree with first class honors in 1999 and was awarded the QUT medal. His research interests are knowledge management, process engineering, ontologies and enterprise systems. He has engaged in numerous ES group projects and is now involved in ES cases studies. Farhad Daneshgar is a senior lecturer of information systems at the University of New South Wales, Australia. His main fields of research include systems analysis and design, CSCW and knowledge management. His proposed theoretical awareness framework and collaborative process model have already been used as analytical tools in many areas including network management, courseware design, knowledge sharing, and online -4- Enterprise Resource Planning—Global Opportunities & Challenges teaching/learning. The author is a member of the worldwide Virtual Enterprise Research Group as well as the Knowledge Management Research Group at the University of New South Wales, Australia. Ricardo Diaz-Baron holds an M.B.A. from Escuela de Administración de Negocios para Graduados (ESAN) in Lima, Peru. His areas of interest are the use of information systems for supporting organizational planning and control. He worked in operational research and control of power systems at the Universidad de Piura and was a consultant in the electrical sector in Peru. At ESAN, he worked as a research assistant in the information technology area. Currently, he is a consultant of the Office of Public Investment at the Ministry of Economics and Finance in Peru. Robert D. Galliers is a professor of information systems and head of research in the Information Systems Department at the London School of Economics and Political Science, UK. Prior to joining the LSE he was a professor of information management (and dean for the period 1994-1998) at Warwick Business School. He is currently an honorary professor of the European Institute for Advanced Management Studies, Brussels, and is Gemini Consulting visiting professor in knowledge management at the University of St. Gallen. He was president of the Association of Information Systems (AIS) in 1999 and is program cochair of ICIS 2002. He is editor-in-chief of the Journal of Strategic Information Systems. His books include Information Systems Research (1995); Information Technology and Organizational Transformation (1997); Strategic Information Management (1999); and Rethinking Management Information Systems (1999). His research is transdisciplinary in nature and currently focuses on innovation and knowledge management; the management of change; information systems strategy; and intra- and extra-organizational impacts of the Internet. Jonas Hedman is a Ph.D. candidate at the School of Economics, Department of Informatics, Lund University, Sweden. He has been responsible for relationships with the SAP University Alliance Program. He has been published in international conferences and been an invited speaker at the SAP University Alliance Congress. Jimmy C. Huang is a lecturer in the Information Technology Strategy Group at the Nottingham University Business School, UK. Prior to joining Nottingham University he was a lecturer in the Department of Management Studies at the University of Aberdeen. He is a member of the IKON (Innovation, Knowledge and Organizational Networking) research group based at the University of Warwick. His research focuses on the process of cross-functional knowledge integration underlying organization-wide project implementation. He has published some articles on this subject in journals including European Journal of Information Systems, Journal of Decision Systems, and Journal of Information Technology Management. Stefan Koch is an assistant professor of information business at the Vienna University of Economics and Business Administration in Austria. He received a M.B.A. in management information systems from Vienna University and Vienna Technical University and a Ph.D. from Vienna University of Economics and Business Administration. Currently he is involved in the undergraduate and graduate teaching program, especially in software project management and ERP packages. His research interests include cost estimation for software projects, the open source development model, software process improvement, the evaluation of benefits from information systems and ERP systems. -5- Enterprise Resource Planning—Global Opportunities & Challenges Eddie Morris-Abarca is a senior lecturer of information technology at the Escuela de Administración de Negocios para Graduados (ESAN) in Lima, Peru. He holds a B.S. degree in information systems from Universidad Nacional de Ingeniería (Peru). He is the CEO of InfoPlanning, a local consultant firm specializing in IS planning and business process reengineering. He is currently vice president of the Peruvian Association for Computing and Information Systems. Kenneth E. Murphy holds a Ph.D. from Carnegie Mellon University in operations research and has been employed by Florida International University since 1994. Dr. Murphy’s research interests are varied, spanning the quantitative methods and technology arenas. Specifically, he has worked and published in the areas of machine and personnel scheduling as well as in the organizational learning literature. More recently, his focus has shifted to the value of implementing large-scale packaged software in global organizations and the implications of this trend for education. Dr. Murphy has published in Operations Research, Naval Research Logistics, and Communications of the ACM journals. He is an active member of The Institute for Operations Research and Management Science (INFORMS) and the Decision Sciences Institute (DSI). Sue Newell is a professor of innovation and organizational analysis in the School of Management at Royal Holloway, University of London, UK. Previously, she was a research director at Nottingham Business School. She is a founding member of the IKON research group based at the University of Warwick, where she was formerly employed. Her research focuses on exploring innovation as an interactive design- decision process, where networks are crucial for the sharing and integrating of knowledge. She has written extensively on this subject in journals including Organization Studies, Organization, Human Relations, Journal of Strategic Information Systems and European Journal of Information Systems. Dave Oliver is a senior lecturer in computing at Central Queensland University, Australia. He has an honors degree in economics from Warwick University, UK, and a master of technology degree in computer science from Brunel University, UK. Lecturer Oliver has published papers in the SIGCSE journal of the ACM and has presented papers at a number of international conferences. He has been the course coordinator for a number of degree courses in computing at Central Queensland University. Prior to his lecturing appointment at Central Queensland University he lectured at the Harrow College of Higher Education in the UK and worked as a computer programmer in the City of London. Shan-Ling Pan is an assistant professor in the Department of Information Systems of the School of Computing at the National University of Singapore, Singapore. Dr. Pan’s primary research focuses on the recursive interaction of organizations and information technology (enterprise systems), with particular emphasis on issues related to work practices, cultures and structures from a knowledge perspective. Specifically, he is interested in understanding the complex issues related to the adoption, implementation and use of enterprise systems within organizations. Some of these enterprise systems include knowledge management systems (KMS), enterprise resource planning (ERP) systems, supply chain management (SCM), and customer relationship management (CRM) systems. Maria Divina Gracia Z. Roldan is the associate dean of the University of the Philippines Cebu College, the Philippines, and a faculty member of the college, teaching political science and history courses. She has earned her Ph.D. in Philippine studies at -6- Enterprise Resource Planning—Global Opportunities & Challenges the University of the Philippines Asian Center, Diliman. Among her areas of specialization are organizations, government and politics, and international relations. Her research interests include information technology, governance, and foreign affairs. Her multidisciplinary training has proven to be useful in her previous work in both private and public think-tanks. Celia T. Romm is a foundation professor of information technology at Central Queensland University, Australia, and an honorary professor at Fujian Radio and TV University, the People’s Republic of China. She received her Ph.D. from the University of Toronto, Canada (1979). She has been a lecturer, consultant, and visiting scholar in Israel, Japan, Germany, Canada, the USA, and Australia. Dr. Romm’s current research interests include: community informatics, electronic commerce, computer-mediated communication, and IT/IS education. Dr. Romm published three books: Electronic Commerce: A Global Perspective (published through Springer, London, in 1998), Virtual Politicking (published through Hampton Press, USA, in 1999) and Doing Business on the Internet–Opportunities and Pitfalls (published in 1999 by Springer, London, and to be published in China by Tianjin People’s Publishing House in 2001). In addition, Dr. Romm published over 90 papers in refereed journals and chapters in collective volumes, as well as presented her work in over 60 local and international conferences. Dr. Romm’s research was published in such journals as: Human Relations, Organization Studies, Comparative Economic Studies, Studies in Popular Culture, Information & Management, The Computer Journal, Database, The Journal of Information Systems Management, The Information Society, The Australian Journal of Information Systems, The Asia Pacific Journal of Human Resources, Higher Education, The European Journal of Education, Interchange, Journal of Professional Services Marketing, Advances in Consumer Behavior, New Technology, Work, and Employment, The Journal of Informatics Education and Research, The Journal of Management Development, Information Technology and People, International Journal of Information Systems, Communications of the ACM, Transactions on Information Systems, and The Harvard Business Review. Michael Rosemann received his M.B.A. (1992) and his Ph.D. (1995) from the University of Muenster, Germany. Since 1999 he has worked at the School of Information Systems at the Queensland University of Technology, Brisbane, Australia. As an associate director of QUT’s Information Systems Management Research Centre he is a core member of the team that manages the mySAP University Application Hosting Centre. He is author of two books, and editor of two books, author of more than 25 book chapters and more than 50 refereed journal and conference papers. His main areas of research are enterprise systems, knowledge management, conceptual modeling, operations management and distance education. J. Martin Santana is an associate professor of information technology at the Escuela de Administración de Negocios para Graduados (ESAN) in Lima, Peru. He holds a Ph.D. in business administration from Florida International University and a M.S. in information systems from the École des Hautes Études Commerciales in Montreal. His research interests include electronic business, systems development approaches, and conflict management in the development process. He has published in the areas of the use of global applications of information technology, the management of the systems development process, and the consequences of information technology in organizations. Jaime Serida-Nishimura is an associate professor of information systems at the Escuela de Administración de Negocios para Graduados (ESAN) in Lima, Peru. He received his Ph.D. in management information systems from the University of -7- Enterprise Resource Planning—Global Opportunities & Challenges Minnesota. His research interests include electronic business, strategic impact of information technology, group support systems, and the adoption and diffusion of information technology in organizations. Joseph Sarkis is currently an associate professor at the Graduate School of Management at Clark University. He earned his Ph.D. from the State University of New York at Buffalo, USA. His research interests include manufacturing strategy and management, with a specific emphasis on performance management, justification issues, enterprise modeling and environmentally conscious operations and logisitics. He has published over 120 articles in a number of peer reviewed academic journals and conferences. He is a member of the American Production and Inventory Control Society (APICS), Institute for Operations Research and Management Sciences (INFORMS), the Decision Sciences Institute (DSI), and the Production and Operations Management Society (POMS). He is also a certified production and inventory manager (CPIM). Maha Shakir is a Ph.D. candidate at the Institute of Information & Mathematical Science at Massey University in Auckland, New Zealand. Her background is in architectural engineering where she practiced the design, coordination and implementations of many construction projects for almost ten years. Completing a Masters degree in engineering management from the University of Auckland has motivated her to develop new skills in the field of management information systems. After gaining a graduate diploma in information science, she started a Ph.D. research project that explores the strategic decision making process of enterprise systems implementation. Her participation in several international conferences included the publication of a research paper in AMCIS’2000, plus other doctoral consortium and symposium presentations. She and Dr. Hossain have a forthcoming paper in a special issue on ERP in the Journal of Decision Systems. One of her recent achievements is her acceptance as a fellow of the doctoral consortium to the international conference of information systems (ICIS), 2001. Steven John Simon is a professor in the Business School of Florida International University. He received his Ph.D. from the University of South Carolina, specializing in MIS and international business. Before entering the doctoral program he spent 18 years in the private sector in management/computer operations and was owner/operator of seven McDonald’s franchises. His current research interests include information determinants of international business structures, enterprise information systems, IS training and learning issues, electronic commerce in the international environment and organization change and learning. He has extensive ERP experience having worked with companies such as IBM on SAP implementation projects. Dr. Simon is also an officer in the United States Naval Reserve assigned to the directorate of logistics for Unites States Atlantic Command. His past Navy assignments included serving as Information Resource Management Officer to the Commander of the Second Naval Construction Brigade. He has consulted and lectured extensively in Korea, Hong Kong, Malaysia, Singapore, and the People’s Republic of China. He has previously published in Information Systems Research, Journal of Applied Psychology, Communication of the ACM, Database, The Journal of Global Information Technology Management, The Journal of Global Information Management, and The Information Resources Management Journal. R. P. Sundarraj is an associate professor of information systems at Clark University in Worcester, MA. He obtained his Bachelor’s in electrical engineering from the University of Madras, India, and his M.S. and Ph.D. in management science from the University of Tennessee, Knoxville. Professor Sundarraj's research encompasses the development of -8- Enterprise Resource Planning—Global Opportunities & Challenges methodologies for the efficient design and management of emerging information systems, as well as the use of massively parallel computing for solving large-scale problems. His research has been accepted in journals such as Information Systems Management, IEEE Transactions, ACM Transactions, and Mathematical Programming. In addition, he has consulted with Fortune 100 companies on the development of decision support and other software systems for materials and marketing management. Antonio R. Zamora is a faculty member teaching finance courses at the College of Business and Economics, De La Salle University, Manila, the Philippines. A certified public accountant with M.B.A. units at the De La Salle University Graduate School of Business, he has over 20 years of experience in the corporate world. He last served as vice president for finance of Alhambra Industries, Manila. He has also attended training at the Asian Institute of Technology, Thailand. -9- Enterprise Resource Planning—Global Opportunities & Challenges Preface This book provides a socio-technical view of enterprise resource planning (ERP) selection and implementation practices from a global perspective. The emphasis of this book is not on the technology per se but on the selection, implementation strategies, as well as implications of ERP systems towards organizational effectiveness. It covers critical examination of the usefulness of ERP systems’ functionality assessment for small-to-medium-sized enterprises (SMEs), effective use of ERP for achieving organizational effectiveness, and ERP for supporting the knowledge management functions in organizations. Case studies together with some empirical investigation of ERP systems utilization in organizations covering countries such as the US, UK, Sweden, Austria, Australia, New Zealand and Philippines are provided. In particular, this book provides: (i) global coverage highlighting case studies and empirical studies of the ERP practices covering both the developed and developing economies; (ii) interdisciplinary focus to improve understanding of the business benefits and myths of the effectiveness of ERP systems; (iii) coverage of different investigative approaches such as case studies, empirical studies, interpretative studies, action research and ethnographic studies as a paradigm of research towards understanding ERP systems’ functionality, selection, implementation and post-implementation issues; (iv) socio-technical view of the utilization of ERP systems in both large and small-to- medium-sized organizations; and (v) materials that can be used for business case studies and teaching. Chapter 1 provides a historical perspective of the evolution of ERP systems and its overall trend in the industry. The chapter highlights useful ERP concepts such as characteristics and software architecture of ERP systems, major ERP vendor options for extended and Internet-enabled ERP systems, and global ERP trends, opportunities and challenges. It also highlights critical issues related to the management of the ERP life cycle. Chapter 2 discusses the myth of ERP systems integration. This research examines the implementation process of an Enterprise Resource Planning (ERP) system and shows that implementation cannot be viewed solely in instrumental terms–that is, organizations do not simply select systems based on information requirements so that proper “fit” can be achieved. Instead, this research suggests that the activities of selecting and implementing a new ERP become the medium for (re-) constructing or (re-) constituting the organization’s values. Theorists have described such activities as a “mythmaking” process. A case study of an implementation at a large nonprofit organization is presented to demonstrate how mythmaking served to construct an ERP system as an “integrated” system and at the same time served to elaborate existing organizational values. The myth functioned as a vehicle of consensual organizational reality, serving to align the acquisition of an ERP system with the organizational values, thereby garnering widespread support for a complex, expensive and relatively unknown technology. Chapter 3 addresses the rationale for adoption of ERP systems in universities. This chapter outlines the significance of Enterprise Resource Planning (ERP) systems and analyses the rationale used for their adoption. This study is structured around the theory of motivations for investment in information technology (IT) to support core business operations. The data used for the study are documents published electronically on the Internet by universities. A content analysis was applied to this data. The chapter employs frequent use of quotes from the sources selected to assist the reader to -10- Enterprise Resource Planning—Global Opportunities & Challenges understand the context and to verify the analysis. The findings are that the main reasons for adopting ERP are the modernization of systems, greater usability and flexibility, integration of data and systems, business process reengineering, an increase in the degree of electronic data interchange including the provision of Web-based interfaces to application systems, reduced maintenance and risk avoidance. Chapter 4 provides an assessment of ERP sys tems adoption in the Philippines. Viewed as a valuable resource that can provide various capabilities to companies that use it, ERP can be a source of competitive advantage for a firm. However, the successful adoption of ERP will require culture modification within a firm as it involves revolutionary changes in the way people will be doing things, especially in developing countries like the Philippines. This modification raises some issues that point to the viability of ERP’s use in the Philippine context. This chapter presents an overview of ERP adoption in the Philippines by examining four Philippine business enterprises as case studies. These firms are part of global enterprises with parent companies abroad. The chapter investigates the organizational context within which ERP is applied in the Philippine setting. It also looks at the problems and issues raised by the said firms in their use of ERP as a tool to achieve efficiency in the organization. Chapter 5 discusses the impact of ERP systems on organizational effectiveness in Sweden. Enterprise Resource Planning (ERP) systems have an organizational impact and are in most cases implemented to improve organizational effectiveness. Shortcomings in current research make it diffi cult to conclude how an organization may be affected. This paper presents an artifact evaluation of the functionality and perceived benefits of ERP systems. The evaluation is based on the competing values model. The evaluation shows that ERP systems support effectiveness criteria (such as control and productivity) related to internal process and rational goal models. The evaluation also points out weaknesses in ERP systems and especially in areas related to human relations and open systems models. The result of the evaluation is used to discuss the impact of ERP systems on organizations and is presented as a series of hypotheses. Chapter 6 provides an empirical investigation of the usefulness of ERP and knowledge management (KM) systems for enhancing organizational efficiency and flexibility. The chapter compares the characteristic differences and similarities between the two initiatives and examines how they influence organizational efficiency and flexibility when implemented within a global engineering firm. It is suggested that the two initiatives are conceptually complementary and can only create a synergy when the design of organizational routines and practices fits into the meta-routines imposed by ERP and KM, and the social processes are nurtured within functions and cross-functionally. Chapter 7 discusses the knowledge management process for enterprise systems. Enterprise Systems are comprehensive and complex applications that form the core business operating system for many companies worldwide and throughout most industries. The selection, implementation, use and continuous change and evolution of enterprise systems (ES) require a great amount of knowledge and experience. Empirical studies show that the management of knowledge is one of the main cost drivers of ES projects. Consequently, organizations have realized the need to better leverage their Knowledge Management for Enterprise Systems. This chapter proposes a framework for structuring knowledge for Enterprise Systems. A three-dimensional framework is derived from meta-case studies and comprehensive literature analysis. It consists of dimensions for the ES life cycle, the Knowledge Management life cycle and the types of knowledge. Preliminary empirical insights show that especially the lack of product- -11- ® TEAM FLY TEAMFLYEnterprise Resource Planning—Global Opportunities & Challenges specific knowledge is a critical success factor that leads to significant consulting costs in ES projects. Chapter 8 presents a case study of an overview of the efforts of Texas Instrument’s (TI’s) internal and external ERP implementation, with a focus on linking its ERP system in a global e-commerce setting. It is argued in this chapter that this linkage is especially important since it had been stated in TI’s strategic plan as an objective of this project to provide visibility of the ERP system to external environment via Web linkages along with the objective of standardizing internal processes and important IT to support market needs. Chapter 9 introduces an object-oriented awareness-based methodology for ERP. This chapter introduces a conceptual model for ERP that has an emphasis on the collaborative nature of the ERP process that explicitly addresses the “awareness” and “knowledge-sharing” issues within the ERP process. This conceptual model demonstrates the collaboration requirements of the actors behind individual business processes as well as the relationships among these business processes. This chapter is intended to introduce to the ERP community a relevant piece of work in conceptual modelling from the perspective of computer supported collaborative work (CSCW) with the aim of attracting research collaborators for further investigation in these fields. Like many existing ERP frameworks/models, the proposed framework is also based on a widely accepted assumption that a corporate-wide information system consists of a set of potentially related subsystems. As a result, information flows among these subsystems must be identified and required resources be planned using an appropriate ERP methodology. Chapter 10 introduces a framework for assessing ERP systems’ functionality for the SMEs in Australia. Anticipating the use of the ERP systems among the SMEs to be the future area of growth, ERP vendors such as SAP, Oracle, PeopleSoft, J. D. Edwards and Baan are introducing ERP software that appeals to the market segment of the SMEs. Introduction of the ERP systems for SMEs includes compact packages, flexible pricing policies, new implementation methodologies, and more specialised functionalities. The strengths-weakness-opportunity-threats (SWOT) framework of the ERP software offered by the aforementioned vendors for the SMEs requires in-depth analysis based on real field data. This study attempts to identify the strengths, weaknesses, opportunities, and threats of ERP systems offered by the five leading vendors for the SMEs in Australia. Multiple case study design approach is used here for collecting the primary data from the ERP vendors. A SWOT framework is developed to study the functionality of the ERP systems offered by these vendors. This framework may guide the managers of SMEs in selecting and implementing ERP systems for their organizations. Chapter 11 describes the implementation process of an ERP system at Alimentos Peru. It discusses the organization’s major concerns during the mid-1990s, including increasing competition, inefficiency of business processes, and lack of timely and accurate information. The study explains the criteria used to evaluate and select the system, as well as the main issues and problems that arose during the implementation process. In particular, this case focuses upon a set of implementation factors, such as top management support, user participation, and project management. Chapter 12 provides a framework for the selection of ERP packages for small- to- medium and large organizations. The focus here is on the early stage of evaluating and selecting an ERP system prior to implementation. Only a part of the decision making for ERP systems can be handled by a definite or accepted procedure such as standard -12- Enterprise Resource Planning—Global Opportunities & Challenges investment calculations. There are many other intangible decision-making criteria needed to be judged and evaluated by the decision makers. There is no agreed-upon and formal procedure for this important task. Therefore it seems necessary to investigate decision-making practices to increase the understanding of this complex and important task. The chapter also focuses on the decision-making situation faced by small and medium-sized enterprises (SMEs). This is of particular importance because SMEs are more and more experiencing the need for integration, especially for interorganizational integration, and expecting ERP software to fulfill these needs. The availability of relatively inexpensive hardware is fostering this situation. In general, decision making in SMEs features much greater constraints on the ability to gather information in order to reduce uncertainty about their investment. Considering ERP software decisions with its complex and far-reaching implications, poor decision making by SMEs can result in disastrous situations. The framework outlined in this chapter and the investigated research hypotheses represent a further step towards understanding the decision-making process for ERP investments and differences made by SMEs and large organizations. Chapter 13 provides an exploratory investigation of the Enterprise Resource Planning (ERP) software selection process in New Zealand. A brief background together with the main features of ERP is provided. It is conferred in this study that the selection and implementation of ERP deserve equal importance. Findings of exploratory case studies on the ERP selection process in New Zealand (NZ) suggest that the selection of ERP guides the implementation process. It is also evident from findings of the study that most New Zealand organizations select their consultants and let them guide the ERP selection, implementation, as well as post-implementation process. Chapter 14 shows how cost benefit analysis can be applied to large-scale ERP projects, and that these methods can incorporate the intangible benefits, e.g., user satisfaction. Detailed information on the business case utilized by a large computer manufacturer in their decision to implement the SAP system R/3 is also presented here. Chapter 15 addresses the issues associated with the use of external expertise in enterprise systems. It looks at the ES implementation life cycle and identifies where in the implementation process external experts are utilized and what roles they fulfill in the implementation project. The paper concludes with a New Zealand case experience illustrating the use of external experts in a major enterprise systems implementation. Acknowledgments The editors would like to acknowledge the help of all involved in the collation and review process of the book, without whose support the project could not have been satisfactorily completed. A further special note of thanks goes also to all the staff at Idea Group Publishing, whose contributions throughout the whole process from inception of the initial idea to final publication have been invaluable. Most of the authors of chapters included in this also book served as referees for articles written by other authors. Thanks go to all those who provided constructive and comprehensive reviews. Support of the Basser Department of Computer Science of the University of Sydney and the Institute of Information and Mathematical Sciences of Massey University of New Zealand operations is acknowledged. Special thanks also go to the publishing team at Idea Group Publishing. In particular to Jan Travers, who continuously prodded via e-mail for keeping the project on schedule -13- Enterprise Resource Planning—Global Opportunities & Challenges and to Mehdi Khosrowpour, whose enthusiasm motivated me to initially accept his invitation for taking on this project. In closing, I wish to thank all of the authors for their insights and excellent contributions to this book. I also want to thank all of the people who assisted me in the reviewing process. In addition, this book would not have been possible without the ongoing professional support from Mehdi Khosrowpour and Jan Travers at Idea Group Publishing. Liaquat Hossain, PhD Mohammad A. Rashid, PhD Jon David Patrick, PhD November 2001 -14- Enterprise Resource Planning—Global Opportunities & Challenges Chapter I: The Evolution of ERP Systems: A Historical Perspective OVERVIEW Mohammad A. Rashid Massey University–Albany, New Zealand Liaquat Hossain Syracuse University, USA Jon David Patrick University of Sydney, Australia Copyright © 2002, Idea Group Publishing. ERP systems are now ubiquitous in large businesses and the current move by vendors is to repackage them for small to medium enterprises (SMEs). This migration has many consequences that have to be addressed through understanding the history and evolution of ERP systems and their current architectures. The advantages and disadvantages of the ERP systems will impact their penetration in this new market. The market position and general strategy of the major systems providers in preparation for this push are described. The chapter concludes that the growth and success of ERP adoption and development in the new millennium will depend on the legacy ERP system’s capability of extending to Customer Relationship Management (CRM), Supply Chain Management (SCM) and other extended modules, and integration with the Internet-enabled applications. INTRODUCTION The unprecedented growth of information and communication technologies (ICT) driven by microelectronics, computer hardware and software systems has influenced all facets of computing applications across organizations. Simultaneously the business environment is becoming increasingly complex with functional units requiring more and more inter-functional data flow for decision making, timely and efficient procurement of product parts, management of inventory, accounting, human resources and distribution of goods and services. In this context, management of organizations needs efficient information systems to improve competitiveness by cost reduction and better logistics. It is universally recognized by large and small-to- medium-size enterprises (SME) that the capability of providing the right information at the right time brings tremendous rewards to organizations in a global competitive world of complex business practices. Starting in the late 1980s and the beginning of the 1990s new software systems known in the industry as enterprise resource planning (ERP) systems have surfaced in the market targeting mainly large complex business organizations. These complex, expensive, powerful, proprietary systems are off the-shelf solutions requiring consultants to tailor and implement them based on the company’s requirements. In many cases they force companies to reengineer their business processes to accommodate the logic of the software modules for streamlining data flow throughout the organization. These software solutions, unlike the old, traditional in-house-designed company- specific systems, are integrated multi-module commercial packages suitable for tailoring and adding “add-ons” as and when required. -15- Enterprise Resource Planning—Global Opportunities & Challenges The phenomenal growth of computing power and the Internet is bringing ever more challenges for the ERP vendors and the customers to redesign ERP products, breaking the barrier of proprietorship and customization, and embracing the collaborative business over the intranet, extranet and the Internet in a seamless manner. The vendors already promise many “add-on” modules, some of which are already in the market as a sign of acceptance of these challenges by the ERP vendors. It is a never- ending process of reengineering and development bringing new products and solutions to the ERP market. ERP vendors and customers have recognized the need for packages that follow open architecture, provide interchangeable modules and allow easy customization and user interfacing. ERP SYSTEMS DEFINED Enterprise resource planning systems or enterprise systems are software systems for business management, encompassing modules supporting functional areas such as planning, manufacturing, sales, marketing, distribution, accounting, financial, human resource management, project management, inventory management, service and maintenance, transportation and e-business. The architecture of the software facilitates transparent integration of modules, providing flow of information between all functions within the enterprise in a consistently visible manner. Corporate computing with ERPs allows companies to implement a single integrated system by replacing or re- engineering their mostly incompatible legacy information systems. American Production and Inventory Control Society (2001) has defined ERP systems as “a method for the effective planning and controlling of all the resources needed to take, make, ship and account for customer orders in a manufacturing, distribution or service company.” We quote several definitions from the published literature to further explain the concept: “ERP (enterprise resource planning systems) comprises of a commercial software package that promises the seamless integration of all the information flowing through the company–financial, accounting, human resources, supply chain and customer information” (Davenport, 1998). “ERP systems are configurable information systems packages that integrate information and information-based processes within and across functional areas in an organization” (Kumar & Van Hillsgersberg, 2000). “One database, one application and a unified interface across the entire enterprise” (Tadjer, 1998). “ERP systems are computer-based systems designed to process an organization’s transactions and facilitate integrated and real-time planning, production, and customer response” (O’Leary, 2001). The concept of the ERP system can be illustrated, following Davenport (1998), with the diagram in Figure 1. -16- Enterprise Resource Planning—Global Opportunities & Challenges Figure 1: ERP systems concept EVOLUTION OF ERP SYSTEMS The evolution of ERP systems closely followed the spectacular developments in the field of computer hardware and software systems. During the 1960s most organizations designed, developed and implemented centralized computing systems, mostly automating their inventory control systems using inventory control packages (IC). These were legacy systems based on programming languages such as COBOL, ALGOL and FORTRAN. Material requirements planning (MRP) systems were developed in the 1970s which involved mainly planning the product or parts requirements according to the master production schedule. Following this route new software systems called manufacturing resources planning (MRP II) were introduced in the 1980s with an emphasis on optimizing manufacturing processes by synchronizing the materials with production requirements. MRP II included areas such as shop floor and distribution management, project management, finance, human resource and engineering. ERP systems first appeared in the late 1980s and the beginning of the 1990s with the power of enterprise-wide inter-functional coordination and integration. Based on the technological foundations of MRP and MRP II, ERP systems integrate business processes including manufacturing, distribution, accounting, financial, human resource management, project management, inventory management, service and maintenance, and transportation, providing accessibility, visibility and consistency across the enterprise. During the 1990s ERP vendors added more modules and functions as “add-ons” to the core modules giving birth to the “extended ERPs.” These ERP extensions include advanced planning and scheduling (APS), e-business solutions such as customer relationship management (CRM) and supply chain management (SCM). Figure 2 summarizes the historical events related with ERP. -17- Enterprise Resource Planning—Global Opportunities & Challenges Figure 2: ERP evolution ERP SYSTEMS AND ORGANIZATIONS It is generally a misleading perception that implementing an ERP system will improve organizations’ functionalities overnight. The high expectation of achieving all-round cost savings and service improvements is very much dependent on how good the chosen ERP system fits to the organizational functionalities and how well the tailoring and configuration process of the system matched with the business culture, strategy and structure of the organization. Overall an ERP system is expected to improve both backbone and front-end functions simultaneously. Organizations choose and deploy ERP systems for many tangible and intangible benefits and strategic reasons. In many cases the calculation of return on investment (ROI) is weighted against the many intangible and strategic benefits. The benefits that an industry standard ERP system may bring to organizations are shown in Table 1. To reap the benefits of ERP systems, however, organizations need to over- come certain problems and disadvantages, which are listed in Table 2. Table 1: Advantages of ERP systems What benefit How Reliable information Common DBMS, consistent and accurate data, access improved reports. Avoid data and Modules access same data from the central operations redundancy database, avoids multiple data input and update operations. Delivery and cycle time Minimizes retrieving and reporting delays. reduction Cost reduction Time savings, improved control by enterprise- wide analysis of organizational decisions. Easy adaptability Changes in business processes easy to adapt -18- Enterprise Resource Planning—Global Opportunities & Challenges Table 1: Advantages of ERP systems What benefit How and restructure. Improved scalability Structured and modular design with “ Improved maintenance Vendor-supported long-term contract as part of the system procurement. Global outreach Extended modules such as CRM and SCM. E-Commerce, e-business Internet commerce, collaborative culture. Table 2: Disadvantages of ERP systems Disadvantage How to overcome Time-consuming Minimize sensitive issues, internal politics and raise general consensus. Expensive Cost may vary from thousands of dollars to millions. Business process reengineering cost may be extremely high. Conformity of the The architecture and components of the selected modules system should conform to the business processes, culture and strategic goals of the organization. Vendor dependence Single vendor vs. multi-vendor consideration, options for “best of breeds,” long-term committed support. Features and ERP system may have too many features and complexity modules so the user needs to consider carefully and implement the needful only. Scalability and global Look for vendor investment in R&D, longterm outreach commitment to product and services, consider Internet-enabled systems. Extended ERP Consider middle-ware and extended modules capability SCM. It was estimated that the spending on ERP systems in 1998 was about US17 billion following annual growth rates ranging from 30% to 50%. Companies also spend a multiple of licensing costs on services related to implementation and maintenance of the software. The worldwide license and maintenance revenue for ERP systems was US21.5 billion in 2000, which represented a growth of 13.1% from the 1999 market value of US19 billion (Broatch, 2001). The continued growth of the ERP systems market is attributed to the fact that the vendors are adding applications such as supply chain management, customer relationship management and the integration of Internet- enabled applications for e-business. -19- Enterprise Resource Planning—Global Opportunities & Challenges More than 60% of the Fortune 1000 companies have installed or are in the process of implementing packaged ERP systems to support their back-end business activities (Kraft, 2001). These packages implemented by the Fortune 1000 companies run well over the IT budgets for most SMEs. ERP vendors are targeting this untapped SME market with supposedly scaled-back systems suitable for smaller firms by offering simple, cheaper and pre-configured easy-to-install solutions within budget and time constraints. For some vendors this may lead to offering centrally managed Internet- enabled ERP-system-based services for SMEs to access and use anytime from anywhere. ERP SYSTEMS ARCHITECTURE ERP vendors, mostly experienced from the MRP and financial software services fields, realized the limitations of the old legacy information systems used in large enterprises of the 1970s and 1980s. Some of these old systems were developed in-house while others were developed by different vendors using several different database management systems, languages and packages, creating islands of noncompatible solutions unfit for seamless data flow between them. It was difficult to increase the capacity of such systems or the users were unable to upgrade them with the organization’s business changes, strategic goals and new information technologies. An ERP system is required to have the following characteristics: • Modular design comprising many distinct business modules such as financial, manufacturing, accounting, distribution, etc. • Use centralized common database management system (DBMS) • The modules are integrated and provide seamless data flow among the modules, increasing operational transparency through standard interfaces • They are generally complex systems involving high cost • They are flexible and offer best business practices • They require time-consuming tailoring and configuration setups for integrating with the company’s business functions • The modules work in real time with online and batch processing capabilities • They are or soon they will be Internet-enabled Different ERP vendors provide ERP systems with some degree of specialty but the core modules are almost the same for all of them. Some of the core ERP modules found in the successful ERP systems are the following: • Accounting management • Financial management • Manufacturing management • Production management • Transportation management • Sales & distribution management -20- Enterprise Resource Planning—Global Opportunities & Challenges • Human resources management • Supply chain management • Customer relationship management • E-Business The modules of an ERP system can either work as stand-alone units or several modules can be combined together to form an integrated system. The systems are usually designed to operate under several operating platforms such as UNIX, MS Windows NT, Windows 2000, IBM AIX, and HP-UX systems. SAP AG, the largest ERP vendor, provides a number of modules with its famous R/3 ERP system, which are shown in Table 3. New modules are introduced by SAP and other vendors in response to the market and technological demand such as the Internet technology. Table 3: Some of the modules of SAP’s R/3 Financial FI Controlling CO Asset AM Accounting Management PS WF Project System Workflow Industry IS Solutions HR PM QM Human Resources Plant Quality Maintenance Management PP MM SD Production Materials Sales & Planning Management Distribution IM EC TR Investment Enterprise Treasury Management Controlling Modules of Internet version mySAP.COM mySAP Supply mySAP Product mySAP Human Chain Mgmt. Lifecycle Mgmt. Resources mySAP Customer mySAP Business mySAP Relationship Intelligence Marketplace by Mgmt. mySAP Mobile SAPMarkets mySAP Financials Business mySAP Hosted Solutions mySAP Technology Enterprise systems employ thin client/server (C/S) technology or client/ fat server (C/FS) architecture, creating a decentralized computing environment. In a C/S system a number of client devices operated by end users such as desktop PCs request services from application servers, which in turn get the requested service-related information from the database servers. The requests may be simple data files, data values, communication services, transaction processing or master file updates. The general practice is to have three-tier architecture such as in Figure 3. In this three-tier system the user interface runs on the client. To run ERP systems relatively powerful PCs (clients) and powerful servers are required where most of the hundreds of thousands of operations are performed. The client/server system functions are performed following three layers of logic: -21- ® TEAM FLY TEAMFLY

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