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Course Materials for MBA course on Business Information Systems

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  1. 1. Business Information Systems Build vs Buy : the ERP story Prithwis Mukerjee, Ph.D.
  2. 2. Agenda <ul><li>Evolution of ERP </li></ul><ul><li>Benefits of ERP </li></ul><ul><li>ERP Implementation - Key Elements </li></ul><ul><ul><li>Package Selection </li></ul></ul><ul><ul><li>Implementation Partner Selection </li></ul></ul><ul><ul><li>Methodology & Tools </li></ul></ul><ul><ul><li>Implementation Approach </li></ul></ul><ul><ul><li>CSFs of Implementation </li></ul></ul>
  3. 3. The “Make” approach <ul><li>Advantages of in-house development </li></ul><ul><ul><li>Tailored or customized systems </li></ul></ul><ul><ul><li>Constant in-house support </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>Difficulty in upgrading, enhancing or modifying to meet change business needs </li></ul></ul><ul><ul><li>80% of s/w budget spent on maintenance </li></ul></ul><ul><ul><li>Difficulty of maintaining isolated systems </li></ul></ul><ul><li>External Vendors </li></ul><ul><ul><li>Companies relieved of unnecessary expenditure in terms of employing skilled IT professionals </li></ul></ul><ul><ul><li>Many companies started providing custom made software solutions </li></ul></ul><ul><li>Advantages of the make approach </li></ul><ul><ul><li>Customized according to the special needs of the company </li></ul></ul><ul><ul><li>Domain experts can be retained as the specialized domain knowledge already built into the legacy system can be transferred by third party tool </li></ul></ul>
  4. 4. The “Buy” approach <ul><li>The changing scenario </li></ul><ul><ul><li>Early 1970s, some vendors started selling packaged solutions </li></ul></ul><ul><ul><li>Corporates started looking for integrated solutions as they began to reorganize existing processes for better performance </li></ul></ul><ul><li>Popularity of packaged solution </li></ul><ul><ul><li>Heavy cut down on in-house costs </li></ul></ul><ul><ul><li>Robust and well tested solutions </li></ul></ul><ul><ul><li>Aid in BPR by assisting in process improvement </li></ul></ul><ul><li>Drawbacks </li></ul><ul><ul><li>Does not handle niche domain needs </li></ul></ul><ul><ul><li>Significant amount retraining of employees </li></ul></ul><ul><ul><li>Provisions for custom development within a wide framework of enterprise wide package solutions, e.g., ORACLE Financials has a custom develop module for Energy Accounting </li></ul></ul><ul><ul><li>Enterprise-wide packages should be customized for targeted sectors, e.g. IS-Media, IS-Oil from SAP </li></ul></ul>
  5. 5. A Typical I/T Story Purchasing A/R Inventory General Ledger Sales A/P 1,000 island solution Production Planning Shop Floor execution Engineering Design Controlling Mfg. Engineering
  6. 6. SAP -- The Overall Picture 03 Graphical User Interface Op en System Enterprise Data Model Integrated Solution Client/Server Architecture Multinational Use Comprehensive Functionality Industry Solutions / ICOE’s Utilities Business Engineering R/3 Client / Server FI Financial Acctg. CO Controlling AM Asset Mgmt PS Project System WF Workflow MM Materials Mgmt HR Human Resources SD Sales PP Production Planning QM Quality Mgmt PM Plant Maint. IS Industry Solutions IS Banking IS Hospital IS Publishing IS Oil Electronics CPG Process Industry
  7. 7. R/3 Integration Production Procurement Distribution Sales Controlling Accounting Treasury Make or Buy Availability Check Credit Limit Check Forex Matching Currency Risk Order receipt Financing decision Delivery decision Profitability Decision Posting order receipt Profitability Analysis Integration of previously off-line functions into the operational flow is a key enabler for competitive advantage
  8. 8. Results of Integration <ul><li>Focus on Business Processes </li></ul><ul><li>Elimination of Redundant Data (Common Constant Data) </li></ul><ul><li>Easier Corporate Consolidation </li></ul><ul><li>Better Managerial Control </li></ul><ul><li>Elimination of Interfaces </li></ul><ul><li>Faster reaction to changing structures </li></ul><ul><ul><li>Organization/Customers/Competitors </li></ul></ul>
  9. 9. Materials Management <ul><li>Material Special stock Batch </li></ul><ul><li>Vendor/one-time customer </li></ul><ul><li>Purchasing info record </li></ul><ul><li>Service specifications </li></ul><ul><li>Workflow </li></ul><ul><li>Optical archive </li></ul><ul><li>Texts Mail Communication </li></ul><ul><li>Classification </li></ul><ul><li>Documents </li></ul><ul><li>Conditions </li></ul>BASIC DATA Purchasing information system Vendor evaluation <ul><li>Purchase requisition </li></ul>PURCHASING <ul><li>MRP </li></ul><ul><li>Direct requisition </li></ul><ul><li>Release procedures </li></ul><ul><li>RFQ/Quotation </li></ul><ul><li>Material/service </li></ul><ul><li>Price comparisons </li></ul><ul><li>Price comparison list </li></ul><ul><li>Purchasing </li></ul><ul><li>Purchase orders </li></ul><ul><li>Outline agreements </li></ul><ul><li>Scheduling agreements </li></ul><ul><li>Goods receipt/issue </li></ul><ul><li>Transfer posting </li></ul><ul><li>Quantities and values </li></ul><ul><li>Physical inventory </li></ul><ul><li>Storage bins </li></ul><ul><li>Check and post </li></ul><ul><li>Price update </li></ul>INVENTORY MANAGEMENT INVOICE VERIFICATION SD PP PM QM FI AM CO PS Third-party order Requirements Service / spare parts Inspection lot G/L accounts Cash management and forecast Fixed assets Cost center / Budget Project
  10. 10. Production Planning FI CO AM HR Cost accounting Financial accounting Assets management Human resources Project Networks Maintenance Repairs Plant maintenance Maintenance Repairs Plant maintenance Sales and operations planning Demand management / MPS Material requirements planning Capacity planning Shop floor control Costing Information system Purchasing Warehouse Invoice verification Sales Shipping Billing Customers Vendors SD PP SD SD SD MM SD QM SD PM SD PS
  11. 11. Why clients buy ERP? <ul><li>Corporate Initiatives </li></ul><ul><ul><li>Strategic initiatives </li></ul></ul><ul><ul><ul><li>A requisite capability in a competitive global business </li></ul></ul></ul><ul><ul><li>Operational initiative </li></ul></ul><ul><ul><ul><li>A foundation for performance and cost improvement via integration </li></ul></ul></ul><ul><ul><li>Organizational initiative </li></ul></ul><ul><ul><ul><li>To initiate a major organizational change within the company </li></ul></ul></ul><ul><li>Technology </li></ul><ul><ul><li>IT is making the transition from a supporting operational entity to becoming a strategic competitive tool. </li></ul></ul><ul><li>BECAUSE OTHERS ARE BUYING IT!!! </li></ul>
  12. 12. New Toys for Old ?
  13. 13. Key Benefits of Enterprise Systems <ul><li>Effectiveness of the business </li></ul><ul><ul><li>Improved Customer Service </li></ul></ul><ul><ul><li>Faster cycle time to market </li></ul></ul><ul><ul><li>Improved access to integrated information for more effective decisions(costs, profitability etc.) </li></ul></ul><ul><ul><li>Commonality of global information </li></ul></ul><ul><ul><li>Responsiveness to regulatory changes </li></ul></ul><ul><ul><li>Catalyst/enabler of (cross-functional) organizational renewal </li></ul></ul><ul><ul><li>Added business functionality </li></ul></ul>Logistics and Distribution Sales & Customer Service Vendors Inbound Manufacturing Transportation Distribution Delivery Customer Consumer Logistics
  14. 14. Key Benefits of Enterprise Systems <ul><li>Efficiency of the business </li></ul><ul><ul><li>Reduced Costs of business operations </li></ul></ul><ul><ul><li>Reduced inventories </li></ul></ul><ul><ul><li>Standardization of business processes across unit, across functions </li></ul></ul><ul><ul><li>Reduced cost of business information management (e.g., clerical cost of transaction inputs, cost of data reconciliation) </li></ul></ul><ul><ul><li>Integrate Supply Chain Management </li></ul></ul>
  15. 15. Agenda <ul><li>Evolution of ERP </li></ul><ul><li>Benefits of ERP </li></ul><ul><li>ERP Implementation - Key Elements </li></ul><ul><ul><li>Package Selection </li></ul></ul><ul><ul><li>Implementation Partner Selection </li></ul></ul><ul><ul><li>Methodology & Tools </li></ul></ul><ul><ul><li>Implementation Approach </li></ul></ul><ul><ul><li>Change Management </li></ul></ul>
  16. 16. Agenda <ul><li>Introduction </li></ul><ul><li>Evolution of ERP </li></ul><ul><li>Benefits of ERP </li></ul><ul><li>ERP Implementation - Key Elements </li></ul><ul><ul><li>Package Selection </li></ul></ul><ul><ul><li>Implementation Partner Selection </li></ul></ul><ul><ul><li>Methodology & Tools </li></ul></ul><ul><ul><li>Implementation Approach </li></ul></ul><ul><ul><li>Change Management </li></ul></ul>
  17. 17. ERPs in the market <ul><li>SAP R/3 </li></ul><ul><li>Oracle Applications </li></ul><ul><ul><li>Peoplesoft </li></ul></ul><ul><ul><li>JD Edwards </li></ul></ul><ul><ul><li>Baan </li></ul></ul><ul><li>BPCS </li></ul><ul><li>CA </li></ul><ul><li>MfgPro </li></ul><ul><li>Scala </li></ul><ul><li>Ramco Marshall </li></ul><ul><li>MAKESS </li></ul><ul><li>Mapics </li></ul><ul><li>JBA </li></ul><ul><li>QAD </li></ul>… .. and many more
  18. 18. Recipe for ERP Package Selection <ul><li>Functional </li></ul><ul><ul><li>Functional Requirement Specification </li></ul></ul><ul><li>Technical </li></ul><ul><ul><li>Operating System </li></ul></ul><ul><ul><li>RDBMS </li></ul></ul><ul><ul><li>Application language </li></ul></ul><ul><ul><li>Web-enablement </li></ul></ul><ul><ul><li>Bandwidth requirements </li></ul></ul><ul><li>Vendor </li></ul><ul><ul><li>Stability of vendor </li></ul></ul><ul><ul><li>Commitment to India </li></ul></ul><ul><ul><li>Client support (through reference visit) </li></ul></ul><ul><li>Support </li></ul><ul><ul><li>Alternate implementation support </li></ul></ul><ul><ul><li>Availability of support for technology environment </li></ul></ul><ul><li>Commercial </li></ul><ul><ul><li>Cost of ownership </li></ul></ul>
  19. 19. Agenda <ul><li>Evolution of ERP </li></ul><ul><li>Benefits of ERP </li></ul><ul><li>ERP Implementation - Key Elements </li></ul><ul><ul><li>Package Selection </li></ul></ul><ul><ul><li>Implementation Partner Selection </li></ul></ul><ul><ul><li>Methodology & Tools </li></ul></ul><ul><ul><li>Implementation Approach </li></ul></ul><ul><ul><li>Change Management </li></ul></ul>
  20. 20. What should you look for in a Partner ? <ul><li>Expertise </li></ul><ul><li>Resources </li></ul><ul><li>Project Management Skills </li></ul>
  21. 21. Areas of Expertise <ul><li>Domain/Industry </li></ul><ul><li>Process Improvement </li></ul><ul><li>ERP - Functional & Technical </li></ul><ul><li>Complementary Solutions in IT </li></ul><ul><li>Change Management </li></ul><ul><li>Quality Management </li></ul>The implementation partner must be able to add value to the client by bringing in their global expertise and best practices.
  22. 22. Resources <ul><li>Technology Infrastructure </li></ul><ul><ul><li>Competency Center </li></ul></ul><ul><ul><li>Helpdesk </li></ul></ul><ul><ul><li>OSS Connectivity </li></ul></ul><ul><ul><li>R&D and Training facility </li></ul></ul><ul><li>People </li></ul><ul><ul><li>Strength in numbers </li></ul></ul><ul><ul><li>Qualification </li></ul></ul><ul><ul><li>Experience </li></ul></ul><ul><li>Knowledge-sharing Databases </li></ul>
  23. 23. Project Management Skills <ul><li>Methodology & tools </li></ul><ul><ul><li>Is the methodology Certified by Product Vendor? </li></ul></ul><ul><ul><li>Does it offer any add-ons? </li></ul></ul><ul><ul><li>Is it supported by an electronic toolkit? </li></ul></ul><ul><ul><li>How does it support document management? </li></ul></ul><ul><ul><li>Is there a methodology for Change Management? </li></ul></ul><ul><li>Project Managers with experience and skills, having managed ERP implementations in India and abroad </li></ul>
  24. 24. Project Methodology - Ascendant SAP Methods Practice Aids Preferred Practices People Technology Knowledge Process Evaluation Accelerated SAP Ascendant SAP Project Preparation Business Blueprint Realisation Final Preparation Go Live and Support Sustain Best of Both Worlds
  25. 25. Phase Outcomes Business Blueprint Production System and Ready Organization Help Desk and Support Organization Project Preparation Business Blueprint Realization Final Preparation Go Live and Support Sustain Business Benefits and Continuous Improvement Business Case and Project Proposal Evaluation Project Charter Configured and Tested System
  26. 26. Phase Deliverables <ul><li>Project Preparation </li></ul><ul><ul><li>Project Procedures: Documentation, issue management, implementation standards and procedures, and system landscape strategy </li></ul></ul><ul><ul><li>Technical Requirements Planning </li></ul></ul><ul><li>Business Blueprint </li></ul><ul><ul><li>Core team training </li></ul></ul><ul><ul><li>Install system environment </li></ul></ul><ul><ul><li>Business Process Definition,based on AS IS & TO BE studies </li></ul></ul>
  27. 27. Deliverables <ul><li>Realization </li></ul><ul><ul><li>Configuration </li></ul></ul><ul><ul><li>Conversion programs </li></ul></ul><ul><ul><li>Application interface programs </li></ul></ul><ul><ul><li>Reports, Layout sets </li></ul></ul><ul><ul><li>Authorization concept </li></ul></ul><ul><ul><li>Integration testing </li></ul></ul><ul><ul><li>End user documentation </li></ul></ul><ul><li>Final Preparation </li></ul><ul><ul><li>End user training </li></ul></ul><ul><ul><li>System management </li></ul></ul><ul><ul><li>Cut over </li></ul></ul><ul><li>Go Live </li></ul><ul><ul><li>Production support </li></ul></ul><ul><ul><li>Set up Helpdesk </li></ul></ul><ul><li>Sustain </li></ul><ul><ul><li>System tuning </li></ul></ul><ul><ul><li>Upgrade </li></ul></ul><ul><ul><li>Archiving </li></ul></ul><ul><ul><li>Benefits Realization </li></ul></ul>
  28. 28. Ascendant™ SAP Toolset <ul><li>Portal Tab </li></ul><ul><li>Project management and communication topics e.g., news, important documents, discussions, Issues, meeting schedules and minutes etc. </li></ul><ul><li>Method Tab </li></ul><ul><li>Access Ascendant SAP method </li></ul><ul><li>Access ASAP and PwC accelerators, and deliverable document templates </li></ul><ul><li>SAP R/3 Reference Model </li></ul><ul><li>The R/3 Reference Model is used for deliverable management </li></ul><ul><li>Definition of process scope </li></ul><ul><li>Customisation of the Reference Model </li></ul><ul><li>Integration with SAP </li></ul><ul><li>Integration to 3rd party tools (Aris, LiveModel etc.) </li></ul><ul><li>The Portal Concept </li></ul><ul><li>Store information in Ascendant SAP Toolset or integrate with other sources </li></ul><ul><li>Link to intranet, or other web-based information </li></ul><ul><li>E-services </li></ul><ul><li>Distribute functionality as an e-service </li></ul><ul><li>Install in the client’s existing intranet </li></ul><ul><li>… or give the client access to our extranet </li></ul><ul><li>E-learning </li></ul><ul><li>Use Ascendant SAP Toolset as a vehicle for e-learning initiatives </li></ul><ul><li>Create learning sites based on Ascendant SAP Toolset </li></ul><ul><li>Build EPSS systems from existing information </li></ul><ul><li>Knowledge Management </li></ul><ul><li>Dynamic navigation dependent on users role </li></ul><ul><li>Project taxonomies </li></ul><ul><li>Personalisation features </li></ul><ul><li>Alert functionality </li></ul>
  29. 29. “Big-Bang” Approach Implement all functionality at all divisions simultaneously Phase 1 Hitachi America, Limited Division 1 Division 2 Division 3 FI/CO SD MM FI/CO SD MM FI/CO SD MM
  30. 30. “Functional” Approach Implement a single SAP module (e.g., FI) at all locations at the same time Hitachi America, Limited Division 1 Division 2 Division 3 Phase 1 Phase 2 Phase 3 FI/CO SD MM FI/CO SD MM FI/CO SD MM
  31. 31. “Pilot + Rollout” Approach Implement all functionality within an organization, one division at a time Hitachi America, Limited Division 1 Division 2 Division 3 Phase 1 Phase 2 Phase 3 FI/CO SD MM FI/CO SD MM FI/CO SD MM
  32. 32. ERP Implementation Alternatives - Pros/Cons
  33. 33. Project Team Structure <ul><li>Four - tier project management structure </li></ul><ul><li>Project Steering Committee, comprising Sr. Management team & Project Sponsor from Client’s side and Project Director from the Consultant’s side </li></ul><ul><li>Project Managers - one each from Client & Consultant. </li></ul><ul><li>Module Leaders - one for each module from Client & Consultant. </li></ul><ul><li>Team members - Functional & Technical </li></ul>
  34. 34. Project Team Structure Project Manager PwC Project Director PwC Project Manager TEC Steering Committee TEC ERP Module Teams Consultant + Client ERP Technical Teams Consultant + Client Project Manager (Consultant) Project Director (Consultant) Project Manager ( Client ) Project Sponsor ( Client ) Steering Committee
  35. 35. Role of Steering Committee <ul><li>Ensure alignment with Vision and Mission </li></ul><ul><li>Ensure alignment with other Strategic initiatives of the company - the big picture </li></ul><ul><li>Visibly communicate commitment and provide support to the team </li></ul><ul><li>Resolve issues which are strategic in nature and need intervention </li></ul><ul><li>Manage project scope </li></ul><ul><li>Monitor progress </li></ul>
  36. 36. Implementation Team (e.g.) Modules No. Of Resources No. Of Resources ( Consultant ) (Client ) Project Manager 1 1 FI/CO/AM/TR 4 6 MM/QM 2 4 SD 2 4 PP/PM 2 4 ABAP 2 6 Basis 1 3 Total 14 28
  37. 38. Agenda <ul><li>Evolution of ERP </li></ul><ul><li>Benefits of ERP </li></ul><ul><li>ERP Implementation - Key Elements </li></ul><ul><ul><li>Package Selection </li></ul></ul><ul><ul><li>Implementation Partner Selection </li></ul></ul><ul><ul><li>Methodology & Tools </li></ul></ul><ul><ul><li>Implementation Approach </li></ul></ul><ul><ul><li>Change Management </li></ul></ul>
  38. 39. How much change does an ERP implementation cause ? <ul><li>ERP causes change in: </li></ul><ul><li>Business processes </li></ul><ul><li>Organization, authority, jobs and roles </li></ul><ul><li>Performance measures and reward systems </li></ul><ul><li>Technology and IT support infrastructure </li></ul>
  39. 40. Impact of ERP implementation <ul><li>ERP will impact </li></ul><ul><ul><li>Communication and information domain </li></ul></ul><ul><ul><li>Leadership and authority </li></ul></ul><ul><ul><li>Company policies </li></ul></ul><ul><ul><li>Jobs and rewards </li></ul></ul><ul><ul><li>Company structure and culture </li></ul></ul><ul><ul><li>Skills and knowledge of employees </li></ul></ul><ul><li>Information is available online generally to a much broader audience </li></ul><ul><li>ERP can alter how work gets done and thus how people work together </li></ul><ul><li>ERP alters the level of decision-making authority </li></ul><ul><li>ERP can alter organizational structure </li></ul>
  40. 41. Impact on Information Technology <ul><li>The organization must be able to support all aspects of the transition to a ERP platform </li></ul><ul><li>Mature and integrated network </li></ul><ul><li>Real time transactions </li></ul><ul><li>Advanced technical support requirements </li></ul><ul><li>Integrating / Interfacing with legacy systems and/or other software packages </li></ul>
  41. 42. Impact on People <ul><li>At Senior & Middle Management levels, </li></ul><ul><ul><li>Information like the shipment/stock availability/remittance status would not remain with individuals,but will be transparent & shared by the concerned functionaries </li></ul></ul><ul><ul><li>Accountability would increase since the system throws up exceptions in performance at any desired frequency </li></ul></ul><ul><li>Impact in Lower management & Clerical cadres </li></ul><ul><ul><li>routine/mundane work in terms of duplicate data entry,reconciliation work and other routine analyses will be greatly eliminated in all locations. People would now spend more time in follow-ups </li></ul></ul><ul><ul><li>Since the workload of the past would be partly reduced,excess manpower from departments may need to be re-deployed. </li></ul></ul>
  42. 43. Changes in Decision Making Authority <ul><li>Widespread access to information enables: </li></ul><ul><ul><li>Decentralized decision making </li></ul></ul><ul><ul><li>Responsibility to be pushed to lower levels </li></ul></ul><ul><ul><li>Front line personnel to make better decisions </li></ul></ul><ul><li>Impacts: </li></ul><ul><ul><li>Skilled staff to analyze and process the information </li></ul></ul><ul><ul><li>Accountability systems & guidelines for decision making </li></ul></ul><ul><ul><li>Job descriptions and training for new roles and responsibilities </li></ul></ul><ul><ul><li>Aligned organizational structures which empower staff </li></ul></ul>
  43. 44. Impact on people and job roles <ul><li>Recognize the need for changed and new jobs </li></ul><ul><li>Align skills with new processes </li></ul><ul><li>Responsibility typically broaden </li></ul><ul><li>Technology skills become more important </li></ul><ul><li>Alignment of rewards with new skills </li></ul><ul><li>Direct compensation </li></ul><ul><li>Retainer bonus for Hot skills </li></ul>Yes! Do you know ABAP? TASKS
  44. 45. <ul><li>Old Organization + New Technology = Expensive Old Organization </li></ul>One Overwhelming Insight : OO + NT = EOO