1. Korea Telecom 2007Olson: ERP 1 Reasons For and Against Enterprise System Adoption Korea Telecom David L. Olson

2. Korea Telecom 2007Olson: ERP 1 Enterprise Systems (ERP) A tremendous success –Enable firms to more efficiently Integrate data More timely reports needed for decision making Improved processes lead to more efficient operations –One of the most profitable software implementations

3. Korea Telecom 2007Olson: ERP 1 And yet… 65% of executives believe ERP can be harmful (Sarkis & Sundarraj, 2003) IT investment is often wasted (Garry Lowenthal, CFO of Viper Motorcycle Co – Millman 2004) Only a small minority, 10%, believe they are achieving a high return on technology investments (annual survey of financial executives, FEI & Computer Services Corporation – Millman 2004) Only a select few companies have gotten value out of their ERP implementations, and those are world-class companies (David Hebert, The Hackett Group – Millman 2004)

4. Korea Telecom 2007Olson: ERP 1 Millman (2004) ERP is notoriously over-sold and under-delivered ERP is the most expensive but least-value derived kinds of implementation (Scott Phares, VP- business services, Business Engine) When a lot of ERP investments are made, there wasn’t a business case built (Brian Zrimsek, The Gartner Group)

5. Korea Telecom 2007Olson: ERP 1 Notable ERP Failures David L. Olson, Bongsug Chae, Chwen Sheu, Issues in multinational ERP implementation, International Journal of Services and Operations Management 1:1, 2005, 7-21 1999 Hershey Foods Corporation had 19% drop in 3 rd - Quarter profits, 29% increase in inventories – problems in $112 million ERP (Motwani et al., 2002) City of Oakland – paycheck problems from $21 million ERP project (Motwani et al., 2002) Miller Industries - $3.5 million operating loss in 4 th- Quarter 1999 from ERP problems (Motwani et al., 2002) WW Grainger Inc. - $11 million reduction in operating earnings after ERP implementation (Motwani et al., 2002) FoxMeyer Drug bankruptcy through ERP (Ehrhart, 2001)

6. Korea Telecom 2007Olson: ERP 1 Carton & Adam (2003) Four Irish ERP implementations in manufacturing –Each had international operations –ERP for supply chain efficiencies Pain of Learning –Require unlearning old ways of working –Changes often imposed rather than designed –Integration of data led to centralizing ownership –IT support often centralized to reduce cost Responsibility for accurate data entry at subsidiary –Changes balance of power, usually centralizing

7. Korea Telecom 2007Olson: ERP 1 Overview Multinational ERP Issues –Business Process Reengineering –Federalism/Customization –Supply Chain Issues/Outsourcing –Lessons Learned –Conclusions Social issues from –Network Society –Emergence of Systems –Future expectations

8. Korea Telecom 2007Olson: ERP 1 Business Process Reengineering Millman (2004) Brian Zrimsek, The Gartner Group –“The value isn’t in the system, but in what you change.” Mitch Spitzer, VP GreenPoint Financial Corp. –“It wasn’t Oracle that got us the savings, but rather the reengineering of existing business processes, most through elimination of systems, reduction of headcount, streamlining processes.”

9. Korea Telecom 2007Olson: ERP 1 BPR Problems Reported: 4 Cases StudyBPR ProblemsSuggested Resolution Al-Mashari & Zaire (2000) Anxiety from job reduction Scope & focus creep Communication needs Technical mindset Communication Project milestones Newsletters, e-mail, Web Focus on business value Motwani et al. (2002) Projects out of control Sarkis & Sundarraj (2003) Initial productivity dipPlanned for Yusuf et al. (2004) Match process to software Data cleanup Training Communication with users Bridge legacy systems Plan, focus on value

10. Korea Telecom 2007Olson: ERP 1 BPR & Multinationals The need to reflect different costs of doing things may change best practices by country Different legacy practices exist across countries Regulations impose different constraints Cultural resistance to change may vary

11. Korea Telecom 2007Olson: ERP 1 Federalism Davenport (1998) Different elements of the organization have their own ERP versions –Linked together at a high level –Enable elements to cultivate unique competitive advantages –Regional units tailor operations to local requirements, local regulatory structure Implemented by: –Monsanto –Hewlett-Packard –Nescafe

12. Korea Telecom 2007Olson: ERP 1 Customization Millman (2004) Ken Stoll (partner, Accenture) –“Taking a firm line on customization is one of the most effective ways to control ERP cost and maximize value.” Plan $6 million, but $20 million customization Paul Janicki (global finance director, Dow Chemical Co.) –“Dow one of first adopters of SAP, customized extensively, held off upgrading. SAP is discontinuing support, Dow faces difficult decision.”

13. Korea Telecom 2007Olson: ERP 1 Tradeoff Federalism vs. Customization Federalism provides flexibility to meet local needs –Multinational subsidiaries have local requirements CUSTOMIZE –Customization is very risky & expensive

14. Korea Telecom 2007Olson: ERP 1 Supply Chain Factors – Multinational ERP Multinational organizations inherently involve supply chains –Link suppliers, customers A great deal of value in open systems –A major ERP trend since 1999

15. Korea Telecom 2007Olson: ERP 1 Supply Chain Successes Texas Instruments (Sarkis & Sundaraj 2003) –Web ability key factor in enterprise system Over 70% of external transactions electronic Reduced customer order costs Had access to global information in real time Rolls Royce (Yusuf et al. 2004) –Integrated supply chain activities

16. Korea Telecom 2007Olson: ERP 1 Supply Chain Benefits Goutsos & Karacapilidis (2004) BenefitComments Improvement of buyer- supplier relationship Web-based platform facilitates early supplier involvement Reduction of production costs Coordinate resources, synchronize work Inventory managementBalance carrying costs and acquisition costs

17. Korea Telecom 2007Olson: ERP 1 Open System Effectiveness Ash & Burn (2003) B2B - business –Efficient sourcing of standard components –Efficient asset leverage in business network –Create new competencies through alliances B2C - customer –Remove product/service delivery –Product/service customization B2E - expertise –Maximize individual experience –Harness organizational expertise –Leverage community expertise

18. Korea Telecom 2007Olson: ERP 1 Multinational ERP Supply Chain Conclusions Multinational organizations naturally involve supply chain coordination –Web linkage can tie non-ERP systems together –Gain from EDI Inherent security problem –Technology exists to cope

19. Korea Telecom 2007Olson: ERP 1 Outsourcing Supply chain participation brings in many smaller organizations –May not have had their own ERP –Forced to conform to core business ERP “For smaller companies, the only way to reap fruits of globalization may be through outsourcing.” Paul Janicki, global finance director, Dow Chemical Co. (Millman, 2004)

20. Korea Telecom 2007Olson: ERP 1 Outsourcing ERP When a large organization implements ERP, they often hire consultant to operate it –Texas Instruments: transferred 250 IT personnel to Andersen Consulting –Rolls-Royce: transferred IT development to EDS While not called outsourcing, in effect it is –Technical difference – ownership of platform and rental of software

21. Korea Telecom 2007Olson: ERP 1 Huin (2004) More small to medium-sized enterprises in Southeast Asia involved in supply chain operations More outsourcing ERP –Heavy investment too risky –Forced to purchase from approved vendor lists –Forced to use customer document formats

22. Korea Telecom 2007Olson: ERP 1 Multinational Outsourcing Large multinationals likely to have own IT –Better to retain control –Still often use consultant to operate Smaller participants in supply chains (or smaller firms operating independently) –Need to hire expertise –Application service provider risk Reduces risk of vendor upgrade Introduces risk of ASP stability, pricing

23. Korea Telecom 2007Olson: ERP 1 Lessons Learned Lesson4 BPR firms Texas Inst Rolls- Royce Huin Business caseXX BenchmarkX Align w/strategyXX Data cleanupX Mid-course correctionXX TrainingXXX MetricsX

24. Korea Telecom 2007Olson: ERP 1 Business Cases Mabert et al. (2001); Olhager & Selldin (2003) –Formal financial methods often not used –Cost data unreliable –Benefits unpredictable Cases indicate business case lacking –Texas Instruments did, but included intangible Web access for supply chain Consolidation of independent IS programs Improved inventory accuracy

25. Korea Telecom 2007Olson: ERP 1 Survey of Manufacturers Mabert et al. (2000); Olhager & Selldin (2003) FORMAL METHOD Use in USUse in Sweden ROI53%30% Payback35%67% Expected NPV15%12% Other11%20%

26. Korea Telecom 2007Olson: ERP 1 Critical Success Factors Reimers (2003) Job security a significant factor –Resistance has sabotaged a number of cases Top management involvement needed –Leadership rather than imposition Teamwork required Team member qualifications critical Avoid customization

27. Korea Telecom 2007Olson: ERP 1 Importance of Training Training traditionally under-budgeted –Typically 6% of budget; 11% of actual –If do not customize, training even more important Force employees to learn new methods The cause of the “1 st year dip” Those who learn stay; those who don’t leave (the source of ERP savings)

28. Korea Telecom 2007Olson: ERP 1 Multinational Training Factors Multinational subsidiaries have labor forces with varying computer skill background –BPR: automation replaces labor –If labor skill high (or if cost lower), less reason to automate –The greater the regulatory variation (or cultural factors of doing business), the more need for local labor

29. Korea Telecom 2007Olson: ERP 1 CONCLUSIONS ERP systems very valuable –BPR provides improved methods –Open systems provide greater supply chain efficiency –Federalism can satisfy local requirements Need to balance with cost of customization ISSUES –Vendor manipulation –Application Service Providers

30. Korea Telecom 2007Olson: ERP 1 FUTURE We live in a Networked Society –Castells Systems emerge –Maturana & Varela; Steven Johnson –Systems naturally emerge without plan These emerging systems are beyond control –SAP, Microsoft, economies, politics –unknown future systems At best, we can be flexible, prepared for change