1. Enterprise Resource Planning
OEMBA
Spring 03

2. What is ERP?
Software that links applications across enterprise with shared data
Most notable characteristics?
Expensive, complex, difficult to implement

3. Major Players? SAP: Systems, Applications and Products (30%)
R/2 – Mainframe integration of financial and operational applications (1979)
R/3 – Unix-based client-server (1994)
Oracle (10%): Financials
Peoplesoft (7%): HR
JD Edwards (10%)
Baan (6%)

4. Why move to ERP? Stabilize and improve business processes
Standardize manufacturing (21%)
Reduce inventory
Improve level of systems integration
Financial (36%), customer orders
Improve IT responsiveness & information quality
Y2K

5. Key Issues/Risk? Implementation and Cost
Standardization of business processes
Diminish competitive advantage?
End-user acceptance of process change?
Typically requires new technologies
Especially if migrating from legacy system
History of budget/schedule overruns
High “not successful” rate – 50-70%

6. What drives cost? Implementation: 3-10 times software cost
Shortage of experienced people
Only needed for “implementation”
Must upgrade underlying infrastructure
Need “middleware”
Change business processes
Existing processes are not “enterprise-wide”

7. Other “Hidden” Costs Training – most underestimated budget item
Integration and testing
Customization
Easy to change business process to match software
Data conversion
Using best and brightest on project
Continual implementation

8. Cisco Case Who is Cisco? Are they an “Information age” company?
Industrial Age: Profit from design, production and sale of tangible products
Information Age: Creating value with technology

9. Cisco Case What was their corporate strategy? Core competencies”
“Customer intimacy”
One stop Shopping - broad product line
Working toward uniform industry standards
Maintain key alliances
Growth through acquisition
Outsource manufacturing (not a core competency)

10. Cisco What “triggered” Cisco to move to ERP?
Traditional IT organization did not align with business strategy
Cost Center
Internally focused
Current systems lack flexibility
System capacity will not accommodate growth
Legacy environment failed causing the need for immediate action
Research possibility of an integrated systems application approach
Design the entire IT system then adapt organization structure to support this

11. Cisco Resulting ERP System – standardized
100% UNIX at the server level
100% Windows NT at the LAN level
100% ‘Wintel” at the client level
100% Oracle at the database level
100% TCP/IP for worldwide network
Standardized software
Web as standard user interface

12. Cisco Stated Cost ERP Investment: $15 m
Web-enablement investment” $100 m

13. What were the “real” ERP costs?
$15 million, 9 months
Only 20 people on “core” team
Additional people (total of 100)
80 people * 160 h/mon * 8 mon * $50/h = $5.12m
IT “decommitted” other projects
100 IT people * 80% committed * 4.5 months * 160 h/m * $50/m = $2.9m
Hardware contract: avoided undersize costs
$15m * 32% hw expenditure * 50% avoided = $2.4m

14. Key Components of Strategic I-Net?
Real-time messaging
Data warehouse
All workers had client
Browser interface
Web site (18 million pages)
Self-service
Information transparency
Extended enterprise
Minimal knowledge management

15. Cisco: Considers ERP successful
Cisco: Considers ERP successful. What were key characteristics of implementation?
“Best people”
“Can-do” attitude
Mgt Commitment
High priority
Rapid Implementation
Big Bang (not phased)
Prototyping
Minimal modification strategy
Focus on standards
Vendor alliances
Financially strong
Hungry
Included on teams
Experienced consultants
Capability-based hardware contract

16. What were key obstacles?
Poor Testing Strategy
Immature software
Undersized technical architecture

17. What were the benefits? After 2 years, identified $550 m in benefits
B2B Sales: 0 in 1996, $18 billion (92%) in 2000
Reduced Cisco’s cost by 60%, customers by 20%
80% of customer service requests handled electronically
65% direct ship (from manufacturer to customer)
Internal EIS
Desktop training

18. Tektronix Who is Tektronix? What was their corporate strategy?
Information Age vs Industrial Age
What was their corporate strategy?

19. Tektronix Analyze the Tektronix infrastructure before ERP
Lack of integration between systems
Problems
Lack of global standards
Relics from when company had 26 divisions
Business Implications
Could not ship immediately – no inventory visibility beyond Beaverton, manual expediting
Multiple entries for each order – errors
Takes weeks to close books

20. Tektronix Infrastructure (cont’d)
Old Technology
Problem: 1970’s proprietary technologies
Implications: Expensive and difficult to integrate
Non-Standard Business Processes
Problem: Different all over the world
Implications: lost efficiencies
Is Tektronix’s situation typical?

21. Managing Implementation Risk
What concrete steps did Tektronix take to manage the risks involved in such a large and difficult project?

22. Risk Management (Cont’d)
Coherent guiding vision
Separability of business
Three divisions are very different
Requirements of one should not drive another
Leverage Shared Services
Consolidate common functions
Need comparable performance measures
Plain vanilla
Minimize changes to ERP software
Change business processes, not the software

23. Adaptive Implementation
Contrast Cisco and Tektronix implementation approaches.
What are the pluses and minuses of the staging approach?
Was the staged approach a better idea than the big-bang approach for Tektronix?

24. Characteristics of Adaptive Implementation
Iterative
Outcomes and interactions tested as they occur
Fast cycles that deliver value
Deliver functionality to end-users early in project
Incorporate feedback
Highly skilled project personnel
Must be capable of making mid-course adjustments
Resist ROI

25. Resist ROI Allen’s statement
“There was hardly any desire on Carl Nenn’s part to do some big return on investment analysis…” pg 3
“There are a lot of operational improvement initiatives going on around here. How much cost savings is directly related to the system? I don’t know, and we don’t really care. We know ERP is an enabler, and [these improvements]] wouldn’t have happened without it.” pg 12

26. Standardization and Customization
How do you manage the perceived need to customize the system?
“We’re special” vs resistance to change?
Local optimization vs company-wide efficiencies?
Issues with customization
Complex and expensive
Generally wiped out when upgrade

27. How did Tektronix deal with customization?
Used “wrappers”
Layers of code outside the system code
Basically used hooks into the system code
When upgrades, had to account for changes in these hooks, but majority of logic was intact
Today, would use XML
More lines of code in the wrappers than in the ERP product

28. Was ERP a success at Tektronix?
Relative to Cisco?
What about lack of ROI?

29. *
07/16/96
Lessons Learned
Clear definition with a short term goal can drive a multi-divisional solution
adequate expert resources needed
one driver with corporate & divisional sponsorship
IT must be tied to corporate strategy otherwise it will be viewed as ineffective
Partnerships are critical for long term success
Clear sense of vision and strategic fit narrows choices and guides platform development *