Reasons For and Against Enterprise System Adoption Korea

  • Slides: 30
Download presentation
Reasons For and Against Enterprise System Adoption Korea Telecom David L. Olson Korea Telecom

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

Enterprise Systems (ERP) • A tremendous success – Enable firms to more efficiently •

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 Korea Telecom 2007 Olson: ERP 1

And yet… • 65% of executives believe ERP can be harmful (Sarkis & Sundarraj,

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) Korea Telecom 2007 Olson: ERP 1

Millman (2004) • ERP is notoriously over-sold and under-delivered • ERP is the most

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

Notable ERP Failures David L. Olson, Bongsug Chae, Chwen Sheu, Issues in multinational ERP

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) • Fox. Meyer Drug bankruptcy through ERP (Ehrhart, 2001) Korea Telecom 2007 Olson: ERP 1

Carton & Adam (2003) • Four Irish ERP implementations in manufacturing – Each had

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 Korea Telecom 2007 Olson: ERP 1

Overview • Multinational ERP Issues – Business Process Reengineering – Federalism/Customization – Supply Chain

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 Korea Telecom 2007 Olson: ERP 1

Business Process Reengineering Millman (2004) • Brian Zrimsek, The Gartner Group – “The value

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 Green. Point 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. ” Korea Telecom 2007 Olson: ERP 1

BPR Problems Reported: 4 Cases Study BPR Problems Suggested Resolution Al-Mashari & Zaire (2000)

BPR Problems Reported: 4 Cases Study BPR Problems Suggested 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 dip Yusuf et al. (2004) Match process to software Data cleanup Training Korea Telecom 2007 Olson: ERP 1 Planned for Communication with users Bridge legacy systems Plan, focus on value

BPR & Multinationals • The need to reflect different costs of doing things may

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 Korea Telecom 2007 Olson: ERP 1

Federalism Davenport (1998) • Different elements of the organization have their own ERP versions

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 Korea Telecom 2007 Olson: ERP 1

Customization Millman (2004) • Ken Stoll (partner, Accenture) – “Taking a firm line on

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. ” Korea Telecom 2007 Olson: ERP 1

Tradeoff • Federalism vs. Customization • Federalism provides flexibility to meet local needs –

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

Supply Chain Factors – Multinational ERP • Multinational organizations inherently involve supply chains –

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 Korea Telecom 2007 Olson: ERP 1

Supply Chain Successes • Texas Instruments (Sarkis & Sundaraj 2003) – Web ability key

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 Korea Telecom 2007 Olson: ERP 1

Supply Chain Benefits Goutsos & Karacapilidis (2004) Benefit Comments Improvement of buyersupplier relationship Web-based

Supply Chain Benefits Goutsos & Karacapilidis (2004) Benefit Comments Improvement of buyersupplier relationship Web-based platform facilitates early supplier involvement Coordinate resources, synchronize work Reduction of production costs Inventory management Korea Telecom 2007 Balance carrying costs and acquisition costs Olson: ERP 1

Open System Effectiveness Ash & Burn (2003) • B 2 B - business –

Open System Effectiveness Ash & Burn (2003) • B 2 B - business – Efficient sourcing of standard components – Efficient asset leverage in business network – Create new competencies through alliances • B 2 C - customer – Remove product/service delivery – Product/service customization • B 2 E - expertise – Maximize individual experience – Harness organizational expertise – Leverage community expertise Korea Telecom 2007 Olson: ERP 1

Multinational ERP Supply Chain Conclusions • Multinational organizations naturally involve supply chain coordination –

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 Korea Telecom 2007 Olson: ERP 1

Outsourcing • Supply chain participation brings in many smaller organizations – May not have

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) Korea Telecom 2007 Olson: ERP 1

Outsourcing ERP • When a large organization implements ERP, they often hire consultant to

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 Korea Telecom 2007 Olson: ERP 1

Huin (2004) • More small to medium-sized enterprises in Southeast Asia involved in supply

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 Korea Telecom 2007 Olson: ERP 1

Multinational Outsourcing • Large multinationals likely to have own IT – Better to retain

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 Korea Telecom 2007 Olson: ERP 1

Lessons Learned Lesson 4 BPR firms Texas Inst Business case X X Benchmark X

Lessons Learned Lesson 4 BPR firms Texas Inst Business case X X Benchmark X Align w/strategy X Huin X Data cleanup X Mid-course correction X Training X Metrics X Korea Telecom 2007 Rolls. Royce Olson: ERP 1 X X X

Business Cases • Mabert et al. (2001); Olhager & Selldin (2003) – Formal financial

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 Korea Telecom 2007 Olson: ERP 1

Survey of Manufacturers Mabert et al. (2000); Olhager & Selldin (2003) FORMAL METHOD ROI

Survey of Manufacturers Mabert et al. (2000); Olhager & Selldin (2003) FORMAL METHOD ROI Use in US 53% Use in Sweden 30% Payback 35% 67% Expected NPV 15% 12% Other 11% 20% Korea Telecom 2007 Olson: ERP 1

Critical Success Factors Reimers (2003) • Job security a significant factor – Resistance has

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 Korea Telecom 2007 Olson: ERP 1

Importance of Training • Training traditionally under-budgeted – Typically 6% of budget; 11% of

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) Korea Telecom 2007 Olson: ERP 1

Multinational Training Factors • Multinational subsidiaries have labor forces with varying computer skill background

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 Korea Telecom 2007 Olson: ERP 1

CONCLUSIONS • ERP systems very valuable – BPR provides improved methods – Open systems

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 Korea Telecom 2007 Olson: ERP 1

FUTURE • We live in a Networked Society – Castells • Systems emerge –

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 Korea Telecom 2007 Olson: ERP 1