Mission Critical: Realizing the Promise of Enterprise Systems

Chapter 1: What Are Enterprise Systems and Why Do They Matter?

Being successful with enterprise systems is not simply a matter of writing big checks. What's really important-and difficultabout these systems is the dramatic change they bring to a business. I'll argue throughout this book that an enterprise project is as much about changing the way a business operates as it is about technology. Successful implementation of an ES does involve probably the greatest technological change most organizations have ever undergone, not to mention the largest employing client/server technologies. Even more difficult and important, however, are the major changes in business that come with an ES project.

Business processes, the way work gets done in an organization, change dramatically. Organizational structure and culture, the behaviors of workers throughout the company, and even business strategy all have to be restructured. The reengineering movement of the early 1990s, with all its radical approaches to reorganizing companies, turned out to be a mere preamble to the ES era, which has brought even more ambitious (and complex) changes. In fact, the business process reengineering movement has largely been replaced by ES initiatives. Given their breadth and technical complexity, ES projects are even more difficult and consuming of time and resources than the largest reengineering projects. The most ambitious ES projects can take a decade or more of a company's time.

Implementing new mission-critical systems, then, is hardly just a matter of installing an ES. Business processes and information must be made common around the worldwithin the implementing organization. Idiosyncratic ways of doing business must be abandoned. Informational linkages between business functions and units must be tightened. Employees must be educated about the broad implications of simple actions like pressing a key within an ES. Perhaps most difficult of all, senior managers must be persuaded of the wisdom of changing virtually everything in a company at once. In short, organizational change represents a huge part of a successful ES project. Managers at Steelcase, for example, estimate that up to half of the company's project resources went for organizational change issues. A Monsanto manager felt that change management activities constituted 75 percent of the total project effort there.

Despite these difficulties, ESs are the answer to the Information Age's wildest dreams. The concept of an integrated set of information technology (IT) applications that could meet all of an organization's information needs has been with us since the beginning of information systems in business, but has been unrealizable before the modern ES. We have gotten what we wished for; now we only need to make the business and organizational changes necessary to take advantage of our fulfilled dreams.

BUSINESS BENEFITS OF ENTERPRISE SYSTEMS

I've already pointed out that ESs are difficult to put in place from both a technical and business change standpoint. Why go to all the trouble and expense of implementing an ES? In an ideal world, ES-enabled organizations would be seamlessly interconnected both internally and externally. Excess inventory and waste would be nonexistent. Demand and supply would be perfectly coordinated. It would be just as easy to transact business with suppliers and customers as with another department of your own company. Customers would have perfect information about not only the products and services they've ordered from you, but also about how every aspect of your business affects theirs. Managers could understand any aspect of a company's operations and performance with a few clicks of the mouse.

These benefits aren't purely hypothetical. Many companies have already realized substantial business benefits from their ES projects, even if they are not completely finished installing them. Several examples of these benefits are described in the following paragraphs.

1. Cycle time reduction. Autodesk, a leading manufacturer of computer-aided design software, has achieved substantial benefits in terms of cost and time reductions in key business processes. Whereas the company used to require two weeks on average to ship to customers, 98 percent of products are now shipped within twenty-four hours. Financial closing times were cut in half, from twelve days to six. Autodesk calculates that it has saved more on reduced inventory alone than its SAP system cost to install.

2. Faster information transactions. IBM's System Storage (disk drive) division achieved a reduction in the time to enter pricing information from five days minimum to five minutes, replacement part shipping went from twenty-two days to three, and credit checks that previously took twenty minutes are now accomplished in three seconds. Crediting a customer for a returned disk drive used to take three weeks; it now happens immediately. The division once spent thousands of hours reconciling management reporting data; this now happens automatically. IBM in general has twenty-one SAP projects underway, covering 80 percent of its core business; eight projects are up and running.

3. Better financial management. Microsoft is installing an ES to bring about common financial and procurement systems worldwide. The fast-growing software company has already saved $2 million in equipment depreciation (it previously took three months to start the depreciation schedule for a new asset; now it can begin immediately). The company's ES has allowed it to receive $14 million per year in earlypayment discounts from vendors. Microsoft's managers also report substantial benefits in improved management and reporting systems, and the financial closing cycle has been reduced from twelve days to four.

4. Laying the groundwork for electronic commerce. Cisco Systems put in an ES to structure and rationalize its back-office business transactions systems, which were previously unable to support the company's rapid growth. Without the system, Cisco also wouldn't have been able to offer customers Webbased access to product ordering, tracking, and delivery processes. Cisco's system cost it over $15 million, and the company spent another $100 million connecting it to the Internet. Today, however, Cisco believes that the combination of its ES and its Internet applications yields more than $500 million in annual operating cost savings.

5. Making tacit process knowledge explicit. Monsanto was concerned that decades of knowledge about plant operations existed only in the minds of an aging workforce. After successfully implementing its ES, company managers now feel that key processes, decision rules, and information structures are well understood and documented in its system. Furthermore, the knowledge is now more common to the industry, so that new employees are more likely to understand the work process. Support of the process and the system can also be outsourced to external suppliers.

The primary lesson from these examples is that key business processes can be improved dramatically through the implementation of an ES. Whether the process is financial, managerial, or operational; whether it involves internal activities or customers and suppliers; whether the process runs faster or leaner-enterprise systems are the primary vehicles for making business processes better. It's virtually inconceivable to try to reengineer today without them...