EXECUTIVE SUMMARY

ENTERPRISE RESOURCE PLANNING

By:
Jun Han
Rongbi Liu
Brandon Swanner
Shicheng Yang
Advances in information technology, expansion of the Internet and electronic business as
well as an ever-growing global competition have made running a successful business
more difficult than ever before. Currently, a popular approach to the development of an
integrated enterprise-wide system is the implementation of an enterprise resource
planning system.
What is ERP?
Enterprise Resource Planning (ERP) is software that attempts to integrate all departments
and functions across a company onto a single computer system that can serve all those
departments particular needs. ERP allows a company to automate and integrate the
majority of its business processes, including product planning, purchasing, production
control, inventory control, interaction with suppliers and customer, delivery of customer
service and keeping track of orders, to share common data and practices across the entire
enterprise, and to produce and access information in a real-time environment. ERP
enables decision-makers to have an enterprise-wide view of the information they need in
a timely, reliable and consistent fashion. ERP applications market grew to $25.4 billion in
2005, and will reach $29 billion in 2006. Over the next five years, the market will grow at
an average of 10%.
Advantages of ERP
With ERP to automate processes, the benefits are as follows:
Increase inventory turns
Increase inventory accuracy rate
Reduce inventory costs
Improve customer service
Reduce setup times
Reduce paper work.
Provide a unified customer database usable by all applications
Provide greater and effective control on account.
Faster response and follow ups to customers
Improves supply demand linkage with remote locations and branches in different
locations
1

Higher quality, less re-work

Timely revenue collection, improved cash flow

Risks of ERP
There was 70% percent of all ERP projects fail to be fully implemented, even after three
years. Few companies are making full use of their ERP systems, despite the high cost of
the software and the length of time an implementation can take. Once installed, more than
50% of companies said it was hard to make changes to ERP software in order to meet any
changes in business processes or requirements. More than 50% of the companies did not
measure their return on investment from business applications. The failure rates for ERP
projects are relatively high and could lead to the bankruptcy of the corporation.
Challenges of ERP Implementation
Customization Related Challenges
Redesigning Business Processes
Cost of upgrades/updates
Training
Little flexibility in adapting to business processes
High integration costs
High maintenance costs
Lengthy or incomplete integrations
Critical Success Factors of Implementing ERP
Critical factors to ERP implementation success:
ERP teamwork and composition;
Change management program and culture;
Top management support;
Business plan and vision; '
Business process re-engineering and minimum customization;
Effective communication;
Project management;
Software development, testing, and trouble shooting;
Monitoring and evaluation of performance;
Project champion; and
Appropriate business and information technology legacy systems.

ENTERPRISE RESOURCE PLANNING

CONTENTS
EXECUTIVE SUMMARY.................................................................................................1
What is ERP?...................................................................................................................1
Advantages of ERP..........................................................................................................1
Risks of ERP....................................................................................................................2
Challenges of ERP Implementation.................................................................................2
Critical Success Factors of Implementing ERP...............................................................2
INTRODUCTION...............................................................................................................4
WHAT IS ERP?...................................................................................................................4
Definition of ERP............................................................................................................4
Understanding ERP.........................................................................................................4
Core Components of ERP................................................................................................5
Evolution of ERP.............................................................................................................6
Interface of Modules........................................................................................................7
WHY IS ERP?.....................................................................................................................8
Key Motivating Factors...................................................................................................8
Tangible and intangible Benefits.....................................................................................9
The Percentage and Age of ERP Implementations..........................................................9
The Number of ERP Packages Implemented...................................................................9
Factors Affecting Upgrade Decisions............................................................................10
Factors Impacting ERP Strategies..................................................................................11
Plan of Action................................................................................................................11
HOW TO IMPLEMENT ERP?.........................................................................................12
Buy or Make ERP Software...........................................................................................12
ERP Implementation Challenges and Responses..........................................................12
ERP Implementation - Considerations...........................................................................12
Critical Success Factors of Implementing ERP.............................................................13
Measuring Success.........................................................................................................13
ERP Software.................................................................................................................14
ORACLE...................................................................................................................16
mySAP ERP...............................................................................................................17
Comparison of ERP Software........................................................................................18
CASE STUDIES................................................................................................................19
Case 1 - Failed ERP Gamble Haunts Hershey...............................................................20
Case 2 - KV...................................................................................................................21
Case 3 - Business Transformation Through ERP..........................................................23
Comparisons of the Three Cases...................................................................................30
THE FUTURE OF ERP.....................................................................................................31
REFERENCES..................................................................................................................31

INTRODUCTION
Advances in information technology, expansion of the Internet and electronic business as
well as an ever-growing global competition have made running a successful business
more difficult than ever before [1]. To remain successful and to be competitive, managers
of manufacturing and service organizations must use technology to improve information
flow, reduce costs, streamline business processes, offer product variety, establish linkage
with suppliers, and to reduce response time to customer needs and expectations [1].
Corporate-wide technology integration allows information users of the company to have
access to the needed information in a timely fashion and make intelligent decisions.
Currently, a popular approach to the development of an integrated enterprise-wide system
is the implementation of an enterprise resource planning (ERP) system, also called
enterprise system [1].

WHAT IS ERP?
Definition of ERP
Enterprise Resource Planning (ERP) is software that attempts to integrate all departments
and functions across a company onto a single computer system that can serve all those
departments particular needs [2].
Evolving out of the manufacturing industry, ERP implies the use of packaged software
rather than proprietary software written by or for one customer. ERP modules may be
able to interface with an organization's own software with varying degrees of effort, and,
depending on the software, ERP modules may be alterable via the vendor's proprietary
tools as well as proprietary or standard programming languages [3].
As we all know, a company consists of many function departments, such as finance, HR,
purchasing, manufacturing and logistics etc. Because application of information
technologies is more and more popular than before, each of these departments typically
has its own computer system optimized for the particular ways that the department does
its work, not only for office automation, but also for helping people to analyze data and
make right decision. Not building a single software program that serves the needs of
specialized functions, ERP combines them all software together into single, integrated
software program that runs off a single database so that the various departments can
easily share information and communicate with each other.
Understanding ERP
There are two flows across supply chain, one is product flow, and the other is information
flow. In the past, information system tended to be islands, depending on their functions
within the company. For instance, when orders came from customers, they were
processed and recorded by sales department, and then the sales transferred the
information to manufacturing. After the production made the master schedule, the
logistics knew the distribution requirements and then planned the delivery. Finally, the
accounting was able to bill to customers. Under this business process, a lot of problems
might occur, like delay, lost order, input errors and long lead time, which is illustrated by
the following chart:
4

Figure 1. Order fulfillment before ERP [4]

Ideally, everyone should be access to the same real time data through some interface
when they are needed to. This requires a single-point-of-contact system. That is one of
the original ideas of ERP. Based on the identical system and database, the information
flow and product flow can be processed efficiently. To guarantee the effectiveness of ERP
implementation, we need to link all the functions of the chain seamlessly. As mention
above, there are walls, barriers between departments. So what we need to do is to smash
the walls, to get connected tightly via the system.

Figure 2. Order fulfillment after ERP [4]

Core Components of ERP
ERP totally changed the old computer systems from each separate department, and
replaced them with a single unified software program that can be divided into software
modules. The modules roughly approximate the old stand-alone systems. Since 1990s,
5

ERP software has become flexible enough that you can install only some modules
without buying the whole package. Many companies, for example, will install only part
of ERP modules, like finance, HR, Material Management or Production Planning module
and leave the rest of the functions for the future.
To enable the easy handling of the system the ERP has been divided into the following
Core subsystems [5]:
Evolution of ERP
The evolution of Enterprise Resource Planning (ERP) through the perspective of the
historical development of business integration concepts. Business integration concepts
commonly connected to the development of ERP include Inventory Control (IC),
Material Requirements Planning (MRP), Manufacturing Resource Planning (MRPII), and
Computer Integrated Manufacturing (CIM). This review of the development of business
integration concepts depicts the process that has led to the development of the modern
ERP applications and thus, helps to better understand the nature of present-day ERP
software.
The history of ERP can be traced back to the first inventory control (IC) and
manufacturing management applications of 1960s [6, 7]. These first applications for the
manufacturing were generally limited to IC and purchasing, which was due to the origins
of these applications in the accounting software [6, 7]. The accounting, with its definition
based around generally accepted standards, had been one of the first business functions to
be computerized and the first applications for the manufacturing were created as byproducts of accounting software driven by the desire of the accountants to know the value
of the inventory [6, 7].
During the 1970s, MRP packages were extended with further applications in order to
offer complete support for the entire production planning and control cycle. This led to
the next stage in the evolution of ERP, which was the introduction of the concept of
Manufacturing Resource Planning (MRPII). The concept of MRPII emerged as a logical
consequence of the development in earlier approaches to material control. MRPII seeks
to improve the efficiency of manufacturing enterprises through integration of the
application of information and manufacturing technologies [7]. MRPII approach was
extended in the 1980s towards the more technical areas that cover the product
development and production process, and that these functions were named with various
CA- (Computer Aided) acronyms and included [7].
The Gartner Group introduced the term Enterprise Resource Planning (ERP) in the early
1990s. The ERP evolution implies an extension of MRPII with enhanced and added
functionality, encompassing functions that are not within the traditional focus of MRPII,
such as, decision support, supply chain management, maintenance support, quality,
regulatory control, and health and safety compliance [7]. Today, ERP is the foundation of
businesses domestically and globally. It is used as a management tool and gives
organizations a great competitive advantage.

As e-business becomes business as usual, sharing accurate real-time information about

orders and inventory is critical to success. Now, business needs to move that information
across a supply chain. A new term to describe the enterprise systems for the 21st century:
ERP II, has been introduced.
The expansion process can be showed as following figure,

IC MRP

1960s

1970s

MRP ERP

1980s

1990s

Figure 3: Evolution of ERP

Interface of Modules
ERP-Interface module manages the import and export data for the higher-level systems.
Interfaces to all popular ERP systems are available; e.g. SAP, Navision, infor,
proALPHA, BAAN. The software package combines two individual modules, the
communication module ERP-Export/Import and the ERP-Interface module.
All CROS modules [8] are related to each other, all users working simultaneously
through the network, using the same data, according to their attributions and access
rights.
- There are direct connections between different modules, without data's imports and
exports and without data redundancy [8].
- The system brings together universally accepted models for all the organization
processes, adapted and developed as a result of successful implementations in Romanian
organizations [8].

- The data flows within the informational system are faster and better organized with
CROS, this representing an important support for organization management [8].

Figure 4: All CROS modules [8]

WHY IS ERP?
Key Motivating Factors
When asked to identify the motivating factors behind the ERP decision, the key decision
makers and MIS directors at all three companies mentioned similar factors[9]:
Standardize supply chain practices across multiple sites.
Simplify the software environment by replacing multiple, highly customized
legacy systems with a single fleet solution.
Support corporate-level visibility and control of key supply chain processes, such
as procurement and production scheduling.

Tangible and intangible Benefits

The analysis must consider not only the obvious cost/benefit analysis, but also the nonfinancial factors. Non-financial benefits include information visibility and flexibility. A
more complete listing of tangible and intangible benefits is provided in Table 1 [10].
Table 1: Tangible and intangible benefits.

The Percentage and Age of ERP Implementations

ERP systems and their MRP (Material Requirements Planning) predecessors have been
implemented for a long time.
91% of the sample (n500) has implemented ERP (including MRP).
31% are more than 10 years old.
24% of them still had the first ERP system implemented
42% of their current ERP had replaced home-grown or custom developed
applications
Only 34% of their current implementation as a replacement of another ERP.

Figure 5: Age of ERP implementation

(N500) [11]
The Number of ERP Packages
Implemented
As ERP implementations have been aging,
they also been proliferating
71% of large companies have two or more ERP packages implemented across the
enterprise.
9

26% with four or more. (large company is the revenue over 1b,small company
with revenues less than $50M.)

Figure 6. ERPs across enterprises (N500).

Factors Affecting Upgrade Decisions.
A large percentage (45%) of respondents indicated plans to upgrade to the latest release
of their software within the next 12 months. However, a full 77% of respondents were not
currently implemented on the latest release (Figure 8). While 14% intend to replace ERP
at selected installations, this still leaves a large percentage intending to be one or more
releases behind [11].
Figure 7: Current ERP Release Status
(N500) [11].
There are many reasons to delay the
upgrade process [11] and skip one or
more releases. These companies
eventually play leap frog and catch up,
but at any point in time, they are
equally or more likely to not be at the
latest release.

Figure 8:
Reasons to
delay ERP
upgrading
(N500) [11].

10

Factors Impacting ERP Strategies

No manufacturing company today is immune from the impact of
globalization or the acceleration of change. Most companies are
looking for demonstrable business value from ERP, and view the need
to improve customer service as a key driver as well. Few companies
viewed the growth, either organically or through mergers and
acquisitions as a driving factor impacting ERP decisions [11].

Figure 9: Business Drivers impacting ERP strategies (N500) [11].

Plan of Action
Intentions to upgrading current ERP software vary with the level of maturity of the ERP
implementation. 40% anticipate keeping current versions of existing implementations at
status quo, but there is also significant activity planned (Figure 11). A surprising 14%
across all companies have a replacement strategy at selected locations and almost half
(45%) plan to upgrade to the latest release [11].

11

Figure 10: Planned ERP actions within the next 12 months (N500) [11].

HOW TO IMPLEMENT ERP?

Buy or Make ERP Software
In house development
Although make what you need provides
the ultimate in control, there are three
fatal limitations to use this as primary
strategy: investment, discipline and
support [12]. Other concerns include:
Time consuming
Documentation is difficult
Maintenance depends on
individuals
EDI modification to be taken of
Each unit follows different
software option
Latest developments to be
studied before implementation

ERP package
The attractions of buy option are well
documented by the solutions vendors.
The advantages include:
Ready made projects
Needs only customization
Documentation is part of
system
Company takes care of
EDI compatible
The package itself is designed
as enterprise package
Constant updates assured
Because, while we can do both, we
really need to be good at assemble if
were to own our own application and
data destinies [12].

ERP Implementation Challenges and Responses

Standing in the way of optimized ERP implementations is the alignment of software
capabilities with business processes often producing customization related challenges
(Table 2).
Table 2: ERP Implementation Challenges and Responses (N500).

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ERP Implementation - Considerations

According to The Gartner Group, 70 percent of all ERP projects fail to be fully
implemented, even after three years. Typically, there is no single culprit responsible for a
"failed implementation", and no individual reason to be credited for a successful one.
Even the definitions of failure and success are gray areas, lending to interpretation. There
are generally two levels of failure: complete failures and partial failures. In a complete
failure, the project either was scuttled before implementation or failed so miserably that
the company suffered significant long-term financial damage. Those implementations
considered partial failures often resulted in tenuous adjustment processes for the
company; creating some form of disruption in daily operations. In the same vein, an ERP
success can be a complete success - one in which everything goes off without a hitch, or
one in which there are few alignment problems, resulting in minor inconvenience or
downtime. Frequently, these situational circumstances that have to be ironed out in the
weeks and months after the "go-live" date are not severe enough to disrupt the daily
operations [10]. The challenge for ERP II is 2-fold. First it is to aggregate and manage the
data surrounding all the transactions of an enterprise as accurately as possible in real
time. Then it is to open up the system to make that information available to trading
partners. ERP is all about sharing information and collaboration. Management is under
constant pressure to improve competitiveness by lowering operating cost and improving
logistics. Organization therefore have to be more responsive to the customer and
competition [13].
Critical Success Factors of Implementing ERP
Nah et al. [14], based on a study of earlier papers (most of which were
normative/prescriptive in nature), identified 11 factors that were critical to ERP
implementation success. The 11 factors noted by them are [10, 14]

13

ERP teamwork and

Effective communication;
composition;
Project management;
Change management
Software development, testing, and
program and culture;
trouble shooting;
Top management support;
Monitoring and evaluation of
Business plan and vision;
performance;
Business process re Project champion; and
engineering and minimum
Appropriate business and information
customization
technology legacy systems.
Measuring Success
ERP implementation is a complex process. Success or failure depends on many factors,
and it is difficult to plan for all potential pitfalls. Comparable to the difficulty in
identifying the source of success or failure is the difficulty in arriving at a clear definition
of either term. Despite the fact that this distinction may intuitively seem simple, across
companies and professionals, no agreement can be reached on a definition of success or
failure [10].
A complete failure may be a project that was discarded prior to implementation or one
that is so fraught with difficulties that the company is affected for a significant amount of
time (e.g. financially, etc.) Similarly, a partial failure is one in which the operations of
the company experience significant slowdowns or stoppages, though the difficulties are
eventually overcome [10].
On the other hand, a complete success is an implementation which experiences virtually
no problems or only problems that are quickly overcome. A partial success is
characterized by more problems but ones which are overcome in the short term [10].
Ultimately, it may be useful for a company in the planning phase to determine what will
constitute a success or failure, partial or complete. This will help in making decisions
about how to proceed when problems arise [10].
More than one factor contributed to the outcome of a project. The 44 companies listed a
total of 81 occurrences of these factors. For the 29 firms where SAP was "successfully"
implemented, the six factors were listed 60 times and the in the 15 firms where SAP
implementation was "unsuccessful" the six factors were listed 21 times. Table 2 shows a
listing of each factor, and its relative percentage of frequency [10].
Table 3: Frequency of factors reported by the "Successful" and "Unsuccessful"
implementation firms [10].

14

Generally speaking the respondents had a hybrid approach to

measuring success (Figure 5). Most individuals selected a combination
of metrics that measured business value but combined these with
some measurement of cost and time to gain those benefits [11].

Figure 11: A hybrid approach to measuring success (N500) [11]

ERP Software
A report that stated the enterprise resource planning (ERP) applications market grew to
$25.4B in 2005, and will reach $29B in 2006. Over the next five years, the market will
grow at an average of 10% [15].
The ERP market continues to benefit from a widespread acceptance of the idea that
businesses must have integrated information systems to be competitive. Management and
IT organizations are realizing that the most effective way to satisfy this need is to
purchase an ERP package that features broad functionality and pre-built integration [15].
Table 4: ERP vendor ranked by 2005 application revenue (include est. 06 growth) [15].

15

ERP vendors ranked by 2004 worldwide ERP license revenue can be seen in the chart
below. The top ten ERP vendors by revenue include the following companies [16].
Table 5: ERP vendor ranked by 2004 application revenue (include est. 05 growth) [16].

The report revealed several trends that affected the ERP market in 2004, including: The
ERP market is entering another major technology transition phase. Service Oriented
Architectures (SOA) may have the same disruptive effect that other technologies have
had on the market, such as the emergence of client-server systems had in the 1990s.
The pace of acquisitions shows no sign of slowing down. Oracles recent purchase of
Retek makes it very clear that PeopleSoft was simply the first of what is likely to be a
series of purchases. Vendors like Sage Group, SSA Global, Infor Global Solutions, and
Epicor have all been very active in the Merger and Acquisitions (M&As), and as a result
have all been growing more rapidly than the overall ERP market.
ERP buyers have moved away from large, upfront purchases. Now most tend to license
user seats and functional ERP modules incrementally as they deploy a product. Along
with widespread discounting, this has led to smaller average deal sizes.

16

ORACLE
Almost thirty years ago, Larry
Ellison and his co-founders, Bob
Miner and Ed Oates, realized there
was tremendous business potential in
the relational database model--but
they may not have realized that they
would change the face of business
computing forever [17].
Today Oracle (Nasdaq: ORCL) is
still at the head of the pack. Oracle
technology can be found in nearly
every industry around the world and
in the offices of 98 of the Fortune
100 companies. Oracle is the first
software company to develop and
deploy 100 percent internet-enabled
enterprise software across its entire
product line: database, business
applications,
and
application
development and decision support
tools. Oracle is the world's leading
supplier of software for information
management, and the world's second
largest
independent
software
company [17].
Oracle has always been an
innovative company. It was one of
the first companies to make its
business
applications
available
through the internet--today, that idea
is pervasive. Now Oracle is
committed to making sure that all of
its software is designed to work
together--the suite approach--and
other companies, analysts, and the
press is beginning to acknowledge
that Oracle is right. What's in store
for tomorrow? We will continue to innovate and to lead the industry--while always
making sure that we're focused on solving the problems of the customers who rely on our
software [17].

17

ORACLE Merger History

On Dec13, 2004, Oracle Corporation announced that it has signed a definitive merger
agreement to acquire PeopleSoft, Inc., for $26.50 per share (approximately $10.3 billion)
[18].
On Jul 18, 2003, PeopleSoft Inc. announced it had completed its $1.8 billion acquisition
of J.D. Edwards & Co.[19],
After a succession of acquisitions, Oracle prides
itself on innovation and forward thinking.
PeopleSoft acquired competitor JD Edwards.
Oracle acquired PeopleSoft, and therefore, the
rights to JD Edwards applications. In addition,
Oracle acquired Siebel. Each company had its
own uniqueness and brought that uniqueness to
the culmination, yielding a diverse set of
application options for Oracle customers.
Options with Oracle include the following:

Oracle e-Business Suite

PeopleSoft Enterprise
JD Edwards Enterprise
One
JD Edwards World
Siebel

mySAP ERP
Founded in 1972 as Systems Applications and Products (SAP) in Data Processing, SAP
is the recognized leader in providing collaborative business solutions for all types of
industries and for every major market [20].
Serving more than 36,200 customers worldwide, SAP is the world's largest business
software company and the world's third-largest independent software provider overall.
Today, SAP employs more than 38,400 people in more than 50 countries. Our
professionals are dedicated to providing the highest level of customer service and support
[20].
The best ERP software --SAP R/3.

SAP R/3 is provided by worlds largest enterprise software company SAP AG.
SAP R/3 is acronym for Systems Applications and Products in data processing. R/3
SAP R/3s Advantages:
Faster Speed
Integrated
Global Basis
Knowledge
Sharing
Flexibility for
changes(Business
and IT)
Can be
implemented as an
individual module.

Figure 12: ERP software shares in 2005 [21]

means Runtime System, Three Tier Architecture.

SAP offers several software packages:

mySAP Business Suite All-in-One

18

mySAP Business One

Duet (a collaboration with Microsoft)
SAP xApps specifically designed software for individual company needs

Comparison of ERP Software

Out of 268 respondents, only 23 percent of respondents say they are very satisfied with
their ERP implementation, which suggests the absence of a viable alternative. Who wants
to rip and replace core applications and relive the tremendous disruption and expense of
another big bang? Actually, many of our readers might, if they could escape high ERP
licensing fees. In answer to a question we asked out of curiosity, a stunning 53 percent of
respondents say they would consider an open source alternative to their current ERP
system. The catch: No such system exists [23].
Meanwhile, in the real world, when we asked readers which vendors they had chosen to
supply their ERP software, Oracle, PeopleSoft, and SAP got the most mentions.
Applications from SAP earned the most "functions well" ratings in all but the human
resources category (see results for additional modules at infoworld.com/1121). A
whopping 69 percent of survey respondents think SAP's core financials function well,
awarding it nearly 20 points more than nearest competitor Oracle. SAP's manufacturing
application also enjoys a similar lead [23].
PeopleSoft's customers seem just as pleased as SAP's; the company was in a statistical tie
with SAP in readers' overall satisfaction with their ERP vendor. A year into a PeopleSoft
implementation, Craig Hunter, director of information technology for the City of North
Vancouver, British Columbia, offers this testimonial: "It's already gotten us payback.
We've installed it in house, and we didn't need a ton of consultants." He also notes his IT
group made a conscious decision to modify PeopleSoft as little a possible [23].

19

Figure 14: How Satisfied Are You With Your ERP Vendor?[23]

CASE STUDIES
Although corporate expenditures for ERP (excluding implementation costs) were 530
billion in 2004 and have been growing at about 150 percent per year in recent years,
many firms have had difficulties with implementation. Because it has been shown to be
difficult and expensive for firms to achieve the desired level of functional interoperability
with inhouse developed systems, most firms purchase "packaged" software from vendors
[24].
Before 1998, there was 70% percent of all ERP projects fail to be fully implemented,
even after three years [25]. Few companies are making full use of their enterprise
resource planning systems, despite the high cost of the software and the length of time an
implementation can take, research has revealed. In a survey of 100 global or panEuropean companies by PMP Research, just 5% of those polled said they were using their
ERP software to its full extent [26]. Most users customize the software, with only 12%
installing ERP packages "out of the box". Once installed, more than 50% of companies
said it was hard to make changes to ERP software in order to meet any changes in
business processes or requirements [26]. The survey also found that more than 50% of
the companies surveyed did not measure their return on investment from business
applications [26]. The failure rates for ERP projects are relatively high and could lead to
the bankruptcy of the corporation. In case of malfunctions ERP softwares are often
blamed and made responsible[27].

20

Figure 15: SAP is

blamed and made
responsible [27].

Case 1 - Failed ERP Gamble Haunts Hershey

The Hershey company started at the 1893. Today, The Hershey Company is a leading
snack food company and the largest North American manufacturer of quality chocolate
and non-chocolate confectionery products as well as chocolate-related grocery products
with revenues of over $4 billion and more than 13,000 employees worldwide. Outside of
the US and Canada, the company exports its products to over 90 countries
worldwide[28].
It was reported that a $112 million ERP project had blown up in the face of Hershey
Foods Corp in 1999. The malfunction of ERP software made up of parts from SAP,
Siebel, and Manugistics resulted in the order-processing problems that were hampering
the ability to ship candy and other products to retailers
[29]. SAP AG's R/3 provided the main components of the system, Siebel provided the
CRM, and Manugistics provided supply chain management.
Analysts and sources in the industry said the Hershey, Pa., manufacturer appeared to
have lost a gamble when it installed a wide swath of SAP AG's R/3 enterprise resource
planning applications, plus companion packages from two other vendors, simultaneously
during one of its busiest shipping seasons [29].
There were three obvious mistakes in the implementation of ERP system in Hershey [30]:
1. The project was originally scheduled to take 4 years, but Hershey decided to
squeeze the implementation into 30 months
2. Hershey also decided to go live with the system in July, just in time for orders to
start rolling in Halloween,
3. The 3rd flaw in their plan was to roll out the system all at once.
Because of these mistakes Hershey was unable to effectively ship candy and other
products to retailers for Halloween and Christmas of 1999. The company took a 19% hit
in candy sales for the 1999 Halloween season and a 12% hit in 1999 revenue [29, 30].
Back in 1999, of course, it was a terrifying new prospect for investors to consider: Could
a failed computer project take down a Fortune 500 company? Hershey's stock price fell
21

more than 8 percent on that September day, and the computer system mystery made the
front page of The Wall Street Journal. Analysts didn't fully trust Hershey's ability to
deliver candy until the following fall, when things had long been back to normal [31].
Even in 1999, however, enough details about the difficulties of other enterprise software
implementations had leaked out that analysts could have seen that Hershey's only real
failure was its timingthe system went live right about the time when orders were
pouring in for Halloween, and they couldn't be fulfilled. Other than that, Hershey's
experience was pretty average. Studies have shown that most companies that install
enterprise software are late, their business processes suffer temporarily, and their revenue
can take a hit for as long as six months [31].
When Hershey issued a press release in August saying that it had completed a successful
upgrade of its SAP ERP system, the company might want to end the 3-year-old mystery
[31]. Enterprise software is hard. It takes a long time. It's hard to get people to change the
ways they work so that the system will function correctly. But they eventually adapt. And
you will have problems in your business at first because enterprise software isn't just
software. It requires changing the way you do business [31].
Lessons learned from Hershey Case [30]
Take your time. Hershey didnt seem to need this ERP system implemented so
quickly, and certainly didnt plan accordingly. At the time Hershey was tightlipped about the project and its problems and has remained that way, although I
dont expect Hershey to be discussing the issue at this point.
Dont rollout an ERP system before a critical business season. Halloween has got
to be one of the busiest times for a company like Hershey. I cant imagine why
they would need to speed up the implementation of this system so it could be in
place before Halloween.
For a company of Hersheys size, and the size of the project ($112 Million), they
should have rolled out the components in a more staggered fashion. Training users
on each component, and ensuring the system was working as planned every step
of the way. Implementing a project this large all at once does not provide the time
to learn and test everything extensively.
Case 2 - KV
KV started more than six decades ago. KV has consistently ranked as one of America's
fastest growing small companies. Today, KV offers many drug technologies, used in most
of the company's more than 100 generic and non-branded drugs and 15 branded drugs
that are sold today [32].
The Business Technology (BT) department is in charge of information technology (IT).
There are more than 50 employees in IT department.
There are more than 1000 computers
Today KV has more than 1,000,000 square feet of predominantly owned facility
space located in 15 different locations.
Vice president (CIO) in Business Technology (BT/IT) reports to senior vice
president and/or CEO

22

JD Edwards World
Today, KV is using JD Edwards World as ERP software that started in 2000 and finished
implementing in 2003. After implementation, all the information from the old systems
was moved into JD Edwards World system. Software license fee was about 1 millions. It
has spent about 10 millions on the JD Edwards, including the purchasing the program,
implementing, upgrading and maintaining from 2000 to 2007 fiscal year.
The JD Edwards was successfully implemented at 2003 with spending about 1 millions
and the maintaining fee is about 1 million each year.
There are about 900 users in 15 locations connecting to the ERP system.
The following is the interface of KV JD Edwards World ERP system.

23

Figure 16: The interface of KV JD Edwards World ERP system at KV

With ERP to automate processes, the benefits are as follows:
Increase inventory turns
Increase inventory accuracy rate
Reduce inventory costs
Improve customer service
Reduce setup times
Reduce paper work reduced.
Provide a unified customer database usable by all applications
Provide greater and effective control on account.
Faster response and follow ups to customers
Improves supply demand linkage with remote locations and branches in different
locations
Case 3 - Business Transformation Through ERP
-A Case Study of an Asian Company [33]
Background of Almab
Almab, a pseudo-name, is a leading newspaper company in one Asian country. It has it's
headquarter in the Capital and 52 offices in more than eleven major cities. The company
publishes more than 67 publications nationwide and has the highest number of readers
among the English publications in the country. It is the number one national daily in the
capital and the third highest read publication nationwide[33].
The industry within which Almab operates is characterized by some growth (annual
growth rate of 6%) and high rivalry (on the basis of reputation, circulation, and
readership) both from within and from alternative media. Over 80% of Almab's revenue
is generated from advertising. Customers have enormous alternatives to advertise not
only in the print but also in the electronic media. Because of ease of switching to rivals,
efficient handling of the advertising process-from booking to billing- has a major impact
on business bottom line [33]. Its survival and competitive advantage depend on its ability
to offer clients with as many packages as possible, with least cost, maximum visibility,
and increased flexibility. Moreover, because of Almab's physical scale of operation, it
depends on a number of advertising agencies to solicit and retain customers. This requires
effective coordination of the activities of the agencies and management of their contracts,
invoices, premiums and relationships[33].
However, back in 1999, the company had serious problems that motivated the
implementation of ERP. Following the implementation, Almab has not only solved its
problems and streamlined its business processes but has managed to double its turnover
to US $400million within three years. This is a significant gain in an industry where total
annual advertising revenue was estimated above US$800 million. As a result, Almab's
senior mangers now believe that the system has provided them with significant
competitive gains in terms of "speed, efficiency and turnaround time" [33].

24

ERP Implementation
In order to provide maximum value to customers, stay profitable and gain strategic
flexibility needed to maintain its competitive position in the industry, Almab decided to
look for solutions that resolve its problems and that meet its core criteria of "integration,
speed and scalability" [33]. After searching the market by employing the service of a
sourcing consultant, the company selected SAP AG and reached a memorandum of
understanding about expectations from the system, resource commitment and delivery
plans [33].
Championed by the top management, the implementation project began in the first
quarter of 2000. The main departments to be integrated via the implementation of ERP
were the Classifieds, Display, Finance, Production and Print departments. A total of 120
senior managers from all parts of Almab were briefed about the business change that was
to take place. An implementation team comprised of senior managers, heads of various
departments was formed. Users from various departments were brought to the head office
to test the system and participate in the training of trainers. The system went live on time
after 14 months in the 2nd quarter of 2001. In the following two subsections, the pre and
post-ERP profile of Almab using the Seven S framework will be constructed [33].
Various Perspectives In ERP Studies

1. Theoretical models and frameworks development

2. Investigations of the strong-order drivers and second-order facilitators/inhibitors
of ERP adoption and implementation
3. Investigations of project, change management and other implementation issues
4. Defining ERP success criteria and investigations of the critical factors that
influence ERP outcomes
5. Investigations of ERP in different cultural contexts
6. Analyses of the changes and impacts on organizations as a result of implementing
ERP
This study is in the tradition of the sixth stream of research and direction in that it
investigates the transformative potential of ERP systems [33].

THE SEVEN "S" FRAMEWORK

The role of IT in organizational transformation can be captured in terms of its influence
on key organizational dimensions outlined as Seven "S"s:

25

1. Strategy: Strategy refers to the mechanisms by which a business allocates its

resources to operate in its environment, propose value to customers and ensure its
survival and profitability [34].
2. Structure: This defines allocation of responsibilities and authority relationships
in an organization that is the skeleton of the organization [34].
3. System: This refers to key processes that support the business, covering reward,
control, information, work flow and feedback mechanisms. Systems populate the
structure and influence how an organization makes decisions, relates to
customers, shares information and rewards its employees [34].
4. Staff. The demographic profile of the people working for an organization makes
this dimension. Crucial in this category is the quality of those staff critical to the
success of the business [34].
5. Skill: Skill refers to the core competence and capabilities of an organization [34].
6. Style. Mangers differ in terms of their treatment of information, conflict
resolution, problem solving, communication and motivation of staff. Style reflects
the manner and approach of key managers and leaders of an organization in
dealing with these management issues
7. Shared values. Organizations impose different values and beliefs (also commonly
known as culture) on their members.
The Seven S framework stresses that organizational effectiveness depends on the
interaction between all the Ss of an organization. These elements are interconnected and
must be coordinated properly to avoid conflicts and bottlenecks

Research Questions:
Research questions addressed in this paper are:

1. What are important contextual characteristics that influence transformation

2. What are organizational dynamics that are key indicators that transformation is
happening
3. What key lessons can be drawn in terms of achieving and sustaining Information
Technology (IT)-enabled organizational transformation.

Data Collection and Analysis [33]

The data were collected using retrospective participant observation, unstructured
interview and document analysis [35, 36]. One of the authors of this paper had worked
for Almab and was involved in the ERP project as an officer in the classified and data
processing departments. The observer, based on his experience of working in Almab,
various meetings, seminars and briefings attended and from countless informal
encounters with members of the company over a three-year period produced a

26

retrospective account of the pre and post ERP scenario. In order to control for possible
observation and retrospective bias, we followed Golden [37] recommendation and the
other author reviewed and questioned the observation data. This process, in itself,
provided an in-depth insight into the firm and its process of ERP implementation but, as
per norms of triangulation, this was supplemented by interview and document analysis
[33, 36].
A total of five interviews were conducted with the Executive Director, Brand Director,
Head of the Department of the Classified Marketing, Head of Operations and Customer
Care and ERP project leader and Head of the IT. Materials reviewed included project
documentation and briefings (which showed the nature of the project, the kinds of
resources, detailed information on the composition of the project team and change
management issues) samples of the ERP managerial reports (which allowed evaluation
and comparison of pre and post ERP information flow) and Intranet documents (which
allowed the examination of help and trainings given to end users) [33].
Data were analyzed using qualitative techniques informed by the Seven Ss framework.
Interview transcripts, documents and observation notes were read to produce a pre and
post ERP description for each of the seven S dimensions. These were re-examined to
identify key dimensions that were transformed in the course of implementing ERP. After
data analysis, a draft case report was produced and shared with the heads of the
department of classified marketing and electronic data processing. They offered helpful
comments and verified the analysis and interpretation [33].

Data Transfer
Pre-ERP, each branch had its own centralized mainframe server at the main office and a
different server at each of the sub offices in the same city. Data transfer and update
between branches involved first uploading the data from sub office servers into branch
servers and then transferring it to central server. Because of the fragmentation of data, it
was difficult to generate aggregate reports required by the top management [33].

27

Figure 17: Pre-ERP Data Transfer Between Almab's Branches [33].

Post-ERP, Almab moved from the mainframe based computing architecture to client
server technology. IT was centralized at the head office with backup servers in one of the
regional branches. Data transfer and sharing has been enhanced significantly (see figure
2). This has created easy coordination and organizational flexibility at the level that could
never have been achieved prior to the implementation of the new system. Clients are
offered more options and external agencies that were responsible for bringing in business
were linked via the new system. This offered increased flexibility, meeting of deadlines
and tracking of advertisements [33].

28

Figure 18: Post-ERP workflow in Almab [33].

Pre and Post-ERP Comparison [33]
The implementation of ERP offered Almab an opportunity not only to diagnose its
strengths and weaknesses but also to clearly communicate its re-assessed objectives and
future directions. It affected back office, financial, editorial, advertising and press
operations. However, because of the focus of the ERP project, major transformation
happened in advertising handling and as a result a significant proportion of the analysis
here is going to focus on that.

Table 5: Pre and Post-ERP Comparison of Almab [33].

29

Theoretical Implications [33]

In terms of theoretical contribution, we have demonstrated the utility of the Seven S
framework in analyzing and understanding potential transformations in key
organizational dimensions following large scale enterprise systems implementation. The
use of the Seven S framework has proven workable and useful in analyzing business
30

transformation during large scale ERP implementation. Almab was successful in adapting
itself and managing the changes needed to benefit from ERP. In fact ERP served as a
platform to successfully introduce other production and marketing changes. This could
relate to the clarity and articulation of expectations from the system; to the rigorous preselection process; and to the change management and project governance practices. The
research helps to move beyond a gross categorization of developing countries to illustrate
how and when particular contextual factors may or may not impact ERP related
organizational transformation. Another contribution is related to the value of using
organizational transformation in evaluating ERP outcomes.
Practical Implications [33]
This case study represents a successful ERP outcome. This can be related to Almab's
practical approach in implementing ERP. Six practical lessons outline can be useful to
other organizations in transforming themselves during a large scale enterprise application.
First is mustering the momentum for transformation. The top management of Almab had
a very clear vision as to what exactly was expected from the ERP system and as a result
was able to clearly communicate the vision to the senior managers, who in turn were
responsible for their respective departments. Because of clear vision and extensive and
open communication, the system was developed within time, within the budget and to the
requirements of the business.
Effective managerial coordination is a second lesson that emerged out of Almab's
experience. The objective of the system was to bring together numerous departments and
hence on geographical basis coordinated with each other for the development of the
system. The empowerment of managers make important decisions related to their
respective departments, the system was customized to meet the specification of business
requirements. There was an organizational wide recognition that for the organization to
utilize the ERP systems effectively, they need to develop both the technical as well as the
managerial capabilities.
The third key lesson is the importance of investing in human resources development.
Because of the extensive process of implementing ERP within the organization, each and
every manager and employee understood the role of the systems within the organization.
Almab also spent a lot of time and money on training employees on the system.
Whenever there was an upgrade, the employees were trained and educated about the
functionalities that were made available.
Fourth, the development of ERP systems requires building mutual relationship within and
with partner organizations and understanding of the organizational processes.
The fifth lesson is related to its assimilation of ERP with its routines. Almab
demonstrated a commitment to constantly innovate and introduce new production,
marketing and pricing strategies that were leveraged from its ERP. Hence, ERP systems
played an important role in the development of the complexity of the organizational
processes and routines.
Last but not least is the emphasis placed on organizational learning. The process of
organizational learning not only assisted Almab to implement one system but the process
had a dual effect of getting into a habit of coordinative learning and hence shared
knowledge across the organization.

31

Conclusion [33]
The organizational equilibrium has shifted to a new state after ERP implementation. The
transformation is greatly enabled by ERP but its cause might not necessarily be attributed
to ERP only. The work practices and innovations ERP allowed, the acceptance and
assimilation of those work practices by Almab staff and management coupled with the
desire to gain competitive advantage have all contributed to the transformation of Almab.
A longitudinal approach of observing an organization over an extended period of time
would be most useful to develop a better understanding of organizational transformation
"enacted slowly, smoothly and subtly". The Seven S dimensions provide an effective
utility to conduct such observations.
Comparisons of the Three Cases
The comparison of the above three cases is listed below.
Table 6: Cross comparison of the Cases Study
Case 1 - Hershey
Case 2 -KV
Case 3 - Almab
Revenue
~$ 4 billion
~$ 400 million
~ $ 1 billion
Reason for ERP
Not clear. Replace
Replace legacy
Replace legacy
legacy systems to
systems to provide
systems to provide
provide global
integration
business processes
business processes
processes
Cost of ERP
$ 112 million
3 - 5 million
N/A
Time
Scheduled 4 years
~ 2 years
14 month
Actually 30 months
Malfunction
Success
Success
Outcomes
Cause order Provide a unified
Increase in
processing problems customer database
inventory turns
usable by all
Reduction in
applications
administration
Faster response
costs
and follow ups to
Better order
customers
fulfillment rates
Improves supply
demand linkage
Increase in
inventory turns
Reduction in
administration costs
Better order
fulfillment rates
Business
Transformation

N/A

N/A

Significant

32

THE FUTURE OF ERP

The dream of enterprise resource planning systems is that a single application can track
and monitor all of a businesss functions. In a perfect world, a manager opens a single
ERP app to find data about any aspect of the business, from financials to HR to
distribution schedules [38].
There are still a lot of gaps in ERP systems, particularly in industries where ERP
functionality has grown up from its historic origins in manufacturing. Despite the
challenges, the movement toward a global ERP system is a key factor shaping the future
of enterprise resource planning [38].
Significant shifts are taking place in how ERP vendors generate revenues. Echoing
changes taking place throughout the software industry, the transition is toward recurring
and variable revenue models with maintenance charges driving industry growth [38].

Figure 19: ERP

Revenue Growth [38].

Variable revenue schemes are becoming the sweet spot for big ERP vendors. Faced with
scarce possibilities for new large licensing deals, vendors have adjusted their pricing
models so that they can get incremental license revenue though higher levels of usage.
[38].

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