Chap15

Chapter 15Enterprise Information SystemsEnterprise Information Systems

MANAGEMENT INFORMATION SYSTEMS 8/ERaymond McLeod, Jr. and George Schell

Copyright 2001 Prentice-Hall, Inc.15-1

What is an Enterprise What is an Enterprise Information System Information System

(EntIS)?(EntIS)? Computer-based system that can perform all Computer-based system that can perform all

standard accounting tasks for all of the standard accounting tasks for all of the organizational units in an integrated and organizational units in an integrated and coordinated fashioncoordinated fashion

System purpose is to collect and System purpose is to collect and disseminate data to all processes of the disseminate data to all processes of the organizationorganization

Also called enterprise resource planning Also called enterprise resource planning (ERP)(ERP)

15-2

EIS

EntIS

Mar

keti

ng I

nfor

mat

ion

Syst

ems

Info

rmat

ion

Res

ourc

es

Info

rmat

ion

Sys

tem

s

Hum

an R

eso u

rce

Info

rmat

ion

Sy s

t em

s

Fina

ncia

l Inf

orm

atio

n Sy

stem

s

Man

ufac

turi

ng I

nfor

mat

ion

Syst

ems

Planning and Control

Transaction Recording

Aggregation of Data

Data Details

EIS Sitting Atop Business Area ISs

15-3

Evolution of EntISEvolution of EntIS First ISs in 1960’s were TPSsFirst ISs in 1960’s were TPSs MISsMISs Manufacturing requirements planning (MRP)Manufacturing requirements planning (MRP)

– Developed to deal with complex issues of inventory Developed to deal with complex issues of inventory controlcontrol

MRP IIMRP II– Information systems that encompass the flow of Information systems that encompass the flow of

material from vendors, through manufacturing, and to material from vendors, through manufacturing, and to the firm’s customersthe firm’s customers

15-4

Evolution of EntIS (cont.)Evolution of EntIS (cont.) ERPs were next logical stepERPs were next logical step

– All information about organizational processes All information about organizational processes is consolidatedis consolidated

– Requires large commitment of hardware Requires large commitment of hardware resources, sophisticated software, database resources, sophisticated software, database management systems, and well-trained usersmanagement systems, and well-trained users

15-5

Driving Forces Driving Forces Behind ERP PopularityBehind ERP Popularity

Fears about Y2K problemsFears about Y2K problems Difficulty in achieving enterprisewide Difficulty in achieving enterprisewide

systemssystems Recent flurry of corporate mergersRecent flurry of corporate mergers Follow-the-leader competitive strategiesFollow-the-leader competitive strategies

15-6

ERP Software IndustryERP Software Industry

Only limited number of vendorsOnly limited number of vendors Five largest vendors had combined sales of Five largest vendors had combined sales of

$10 billion in 1998$10 billion in 1998 Largest vendor is SAP (www.sap.com)Largest vendor is SAP (www.sap.com) Training and consulting are also big Training and consulting are also big

expenditures in this areaexpenditures in this area

15-7

50%

21%

13%

9%

7%

SAP

Oracle

PeopleSoft

J.D. Edwards

Baan

15-8

1998 ERP Sales of Top Five Vendors

Back Office SystemsBack Office Systems

Another name for ERPAnother name for ERP Traditionally ERP focused on internal Traditionally ERP focused on internal

entitiesentities EntIS is evolving outside the firm EntIS is evolving outside the firm

15-9

EntIS FeasibilityEntIS Feasibility

ERP is a large investment and must be ERP is a large investment and must be treated as suchtreated as such

Investment entails more than cash outlaysInvestment entails more than cash outlays– Commitment to focus on interacting business Commitment to focus on interacting business

processesprocesses Benefits are not always economicBenefits are not always economic Many feasibility issues need considerationMany feasibility issues need consideration

15-10

Economic FeasibilityEconomic Feasibility Concerned with justifying an expenditure by Concerned with justifying an expenditure by

considering both costs and benefits in monetary considering both costs and benefits in monetary termsterms

Investment costs for ERPInvestment costs for ERP– Very high: $10 million for a moderate sized applicationVery high: $10 million for a moderate sized application– High likelihood of negative ROIHigh likelihood of negative ROI

Tangible and intangible benefits must be consideredTangible and intangible benefits must be considered Opportunity costs of NOT implementing ERPOpportunity costs of NOT implementing ERP

15-11

Technical FeasibilityTechnical Feasibility EntIS must be viewed as technically complex EntIS must be viewed as technically complex

systems resting organizational database systems resting organizational database management systemsmanagement systems

EntIS may reside on single computer or be EntIS may reside on single computer or be distributeddistributed– May strain computing resourcesMay strain computing resources

– May strain communications resourcesMay strain communications resources Usually requires latest technology particularly in Usually requires latest technology particularly in

larger organizationslarger organizations

15-12

Operational FeasibilityOperational Feasibility

Persons in the organization must be willing Persons in the organization must be willing and able to achieve the change from current and able to achieve the change from current IS to an EntISIS to an EntIS

Is business process standardization Is business process standardization desirable?desirable?– Loss of personalization of customer dataLoss of personalization of customer data– Cultural changesCultural changes

Need for EntIS Champion Need for EntIS Champion

15-13

EntIS ChampionEntIS Champion

Person or group who serves as driving force Person or group who serves as driving force behind the organization’s change to EntISbehind the organization’s change to EntIS

Variety of people can be EntIS championVariety of people can be EntIS champion Lead the organization to a fundamental Lead the organization to a fundamental

revamping of core business processesrevamping of core business processes

15-14

Possible EntIS ChampionsPossible EntIS Champions1. Chief executive officer

2. Teams of senior management

a) Chief information officer

b) Vice president of manufacturing

c) Chief financial officer

d) Other senior managers

3. Collection of well-respected middle managers from a wide spectrum of organization operations

15-15

EntIS ImplementationEntIS Implementation

Particular attention must be paid to software Particular attention must be paid to software vendors, training, and cutovervendors, training, and cutover

Takes monthsTakes months– Average is about two yearsAverage is about two years– Due to complexity and legacy systems developed Due to complexity and legacy systems developed

years earlieryears earlier Variety of approaches can be takenVariety of approaches can be taken

15-16

EntIS Vendor SelectionEntIS Vendor Selection

Choice of vendor is importantChoice of vendor is important Underlying business concepts in vendor’s Underlying business concepts in vendor’s

system should be major criteriasystem should be major criteria After major ERP pieces are in place, firm After major ERP pieces are in place, firm

may want to consider bolt-on systemsmay want to consider bolt-on systems– Software that takes advantage of ERP featuresSoftware that takes advantage of ERP features

» Customer relations managementCustomer relations management

» Demand forecastingDemand forecasting

» LogisticsLogistics

15-17

User TrainingUser Training Cannot be an afterthoughtCannot be an afterthought Must be part of the initial designMust be part of the initial design Requires users to understand business Requires users to understand business

processes beyond their normal jobsprocesses beyond their normal jobs ERP vendors provide training servicesERP vendors provide training services SAP is a leader in TrainingSAP is a leader in Training

15-18

Training Related to Training Related to ERP SoftwareERP Software

Type of Training

Learning ERP Vendor Software

Training by ERP Vendor (or company specializing in ERP training)

Peer-to-peer training such as conferences

When Training Should Occur

Before the EntIS is planned and designed

As the is being designed and implemented; also after the system is implemented

Especially helpful after the implementation of EntIS projects

15-19

SAPPHIRESAPPHIRE

SAP’s user support groupSAP’s user support group Composed of SAP employees, customers, Composed of SAP employees, customers,

vendors of products that work with SAPvendors of products that work with SAP Purpose is NOT to sell SAPPurpose is NOT to sell SAP

– Learn its featuresLearn its features– Make better use of its capabilitiesMake better use of its capabilities

15-20

ERPWorld Organization ERPWorld Organization (www.erpworld.com) (www.erpworld.com)

15-21

ERPWORLD.COM is an International Industry Analyst group

focusing on eBusiness and Enterprise application projects

Not affiliated with any particular vendor

Promotes knowledge and understanding of ERP

EntIS Implementation EntIS Implementation Cutover ApproachesCutover Approaches

ImmediateImmediate– Extremely dangerousExtremely dangerous– Failure could stop all organizational Failure could stop all organizational

information processinginformation processing PhasedPhased

– Segments related to various business processes Segments related to various business processes are implemented in sequence of importanceare implemented in sequence of importance

– Most viable methodMost viable method

15-22

EntIS Implementation EntIS Implementation Cutover Approaches Cutover Approaches

(cont.)(cont.) Parallel, often proceeded with a pilot effortParallel, often proceeded with a pilot effort

– EntIS and original system operate together for a EntIS and original system operate together for a period of time until EntIS is proven to workperiod of time until EntIS is proven to work

– Often too costlyOften too costly– May require more computing resources than a May require more computing resources than a

firm can acquirefirm can acquire

15-23

Minimizing EntIS FailuresMinimizing EntIS Failures

1. Understand the organization’s span of complexity

2. Recognize processes where value cannot be maintained if standardization is imposed

3. Achieve a consensus in the organization before deciding to implement an enterprise information system

15-24

EntIS and the WebEntIS and the Web Ease of useEase of use

– Web browsers are a viable interface for EntISWeb browsers are a viable interface for EntIS– Users don’t have to learn a new interfaceUsers don’t have to learn a new interface– WWW can provide a portal for an ERP vendor’s WWW can provide a portal for an ERP vendor’s

applicationsapplications– Organization can be given location in an Organization can be given location in an

electronic mall provided by vendorelectronic mall provided by vendor– Benefits entities outside the boundaries of the Benefits entities outside the boundaries of the

organizationorganization

15-25

EntIS and the Web (cont.)EntIS and the Web (cont.) Customer concernsCustomer concerns

– EntIS are large and complexEntIS are large and complex– Challenge to EntIS firms is to standardize sales Challenge to EntIS firms is to standardize sales

processesprocesses– Organizations may choose to only allow Organizations may choose to only allow

business-to-business transactions to interface business-to-business transactions to interface with their EntISwith their EntIS

15-26

Future of EntISFuture of EntIS

EntIS industry is currently growing at a rate EntIS industry is currently growing at a rate exceeding 30% per yearexceeding 30% per year

Two directions Two directions – Rapid developmentRapid development– Enterprise resource managementEnterprise resource management

User-friendly softwareUser-friendly software Converging database and Enterprise systemsConverging database and Enterprise systems

15-27

Accelerated ERP Accelerated ERP Development ToolsDevelopment Tools

Two-year implementation efforts are just Two-year implementation efforts are just too longtoo long

Accelerated ERP model Accelerated ERP model – Simplification of the enterprise resource Simplification of the enterprise resource

planning stepsplanning steps– SAP’s is called ASAPSAP’s is called ASAP

First order of business is to become a First order of business is to become a competent user of ERP vendor’s softwarecompetent user of ERP vendor’s software

15-28

SummarySummary

EntIS EntIS – Integrates all organizational unitsIntegrates all organizational units

ERP enables the management of an ERP enables the management of an organization’s resourcesorganization’s resources– Deals with internal processesDeals with internal processes

EntIS historyEntIS history– Part of IS evolution beginning in 1960’sPart of IS evolution beginning in 1960’s– Currently growing at exceptional rateCurrently growing at exceptional rate

15-29

Summary [cont.]Summary [cont.]

EntIS considerationsEntIS considerations– CostCost– TrainingTraining– Success versus failureSuccess versus failure

EntIS futureEntIS future– Move beyond firm’s boundariesMove beyond firm’s boundaries– Focus on the Web environmentFocus on the Web environment

15-30