ERP

ERP

Making a Case for Continuous

Support for ERP Systems
Enterprise Resource Planning (ERP) systems result
in efficiency and data consistency in a business. The
major requirement in todays ever-changing business
situation is the need for a system which can evolve
as per the organizations requirements. Static
systems can only respond to static situations. So,
the evolution of a new breed of systems like dynamic
ERP is essential. To have rapid change and response

Amit Saraswat
and
Pankaj Madhani

models, it is very important that the ERP and the

actual business processes co-evolve. In such a
scenario, it will require a greater commitment from
the vendors and from mere implementers; the role
has to be that of co-innovators.
History
Enterprise Resource Planning (ERP) or Enterprise Systems (ES) is employed by
organizations for integrating and automating the business processes which in due
course, leads to strategic value. Keeping this in mind, ES can be seen as composed of
two dimensions: Business scope and information processing sophistication. It comprises
the following elements:

Business Domain
The ES supports three different domainsinternal to a firm, the value chain and a set of
collaborative peers. Manufacturing, finance, HR come under the first domain whereas
supply chain and peer networks fall under the second and the third domain. The internal
processes are easy to connect but integration outside the internal area requires
management attention and has to face system hurdles.

Information Scope
This refers to the kind and level of information that is available. The information is
generated at three levels transaction automation, process management, and knowledge

2008 The Icfai University Press. All Rights Reserved.

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Making a Case for Continuous Support for ERP Systems

management. The current generation ERP systems are mostly considered to be passive
and they capture transactional data.

Transaction Automation
Typically, ERP works on a model where there are standard business processes defined
in the system. The organizational processes are either built or mapped around it. If the
process in the organization and ERP do not match, they are re-engineered to fit into the
system. The process becomes very fast as human involvement in transaction becomes
limited.

Process Management
At this point, the ability to take action on gathered data comes into picture. Here, the
ability of a system to work on certain predefined algorithms comes into play. Suppose
the inventory gets depleted beyond the critical level, can the system generate an order
that is optimum in every sense? Process management, of course, requires defining
business rules - that is a human beings capability to understand what will happen in a
particular scenario. The next generation ERP systems, in all probabilities, will consist of
decision capabilities. Decision capabilities do not mean that these systems will replace
human beings but they are expected to help in reducing the chances of errors. Here, the
amount and need of human intervention is reduced.

Knowledge Management
This is what the organizations target ultimately with the implementation of ERP. The
interaction between systems and human beings becomes more collaborative and the
system itself will have some decision-making capabilities. It can transform data into
knowledge through statistical processes such as data mining. It also means document
management capabilities. And, in fact, most of the ERP companies have started
incorporating document management capabilities through Application Service Providers
(ASPs). The future HR systems would contain detailed information about the knowledge
and skills of an employee, comments about a persons performance, and could even
make recommendations about the kind of training the employee needs in order to
upgrade his skills to meet the next level of responsibilities.
In 1990s, the difficulties with ERP implementation were assumed to stem from
organizational change. This was mostly due to the time taken by the organization to
acclimate to new ways of working and eventually realizing benefits. By the end of the
decade, however, stakeholders began to understand two other sources of implementation
problems. The first was the IT and business activity to understand the role of IT in
improving a process. Shared knowledge between IT and business process managers
About the Authors
Prof. Amit Saraswat is a Faculty Member at The Icfai Business School, Ahmedabad.
The author can be reached at amits@ibsindia.org.
Prof. Pankaj Madhani is a Faculty Member at The Icfai Business School, Ahmedabad.
The author can be reached at pmmadhani@yahoo.com.

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September 2008

Electronic copy available at: http://ssrn.com/abstract=1504536

ERP

about how IT could be used for improving the business process was found to have a
major impact on the performance of the particular process. In short, it became clear that
a business process transformation would be successful only with the involvement of
the business process owner.

Why Current ERP Systems have Fallen Short of Expected Return

on Investment
The following five issues have been identified as difficult areas for ERP users:

Increased Complexity of the IT Landscape

The solutions now span multiple platforms and technologies. The resulting complexity
affects aspects such as IT strategy, implementation, testing, solution development and
IT production. Business processes that span multiple functions are another area of
concern. Without integrated data in the analysis of the productivity or effectiveness of
the process, it is impossible to make improvements. It means that there is a need to
introduce data mining and other techniques, so that results can be measured and goals
can be achieved.

Increased Interdependence on Partnerships

As the systems are now involving partners, the dependency of the latter on the former
increases. Companies are also depending on their partners for certain business functions.
A downtime will result in losses, both for the company and the partner. Now the cost of
downtime is not confined to the company, but it passes down the entire value chain. If
the partners have heterogeneous and non-stable systems, business-critical processes
may not be integrated.

Organizational Opposition
The continuous refusal of the organization to adopt new methods of working is also
one of the greatest risks and this happens mainly due to the lack of training and proper
sensitization.

Cost Overruns and Inefficiency

Because of the overall process slowing down in an organization, most organizations
have their implementation not being delivered on time. The lag in the implementation
of ERP in an organization is due to the slowing down of the overall process.

Underachieving Expected Return on Investment

Productivity can increase significantly with the extension of business applications. If
the implementation keeps pace with ongoing business changes and technological
innovations, it can deliver higher Return on Investment (RoI).
Various studies have found that there are four elements that are crucial to maximizing
RoI. They are as follows:

End-user involvement.

Solid governance, backed by senior management.

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Making a Case for Continuous Support for ERP Systems

Focus on business results.

A smooth-running project with efficient time and resource management.

Most of the companies have implemented ERP; the challenge faced by these ERP
systems is that they have standardized business processes, whereas the companys needs
keep on changing. This would mean that there is a need for systems are more adaptable
to the changing environments.
The implications for the ERP systems would be:

The implementation partner and the customer should have long-term agreements
and objective Service Level Agreements (SLAs). They should don the role of a coinnovator. Let us understand this in a different context, when all the companies
adopt ERP or ES, the competitive gain of using an ES is diminished. The situation
becomes worse when the market has most of the implementations from a single
vendor. Example, SAP in India.

Most of the firms are now moving towards service dominant logic of marketing.
This means there would be more reliance on service
principles for the entire organization. The ERP systems
have to be capable of supporting the logic.

The systems should be such that the business process

owner should also be involved. That means the
architecture of the systems should be such that it is
aligned to the business process needs.

Continuous Involvement of the

Implementation Partner

Productivity can
increase with
the extension of
business
applications

The resources that are being spent on developing strategic

capabilities through IT, are coming under scrutiny. The
areas of concerns for every CEO are systems coming in late or being over budget.
Understanding the need to manage and control risk and costs, SAP recently conducted
a market study of more than 500 customer decision makers across 19 industries. The
respondents were asked to rate the potential services a software company could provide
that would help mitigate risk and solidify higher returns on investment.
Most responses were in favor of SLAs. The basic principle behind this can be
understood as guarantee-a guarantee that ensures the involvement of the implementation
company. The conclusion is that implementation partners must be willing to support
their customers throughout their life cycle of the software. To maximize RoI the service
should guarantee the following: (Refer Figure 1)

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An assessment and plan.

Proactive assistance with operations and system landscape planning.

Full engagement of end users during implementation to ensure their understanding

of the business value.

September 2008

ERP

Figure 1: Adding Value Over Time

Information

Risk Analysis and Mitigation

Understand
Customer
Solution

Identify
Technical
Risks

Continuous Improvement
Identify
Solution
Optimization
Potential

Analyze
Operations

Improve
Business
Process
Performance

Source: Enhancing and Maintaining IT RoI: The Case For Ongoing Support, Sap Insight.

Minimized unplanned downtime by resolving problems on the spot.

A SLA on response and corrective action.

A support advisor who serves as single point of contact.

Improvement of operations by maximizing the potential of each application.

Service Management and ERP

Table shows the focus of a service management software and a traditional ERP.
Both software systems have something in common:
They need the same data! (Refer Figure 2)
There is a need to integrate service management and ERP. (Refer Figure 3)

Table: Focus of Service Management and Traditional ERP

Service Management

ERP

IT-Costs

Finance

IT-Reporting

Balance Sheet

IT-Controlling

Chart of Accounts

IT Operations

Production

Requests

Bill of Materials

Problem Management

Order Management

Asset Lifecycle

Asset Lifecycle

Configuration and Delivery

E-Procurement

Change Management
(Information Technology Infrastrcuture
Library (ITIL))

Configuration and Delivery

Production Inventory Management

Infrastructure Inventory Management

Service Levels

Purchasing

Relationship Agreement

Vendor Relations

Service Management

Requisition and Payments

Source: Enhancing and Maintaining IT RoI: The Case For Ongoing Support, Sap Insight.

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Making a Case for Continuous Support for ERP Systems

Figure 2: Requirements of ERP and

Service Management

Figure 3: Integrating Service Management and ERP

Source: Service Management and ERP,

Remedy Presentation.

Source: Service Management and ERP,

Remedy Presentation.

The combined business flow between service management and ERP apprehends
process optimization.
This brings the real value addition to the leading business process.
This can be understood with an example of an integrated IT process. (Refer Figure 4)

The Case of Architecture Maturity and ERP Usage Maturity

Alignment
One important issue that arises is to align ERP and business process needs is the
requirement of architecture maturity and ES usage maturity. Architecture maturity
ensures evolution of ERP systems and makes them dynamic. System usage maturity
ensures greater involvement of business process owner.

Production

Storage

Shipping

Sales

Supporting IT Processes
Customer
Orders
A Product

Delivery has to
be within 12
hours

Critical detailed business processes

Customer calls
Laptop is broken

Analyze
the mistake

Decision: Order
New Laptop
Open Purchase
Order

Frictionless Integration
No Data Duplication
No Extra Effort Necessary

Order at a
Supplier

Source: Service Management and ERP, Remedy Presentation.

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September 2008

IT Process

Purchasing

Business Process

Figure 4: Key Business Processes

ERP

ERP from the systems point of view is a system of data warehouses, applications of
enterprise application integration technology and information systems supporting the
entire gamut of business processes.
Enterprise Architecture (EA) means constituents of an enterprise at two levels one,
the organization level (roles, business units, processes, etc.) the other is technical level
(information technology and related technology).
Thus, EA means how the constituents are related and how they jointly create value.
In architecture field different maturity models have been developed, they are called
Architecture Capability Maturity Models (ACMMs). Though these models focus only
on architecture and various integration possibilities do not come under their purview.
Maturity models for use in ERP are available in the literature, the pioneers being
Christopher P Holland, Ben Light, These models focus on challenges faced by organizations
after implementation of ERP. So they mainly focus on ES implementation and usage.
Thus, new types of frameworks can be used to create and asses how well business
processes and systems are aligned in organizations.
One of the effective models available is the model
linked to balance score cards. The IT Balance scorecard (IT
BSC) model jointly considers the IT and business issues
jointly in an organization. The four criterias in the IT BSC
could be put as:

ES does not exist

in vacuum; they
are sold with a
hope that they will
provide value to
the organization
that implements
them

Customer Orientation how the IT function should

appear to internal customers and should answer
internal questions.

Corporate Contribution is the contribution that IT can

have in the success of the organization.

Operational Excellence tells us which service and process should be supported by

IT, and

Future Orientation focuses on the ability to change and improve the IT to better add
up to companys success.

Conclusion
ES does not exist in vacuum; they are sold with a hope that they will provide value to
the organization that implements them. Business value is the final derivative of ESs.
Many companies have achieved strategic advantage out of the ES implementations, and
their business environments are also demanding certain kind of changes. In this wider
context, the ways in which ERP will deliver value to the organization will change and
these changes will have impacts on the ESs. This article is an attempt to see how the ESs
would change in the future. The only way to make them relevant is through seeking
continuous support from involved parties. E B
Reference # 07M-2008-09-09-01

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