Combining Enterprise Architecture and ERP Systems

Masters thesis at the

iT university of Copenhagen

By Jens Keld Nrgaard Trinskjr

jenskeld@jenskeld.dk

Supervised by John Gtze

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Reference: Jens Keld Trinskjr. Combining Enterprise Architecture and ERP Systems.
Masters thesis, the IT University of Copenhagen, February 2009.

Abstract
This masters thesis is an integrated part of the E-business programme at the IT University of
Copenhagen and results in receiving a M.Sc. degree in Information Technology.
An Enterprise Resource Planning(ERP) project is naturally comprehensive and may have
a significant impact on any organisation. The risk inherent in such a complex IT undertak-
ing seems to be a given; accounts of failed or failing ERP attempts are well-known. Enterprise
Architecture(EA) offers an approach to integrating strategy, business processes, and technology.
As such, EA covers the areas which ERP systems seem to affect. The thesis therefore investigates
the connexion between EA and ERP systems and the possibility of increasing the chances of
ERP success by means of EA. The research question reads as follows:
How can Enterprise Architecture be used to improve upon the implementation and
continuous use of ERP systems?
A key concept in the thesis is competitive strategy. Based on Porter (1996) the thesis distin-
guishes between operational effectiveness and strategy. It is argued that only the latter can
create a sustainable competitive advantage.
The thesis discusses the theoretical relation between EA and ERP and, based on the distinc-
tion between operational effectiveness and strategy, discusses the strategic potential of both in
isolation and in combination.
A case study is carried out which analyses combined EA and ERP efforts at Carlsberg and Post
Danmark. Consultants from Accenture and Rambll Management also contribute to the study.
Finally, based on Prahalad & Krishnan (2008) and Hamel (2007) the primary competitive
challenges of the future are discussed; the influence on EA and ERP is emphasised.

The main conclusions of the thesis are:

Concurrently with the dynamics of competitive advantage, the scope of ERP systems is
changing to ensure a continued strategic potential.
There are limits to the potential strategic contribution from ERP technology in itself; to
realise the full potential of an ERP system, the system must be recognised as part of a
whole with EA as the governing frame.
The future of competition will imply an increased globalisation of resources and indi-
vidualisation of customers. This will require entirely new ways of managing organisa-
tions and utilising technology which will inevitably affect EA and ERP efforts. The future
competitive winners will be the ones who understand the new competitive paradigm and
put it into practice.

Key words: enterprise architecture, enterprise resource planning, strategy, enterprise, innova-
tion, SAP.

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Preface
Writing this thesis has been a pleasure. From the preliminary attempts to formulate an interest-
ing and relevant subject to the concluding reflections on the future of business software the
process has been both exciting and educating. There are a number of people whom I would
like to thank for their role in making this possible.

I would like to thank John Gtze for his counselling and for his genuine interest in my efforts.
This has been invaluable.

I would like to thank Stine Staun for her assistance in creating an aesthetically pleasing and
reader friendly layout of the final report. I would also like to thank Stine for her general support
and patience.

From Carlsberg, Post Danmark, Accenture, and Rambll Management I would like to thank
Anders Odgaard, Jan Svrd, Khaliq Khan, and Nils Bundgaard for taking their time to answer
my questions. Without their input central parts of the thesis would not have become reality.

Finally, I hope the reader will enjoy the thesis as much as I have enjoyed writing it.

Jens Keld Trinskjr

Copenhagen, January 2009

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Table of Contents

Chapter 1 Setting the Scene 11

Introduction 13
Research Question 13
Methodology 14
Theoretical Discussions 14
Research Design 15
Composition of the Thesis 18
Usage of SAP as a Basis for Generalisation 18
Clarification of Terms 19
Delimitation 19
Chapter 2 - Applied Theory 21
Acting Strategically 23
Distinguishing Between Strategy and Operational Efficiency 23
Does IT Have Strategic Relevance? 24
Carrs counterparts 25
Core Or Context 26
Dynamics 26
Critique 26
Recap 27
Chapter 3 Theoretical Considerations 29
Defining Enterprise Architecture 31
The Semantics of Enterprise Architecture 31
Understanding Enterprise Architecture 32
Recap: What is Enterprise Architecture? 35
Defining ERP 36

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ERP systems in general 36
ERP systems Applied 36
The Business Effect Of ERP Systems 37
Perspectives on ERP Systems 39
Enterprise Architecture and ERP systems as a Strategy? 41
A Continuous Focus on Strategy 41
Limits to Strategy? 41
A Strategic Frame 42
A Comprehensive View 45
Strategic possibilities 47
Part Conclusion: What is the theoretical relation
between Enterprise Architecture and ERP systems? 48
Chapter 4 Empirical Findings 51
The Case of Carlsberg 53
A Matter of Standardisation and Integration 53
Project Motivation 54
Carlsbergs Use of EA 55
The Hypotheses Compared to the Carlsberg Case 56
Recap: Carlsberg revisited 58
The Case of Post Danmark 58
Case presentation 58
The Business Benefit of the Project 59
Controlling Two Tracks: A Need for Enterprise Architecture 60
The ERP Project without Enterprise Architecture 61
The Hypotheses Compared to the Case of Post Danmark 62
Recap: Post Danmark revisited 64
Generalisation of Findings 64
The Scope of ERP systems 64

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The Dependence of ERP systems upon the Context 65
The Comprehensive View 66
Part Conclusion: How are Enterprise Architecture
and ERP systems combined in practice? 67
Chapter 5 Future Challenges 71
The Future of Competition: Globalisation Applied 73
Global Resources 73
Unique, Customer-centric Solutions 74
New Requirements 75
Combining Efficiency and Flexibility an Oxymoron? 75
The Role of Management 75
The Future of Management in Practice 78
The IT Challenge 80
The Technology Architecture of the Future 81
ERP Systems in Transition 83
EA as the Mediator 87
Part Conclusion: How can the combination of Enterprise
Architecture and ERP systems be used to handle the
challenges of the emerging globalised marketplace? 90
Chapter 6 Closing Remarks 93
Conclusion: How can Enterprise Architecture be used to improve
upon the implementation and continuous use of ERP systems? 95
Criticism 96
Validity of the First Part 96
Validity of the Second Part 97
Perspectives 97
Bibliography 101
Appendices 105

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 1
Chapter 1 Setting the Scene

The beginning is the most important part of the work (Plato n.d.)
Plato

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Chapter 1 - Setting the Scene

Introduction
Enterprise Resource Planning (ERP) is one of the hottest subjects in the business world today.
Huge amounts of money is invested in ERP projects, and in them many organisations see op-
portunities for costs savings and/or competitive advantage. Due to their all-embracing nature,
ERP systems may have far-reaching consequences for any enterprise. Experience shows us that
these consequences can be negative or positive success never seems to be a given in large IT
projects.
In fact, the list of failed or failing IT projects is quite long and still growing. This can some-
times prevent ideas with sound business cases from being turned into reality or cause the can-
cellation of ongoing projects. The risk of failure weighs heavily when budget figures are count-
ed in millions. However, when budget figures are counted in millions, the potential benefit
may be measured on that scale as well. A significant potential may therefore be lost if large IT
undertakings are avoided entirely. A more prudent approach would be to attempt to understand
the nature of ERP systems and the critical factors in assuring success in ERP projects.
One concept which is often mentioned in connection with large IT projects is Enterprise Ar-
chitecture (EA). EA offers a comprehensive approach to managing strategy, business processes,
and technology; it would therefore seem intuitively reasonable to assume that some kind of
connexion exists between business software success and the application of EA. The thesis is
based on that assumption.
In addition, the thesis is based on the assumption that obtaining maximum benefit from IT
investments is not determined by programming skills nor knowledge of specific technologies.
Instead it is assumed that true benefit from IT is obtained by understanding the potential of IT
from a business point-of-view. The very purpose of EA is exactly to create a foundation for fact
based, business connected IT decision making. The overall question of this thesis therefore
reads as follows:

Research Question
How can Enterprise Architecture be used to improve upon the implementation and continu-
ous use of ERP systems?
The research question is quite specific but at the same time very complex. One approach to
manage this complexity is to divide the overall question into a number of sub questions. This is
exactly what we will do. Each sub question deals with different aspects of the overall question.
The first step in answering the research question is to look into what knowledge already ex-
ists about the main subjects. Existing theory is a natural starting point for any scientific investi-
gation. The first sub question therefore reads:
What is the theoretical relation between Enterprise Architecture and ERP systems?
Apart from clarifying the theoretical relationship between EA and ERP systems, the first sub
question is supposed to answer a fundamental question: What are the concepts all about? In
daily life both terms are generally used with many different meanings, so without an answer to
this question, further study would be pointless.

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 Pure theoretical knowledge is valuable in many ways, but an empirical angle on problems
is often necessary to ensure scientifically valid explanations. The second sub question is an
attempt to complement the theoretical part of the thesis by investigating the practical implica-
tions of a combination of EA and ERP systems. It reads as follows:
How are Enterprise Architecture and ERP systems combined in practice?
In a world where a global financial crisis can overthrow long-established enterprises, and
where change is the only constant, the events of tomorrow are almost more interesting than
the events of today. It is therefore an interesting problem whether or not the combination of EA
and ERP systems will have a role to play in the future. We will therefore conclude the thesis by
answering a final question:
How can the combination of Enterprise Architecture and ERP systems be used to handle
the challenges of the emerging globalised marketplace?
As a whole, the answers to the three sub questions can provide an adequate answer to the
research question. This answer can hopefully act as a step towards a better understanding of the
relation between EA and ERP systems as well as the mechanisms which determine success or
failure in large IT projects. Ultimately, one could hope that the thesis will serve as guidance to
businesses which are interested in leveraging the benefits of EA as well as ERP systems, but fear
the risks inherent herein.

Methodology
Having defined the research question, the time has come to ask another fundamental question:
How will the research question be answered?
In this section we will investigate the approach used in the thesis as well as the line of
thought which has led to the approach. First, we will discuss some basic problems in relation
to scientific research. Second, based on this discussion we will describe the way the thesis is
structured, and the way empirical data was collected for the thesis. Finally, we will discuss a
few key terms, which must be further treated, before we can move on to provide an answer to
the research question.

Theoretical Discussions
When it comes to scientific research one must understand the fundamental distinction between
quantitative and qualitative research. As indicated by the wording, quantitative research at-
tempts to measure and to quantify phenomena, to isolate causes and effects, and to undertake
the research process in a way which allows generalisation of findings and the formulation of
general laws. For instance, random samples of populations are selected to ensure representa-
tiveness. Furthermore, it is a natural goal to exclude the researchers influence on the study as
far as possible. In other words, the purpose of quantitative research is to ensure objectivity and
measurability of results(Flick 2002:2-3). Quantitative research could be called positivistic.
Unfortunately, quantitative research methods have turned out to have limitations in certain
settings; this has proven especially true in the case of the social sciences. First of all, findings
based on quantitative methods often remain too far removed from everyday questions and
problems to be considered relevant. Second, it has turned out that, despite the efforts to ensure
objectivity, research and findings are unavoidably influenced by the interests and the social and

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cultural backgrounds of those involved. This is the case in relation to the formulation of re-
search questions and hypotheses as well as the interpretation of results. Thirdly, trying to isolate
cause and effect can oversimplify a subject. Concepts must often be analysed in their context
to do justice to the complexity of them.
The central characteristics of qualitative research differ fundamentally from those of quanti-
tative methods. Qualitative research is basically relativistic and accepts the presence of sev-
eral perspectives on the same subject as a premise of research. The active contribution of the
researcher to the angle of research is therefore accepted and embraced. This is not the case
because qualitative research should necessarily have an agenda; rather, the researchers reflec-
tions are considered an integral part of the research process(Flick 2002:4-5). This is appropriate
because:
our intellectual and social procedures will do what we need in the years ahead, only if
we take care to avoid irrelevant or excessive stability, and keep them operating in ways
that are adaptable to unforeseen or even unforeseeable situations and functions.(Flick
2002:13)
Based on this line of thought, the subjective findings of the researcher can actually contribute
to the novelty of the research; it is considered a precondition to proper qualitative research to
disregard predetermined ideas in favour of a general openness to the research field. The fun-
damental idea is that the active contribution of the researcher is necessary to obtain relevant
research. This is furthermore obtained by
actively selecting appropriate methods and theories
recognising the perspectives of the participants and their diversity
selecting a variety of methods and approaches(Flick 2002:5)
It is important to emphasise the equal importance of quantitative and qualitative research
methods. To judge one approach more valuable than the other would be a misunderstand-
ing. Instead it should be recognised that each approach has its strengths which can potentially
complement the strengths of the other approach. This is actually reflected in the approach used
in this thesis.

Research Design
In quantitative research the research process is linear: Theoretical knowledge is assessed, and
hypotheses are created, which are operationalised and tested against empirical conditions. The
aim is to be able to generalise about the subject matter. In contrast to this, qualitative research
aims to create a theory in the course of the research process, a so-called grounded theory(Flick
2002:40-45). You might say that quantitative research builds a theory a priori, whereas quali-
tative research aims to do this a posteriori. The research method employed in the thesis is a
combination of these two approaches:

Creating Hypotheses
The thesis contains descriptions and interpretations of empirical data. However, before the em-
pirical data is presented, assertions are made about the subjects of study in the form of hypo-
theses. This is an obviously quantitative feature, which is considered fitting for two reasons:

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 The main concepts of the thesis are well described in existing literature; hence it is natu-
ral to include existing knowledge
A starting point is necessary to ensure that the scope of the empirical data collection
does not become too wide
On the other hand, the process which leads to the creation of the hypotheses is qualitative
in itself: The hypotheses are based on subjective interpretations of existing literature regarding
strategy, EA, and ERP systems. This is reasonable, because all of these subjects are complex en-
tities of which no unquestionable definitions exist. In other words, a traditional quantitative at-
tempt to isolate objective, scientific truths about the subjects would probably prove to be futile.

Problems in Qualitative Data Collection

Seeing that the hypotheses are based on subjective interpretation of existing theory, it is an
obvious necessity to test their validity and possibly revise them based on empirical findings. For
this reason empirical data plays an integral part in the thesis. The collection of empirical data
has been carried out in ways which are characteristic to qualitative research:
The collection of data has first and foremost been carried out through interviews
There has been no specific aim of representativeness in the empirical material. Instead
sources have been selected which can be assumed to have a broad and deep under-
standing of EA as well as ERP systems
Triangulation(Flick 2002:49-50) has been aimed at in several areas:
Interviews have been conducted with business people with both specific and general
knowledge of the subject. Furthermore, an expert from the educational sector has been
included
Several angles have been employed on the subject of study: The technological possi-
bilities as well as the business context have been considered

To complete the triangulation, several methods of data collection could have been employed.
For instance, questionnaires could be handed out to an array of major Danish companies to
complement the interviews*. That has not been done as part of the thesis research, but could be
an interesting starting point for further study.

Creating Interview Guides

An interview guide** is a precondition to any interview of a certain quality. Several interview
types exist; some are more firmly structured than others, just as some interview types emphasise
the role of the interviewer more than others. In the collection of empirical data for this thesis
only semi-standardised interviews(Flick 2002:81-82) have been conducted. Semi-standardised
interviews aim at allowing interviewees to express their personal views(Flick 2002:74).
Each interview guide used in connection with the thesis contains several topics. Each topic
is introduced by an open question; its purpose is to allow the interviewee to give an immediate
answer based on his subjective opinion.

* This is actually a quantitative move, but could be considered a triangulation of traditional qualitative research methods
** The interview guides used in connection with this thesis can be found in appendices F-J

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 The open question is followed by a number of theory-driven, hypotheses-directed questions.
These are generally based on theoretical presumptions, and in the case of the thesis they are
based on the previously established hypotheses. The purpose of this kind of questions is to
make sure that all parts of each topic are covered.
Finally, each topic is concluded by a confrontational question. Confrontational questions re-
spond to the interviewees previous answers by presenting a competing alternative answer. This
is done in order to re-examine what has been said already, possibly allowing the interviewee
to further elaborate on each topic. The contingent nature of confrontational questions makes it
impossible to prepare them beforehand. Therefore, only a few confrontational questions are ac-
tually included in the interview guides. It is very important to present confrontational questions
in a careful way in order to ensure the continued acceptance of the interviewee(Flick 2002:83).

Reflections on the Data Collection

In practice, it has turned out difficult to strictly follow interview guides all the way through each
interview. Instead the interview guides have worked more like overall guidance than a specific
script to control interviews in detail. This makes perfect sense, since the exact purpose of semi-
standardised interviews is to allow interviewees to express their personal views.
Another thing which has turned out to function differently in practice is the use of confron-
tational questions. In a real setting it is not always fitting to present entirely different views on
the discussed subjects this can actually give the impression that the interviewer has misunder-
stood part of the interview. On the other hand, confrontational questions have been asked on a
few occasions where they have proved to be very valuable by facilitating further elaboration on
topics.

From Data to Information

The collection of data is documented in appendices A-E as transcriptions of all interviews. In
order to turn the raw data in the transcriptions into relevant information, a so-called analytic in-
duction has been carried out. The purpose of analytic induction is to test and refine hypotheses.
Analytic induction achieves this by methodically seeking to find the exception, the case which
is deviant to the hypothesis(Flick 2002:227).
The starting point for analytic induction is a preliminary theory. As mentioned, the develop-
ment of hypotheses based on existing literature is a central part of the thesis. In practice, we
use these hypotheses as the preliminary theory for a process of analytic induction based on the
empirical data.
Therefore, we discuss each case in the light of each hypothesis to find out whether the hy-
pothesis corresponds to the facts in the case. If a hypothesis is not correct, we reformulate the
hypothesis to make sure that it corresponds to the practical experiences documented by the
empirical data*.
This process ensures an appropriate combination of theory and empirical data in answering
the research question.

* This process corresponds to the steps of analytic induction described in (Flick 2002: 228)

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Composition of the Thesis
The composition of the thesis is based on the above discussion of research methods and
problems. In addition, the first part of the thesis is dedicated to the establishment of a common
frame for the discussions in the later parts of the thesis.
Therefore, in addition to the introduction and this methodology section, chapter 1 contains
definitions of a few key concepts, which are recurringly used in the thesis. It furthermore
contains a delimitation, which excludes some otherwise interesting problems from the thesis in
order to ensure a fitting scope.
Chapter 2 defines the concept of strategy. It moreover discusses a number of theoretical
standpoints which can further enhance the understanding of strategy, since this concept is cru-
cial to the thesis.
Many and varying definitions of EA and ERP systems exist. It is a precondition to meaning-
ful research that the definitions of central concepts are clear and agreed upon. Chapter 3 is
therefore used to establish common definitions. In addition, the strategic possibilities of EA and
ERP systems are compared based on the definition of strategy created in chapter 2. Finally, a
number of hypotheses are established regarding the theoretical relation between EA and ERP
systems. Based on these hypotheses a model is created to serve as starting point for the collec-
tion of empirical data. In addition, the model presents a comprehensive view of EA and ERP
systems. In total, this chapter answers the first sub question of the research question.
The results of the empirical data collection are presented in chapter 4. The context and
content of the cases are described one case at a time. The hypotheses are revised for each case
by means of analytic induction. Once all of the empirical data have been presented, general
conclusions are presented based on the combination of theoretical and empirical findings.
A revised model of the comprehensive view is presented based on these conclusions. This
chapter answers the second sub question of the research question.
In chapter 5 the future of competition is discussed based on literature about current busi-
ness trends. Since the chapter is concerned with the future, its findings cannot be considered as
definitive as the previous chapters. This chapter provides an answer to the third sub question of
the research question.
Chapter 6 concludes the thesis. It presents the final conclusions. It furthermore discusses the
validity of the findings as well as the perspectives of the thesis.

Usage of SAP as a Basis for Generalisation

SAP is often mentioned in the thesis. In fact, hardly any other vendor of ERP systems is men-
tioned at all. This is not a mere coincidence, and therefore we will sum up the reasons for this
in a few words.
A lot of literature exists which deals with the concept of ERP systems on a general level. Such
literature is frequently referred to in the thesis. Furthermore, to gain access to knowledge about
recent ERP trends an interview with a representative for an ERP research project(appendix A)
has been conducted. However, whenever a concrete example of an ERP system is needed in
the thesis, SAP is used. SAP is one of the largest suppliers of ERP systems worldwide, and SAP
has been involved in the ERP business since the 70s. Furthermore, SAPs ERP product suite is
extensive and covers the entire value chain from suppliers to customers.

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 One could argue that the inclusion of SAPs competitors in the thesis would enrich the
discussion; for instance SAP is not very strong in solutions aimed at SMEs(Small and Medium-
sized Enterprises). However, on a general level SAPs products will work fine as examples. This
is especially true, since the other major subject of the thesis is EA, which is traditionally used in
large enterprises only. Therefore, to avoid putting too much effort into a discussion of different
vendors solutions, we will generalise about the properties of ERP systems based on SAP. This
will keep things simple and allow us to focus on what matters: The relation between EA and
ERP systems.

Clarification of Terms
A few terms are used recurringly through the thesis. To ensure a common understanding of
these terms, we will define them here.

EA programme
When we refer to the work which is done in connection with EA, we will only use the term EA
programme. This wording has been chosen because a programme as opposed to a project
by definition has no exact start or end date. This emphasises the continuous character of EA
work.

ERP project
As opposed to programmes, all projects have clearly defined start and end dates otherwise
they could not be called projects. In general, implementations of ERP systems are treated as
traditional projects with a scheduled start and end. We will therefore use the term ERP project
to describe the work which is done in connection with the implementation of ERP systems.

Delimitation
A central part of an EA programme is the related governance processes: A formal way of
handling compliance issues, exceptions, and organisational inputs to architecture is abso-
lutely crucial(Carbone 2004:150-151). However, we will consider IT governance out of scope
because of the thesis narrow focus on the conceptual relation between EA and ERP systems as
well as the perspectives in a combination thereof.
Today, outsourcing is considered one of the defining characteristics of the globalised econo-
my, and few if any of the large companies of today do not employ outsourcing to some extent.
In addition, the subjects of strategy and outsourcing are interrelated, since outsourcing is often
considered a strategic move. However, the thesis will not dig into the subject of outsourcing.
The identification of strategic activities is crucial to the thesis, but the effect of strategy on the
choice to outsource and on the execution of outsourcing is out of scope.

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 2
Chapter 2 Applied Theory

The quest for productivity, quality, and speed has spawned a remarkable
number of management tools and techniques: total quality management,
benchmarking, time-based competition, outsourcing, partnering, reenginee-
ring, change management. [...] And bit by bit, almost imperceptibly, manage-
ment tools have taken the place of strategy (Porter 1996:61)
Michael E. Porter

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Chapter 2 Applied Theory
In this section we will go through theory which is crucial to the thesis, but which is not directly
related to the main subjects EA and ERP systems. The section mainly deals with the concept
of competitive strategy. In addition to clarifying the concept, we will discuss a natural ques-
tion: Does IT have strategic relevance? A common definition of strategy is a precondition to this
discussion.

Acting Strategically
Porter(1998) defines strategy as the search for a favorable competitive position in an industry,
the fundamental arena in which competition occurs. Competitive strategy aims to establish a
profitable and sustainable position against the forces that determine industry competition(p. 1).
Based on this we can create the following rough definition of strategy for our own use:
strategy should create profitability and sustainability
strategy takes place in an industry
The search for profit in the long term is a defining characteristic of strategy. But the notion
of industry is especially remarkable. To Porter, understanding industry structure is at the heart
of competitive strategy. His well-known five forces form a framework for this; and analysing
the five competitive forces is a necessity in order to understand what constitutes a favourable
strategic position.
However, it is a key point to Porter(1998) that strategy is not only about understanding
the five forces better than competitors [... A firm] can fundamentally change an industrys
attractiveness(p. 7).
Therefore, instead of just accepting the competitive environment, a competitor should be
proactive in creating a more favourable position for itself or for its industry as a whole. To en-
hance our definition of strategy we will add pro-activity and the element of change - dynamics:
strategy should create profitability and sustainability through pro-activity
strategy takes place in a dynamic industry
Other views on competitive strategy have been presented through time*, and much more
could be said about Porters understanding of strategy or strategy in general. For our use this
basic definition is well-suited though. It contains the main characteristics of thinking strategi-
cally while maintaining simplicity. Therefore we will move on to discuss strategy development.
Discussing what strategy is not indicates a useful path to understanding this.

Distinguishing Between Strategy and Operational Effectiveness

Businesses of today are facing an entirely different competitive situation than just a few decades
ago. Competition is now truly global, and IT has enabled new levels of internal efficiency.
According to Porter it is dangerous to focus too narrowly on responding to the rapidly chang-
ing conditions of todays markets by chasing productivity, quality and speed. To do this is to
sacrifice strategy in favour of what Porter calls operational effectiveness.
It is important to stress that operational effectiveness is not in itself a bad thing; indeed opera-
tional effectiveness is necessary, however not sufficient, to sustain superior performance.

* See (Prahalad & Hamel 1990) for an example of a resource-based view of strategy

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Porter finds support for this claim in the fact that many companies face difficulties in translat-
ing gains in operational effectiveness into sustainable profitability(Porter 1996:61). Doing what
everybody else does, seems to be a dead end in terms of establishing a durable competitive
advantage.
Instead Porter(1996) proposes distinction as the path to competitive advantage: A company
can outperform rivals only if it can establish a difference that it can preserve(p. 62).
The logic behind this statement is that efficiency can lower costs, while delivering greater
value than competitors through distinction allows for higher pricing*. Only the latter sustains
profitability in the long run, which is a defining characteristic of strategy.
One may wonder how a strategic position can become durable. Theoretically, one should
think that anyone could copy a competitors position and thereby attain results similar to the
competitors. Porter is explaining this apparent contradiction with the concept of trade-offs.
Choosing a distinct strategy carries with it a trade-off. As an example, being a low-cost airline
operator requires all unnecessary activities to be phased out. This makes it harder for a com-
petitor with a different strategy to copy the concept(Porter 1996:68). Porter uses the concept of
fit to explain this phenomenon. It is a defining characteristic of strategy that it is about com-
bining activities: The competitive value of individual activities cannot be separated from the
whole(Porter 1996:72).
In other words, strategy is distinction achieved through the sum of individual activities, not
each individual activity by itself. This is why operational effectiveness is not strategy: Opera-
tional effectiveness is about achieving excellence in individual activities or functions. We will
therefore add two notes to our definition of strategy:
strategy should create profitability and sustainability through pro-activity
sustainability is possible through distinctiveness only
distinctiveness can only be achieved if all individual activities are treated as a whole
strategy takes place in a dynamic industry
Porter would say that misjudging operational effectiveness as strategy will ultimately lead to a
poor competitive position. Since IT is one of todays major sources of operational effectiveness,
it is very relevant to examine ITs strategic relevance further. This is exactly what we will do in
the next section.

Does IT Have Strategic Relevance?

In 2003 Nicolas Carr published IT Doesnt Matter(Applegate et al. 2007:248-257) which
caused a heated discussion on the business impact and value of IT. Carrs argument is relatively
simple as well as plausible: By comparing IT to other major inventions like electricity and
railways he concludes that IT has matured and has become nothing but common infrastructure.
His argument is based on the following assertions:

* Economic theory distinguishes between perfect and imperfect competition. When a line of trade experiences perfect
competition, profit is an impossibility, since all goods are equal and sold at the same market price. One way to slide
the bar towards imperfect competition is differentiation of products. When a product differs from those of competitors,
the producer is able to charge a premium price without losing all of its sales. For more on this subject, see (Frank &
Bernanke 2004: 222-223)

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 IT is the subject of rapid price deflation
The Internet has accelerated commoditisation and the use of standard systems
IT is first and foremost a transport mechanism
Carr concludes that IT has no strategic value which corresponds very well with our definition
of strategy. After all, how can IT create distinctiveness if it is cheap, standardised and commodi-
tised? This is actually stated directly: When companies buy a generic application, they buy a
generic process as well. [...This makes] the sacrifice of distinctiveness unavoidable(Applegate
et al. 2007:251).
It is an important point that Carr does not deem IT useless. In fact he labels it essential to
competition but inconsequential to strategy(Applegate et al. 2007:254).
Therefore his business advice is to focus all efforts on reducing IT costs while maintaining the
highest possible levels of service quality. However, this conclusion was not left unchallenged
for long. We will now look into the counter-arguments which followed in the slipstream of
Cars article.

Carrs counterparts
It should come as no surprise that the counter-arguments to IT Doesnt Matter were many.
An entire thesis could be based on this discussion alone. Instead of doing that we will look at
the relation between Carrs initial assertions and the vast majority of the counter-arguments(see
Applegate et al. 2007:258-276).
First of all, it should be noted that the notion of IT as the subject of price deflation is more or
less taken as given. Moores law was first suggested more than 40 years ago, and it still seems to
hold. Second, the Internets role in establishing standards and making software broadly avail-
able is not questioned to an extent worth mentioning. In turn, most counter-arguments focus
on Carrs third assertion that IT is first and foremost a transport mechanism. The most prominent
claim is:
IT is not just a transport mechanism, IT can spur innovation and thereby create competi-
tive advantage
One debater states that: IT may become ubiquitous, but the insight required to harness its
potential will not be so evenly distributed. Therein lies the opportunity for significant strategic
advantage(Applegate et al. 2007:258).
This leads to the conclusion that extraction of value from IT is a matter of innovation in
business practices. Another debater continues on this track and proposes that IT can be looked
upon in several ways. A CEO should focus on using IT for improvement of cost savings and ef-
ficiencies as well as for creation of strategic advantage(Applegate et al. 2007:263).
The outcome of this discussion seems to be that the effect of IT depends on the way in
which it is applied. Sometimes IT has a strategic impact, sometimes it does not. Another way to
describe this relation is to distinguish between core and context processes. We will look into
exactly this distinction to conclude the discussion of the relation between IT and strategy.

25
Core Or Context
Geoffrey Moore is one theorist who is engrossed by the distinction between core and context
processes. To him, running a business is a matter of understanding which business process are
core, and which are context, since core processes are the business processes that directly af-
fect the competitive advantage of a company(Moore 2000:27). In addition, core processes are
what drives stock prices. Stock prices being essential to Moore, designing and maintaining core
processes are crucial.
Having established that core processes are what drives competitive advantage, it would seem
reasonable to argue that core processes are also what supports strategy. On the other hand,
it could be argued that context processes create operational effectiveness only: The goal for
context tasks is to execute them effectively and efficiently in as standardized and undifferenti-
ated a manner as possible [...] Differentiating on context is the single biggest waste of resources
in Fortune 500 operations(Moore 2000:27).
This sustains Porters view that operational effectiveness is not strategy. However, it is im-
portant to note that context processes are not regarded as needless. Instead context processes
should be regarded as a prerequisite to the core processes, and therefore the concepts inter-
operate and are both fundamental to an organisation. Making sure that the right mix of processes
is achieved is a management task: Without careful management to the contrary [...] context
always gets in the way of core(Moore 2000:28).

Dynamics
One thing which complicates managements job of distinguishing between core and context
processes is the dynamic nature of core and context processes. Eventually, what once was a
core process will become context(Moore 2000:30). This is a natural result of the continuous
technological development as well as the rapid commoditisation which Carr has also empha-
sised. The lesson Moore wishes to teach is that we must learn to recognise when a process
that used to differentiate no longer does; in turn we must learn to substitute standard packaged
software for custom or customized software to perform IT functions that do no longer differenti-
ate a companys marketplace offerings.

Critique
Moores great idea is that companies should not spend resources unnecessarily on tasks which
cannot add shareholder value. The strict focus on shareholder value is probably a result of
the time when Living On The Fault Line was written it was published in 2000 before the
dot-com stock bubble burst. This, however, does not disqualify all of his findings. The distinc-
tion between core and context serves to make the distinction between strategy and operational
effectiveness more specific. And in continuation of this, his recognition that the core processes
of today will be the context processes of tomorrow emphasises the dynamic nature of strategy
and points out that managers of the future will experience development and selection of core
processes as a central challenge.

26
Recap
This chapter primarily discusses the relation between the concepts of IT and strategy. The main
conclusion is that IT can sometimes have a strategic impact, but that this is not a result of the
technology itself but rather of the way it is applied. When IT is not applied in a way which creates
a competitive advantage, it has no strategic impact; instead it sustains operational effectiveness.
Four pairs of concepts can further illustrate this difference. First of all, the distinction
between core and context is central: When IT is used to create or alter core processes, a stra-
tegic distinction is created, whereas the use of IT to support context processes sustains opera-
tional effectiveness only.
Second, the concept of distinction is in itself a central part of the strategy discussion. Without
distinction, no strategic advantage can be created, and IT will have no effect in terms of sustain-
ing long-term profitability.
Third, distinction is achieved by looking upon all individual activities as a whole. Failing to
do so will prevent common strategic goals.
Fourth, what constitutes core processes and creates distinction is dynamic. Therefore the abil-
ity to change or the degree of volatility is an important part of strategy.
Based on these conclusions we can set up four conceptual pairs which further illustrate what
constitutes strategy. These pairs are going to be a central part of our analysis later on. To sum
up, the pairs are:

Strategy vs. Operational effectiveness

Core vs. Context
Distinctiveness vs. Similarity
Whole vs. Parts
Volatility vs. Non-volatility
Table 1: Characteristics of Strategy and Operational Effectiveness(own production)

27
28
 3
Chapter 3 Theoretical Considerations

And yet, if every company employs its ERP system in a similar manner, it is
questionable whether any will gain a sustainable competitive advantage from
the ERP itself given that the other companies it competes with employ an
equivalent ERP system (Ragowsky & Gefen 2008:36)
Arik Ragowsky and David Gefen

29
30
Chapter 3 Theoretical Considerations
The concepts of EA and ERP systems are defined one by one in this chapter. Afterwards, the
relation between the concepts is discussed. The distinction between strategy and operational
effectiveness which we discussed in the previous chapter is a central part of this analysis. In the
end we set up a model and a number of hypotheses regarding the relation between EA and ERP
systems. These hypotheses and the model are the foundation for the empirical study described
in chapter 4.
Before defining ERP systems we will take a look at EA because of the holistic nature of the
subject as opposed to the relatively more delimited nature of an ERP system.

Defining Enterprise Architecture

The term enterprise architecture was probably first coined by Steven Spewak in his book Enter-
prise Architecture Planning(Bernard 2005:32). Later on, John Zachmans framework for Infor-
mation Systems Architecture established itself as a central reference for anyone who wished to
gain a deep understanding of the field of EA.
After a short look at the term Enterprise Architecture in itself we will use Zachmans frame-
work as the starting point for a discussion of the meaning and use of EA since Zachmans initial
thoughts up until today.

The Semantics of Enterprise Architecture

What is an enterprise?
An enterprise is an entity which is in some way related to one or more organisational units. In
everyday language the word enterprise is used quite casually. An example of this is the term
enterprise software which is used though no clear definition of it exists. For our use
Scott Bernards definition of an enterprise is very fitting: An area of common activity and goals
within an organization or between several organizations, where information and other resources
are exchanged(Bernard 2000:31).
Consequently, an enterprise can be part of a larger organisation, be the entire organisation or
run across several organisations. What matters is that information and resources are exchanged.
If that was not the case, we would be speaking of two or more autonomous units rather than an
enterprise.

What is architecture?
The word architecture implies a structured approach to the analysis, planning, and develop-
ment of resources(Bernard 2000:32). Architecture is traditionally considered a discipline related
to the construction of buildings. Therefore the common understanding of a traditional architect
can be useful in order to understand the concept of EA.
An architect designs a solution to a problem and he/she then devises a plan to realise the
solution. In other words, architecture is about documentation and planning. The logic behind
architecture is that the construction of a house should be based on an overall plan. In turn, EA
is an attempt to make sure that an enterprise is constructed and maintained according to an
overall plan. In this way EA distinguishes itself from traditional IT architecture, since EA does

31
not look upon IT in isolation. Instead EA emphasises the need for a holistic view upon an en-
terprise in its entirety. This need was the exact motivation behind the initial experiments into he
field of EA.

Understanding Enterprise Architecture

A Quest for Documentation

In the late 80s the complexity of information systems had reached a level which made it
imperative to construct some sort of framework for controlling the interfaces and integration of
enterprise-wide systems. This was what John Zachman set out to create; his goal was to create
the foundation for systems that allow flexibility in managing business changes and coherency
in the management of business resources(Zachman 1987:276).
In other words Zachman aimed to create a closer integration of business and technology.
This was a result of firms depending still more on technology to achieve success a factor
which must be considered to have grown even stronger ever since. The result of Zachmans ef-
forts was the Information Systems Architecture(ISA) framework. Even though Zachman did not
use the term EA himself, we will use his works as an example of a basic EA framework. This is
possible since Zachmans framework is generally regarded as one of the earliest examples of an
EA framework.

Zachmans ISA Framework

The construction metaphor is very popular when trying to describe EA, and Zachmans frame-
work is no exception. Zachman uses the need for different views upon a construction project as
an explanation for the way his framework is composed. To document a traditional construction
project several artefacts are needed(Zachman 1987:280-282):
Bubble charts which illustrate the overall concepts of a project
The architects drawings which are used to make overall decisions regarding a project
The architects plans which are used for negotiation with the contractor
The contractors plans which are created from the builders point-of-view
Shop plans which are created of separate parts/sections where necessary
The actual building
None of these artefacts are considered more correct presentations of the subject matter
than others. In turn, they represent different layers of abstraction of the construction project, not
merely different levels of detail. Only by combining all of the layers can a complete view of the
project be perceived. This logic is transferred to EA by Zachmans framework.
Zachmans EA artefact counterparts to the construction project are:
Scope/objectives
Model of the business
Model of the information system
Technology model
Detailed description
Machine language description/object code (no construction counterpart)
The actual information system

32
 By providing documentation of all of the different perspectives, Zachmans framework is sup-
posed to provide a complete view of an enterprise. The machine language description is omit-
ted in the final framework since it is not interesting from an architecture point-of-view(Zachman
1987:284). For natural reasons the actual information system is not included as an artefact
either.
When describing one of the perspectives in Zachmans framework, different types of de-
scriptions of the same artefact are possible. In the original version of the framework from 1987
descriptions of what, how and where were addressed. The descriptions of who, when
and why were touched upon lightly, but not completely elaborated upon. In the revised
version of the framework from 1992, all six levels of description were included in the form of
data, function, network, people, time, and motivation. By placing the different per-
spectives coupled with the different types of description in a matrix structure, we get Zachmans
complete framework:

Fig. 1: Zachmans ISA framework(Sowa & Zachman 1992:600-601)

Since all elements on either axis of the matrix are explicitly different from each other, each
cell is also explicitly different from all of the other cells. By combining all cells, complete docu-
mentation of the entire enterprise should be achieved.
With a holistic view of the enterprise like the one Zachmans framework provides, more
coherent business and technology related decisions are possible; this in turn will allow more
flexibility in managing business changes in keeping with Zachmans original intentions. How-
ever, Zachmans framework is focused on documentation and lacks a methodology to put it into
action. This is one of the major subjects of criticism in relation to the framework.

33
Critique of Zachmans Framework
It is important to note that Zachmans framework includes no strategic planning methodology
which can support the move from business strategy through information systems strategy to a
concrete architecture(Zachman 1987:277). Other enterprise architects have attempted to nullify
this shortcoming by developing frameworks for EA which include a methodology for getting
to a desired future state. One of these architects is Bernard. We will look into his framework
shortly.
Another characteristic of Zachmans framework which has been subject to critique is its
scope. Filling out all 30 cells of the framework to a satisfying level of detail can be a daunting
task though Zachman himself is confident that at some point in time, the Enterprise is going
to wish it had all of those design artifacts [...] made explicit, Enterprise-wide, horizontally and
vertically integrated at excruciating levels of detail(Zachman 2000:1).
Critics(Bloomberg & Schmelzer 2006:123) have argued that the scope of Zachmans
framework, apart from making it resource consuming, can make it impossible to generate
useful EA artefacts before conditions have changed, i.e. in time for the framework to have
relevance. One might say that when it comes to EA, perfect is the enemy of good. Later on,
we will dig into Jane Carbones IT Architecture Toolkit the purpose of which is to provide an
framework for EA within the real-life constraints of tight timeframes, limited resources, and
ongoing business course corrections [...] the Toolkit provides a way to deliver good enough
architecture(Carbone 2004:13).
First, however, it is time to have a look at Bernards idea of an EA methodology.

Enterprise Architecture as a Methodology: Scott Bernard

Bernard distinguishes between EA as an idea, and EA as a practice. As an idea, he sees EA as
an approach to create abstract views of an organisation that help to make better plans and
decisions(Bernard 2005:33). This is very much in line with the definition which is the founda-
tion for Zachmans framework.
In practice, on the other hand, Bernard sees EA as both a management programme and a
documentation method. As a management programme EA is an approach to planning, deci-
sion-making and resource development on a general level as well as on a specific level. It is
important that EA is regarded as an integrated part of the general governance structure of an en-
terprise. This enables EA to take part in uniting an enterprises strategic goals, each departments
goals, and the specific IT projects which are undertaken to achieve the goals.
An integral part of Bernards approach to EA documentation is the EA management plan.
The management plan devises a path from the documented current state(as-is) of the en-
terprise to the desired future state(to-be). Encompassing these EA elements is a modelling
framework(Bernard 2005:34-35). In comparison to Zachman, Bernard adds dynamics in the
form of an architecture management plan. Furthermore, by viewing EA as a management pro-
gramme and not just a documentation method, Bernard emphasises the integration of EA into
the remaining governance initiatives in an enterprise. This further underlines the holistic nature
of EA.

34
A Pragmatic Approach to Enterprise Architecture
The holistic nature of EA may very well be what constitutes EAs unique value proposition. Still
it may also be the concepts most serious weakness. In a world where the bottom line of the
present fiscal year is driving many business decisions, it is hard to justify extensive technology
investments that have no immediate return or maybe have no immediate return at all.
Carbone addresses this issue in several ways(Carbone 2004:118-121):
Instead of modelling all data before data implementation, the most critical pieces should
be selected an implemented.
Instead of attempting to secure funds for all elements of a target state (though it may
seem right), one should focus on target elements that solve specific and urgent enterprise
needs.
Large target state projects should be carried out in small chunks.
In general, Carbones approach to EA is pragmatic and focused on getting things done while
obtaining immediate benefit.
The pragmatic nature of EA is further elaborated by Herzum(2003). First of all, he criticises
the construction metaphor, because it does not recognise the dynamic nature of EA. A better
metaphor would be to transform a skyscraper into a totally different skyscraper while everyone
residing in the first skyscraper still lives there(Herzum 2003:3).
He states that EA is about transformation and modelling for change as much as it is about
documentation. He therefore goes on to propose urbanism or even ecology as better metaphors
for describing EA, because both of these concepts are concerned with allowing independent
systems to evolve while achieving some overall vision.
In this way it is important to Herzum to establish that EA is not all about control. EA is about
enabling enterprise agility and supporting change. The basic thought is that true freedom to
evolve and innovate can only be achieved with some overall architectural considerations as a
foundation: From an IT perspective, autonomy can only be enabled by architecture; autonomy
does not come for free(Hersum 2003:5).
The basic consequence of this line of thought is that EA is not an end in itself, but rather a
means to an end. In this way Herzum provides strong arguments for selecting EA measures
carefully based on the enterprises business needs and thereby maintaining a pragmatic
approach to EA in practice.

Recap: What is Enterprise Architecture?

Before we continue to discuss ERP systems, we should sum up our findings until now. First
of all it should be noted that EA is a holistic concept. By viewing an enterprise from strategy,
business and technology perspectives, EA creates a more complete image of the enterprise.
Furthermore, we have established that EA is a documentation method as well as a management
programme. Finally, working with EA in practice involves different kinds of pragmatic con-
siderations, which makes it difficult if not impossible to speak of perfect EA, but rather of best
possible EA. The fundamental characteristics of EA can be described as follows:

35
 EA is a holistic approach to documenting and managing an enterprises current and future
states in terms of strategy, business processes and technology.
The purpose of EA is to enable enterprises to make informed decisions and to implement the
decisions as efficient as possible.
In practice, an EA programme needs to address the dynamic and political nature of enter-
prises making EA a pragmatic exercise.
The distinction between making decisions and implementing them is especially interesting
from a strategic perspective. This stresses the dual purpose of EA to enable enterprises to
Do the right things (strategy)
Do things right (operational effectiveness)
We will return to the business effects of EA after having a closer look at what ERP systems are
all about.

Defining ERP
Our presentation of ERP systems has the general characteristics of ERP systems as its starting
point. After a short introduction, a few widely discussed properties of ERP technology are pre-
sented. Finally, with these properties as a starting point, the recent trends in the ERP business
are described and the perspectives of the technology are discussed.

ERP systems in general

Many diverging definitions of ERP systems exist; we will introduce a couple of them as an
introduction and continue by elaborating on a few key characteristics of the subject. The first
definition goes as follows: ERP systems are information systems that support online, integrated
real time transaction registration, data handling, and reporting in connection with a companys
business processes by means of a central database, often in a client/server it-architecture(The
authors translation of Rikhardsson, Mller & Krmmergaard 2004:17).
A few interesting details stick out from this definition. First of all, we can establish that ERP
systems are information systems. Second, ERP systems support business processes and are
based on a central database. A further look at the concept reveals that ERP systems [...] inte-
grate all the information related to a companys business [...] and facilitate decision-making.
[...] An ERP system [...] can in some settings have a strategic impact by integrating all the busi-
ness functions of a company(Ragowsky & Gefen 2008:34).
Thus we can furthermore conclude that, theoretically, ERP systems can support all areas of a
companys business, and that this may possibly have a strategic impact.
The possible strategic impact of ERP systems is something that we will discuss later. First
of all we will investigate the practical implications that follow from implementations of ERP
systems. Then we will discuss the business perspectives and possible strategic impact of ERP
systems. After that we will look at the current trends in the ERP business to conclude the discus-
sion.

ERP systems Applied

Many different vendors offer ERP solutions which match the description given above. SAP is the
leading vendor, but other companies such as Oracle and Microsoft have recognisable market

36
shares. Some companies use ERP solutions that have been developed in-house(Rikhardsson
et al. 2004:20). What is common to the different solutions is that they all represent a piece of
technology as opposed to EA which is an approach and is not tied to any specific technology.
We will leave the in-house developments out of account for the rest of this discussion, since
the current trend in the ERP business is towards systems developed by independent vendors -
probably because of the high costs associated with developing ERP systems in-house. With this
precondition, it seems reasonable that ERP systems can be considered commodities. Moreover,
ERP systems are frame systems meaning that ERP systems present a frame per default and must
be configured to work in the specific context of a company before they can
be used(Rikhardsson et al. 2004:21).
The configuration of an ERP system has a broader perspective than configurations of tradi-
tional office software. Since an ERP system supports business processes, the business processes
to be supported must be identified and compared to the possibilities of the ERP system in
question. Based on this comparison, any company implementing an ERP system must make the
decision whether to go for the possibilities inherent in the system, or if the system should be
customised to meet the specific needs of company.
The standard processes of ERP systems are based on best-practice business processes. Should
a company choose to go for a standard implementation, it would have to adapt its internal
processes to the best-practice processes of the ERP system. One might say that implementing a
standard ERP installation will help a company to achieve best-practice, but at the same time it
will make the company lose its distinctive mark.
On the other hand, should a company choose to make customised changes to an ERP sys-
tem, this might have unforeseen consequences for the remaining parts of the system, which are
often interrelated, as well as it may become difficult to include future updates in the system.
Because of this schism, the choice of ERP system vendor is considered crucial. It is important
to choose an ERP system in which the best-practice processes support the specific needs of the
implementing company(Rikhardsson et al. 2004:59-60).

The Business Effect Of ERP Systems

The effect of ERP systems can be viewed from several angles and a lot of literature exists which
discusses this subject. In this section we will have a closer look at the competitive contribution
of ERP systems as well as a subject which is closely related to this: The relationship between the
use of ERP systems and an organisations ability to adapt to environmental changes.

Competitive Contribution
For decades, information has been an important asset for any enterprise. The purpose of an ERP
system is to manage information(Rikhardsson et al. 2004:25-26). Having established that the
ability to achieve distinction from competitors is part of strategic positioning, it seems intui-
tively unlikely that a standardised product like an ERP system should be capable of creating
competitive advantage. The main question is if an ERP system can create competitive advantage
in itself, or if competitive advantage is created when ERP systems are employed in new and
distinct ways. This view is further elaborated by Bernard who claims that

37
 Technology is often a key enabling element in increasing value, but should not be the
driving factor in the reengineering or improvement of business services [...] It is impor-
tant to review and adjust the process before IT is applied to ensure that optimal value
and efficiency are achieved.(Bernard 2005:106)
In other words, competitive advantage is created by business processes which are enabled by
technology, not by technology as a separate entity. This is in line with the previous discussion
on the strategic nature of IT and stresses the importance of establishing well-functioning busi-
ness processes before employing technology to support them not the other way around. This
discussion is further elaborated by Hammer, who claims that companies tend to use technol-
ogy to mechanize old ways of doing business(Hammer 1990:104).
Hammers point is that obliteration of existing business processes is a precondition to creat-
ing new business processes which can dramatically improve business performance. Proponents
of ERP systems might say that this is exactly what the implementation of an ERP system should
result in and they might as well be right. But Hammers point is still necessary and important
since it further sustains the view that technology can create a competitive edge only when it is
employed in new and innovative ways.
This particular view on the strategic contribution of ERP systems is elaborated by Ragowsky
and Gefen:
if every company employs its ERP system in a similar manner, it is questionable whether
any will gain a sustainable competitive advantage from the ERP itself [...] in order to
compete better, companies have to use resources that are not available to their competi-
tors.(Ragowsky & Gefen 2008:36)
Ragowsky and Gefen continue to emphasise the importance of having something beyond the
software itself that can create a competitive edge. This something may come about from
either the way the ERP system is used or from company specific circumstances. It is a major
point to Ragowsky and Gefen that there is no unconditionally correct way of managing and
using IT. Instead they take on a contingency approach to IT management. Some companies use
an ERP system for strict operational purposes only, while others stride to achieve competitive
advantage through the use of an ERP system. In either case, the management of the ERP system
must be aligned to the desired benefit from using the system. In other words, it is necessary to
make sure that the governing frame around the system is appropriate.

ERP Systems And Organisational Change

As we established in chapter 2, strategy takes place in a dynamic industry meaning that change
and strategy are interdependent concepts. The intuitive consequence of this relation is that ERP
systems which are used on a strategic level must be able to handle constant change. However,
this may not always be an easy task.
One of the ways to create a competitive advantage through the use of an ERP system is to
customise the system to accommodate specific needs. This may become impeding to future
changes to the system: The high cohesion between the individual choices in a configura-
tion means that it is hard to change the basic configuration later on(the authors translation of
Rikhardsson et al. 2004:22).

38
 This is backed up by empirical studies which document that each dollar spent on customisa-
tion during the implementation of an ERP system will result in a three-dollar cost each time the
customisation must be reinstalled because of upgrades or new releases of the system which
can occur once or even twice a year(Noyes 2003:55). This is tangible proof that achieving a suc-
cessful combination of ERP systems and highly volatile business processes is not an easy task.

Summing Up
Overall, the potential benefit from ERP systems cannot be questioned. Studies comparing
adopters and non-adopters of ERP systems(Hunton, Lippincott, & Reck 2003:165) show that in
terms of financial measures like ROI and ROA, adopters perform significantly better than non-
adopters over a 3 year period. Interestingly, this superior performance is not owing to improved
results by the adopters, but rather deteriorating results by non-adopters. This seems to document
the dynamic nature of competitive advantage.
On the other hand, ERP systems do not create a competitive advantage in themselves, as we
have just discussed. Competitive advantage is created by the way ERP systems are employed.
However, some inherent properties of ERP systems seem to limit the potential competitive
advantage which can be enabled by ERP systems. The difficulties associated with customisation
of ERP systems are an example of this. This has also been realised by the ERP industry, which is
why we will now look into the current trends in the industry.

Perspectives on ERP Systems

In 2000 Gartner Group coined the term ERP II as opposed to ERP. ERP II is characterised by
a change in scope of ERP projects from optimisation of internal functions to outward-facing
elements which can help an enterprise position itself optimally within the supply chain(Bond,
Genovese, Miklovis, Wood, Zrimsek, & Rayner 2000:1). Where the key word of ERP was opti-
misation, the key word of ERP II is collaboration.
From a business point-of-view, ERP II extends the scope of ERP Systems to cut across indu-
stries and any process or sector within these industries. From a technological perspective, ERP II
is web-based, componentised and externally connected through open standards based interfaces.
This forms a contrast to the web-aware, monolithic, closed standards based traditional ERP
systems(Bond et al. 2000:2). The development of the ERP concept shows us that the definition
of an ERP system is in a state of constant flux. This is why we will now look into the most recent
trends in the field. That should complete this section and be the last brick in creating a compre-
hensive image of what the ERP concept is all about. In addition it is a great starting point for a
discussion of the future business impact of ERP systems.

SAPs Approach
SAP provides a great example of the development of ERP technology. SAP started a move
towards ERP II by the end of the 20th century. At this time, the firm announced plans to inte-
grate its products with e-commerce and web technologies. This was a result of a shift in think-
ing towards a more collaborative environment(Muir & Kimbell 2008:36). Today the latest SAP
version is based on a blueprint for enterprise computing called Enterprise Service-Oriented
Architecture(ESOA), and a technology integration platform called SAP NetWeaver(Muir &

39
Kimbell 2008:37). First of all, this move is caused by a wish to ensure integration of data across
enterprises.
In addition to ESOA and NetWeaver, SAP provides a broad array of best practice business
processes, which can be implemented across areas as diverse as Customer Relationship Man-
agement (CRM), operations, manufacturing and financials. Altogether, SAPs product suite is
supposed to deliver out-of-the-box applications that can be used to work for an organization
with little or no customization involved(Muir & Kimbell 2008:51).
At the same time, the current product line aims at helping enterprises to adapt to changes,
reduce costs, and extend processes beyond enterprise borders. In short, SAP is an example of
an ERP vendor which wishes to allow its customers to obtain(Muir & Kimbell 2008:56)
differentiation
productivity
flexibility
On the face of it, it seems that this approach addresses the apparent shortcomings of ERP
systems with regards to competitive contribution and organisational change, as we discussed
above. One might say that this could be an example of ERP III, or the third generation of ERP
a term which has actually been coined already.

Third generation ERP

The 3gERP project is a collaborative strategic research project with partners Copenhagen Business
School, Department of Computer Science at the University of Copenhagen and Microsoft Devel-
opment Center Copenhagen and with funding by the Danish National Advanced Technology
Foundation. The purpose of the 3gERP Project is to establish the academic and market founda-
tion for developing a standardized, yet highly flexible and configurable global ERP system for
small- and medium-sized enterprises (SMEs), which can be implemented and maintained at a
fraction of the cost of current ERP systems(The 3gERP Project n.d.). Though the 3gERP project is
still running, a few things can already be said about the conclusions of the project.
The third generation ERP system is modular and based on a Service-Oriented
Architecture(SOA). The purpose of this is to enable better support for organisational
changes(Appendix A:1). Open standards based interfaces will be a natural part of the system.
This will allow the system to be used in more agile ways, as well as it will enable the distribu-
tion of the system through networks as a service (Software as a Service) or through traditional
distribution methods. Another goal of the future ERP system is to make it cheaper(Appendix
A:5). In most ways, the conclusions of the 3gERP project are similar to the direction which SAP
has taken with its ESOA approach.
On the face of it, it might seem like the 3gERp project is just another step towards a com-
moditisation of IT, which makes differentiation through IT difficult. At the 3gERP project, how-
ever, it is believed that this problem can be solved by creating a standard system with enough
flexibility to accommodate the specific needs of each individual enterprise. In this way, the
whole of an ERP system becomes more valuable than the sum of the parts. This is what creates
the competitive contribution of the future ERP system. With a complete and integrated view of
the entire organisation, the ERP system can allow enterprises to differentiate themselves from
competitors(Appendix A:7-8).

40
 The ability to achieve competitive advantage from an integrated view of an enterprise is an
interesting thought, which we have already argued in chapter 2. EA is exactly about thinking
holistically and across traditional boundaries. Therefore we will conclude chapter 3 by looking
into the possible combination of EA and ERP systems.

Enterprise Architecture and ERP systems as a Strategy?

In addition to considering the potential benefit from a combination of EA and ERP systems, this
section will sum up the findings in the chapter up till now in three hypotheses. Along with a
model based on them they are the foundation for the empirical study described in chapter 4.
If it turns out to be necessary, the hypotheses will be revised later on based on the empirical
study.

A Continuous Focus on Strategy

There has been a change in the way ERP systems are developed and structured. With internal
accounting systems as a starting point, ERP systems of today have developed into all-embracing
systems which can potentially support all internal and external parts of an enterprises value
chain. Furthermore, there has been a shift in the way ERP systems are used. ERP systems are
no longer inflexible standard systems, which support predefined business processes, and which
have few configuration possibilities. Modern ERP systems are configurable, service oriented and
can be combined into powerful new configurations.
To formulate our first hypothesis we will turn to our initial distinction between operational
effectiveness and strategy presented in chapter 2. One of the defining characteristics of strategy
is dynamics. This is exemplified by Moores distinction between core and context: Moore con-
cludes that the core processes of today may very well be the context processes of tomorrow. In
other words, the nature of competitive advantage is changing continuously, and only on rare
occasions will companies find themselves in a position of sustainable competitive advantage.
If this is true, then maybe the purpose of ERP systems has been the same all along. Maybe the
purpose of ERP systems has always been strategic, whereas the nature of competitive advantage
has changed, forcing ERP vendors to improve the quality and extend the scope of their systems.
Based on this assumption, we will formulate our first hypothesis:
Concurrently with the dynamics of competitive advantage, the scope of ERP systems is
changing to ensure a continuous strategic potential.
The potential strategic benefit from ERP systems is the starting point for the development of
our second hypothesis, which will be discussed in the next section.

Limits to Strategy?
As mentioned in our previous discussion on the competitive contribution of ERP systems,
Ragowsky and Gefen emphasise the importance of having access to resources that are not
available to competitors in order to compete better. This is in line with the key characteristics
of strategy, one of them being distinctiveness. Since ERP systems are standardised and based
on industry best-practices, it seems intuitively impossible to achieve distinctiveness through
the use of ERP systems alone. In fact, Ragowsky and Gefen emphasise the need of something
beyond the system itself in order to achieve a competitive advantage.

41
 SAP and other ERP vendors have tried to counter this apparent limitation of ERP technology
by further improving the customisability and adding to the already large amount of available
industry-specific ERP modules. Still, a question remains urgent from a strategic as well as an
innovative perspective: How can competitive distinctiveness be achieved, if business processes
are based on best practices and standardised systems? In order to answer this question, we will
design the second hypothesis as one of the starting points for the empirical study. The hypo-
thesis read as follows:
There are limits to the potential strategic contribution from ERP systems.
In its nature, this hypothesis isolates the competitive contribution of an ERP system from the
remainder of the enterprise. This is a strength, since the hypothesis is intended as the basis for
further empirical research. However, this may also be a weakness because of the holistic nature
of competitive strategy.
This view is sustained by the 3gERP project which concludes that the whole of an ERP system
becomes more valuable than the sum of the parts. Therefore our third hypothesis aims at under-
standing the strategic frame of ERP systems: The way the systems are and should be used in an
enterprise context.

A Strategic Frame
As we have established earlier, ERP systems are maturing and have developed from monolithic
applications with a back office scope into service oriented architectures which span across
enterprise boundaries. In this section we will argue that the growing maturity of ERP systems
entails a need for EA as a governing frame of ERP systems. We will also argue that EA is a pre-
condition to achieving the optimum benefit from an ERP system.

ERP maturity
The first step in our argumentation is to create an explicit model to describe the different
maturity stages which ERP systems have gone through. Four overall stages in the history of ERP
development can be identified and described with SAPs product suite as examples.
The first version of SAP was developed in the 70s and was called R/1. R/1 was a financial
accounting package. The next version was called R/2, and had a more broad scope. R/2 was
general business application software. SAP R/1 and SAP R/2 can both be considered part of
the first stage of ERP systems maturity. These systems had an entirely internal scope, and were
aimed at solving very specific problems. Furthermore they were monolithic applications which
ran on centralised hardware such as a mainframe computer, which is why we will label this
maturity stage Monolithic ERP. During this period, ERP systems were standardised, though
there was a trend towards more adaptable systems(Muir & Kimbell 2008:32-33).
SAP R/3 ushered in a new age of ERP systems. ERP systems were no longer a matter of pro-
grammers writing code. R/3 introduced a world of applications and user interfaces that made the
system more accessible to users. Furthermore, SAP R/3 was based on a three tier client-server
architecture. This made the system more flexible. Finally, SAP R/3 aimed at ensuring abstraction
of the technology in the system. This meant that users and even programmers would not need to
understand the underlying code in order to use or customise the system(Muir & Kimbell 2008:34-
36). This is an example of a new maturity stage which we will label Client-server ERP.

42
 Gartner Groups notion of ERP II by the turn of the century marks a new maturity stage for
ERP characterised by integration with e-commerce and web technologies to enable a more
collaborative environment for users(Muir & Kimbell 2008:36). The characteristics of ERP II have
already been described in the section called Perspectives of ERP systems. The trend towards
ERP II represents the third stage of ERP systems maturity, and we will use Gartner Groups
notion of ERP II as the label for this stage.
Today, ERP systems are characterised by a continuous focus on flexibility as well as differen-
tiation and productivity, as described in the sections on SAPs ESOA approach and the 3gERP
project at Copenhagen Business School. This is achieved through the use of SOA and open
standards. We will label this stage ERP III.
The four ERP maturity stages are summed up in the table below:

Stage Monolithic ERP Client-server ERP ERP II ERP III

Web-enabled,
Architecture Monolithic Client-server SOA
client-server
Hardware Mainframe Servers and PCs Any hardware Any hardware
Flexibility Low Medium Medium High
Organisational
Internal Internal Internal/external Internal/external
scope
Purpose Specific General General General
Automation/col-
Business impact Automation Automation Differentiation
laboration
Table 2: ERP Maturity Model(Own Production)

The classification of the ERP maturity model into the four stages reflects a subjective interpre-
tation of the development of ERP systems since the 70s. Being an interpretation, this classifica-
tion just as the characteristics of each stage could be subject to further discussion. However,
what cannot be questioned, is the fact that ERP systems have matured considerably since the
first financial accounting system was created in the 70s. This is satisfyingly reflected in the
table, which makes it suitable for our purpose: To understand the developing strategic impact
of ERP systems and the way in which this affects and is affected by EA.

43
Joining EA Maturity and ERP Systems Maturity
Just like ERP systems the progress in an EA programme can be described with a maturity model.
To illustrate the connection and increasing need for EA as the governing frame around an ERP
system, we will compare our newly created ERP maturity model to an EA maturity model.
The model that we will use for this purpose also has four stages. It can be seen below. The
purpose of the model is to illustrate the characteristics of the different phases in an EA pro-
gramme:

Business Standardised Optimised Business

Silos Technology Core Modularity

- No - Technology - Digitising - Enables

technology standards core data and/ strategic agility
standards reduce or business through
platforms and processes to customised or
- Focus on complexity capture the reusable
delivering essence of their modules
solutions for - Investment in business
local business shared - Ideally, the
problems infrastructure - Centralising distinction
business between IT and
processes business
disappears
- Identify IT
capabilities
required to
implement the
company's
operating
model

Figure 2: EA Maturity Model(Own Production Based on Ross, Weill & Robertson 2006:72-83)

In an ERP context the model is interesting since it describes the technological and business-
related possibilities enabled by each EA maturity stage. This implies that an enterprises EA
maturity level will have an impact on the potential benefit from an ERP system. Given the
maturing perspectives of ERP systems, EA maturity becomes increasingly important to achieving
full benefit from an ERP system.
If we compare the ERP maturity model to the EA maturity model, it can be seen that the first
generation of ERP systems, ERP I, did not require any specific architecture frame. For instance,
an old-fashioned monolithic ERP system would probably live up to its full potential in an
enterprise at the Business Silos EA maturity level. The systems specific purpose and its focus
on internal automation would work just as well in this setting as in enterprises with higher EA
maturity levels.
On the other hand, in order to realise the potential strategic impact of a modern ERP III sys-
tem, most properties of the EA maturity levels 2, 3 and 4 will be necessary:

44
 A shared infrastructure with agreed upon technology standards as on EA maturity level 2
is necessary to create a service oriented architecture.
The organisation-wide scope of modern ERP systems can only become reality if core
data and processes are digitised and governed centrally as on EA maturity level 3.
Finally, if an ERP system is to create strategic distinction, it must be recognised that IT
and business are two sides to the same story as on EA maturity level 4. Otherwise the
dream of IT as a strategic enabler will stay a dream.
Many more examples of the connection between EA maturity and ERP benefit could be
given. We will not do that now, since we are only creating an interim hypothesis as the basis
for future empirical studies. Instead we will use the connection outlined above to infer that a
mature EA programme should be considered integral to any modern ERP implementation.
It is especially important to understand this link since an EA maturity level cannot simply be
acquired in contrast to a modern ERP system. Any enterprise which wishes to reach a certain
EA maturity level must work hard to reach it it can take years to move from one level to
another, and only with great difficulties can levels be skipped(Ross et al. 2006:86-87).
The link between EA maturity and the potential benefit from an ERP system forms the founda-
tion for our third hypothesis, which goes as follows:
Using EA as the governing frame is necessary to realise the full potential of an ERP system.
This hypothesis corresponds well with the idea of strategy being closely coupled to viewing
an organisations individual activities as a whole. This connection was discussed in chapter 2.
The hypothesis is further supported by Weil et al, who are concerned with the potential strate-
gic impact of IT. Their fundamental claim is that sustainable competitive advantage is enabled
by the foundation, which EA creates(Ross et al. 2006:77). This makes perfect sense since our
own definition of EA emphasises the ability to integrate strategy and operational effectiveness.
The idea of EA as the governing frame around ERP systems is also backed by Bernard, who
states that While ERPs accomplish some of the goals of EA, they fall short of providing the
holistic planning, documentation, and decision-making support that EA is intended to develop
and maintain(Bernard 2005:127).
In other words, EA allows business leaders to study an enterprise in its entirety and provides
a fact-based foundation of the implementation of an ERP system. In very much the same way,
we will now integrate our findings until now in order to allow one to study them as a unified
whole.

A Comprehensive View
A picture is worth a thousand words, the saying goes, and therefore we will try to illustrate
the relation between our three hypotheses as well as their link to competitive strategy with the
picture below:

45
 EA

Volatile
Business

Cu
sto
Processes

m
sy
ste
ER

m
s
P
III
ER
P
II
ER
P
I

Non-volatile
Business
Processes Op. Effectiveness Strategy
Context Core
Similarity Distinction

Figure 3: A Comprehensive View of EA, ERP systems, Business Processes, and Strategy(Own Production)

In order to understand the placement of EA and the different ERP generations in the figure, it
is a precondition to understand the roles of the vertical and horizontal axes. In short, the labels
on the axes illustrate the assumptions made about strategy in chapter 2, whereas the placement
of the objects inside and around the axes illustrate the hypotheses, which we have just created.

Understanding the Axes

The distinction made on the vertical axis between volatile and non-volatile business processes
is important because the ability of ERP systems to handle change has improved over the diffe-
rent generations of ERP systems. The notion of volatility is inseparable from the distinction
made between strategy and operational effectiveness which is reflected on the horizontal axis.
As we established in chapter 2, strategic advantage is dynamic: What used to be core processes,
will become context over time, and hence stop contributing to an enterprises competitive
advantage. This is actually illustrated in figure 3: The dotted arrow below the horizontal axis
marks the continuous shift from core to context from strategy to operational effectiveness.

Understanding the Content of the Figure

The three hypotheses which we have recently established are all represented in the figure.
The first hypothesis is:
Concurrently with the dynamics of competitive advantage, the scope of ERP systems is
changing to ensure a continued strategic potential.

46
 This hypothesis is not only reflected in the figure; it is also reflected in our ERP maturity
model. The various stages of ERP maturity have therefore been added to the figure to illustrate
the dynamic strategic impact of ERP systems*. The hypothesis is illustrated by each new maturity
stage covering more volatile and strategic parts of the figure than the previous ones. It follows
from the dynamic nature of strategy that the figure can only be considered a snapshot of the
present situation. ERP I may have had a significant strategic impact at the time of its introduc-
tion. But systems similar to ERP I are considered obligatory today, which is why ERP I only
covers a fraction of the figure now.
The second hypothesis is:
There are limits to the potential strategic contribution from ERP systems.
This hypothesis is reflected in the figure by the fact that not even ERP III covers all possible
combinations of business processes. Rather, a dotted circle illustrates the way custom-made
systems can supplement an ERP system.
The third hypothesis is:
Using EA as the governing frame is necessary to realise the full potential of an ERP system.
This hypothesis is illustrated by the dashed square surrounding the entire system of co-ordi-
nates, which represents EA.

Strategic possibilities
Altogether, figure 3 illustrates the powerful potential in a well-considered combination of EA
and ERP systems. This potential can be summed up in a few key points:
Firstly, EA can ensure top-level attention to the strategic possibilities of IT; this can actually be
considered a precondition to strategic use of IT along with a well-functioning frame around
an enterprises IT resources(Applegate et al. 2007:426-428). As mentioned in the section on the
competitive contribution of ERP systems there is a need for contingency management in order
to achieve the optimum benefit from an ERP system. EA can deliver this form of management.
Secondly, there are obvious similarities between the purposes of an ERP system and EA. Both
are an attempt to integrate data and processes across entire enterprises. Both seek to facilitate
fact-based decision making. But where an ERP system is a piece of technology, EA is a docu-
mentation method and a management approach. Together, the concepts seem to complement
each other very well.
Thirdly, EA can handle the dynamic nature of competitive advantage and ensure that IT is
applied correctly to maximise the strategic potential of an enterprise. Moores distinction
between core and context processes is an example of this: Not only will core processes con-
tinue to become context processes. Context processes can actually get in the way of the core:
the winning teams in this new age will be those that manage context in order to make room
for core(Moore 2000:38).
In other words, there is an explicit need for an approach to handle core and context busi-
ness processes and technology, including ERP, as a whole. This alone justifies the need for an
integrated view of EA and ERP systems instead of viewing each concept in isolation.

* Monolithic ERP and Client-Server ERP are included by the common denominator ERP I

47
Part Conclusion: What is the theoretical relation between Enterprise
Architecture and ERP systems?
EA is an integrated approach to manage strategy, business processes, and technology resources
in large organisations. Since Zachmans framework for Information Systems Architecture was
introduced in 1987, the term has been in a state of constant development. Today EA can be
defined as follows:
EA is a holistic approach to documenting and managing an enterprises current and future
states in terms of strategy, business processes and technology.
The purpose of EA is to enable enterprises to make informed decisions and to implement the
decisions as efficient as possible.
In practice, an EA programme needs to address the dynamic and political nature of enter-
prises making EA a pragmatic exercise.
Whereas EA can be considered a general approach to the management of large IT land-
scapes, an ERP system is a specific piece of technology. ERP systems can be defined as follows:
ERP systems are information systems that support online, integrated real time transaction
registration, data handling, and reporting in connection with a companys business processes by
means of a central database, often in a client/server it-architecture.
ERP systems have developed considerably over the years. Starting out as specific-purpose
financial software, ERP systems now encompass most imaginable business processes. Still,
numerous studies have questioned the general flexibility of ERP systems once configured. The
latest generation of ERP systems therefore offers a service-oriented architecture which should
eliminate this short-coming.
The strategic potential of ERP systems seems to change as new and more advanced ERP
generations appear. Realising the full potential of the latest ERP generation requires some of the
organisational characteristics, which EA can enable. Underlying this fact is the primary relation
between EA and ERP systems: Achieving the biggest possible ERP success and developing a
mature EA programme are tightly connected organisational abilities.
Overall, the findings of the chapter can be summed up in the following three hypotheses:
Concurrently with the dynamics of competitive advantage, the scope of ERP systems is
changing to ensure a continuous strategic potential.
There are limits to the potential strategic contribution from ERP systems.
Using EA as the governing frame is necessary to realise the full potential of an ERP system.
These hypotheses form a starting point for the empirical study which is described in the fol-
lowing chapter.

48
49
50
 4
Chapter 4 Empirical Findings

On the other hand, if you have some people in the implementation of ERP,
who understand how to engage the business and how to make the business
understand the way the ERP system works, it is crucial for success (the au-
thors translation of appendix C:3)
Nils Bundgaard

51
52
Chapter 4 Empirical Findings
Having established the theoretical foundation for a comprehensive understanding of EA and
ERP systems, the time has now come to compare our theoretical findings to the realities of an
empirical study. Our empirical study is based on four sources: Carlsberg, Post Danmark,
Accenture and Rambll Management*.
Carlsberg and Post Danmark both present specific cases of combining EA and ERP systems
in practice. We will go through these cases one at a time. For each case we will revise the
hypotheses we created in the previous chapter; by doing this, we synthesise our theoretical and
empirical findings.
Accenture and Rambll Management are consulting companies, and the empirical material
from these companies is of a more general nature. We will therefore use the empirical material
concerning these two companies to support our final conclusions.
To conclude the chapter we present a revised version of the comprehensive model presented
in chapter 3.

The Case of Carlsberg

Carlsberg is a large brewery headquartered in Copenhagen, Denmark. At the moment
(January 2009) Carlsberg is in the middle of a large ERP project, which aims to integrate six
different SAP-installations in nine countries into one solution. The project is scheduled to end
in 2013 and is carried out by Carlsberg IT, a subsidiary company(Mllerhj 2008). We will now
look into the content and perspectives of the project. Our source is an interview with
Anders Odgaard, who is Senior Application Director at Carlsberg IT**.

A Matter of Standardisation and Integration

In general, Carlsbergs integration project is not considered a traditional ERP project, rather it is
considered a business project. This is expressed by the goal of the project which is to standardise
business processes and to integrate master data across the nine affected countries. The actual
ERP solution developed as part of the project is only considered a means to reach this end.
The project scope distinguishes between production IT and traditional ERP. Production, plan-
ning, and similar business activities are not part of the project, though these are subject to a
high degree of standardisation as well. Only supporting processes such as finance, controlling,
HR, sales, marketing, and procurement are included.
If you look at the project from a value chain perspective, there is a differing degree of stan-
dardisation and integration in the various parts of the value chain: The closer we get to the
customers, the more diffuse the picture becomes. [] Because in that area, Carlsberg is not the
only driver behind the standardisation(The authors translation of appendix D:1).
Since the project integrates solutions across different countries, Carlsberg has to handle a lot
of different ways of distributing beer. In some countries, Carlsberg may have to distribute beer
directly to bars and pubs bundled with all kinds of non-beer products; in other countries beer is
distributed through a network of distributors. In effect, the bargaining power of Carlsbergs

* Transcriptions of all interviews related to the empirical study can be found in appendices A-E
** The following section is entirely based on the interviews documented in appendices B-E, but only explicit citations are
referenced.

53
customers forces the brewery to adapt its business processes to the individual needs of its cus-
tomers instead of just standardising processes across countries.
One should think that a similar tendency applies for the integration towards suppliers. How-
ever, in the case of suppliers Carlsberg has considerably more bargaining power because of the
size of the brewery. Therefore Carlsberg can demand more standardisation from suppliers than
is possible from customers. For that reason, this part of the project aims at two things: Increased
efficiency, and, as a derived effect, an improved overview of the quality of the different supplier
relationships.
We will get to the overall motivation and ambition behind the project later. Now we will
have a look at the technological background.

SAP and Microsoft in the Drivers Seat

From a technological perspective Carlsberg employs a combined SAP and Microsoft strategy. As
a starting point for any IT related investment, Carlsberg asks the question: Why not use one of
these two vendors? In practice SAP is used for everything transaction related, whereas Microsoft
software is used for all presentation of data.
This strategy is based on a recognition that Carlsberg has already invested huge amounts of
money in the existing platform based on SAP and Microsoft:
It will be reasonable to exploit that we have business knowledge on these two platforms
in-house. Because it will be an enormous switching cost [] and then we could choose
Oracle or Baan, and then we would have to conclude that moving the entire organisa-
tion to a new platform would cost more than the entire project.(The authors translation
of appendix D:6)
In other words, Carlsberg is locked-in to its existing technology base. However, it should be
noted that Carlsberg does use best-of-breed solutions from other vendors in selected areas. This
is based on the recognition that if you force everything into the combined SAP and Microsoft
platform, you will not always be able to meet the enterprises needs to a satisfying degree.

Project Motivation
From a business perspective, Carlsbergs IT strategy is much more than just SAP and Microsoft.
Carlsberg has chosen to integrate data and to standardise processes across nine countries; there
are three overall reasons for this:
To begin with, Carlsberg wishes to lower Total Cost of Ownership of its IT platform (TCO).
Second, Carlsberg needs an IT foundation which enables faster adaptation to changes of the
business model. And finally, Carlsberg wishes to reduce the complexity of its IT set-up which
is also considered a lever to lower IT costs.
One might say that Carlsbergs use of IT aims at both creating operational effectiveness to
lower costs and creating a strategic advantage by helping the company respond to changes.
In fact, Carlsbergs internal view on IT is changing, and Carlsberg IT wishes to develop itself
into a strategic partner to the main business:
Until now, the mantra has been: IT must just deliver when the business has decided
what it is that they want. [] And here, the challenge is actually: How do we get to put
IT more on the agenda [] the thought is that we must support what they need, but we

54
 must do it in line with our strategy and our principles regarding enterprise architecture.
(The authors translation of appendix D:6)
Anders Odgaard believes that IT can potentially play a more strategic role at Carlsberg:
IT can actually be an enabler for sales or development of your business. And I dont think
that we are quite there yet. Because we actually consider this a pure business project.
And then you look at IT more like a tool, more than you look at what possibilities do we
have, if we actually open the box a little bit more?.(The authors translation of appendix
D:6)
The use of EA at Carlsberg can be taken as a token of this development. Therefore we will
look into this subject now.

Carlsbergs Use of EA
EA is a quite new thing at Carlsberg, and the recent focus on EA is a result of a report from
Gartner Group which recommended EA as a future focus area for Carlsberg. The overall pur-
pose of EA at Carlsberg is to provide a framework for IT decisions. As an addition to the SAP
and Microsoft strategy, Carlsbergs EA programme provides a guide for Carlsberg towards decid-
ing when to step outside the existing platform, and when not to. In this way EA ensures
Carlsbergs move towards a more clean an nimble IT environment.
Anders Odgaard expects a two-sided outcome of the EA programme:
It is going to affect our interaction with the business, what can we do, and what cant we
do? But also on the IT side to know, where do we have some challenges in relation to
cleaning up the undergrowth of different platforms and applications, but also onwards,
how do we choose things?.(The authors translation of appendix D:4)
In this way, EA is actually what can potentially create a link for Carlsberg between IT, EA and
strategy. This is why the EA programme is now considered an integrated and important part of
the ERP integration project.

Principles
At the moment (January 2009) Carlsbergs EA programme is still in its making, and therefore
some questions regarding the programme must remain unanswered. However, as a starting
point, Carlsberg expects to create seven or eight basic principles as a guide for most IT related
decisions. The primary principle is to work within the strategic platform whenever possible. If
that is not possible, one must move on through the principles, until only one application choice
matches them. In that way, Carlsberg IT considers EA as a way of creating a fact-based founda-
tion for IT decision-making:
With enterprise architecture just like so many other things, a 90-10 rule, or an 80-20 rule
applies. [] this is the main track we are following. And then we know very well, that
from time to time there is a side road that we have to take. What enterprise architecture
does [] is to guide us to make the right choices.(The authors translation of appendix
D:5)
One might say, that in addition to providing decision-support, this process serves as gover-
nance of exceptions. And as we recall, exceptions, the ability to do something different, is key
to strategic action. We will therefore investigate Carlsbergs way of differentiating based on IT.

55
Differentiating on IT
Since an ERP system is a central part of Carlsbergs application landscape, it seems reasonable
to ask the question: How can the systems standard, best-practice processes create strategic dif-
ferentiation? At Carlsberg this question is not hard to answer: Best-practice processes are only
considered a starting point, not necessarily the blueprint for a final solution.
SAP actually markets a brewery-oriented solution with what is considered best-practice
within the brewing business. And naturally, Carlsberg can match this solution in a lot of areas.
However, according to Anders Odgaard:
then there are some other areas, where you say, well, maybe what makes Carlsberg
unique in some areas, is that we dont do what everyone else does. So therefore it is not
necessarily best-practice which defines how we act, it is more a choice about saying, this
is where we will differentiate and do things in another way.(The authors translation of
appendix D:7)
In the end, with best-practice processes as a lever, Carlsbergs EA can be adjusted in order
to optimise procedures, employ less resources, and maybe thereby free resources to be able to
apply them to activities which create more value; this is actually considered one of the most
important benefits of the project.

Relation between EA and ERP

It is obvious that there is a relation between ERP and EA at Carlsberg. EA helps Carlsberg IT
make informed decisions regarding its platform in order to secure the right application environ-
ment. Actually, Anders Odgaard believes that running a large ERP integration project like the
one at Carlsberg would be a significantly different challenge without EA:
I think the SAP project would be there, but we would probably have a more diffuse land-
scape. [] What we really want, and what it needs to fit into, if that is unknown, when
we make an application decision, then it will all fall apart. And then things become more
emotional than fact-based.(The authors translation of appendix D:5)
Among other things the obvious relation between EA and ERP systems as illustrated by the
Carlsberg case is a crucial part of the three hypotheses. Therefore we will now look into the
implications that the Carlsberg case has to them.

The Hypotheses Compared to the Carlsberg Case

On the face of it, the Carlsberg case seems to support the hypotheses established in chapter 3
well: The case documents a clear positive correlation between the use of EA and obtaining the
desired benefit from ERP systems. However, if we dig into the Carlsberg case in more detail, we
will see that at least in some areas things are not as straightforward as they look.

The Scope of ERP systems

Most importantly, it is hard to find evidence in the case to support the first hypothesis:
Concurrently with the dynamics of competitive advantage, the scope of ERP systems is
changing to ensure a continued strategic potential.
On the other hand, it would not be reasonable to conclude that the Carlsberg case rejects
the hypothesis. The hypothesis is based on an overall view of the development of ERP systems

56
through time, while the Carlsberg case represents a snapshot of the current situation. We must
therefore consider the case unsuitable for falsifying or sustaining the hypothesis. We will accept
this for now. However, to ascertain the validity of the hypothesis we will compare it to the case
of Post Danmark as well as the empirical material from Accenture and Rambll Management in
later parts of this chapter.

Potential ERP Benefit

The second hypothesis reads as follows:
There are limits to the potential strategic contribution from ERP systems.
The strategic contribution of ERP systems is a dominant subject in the case of Carlsberg.
SAPs ERP solution plays a major role in Carlsbergs IT platform, and it is the hope of Carlsberg
IT, that IT will play a more strategic role at Carlsberg in the future. The important role, which
the ERP system is currently playing and will continue to play, suggests that Carlsberg IT does
not perceive any immediate limits to the strategic contribution from ERP systems.
On the other hand, Carlsberg has no ambitions to extract a sustainable competitive advan-
tage from the best-practice processes of a standardised version of the ERP system. Carlsberg
considers best-practice processes a starting point for the discussion of how to design the com-
panys own unique process landscape.
In keeping with this line of thought, we will not reject the second hypothesis. However, to
include the findings of the Carlsberg case, we will refine the hypothesis as follows:
There are limits to the potential strategic contribution from ERP technology in itself; the
strategic contribution of an ERP system depends on the way the system is employed.
The idea of creating competitive advantage by looking at technology in connection with the
surroundings is very much in keeping with the third hypothesis. It also harmonises with our
initial conclusion that the competitive effect of IT depends on the way it is employed. Further-
more, Carlsberg is starting to realise that IT can play a more strategic role, if the business starts
considering it an integrated partner, instead of looking at IT as an isolated, supporting element.
Therefore we will now move on to investigate the connection between our third hypothesis and
the Carlsberg case.

Enterprise Architecture at Carlsberg

The third hypothesis goes as follows:
Using EA as the governing frame is necessary to realise the full potential of an ERP system.
At Carlsberg EA has a two-sided effect: It improves the interaction between IT and business,
as well as it helps Carlsberg IT make decisions in relation to future improvements. In fact, EA
is what links IT and strategy together. By creating a fact-based foundation for deciding how to
handle the 10-20 percent of the companys IT landscape, which do not fit well into the ERP
system, EA ensures that Carlsberg makes the right decisions in relation to its ERP system as well
as the remaining IT systems. Anders Odgaard actually states directly, that the ERP project would
not have been the same without EA; without a solid foundation for decisions, it would have
resulted in a more diffuse landscape, and the risk of failure would be greater.
In other words, the third hypothesis is fully supported by the Carlsberg case, and we will not
spend more time on it here.

57
Recap: Carlsberg revisited
The case of Carlsberg demonstrates the potential benefit from an integrated view of theory
and empirical data. Not only do theoretically established hypotheses gain more weight when
backed up by empirical material empirical material also holds the potential to improve
hypotheses.
Carlsberg is in the middle of a large ERP integration project across nine European countries
and six SAP installations. The most characteristic features of the project are as follows: SAP
plays a major role in establishing a common IT platform across the involved countries and the
establishment of an EA programme is a prerequisite to realising the full potential of the project.
The first of our initial hypotheses is not suitable for testing against the case and is therefore
left unchanged. The second hypothesis regarding the strategic potential of ERP systems needs to
be revised in order to fully reflect the findings of the case. Finally, the third hypothesis is fully
supported by the case.
Including the implications of the Carlsberg case, our hypotheses are as follows:
Concurrently with the dynamics of competitive advantage, the scope of ERP systems is
changing to ensure a continued strategic potential.
There are limits to the potential strategic contribution from ERP technology in itself; the
strategic contribution of an ERP system depends on the way the system is employed.
Using EA as the governing frame is necessary to realise the full potential of an ERP system.

The Case of Post Danmark

Post Danmark A/S is responsible for the Danish postal service. In 2003, Post Danmark initiated
a large ERP project worth 700 million DKK. As of the 1st of October 2008, the last part of the
project went live, which marked the end of the project for the present. At this point, the project
had cost Post Danmark an estimated 1 billion DKK. On the following pages we will investigate
the main challenges and benefits which Post Danmark has experienced in connection with the
project. The main source of this section is an interview with Jan Svrd who is part of the archi-
tecture group at Post Danmark.

Case presentation
Back in 2003 the management of Post Danmark had a feeling that it was impossible to achieve
a realistic, general view of the organisation. This was caused by a lack of trust in the informa-
tion which the management received from the IT department and the business units, which in
turn led to a feeling of uncertainty about decision-making processes. Though Jan Svrd is not
himself part of the general management at Post Danmark, he believes that the desire to achieve
a better data quality in order to enable better decision-making was the primary driver between
the project.
Today, at the immediate end of the project, the project is considered a definite success, and it
is believed that in a few years, all of the initial goals will have been reached.

Consuming the IT Spaghetti

Overall, the purpose of the ERP project was to integrate corporate data and to standardise busi-
ness processes. One could say that the primary purpose of the project was actually purely busi-

58
ness related: To establish a unified operating model for Post Danmark*. Instead of allowing the
dispersed departments of the enterprise to maintain their own databases and their own process
descriptions, both of these aspects have been subject to centralised governance as part of the
project. The previous existence of 14 different invoicing systems is an example of this. Today,
only three systems remain, and in the course of 2009, two of these will be eliminated as well.
The technological outcome of the project is a combination of an SAP solution and non-SAP
elements. SAP does not market a dedicated solution for mail services, and therefore the heart
of Post Danmarks operations is a non-SAP database: Of course we have a gigantic data-
base with all addresses in this country. And it is almost as expensive as the entire SAP-system
altogether(The authors translation of appendix E:10).
SAP Netweaver is used to integrate the different elements of the system landscape. The
landscape includes both SAP CRM and SAP SCM solutions, while SAP R/3 is the turning point
around which the other modules are organised.
As can be seen from the selection of modules, most aspects of Post Danmarks business are
integrated in the system. The SCM module integrates directly towards suppliers, so that new
supplies can be ordered through SAPs user interface. In the other end of the value chain, the
system offers an integrated approach to CRM, which gives Post Danmark management access
to a coherent view of its customers.
On a general level the outcome of the project is an integrated system of all business applica-
tions at Post Danmark. To understand why it is worth spending a billion DKK on that we will
now investigate the benefit model of the project.

The Business Benefit of the Project

To fully understand the nature of the benefit of the project it is necessary to distinguish between
the immediate effect of the project and the business possibilities enabled by this effect. We will
look into the immediate effect and the overall resulting benefit at first.

The Overall Benefit

The immediate effect of the ERP project is a significantly simpler system landscape. Of the 200
important applications which existed before the ERP project, only 50 remain by the end of
2008. The new system landscape results in a far better data quality than was possible before:
We dont end up with getting some figures from several different places, expecting them
to be aligned, but they dont, and its impossible to explain why. [] We have always
managed to make it look acceptable, but it is not until SAP, that we can say without a
doubt: This is what it looks like. And say it without hesitating.(The authors translation of
appendix E:5)
In other words, the overall benefit of the ERP project is an improved data quality. Several
benefits result from this basic premise.

* For more on operating models, see (Ross et al. 2006:29). It is a key point that deciding upon an operating model is a
precondition to EA. We will cover Post Danmarks use of EA in a later section.

59
Resultant Benefits
A number of business possibilities could be attributed to the improved data quality of Post
Danmarks systems. The following list of examples should therefore not be considered exhaus-
tive; on the other hand, it contains the most important ones.
First of all, the improved data quality results in an increased measurability of business initia-
tives. This, in turn, results in an improved ability to point out potential improvements of the
business: Now, all of a sudden, we can see a tendency, which we have never been able to
see before. Because we have taken it from all places. There has been a homogenous basis(The
authors translation of appendix E:6).
This is actually an example of another resultant benefit as well: The ability to create reliable
analyses across modules. When data is entered into a sales and distribution module, the same
data will be mirrored correctly in the CRM module, since they are both part of the same system
landscape.
A tangible example of this is Post Danmarks improved ability to create coherent deals with
suppliers or customers instead of creating deals with large numbers of sub deals, of which it
is very hard to calculate discounts and other price-related aspects. In fact, the ability to create
coherent deals alone has created additional revenue of 300 million DKK per year.
What sums up all of these points very well is that they have all contributed to creating a more
intelligent organisation. The improved data quality has contributed to building a more flexible
organisation in spite of the fact that an ERP system may in itself be hard to change once con-
figured, as we discussed in chapter 3. Jan Svrd sums this up perfectly himself:
SAP is a big old beast and annoying in many ways. But one should not fail to appreci-
ate the stability in the data in SAP. And the level of detail which can also be found in the
data [] What matters is to assemble and control all processes. [] And then a lot of
things may seem a bit, er... A bit odd, right? But that doesnt change the fact that it puts
you in a better position.(The authors translation of appendix E:8)

Controlling Two Tracks: A Need for Enterprise Architecture

As mentioned earlier, Post Danmarks system landscape combines SAP and non-SAP elements.
This is reflected in the way Post Danmark handles IT projects; there is a project model for SAP
projects and a project model for non-SAP projects.
What is common to both of these tracks is that all projects must go through the architecture
department. This is the department, which Jan Svrd belongs to. No projects can be implemented
without letting the architecture department create an outline for the project. This is how Post
Danmark handles EA in practice.

Enterprise Architecture in Practice

In addition to approving and influencing all major major IT projects at Post Danmark, the
architecture department also creates principles and standards to support its decisions. In this
way, the architecture department ensures the appropriate coupling between business and IT,
because the IT principles and standards of the architecture department are based on the goals
and visions of Post Danmarks management. Standards are typically created based on a decen-
tralised model, where affected departments have a say in developing each new standard. On

60
the other hand, IT principles are typically developed by the architecture department entirely.
However, even though standards and principles are the most visible output from the architec-
ture department, a more invisible part of the architecture work is probably just as important.

Enterprise Architecture as a Management Method

To Jan Svrd, the informal effort to achieve organisational acceptance of the architecture guide-
lines is key to succesful EA: We have tried some different formal things in the past [] where
IT practically decided what the business should do. Instead we have drawn a line and chosen
to implement a cooperative model(The authors translation of appendix E:8).
The consequence of this approach is that much EA work becomes a matter of discussion.
And in this connection, a discussion is considered to be a positive event in any way imagin-
able. Because, as Jan Svrd states:
If we dont agree with people, then it would be a bad idea to force them to implement it.
The people who are going to run it, use it, and pay for it. If they wanted something else.
Then it is better to discuss things.(The authors translation of appendix E:9)
The case of Post Danmark is a vivid example that management methods are an integral
part of EA. One might say that the architecture department at Post Danmark has realised the
harsh realities of EA as depicted in chapter 2: EA is a pragmatic exercise, and one must aim at
achieving the best possible solution under the given circumstances. In that way EA has become
an integrated and institutionalised part of Post Danmark. This can probably be tracked back to
the fact that Post Danmarks EA programme has been running for years contrary to Carlsbergs
EA programme, which is still in the making. This makes it ever more interesting to examine the
benefits realised through EA at Post Danmark.

The Business Benefit of Enterprise Architecture

The primary benefit of EA at Post Danmark is considered to be fact-based decision making. By
employing principles and technology standards, the subjective preferences of individuals is
replaced by objective measures: They are sacred, those silos. To remove their sacred glare - it
turns out, that every time we manage to do that - it is a revealing experience for everyone(The
authors translation of appendix E:12).
In the long term the EA programme and the resulting system landscape can release IT re-
sources from routine maintenance tasks allowing them to focus on tasks which create more
value to the company.

The ERP Project without Enterprise Architecture

On a specific level, EAs role in the management of Post Danmark is expressed in the way it
affects the ERP project. By creating an overall frame for the project, it contributes directly or
indirectly as guidance for analysts, business architects, and solution architects. The result is a
system which is as lean as possible. The result of an ERP project without EA would probably be
quite the contrary:
There would have been more in-house development in SAP. There would be less con-
trol that the same functionality was not developed in several areas of the SAP-system.
There would be significantly less reuse[...] We notice when they order something that we

61
 already have. We can say: We already have that! You will just have to use that. And then
they receive training, and then they have it.(The authors translation of appendix E:10)
In other words, without EA the ERP project would have been much more random and
inefficient.
Another way in which EA has affected the ERP project is expressed in the overall guidelines
of the project. At the beginning of the project, it was a stated goal, that where SAP did not fit
business processes, a standard system should be bought. Only where this was not possible
should a system be developed in-house.
Today, all processes which cannot be fitted into the SAP system are generally supported by
systems developed in-house. Open standards based interfaces and SAP certifications of com-
modity systems are unimportant in that connection. What matters is the ability to fit the existing
data model of the SAP system into an external addition. That is only possible with inhouse-de-
veloped custom solutions, and that is therefore the approach, which the EA programme recom-
mends. In that way the demands of EA are taken into account by the SAP-project.
This line of thought is further expressed when Post Danmark creates new strategic solutions.
These are often based on a combination of SAP functionality and added in-house develop-
ment. An example of this is a new webshop, which combines a standard SAP webshop with an
existing login mechanism. As stated by Jan Svrd, this combination was facilitated by EA: And
there, I think, enterprise architecture plays a huge role. Because without it, we would have
reached the conclusion that SAP can only solve 80 percent of the problem and then we can-
not do it in SAP!(The authors translation of appendix E:11).

Customisation of ERP
As far as possible, Post Danmark attempts to avoid adjustments directly in the ERP system.
Instead, Post Danmark typically aims at adapting its business processes. This approach has been
chosen because the high cohesion between different parts of the ERP system implies that home-
grown adjustments cannot be reused after future version upgrades. This documents a major
point made in chapter 3: Each dollar spent on customisation during the implementation of an
ERP system will result in a three-dollar cost each time customisations must be reinstalled.
The high cost of adjustments is ample reason to focus solely on standard versions of the ERP
software. This approach creates a more agile and light-weight system landscape; on the other
hand, the need to adapt existing business processes to the system requires extra effort in introduc-
ing and managing change, which could eventually seem unnecessary to ordinary employees.
In making these organisational changes successful EA ends up playing a vital role since the
management aspects of EA are highly prioritised at Post Danmark.
EA further helps in deciding when additions to the system are actually acceptable. This is
typically the case when the system has a clearly defined interface which can be expected to
persist through version upgrades. EA controls the selection of additions, and how they should
be implemented.

The Hypotheses Compared to the Case of Post Danmark

The case of Post Danmark clearly illustrates the link between a successful ERP project and an
integrated EA approach. In this way, the case seems to document at least one of our hypotheses.

62
More importantly, the case emphasises the role of EA in creating new strategic solutions, and in
doing this by combining elements of SAP and non-SAP systems. This indicates a possible con-
nection between at least two of the hypotheses a line of thought which we will pursue further
in the following section which discusses the relation between the case of Post Danmark and
our hypotheses.

Scope of ERP systems

The case of Post Danmark indicates that the perspectives of implementing ERP technology are
clearly strategic. The ERP project has enabled business possibilities at Post Danmark which
would have been considered imaginary just a few years ago. On the other hand, this does not
clearly support our first hypothesis since the case does not deal with ERP technology from a
historical point-of-view. Since this is true for the case of Carlsberg as well, we must still consider
the hypothesis to be valid. At the same time, we must also note that the hypothesis is practi-
cally unchallenged. To counter this limitation of the study, we will conduct a general discussion
of the hypothesis later with the nature of competitive advantage as a starting point. For now,
however, we will leave the hypothesis as follows:
Concurrently with the dynamics of competitive advantage, the scope of ERP systems is
changing to ensure a continuous strategic potential.
Instead we will focus on our last two hypotheses and the possible link between them.

Does Potential ERP Benefit Follow on EA Quality?

It is obvious that Post Danmarks ERP system has a strategic impact. However, what is also obvi-
ous is that this strategic impact is not created by the system alone, rather it is created through
an interplay between the system, its technological context (other applications), and its manage-
ment context (the EA programme). In other words, the case of Post Danmark fully supports our
second hypothesis:
There are limits to the potential strategic contribution from ERP technology in itself; the
strategic contribution of an ERP system depends on the way the system is employed.
As mentioned in chapter 3, the original version of the second hypothesis had its shortcom-
ings: By focusing too narrowly on ERP systems, it dismissed the holistic nature of competitive
strategy. Apparently, this second version of the hypothesis is empirically supported, as well as it
takes into account the context of an ERP system - to some degree.
However, the fact that Post Danmark creates a competitive advantage through an interplay
between an ERP system, home-grown applications and an EA programme not only supports our
second hypothesis; it also supports our third hypothesis, that EA as a governing frame is neces-
sary to realise the full potential of an ERP system. In order to reflect this apparent connection in
our findings, we will acclaim the principle of simplicity and unify the two hypotheses into one:
There are limits to the potential strategic contribution from ERP technology in itself;
to realise the full potential of an ERP system, the system must be recognised as part of a
whole with EA as the governing frame.
This combined version of our second and third hypotheses reflects the key points of both
previous hypotheses:

63
 The benefit of an ERP system depends on the way it is used
A governing frame is necessary to realise an ERP systems full potential
This new hypothesis incorporates an additional key point by stressing the importance of view-
ing an ERP system as part of a greater whole. This point can be considered a cornerstone of EA.

Recap: Post Danmark revisited

The case of Post Danmark has further refined the hypotheses as a combination of theoretical
and empirical data.
In 2003 Post Danmark initiated a large ERP project which was completed in the autumn of
2008. The most characteristic features of the project are the following: An SAP solution has had
a major role to play in the project, but the integration and combination of SAP and applications
developed in-house has been just as important. EA is the overall frame which has made this
holistic approach successful.
Just as with the Carlsberg case, the first of our initial hypotheses is not suitable for testing
against the case and is therefore left unchanged. The second and the third hypothesis have been
integrated to reflect the interdependent nature of EA, the ERP system and applications devel-
oped in-house.
Including the implications of the case of Post Danmark, our hypotheses are as follows:
Concurrently with the dynamics of competitive advantage, the scope of ERP systems is
changing to ensure a continued strategic potential.
There are limits to the potential strategic contribution from ERP technology in itself; to
realise the full potential of an ERP system, the system must be recognised as part of a
whole with EA as the governing frame.

Generalisation of Findings
The purpose of this section is to discuss the revised version of the hypotheses and to bring them
from the specific level of the cases to a general level to turn the hypotheses into conclusions.
To support our conclusions we will include the findings from the two general cases: Accenture
and Rambll Management.

The Scope of ERP systems

As discussed earlier, the cases of Carlsberg and Post Danmark do not contain empirical material
which can support nor challenge our first hypothesis. We will therefore combine this hypothesis
with the empirical data from Accenture and Rambll Management.

The General Perspective

The ERP maturity model in chapter 3 documents a change in the function of ERP systems.
Recognising the dynamic nature of strategy, this may very well reflect a continuous aim to pro-
vide a competitive advantage.
If we look at the empirical material from Accenture and Rambll Management, it sustains
this idea. Nils Bundgaard from Rambll Management mentions the need for ERP vendors to
maintain a continuos focus on responding to new market challenges. When asked about the

64
impact of SAPs new ESOA paradigm, Nils Bundgaard from Rambll Management puts the
challenge of ensuring continuous competitiveness into words:
At some time, SAP have chosen to say, that if they dont improve their existing architec-
ture and its ability to change and weve met many companies which find it hard to
change... Then SAP will not be competitive in a number of years [] It is going to be
exciting to watch the development in the following years, whether they will be success-
ful in creating that flexibility.(The authors translation of appendix C:2)
Khaliq Khan from Accenture further elaborates on the new service oriented ERP paradigms
and the effect of ERP implementations: both Oracle and SAP are working on a journey where
they are saying: Our architectural solution will be much more flexible, youll be able to glue
pieces together, to fit it to your process, as you like it(The authors translation of appendix B:1).
The statements from both consultants illustrate the effort which is being put into ensuring a
continuous improvement of ERP software. This fact coupled with the dynamic nature of strategy
seems to be evidence that the hypothesis holds true. We can therefore conclude:
Concurrently with the dynamics of competitive advantage, the scope of ERP systems is
changing to ensure a continued strategic potential.
This conclusion actually reinforces our second hypothesis, since both hypotheses are based
on the common assumption that IT is not strategic in itself, but that the strategic potential of
IT depends on the context. To examine whether our second hypothesis is also in line with our
general empirical findings is therefore a natural next step.

The Dependence of ERP systems upon the Context

As opposed to the first hypothesis, the second hypothesis is supported well by the cases of both
Carlsberg and Post Danmark. Both companies, though in different phases of an ERP project,
emphasise the need for an EA programme to ensure optimum benefit.
The outcomes of EA at Carlsberg and Post Danmark can be divided into two related benefits:
EA provides a coupling between the business side and the IT side of the companies,
which ensures fact-based and successful decision-making in relation to IT.
The ERP system in itself does not provide a competitive advantage to the companies, but
EA facilitates a holistic view of the ERP system, other applications, and the business to
create unique strategic possibilities.
In that way, the cases of Carlsberg and Post Danmark fully support our second hypothesis.
The second hypothesis is further backed by Nils Bundgaard as well as Khaliq Khan.
Nils Bundgaard states:
ERP implementations can tend to become a piece of technology work. But it also turns out
that where it is just a piece of technology work, it becomes very hard to make it success-
ful. On the other hand, if you have some people in the implementation of ERP, who under-
stand how to engage the business and how to make the business understand the way the
ERP system works, it is crucial for success.(The authors translation of appendix C:3)
On what happens when ERP implementations fail, he continues:

65
 Typically, I would say that the reason as in many other IT-projects is that you overlook
the extent and necessity of the organisational implementation [] the SAP consultants
who belong to an implementation only worry about making it run, implementing it as stan-
dard.[...] But if the precondition for a pervasive coherence is that you need to have control
of more information than before, then if you dont get that to be worked in, and encourage
a different and coherent way of thinking among the people who are to control this, then
ERP systems are not going to work either.(The authors translation of appendix C:3)
Nils Bundgaards statements document that a connection between business and IT matters
is crucial to achieving a satisfying level of benefit from an ERP system. The other part of the
hypothesis, the potential benefit from ERP systems alone, is explained by Khaliq Khan: What
your question was, is an IT-system a differentiator, customised IT a differentiator? And I said
no. Can ERP be a differentiator? Absolutely, depending on how you implement it(The authors
translation of appendix B:3).
Khaliq Khan further continues: There has to be a frame, in which all your systems exist. And
use your ERP and all the satellite systems. [] I think an enterprise architecture is essential for
any large IT project, any IT-project I would say(The authors translation of appendix B:4).
Based on these statements as well as the findings of the cases of Carlsberg and Post Danmark,
it seems obvious that our second hypothesis is in line with reality. We therefore conclude:
There are limits to the potential strategic contribution from ERP technology in itself;
to realise the full potential of an ERP system, the system must be recognised as part of a
whole with EA as the governing frame.
With both of our hypotheses confirmed, it is now time to merge them into a comprehensive
view of the relation between EA and ERP systems. To do this we will investigate the conse-
quences which our revision of the initial hypotheses has for the comprehensive view originally
presented in chapter 3.

The Comprehensive View

With our recent conclusions taken into account, the comprehensive view of EA, ERP systems,
business processes and strategy looks as follows:

66
 EA

Volatile Other
Business System
Processes
Other

ER
System

P
III
Other

ER
P
System

II
Other
System

ER
P
I
Other
System

Non-volatile
Business
Processes Op. Effectiveness Strategy
Context Core
Similarity Distinction

Figure 4: Revised Comprehensive View of EA, ERP systems, Business Processes, and Strategy(Own Production)

In many ways, the figure is equal to the original version: The axes are the same, EA still sur-
rounds the system of coordinate as a governing frame, and the three generations of ERP systems
are still represented.
The only change in the figure reflects our revised understanding of the strategic impact of
ERP systems as well as the role of custom systems in this connection. The circles representing
the different ERP generations now cover all imaginable combinations of business processes
with the exception that some business processes must be supported by custom built systems.
This is why a number of other systems are placed in the figure as well. To manage this combi-
nation of ERP systems and other types of system, EA still plays the governing role.
All in all, the figure illustrates, how EA, ERP systems and other types of information tech-
nology should be combined and understood in order to ensure the best possible business
outcomes. It should be noted that the figure is still to be considered a snapshot of the current
possibilities of ERP systems. The dynamic nature of competitive advantage will eventually result
in the system of coordinates extending upwards and to the right leaving space for new strategic
possibilities and solutions. To conclude the thesis, we must therefore discuss the challenges and
requirements which this inevitable development will present. This is what we will do in the fol-
lowing chapter.

Part Conclusion: How are Enterprise Architecture and ERP systems combined in practice?
The cases of Carlsberg and Post Danmark both illustrate the necessity of a comprehensive view
of EA and ERP systems. Both companies have run or are still running large ERP projects across
large parts of their organisations, and both companies have found it necessary to design some
kind of EA approach to support the projects as well as the general use of IT in their organisa-
tions.

67
 Without EA, both companies believe that their ERP projects would have taken different
directions. Some of the perceived benefits of EA are as follows:
increased reuse of existing components / a more lean system landscape
a more fact-based decision model which leads to better coupling between strategy,
business and IT
less expensive customisation of ERP systems
Interestingly, none of the companies doubt the competitive advantage which is created by
ERP systems. In this way, the cases form a contrast to the second hypothesis established in
chapter 3. On the other hand, both companies emphasise the need for EA to realise the full
strategic potential of an ERP system. This finding is sustained by both Nils Bundgaard from
Rambll Management and Khaliq Khan from Accenture. We can therefore revise and merge the
second and the third hypothesis from chapter 3 and conclude:
There are limits to the potential strategic contribution from ERP technology in itself;
to realise the full potential of an ERP system, the system must be recognised as part of a
whole with EA as the governing frame.
The first hypothesis from chapter 3 is not supported by the cases of Carlsberg and Post
Danmark. However, it is not challenged either. This is probably caused by the dynamic nature
of the hypothesis as opposed to the snapshot-like case presentations. On the other hand, the
representatives of the consulting companies support the idea of the potential competitive
advantage from ERP systems as a moving target. We can therefore conclude further:
Concurrently with the dynamics of competitive advantage, the scope of ERP systems is
changing to ensure a continued strategic potential.
This conclusion is what leads us to the next chapter. If ERP systems are changing to meet the
dynamics of competitive advantage, we need to investigate what challenges will become reality
in the competitive world of tomorrow.

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69
70
 5
Chapter 5 Future Challenges

What we have learned from the study of earthquakes is that buildings with
rigid structures (with bricks-and-mortar construction, interestingly enough,
topping the list) fare the worst when the ground underneath them shifts. By
contrast, buildings engineered to sway with the wave of force are able to
restore themselves to balance safely (Moore 2000:229)
Geoffrey Moore

71
72
Chapter 5 Future Challenges
As we have seen until now, the use of ERP systems reinforces a tendency to create enterprise-
wide IT solutions to enterprise-wide problems. This tendency inevitably entails a potentially
enterprise-wide strategic impact from IT. The strategic impact, however, does not come for free.
Obtaining a strategic impact from IT requires an integrated approach to IT and business prob-
lems. The thesis proposes EA as the answer to this problem.
However, the thesis also concludes that the nature of competitive advantage is dynamic.
Therefore there is a constant need to discuss what will be the primary challenges of tomorrows
competitive world and to clarify what role EA and ERP have to play in handling these chal-
lenges. That is the purpose of this section.
C.K. Prahalad and M.S. Krishnan have done a thorough investigation of the current trends
of competition and value creation. Based on a presentation of their findings mixed with other
literary sources we will discuss the requirements of future businesses. Gary Hamels thoughts
on the future of management will play a central part in this discussion. Furthermore, we will
discuss which challenges enterprise architects and ERP vendors must overcome to meet the
requirements and ensure a continued raison dtre.

The Future of Competition: Globalisation Applied

When Henry Ford pioneered manufacturing in the beginning of the 20th century, he did it on
conditions which are completely opposite to the potential challenges of future competition.
Companies were vertically integrated and goods were produced under the assumption that
customers were undifferentiated: One could have a Ford T painted any colour so long as it was
black.
While a vertically integrated value chain used to be a strength, total vertical integration is
most often a weakness today. Transaction costs have lowered substantially making it benefi-
cial to create value chains which span multiple parties(Wagter, Berg, Luijpers, & Steenbergen
2005:17) before products or services reach the end consumer.
Furthermore, the role of the end consumer has changed. Many companies offer customised
solutions to fit the needs of the individual customer. To sum up, companies respond continu-
ally to customer needs while utilising resources from across the globe: The resources of many to
satisfy the needs of one(Prahalad & Krishnan 2008:6).
We will now investigate this tendency further in order to create an overall view of the future
of competition.

Global Resources
Apple provides a prime example of the way value chains often span multiple organisational
borders. The companys iPod is the result of a global network of suppliers: The disk drives
are made by Toshiba, the RAM is made by Samsung, and the video processors by Broadcom,
whereas the final assembly of the device is carried out in China by a Taiwanese company.
The iPod itself is designed by Apple in California(Prahalad & Krishnan 2008:23).
The cross-organisational iPod value chain exemplifies the virtual organisation in which
several enterprises band together as nodes on an information network to increase scope
and scale(Applegate et al. 2007:2).

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 The immediate benefit from a global network of suppliers is obvious: Access to the worlds
best and most efficient manufacturers of specific components allows for unprecedented effi-
ciency. However, the benefits are far more complex than traditional operational effectiveness:
Product co-development across time zones allows for an incredible speed, which can yield
a significant competitive advantage. Furthermore, the access to virtually all manufacturing
resources on the globe creates the foundation for practically unlimited scalability.
Finally, and perhaps most important of all, a global network of suppliers entails access
to a wide range of knowledge resources. Each node on the network can focus on its core
competencies(Applegate et al. 2007:58). Moores idea that context activities should be out-
sourced can be realised in this way. Small companies from San Francisco to Bangalore can
focus on innovation on a continuous basis. The tendency towards outsourcing does not only
pose benefits, though. It also presents a fundamental market condition.
The globalisation applies to customers as well; competing for customers on a global scale
creates new requirements(Woods & Mattern 2006:41-42). The sum of these trends forms a
foundation for the second main aspect of the future competitive game change: The ability to
serve the unique needs of individual costumers. Without global value networks tailor-made
solutions would often become too expensive, while manufacturers would be too inflexible to
adapt to changing customer needs. To understand this, we will use Apple as an example of
how cutting-edge companies use global value networks to create solutions to match individual
customer needs.

Unique, Customer-centric Solutions

It is of paramount importance to understand that the emerging trend towards individualised
customer solutions is not equal to the by now widespread idea of mass customisation. Accord-
ing to Prahalad & Krishnan, the new age of innovation represents a departure from the traditional
firm-centric view of value creation, of which traditional mass customisation is an example. In the
future, value will be co-created by companies and customers. In this way, the customer becomes
the centre of value creation and an integral part of the cross-organisational value chain(Wagter et
al. 2005:18). This is typically done by producing goods which combine product, service, and ex-
perience to create a customisable frame which meets the needs of the individual customer. Such
a frame requires technology which is easy to use to almost anyone in order to expand the pool of
potential developers of new solutions(Woods & Mattern 2006: 59).
Apples iPod business model is a good example of this. By providing customers with a simple
music playback unit and an integrated music store, each customer can design his/her own
unique music experience. The iPhone further enhances this line of thought. In addition to pro-
viding the traditional iPod experience, the iPhone comes with an API as well as the App Store
which sells applications in a way very similar to iTunes. In this way the iPhone is much more
than a product. The API, the App Store, and iTunes allows any customer to obtain a unique,
personalised experience based on his/her own input and preferences.
The idea of co-creating value puts entirely new demands upon businesses. Technology must
remain efficient while supporting an ever-finer parsing of customer demographics, a greater
stratification of products, and more flexible supply chains and manufacturing operations(Woods
& Mattern 2006:41). Instead of delivering off-the-shelf products and then forgetting about them,

74
it will become necessary to interact with customers on a continuos basis to create partnerships.
This is in many ways contrary to the traditional ways of doing business.

New Requirements
As argued in chapter 2 operational effectiveness and strategic differentiation are both important
to a continuously viable business model. The fact that the primary challenge of future businesses
will be to meet the needs of individual consumers just reinforces this fundamental rule.
Even though the primary competitive quality of iPods or iPhones is not the price or the sound
quality, these properties must meet customer expectations just as well as the more advanced
features of the products. This dual requirement outlines the primary business challenge of the
future: Products must meet basic requirements such as availability, low price, and high quality,
and at the same time companies must be able to innovate to adapt to the ever changing
demands of the market(Prahalad & Krishnan 2008:175-176). Demonstrating efficiency and
flexibility at the same time, will be key to business success in the future.

Combining Efficiency and Flexibility an Oxymoron?

On the face of it, efficiency and flexibility are contradictory concepts. After all, if efficiency is to
be realised, variances should be avoided. On the other hand, embracing variance is a precon-
dition to flexibility. It is therefore very difficult to combine big company advantages and small
company strengths in one organisation(Applegate et al. 2007:59). This requires a technological
foundation which combines distribution and centralisation(Woods & Mattern 2006:7). Never-
theless, integrating efficiency and flexibility seems to be the dominant business challenge of the
near future: Business models often change more than once a year, and new processes must be
implemented within a few months or even weeks(Woods & Mattern 2006:4).
According to Prahalad & Krishnan the combination of efficiency and flexibility is not an oxy-
moron. However, if it is to be achieved, one must realise the fundamentally new game plan of
the competitive arena: The globalisation of resources and the customer-centric nature of value
creation.
In describing their blueprint for a combination of efficiency and flexibility, Prahalad &
Krishnan distinguish between social architecture and technical architecture. Before investigat-
ing the notion of a technical architecture, we will investigate the future role of social architec-
ture, which in turn is determined by management.

The Role of Management

Social architecture can be defined as: the sum of the systems, processes, beliefs, and values
that determine an individuals behaviors, perspectives, and skills in an organization(Prahalad
& Krishnan 2008:148).
In order to understand the connection between efficiency/flexibility and social architecture, it
is a good starting point to list Prahalad & Krishnans requirements of future social architecture.
This is exactly what we have done in table 3 below:

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 Social Architecture
Efficiency Requirements Flexibility Requirements
Culture and training are based on process Culture and management are oriented for
execution excellence change and transparency
Incentives exist for operational excellence Incentives exist for experimentation
and variance reduction
There is clarity and certainty in business Employees have the capacity to learn
process metrics and outcomes and adapt
There is clarity in performance outcomes There is clarity in decision rights to facilitate
fast change
Table 3: Characteristics of Future Social Architecture(Own Production Based on Prahalad & Krishnan 2008:182-183)

The table illustrates quite well the apparent contradiction between efficiency and flexibility.
As an example, flexibility requires incentives for experimentation, whereas efficiency requires
incentives for variance reduction. Our goal must be to create the outline of a social architecture
which accommodates these conflicting requirements. Unfortunately, modern management will
not be of much help in doing this. Gary Hamel describes modern management as follows:
as managers, we are captives of a paradigm that places the pursuit of efficiency ahead of every
other goal. This is hardly surprising, since modern management was invented to solve the prob-
lem of inefficiency(Hamel 2007:12).
Hamel goes on to credit thinkers such as Taylor and Weber with the properties of manage-
ment today: though Max Weber has been dead for nearly 90 years, control, precision, stability,
discipline, and reliability the traits he saluted in his anthem to bureaucracy are still the
canonical virtues of modern management(Hamel 2007:14).
Hamels description of modern management does not correspond very well with the require-
ments of future social architecture outlined above. A full-grown hierarchical organisation lacks
some of the characteristics necessary to attain both efficiency and flexibility(Applegate et al.
2007:61-62). Hence, if we wish to create a social architecture which matches these require-
ments, there is a need for innovative management thinking. This is Hamels exact point.

The Necessity of Management Innovation

The importance of management innovation in establishing a sustainable competitive advantage
can hardly be underestimated. In fact, management innovation may be the kind of innova-
tion which yields the highest amount of value and competitive defensibility(Hamel 2007:32,
Skarzynski & Gibson 2008:99-100). Hamels competitive hierarchy of innovation can be seen
in the figure below:

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 Management Innovation

Strategic innovation

Product/service innovation

Operational innovation

Figure 5: The Innovation Stack(Own Production after Hamel 2007:32)

Very much in line with our discussions of operational effectiveness in chapter 2, operational
innovations tend to diffuse rapidly. Outsourcing agreements, consulting assistance, and diffu-
sion of advances in technology all contribute to the transfer of best practices from exceptional
companies to mediocre ones.
Though an iconic product can sometimes lift a company from obscurity to cult status, the case
if almost the same for product innovation. Only patent protection can hinder this tendency.
Strategic innovation definitely can turn around competitive conditions. Still, Hamel argues
that a strategy innovation is more easily copied than a management innovation: Wal-marts
supposedly invincible lead in discount retailing hasnt prevented other retailers, like Costco and
Target, from flourishing(Hamel 2007:33).
On the other hand, it took American car makers 20 years to figure out that Toyotas basic
competitive advantage was based on a different management approach: Unlike its Western
rivals, Toyota believed that first-line employees could be more than cogs in a soulless manu-
facturing machine. If given the right tools and training, they could be problem solvers, innova-
tors, and change agents(Hamel 2007:29).
If we are to acknowledge Hamels proposition that management innovation is the most
durable source of competitive advantage, we need to understand the line of thought which
leads to this conclusion.

The Importance of Paradigms

Toyotas radically different approach to management is an example of paradigmatic differences:
[A] paradigm is a criterion for choosing problems that [] can be assumed to have
solutions [] A paradigm can, for that matter, even insulate the community from []
important problems [] because they cannot be stated in terms of the conceptual and
instrumental tools which the paradigm provides.(Kuhn 1970:37)
The excluding nature of paradigms can potentially limit peoples way of thinking. Findings
which counter a dominant paradigm may be perceived as false instead of refuting the para-
digm. In this way paradigms can curtail the potential of progress and new thinking within a
given subject.

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 As quoted above, it is Hamels starting axiom that the paradigm of modern management
places the pursuit of efficiency ahead of every other goal. Recognising Prahalad & Krishnans
proposition that the future of competition requires efficiency and flexibility, it is obvious that
there is a need for a paradigm shift within the world of management. Such a paradigm shift
would have a two-sided relationship to the social architecture of an organisation.
On the one hand, a paradigm which recognises efficiency and flexibility as equally important
goals would affect the social architecture of organisations the way people interact with each
other. But on the other hand, a radically different social architecture is also a precondition to
such a paradigm shift, since a paradigm shift requires radically different thinking; this is self-
evident. That is probably the reason why one of the most prominent characteristics of innovative
organisations is diversity. When people of different genders, races, cultures, and ages are as-
sembled, they obtain the ability to understand and leverage the rapidly changing demographics
of customers, markets, and employees around the world(Skarzynski & Gibson 2008:28). This
kind of diversity is a precondition to continuous innovation; furthermore, because of the ability
of paradigms to limit unconventional thinking, this diversity is also a precondition to a para-
digm shift:
The people who have got a stake in the old technology are never the ones to embrace
the new technology. Its always someone a bit on the periphery - who hasnt got anything
to gain by the status quo - who is interested in changing it.(Drexler 2005)
Unfortunately, the social architecture of todays companies rarely allows the people on the
periphery any influence on the future business development:
if you draw a typical organizational pyramid with senior management at the top, the
question is, Where in that pyramid do you usually find the least diversity when it comes
to thinking about the companys future, the industry, the competition, and the custom-
ers? It would be at the top. Yet, ironically, where in that pyramid do we place almost all
the responsibility for strategic innovation? Its invariably with the same set of managers.
(Skarzynski &Gibson 2008:29)
This is why social architecture is at the heart of ensuring competitiveness in the future. For
companies who fail to realise the need for a paradigm shift rooted in their social architecture,
there is a real risk that the train towards the future will have left the platform long before they
get there.

The Future of Management in Practice

Hamel lists a number of interesting requirements of the future of management, and indeed, if
these requirements can be met, they hold a revolutionary potential. However, one might ask,
how can this potential be realised in practice? To answer this question we will now refer to a
few examples of alternative management approaches. We will not dig deeply into these ex-
amples, that is not our purpose here. Rather, our purpose is to document that Hamels ideas are
more than just futuristic visions.
Across trades as diverse as retail, materials, and Internet search, Whole Foods, W.L. Gore,
and Google have pioneered management innovation*. Despite the obvious differences between

* Information on the three cases can be found in (Hamel 2007), chapters 4, 5, and 6. The following section is based on
these chapters.

78
the three companies they have several common denominators. First of all, the use of traditional
hierarchies as a way of managing employees is almost non-existent.

Little or No Hierarchy
At Whole Foods and Google, employees are organised in small autonomous teams. At W.L.
Gore everyone is entitled associate; there are no bosses.
Obviously, these kinds of organisations demand a well-developed sense of autonomy from
individual employees; not surprisingly, modern management theory would probably expect
these management models to result in anarchies. However, what reality teaches is, that all three
examples of management innovation are actually quite efficient. Why is that?, one might ask.
Apparently, the absence of bosses encourages individual initiative. Natural leaders flourish
in these organisations. This is a strength which is not achieved solely by eliminating hierarchy
though. The one thing which prevents these flat organisations from turning into counter-produc-
tive anarchies is the high accountability of each employee.

Accountability of the Individual

At Whole Foods new employees have to be approved by team mates. The peer-based selection
process coupled with profit rankings of each team every four weeks forces all employees to do
their best on a continuous basis: The size of pay checks depends on performance.
W.L. Gore fosters accountability in a way similar to Whole Foods. Seniority has no influence
on compensation. Once a year, all associates are ranked based on an extensive peer review:
The formula is unblinking: the more you contribute, the more highly regarded and rewarded
will you be(Hamel 2007: 92).
In like manner, Google distributes differential rewards based on added value. Though the
average salary at Google is slightly lower than the industry average, the standard deviation
around that average is significantly higher than at most other companies.
To sum up, all three example companies create incentives for employees to add additional
value instead of forcing initiative through hierarchy. This method is a way of creating account-
ability, but most important of all it is an expression of trust in the will of each employee to
make a difference.

Space for Experimentation

The very idea of trust is the foundation for a third cornerstone in Hamels examples of manage-
ment innovation: Experimentation. Instead of creating isolated R&D departments to handle
development, experimentation is an ongoing concern for all employees. At Whole Foods, small
teams are responsible for all key operating decisions. Stores are encouraged to buy locally at
the same time, so all stores carry unique product mixes.
At both W.L. Gore and Google, experimentation is institutionalised but in very unconven-
tional ways. At W.L. Gore, all employees are granted half a day a week of dabble time. This
time can be spent on any initiative of their own choosing.
Likewise, any Google employee is allowed to spend up to 20 percent of his/her time on
non-core initiatives. This approach to experimentation has actually yielded several of Googles
products.

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High Profitability
Intuitively, one could expect companies such as Whole Foods, W.L. Gore, and Google to have
a hard time achieving sustained profitability. This is not the case. These companies have experi-
enced sustained innovation which in turn leads to continuous profitability. This does not imply
that all companies should create management models similar to the ones described above. Dif-
ferent companies in different trades need different kinds of management, which would also be
revealed by closer inspection of the three examples.
Instead, there is one important lesson to learn from the cases altogether: In order to thrive in
the competitive world of the future, managers need to think of management in entirely different
ways.

Challenging Dominant Logic

The social architecture of an organisation leads to a predictable way of thinking about
strengths, weaknesses, competition, consumers, and performance. This is what determines
the organisations management style and could be called the dominant logic of the
organisation(Prahalad & Krishnan 2008:148). The dominant logic works as a lens through
which the world is perceived. Therefore the dominant logic must be challenged, if a tradition-
ally thinking business wishes to reap the full benefit of Hamels proposed management innova-
tion. As illustrated by the above examples managers must learn a basic lesson: discipline and
freedom can coexist, but not if companies rely on stick-instead-of-carrot methods for keeping
employees in line(Hamel 2007:137).
The alternative to challenging dominant logic is the status quo: Traditional hierarchy-based
management. Managers who choose to walk down this path must ask themselves if they are
willing to run the risks inherent in this management model. As Hamel points out: an organiza-
tion that worships regularity with a single-minded devotion is likely to have trouble distinguish-
ing between value-destroying irregularities and value-creating irregularities(Hamel 2007:153).
The main management challenge of the future will therefore be to challenge dominant logic.
Only by doing that can a social architecture be created which marries immediate contrasts like
obedience and creativity, experimentation and variance reduction and hence, on a general
level, efficiency and flexibility.

The IT Challenge
Hamels thoughts on management innovation are based on the assumption that ordinary
employees are capable of contributing to the competitive advantage of a company - a thought
which is clearly inspired by Douglas McGregors Theory Y(Hamel 2007:86). For instance,
Hamel places the competitive contribution of human capabilities into a hierarchy as depicted
below:

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 Passion 35 %
Creativity 25 %
Initiative 20 %
Intellect 15 %
Diligence 5%
Obedience 0%
Total 100 %
Table 4: The Relative Contribution of Human Capabilities to Competitive Success(Hamel 2007:59)

What Hamel wishes to emphasise, in keeping with the distinction between operational effec-
tiveness and strategy, is that capabilities such as obedience and diligence have a limited impact
from a competitive point-of-view. This does not imply that obedience and diligence should be
disregarded, but merely that it takes something else to achieve sustainable competitive success -
capabilities such as creativity and passion. Mobilising the imagination of every single employee
holds a potential for great competitive value(Skarzynski & Gibson 2008:238).
The need for creative and passionate employees creates very demanding requirements to the
technology architecture of the future. Employees may be brimming with creativity and passion,
but if their everyday work is based on a constraining technology platform, these valuable prop-
erties may never be expressed. Still, even though the future will require even more complex IT
solutions, the general requirements seem obviously simple: Future IT-systems must support a
social architecture which marries efficiency and flexibility. While remaining efficient, IT systems
must enable creativity and experimentation.
In this section we will investigate these general requirements in further detail. We will pres-
ent a conceptual technology model which meets these requirements. Using this model as a
starting point we will investigate the future requirements of ERP systems. Finally, we will dis-
cuss the role which EA has to play in this connection.

The Technology Architecture of the Future

Since future technology architectures will need to support both efficiency and flexibility, it
makes good sense to distinguish between efficiency-oriented and flexibility-oriented require-
ments just as we did in the section on social architecture. An example of this can be seen in
the table below:

81
 Technology Architecture
Efficiency Requirements Flexibility Requirements
Standard process templates and best-practices The ability exists to connect with multiple
applications are used devices within and in an extended enterprise
including customers and vendors
The focus is on variance reduction, to moni- The capability exists to facilitate collabora-
tor variance in business processes tion across the enterprise and its partners and
thus identify new opportunities for process
innovation and customer value
There are rigid controls for changes Interconnections are accomplished easily
with other systems from within the enterprise
and vendors
The database and systems are transaction The data focus is beyond the transactions. The
oriented capacity exists to generate insights based on
new trends and weak signals
Table 5: Characteristics of Future Technology Architecture(Own Production Based on Prahalad & Krishnan 2008:182-183)

Just as it is the case for social architecture, the requirements of future technology architecture
may seem contradictory at first glance. However, as we have already discussed, efficiency and
flexibility is no oxymoron by rethinking traditional ways of doing things it is possible to tear
down existing dogmas and reach new levels of competitiveness.
Rethinking the way we do things is exactly what Hamel wishes to do by creating an integrat-
ed view of technology and social architectures to outline the future of management. His holistic
approach to management and technology is in line with our attempts to unify the concepts of
EA and ERP systems. We will therefore use Hamels vision of the future of management as a
starting point for our discussion of future technology architectures.

The Web as Metaphor

The popular term Web 2.0 is characterised by social interaction mediated by the Internet as
exemplified by websites such as Facebook, Wikipedia, and Youtube. Web 2.0 sites have many
inherent properties which resemble the management innovation examples of Google, Whole
Foods, and W.L. Gore. A few of these are(Hamel 2007: 253-254):
Decisions are peer-based
Decentralisation
The only hierarchies are natural hierarchies
The tools of creativity are widely distributed
Capability counts for more than credentials and titles
Resources are free to follow opportunities
Hamel uses Web 2.0 as a metaphor to describe his vision of the future of management. If
the overall purpose of management is to amplify and aggregate human effort, this makes per-
fect sense: The Internet amplifies creativity and aggregates effort through pervasive, real-time
connectivity(Hamel 2007:251). If the technology architecture of the future is to align to this

82
vision of the future of management, it must likewise imitate the architecture of the Internet:
The technology architecture of the future must be organised in a pervasive network, where
small nodes can potentially be connected to any other node on the network. The current trend
towards SOA can be perceived as a concretisation of this thought, and should therefore be re-
garded as much more than a technological method. In fact, it should be considered a business
concept.
If a technology architecture resembling the Internet is built which creates a foundation for
employees on any organisational level to combine information, to extract new insights, and to
create new business processes, an entirely different kind of organisation will appear which has
the same beneficial characteristics listed above for Web 2.0.
Creating this organisation and the necessary technology architecture will require a radically
different way of thinking about IT. IT can become a valuable innovation enabler, but only if
the social aspects of innovation are recognised just as it is the case for Web 2.0. Creating
an online suggestion box for lower level employees simply will not do the job. A technol-
ogy architecture must be created which facilitates information sharing, dialogue, and access
to the history of ideas in order to understand the way ideas have been developed. Concepts
such as blogs, wikis, chat rooms and discussion forums are examples of this way of using
technology(Skarzynski & Gibson 2008: 204-205). The future technology architecture must also
provide employees with the necessary tools to turn ideas into reality by allowing for fast imple-
mentation of new concepts. Conceptually speaking, it must be easy for anyone to combine the
nodes on the network in new ways.
ERP systems can become natural parts of such a technology architecture, but this will require
radical rethinking too. In order to support simultaneous efficiency and flexibility, ERP vendors
will have to meet a number of difficult challenges.

ERP Systems in Transition

It is important to realise that a typical ERP system of today already meets many of the require-
ments of the future. In fact, when it comes to the efficiency requirements of the future, most of
them are already met by todays ERP technology: As discussed in chapter 3, the wish to bring
automation to business processes has been an important driver behind the employment of ERP
systems ever since the conception of the ERP idea. ERP systems therefore deliver proven best-
practice processes in order to reduce variances and control changes.
Some of the flexibility requirements of the future technology architecture can also be met
using ERP technology of today. As described in the ERP maturity model in chapter 3, ERP II is
characterised by an external scope as opposed to the internal scope which dominates earlier
ERP implementations. This allows for easy integration internally as well as externally. If the fu-
ture of competition is going to be characterised by a globalisation of resources, as predicted by
Prahalad and Krishnan, organisations using up-to-date ERP technology will be well prepared.
On the other hand, if Prahalad and Krishnan are also right in expecting future competition
to be centred on a dynamic, individualised customer co-creation of value, ERP systems must
adapt. As documented by the case of Post Danmark, an ERP system delivers data stability and
an impressive level of detail in the data. But in the end, SAP is a big old beast(Appendix E:8).

83
 In order to deliver the flexibility required to support new business ideas quickly, SAP and ERP
vendors in general need to create a more adaptable platform. Prahalad and Krishnans idea of
value co-creation must be realised externally as well as internally; just as customers must be
able to co-create personalised unique experiences, the internal user interfaces of ERP systems
must be flexible enough for employees to extract personalised information of any kind. Even if
an ERP system is only used as a back-end system with a third party user interface, it must still
be possible to adapt it quickly to new processes. In any imaginable way, flexibility must be a
future top requirement for all layers of ERP systems.
In the below adaptation of the requirements of future technology architecture, the capabili-
ties of todays ERP systems are reflected. In this version of the table the requirements which are
met by todays ERP systems are in bold text. The others are greyed out.
Technology Architecture
Efficiency Requirements Flexibility Requirements
Standard process templates and best-practic- The ability exists to connect with multiple
es applications are used devices within and in an extended enterprise
including customers and vendors
The focus is on variance reduction, to moni- The capability exists to facilitate collabora-
tor variance in business processes tion across the enterprise and its partners and
thus identify new opportunities for process
innovation and customer value
There are rigid controls for changes Interconnections are accomplished easily
with other systems from within the enter-
prise and vendors
The database and systems are transaction The data focus is beyond the transactions. The
oriented capacity exists to generate insights based on
new trends and weak signals
Table 6: Characteristics of Future Technology Architecture Emphasising Todays ERP Capabilities(Own Production Based
on Prahalad & Krishnan 2008:182-183)

A technology which promises to deliver some of the advantages required in the future is
ERP III. ERP III is based on a service-oriented architecture, and hence is born with some of the
characteristics of the future technology architecture: Each service can be perceived as a node
on a network, where each node can potentially be connected to any other node. This concept
should theoretically be able to form a foundation for continuous process innovation: Because
the first generations of ERP systems were very hard to change once configured, they often
transformed over time from core to context. According to Moores argument, this made them
irrelevant to competition. Once ERP III services have been configured, they can be reconfig-
ured over and over again to allow for virtually infinite new combinations of processes(Woods &
Mattern 2006:50). ERP III can therefore potentially ensure a continuous competitive contribu-
tion from ERP.
Still, whether or not ERP III presents a solution to the architectural challenges of the future
remains an unanswered question. To quote Nils Bundgaard once again:

84
 there arent that many who have moved to a more developed service-oriented com-
ponent platform like the one they [SAP] have built around Netweaver. It is going to be
exciting to watch the development in the following years, whether they will be success-
ful in creating that flexibility.(Appendix C:2)
While it is uncertain whether or not ERP III will turn out to be successful, we do know that
the trend towards SOA is the most promising approach to matching the requirements of the
technology architecture of the future. Since ERP III is based on SOA, we will therefore assume
that ERP III is a step towards a future competitive technology architecture. However, for a lot of
reasons we will also assume that ERP III will not take us there alone.

Getting There
SOA and with it ERP III represents an architectural paradigm which theoretically creates
unprecedented back-end flexibility. However, since the technology architecture of the future
must support a social architecture of learning, experimentation, and diversity, back-end flexibil-
ity will not do the trick alone. The front-end of tomorrows enterprise systems must be adaptable
to the ideas and wishes of each individual user. Without a flexible front-end, the technology
architecture cannot fully meet the requirements of the social architecture. Since the involve-
ment of customers in value creation will be crucial to future competition, this holds true for
both internal and external systems. The lack of a flexible user interface furthermore prevents the
full exploitation of a flexible back-end architecture.
One way of improving user interfaces is to look to Web 2.0 for inspiration once again. Web
2.0 websites are prime examples of customer co-creation, and so they demonstrate the
potential of providing a frame which allows customers to attain a truly individual experience.
iGoogle is a good example of this.
Googles iGoogle service(Google n.d.a) allows any user to create a personalised web page
with a mash-up of personal e-mail, RSS-feeds, weather forecasts, movie showtimes, book-
marks, etc. In fact, iGoogle comes with an API(Google n.d.b) which allows anyone to de-
velop gadgets for use on an iGoogle page. It is possible for anyone to add gadgets to a global
directory(Google n.d.c) of gadgets. In that way, iGoogle demonstrates the power of the globali-
sation of resources predicted by Prahalad and Krishnan.
The improvement of user interfaces is actually something which ERP vendors such as SAP are
working on. SAP and Microsoft have cooperated to create a product called Duet, which aims
at integrating SAP applications into the Microsoft Office environment. Through Duet employees
can perform analyses in Excel or carry out scheduling tasks in Outlook and see them reflected
in SAP applications(Muir & Kimbell 2008:240).
As an example of SAPs own experiments into user interfaces SAP CRM 2007 illustrates the
current trend quite well. The user interface in SAP CRM 2007 is inspired by Web 2.0, and SAP
representatives actually compare the product to iGoogle(Fonseca 2007). By allowing for mash-
ups, drag-and-drop functionality, and other kinds of customisation, the user interface helps
employees solve increasingly complex CRM issues. A representative of Siemens AG, an SAP
customer, stated upon the launch of the product:

85
 With [the new offerings] Web user interface, it would definitely attract users as opposed
to repel them, which was the case before [] The more flexible you can make a system,
the more beneficial it is to doing your daily work.(Fonseca 2007)
Industry observers characterised the development as follows: The Web 2.0 support in the
new SAP CRM version can help users to quickly understand customers tendencies and enable
application infrastructure products to support changing business processes(Fonseca 2007).
In other words, a user interface which makes use of the strengths of Web 2.0 as exemplified
by iGoogle and SAP CRM 2007 creates a framework for experimentation and learning cor-
nerstones in remaining competitive in the future. Therefore, if the development towards more
flexible user interfaces can contribute to creating a system, of which the potential is limited by
imagination only, that will be one of several important steps towards continuous competitive
sustainability.
All of these steps cannot be taken by ERP systems in isolation. First of all, it should be noted
that ERP systems rarely stand alone. Most often ERP systems are part of larger system land-
scapes which need an EA approach of some kind in order to ensure that they are used to their
full potential. We proved this relation in chapters 3 and 4.
Second, the use of Web 2.0 technology does not seem to imply that the importance of EA
will diminish. On the contrary, Web 2.0 technology presents new challenges which must be
integrated into an EA approach just like more well-known kinds of technology. The benefits of
employing software patterns in building social software can serve to illustrate this point.

Patterns for Social Software

A software pattern is a named description of a problem and solution that can be applied to
new contexts(Larman 2002:218). Patterns could be described as general principles for software
development; they reflect a desire to document proven solutions to general problems.
The purpose of this is to improve the software development process.
It is a defining characteristic of any pattern, that it describes a repeating thing(Larman
2002: 218). As such, patterns are not created, they are identified and decribed to allow for
reuse. This is what makes the use of software patterns for social software interesting: If software
patterns have proved to be useful for social software development, it is an indication that social
software development has requirements which are equal to those of traditional software.
Asymmetrical follow is an example of the way social software is built. The concept de-
notes a pronounced asymmetry between the number of people a user is linking to, and the
number of people who link to the user. Celebrity profiles on sites such as Twitter.com are
examples of radically asymmetrical follow. As Twitter has experienced, asymmetrical follow
creates scaling problems. Twitters architecture was not built for large scale asymmetrical follow
until it was reengineered based on a pattern called Publish and Subscribe(Governor 2008) or
Observer(Larman 2002: 372). This is an example of the potential inherent in considering pat-
terns when developing social software.
Patterns are widely used in object-oriented contexts where ideals such as high cohesion and
low coupling are considered patterns in themselves - and where increased reuse and reconfigu-
rability are the main business advantages driving the development towards better application
designs. Interestingly, high cohesion, low coupling and the derived abilities to reuse and recon-

86
figure are the exact same advantages which are put forth by proponents of the service-oriented
paradigm which dominates modern ERP solutions.
That is of particular interest from an EA perspective because EA is concerned with reuse of
existing components and knowledge through standards and principles. Patterns which encour-
age reuse and reconfigurability may be considered an integral part of any EA repository and a
natural element in building solutions, which meet the competitive needs of the future. In other
words, nothing indicates that the importance of EA will diminish in the future.

EA as the Mediator
If we are to fully understand the future role of EA, it is necessary to reiterate our definition of EA
from chapter 3:
EA is a holistic approach to documenting and managing an enterprises current and future
states in terms of strategy, business processes and technology.
The purpose of EA is to enable enterprises to make informed decisions and to implement the
decisions as efficient as possible.
In practice, an EA programme needs to address the dynamic and political nature of enter-
prises making EA a pragmatic exercise.
As can be seen, our definition of EA is divided into three parts which help to distinguish be-
tween the nature of EA, the purpose of EA, and the challenges presented by EA in practice. We
will investigate the detailed future impact on each of these parts later. Before doing that we will
look at the relation between EA and the future of competition on a general level.
An EA programme is concerned with the current and future states of strategy, business pro-
cesses and technology from a holistic point-of-view. The future will entail important changes to
each of these areas for all enterprises across the world:
Corporate strategy will be affected by a globalisation of resources, and a shift from a tradi-
tional firm-centric view of value creation towards a paradigm of individualised customer co-
creation. The changing competitive conditions and the resulting strategy will put new demands
upon the social architecture of companies; in turn this will result in new requirements for tech-
nology architecture. Thereby the new rules of competition will affect all of the areas with which
EA is concerned. This is illustrated in figure 6 below:
EA

Strategy Business Processes Technology

Global resources New Social New Technology

Individual customers Architecture Architecture

Future

Figure 6: The Impact of Future Competitive Changes upon EA(Own Production)

87
 Realising that EA will be heavily affected by the challenges lying ahead, we are inevitably led
to the conclusion that the way EA is handled is going to have a considerable impact on main-
taining competitiveness in the future. We will now discuss the foundation of this conclusion in
further detail.

The Nature of EA: The Role of Maturity

To begin with, we need to investigate the very nature of EA. As we saw in chapter 3, any EA
programme is characterised by a certain level of maturity. The degree of maturity in an EA
programme determines what the enterprise in question is capable of. In the maturity model
presented in chapter 3 we focused on areas such as standardisation and integration of data. The
model below, on the other hand, illustrates the coherence between EA maturity and flexibility.

Business Standardised Optimised Business

Silos Technology Core Modularity

Global
Flexibility
Flexibility

Local
Flexibility

Architecture Maturity

Figure 7: Coherence between EA maturity and flexibility(Own Production Based on Ross et al. 2006:80)

As can be seen, the initial levels of EA maturity represent a trade-off between local flexibility
and global flexibility. The standardisation and governance which is required to carry out global
changes seems to limit the possibility to respond swiftly to address local problems. In the later
stages of the model the apparent trade-off is neutralised, and local flexibility is improved along-
side global flexibility. This coherence has some important implications when looked upon in
the light of future competitive challenges.
Not only is a mature EA programme a precondition to realising the full potential of an ERP
system a tendency which will probably be reinforced as highly granular ERP III solutions
become more prevalent. A mature EA programme seems to be key in handling the flexibility
challenges of the future; without it organisations simply will not be able to respond as a whole
to the quickly changing needs of the market.
Still, the question remains if even the most mature EA programmes of today have what it will
take to handle tomorrows competitive demands. The intuitive answer will be negative. First
of all, the dynamic nature of strategy keeps presenting new challenges to even the best run
companies in the world. Second, figure 7 above documents that even the most mature EA pro-

88
grammes have not reached the perfect combination of local and global flexibility. Even though
the trade-off between these two entities has been diminished, it has not been eliminated. The
prime challenge of future enterprise architects will therefore be the attempt to come even closer
to this natural goal.

The Purpose of EA: The Importance of Documentation

It can be argued that while it is an important challenge to facilitate flexibility by enhancing the
concept of EA even further, EA can in itself become a powerful tool in meeting this challenge.
One of the most important motives for initiating an EA programme is the desire to document as-
sets and processes in order to make informed decisions. The documentation which EA provides
not only provides a foundation for informed decisions; it can also make it easier to imagine
new ways of doing things. Knowing the present state of things and knowing how to document
changes enables new ideas, improvements to the status quo: Its tough to imagine something
we lack the language to describe(Hamel 2007: 128).
The first step towards contesting dominant logic, towards challenging the current single-
minded efficiency paradigm, is therefore to articulate the current state of things. This is cru-
cial and at the same time difficult because there is a risk of ignoring problems because
they cannot be stated in terms of the conceptual and instrumental tools which the paradigm
provides(Hamel 2007: 12).
An EA programme may provide the descriptive tools which are necessary to think beyond
current paradigms. But it should be noted, that EA offers a solution as well as a challenge. If EA
is understood from a single-minded perspective, it will yield single-minded results only. Think-
ing beyond current paradigms and at the same time understanding the complex nature of EA
therefore presents an important future challenge.

EA in Practice: The Challenge of Understanding

The need to create a sense of partnership between IT organisations and business managers is
recognised in most enterprises. The challenge of the future lies in creating a shared understand-
ing and agenda between business managers and the IT organisation: This calls for a common
framework and a business process governance structure to facilitate dialogue within the orga-
nization to close the gap between ICT and the business managers(Prahalad & Krishnan 2008:
186-187).
An EA programme can provide these capabilities, but only if enterprise architects realise the
pragmatism which follows from the dynamic and political nature of enterprises. In this area the
role of EA will be the same in the future. This does not make things any easier though.
In order to handle the changing competitive demands of the future, senior management
involvement in IT decisions will be even more crucial than is the case today. This will require
enterprise architects to continue to put effort into communicating new and existing IT opportu-
nities to senior managers recognising that new technology may be outside senior managements
comfort zone(Prahalad & Krishnan 2008:187).
In turn, this makes it a central requirement to communicate the complex nature of IT deci-
sions. Senior managers may believe IT procurements to be a matter of commodities, which
would be a simplification in most cases. Not only ERP procurements, but IT procurements in

89
general will fail, if enterprise architects fail to make senior management understand the impor-
tance of acting with circumspection when handling IT issues.
Overall, EAs most important competitive offering is to create an integrating match between
IT and business resources. The growing maturity of EA programmes actually suggests that the
future will entail the dissolution of the distinction between business and technology; CIOs will
no longer be technology managers but business managers on equal terms(Prahalad & Krishnan
2008:194) with the remaining C-level executives.
This development holds the potential to make EA an integrated part of any companys strate-
gic decisions. But only by embracing this tendency, can enterprises secure the full benefit from
the ongoing development. A foundation based on EA may actually become crucial in ensuring
competitive differentiation in the time to come: Instead of strategies based on reacting to cus-
tomer demands and competitor initiatives, a company with a foundation will primarily base its
strategies on identifying opportunities to leverage its capabilities(Ross et al. 2006:199).
In other words, the combination of an efficient technological platform, prudent competitive
positioning, and EA as the overall governance mechanism, can prove extremely valuable. The
alternative resembles a ship without a map nor a compass trying to navigate troubled waters.
The combination of EA and ERP systems, the subject of this thesis, therefore holds a great po-
tential in terms of ensuring sustained competitiveness in the future; but harnessing the potential
of this combination will require careful consideration of the challenges listed above.

Part Conclusion: How can the combination of Enterprise Architecture and ERP
systems be used to handle the challenges of the emerging globalised marketplace?
The emerging globalised marketplace presents two overall challenges: Globalisation of resources
and individualisation of customers.
The future will imply massive vertical integration as competitors strive to create the best
mix of resources which in turn can help them deliver the best products. At the same time, the
end consumers at the end of the value chain will demand new and personalised solutions as
opposed to the mass-produced goods of the past. This trend ushers in a new age of customer
co-creation as opposed to the traditional firm-centric view of value creation.
The challenges of the future require new organisational abilities. Efficiency and flexibility,
long considered contrasts, must be married in order to deliver cheap solutions to the individual
demands of customers. Furthermore, customers must be considered part of the value creation
process. Organisations must create partnerships with customers to create a unique value offer-
ing. To solve this task both the social and technological architectures of organisations must be
redefined.
Innovation within the field of management is necessary to achieve a social architecture
which meets the needs of the future. The traditional efficiency-seeking management paradigm
must be abandoned in favour of an approach to management which emphasises flat organisa-
tions, individual accountability, and experimentation. Whole Foods, Google, and W.L. Gore are
examples of companies who have already done this. The social architecture of these companies
resembles the architecture of the Internet in many ways: It is decentralised, abandons hierar-

90
chies, and allows any resource to follow opportunities. The technology architecture which is to
support this new kind of human interaction must have similar properties.
The technology architecture of the future must be organised in a pervasive network, where
small nodes can potentially be connected to any other node on the network. The SOA trend is
an example of a movement towards such an architecture. However, new technology is not suf-
ficient in itself. The fundamentally social nature of innovation must be recognised in the design
of technology. If not, the social architecture is not supported.
ERP systems of today already meet many of the requirements of the technology architecture
of future. In particular, the efficiency requirements are covered well by existing technology.
However, not all of the flexibility requirements are met; SAP is still a big old beast. Even though
ERP III has yet to prove its worth in practice, its service-oriented approach may very well prove
to be an integral part of the technology architecture of the future.
Whereas ERP III is a new approach to organising the back-end of ERP systems, the front-end
must not be forgotten. Web 2.0 websites such as iGoogle with their user-driven, social approach
to interfaces may prove to be invaluable inspiration in the quest for an interface which meets the
needs of the future. In fact, SAP has already launched products with Web 2.0-inspired interfaces.
The use of EA standards in controlling the development of future social and technological
architectures may prove to be crucial. In fact, EA may prove to be a central mediator, because
future challenges will affect all areas of EA: Strategy, business processes, and technology.
Mature EA programmes will be key in ensuring the flexibility required by future market
conditions. The documentation methods inherent in EA will be useful tools in developing solu-
tions to new kinds of problems. And finally, an EA programme can provide the crowbar which
may be necessary to convince business managers of the importance of an integrated approach
to strategy, business, and technology in handling the competitive challenges of the future. The
future may prove it more true than ever before that a governing frame in the shape of an EA
programme is necessary to realise the full potential of technology.

Overall these findings can be summed up in the following recommendations.

ERP customers must realise that:
the main challenge of the future is to challenge dominant logic and embrace the para-
digm shift which combines efficiency, flexibility, and diversity
the idea of globalised resources and customer co-creation must be integrated into all
offerings
social and technological architectures must be aligned to handle this challenge
sustainable competitive advantage is enabled by the foundation which EA creates. A
mature EA programme is a precondition to achieving alignment
To support these requirements ERP vendors must
understand the paradigm of combined efficiency, flexibility, and diversity and incorpo-
rate it in all development efforts
keep pursuing new ways of building a more flexible platform possibly with the Internet
as inspiration
develop customer-centred user interfaces. Web 2.0 may be valuable inspiration

91
92
(Goethe n.d.)

6
Chapter 6 Closing Remarks

In the end we retain from our studies only that which we practically apply

Johann Wolfgang von Goethe

93
94
Chapter 6 Closing Remarks
This chapter concludes the thesis. It sums up the findings of the thesis in a final conclusion. It
furthermore discusses the results of the study and their methodical validity. Finally, the perspec-
tives of the thesis are discussed.

Conclusion: How can Enterprise Architecture be used to improve upon the

implementation and continuous use of ERP systems?
The concept of strategy and the distinction between strategy and operational effectiveness are
crucial to the thesis. It is a central point that IT may have a strategic impact, but that this strate-
gic impact is not caused by IT in itself, but by the way IT is implemented.
An ERP system is an example of a piece of information technology; this implies that an ERP
system creates no strategic impact by itself, but that an ERP system can potentially have a strate-
gic impact depending on the way it is implemented.
In contrast to an ERP system EA is a general approach to the management of large IT systems.
A mature EA programme has a number of properties which can be considered requirements
to realising the full potential of a modern ERP system. These requirements include technology
standards, digitised core data, and reusable modules. The thesis therefore concludes that a
governing frame in the form of EA is a precondition to realising the full, strategic potential of an
ERP system. This central finding is backed by empirical studies of Carlsberg and Post Danmark.
The cases document that EA facilitates among other things:
increased reuse of existing components / a more lean system landscape
a more fact-based decision model which leads to a better coupling of strategy, business
and IT
less expensive customisation of ERP systems
The empirical data support another important conclusion as well - even though the empiri-
cal support is not as strong as for the first conclusion: The scope of ERP systems is changing
concurrently with the dynamics of competitive advantage to ensure a continuous strategic
potential.
This is why the thesis goes on to investigate the future challenges of EA and ERP systems.
The future will present two overall business challenges: A globalisation of resources and an
individualisation of customers. The concepts of EA as well as ERP systems must handle these
challenges to ensure a continuous business potential.
The two challenges will require businesses to abandon the traditional efficiency-seeking
management paradigm in favour of a new paradigm which attempts to marry efficiency and
flexibility. This will affect business strategy, business processes, and technology three areas
which are all considered integral parts of EA. EA will therefore play a pivotal role in handling
the challenges of the future. This is expressed in several ways:
A mature EA programme is a precondition to the flexibility of technology and business pro-
cesses demanded in the future. In addition, EAs emphasis on documentation will be a valuable
tool in creating and documenting new and innovative business solutions. Finally, EA must play
the role as mediator between senior management, business managers and technology manag-
ers in order to ensure that the strategic potential of IT is realised and recognised by all parts an
organisation.

95
 ERP systems can potentially play an important role in leveraging the strategic potential of IT.
A few challenges must be met before this will be reality though. When it comes to meeting the
efficiency requirements of the future, the ERP systems of today are well suited. But if flexibility
is the goal, present day ERP systems have a few shortcomings. Once configured, ERP systems
often turn out to be hard to change.
The recent development of service-oriented ERP solutions, ERP III, may prove to be a step
towards increased flexibility. However, in addition to creating a more flexible back-end, ERP
vendors will also have to develop a front-end which enables utilisation of back-end flexibility.
Web 2.0 services such as iGoogle may be useful inspiration for this; Web 2.0 is actually used as
inspiration for SAPs latest experiments into user interfaces.
Overall, it can be concluded that EA and ERP systems in combination will have important
roles to play in the future of competition. However, this will require the recognition by both
ERP vendors and customers that the new competitive paradigm is going to affect both strategy,
business processes, and technology, and that it will require a holistic approach such as EA to
handle it.

Criticism
The findings of the thesis can be divided into two overall parts: The first part which is con-
cerned with the general relation between EA and ERP systems, and the second part which is
concerned with future challenges. The findings of the first part are generally well supported.

Validity of the First Part

The first part of the thesis concludes that the competitive scope of ERP systems is changing over
time to match the dynamic character of strategy. This conclusion is only partially supported
due to the snapshot-like character of the case study as opposed to the historical nature of the
conclusion. A study of the competitive goals underlying historical ERP implementations would
therefore be a valuable addition to the thesis.
When it comes to the other conclusions in the first part of the thesis, the combination of
theoretical and empirical data makes the central argumentation strong. However, if the argu-
mentation were to be strengthened even further, it would be a suitable starting point to expand
the methodological scope.
First of all the amount of qualitative data could be increased: More companies could be
added to the case study, and a triangulation of data collection methods could be carried out:
Methods such as observation or cultural probing* could be applied. Observations of daily work
situations can contain interesting information regarding subjects as diverse as user interfaces,
the availability of data, and the role which EA plays in daily decision making. Cultural probing
can facilitate new ideas of improvements of systems based on employees subjective percep-
tions.
Qualitative data could furthermore be supplemented by quantitative data. Quantitative data
could be used to investigate the correlation between for instance expected ERP benefit, rea-
lised ERP benefit, and EA maturity. Examples of parameters to use in this connexion could be:

* Cultural probing denotes the request for focus groups to describe their subjective perceptions of daily life processes or
technology

96
 the number of business applications involved per business process
average time elapsed from initial idea creation to fully implemented business processes
various elements in a selected EA maturity model
A quantitative study documenting the current empirical findings would greatly strengthen the
conclusion that mature EA is a precondition to realising the full potential of an ERP system.

Validity of the Second Part

The second part of the thesis disregards investigations of the present in favour of the future.
It follows naturally that these investigations are subject to a considerable uncertainty. In this
specific case the predictions are furthermore based on the assumption that Prahalad & Krishnan
are right in assuming that the future of competition will be based on a globalisation of resources
and customer co-creation of value. If this precondition does not hold true, the argumentation is
weakened.
Still, in evaluating the conclusions it should be noted that some companies already display
behaviour which conforms to Prahalad & Krishnans mentioned paradigm of competition. How-
ever, the findings should be considered probable but speculative not absolute truths.

Perspectives
If any immediate lesson can be drawn from this thesis, I believe it is related to the nature of strat-
egy the conditions which determine whether or not it is possible to obtain a position which
provides sustainable competitive advantage.
When an entirely new competitive paradigm manifests itself, the competitor who under-
stands the paradigm and employs it in a favourable way will possess an incredible advantage
compared to everyone else. Hence, as a new competitive paradigm is appearing right now,
ERP vendors and companies employing ERP systems with a strategic aim must be prepared to
rethink their business strategies and technology bases entirely. The tendency to use ERP systems
in new ways is already obvious. ERP vendors have started delivering their solutions as services
across the Internet(Andersen 2008a, Andersen 2008b), while Web 2.0 sites such as Facebook
now partner up with CRM solution providers in order to create social business software(Sandal
2008). In general, technologies which are mentioned in the thesis as possible new ways of
employing ERP are on the rise. On Gartners list of the ten most important new technologies in
2009 we find six technologies which would be natural parts of a new approach to ERP(Bang
2008:7):
Cloud computing
Web-oriented architecture
Corporate mashups
Social software/social networking
Unified communications
Business intelligence
At the same time, old-fashioned user interfaces present a major challenge on the road to
fully utilising business software: Only 23 percent of employees use the tools and technologies
provided by business intelligence, ERP, and CRM software. The biggest business challenge is to
make employees use the technology to its full potential(Thomsen 2009).

97
 If any lesson presented by this thesis should be accentuated as a possible solution to this
challenge, it is the idea that new challenges require new solutions. If employees cannot figure
out how to utilise technology because of counter-intuitive user interfaces, then it must be cru-
cial to reconsider the way user interfaces are developed. The alternative is getting what we have
always got by doing what we have always done; reluctance to change may very well become
the single biggest organisational flaw as companies across the globe realise the need to handle
a future of new and completely different challenges.
This does not necesarily bode well for ERP. If future enterprise IT solutions may be deliv-
ered by giant mash-ups of external loosely coupled Web 2.0 services, SaaS solutions, mobile
applications, and internal core functionality, then the time of the traditional, enterprise-wide
one vendor ERP system may be long gone. Enterprise architects will be the pioneers who guide
enterprises in a technological reality where distinct, loosely coupled elements are contantly
reconfigured to match the competitive reality. This ushers in a future of radically different con-
ditions which require radically different action. To quote Hamel:
real progress demands a revolution. You cant shuffle your way onto the next S-curve. You
have to leap. You have to vault over your preconceived notions, over everyone elses best
practices, over the advice of all the experts, and over your own doubts.(Hamel 2007:15)
Realising the need to think differently will unquestionably characterise the competitive win-
ners of the future. Failure to realise this need will determine the losers with an almost equal
certainty.

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Appendices
All appendices are included in pdf-format on the enclosed CD-ROM. The appendices can also
be downloaded from www.jenskeld.dk/appendices.zip

A list of appendices can be seen below.

Appendix A: Transcription of Interview with Niels Bjrn-Andersen,

Copenhagen Business School

Appendix B: Transcription of Interview with Khaliq Khan, Accenture

Appendix C: Transcription of Interview with Niels Bundgaard, Rambll Management

Appendix D: Transcription of Interview with Anders Odgaard, Carlsberg IT

Appendix E: Transcription of Interview with Jan Svrd, Post Danmark

Appendix F: Interview Guide for Interview with Niels Bjrn-Andersen,

Copenhagen Business School

Appendix G: Interview Guide for Interview with Khaliq Khan, Accenture

Appendix H: Interview Guide for Interview with Niels Bundgaard, Rambll Management

Appendix I: Interview Guide for Interview with Anders Odgaard, Carlsberg IT

Appendix J: Interview Guide for Interview with Jan Svrd, Post Danmark

Appendix K: Notice of Altered Research Question

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