Exam 2: The Development of Enterprise Resource Planning Systems

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Some reports indicate that only a low percentage of companies experience a smooth rollout of their new ERP systems and immediately begin receiving the benefits they anticipate.You should put such reports into perspective.All kinds of software implementations can suffer from delays,cost overruns,and performance problems,not just ERP projects.Such delays have been a major problem for the IS industry since the early days of business computing.Nevertheless,it is worth thinking specifically about why ERP installation problems can occur.There are numerous cases of implementation woes in the press.W.L.Gore,the maker of GoreTex,had some problems implementing its PeopleSoft system for personnel,payroll,and benefits.The manufacturer sued PeopleSoft,Deloitte & Touche LLP,and Deloitte Consulting for incompetence.W.L.Gore blamed the consultants for not understanding the system and leaving its personnel department in a mess.PeopleSoft consultants were brought in to fix the problems,but the fix cost W.L.Gore additional hundreds of thousands of dollars.Hershey foods had a rough rollout of its ERP system in 1999,due to what experts say was the "Big Bang" approach to implementation,in which huge pieces of the system are implemented all at once.Companies rarely use this approach because it is so risky.Hershey lost a large share of the Halloween candy market that year due to ERP problems from this poor implementation.Usually,a bumpy rollout and low ROI are caused by people problems and misguided expectations,not computer malfunctions.For example:·Some executives blindly hope that new software will cure fundamental business problems that are not curable by any software.·Some executives and IT managers don't take enough time for a proper analysis during the planning and implementation phase.·Some executives and IT managers skimp on employee education and training.·Some companies do not place the ownership or accountability for the implementation project on the personnel who will operate the system.This lack of ownership can lead to a situation where the implementation becomes an IT project rather than a company-wide project.·Unless a large project like an ERP installation is promoted from the top down,it is doomed to fail.The top executives have to be behind the project 100 percent for it to be successful.·ERP implementation brings a tremendous amount of change for the users.Managers need to manage that change well so that the implementation goes smoothly.Many ERP implementation experts stress the importance of proper education and training for both employees and managers.Most people will naturally resist changing the way they've done their jobs.Many analysts have noted that active top management support is crucial for successful implementation.Some companies willingly part with funds for software and new hardware,but don't properly budget for employee training.ERP software is complex and can be intimidating at first.This fact alone supports the case for adequate training.Typically,ERP training costs $10,000 to $20,000 per employee.Some analysts recommend allocating 11 percent of the project's budget for training.The cost includes training employees on how to use the software to do their job,employees' nonproductive downtime during training,and-very important-educating employees about how the data they control affects the entire business operation.Nestle has learned many lessons from its implementation of ERP systems.Its six-year,$210 million project was initially headed for failure because Nestle didn't include on the implementation team any employees from the operating groups affected.Employees left the company,morale was down and help desk calls were up.After three years,the ERP implementation was temporarily stopped.Jeri Dunn,the vice president and CIO of Nestle USA learned that the project was not about implementing the software,but about change management."When you move to SAP,you are changing the way people work… You are challenging their principles,their beliefs and the way they have done things for many,many years," said Dunn.Nestle ultimately reaped benefits from its ERP installation.Most ERP installations do generate returns.Only 4 percent of managers reported that they had achieved all the benefits that they had anticipated from their ERP installation.Thirty-eight percent of managers have achieved the majority of benefits they expected,and 38 percent have achieved about half of the anticipated benefits.