The Chief Executive Guide to EBS.
Businesses have always been information systems. Long before information became a buzzword, information flow was a corporation's lifeblood. Reports, forms, memos, tally sheets, org-charts, sales figures, above-the-line/below-the-line figures, weeklies, monthlies, quarterlies, annuals, and every other scrap of paper and crumb of data contributed to the effective operation of the enterprise.
Or failed to contribute. Information often arrived too late to be useful; other times, it languished, misfiled or bottlenecked; still more input was rendered irrelevant by companies' failure to include all the variables; other times, it was compromised by departmental or divisional myopia.
And that's why the notion of an integrated information system - an ERP (for enterprise resource planning) or EBS (a more inclusive term that treats ERP as just one type of enterprise business solution) - became so appealing, especially among those who, like CEOs, see the strategic benefit and long-term value inherent in such systems. As Thomas Davenport, director of the Andersen Consulting Institute for Strategic Change, puts it, "Every business wants a fully integrated system that would cross boundaries within company divisions, and do so in real time. Always has. The problem was that creating such a system was, until recently, too complex to be practical."
The roots of a solution to this problem first became evident in the 1970s as basic technical hurdles were surmounted by mainframe systems. Building on the integration capabilities begot by technology, the corporations began to reinvent themselves. You remember the drills of the '80s: re-engineer, shift the paradigm, just-in-time, flatten the hierarchy, think globally/act locally, and on and on. The closing quarter of the 20th century has found companies seeking new and sometimes revolutionary ways to think about themselves and their reasons for being. What made that possible was the critical technology mass required to achieve the vision of a wholly integrated, fully communicative enterprise.
This revolution began, largely, in manufacturing (although some observers argue that since it was finance that cut the checks, it was finance that got the first wave of linked technological tools for sharing and comparing information). It was in manufacturing that the integration of information systems achieved the success that prepared the landscape for the construction of systems that would span the enterprise. As early as the 1970s, manufacturers were using computer numerical controllers (CNCs) and programmable logic controllers (PLCs) to integrate and enhance production operations and communicate throughout the organization.
Today's ERP evolved from the '70s' MRP, Materials Requirements Planning, which in turn spun off MRP II, the broader - and still prevalent - Manufacturing Resource Planning. These approaches laid the foundation for the house that would become EBS, even though their key purpose was to coordinate and track manufacturing materiel, equipment, and labor. That connection gradually expanded, adding other inventory-related elements.
Through the '70s and '80s, the major players in the integrated manufacturing and productions database field emerged: MAPICS (originally from IBM), Oracle, SAP, Baan, and J.D. Edwards. The success and effectiveness of their packages led to a greater desire on the part of the enterprise for similarly effective systems in non-manufacturing functions, and to the development of additional systems, both by the original players and a number of startups.
Gradually, certain back- and even front-office functions were included in the MRP mix, both in the form of modules developed by the majors and as dedicated solutions from newcomers such as PeopleSoft, which tackled human resources integration. Other companies added other modules and dealt with other enterprise areas, with creating applications that could be bolted on to core systems from the majors.
The goal - the dream - Davenport says, "was an integrated database that offered cross-functional approaches not only to manufacturing, but also to management and such business processes as finance and sales." In short, an enterprise-wide system. But still, says Davenport, "while you could design such a system, the IT resources needed to support it simply weren't available." Mainframe computing iron may have been big and powerful, but it wasn't particularly flexible and widely distributed. You could talk all you wanted to - and plenty of people did - about intelligent organizations whose varied components all communicated with each other, but as long as the technology tools and resources weren't available, much less deployed, it remained talk.
Time and Silicon Valley took care of that. Computing power and resources moved from time-shared rarity to a near-infinite supply of processing, storage, and communications tools; those tools were put to work distributing enterprise applications to more and more aspects of enterprises.
And beyond the tactical advantages these new developments offered was the fact that CEOs and the corporations who embarked on these plans came to see the EBS, increasingly, as a means for advancing their overall strategic goals. The systems themselves could literally change the ways companies think of themselves.
But achieving these strategic goals - creating true cross-functional integration by tying together all the aspects of a far-flung enterprise - meant designing tailored solutions that were clearly beyond the reach of any one provider. New companies, therefore, continued to add components to the ERP mix. Sales-force automation, for example, long tackled by large ERP developers and hundreds of smaller firms, made a winner of Siebel Systems, which didn't enter the marketplace until 1993. A year earlier, Vantive carved out a niche with customer relationship software. By the end of the '90s, e-commerce had moved to center stage, with a competitive scramble on to develop modules and systems that leveraged e-commerce capabilities throughout the enterprise.
"An ERP system alone was not what people really used," Davenport points out. "Effective ERP formed the core, but other crucial functionality was added from third-party vendors, bolt-on fashion. In short, multiple systems were combined into a single solution."
The complexity of choices meant that not only was one-stop shopping impossible, but a third-party perspective to help analyze the enterprise, select the tools to be deployed, and manage introduction and implementation became critical. That perspective appeared in the form of systems integrators, who tackle the hardware/software side of the ERP equation and collaborate with CEOs and their executive teams to integrate the new system into the corporate culture and chart the road to real value - the pot of gold at the end of the rainbow.
More often than not, once a corporation has embarked on an EBS, its culture changes as well, with business models and goals evolving in tandem. Thus EBS has offered not simply a new way to manage information, but new ways for companies to see themselves and their marketplaces. It's one thing to have a vision - a dream - of what your business could be. But it is quite another to have a real picture of your enterprise and a path toward becoming more competitive and profitable.
Part of accomplishing this has meant moving beyond the notion that enterprise solutions are strictly within the purview of the IT department. Indeed, many companies have come to view enterprise systems as information backbones, the circulatory system whose functioning enables all other systems to work properly. But because EBSs are, by definition, enterprise-wide, their implementation can - and usually does - result in dramatic changes to the way an enterprise goes about its business. And their promise is far greater than the flexibility and efficiency wrought by technology itself. It's the new ways it provides of defining marketplace advantage, serving customers, launching new products, and understanding and controlling customer/product profitability.
"As more and more systems become linked, more patterns become discernible," Davenport says. "And from those patterns comes the real value of EBS: the ability to model, forecast, and plan, and to coordinate those functions and processes internally throughout your organization, and externally with your partners. Instead of just using ERP to run your business transactions, we're seeing EBS as providing information that can be turned into knowledge. How can you best analyze your data? How do you make sense of your operations and structures? How do you manage your enterprise?"
Still, because of the financial and time commitments required to undertake an enterprise solution - and the horror stories told by executives who ventured in unprepared - some companies have held back. But not for long. As they watched competitors reap the benefits, more and more have realized that moving in this direction is not only increasingly safe, but essential.
THE JOURNEY: ROOTS
In the late 1980s and early 1990s, interest in biotechnology was growing fast, and PE (then known as Perkin-Elmer) Corp.'s $1 billion PE Biosystems operating division, which supplies instruments, reagents, software, and services to the life-sciences industry, was growing along with it. But PE Biosystems, which operates in more than 100 countries around the world, was using different systems in different areas, and its main accounting system was aging and difficult to update. In short, the company's technology and growth were on a troubling collision course.
Introducing EBS into a business has been compared to renovating a house. And like a renovation, the process can be smooth and efficient - or it can be costly and wasteful. Either way, without careful planning and a clear vision of the outcome, it can cost more money and take more time than you expect.
The business itself is the house's foundation. Everything else - walls, wiring, plumbing, furnishings, and landscaping - is the province of the EBS architects, designers, and contractors. (With luck the foundation slab itself won't need too much work, but it's not unheard of - nor unexpected - for the sledgehammers to come out.)
The first step is to take a tour of the existing property. This should occur well before the plans are drawn. Think of your EBS consultants as architects, helping you rethink every wall, every window, every room, every closet, every piece of furniture.
Nor should the occupants of those rooms be neglected. Andersen Consulting's Christy Bass notes, "Everyone needs to be involved in the process, but everyone needs to understand that an effective EBS won't provide a textbook solution to re-engineering a company."
In other words, it's a custom renovation, regardless of how many stock components might be used.
"You want to make sure," Bass says, "that the basic plumbing and foundation are in good shape. Then, as the renovations get under way, you need to rebuild with systems that are capable of growing and evolving as your company and the underlying EBS technologies do."
The blueprints for the new structure will begin to take shape. Some wails will be moved; others will be knocked down. New spaces may be added. People may be moved from one room to another; some may be asked to find another house altogether.
The project could take months or years, and the ongoing maintenance, expansion, and interior design will continue indefinitely. Still, throughout the process - and even because of it - your house will be rendered more efficient, more comfortable, and more valuable.
There comes a time in the history of a company when it may simply hit a brick wall. It must improve its operations, and it has a fair idea of what the end result should look like. But it doesn't have the tools to make it happen.
At Mott's, for example, the migration toward an enterprise business solution began in 1994. "We started with two things," says Jeff Morgan, vice president for information technology. "We were concerned about the future of mainframe-oriented information technology. And we had business initiatives we were afraid we could not accomplish with what we had."
One of Mott's planned initiatives was to empower its customer services group. "We wanted them to have access to financial information and to inventory levels by plant and warehouse," says Morgan. "This access was impossible with the mainframe. Like many mainframe systems, ours was a patchwork quilt of different applications. The processes were out of sync, and the system was inefficient."
Getting closer to the customer is perhaps the best and highest rationale when considering EBS. "Companies undergoing significant change are often looking for better, more centralized, and more coordinated ways to serve their customers," says Karl Newkirk, global managing partner, Enterprise Business Solutions, at Andersen Consulting. "Virtually all big change projects are built on putting more and better information in the hands of end users, and on the desire to meet customer needs," he says.
Such thinking inserts the concept of "business value" into a company's contemplation of EBS because stronger customer support can extend competitive advantage. Conversely, taking a purely technological approach limits the extent to which business requirements define the approach. For example, "There have been projects driven by the desire to take care of Y2K problems in legacy systems," says Newkirk. "Some companies determined they'd rather replace than remediate those systems."
In these cases, however, not enough thought may have been given to the satisfaction of critical business needs or to the migration from a functional to a process orientation. "Projects that are technology-driven may be viewed as failures by the businesspeople," says Newkirk. "They had expectations that were not met."
In the case of Eastman Kodak, an extensive benchmarking process conducted half-a-decade ago found the company wanting. "We found that back-office costs, such as human resources, information systems, procurement, and finance were too high," says CIO John Chiazza. "We had fragmented processes and data. It was systemic within the organization." New company leadership and globalization converged to drive Eastman Kodak's thinking toward developing a centralized data and planning system.
For many companies, globalization has meant increased reliance on far-flung suppliers and the development of extended, virtual supply chains. Making these relationships possible, practical, and profitable is a key purview of EBS.
THE JOURNEY: RATIONALE
In exploring a way to replace its computer systems, PE Biosystems recognized the value of having integrated, enterprisewide information. But the company had a far more urgent need. "We weren't looking for a specific dollar payback that you could quantify," says Debara Lutkenhouse, vice president of worldwide customer service and distribution. With growing volumes, the company's aging systems became overloaded as sales were closed at the end of each quarter. "Many times, the system would literally shut down. So we just couldn't support the business growth with the current system."
accelerators: software features or installation practices that speed up ERP implementation.
analysis paralysis: overdocumenting existing business processes when they are about to change.
API (application programming interface): software components that allow systems to communicate with one another.
APO (advanced planning and optimization): a manufacturing and supply-chain enterprise system
backbone: the core ERP system.
balanced scorecard: an analytical tool that allows performance comparison from a baseline.
bolt-on solution: a software component that is integrated with, but not an original part, of the backbone.
cutover: switching operations from a software package to an upgrade or replacement.
data architecture: reconciling nomenclature across multiple business units; facilitates streamlining of information flow.
data cleansing: reconfiguring data so that information gathered from diverse databases conforms to the new architecture.
data warehouse: master enterprise database - aggregates all the information pertaining to an enterprise for retrieval into, and use in connection with, a variety of applications across the enterprise.
flow manufacturing: a manufacturing technique that strives for a constant: and smooth flow of inbound materials and outbound product.
gap analysis: an examination of the discrepancy between the desired results of an implementation and what a given software package can deliver.
going live: getting the software up and running.
homogenization: implementing projects across the supply chain or across multiple business units.
legacy software: a company's aging computer system, nearly always mainframe, often home-grown, and usually using obsolete operating systems.
life-cycle support: servicing the software and the surrounding processes from the time of implementation through decommissioning.
migration: moving from one system or application to another.
MRP II: manufacturing resource planning, a progenitor of ERP.
rollout: implementing the project beyond the pilot and across the planned enterprise scope.
scope creep: the tendency for the scope of the ERP project to increase as the project progresses.
SI (systems integrators): consultants who work on the implementation of the system.
TCO (total cost of ownership): the price of the hardware, software, and implementation, plus internal staff time overhead, and the ongoing costs of operations management and upgrading.
templates: shortcuts through the implementation of some enterprise processes, sometimes designed as a less than full-blown implementation of ERP, sometimes designed by SIs to facilitate industry-specific processes.
One way to approach the EBS decision is to consider first why not to proceed. "The cultural shift to a community of contributors and gleaners [of information] must be well understood," suggests Greg Strachura, a partner in GSA, a Chicago-area supply chain management consultancy. "If this stage proves daunting, pause and go no further."
Andersen Consulting's Tom Davenport suggests that CEOs ask themselves about the source of their company's competitive advantage. A key question: "Am I in a business where constant change is necessary?" "For instance," advises Davenport, "if new product development is your forte, EBS might not do much for you. However, if you are competing on cost, it may prove to be an interesting discussion." The greatest benefit EBS has to offer, says Davenport, is for companies involved in the mass production of commodities or that compete on the speed and accuracy of product delivery.
Companies should focus on where they need the most help and where they can derive the most business benefit. "No one does complete ERP," says Vinnie Mirchandani, vice president for business applications at GartnerGroup, a Stamford, CT-based technology research organization. "Smaller drivers energize projects."
Sears, for example, first implemented EBS where it could derive the greatest corporate-wide benefit. This proved to be in human resources, says Ken DeWitt, Sears's vice president for information technology. "When we are finished with that implementation, we will have 320,000 people in 3,800 locations being paid from one system," he explains. Sears has been testing PeopleSoft's general ledger in one of its divisions and plans to roll out that application into another of its units later this year. It also has a commercial sales application in the planning stage but is still searching for modules that will help it with merchandising and logistics. "The sheer size and volume of our operation presents a problem," says DeWitt. "We need something robust enough to handle the kinds of volume we have."
Eastman Kodak had a re-engineering effort focused on globalization underway when it began to look into EBS five years ago. "It was a question of linking [EBS] with our reengineering," says CIO John Chiazza. "We identified the pressure points and came up with three areas of focus: order to cash, demand-supply management, and the final stages of manufacturing."
EBS decision making is immature in too many companies, notes Mirchandani. "It is amazing how many projects get funded for $50 million or $100 million without sufficient payback analyses," he says. "Too many companies emphasize soft justifications such as improving the quality of information or supporting emerging best practices." These benefits are not given to quantification. "If you can't measure it, how are you going to manage it?" he asks.
Better, he says, to look at the efficiencies and the ROI that come from data rationalization and the streamlining of business processes and structures. Potential savings from automated data capture, lower transaction costs, higher inventory turns, and more efficient customer service can be quantified, Mirchandani says, and the success in the delivery and timeliness of those results can be measured.
In addition, it's useful to consider in making this decision that it is not EBS itself, but the processes that EBS facilitates, that will differentiate a company from its competitors. "Your customers will not be impressed that you have an SAP order entry system," says Mirchandani. But they may be impressed if your order entry system helps provide an enhanced level of customer service.
For manufacturers, taking time and cost out will delight customers. "Intel used EBS to streamline its manufacturing process," says Davenport. "It freed up labor to focus on more important things." One manufacturer succeeded in its EBS implementation because it was laser-focused on reducing cycle time. "The CEO structured everything around manufacturing the product quicker and delivering it precisely when promised," says Mike Donovan. "Not only did he realize a competitive advantage, but he got a price increase as well."
One potential barrier to the EBS go-ahead involves doubts about whether packaged programs will take a company in its chosen direction. One way to get over that hump is to influence the development of the software. For example, American Century Investment, a Kansas City-based mutual fund company with $85 billion under management, had already implemented a PeopleSoft general ledger when it began to discuss a vision for a future EBS with its vendor. "They were then designing Enterprise Performance Measurement, a balanced scorecard product," says CFO Robert Jackson. "Our discussions showed that our philosophies were aligned. They thought we would be a good candidate for beta testing. We had the advantage of being able to influence the design of the product."
THE JOURNEY: DECISION
PE Biosystems decided to move to SAP, in part because the company's Japanese operation was successfully using it, and with the urgency of its systems problems, there did not seem to be any reason to use anything else. The company also decided to use the opportunity to implement global, consistent processes across its business units. That approach typically requires intense discipline and political skill - but in the long run, says Vice President and CIO Ronald Edelstein, "The truly important competitive edge will come not from SAP, but from our commitment to global business processes."
EBS: 6 POINTS
The promise of EBS rests not in the technology itself but in how that technology is used - strategically and with an eye toward value. A guide to this guide:
The strategic imperative
"The answers to [questions about software] lie in focusing management time and company resources where they will do the most good. The means starting not with the software, but with a clear understanding of how the company wants to operate in the future, and the processes it will need to support that vision." (pages 6, 8, 9, 28, 31)
The value proposition
"EBS's promise is far greater than the flexibility and efficiency wrought by technology. It's the new ways it provides of defining marketplace advantage, serving customers, launching new products, and understanding customer/product profitability." (pages 7, 10, 12, 13, 31, 32)
The electronic dimension
"While everyone and everything is now connected, increasing efficiency and decreasing costs, there's a whole world of suppliers and customers out there to which you can also connect. This is where the Internet comes in...." (pages 13, 29)
The push for differentiation
"'Your customers will not be impressed that you have an SAP order entry system,' says Gartner's Vinnie Mirchandani. But they may be impressed if your order entry system helps provide an enhanced level of customer service." (pages 8, 10)
The importance of top-level commitment
"While, on some levels, the CEO may actually be wreaking havoc on his organization by pulling people out of their jobs and setting stringent implementation deadlines, he can smooth over some of the dislocation by showing his people the big picture." (pages 12, 20, 21, 22, 23, 24, 25, 26, 27)
The portfolio approach
"Overall, dealing with a portfolio of applications may never be as simple as dealing with a single EBS. But the approach does promise to give executives an effective way in which to strike a balance between speed, cost, and flexibility in their technology - and to focus the company's resources on solutions that can make it more competitive." (pages 28, 29, 30)
If a customer focus is one of the best rationales for considering EBS, a CEO ought to see to it that the customer is also the starting point in the development of the EBS plan. "Identifying what your customers really want and need is the first step," says R. Michael Donovan, a technology consultant from Framingham, MA. "The next is to assess your as-is business processes compared to your customers' requirements and expectations."
And once you've chosen a software package that best addresses your business needs, performing a gap analysis will help shape the plan, provided you don't fall into the trap of "analysis paralysis," says Gartner's Mirchandani. "At that point, you can decide on your options. Among them: customizing the base software, looking for bolt-on applications, and changing business processes to fit the software."
Choosing the appropriate option involves asking a number of questions, says Andersen Consulting's Davenport. "How would we like to do business? How much standard functionality can we take? What does the software allow us to do? You have to envision where you want to be and then figure out what is possible."
Veterans of large implementations advocate minimal customization. "A large system takes a long time to implement," says DeWitt of Sears, which is in the midst of a multi-year rollout of PeopleSoft HR and financial applications. "Customizing a system can be a burden to future upgrading. The more customizing you do, the more difficult the upgrade. We have learned to minimize the changes and, ideally, make none. If you do have to make changes, isolate them from the mainstream processing of the software."
Mott's Morgan agrees. "ERP implementation is more an exercise in change management than it is anything else," he says. "We conduct sessions with each of our business areas during and after implementation. We let people vent their dissatisfactions. We change business processes when we have to. Less often, we reconfigure the system."
It is for this reason that any EBS plan must start with the education of the work force from top to bottom. This involves not merely training, which involves instructing end users on the operation of the system, but teaching the company how EBS is going to change its day-to-day operations.
"It starts with a CEO, who has to be prepared to alter business processes," says Mike Donovan. "He has to know why he is doing it and that it is not going to be easy. The CEOs who are willing to commit to education and training are the ones who will he successful." "Some CEOs don't realize that this will result in wholesale change throughout the company," says Davenport. "When making the business case for implementing EBS, you must consider that this is going to alter the way the company is going to be managed."
Likewise, the company must plan how it is going to measure the success of its EBS implementation. According to GartnerGroup research, a first step toward quantifying results is to measure TCO, or the total cost of ownership of the system, throughout its life cycle. "If you are going to measure results with hard numbers," says Gartner's Mirchandani, "you want to have an accurate cost number to compare it to." Allocating costs for overhead and internal staff time are often overlooked by companies when estimating costs, he says. Likewise, the life cycle of the project is often foreshortened with the result that "post-live" costs are underestimated. "In the case of upgrades, few users correctly estimate the costs," says Mirchandani. "Most users focus on the cutover without considering the costs of planning, rehearsal, and testing."
One of the savvier strategies for achieving the measured results desired from an EBS project is to build monetary incentives for the sponsoring executives into the plan. American Century Investment, for example, is implementing the PeopleSoft application Enterprise Performance Management, which is designed to create balanced scorecards for evaluating the performance of the company's products and people. "The executive level is intimately involved in the implementation as well as in reviewing the data and developing the metrics," says ACI's Jackson. "There's a high correlation between metric performance and executive compensation - and a great deal of interest on the part of executives in the details of this process."
Any EBS plan must be open-ended because implementation of the EBS backbone is just the starting point. The CEO, while overseeing the implementation at hand, ought to keep an eye on the next step, one that takes advantage of technological developments that provide electronic links with customers and supply chain partners. As Andersen Consulting's Newkirk puts it, "EBS doesn't begin to bring a benefit until you implement new applications and processes that take advantage of the information that is being accessed. After the backbone is installed, you are positioned to put in the real benefit: applications like supply chain planning and optimization and customer relationship management capabilities. Those tools will drive real value."
Mott's has been running its North American operations on the SAP R/3 system since early 1997. The company is now ready to test APO, or advanced planning and optimization, a supply chain tool and an add-on to R/3. The focus will be on vendor-managed inventory and demand planning, says Morgan. "There is a big difference in the perception of this ERP implementation," he says. "Originally we thought the process would be over once we went live. But we realized there were still more opportunities."
The direction all of this is taking, however, is toward an electronic connection with suppliers and customers, or e-EBS. "The Internet is a communications channel," says Davenport. "Companies that sell over the Web use the Internet as a front-end order-taking venue. Leading-edge companies funnel these orders to a back-end EBS that enters the orders directly. These systems are laying the groundwork for the wholesale integration of companies with customers and suppliers."
THE JOURNEY: PLAN
PE Biosystems decided to go with a rapid, "big bang" implementation of SAP, with much of the company being brought up on SAP at once. "We needed to get the solution in quickly," says vp Debara Lutkenhouse. "And we had heard the horror stories that if you let it drag on too long, it just never gets in. We didn't want to end up designing and redesigning forever - we've seen companies in that boat. So we decided to take a couple of months to get organized, do nine months of head-down design and implementation, and then go live with the new system."
CEOS ON EBS
THOMAS E. PAYNE President, VF Services
For us, it was largely a market responsiveness issue and trying to align ourselves with our customers - the retailers - and the ultimate consumers. We had to marry the demand creation end with a world-class supply chain on the back end. We also wanted to be consistent across all our operating units in the application of best practices. You can't be disjointed and be responsive.
ARA K. HOVNANIAN CEO, Hovnanian Enterprises
We wanted to be able to handle customization in more of a mass production environment, to link up with our subcontractors and communicate in terms of schedules and specific materials. As you move into a mass customization environment, getting the timing and the exact materials for each individual house is a task. We think the technology will enable us to do that without taking on a great administrative burden.
BOBBY V. ABRAHAM CEO, Paragon Trade Brands
We undertook the effort to improve the way we were servicing our customers. We're a private label manufacturer, and with our biggest customers, we are talking about getting to a stage where we will have direct access to information about what's going out on the checkout line. Then, we'll be responsible for the entire supply chain, with the customer doing only the cross-docking. To get the packages to the store, we need a reliable, elaborate enterprise information system.
T.J. DERMOT DUNPHY CEO, Sealed Air Corp.
One purpose is to radically improve the interface between our company and our customers. We will also be better able to tap into the talents of our people and reduce hierarchy - which reduces costs and increases the speed at which decisions get made.
Turning plans into action is a long, complicated step - and experience has shown that a successful EBS initiative depends on having the right program team overseeing and driving the effort.
To create the right team, you have to start at the top, says Eileen Basho, a partner in the Enterprise Business Solutions practice at Andersen Consulting. "The CEO needs to put the right leadership in place and hand-select a program director." That leader should have certain important qualities, she explains. Ideally, he or she should be an executive from the business side of the organization, rather than someone from the IT or finance group. And the leader should be someone who is highly respected in the company. "Often, it's a person who is an up-and-comer, because this type of project crosses all the business processes and all the geography the company covers," Basho says. "It's typically viewed as a great opportunity for people advancing in their careers, because it gives them a chance to grow and expand their knowledge."
The CEO needs to empower that leader to reach out to managers from across the organization in building the program team. The team should include representatives from all business areas that are affected by the EBS effort. If the "order to cash" process is being redesigned, for example, the team should probably include people from sales, planning, IT, distribution, human resources, and finance.
CEOs also need to remember that this is an important assignment, not a part-time or honorary role - so it's critical to make sure that the team is made up of the "A" players from each area. "You are trusting these people to define your new business model," says Harry Brakeley, a partner in Andersen Consulting's EBS practice. It's never easy to take talented, effective people away from the line - but if you simply tap those who are available or who won't be missed in day-to-day operations, "you aren't going to be happy with the results because your 'B' players aren't going to be able to take on the institution," he says. "Your 'A' players, on the other hand, probably already have a vision of what their process area needs to look like, and how to drive change. And they are leaders, so people will follow them." Overall, think quality, not quantity in assembling the program team. "More is not necessarily better. You want a few of the right people, not armies of the wrong people."
Once the team is in place, senior management needs to let it work without interference, Brakeley says. "The team members should be physically co-located. Set them up in a big war room. They shouldn't call meetings - everybody that you need should already be there. Take down walls; remove the phones. Remove their other responsibilities, and put them 100 percent on the program. They are your leaders and managers; on this project they are very hands-on. They don't delegate to a bunch of other folks. They check their badges at the door. Everybody is equal - no hierarchies. They are in there, doing the work."
The team should also have the ability to make decisions about how the company's processes will operate without a lot of second-guessing and demands from the top. "If you have to walk out of the room to get decisions made, you have the wrong people in the room," says Brakeley. "If senior managers insist on breathing down the team's neck, it's going to slow things down. And you aren't going to get new, better processes - you are going to get politically correct processes." Brakeley likens an effective EBS team to concurrent engineering teams at Chrysler, such as the ones that were able to quickly and successfully re-engineer processes to reduce product development time. "The quality of the results wasn't due to a bunch of managers flying in on an oversight basis to approve every change. It was a matter of relying on people with on-the-ground understanding, people who were living the details."
To help the team along, Brakeley recommends setting up a steering committee made up of the most senior executives. However, he cautions, "Their job is not to approve what the team comes up with, but to understand what it comes up with, and then do the downfield blocking - the political legwork that will enable the team to make it happen." The executive committee needs to take a hands-on approach to help the program team implement the change. This might make the traditionalists a little uncomfortable. "That's a huge paradigm shift for a lot of executives," Brakeley says, "but it's an important shift to make."
THE JOURNEY: TEAM
JULY 1995-JULY 1997
To assemble its SAP program team, PE Biosystems drew on the relevant business areas - manufacturing, sales and distribution, and finance. "People were on the team full-time; we looked for those who would know the most about the business," says vp Debara Lutkenhouse. The team worked in two large, windowless rooms - quickly nicknamed "the Veal Pit" - and the company provided plenty of motivation, from parties to catered weekly dinners. One especially valued incentive: "We announced that if we made the milestone date - and everything went well - that we would take the team to Hawaii."
Creating and inspiring a high-performance program team is one thing. Translating that team's work into organization-wide buy-in for the EBS initiative is another - especially when that initiative disrupts everyday work life. And if employee buy-in issues aren't addressed, they can become "an anchor off the back of the ship" that keeps the company from being able to change direction, says Michael J. Marino, executive vice president of the Senn-Delaney Leadership Consulting Group in Long Beach, CA. That anchor can result in "things taking longer to implement because people are resisting. Or things become more costly because the technology has to be modified to be more user-friendly. Or, the effort just ends up with the technology being underutilized, because people recreate their old habits."
To a large extent, getting people to buy in to change means enabling them to succeed with the new system. An EBS typically changes the nature of people's jobs, says Andersen Consulting's Basho. "Where they used to spend maybe 50 percent of their time doing clerical or administrative data entry and refinement activities, they are now going to be getting information with which to make decisions," she says. "So you have to prepare them to spend more of their time analyzing information and making decisions rather than processing data." That means moving beyond traditional notions of training that centered on keyboard commands and user manuals, and providing employees with training in areas such as problem solving, decision making, and teamwork.
Executives also need to make sure the company culture supports those new skills and helps prevent employees from simply sliding back to their old behaviors. For most companies, this means replacing the traditional "silo" mindset and transaction orientation with an environment that favors information-sharing, working across organizational boundaries, and educated risk-taking.
In fostering cultural change, says Basho, "you have to socialize the message starting at the executive level and moving down through the organization - because what doesn't work is a mandate from senior management."
Such socialization requires formal communication and change management programs that help employees understand what is happening, why it is happening, and what it will mean to them. And, perhaps most importantly, it requires active backing from senior executives. "It can't be a matter of 'I wrote the check; it's an IT situation; I don't need to worry about this anymore,'" says Basho. "This is a business initiative, and it needs relentless sponsorship from the top."
There is no single, right approach to driving change, however, because every organization's situation is different. As a result, it is critical to do an up-front assessment of the company's situation and its ability to change. "You have to ask, what skills do we need, and can we train our people to do this?" says Basho. "You have to look at senior executives, the business units, the IT organization, and at the readiness for change at all different levels. You have to look for the gaps, fill them, and figure out what you need to do to move people along the curve from awareness to acceptance."
Without that up-front assessment, says Marino, "you simply don't know what you are getting into. And you don't know if you need to invest a lot or a little in that [people] side." When people issues are addressed up front, he says, it is relatively easy to "chart cost-effective ways to get through the behavioral side. But when you are doing it as remedial work, it's really difficult."
Finally, says Basho, "executives need to understand that a certain amount of discomfort is normal in a changing organization." For example, when an EBS system goes live, productivity usually drops and then gradually improves, eventually surpassing original levels. "Typically, you go down into that 'valley of despair' because of the degree of change that you bring into your organization." The goal of managing the people side of change, she explains, is to make that dip as shallow and short-lived as possible.
"If you've got a thousand customer service reps sitting out there, what do you think is going to happen the first week you go live with a new system that requires a whole new way for them to handle customers?" Basho asks. "I don't care how hard you train and prepare them, that first couple of weeks is going to be tough. However, if you manage it right, and you prepare people at all levels, you should be able to minimize that impact. When you do that, it's a manageable issue."
THE JOURNEY: BUY-IN
OCTOBER 1996-JULY 1997
To get buy-in for the new processes, the PE Biosystems project team worked with people in the business units to define success factors - and in many cases, business unit managers' bonuses were tied to the systems' success. Equally critical, says vp Debara Lutkenhouse, were constant communications to employees about what was happening, and clear sponsorship from senior executives. "If it's not supported from the top, forget it," says Lutkenhouse. "This kind of project has to be priority No. 1 - not just in a department, but in the company." PE Biosystems' President Dr. Michael Hunkapillar "was very good about that," she adds.
In implementing an EBS, the behavior of people can "either help you execute or keep you from getting there," says industrial psychologist Michael J. Marino, executive vice president of the Senn-Delaney Leadership Consulting Group in Long Beach, CA. The CEO may not be involved in reshaping culture on a day-to-day basis, but he or she "should certainly lend the weight of their office to it. And the more they can participate, the better." In general, CEOs need to pay attention to three broad points:
Description. "You can't create something you don't describe, so you need to describe what the new environment will look like," says Marino. "It doesn't hurt to try to get down to the behavioral level: How are supervisors going to lead differently? How are we going to share information differently?" That step is often skipped, he says, because the CEO may think everyone else is as familiar with the issue as he or she is. "They forget that they probably spent a lot of time in the decision-making process being educated about the technology, etc. So when they introduce it to a population that has not, they don't understand why they don't get it."
Intervention. "You have to intervene into the day-to-day habits of the people in terms of how they work," says Marino. "Try to instill some new beliefs about work, because that's what drives changes in behavior. The most powerful way to do that is start at the top, with the senior group." Marino gets executives to examine how they work and interact and "to embrace the new sense of beliefs and behaviors that will support the enterprise effort. And then, you take that same experience and cascade it deep into the organization. So it's going from top to bottom, addressing the behavioral issues against the vision to close the gap."
Reinforcement. "If the enterprise system is actually doing what it should, that is powerful reinforcement," Marino says. "But the side that's often missed is reinforcing the behaviors you have agreed to. So you have to create some feedback on how you are doing with those behaviors." That feedback can entail hard human resources systems such as pay and incentives, but it should also involve simpler measures, such as 360-degree reviews that provide feedback from colleagues on, say, willingness to share information or to collaborate in decision making.
Implementing an enterprise business solution often requires months of excruciatingly detailed work. The SAP R/3 system, for example, includes thousands of "switches" - or choices in the configuration of processes - that must be flipped before the configuration task is complete. If your team has been assembled correctly, some of your best people will be working full-time on this project. In short, the period of EBS implementation may be a time when the resources of the company are stretched to their limits.
Of course, it makes no sense for a CEO to get involved in the details of a particular configuration. But a CEO ought to have a fairly detailed understanding of what goes on in the implementation process in order to provide leadership and push the project along.
How long an implementation takes is a function primarily of the pace set by the upper echelons of the corporation. It is not only a question of setting a fire under those who must do the work but, more importantly, promulgating a strategy that involves weighing the risks and rewards of speed. Whatever the relative desired speed of implementation, meeting deadlines means controlling your costs, protecting your return on investment, and getting your people back to their operational roles.
"The CEO must be in charge of business readiness," says Andersen Consulting's Brakeley. "There are two sides to this equation. One is the supply or provisioning side, and the other is the demand side." The provisioning side refers to the part of the process that involves the coding, configuration, and testing of the ERP system and the integration of legacy systems with the ERP. The demand side relates to the changes necessary to support the new roles, skills, and capabilities of the end users and the changes to the processes. And it also includes educating and training people to use the new system effectively.
"The CEO needs to articulate the expectations for the implementation in given increments," says Brakeley. "This involves setting milestones for the progress of the project and the deliverables associated with each. The CEO must drive progress through the life of the project on both the readiness and the provisioning side." Key to the CEO's driving force, Brakeley notes, is providing accountability and incentives for the timely achievement of the prescribed milestones.
But while, on some levels, the CEO may be wreaking havoc on his organization by pulling people out of their jobs and setting stringent implementation deadlines, he can smooth over some of the dislocation by showing his people the big picture. After all, the company must continue to produce and ship its products and service its customers.
Mike Donovan worked with a Midwestern manufacturer that was striving to reduce its cycle time and implement ERP. "The CEO repeatedly articulated the company's top priorities," says Donovan. "'First,' he said, 'we're not going to screw up the company. We're going to continue shipping product, and we're going to continue meeting our profit and market-share goals. Second, we are going to cut our lead time by 60 percent; and third, we will implement ERP, in that order, until I say otherwise.' It was very helpful."
How long an implementation should take depends upon its complexity. GartnerGroup divides projects into three types, ranging, for example, from implementing financial software in a single business unit (Type 1), which should take three to six months, to setting up a system that spans business units, processes, and regions (Type 3); this could take 18 months to three years.
Recently, software vendors have been touting quick implementation of their systems. Gartner's Mirchandani is skeptical of these approaches. "Some vendors are promising results that would make politicians blush," he says. Mirchandani suggests performing a reality check by investigating a vendor's "accelerators" - the practices it employs to hasten implementation - and by checking references. "And when doing so, it is important to compare 'apples to apples' by checking references comparable in complexity to your own projects," he says.
Brakeley says that the speed of implementation ought to be a strategic consideration from the beginning. "It is a question of balancing risk, cost, and speed," he says.
For some companies, slow and steady represents the prudent approach. That was Sears's approach, says information systems vp Ken DeWitt, when it began a multiyear rollout of PeopleSoft human resources and financial applications. "You have to see where you are going to get the biggest benefit and prioritize," he says. "It is all based on return on investment. Our decisions are driven by business needs and not because we think it will be technologically interesting. Attempting to implement ERP all at once in a big business like Sears would be a death wish."
Most problematic, according to Brakeley, are the risks - in terms of people and business - associated with an accelerated implementation. "In the case of a larger program, it is arguable that multiyear implementations increase risk because businesses lose focus and momentum," he says. "And you can't afford to tie up your best people indefinitely. After a while, they may no longer represent the best thinking on the operational side of the business."
"High-change industries tend to do Big Bang projects," Brakeley concludes. "Other industries undergoing less change tend to do more protracted rollouts. You have to ask yourself what speed buys you. Some people think you need to get the solution 100 percent right. In fact what you need is a great batting average. You always have to refine the process after you go live."
WHAT TO EXPECT
The life cycle of the EBS process may be organized into five stages - planning, evaluating, implementing, improving, and retiring - with each stage incorporating a number of specific steps. CEOs ought to be familiar with these stages in order to set milestones, drive home deliverables, and help the company stay focused on business results.
Assemble project team; press best people into service. Project team analyzes and documents "as-is" processes; envisions a "to-be" environment; develops detailed requirements for the application software; addresses culture-change concerns.
Interview, evaluate, and select applications, software vendors, hardware providers, and systems integrators. Negotiate contracts with each vendor. Consider integration with legacy and/or other third-party applications; consider needed customizations.
Consider pilots and rollouts by geography, business unit, and/or business process; consider and plan rollout phases. Design, cleanse, and reconcile data. Size and deploy technology infrastructure. Configure and customize application. Test system and rehearsal operations for entry into application. Change management: transfer knowledge about new technology and new/revamped business processes to personnel across the spectrum of the enterprise. Tune the junction between the application, the database, and the operating system. Apply vendor bug fixes.
Evaluate the costs and benefits of recently installed applications and potential upgrades. Reconfigure data and technology infrastructure to accommodate upgrade; revisit previous customizations for discarding or further work. Test new release. Rehearse and execute cutover. Retrain end users.
Consider whether to continue maintaining the system through the application vendor and systems integrator or whether to support the product with internal resources.
There is exactly one major pitfall involved in the acquisition and implementation of EBS, from which all other pitfalls flow: not understanding what EBS is all about. If, for example, EBS is viewed as a technology project, a CEO might delegate the matter to his or her IT people and then pay only cursory attention to it.
Big mistake. "Clearly, the No. 1 pitfall is not having senior management sponsorship," says Andersen Consulting's Karl Newkirk. "This occurs when the client treats it like an IT project and not a business program."
"Most CEOs don't like tech projects," says technology consultant Mike Donovan. "They want to delegate things they are not familiar with. The worst thing you can do is to delegate it to MIS. ERP redefines how you are going to conduct your day-to-day business, and that is definitely part of the CEO's job."
At Dell Computer, ERP was viewed primarily as a vehicle for migrating from a mainframe to a client server hardware configuration. "They changed their mind halfway through the process, and cancelled the project," says Andersen Consulting's Davenport.
At Brother Industries, the technologists who made up most of the implementation team did not bother to investigate the company's business needs, according to a report in The New York Times, nor did they bother to delete obsolete data from the company's old database before dumping it into the new one. The result was that the system fell flat on its face almost immediately after it was booted up.
With such horror stories making their rounds, it is no wonder many CEOs approach EBS implementations with fear and loathing, until they are dragged to it kicking and screaming. But such difficulties really just underscore the need for strong direction from the top.
If a CEO remains aloof from an EBS project, he or she might fail to marshal the human resources necessary to pull it off successfully. "It is always difficult to give up the best people for the project but that is what is necessary," says Andersen Consulting's Newkirk. "These people must be pulled out of their line management jobs. It is more tempting to assign people who are not as much in demand."
A related problem is that some CEOs fail to grasp just what an EBS can and cannot do. Some expect that once the system is operating, it will provide instant solutions to their toughest problems. Others believe that it will instantaneously homogenize all of their processes.
Over-integration itself can be a pitfall. "Sears plans to tie its systems together," says DeWitt. "But integration can be so tight that you can paint yourself into a corner. You may have to do everything to do anything. It can affect your ability to implement change in the future."
The failure to grasp that the essence of EBS involves changing company processes is a clear danger. Whatever approach a company has taken to reach the point of an EBS implementation, it must understand that, to a greater or lesser degree, it is going to be adjusting its processes to fit the functionality embedded in the software logic. "Most organizations thinking rationally will adjust their business processes to the ERP software," says DeWitt.
Finally, CEOs sometimes fail to fully grasp the dimensions of the project. "It is definitely a mistake to view the project as completed once it goes live," says Newkirk. "The real project just begins when you connect to the new system. Then you must shape company operations." In other words, your return on investment will not appear when you free up the system but only after the changes that the system induces reverberate throughout the organization.
THE JOURNEY: PITFALLS
APRIL 1997-JULY 1997
In spite of PE Biosystems' efforts to get people from the business units on board, some just didn't really buy into the SAP effort. "You could clearly see that the ones who were just paying it lip service or going along because it was politically correct didn't get the same level of benefits as the ones who were committed," says vp Debara Lutkenhouse. Also, the workload for team leaders turned out to be greater than anyone expected, especially during implementation. "At times, they were maxed out. So once a week, I put them in a room just to let them blow off steam."
WHAT WENT WRONG?
My friend is CEO of a tool manufacturing company. His company embarked on a disastrous ERP project. During implementation, the company reported quarterly earnings 40 percent below expectations and $50 million in lost sales, all of which it blamed on ERP cost overruns and delays. The company has now dumped its ERP software vendor and implementation consultant. What can I tell my friend?
- WANTS TO HELP
No way to sugarcoat it: painful results are probably the result of poor or non-existent planning. Your friend most likely either failed to address the fact that ERP systems typically involve a whole new way of doing business or was simply uninvolved, leaving critical enterprise-wide decisions to lower-level minions.
However, it is also true that different manufacturing systems require different sets of logic, so its important to make sure the software acquired supports the strategy.
In addition, some companies should question whether they really must replace their old MRP systems. After all, a complete systems overhaul is a resource-consuming proposition that can distract the organization from other issues such as day-to-day operations and reaching financial goals.
A company I know had a mid-1980s MRP system which many would consider outdated. But for a fraction of the cost of a typical ERP project, they added on what they needed. Sometimes it is better to tinker with what you have.
My company budgeted a seven-figure amount for an ERP system. After all was said and done, the costs ran well into the eight figures, much of which was attributable to consultant cost overruns. Where did I go wrong?
- ON THE BRINK
Many companies fail to take into account the TCO, or total cost of system ownership. Implementation and training costs can often reach five to 10 times the amount of the initial acquisition of the software license. So the first thing you should confirm is how much of the overrun was implementation and how much was ex post facto (associated) expenses.
As far as consulting fees go, many executives do find them to be mysterious and exorbitant. Remember, however, that everything is negotiable. More and more consultancies offer a policy of sharing risk and reward and are willing to accept lower contract fees in exchange for a stake in the profits wrought by the implemented business solution. Conversely, they will also share responsibility for poor system performance.
If you opt for a fixed-price contract, remember that they are best suited for well-defined, short-term projects, since in more complex projects, scope can change almost daily.
Regardless of the arrangement, it is critical that you not remove yourself from the picture. Ongoing management of the consultant is as important as the initial negotiations because projects tend to stray off course one step at a time.
Once the decision has been made to seek an enterprise business solution, a team has been assembled, and commitment to the process has been made, there's still the task of figuring out which software is appropriate for the job at hand. In assessing the various types of enterprise applications, it's important to remember that every company has its own set of needs and its own strengths and weaknesses. The question, then, is how to match the software with a company's specific requirements. Furthermore, how much should the software be customized to fit the business? How much should the business be altered to fit the software? And, how can the system be designed so that it supports the full range of today's operations and yet is flexible enough to meet tomorrow's challenges?
The answers to those questions lie in focusing management time and company resources where they will do the most good. That means starting not with the software, but with a clear understanding of how the company wants to operate in the future, and the processes it will need to support that vision.
That may seem obvious, but it's a step that many corporations skip. Andersen Consulting's Karl Newkirk estimates that only about half of the companies that undertook a major EBS implementation in the last five years performed that kind of self-examination. "Other companies took much more of a systems approach that says, 'I have old legacy systems, I need new technology. But let's not do too much worrying about new and advanced processes right now. We'll get to that later.'"
Unfortunately, in a fast-changing world, later can arrive pretty quickly: Newkirk's firm recently started to work with a Fortune 1000 company that took a systems approach to installing a software package just a few years ago - and it is now essentially reinstalling the software to support new processes. "Their industry has changed, and the system didn't support how they now want to manage and control their business," Newkirk says.
As companies go through the exercise of thinking about tomorrow's processes, more and more of them are discovering that no enterprise system can support all of their activities. Bobby Cameron, principal analyst at Forrester Research in Cambridge, MA, describes a spectrum of applications that companies will need, starting with basic core applications, such as accounting and human resources, and continuing on through increasingly industry- and company-specific software used to support supply chain management, Internet commerce, and customer management.
Today, the core applications are rapidly becoming the price of entry: Although they certainly provide major benefits by helping to reduce costs and increase operating flexibility, this is usually not enough to provide significant levels of differentiation or advantage. Cameron estimates that by the end of next year, about 70 percent of larger companies will have bought client server-based ERP accounting systems in the previous five years. "So it's now all about outward-facing activities - the things that touch customers and trading partners," he says. "There is a huge need for businesses to increasingly turn outward in terms of how they understand, implement, and operate processes."
As a result, Cameron says, executives should not think of enterprise software as a complete, do-it-all solution. Instead, they should see it as a powerful platform for other applications from the same or other vendors that can be "bolted on" and integrated with the ERP, allowing them to exploit the enterprisewide data it provides.
Among other things, that approach makes it easier to know where and when to customize systems, and when to leave them alone. For the core applications, which are relatively universal, a company should consider going with the packaged, unaltered software product - and then use its resources to customize and fine-tune the customer- and supplier-oriented applications that will differentiate them in the market. With such applications, says Cameron, "you are more likely to want to modify or build, because you don't want your competitors running the same thing - or to have to modify or build, because the industry hasn't produced the products yet."
"Probably 85 percent to 90 percent of what a company does is non-strategic and more or less a matter of efficiently executing a fairly standard process," says Newkirk. "And 10 percent to 15 percent of processes are strategic to the company and can give it a competitive advantage. So instead of spending your time building the whole thing up from scratch, you can use the standard package for the 90 percent, and then go into the 10 percent of the processes that really matter and create them to your liking."
Rather than a single system, executives should think in terms of managing a portfolio of applications, with many interconnected components making up a whole solution, says Cameron. When business conditions shift or new technologies come along, individual components in the portfolio can be changed, without having to disrupt all the other components. "You can address new business opportunities with incremental systems investments that gradually replace the old systems," says Cameron.
But a portfolio of applications may be a troubling thought for the CEO who has spent the last few years being sold on the value of having a single system from a single vendor supporting the entire company. Many are familiar with the difficulties and expense of keeping a disparate collection of systems up and running - task that traditionally consumes as much as 30 percent of corporate IT budgets, according to Forrester. To them, the portfolio approach may sound too much like a return to the not-so-good old days.
Where there's demand, however, supply is never far behind, and Cameron says that the market is beginning to respond to that issue in a number of ways. For example, the software industry is quickly moving to a limited number of de facto standard interfaces among applications, which will ease the integration burden - and make it easier to outsource business processes because a sourcing partner's systems can be more readily plugged into the core ERP platform. At the same time, Cameron says a number of consulting frans and systems integrators are emerging as "portfolio assemblers" that can provide one-vendor shopping and implement complete solutions consisting of everything from the core enterprise software to the third-party and custom-developed applications that sit on top of it.
Overall, dealing with a portfolio of applications may never be as simple as dealing with a single EBS. But the approach does promise to give executives an effective way to strike a balance between speed, cost, and flexibility in their technology - and to focus resources on solutions that make the company more competitive.
THE JOURNEY: SOLUTIONS
JULY 7, 1997
After PE Biosystems went live with its new systems, including eight SAP modules, a Hyperion executive information system, and homegrown complaint and freight systems, it quickly saw improvements in efficiency - and the project team got to go to Hawaii. In addition, people now "think beyond their silos, and beyond the country or regional level to truly global thinking," says CIO Ronald Edelstein. "I think the biggest benefits are still to come. We are starting to visualize the power of having our information available to us on a global basis, in real time, and to see the great opportunities in that." CASE STUDIES
E-EBS: THE FUTURE
So your company has implemented an EBS and you're feeling pretty pleased with yourself. Would it surprise you to know that, to some EBS watchers, you're not thinking out of the box?
The box of your business, that is. For while everybody and everything is now connected, increasing efficiency and decreasing costs, there's a whole world of suppliers and customers out there to which you can also connect. Yep, this is where the Internet comes in, offering the enticing opportunity of creating an e-EBS: The "e," as always, is for electronic, and in this case it's also for extension, of the system and its value.
As a global network that allows companies a global reach, the Internet can also allow those outside parties along the supply chain - all the way to the customer - to reach right back. They can gain direct access to information and business processes they would otherwise have to get through a human interface, and vice versa; that is, orders and information can be fed right into the system without the need for someone to capture the data, validate it, and input it. Entirely new, often unforeseen, business improvements and efficiencies result.
"From a process standpoint and an organizational standpoint," notes Tom Davenport, director of the Andersen Consulting Institute for Strategic Change, "this simple concept of providing customers with self-service capabilities is, beyond the technology and the software, a fundamental shift, and that's where a lot of the value comes from in terms of how organizations interact."
The e-EBS still relies substantially on ERP software, augmented with complementary technologies that let outside users, through a Web browser, connect to applications, retrieve data, and make necessary adjustments. Leading ERP vendors are jumping into the game, but much of the innovation is driven by newcomers.
One prominent example of that innovation is the extent to which the Internet fosters interactive marketing, which, when backed by the full force of an EBS, promises to be quite powerful. The on-line experience can be tailored to individuals (or companies) based on a very specific user profile: Imagine visiting a site that automatically displays your orders and their status, or browsing through a catalog that only has information relevant to you.
"We're just seeing the beginnings of this phenomenon," says Davenport. "We're beginning to realize the magnitude of the integration between companies, buyers, sellers, and intermediaries."
The selection of the software portfolio that will form the EBS is not merely a choice of products; it's a choice of purchasing strategies.
Chances are, for the core ERP implementation - connecting all of the "back office" operations so that employees throughout the organization are using the same system and procedures - most companies will go with one of the market leaders: SAP, PeopleSoft, Oracle, J.D. Edwards, or Baan.
That core will give you more - more efficiency and more information - but to get the maximum business benefit from EBS, companies will also want a selection of bolt-ons. Additional software components, often for industry-specific applications, bolt-ons add greater value to the ERP by helping to tailor the software portfolio to the individual needs of the particular company. However, because there are so many more bolt-on vendors than back office providers, and because the leaders in each market differ, they also present a perplexing purchasing crossroads.
"For the CEO, the question gets to be, am I going to go with best-of-breed solutions - the small, niche, highly specialized players - or will I stay with an integrated suite provided by my back office provider?" says John Kunzweiler, Andersen Consulting's managing partner of alliances. Typically, he advises, while the bolt-ons from the big players will be less of an integration risk, their products may have less sophistication and be a bit slower to market.
Those big players, though, are striving to extend their expertise and leadership to the other components, encouraging firms to continue to have a strategic relationship with them for all EBS needs. Kunzweiler notes the thinking people had back in IBM's heyday: "No one ever got fired for buying IBM, and one could argue that no one ever got fired for continuing to buy SAP applications."
What may aid purchasing decisions is the emergence of middleware, application integration software that serves as a buffer between back office applications and bolt-ons - meaning that the risk of integration will decrease and companies will be able to choose more freely between the best-of-breed and integrated suite solutions. While middleware has been around in concept for years but never delivered on its hype, some recent success stories indicate that it may be starting to fulfill its promise.
"For CEOs," says Kunzweiler, "the good news is they'll have a lot more choices. The bad news: they'll have a lot more choices."
The rationale for undertaking an EBS effort is usually established early on. But sooner or later, the significant amount of time and money that goes into the solution prompts many CEOs to wonder if there isn't some way to leverage that investment. And in fact there usually is - if the CEO is willing to keep a continuous focus on value.
The insistence on value and business return begins early on, with a particular focus on achieving measurable business goals and a focus on rapid implementation; a project that drags on only incurs more costs and loses focus. Andersen Consulting's Karl Newkirk suggests having business executives work closely with EBS experts to rapidly develop prototypes to test out new ideas. He adds that the business case for the system, developed in planning stages, plays a key role in the drive for value. "The dangerous thing about enterprise business solutions is that they can do a lot, and the purists will want to do it all. Referring to the business case helps control the effort's scope and keep it focused on things that have a payoff."
Once systems are up and running, companies typically begin to see the basic value that an EBS is designed to deliver - fewer errors, less redundant effort, etc. But executives need to keep an eye out for other possibilities, says Andersen Consulting's Harry Brakeley. Often, opportunities become evident only after the system is in place, so Brakeley recommends companies go through an exercise he calls "find the money." That entails looking for low-cost, quick-hit opportunities to get more from the system. These may include everything from adding Internet capabilities onto HR or procurement functions to leveraging the new "total view" of the supply chain to cut excessive safety stocks from inventory.
But the greatest value of an EBS will come over the long term - if CEOs use the technology as a strategic tool. An EBS provides a foundation of integrated information that can support new initiatives in areas such as electronic commerce and customer relationship management, or in creating an extended enterprise. "Some organizations view this as making a specific investment and getting some specific results. But what you've really done with an EBS is create a baseline asset that you can leverage to further transform the organization," says Brakeley. There are several techniques that can help in getting long-term value out of the EBS investment. For example:
Focus on knowledge workers. "You want to invest in your knowledge worker - in the people who are rethinking the way you do business," says Brakeley. "These are the individuals who are going to do the analysis, apply judgment, and make decisions every day - and, in many cases, interacting with your customers."
Measure for results. The information provided by the EBS makes it relatively easy to create a "performance dashboard." This is essentially a set of measures that provides a quick overview of the company's progress in building new business capabilities, which executives can use to keep refining processes. Such dashboards may well include more than costs, cycle times, and other traditional metrics, says Forrester's Bobby Cameron. "Increasingly, you need to look at customer satisfaction and trading-partner satisfaction. Are we improving their ability to do business with us?"
Tap into EBS experience for change teams. After the system is in place, consider keeping some of the project team on to drive further change. "Those people have been wading through the details of the business model, and they probably know your business better than anybody else in the organization at this point," says Brakeley. "Instead of putting all of them back in the line, you can leverage their knowledge to take the organization to the next level." For those who return to the management roles - because they are leaders who helped to create the solution - they will further drive and implement change in the organization.
Reorganize around processes. An EBS opens the door to organizing around processes, rather than functional departments, because information is no longer restricted by the traditional internal boundaries. Thus, tasks can be combined into one customer-facing group, allowing the customer to get information about, say, orders, credit, shipping, and billing from one source. As Brakeley puts it, "Your customer doesn't care about the credit person or the accounts payable person. Your customer just wants to know where the order is or how much is owed. What you do with these integrated systems is take a process cut that's consistent with how your customer views you."
In short, executives should realize that the implementation of an EBS is just the beginning, and the search for additional value should be considered a permanent activity. "The installation of the EBS may be a project, but what never stops is the continuous drive to find a better way to use this very sophisticated, complex tool," says Newkirk. "It's a process that goes on forever - but that's really what business is all about, isn't it? As soon as you stop and say you're done, you look over at your competitors and see they are still moving, and you had better get moving, too."
THE NEXT STEP
From its narrowly defined roots, EBS has become an established part of the global landscape. Who saw it coming?
Alvin Toffler saw it coming - his Third Wave of self-aware information systems, predicted two decades ago, seems both brilliantly prescient and quaintly nostalgic. Everything from home heating systems to super-global supra-corporations would have information systems in place and be able to communicate with other systems.
"The No. 1 future scenario," says Christy Bass, global managing partner. Enterprise Business Solutions, Technology, at Andersen Consulting, "is increasing linkages of my ERP to other ERPs. The system will extend and interlink the supply chain."
This future is happening now. "The Internet and e-commerce are pushing the EBS envelope harder and harder," Bass says. "The technology is there. Technical problems have been solved or eliminated by client/server, Internet, and e-commerce tools."
Bill Gibson saw it coming - his science fiction masterpiece, Neuromancer, for all of its 1980s-ish anti-corporate cowboy tone, nonetheless captured early the degree to which the Net and its resources and capabilities would permeate our lives.
"From here on, any effective EBS will address, and integrate, all facets of Net structure, content, and commerce," says Bass.
H. G. Wells saw it coming. He knew, early in the century, that transnational corporations armed with fast communications and equally rapid information retrieval and distribution systems, would change the world.
"As a result of the tools EBS provides," Bass says, "CEOs and their executive teams will be well-equipped to predict trends, enable new operating metrics, review incentives and objectives."
Arthur C. Clarke saw it coming. He understood in the '50s that instantaneous global communications would lead to global business, and the global distribution of business information.
"Eighty percent of the effectiveness of EBS," says Bass, "may come from the effectiveness of its organization and tools. But that other crucial 20 percent comes from the way you use those tools and the information they provide to drive your business."
And still, wild cards will be played. Who saw, five years ago, the ferocious growth of the Web? Who was willing, two years ago, to bet the farm on e-commerce? Who wants to bet, right now, that the landscape won't change dramatically in the next decade - or less?
J.B.S Haldane saw it coming. "The future is not only stranger than we imagine," he wrote, "it's stranger than we can imagine."
ESKOM: Split Decision
In redesigning its processes through EBS, this South African utility had to consider not only the government's plans, but the needs of a unique workforce.
In 1994, Eskom, the South African electrical utility, set out to reduce the real price of electricity 15 percent by the end of 2000. The move was designed to help the utility succeed in a changing industry - and to drive South Africa's economic growth by making power more readily available to industry and the 20 million citizens who were living without electricity.
As part of that initiative, Eskom launched Finesse, a program involving SAP and the redesign of financial and commercial processes. The effort was substantial, encompassing 8,000 users across 100 sites, a project team of more than 300 people, and a considerable measure of technical innovation: Because the government is considering dividing Eskom into various businesses, the system was set up to run on five separate servers, one for each business unit. "We have the capability to split the solution quite easily to satisfy any restructuring that may happen," says Mike Fullerton, Finesse program director.
To help employees adapt to their new environment, Eskom created 65 role-based training courses and conducted 40,000 training days that focused on fostering business awareness as well as technical skills. A sophisticated on-line user guide also gives employees a chance to learn on the job. "It lets people drill down through the processes they have to work on, and it explains in minute detail exactly what they have to do," says Fullerton.
The Finesse effort is helping Eskom meet a national commitment to "human capacity development" by giving once-underprivileged black employees an opportunity to build skills in areas such as finance and technology. About 20 percent of the business users affected by the effort were computer illiterate to start with, and about half the people on the project team were from disadvantaged communities. "I think we have achieved a huge measure of success by bringing as many players as we could onto the program, and enabling them to grow," says Fullerton.
The first phase of the new system went live in August 1998, and Eskom soon saw improvements in asset and cash management and reduced stock levels. "Effective change management has provided remarkable benefit" in the form of "a recovery of prior productivity levels within six weeks of a major process and systems change," notes Willem Kok, executive director of finance.
Finally, Finesse will help Eskom further reduce the real price of electricity beyond the 4 percent achieved in 1999 and to stay on track for 15 percent reduction by next year. Says Fullerton, "We believe we will sustain this and accomplish even further cost reductions."
* Financial Accounting
* Asset Management
* Project System (partial)
* Materials Management
* Sales and Distribution
* Custom-develop executive information system
* Custom-developed human resources system
* Maximo (plant maintenance)
* Custom-developed customer management system
NEC TECHNOLOGIES: A Quick Birth
Despite its speed in implementation, preparing for the move to a process-centered approach took two years of educating and persuading.
For NEC Technologies, the decision to move to an ERP system was pretty simple. Demand for the $2.4 billion company's products - monitors, CD-ROM readers, and other high-tech equipment - was growing, and its computers just couldn't keep up. "This is a fast-moving market, and we couldn't get the business through our systems," says John Bruni, senior vice president. "We were losing business, and we knew it."
In 1994, the Itasca, IL-based company decided to replace those systems with SAP. But the situation was serious enough that executives didn't want to go through the typical two-year process of putting a system in place. Instead, the company used an innovative rapid-implementation approach, and in just nine months, the system was live across three manufacturing plants, four distribution centers, and 12 sales offices. "That doesn't mean we didn't have problems," says Bruni. "Because of the speed we were working at, we had some issues and we had some sleepless nights. But it worked." The rapid implementation saved $20 million compared to the lengthier traditional approach, and with the company better able to fill customer orders, revenues grew 57 percent in the 12 months after the system went live.
But Bruni sensed that more could be done. With the system in place, the flow of information was no longer restricted by traditional departmental boundaries - and that meant that the company could begin to organize around processes, rather than functions. Bruni established teams based on customer groups, with one team serving retailers, another serving systems integrators, and so on. Each team has full responsibility for all activities touching the customer, from approving credit to scheduling shipments to clearing receivables. The result: reduced costs, increased efficiency, and greater customer satisfaction.
Bruni cautions that the move to a process-centered approach wasn't easy and took two years of educating and persuading. Frontline employees had to learn new skills, and executives had to overcome their concerns about losing traditional financial controls and the transfer of responsibility out of the functional departments they oversaw. "The world changes when you do this, and it has to change at all levels," says Bruni. "You need a courageous CEO [which they have had in Hirotoshi Matsuda, who became chief executive in September 1998], and you need executives down the line who can say, 'yes, some activity may leave my department, but the company is going to be better. It's going to be more competitive; it's going to be run more efficiently; it's going to give more satisfaction to our customers.' Because that's what's important."
* Financial Accounting
* Fixed Assets Management
* Production Planning
* Human Resources
* Materials Management
* Warehouse Management
* Sales and Distribution
* Custom-develop, Oracle-based service system
MULTIBRAS: Keeping Up with Change
The new processes, says CEO Periquito, have helped this manufacturer shine through Brazil's economic storms.
In 1994, three Brazilian companies merged to create Multibras, a $1.5 billion manufacturer of household appliances with seven plants in South America and customers in some 70 countries. Executives decided to standardize the new company on SAP software - and they took the opportunity to "redesign the company, and look at all our processes - sales, operations, logistics, procurement, everything," says CEO Paulo Periquito.
With that in mind, the company wanted to waste no time in implementing SAP. "It was crucial for us to do it fast," says Periquito. "Brazil's economy and market environment were changing so quickly, we didn't want to take two years and find that when we were done, things had changed and the system was already 'old.' Also, this was a big effort, and it is tough to keep a company focused on something like that over a long period of time."
The implementation, which covered 1,300 users in 12 locations, took only nine months. Periquito says that the aggressive schedule depended on having the right team in place. "We made a strong commitment to putting the best people on the project because we wanted the best processes. And in terms of skills mix, 75 percent of the people came from the business side and just 25 percent from IT. This was never viewed as an IT project. It was always a business project."
Just as important was making sure the team was backed up by senior management - but not micro-managed. "Like every company, we have a lot of projects, so we had to make sure this was given the right kind of priority," Periquito says. "So I and the other officers of the company were always in contact with the project team. Everyone in the company could see we were giving it sponsorship. The team was empowered to make decisions, but they had the right to involve us at anytime if they wanted help. We didn't delay the decision-making process."
With SAP up and running, Multibras has seen clear benefits in the form of reduced costs and increased productivity, and Periquito says the new processes have played a key role in helping the company perform during Brazil's recent economic upheavals. There have been some unexpected benefits from the rapid implementation effort, as well. "As a company, we learned a lot about how to get things done in a short period of time. We are now taking the same kind of approach to shrinking product time-to-market cycles and the schedules of other projects. It was really a breakthrough. Those lessons apply to everything we are doing."
* Financial accounting
* Materials Management
* Sales and Distribution
* Warehouse Management
* Production Planning
* Warehouse Management
* Master SAF (Brazilian financial/legal reporting)
* Bergen (import/export documentation)
* Trust (freight costing)
EARTHGRAINS: The "Preferred Supplier"
Having invested little in technology before, the company had to create an infrastructure - from the ground up.
When Earthgrains, a $1.9 billion baking and dough company, was spun off from Anheuser-Busch in 1996, things were a little rocky. For a variety of reasons - ranging from difficulty in tracking orders to a pre-spin-off restructuring - there was "just a lot of turmoil," says Steven M. Brazile, Earthgrains' vice president, business systems. "Financial performance was unacceptable. Sales were declining, and profits were declining at an increasing rate."
A new management team led by Chairman and CEO Barry H. Beracha refocused the St. Louis-based company on its core business and pursued an SAP initiative to reduce administrative costs and differentiate Earthgrains in the market. "We decided to invest in technology to support the strategy of being our customers' preferred supplier," says Brazile. "We saw that we could use information technology to improve communications with our customers and to have the right product on the shelf at the right time for them."
The company had invested relatively little in IT, so it had to start by building a technological infrastructure - from wide area networks to desktop systems - from the ground up. Naturally, the effort received a lot of scrutiny. "We were in a turnaround situation, and we were taking a significant portion of our overall capital plan and investing it in systems," says Brazile. "Our CEO wanted to understand where the payback to the organization was going to be. And being a new publicly traded company, we also had to answer to the investment community and shareholders."
In response, the implementation team created a detailed business case for each SAP module. Then, progress against each case was closely monitored as the effort went forward. The result was a phased implementation starting in early 1996, with a new module going in every few months.
Benefits have exceeded expectations on many fronts. First-year returns on the investment have included savings through cost reductions - stemming largely from increasingly centralized accounting functions - as well as improvement in working capital. Since 1996, the company's IT spending as a percent of revenues has held steady at a point well below the current - and growing - industry average of about 2.6 percent. And earnings per share have climbed from a 1996 loss of $0.45 to analyst-projected $1.20 for 1999.
Above all, says Brazile, "we are able to communicate more effectively with our customers and work on a product portfolio that not only enhances our profits, but increases our customers' profits by putting a more effective mix on the shelf."
* Financial Accounting
* Materials Management
* Sales and Distribution
* Warehouse Management
* Production Planning
* Plant Maintenance
* Asset Management
* Human Resources (in progress)
* Manugistics (sales forecasting, production planning)
* Epic Data (radio-frequency bar coding application in warehouses)
* Custom-developed distribution system used to manage store delivery routes
|Printer friendly Cite/link Email Feedback|
|Title Annotation:||Enterprise Business Solutions; includes related articles|
|Publication:||Chief Executive (U.S.)|
|Date:||May 1, 1999|
|Previous Article:||Enterprise business solutions: so where's the value.|
|Next Article:||The 1996 Telecom Act is still a good thing.|
|Shaking up Oaktree.|
|COMPAQ RECEIVES OSCP QUALIFICATION.|
|Helmers Publishing to launch "Chief Supply Chain Officer".|
|"Workforce Performance Solutions" from MediaTec publishing.|
|From the National President.|