Communications of the ACM

Communications of the ACM

Enterprise Resource Planning: Making ERP a Success

By August-Wilhelm Scheer, Frank Habermann
Communications of the ACM, April 2000, Vol. 43 No. 4, Pages 57-61
10.1145/332051.332073
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Business information systems can be either designed as custom applications or purchased as off-the-shelf standard solutions. The development of custom applications is generally expensive and is often plagued by uncertainties, such as the selection of appropriate development tools, the duration of the development cycle, or the difficulties involved in assessing costs. Thus, empirical surveys have shown that between half to two-thirds of information systems projects fail [3]. The current tendency to shift from individual development to standardized, prepackaged software solutions is therefore not surprising.

Yet, standardized ERP systems such as SAP R/3, Oracle Applications, and PeopleSoft have disadvantages, too. Huge storage needs, networking requirements, and training overheads are frequently mentioned ERP problems. However, the scale of Business Process Reengineering (BPR) and customization tasks involved in the software implementation process are the major reasons for ERP dissatisfaction [1]. Baan, Peoplesoft, as well as SAP calculate that customers spend between three and seven times more money on ERP implementation and associated services compared to the purchase of the software license. Our own experiences validate that the ratio between ERP implementation efforts and software purchase is approximately 5 to 1. With hardware and software costs rapidly decreasing, that ratio becomes even worse.

This high ratio is due to the fact that ERP systems are more or less easy to install, yet users must also determine which goals (strategies) they wish to reach with the system, how the functionality of the system can achieve this, and how to customize, configure, and technically implement the package. If one realizes that SAP's R/3 solution comprises more than 5,000 different parameters, the complexity of the implementation process will be evident.

Inevitably, customization and implementation of ERP systems became an industry on its own. But particularly small- and medium-sized enterprises are not able to pay consultants millions of dollars for ERP implementation. Hence, modeling methods, architectures, and tools have become increasingly popular because they can help to reduce the cost of software implementation and at the same time increase user acceptance of ERP software solutions. Several modeling approaches are possible:

• Reduce the effort necessary for creating the target concept by leveraging "best practice case" knowledge available in reference models.
• Create a requirements definition by leveraging modeling techniques to detail the description.
• Document the system requirements definition by means of conceptual modeling methods, making the business logic more understandable.
• Leverage conceptual models as a starting point for maximum automation of system and configuration customizing.

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Modeling the Requirements for ERP

ERP systems are instruments for improving business processes such as manufacturing, purchasing, or distribution. Therefore, ERP implementation and BPR activities should be closely connected. ERP implementation should involve the analysis of current business processes and the chance of reengineering, rather than designing an application system that makes only the best of bad processes.

Due to the fact that business processes are very complex, in many cases analysis cannot be done directly on the real-world application. Thus, modeling aims at reducing the complexity of the reality in order to better understand business processes and their required software support. For this purpose, various aspects of business processes can be focused (interaction of organizational units involved, input-output-relationships, semantic data structures or communication and information flows, for example). This creative process is supported by modeling methods. A modeling method is a set of components and a description of how to use these components in order to build a model.

In order to guarantee an integrated improvement of all relevant aspects modeling frameworks are needed. The "Architecture of Integrated Information Systems" (ARIS) [6], for example, provides three different applications that enable seamless business process improvement:

• The ARIS concept is an architecture that provides and structures modeling methods for designing business processes from various views, for example, Event-driven Process Chains and Petri Nets for describing the logical process flow, Entity Relationship Methods (ERM) for modeling the data aspects, OO methods like UML interaction diagrams for illustrating the organizational units involved.
• The ARIS house of business engineering (HOBE) represents an approach for comprehensive computer-aided business process management. It comprises instruments for any process management step from strategy definition to application system configuration.
• The ARIS Toolset software system [2] supports the entire ARIS methodology. It is fully integrated with SAP's "Implementation Management Guide" (IMG) [5], enabling model-based business improvement up to the customization of the ERP system's parameters.

When improving business processes, reference models can be included. Reference models provided by ERP software vendors or consultant companies benefit the customer by utilizing business process knowledge and best practices, providing the opportunity to compare business software solutions or pinpointing positive or negative implementation issues. Probably the most comprehensive business reference model is SAP's R/3 software documentation, developed largely in accordance with the Event-driven Process Chain (EPC) method. Figure 1 represents an excerpt of an EPC from a SAP R/3 reference model that comprises thousands of business activities (functions) overall. The concrete process chain is embedded in a matrix of business processes derived from a super-ordinated scenario process.

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Model-Based Customization

If business processes are properly redesigned and business process models document the improved situation accordingly, ERP systems can be configured by these conceptual models. However, this requires that the process models are linked with the repository of the respective ERP system.

Direct interaction between the modeling tool, the conceptual models and the application system modifies the implementation strategy of ERP software. Rigid phase concepts used to be customary, with as-is analysis pinpointing any potential weak spots. Then ERP software independent target concepts were developed and implemented, using customizing techniques. Now, these phases are increasingly executed simultaneously and interactively. This lets business and implementation staff work in close collaboration, leading to simultaneous addressing of business and implementation issues. SAP's AcceleratedSAP, Baan's DynamicEnterpriseModeling, and Oracle's FastForward are all examples for ERP implementation strategies that are based on business process models.

Figure 2 shows an example: for clarification purposes, the four windows are shown separately. In a real-world application, these windows would be displayed on one screen, providing the user with all the information at once. The upper-right window shows the excerpt of the business process model in the ARIS modeling tool, illustrating the part of the standard software process that can be hidden. An additional process branch, not contained in the standard software, must be added.

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While companies are on their way to new business dimensions, implemented ERP systems cannot remain inside organizational boundaries.

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The function "create inquiry" asks users which screen is being used in SAP R/3. Using the process model as a modeling tool and by clicking on the function (or starting a command), users can seamlessly invoke SAP R/3. This screen is shown at the bottom left.

SAP's customizing tool IMG is activated for adapting the function—the upper-left window in the figure depicts the available function parameters. Using the modeling tool, results of discussions, parameter decisions, unresolved issues and the like are stored in the function, as depicted in the bottom-right window. This enables detailed documentation of business and IT-specific business process engineering. This documentation can be used at a later point in time for clarifying questions, using this knowledge for following projects and for monitoring the project. Thus, model-based ERP implementation also enables knowledge management for continuous process improvement.

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Modeling the Future: ERP Goes E-business

In the mid-1990s, the BPR debate drew our attention from isolated business activities to entire value chains. Yet, "entire" process management in most of the cases focused on the information flow within departmental, corporate, or national boundaries. Obstacles within those areas appeared difficult enough to cope with. Therefore, interorganizational communication and cooperation were seldom seriously put on the improvement agenda. Consequently, ERP systems were also restricted to intraorganizational process support.

In the meantime, after various BPR and ERP lessons learned, companies seem to be better prepared for business scope redefinition. They understand more and more the limitations of intraorganizational improvement and the urge to play an active role in the global e-business community. This means not only creating a company's Web site, but designing the backoffice processes according to the new requirements.

Obviously, this attitude has effects on business application systems, too. While companies are on their way to new business dimensions, implemented ERP systems cannot remain inside organizational boundaries. On the technical side, ERP vendors are—as many other software vendors—forced to move from a traditional client/server to a browser/Web server architecture in order to deliver e-business capabilities. Hence, for their first-generation e-business solutions almost all big ERP vendors are using a mixed Java/XML strategy. On the conceptual side, ERP vendors are facing the even bigger challenge to provide instruments for coping with the increasing e-business complexity. Business process models appear to be particularly useful in this context. While e-business process models are fundamentally the same as intraorganizational process models, integration and coordination mechanisms such as being widely examined by MIT's Center for Coordination Science [4] become even more important:

• Due to the increasing globalization, e-business almost inevitably means international—sometimes even intercultural—business cooperations. While ERP systems were multilingual from the very first, the human understanding of foreign business terms, process management concepts, legal restrictions and cultural individualities is much more difficult. Since models consist of graphic symbols that can be used according to formal or semiformal grammars, they are representing a medium that provides the means to reduce or even overcome those problems.
• Many improvement plans fail because of little-transparent business processes and structures. If people do not realize the reengineering needs and benefits they will not take part in a BPR project and accept the proposed or made changes. In geographically distributed cooperations such as international business mergers or virtual organizations, the problem of little-transparent processes becomes worse. Yet, in order to establish a successful partnership, the business processes have to be designed at a very high level of detail. Thus, business process models can help to clearly define the goals, the process interfaces and the organizational responsibilities of interorganizational cooperation.
• Up to now, we mainly discussed strategic benefits of modeling. However, at an operational level of e-business, models are very useful, too. In Business-to-Business applications such as Supply Chain Management we have to connect the ERP systems of all business partners. This means we have to fight not only with the thousands of parameters of a single ERP system but with twice as much (or even more). Another likely scenario is that the business partners involved in an interorganizational supply chain are using ERP systems of different vendors. In this case, a business process model can be firstly used to define the conceptual value chain. Secondly, the conceptual model that is independent from a certain software vendor can be linked to the repositories of the different ERP systems in order to customize an integrated software solution.

These examples demonstrate that business process models play a major role for the success of e-business. Some ERP vendors like SAP have understood this development and are already implementing their first model-based e-business applications.

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