lecture organizations & information systems 8/30/03

Lecture

Organizations & Information Systems

8/30/03

• Definition of ERP

• ERP Costs and Benefits

• Mutual Impact: ERP and Organization

• Org Structure

• Culture

• Reward System

• Business processes

Table of Contents

Organizations and Information Systems

1 of 41

Definition of ERP

A software application which is built around an

integrated database and which supports all the

major functional areas and business activities of an

organization, no matter where its facilities are

located.


2 of 41

Org Structure

• No integrated data• No universal communications

There are two constraints that affect how we have traditionally designed organizations.


3 of 41

Org Structure

As a result, we created functional organizations, slow communications, and fragmented business processes.

CEO

VPFinance

VPMarketing

VPLogistics

VPManuf-ing

Message /Interaction

A B

XSignificant communication has to go

up before it goes across.


4 of 41

Org Structure

CEO

VPFinance

VPMarketing

VPLogistics

VPManuf-ing

All organizations participate in the end-to-end business processes, but they do not see how it all fits together.

DesignProduct

BuildProduct

SellProduct

ServiceProduct


5 of 41

Org Structure

CEO

VPFinance

VPMarketing

VPLogistics

VPManuf-ing

Pieces of the end-to-end business process are held in stand-alone databases.

DesignProduct

BuildProduct

SellProduct

ServiceProduct

D XSB

D DD

B

BB

S

S

S

X

X


6 of 41

Measures And Rewards

Keep costs down

High employee utilization

High machine utilization

Sell lots of units

Profitability

Minimize leased space

Units produced

CEO

VPFinance

VPMarketing

VPLogistics

VPManuf’ing

X X

X

X

X

X

X

? ? ? ?

To make things worse, each top manager has a different incentive.

X


8 of 41

Org Structure

This difference in incentives creates a phenomenon called “suboptimization,” in which every manager meets his/her objectives, but the overall objectives of the company are not met.

CEO

VPFinance

VPMarketing

VPLogistics

VPManuf-ing

DesignProduct

BuildProduct

SellProduct

ServiceProduct

CostsLeases

Employee UtilizationMachine UtilizationUnits Produced

Units Sold CostsEmployee Utilization


9 of 41

Org Structure

Who is responsible for the product end-to-end?

CEO

VPFinance

VPMarketing

VPLogistics

VPManuf-ing

CostsLeases

Employee UtilizationMachine UtilizationUnits Produced

Units Sold CostsEmployee Utilization

Product Life Cycle

Profitability

Market Share


10 of 41

Org Structure

There are several alternatives to organizational design.

• Divisional structure

• Hybrid structure

• Matrix structure

• Teams


11 of 41

Org Structure

Divisional by Geography.

CEO

VPNorth

VPSouth

VPWest

VPEast

Fin Mkt Man HR Fin Mkt Man HRFin Mkt Man HRFin Mkt Man HR


12 of 41

Org StructureDivisional by Product

CEO

VPProduct 1

VPProduct 2

VPProduct 4

VPProduct 3

Fin Mkt Man HR Fin Mkt Man HRFin Mkt Man HRFin Mkt Man HR


13 of 41

Org Structure

Hybrid solution - mixing functional and divisional.

CEO

VPProduct A

VPProduct B

VPFinance

VPProduct C

Mkt Man Log Recr Ben Pay Train

VPHRM

Mkt Man Log Mkt Man Log GL AP AR Tax


14 of 41

Org Structure

The matrix organization combines the features of both functional and divisional organizations. It is frequently used for projects, programs, and products.

CEO

VPFinance

VPManuf

VPLogistics

VPMarketing

Project 1

Project 2

Project N


15 of 41

Org Structure

The matrix organization, in theory, has advantages. In actuality, it adds enormous demands for communication and coordination on top of the traditional fragmentation of the functional organization.


16 of 41

Org Structure

Teams represent a refinement of the matrix organization.

CEO

VPFinance

VPManuf

VPLogistics

VPMarketing

F LM X

Team 3F

FM

X

X

LTeam 2

F

FM

X

LTeam 1

F

MMX

XL


17 of 41

Decisions go lower in the organization. Some jobs go away. Other jobs get expanded.

Job Descriptions

CEO

VPFinance

VPMarketing

VPLogistics

VPManuf’ing

Top

Mid

Worker

A B C

X Y

Integrated Daabase

Deleted

Expanded


38 of 41

CultureThe organization’s culture can fight the implementation and effective use of the ERP.

Not invented here• Fight introduction of third-party

software

• Refuse to follow the ERP’s business model, insisting that the company’s way is unique and must be continued.

Shoot the messenger• ERPs require reengineering of

business processes.

• But reengineering requires a frank analysis of weaknesses and problems.

• Organization does not want to hear the bad news.


20 of 41

CultureCulture vs. ERP (cont.)

Empire building

• ERPs require reengineering of business processes..

• Some paper-based empires will go away.

• Other departments will be outsourced.

• Middle management will shrink.

Cards close to vest• ERP’s integrated database makes all

the data more visible and accessible.

• Some empires depend on other people not knowing what they do.


21 of 41

CultureCulture vs. ERP (cont.)

It’s not my job• Integrated database expands jobs.• Integrated database removes

excuses.

Work harder, not smarter

• Organization has a bias against asking questions


22 of 41

Rewards/Incentives

The culture is reinforced by the official and unofficial reward systems. Traditional reward systems contributes to isolation and ERP will suffer

VPFinance

VPMarketing

VPLogistics

VPManuf-ing

Low CostsMachine

UtilizationUnits SoldEmployeeUtilization

• Not invented here

• Shoot the messenger

• Risk averse

• Cards close to the vest

• Empire building

• It’s not my job

Individual goalsIndividual rewards


23 of 41

Rewards/Incentives

The use of common goals and shared rewards helps to break down the walls between departments.

• Not invented here

• Shoot the messenger

• Risk averse

• Cards close to the vest

• Empire building

• It’s not my job

Market share, Profitability, Stock price Cost goals

Volume goalsUtilization goals


24 of 41

VPFinance

VPMarketing

VPLogistics

VPOperations

New

Old

Costs

Unit Measure Unit Cost Num Units TotalS/W license per user $4.000 5.000 $20.000.000H/W PC per users $3.000 3.500 $10.500.000

Servers $75.000 8 $600.000Network hardware $10.000 500 $5.000.000

lines $2.000 500 $1.000.000backbone $2.000.000 1 $2.000.000

Internal labor employee year $100.000 100 $10.000.000Consulting consultant year $625.000 50 $31.250.000hourly rate $250

hours/yr 2.500years 1

Consutant Expenses consultant year $100.000 50 $5.000.000

$85.350.000

One large company stated that it spent around $100M on the installation of SAP. Here is a rough estimate of their costs.


34 of 41

Leadership

Democratic and transformational leadership is needed at certain points. At other points, leadership must be autocratic and transactional.

Project Startup

Analysis and Design

Implementation

Autocratic

Democratic


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Manufacturing Roots of ERP

• The vision of having an integrated IS began on the factory floor

– MRP used inputs of forecast, inventory levels and lead times

– MRP II incorporated more links to other functions order processing and product costing

– ERP is viewed as an extension of MRP II

provided better visibility of operational data

Eventually, companies realized that an ERP was needed to truly integrate the organization and allow reengineering of its business processes.

HR Processes• Hire• Fire• Pay• Train

Manufacturing Processes• Design product• Build product• Assemble product• Test product• Order materials• Store materials

Marketing Processes• Determine price• Sell product• Take an order• Deliver product

Financial Processes• Pay bills• Collect Bills• Pay taxes• Compute costs

• Customer Data• Product Data• Location Data• Employee Data• Market Data• Cost Data• Billing Data• Order Data• Production Data

ERPs

ERP

An integrated database must be based on a logical model of the company and its data a data model.

Oracle

DB2

Informix

Sybase

SQL Server

Adabase

ERPs

Customer

Order

Employee

Invoice

Payment

Part

Product

Cost

Supplier

Site

Delivery

Has Makes

Is forSends

Is for

Is for

Contains

Handles

Makes

Has

Provides

Is on

Gets

Properties of ERP

• Integrated in nature – when data are entered into one of the functions, information in all related functions is changed

• They are modular in structure. A company can implement all the modules or a subset of them

– Best of Bread approach: Integrating modules from different vendors.

– Implementing it is more complex because of the interfaces that need to be established. (EX: Peoplesoft (Oracle) + SAP)

• Open architecture. Bolt-ons such as DSS can be integrated easily.

– DSSs offered by ERP vendors are not good enough (Ex: SAP’s APO, data mining)

(They are very inflexible)

(The second most common reason)

(The most common reason)

• Successful companies – involved their heavy end users through out the

implementation process instead of providing training at very end

– viewed ERP system as a business solution not an IT solution

– analyzed their operations thoroughly before the implementation and identified any discrepancy between current practices and ERP system (business processes and rules such as the those used in case of credit violation, pricing, and inventory sourcing)

– formed implementation teams• Dedicated teams in large firms• Knowledge transfers

Lecture

End

Quiz

Start

An ERP is built around what?

Stand-alone files

Cobol programs

Integrated database

Multiple separated databases

Microsoft Office

1

2

3

4

5

1 of 19


An ERP supports all the major ______________ areas of an organization.

Functional areas

Investors

Information systems

Equipment

Directors

1

2

3

4

5

2 of 19


An ERP can support the activities of an organization, no matter where its _________ are located.

Software

Regulators

Governments

Investors

Facilities

1

2

3

4

5

3 of 19


One of the two constraints that affect how we have traditionally designed organizations.

Lack of qualified employees

Lack of integrated data

Lack of organizational levels

Lack of telephones

Lack of calculators

1

2

3

4

5

4 of 19


One of the two constraints that affect how we have traditionally designed organizations.

Lack of qualified employees

Lack of functional organizations

Lack of organizational levels

Lack of universal communications

Lack of calculators

1

2

3

4

5

5 of 19


If you do not have an integrated database and network, you tend to get what kinds of organizations?

Streamlined

Flat

Virtual

Functional

Process-based

1

2

3

4

5

6 of 19


What can we say about stovepipe organizations when they participate in a business process?

They have a clear understanding of how it all fits together

They see the high degree of integration in the activities

They can see outside their walls and understand the impact they have on other departments

They do not have an end-to-end view of the process

They see all the parts functioning together

1

2

3

4

5

8 of 19


Traditionally, the fragmented processes in stovepipe organizations were supported by what types of information systems?

Integrated

Stand-alone

Systems with separate file systems

Non-redundant

Systems connected by batch interfaces

1

2

3

4

5

9 of 19


How does an organization’s incentive system fight against integrated business processes?

Each top manager could have a different incentive

Each top manager participates in a bonus pool

All top managers work with common goals

All top managers get rewarded for the group

Each top manager is rewarded for cooperating with the others

1

2

3

4

5

10 of 19


The situation where every manager meets his/her objectives, but the overall objectives of the company are not met.

Maximizing

Goal achieving

Variance analysis

Underachieving

Suboptimization

1

2

3

4

5

11 of 19


One way to structure a divisional type of organization.

By business function

By product line

By functional activities

By supervisory levels

By information system

1

2

3

4

5

12 of 19


What kind of organization do you see here?

Functional

Divisional

Geographical

Hybrid

Networked

1

2

3

4

5

CEO

VPProduct A About 6

VPProduct B

VPFinance

VPHRM

13 of 19


This type of organizational structure is frequently used for projects, programs, and products.

Matrix

Functional

Divisional

Geographical

Hierarchical

1

2

3

4

5

14 of 19


Why is it important to understand an organization’s culture when implementing an ERP?

Management culture leads to sponsorship of the opera

Some ERPs are for gentlemen only

If there is no culture, employees will not appreciate what they get

Management culture can create attitudes and behaviors that are hostile to the new way of doing business

An ERP requires a very high cultural level

1

2

3

4

5

15 of 19


Why do many middle managers depart the organization when an ERP is installed?

Their new job becomes too complex to handle

The system now performs their functions of communication and data distribution

They want to start a second career

They are afraid of their new responsibilities

The company wants them to transfer to other divisions

1

2

3

4

5

16 of 19


The process of preparing an organization for change by having retreats, forums, team-building activities, etc. is called what?

Installation

Organizational development

Systems analysis

Organizational theory

Functional decomposition

1

2

3

4

5

17 of 19


What is one result of installing an ERP and its integrated database?

Decisions are made based on fragmented data

Middle management needs to distribute the data

Decisions can be made lower in the organization

Integrated data is useless

Lower levels of the organization have less data to deal with

1

2

3

4

5

18 of 19


What can we say about leadership and the stages of an ERP implementation?

The best style is transformational

The best style is autocratic

When convincing people that they need to change, the best style is autocratic

Adopt a single style and maintain it through all the phases

Different styles of leadership will be needed during the different phases

1

2

3

4

5

19 of 19


Quiz

End

Exercises

Start


1 of 1

Cultures and situations – drag and drop the cultural attitude to match the situation.

Exercise 1

Exercises

End

lecture organizations & information systems 8/30/03

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