The Idea in Brief
What guarantees to seamlessly integrate all information flowing into and out of your company’s incompatible databases? And create unmatched customer service, reduced inventory write-offs, and increased profitability?
Enterprise resource planning systems, once known as ERPs. These technological tours de force have undeniable allure: one comprehensive database to house all your corporate information—customer, marketing, sales, production, financial, etc. When you enter new information in one place, the system automatically updates related information.
So why do so many enterprise-system initiatives fail? Why, for example, did Dow Chemical spend seven years—and half a billion dollars—implementing one system, then start over with another? Why is the use of enterprise systems proliferating, but not the benefits? Several reasons:
- Dauntingly complex, enterprise software requires significant money, time, and expertise.
- These systems impose their own logic on companies’ strategies, organization, and culture—often forcing firms to do business in ways that conflict with their best interests.
- An enterprise package may be used by all companies in an industry—erasing their sources of differentiation and competitive advantage.
How to avoid these perils? Clarify strategic and organizational needs—and business implications of integration—before implementing.
The Idea in Practice
Consider these guidelines, illustrated with examples from Elf Atochem North America, a chemicals subsidiary of France’s Elf Aquitaine that suffered information-flow problems among its 12 business units.
Clarify Your Strategy Before Planning Your Enterprise System
Example: Elf Atochem’s troubles stemmed from the company’s fragmentation, not its systems’. To place one order, customers had to call many units and process several invoices. The firm wrote off $6 million annually because of uncoordinated inventory management. Customers deserted when sales reps couldn’t promise firm delivery dates.
Executives refocused strategy on radically improving customer service. They targeted processes most distorted by fragmented organizational structures—materials and order management, production planning, financial reporting—and installed only the enterprise modules supporting those processes.
Change Organizational Structures—Not Just Computer Systems—to Address Information-Flow Problems
Combining its accounts-receivable and credit departments into one function, Elf Atochem consolidated each customer’s activities into one account. Combining all units’ customer-service departments gave customers one contact point.
Create Competitive Advantage with Your Enterprise System
Example: Elf Atochem’s enterprise system generated the real-time information necessary for connecting sales (demand) and production planning (supply). As orders enter or change, the system updates forecasts and factory schedules. Result? Production runs shift quickly based on customer needs. Only one other company in the industry has this capability.
Put the Right People in Place
Example: Computer systems without the right people don’t change organizational behavior. Elf Atochem created the demand-manager position to orchestrate sales and production planning. Using the enterprise system, this manager makes sales forecasts, updates them with new orders, assesses plant capacity and account profitability, and develops production plans. Now salespeople can guarantee orders six weeks ahead of production.
Install Your Enterprise System Gradually
Elf Atochem installed its system one business unit at a time, refining as rollout proceeded. This enabled staffing the effort mainly with insiders—reducing implementation costs and boosting employees’ understanding of the system.
Enterprise systems appear to be a dream come true. These commercial software packages promise the seamless integration of all the information flowing through a company—financial and accounting information, human resource information, supply chain information, customer information. For managers who have struggled, at great expense and with great frustration, with incompatible information systems and inconsistent operating practices, the promise of an off-the-shelf solution to the problem of business integration is enticing.
