Enterprise systems and

ongoing process change

Thomas H. Davenport, Jeanne G. Harris and Susan Cantrell
Accenture Institute for Strategic Change, Cambridge,
Massachusetts, USA
Keywords Information systems, Process efciency, Resource efciency, Technology led strategy,
Organizational change
Abstract Enterprise systems packages have long been associated with process change. However,
it was assumed that most organizations would simultaneously design and implement process
change while implementing the systems. A survey of 163 organizations and detailed interviews
with 28 more suggests that enterprise systems were still being implemented even among early
adopters of the technology, and that process change was being undertaken on an ongoing basis.
After the prerequisites of time, critical mass of functionality, and signicant expenditures were
taken care of, the factors most associated with achieving value from enterprise systems were
integration, process optimization, and use of enterprise-systems data in decision making.
Introduction
In the mid- to late 1990s, many large corporations undertook one of the most
ambitious information systems projects in their histories: the implementation
of packaged enterprise systems (ES also known as enterprise resource
planning, or ERP systems). ESs are packaged software applications (from
vendors such as SAP, Oracle, PeopleSoft, and J.D. Edwards) that connect and
manage information ows within and across complex organizations, allowing
managers to make decisions based on information that truly reects the current
state of their business. These systems also automate complex transaction
processes and thus have the potential to reduce costs.
Conventional wisdom of the time dictated that companies implementing ES
should undertake simultaneous changes in their businesses (Davenport, 1998).
As they congured and implemented their systems, they should have been
reengineering their business processes, restructuring their organizations and
changing management processes to take advantage of new data. The
substantial time, money, and internal resources necessary to implement an ES
(White et al., 1997), however, made process change during implementation
difcult. While a few rms were successful in changing everything at once,
most found it very demanding, and some failed altogether (Radosevich, 1998;
OLeary, 2000). In many cases particularly those involving organizations
trying to meet Y2K deadlines getting the system in became the only
objective, eliminating the possibility of any real business change.
For a time, ESs seemed forgotten as companies shifted focus to e-commerce
and other business matters. But leading organizations are revisiting the
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Business Process Management
Journal
Vol. 10 No. 1, 2004
pp. 16-26
qEmerald Group Publishing Limited
1463-7154
DOI 10.1108/14637150410518301
original promise of ESs, and taking actions now to realize the value they need
from the systems they implemented.
To determine how organizations were dealing with business process change
post-implementation and leveraging one of their most underutilized assets, we
conducted a quantitative analysis of information obtained from surveys of
managers at 163 organizations (in Europe, the USA and Australia) with an ES
already in place. In addition, we conducted in-depth qualitative interviews with
executives at 28 organizations considered to be leading adopters of ESs. After
examining more than 20 possible predictors of perceived business value, our
research demonstrates that companies can achieve signicant perceived value,
provided they continue to optimize business and management processes,
effectively use ES data and information to support decision making, and
integrate across the organization. In this paper we present a statistical model
that attempts to identify the primary sources of perceived business value.
ESs and business processes
ESs started out as back-ofce systems capable of integrating and automating
a wide range of transaction-intensive processes across functions like
manufacturing, human resources and nance. Today, the notion of ESs has
greatly expanded to include a wide variety of additional processes such as
performance management, planning and analysis, supply chain management,
customer relationship management, product development and advanced
analytics. The expansion of ES functionality prompted many analysts and
journalists to coin altogether new names for ES, such as enterprise commerce
management or ERP II (Parker, 2001; Bond et al., 2000). By integrating
additional processes with a core back ofce nancial systems base,
organizations stand to reap even greater benets from seamless information
ows within and across rms.
We found that contrary to popular opinion and research treating
implementation as complete (Hitt et al., 2002), most organizations that we
studied are still implementing ES functionality (see Figure 1). In fact, we didnt
nd a single company that reported it was totally nished implementing ES
across all business processes. While most companies had nancial systems in
place, less than half had completed implementing back-ofce processes for
human resources and their supply chain. While many organizations are
continuing to build out their core back end processes, we found that others are
expanding their ES into front-end processes that drive top line growth. Not
surprisingly, in our model of factors associated with perceived business value,
the time spent on implementation, the extensiveness of the ES implementation,
and the amount of nancial resources expended were prerequisites of value
(Figure 2).
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Factors driving value: integrate, optimize and informate
When it comes to an ES, too many rms stop short. Simply assembling the raw
technical components of a vision can only yield a limited amount of value.
Rather, our research reveals that substantial benets are realized only when an
organization creatively takes the raw components, claims them as its own and
directs them to meet its unique business vision. After the prerequisites of time
and cost are in place, our model predicts that organizations that achieve more
perceived value (as measured by a composite variable of ten sources of value)
from ESs focus on three value drivers (Figure 2):
Figure 1.
Percentage of ES
modules implemented
and expected to be
implemented in two
years
Figure 2.
Key factors driving
realization of ES value
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(1) Integrate unify and harmonize their ES, data and processes with an
organizations unique environment, and use the systems to better
connect organizational units and processes, as well as customers and
suppliers
(2) Optimize standardize most processes using best practices embodied in
ES software, mold and shape processes to t the unique or strategic
needs of the business, and ensure that processes ow and t with the
systems themselves
(3) Informate organizations informate when they use information to
transform work (Zuboff, 1988). In the context of an ES, organizations
informate by transforming ES data into context-rich information and
knowledge that supports the unique business analysis and
decision-making needs of multiple work forces.
We describe each of these key factors below.
Integrate
ESs were originally created on the value proposition of integration. By
centralizing operational information in one place where it can be shared by all
the companys key functional systems and standardizing business processes
across functions, an ES indeed offers the promise of integration. Integration,
and the standardization of data and processes that usually accompanies it,
saves money, can speed up communications and improve decision-making
(Weil, 1998). Financials from diverse business units can be consolidated easily.
A global customers orders can be viewed by anyone within the company from
one location. The perennial aggravation of conicting management reports can
be banished forever. With integration also comes the possibility of linking more
easily to customers and suppliers (Tapscott et al., 2000).
Just because an organization has implemented an ES, however, does not
mean that it has successfully managed to integrate its information and
processes to their full potential. Fully 42 percent of the organizations in our
study all of whom had implemented at least two major ESs modules had
achieved no or limited integration with their ES.
For most organizations, integration is an ongoing activity that continues
long after implementation of core ES functionality (Koch, 2001). Organizations
must continue to integrate systems from disparate best-of-breed vendors, as
well as integrating their ES with existing legacy systems. In addition, most
organizations must work to integrate different instances of ESs that have
proliferated due to the unique demands of different geographies or business
units, or due to mergers and acquisitions.
Integration also does not stop within a companys own four walls.
Integrating processes with a rms customers, suppliers and business
partners can also lead to dramatic improvements in operational efciencies
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that can have a clear relationship to protability (McNurlin, 2001). Some
observers have argued that inter-organizational business processes are a
major emphasis in todays businesses (Champy, 2002). Yet less than 30
percent of organizations in our study have achieved even limited
information exchange with the majority of their customers or suppliers.
Our qualitative interviews suggested that the most sophisticated users of
ES are just beginning to address inter-organizational information and
process ows, and that it will take many years for these to be completely
automated.
If improving integration is the single most signicant action an organization
can take to realize value from their ESs, what can organizations do to achieve
it? One approach is simply to minimize the number of ESs instances (dened as
a particular set of applications with an integrated database) through
consolidation. Consolidating applications into a single global instance can
improve integration and signicantly reduce costs of ESs human and technical
support. The project manager at a telecommunications rm responsible for
consolidation of the rms ESs instances estimates that consolidation saved the
company $25 million over two years. He explained, Getting funding to
consolidate was the easiest business case Ive ever written.
From a business and organizational perspective, the most obvious route to
consolidation-related cost savings is the adoption of shared services. Sixty-nine
percent of organizations in our study had implemented centralized shared
service centers. Thirty-three percent of the organizations in our study are even
taking the concept of consolidation and shared services beyond the
organizations four walls by sharing applications, hardware or core business
processes with other rms to further reduce costs.
Another approach used to achieve integration is to integrate ESs package
modules with other legacy systems. Organizations employ enterprise
application integration (EAI) tools or Web services to connect disparate
applications together (Hagel, 2002). In addition to technology and
organizational changes, organizations also can improve integration by going
through the often-painful process of agreeing on a common way to dene key
information and perform key business processes. Many organizations, for
example, have a dozen or more denitions for words such as customer.
Signicantly reducing the number of data and process denitions will not only
help internal integration, but pave the way for easier external integration as
well. Information integration might also have been done during initial
implementation, but our research suggests that it often continues thereafter.
Optimize
Optimization of ESs and the business processes they support is critical to value
realization. Studies have shown that rms that invest more heavily in business
process redesign when implementing information technology have greater
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productivity and business performance than those that dont (Brynjolfsson and
Hitt, 1995). In fact, it was the concept of reengineering business processes that
led to the large wave of ES implementations in the 1990s in the rst place
(Davenport, 1993). By adopting ES software, organizations hoped to quickly
reengineer and standardize the majority of their business processes to reect
best practice processes. At the same time, some organizations sought to
carefully congure the systems so that they aligned with organizations
business processes and objectives, and to simultaneously restructure their
organizations and processes to take advantage of new data (Legare, 2002; Hong
and Kim, 2002).
Yet only 40 percent of organizations have achieved signicant optimization
of their ES. In part, this may be due to the fact that many rms defer process
change until after implementation (Robey et al., 2002). What can an
organization do to optimize its ESs? While few organizations are interested
in the radical new process designs advocated in the early days of reengineering,
there still is a need to rene and continuously improve business processes.
Leading organizations that have succeeded in capitalizing on their ES
continuously examine and improve how the processes ow and t with the
system, and how the system and processes support the needs of the business.
One consumer products company we interviewed, for example, regularly
examines the processes its ES support. System deployment is highly
centralized; however, the process improvement program, while company wide,
is implemented locally. Each operating unit or geography decides where to
focus and how best to implement change, and best practices are transferred
quickly from one area of the company to another.
The companies we studied agree that the next version of reengineering or
process improvement should still be focused on processes, but shouldnt be
restricted to the back-ofce, operational processes that were the primary focus
for reengineering in the past. Much of the value and innovation in
organizations today comes from knowledge workers (Drucker, 1999) and
knowledge work processes (Davenport et al., 1996), which went largely
untouched in the last round of reengineering. These processes marketing,
new product development, strategic planning, and even management ought
to go under the microscope this time. Since there are now ES modules that
support each of these processes, it makes sense to redesign them around the
new capabilities the new module provides.
Once an organization determines the process ows it desires, it often will
need to modify the system to make sure the system ts the processes and the
business the processes support. A total of 74 percent of organizations in our
study at least moderately customized their ES. In addition, better alignment
between desired processes and the system itself can be achieved through the
implementation of systems or modules that are specically built to t an
organizations given industry.
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To ensure that optimization and customization of processes and systems is
achieved in the most advantageous way before or during implementation,
executives may want to take steps to ensure that non-IT managers and
employees fully understand the implications of the new system on their
potential processes. In the next round of ES implementation at PolyOne, for
example, managers are educating employees about the system and testing
potential processes by creating simulations and literally walking business
people through the impacts of the changes that the system could have on their
processes.
Informate
Organizations in our survey desired improved decision making more than any
other benet of ES. Driven by the desire for accurate, consistent, complete,
real-time information, executives are seeking the same type of efcient,
transparent and frictionless real-time decision-making capability that many
manufacturers achieved with just-in-time manufacturing. In the real-time
enterprise, senior executives can manage their business differently with
immediate, global, cross-functional data (The Economist, 2002). Front-line
workforces as diverse as sales, product development, nance, customer service,
purchasing, and strategic or supply chain planning can draw on ES data and
analytic capabilities to improve their job performance, increase their authority
for decision making, and improve communications with customers (OLeary,
2000). To realize this goal, organizations must informate (that is, transform ES
data into context-rich information and apply it to support business analysis
and decision making).
However, building a robust analytic capability that uses data to make
informed decisions requires far more than mere data access and technological
tools (Davenport et al., 2001).Just as optimizing business processes often takes
time for an organization to accomplish because people must rst live with the
system, improving managerial information also tends to be an evolutionary
process. Managers and other professionals must learn what data is available
and how it can best support the business. Most organizations participating in
our qualitative interviews felt that they had largely achieved their goal to
create better data, but that their organizations were still learning how to use
this data to its full potential. Explained one executive, One challenge has been
going from a lot of transactional data to good business information. Slowly but
surely, people are doing their jobs in different ways. About six months after
implementation, people start to understand what they can do with the data.
This process was particularly slow with ES data, because most ES vendors
were slow to make high-quality analysis tools available to their customers. For
these reasons, it is not surprising that only 28 percent of organizations felt that
they had achieved signicant access to their ES data and a robust analytic
capability.
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Organizations seeking to enhance their decision-making capabilities are
implementing new ES functionality, such as performance measurement
applications, to obtain managerial information not otherwise captured by their
systems. Using a balanced scorecard application, for example, the Texas
Education Agency is able to track performance on a monthly basis. Its ES
capabilities enable the agency to handle information requests quickly, and
analyze management information in new ways to generate insights into their
operations.
Organizations also improve their ability to informate by providing better
data access. The rst step toward improving data access is to improve the
availability and quality of ES data by making sure it is consistent, timely
and accurate. Improved data quality can lead to substantial organizational
benets (Redman, 1995). As users become more familiar with the data
available, their need for data often exceeds the standard reporting
functionality that comes with an ES. Implementing data warehouses, ad
hoc reporting functionality and portals empowers employees to access and
manipulate the data they need.
Leading organizations, however, do not just give people access to data. They
give access to the right data most applicable to the person and the problem at
hand. In other words, they present the information in context, thereby
empowering employees to better understand the implications of information
and to act upon it. Portals, a technology 81 percent of organizations in our
study say they will experiment with over the next two years, can help
knowledge workers access and interpret ES information relevant to specic
tasks. In addition, portals can draw upon disparate sources of information to
assimilate highly structured data with other useful information such as
documents, invoices, procedure manuals and online tools. For example, a sales
managers portal could link multiple internal and external data sources
specically needed by the sales manager to tools that facilitate common tasks
performed in the sales function, such as preparing a sales forecast.
As employees gain greater familiarity and insight into enterprise ES data,
there is a growing demand for more robust analytic capabilities. A total of 49
percent of the organizations in our study plan on experimenting with advanced
analytic applications in the next two years. Strong analytic capabilities also
require the development of individuals with analytic skills. Although some
experts argue that intelligent software agents ultimately will be able to
integrate and analyze data and automate routine decisions such as purchasing
of inventory (Apicella, 2000), we believe that most complex analytic processes
will still need involvement by skilled professionals.
Organizations with highly advanced abilities to use information derived
from an ES have the potential to alter their work processes or job roles, change
their organizational structures or seek out new business opportunities. Dow
Chemical, for example, changed to a atter and more customer-focused
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organizational structure to take advantage of new ES information. Dows use of
ESs managerial information has enabled its managers to achieve a level of
insight its competitors just cannot achieve. According to a manager we
interviewed who once worked for a Dow competitor, [By comparison], we were
running blind.
Establishing a business change infrastructure
We discovered that many organizations initially approached their ESs
initiatives as one-time projects to be accomplished. Executives in these
companies viewed their roles as bringing together and overseeing the
necessary resources (time, money, technology, skilled people) needed to build a
new capability. While these investments are a prerequisite for achieving
benets, they are a long way from the nished product. To accelerate the
business value they realize from their ES, organizations should:
.
Invest the effort required to get a critical mass of implementation. Only
those organizations that have invested the time and resources necessary
to extensively implement ES throughout their organizations will be able
to capitalize on their promise of better integration and seamless
information ows between functions, business units and geographies.
.
Manage ESs as an ongoing program. No matter how much ES
functionality has been implemented, getting value from an ES requires
ongoing management and attention. Implementing the basic
transactional architecture, as one ES program manager told us, is
only phase 1 of our overall program. Another companys CIO noted, Ive
made my peace with the fact that this is an ongoing process. Dedicating
ongoing resources to ES can help rms continue to focus on, measure, and
manage the benets from them.
.
Prioritize benets and create an action plan to achieve them. Although
everyone wants to achieve general overall value from their ES, some
organizations also will seek specic benets that may require altogether
different actions than those used to achieve general, long-term value. In
particular, the uncertainties in todays economic climate may suggest that
many organizations may choose to adopt a bifocal approach to
achieving value from ES: a dual focus on short-term cost reductions
benets and long-term competitive benets. In other cases, an
organization may decide a particular strategic benet such as improved
customer service and retention is more important than other types of
benets. Leading organizations will prioritize their benets and
corresponding plans for action to achieve what is most important to them.
.
Manage and measure benets. Our research suggests that measuring the
benets obtained from ESs, and holding someone accountable for
realization of targeted benets, signicantly shortens the time to
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achieving value. Organizations seeking benets from their ES will both
establish a measurement process and appoint someone responsible for
benet realization.
Conclusion
Leading organizations take a three-pronged approach to achieving value from
their ES. They work to integrate their ES internally and with other
organizations through activities like consolidation of system instances, use of
integration technologies, and standardization of data and process denitions.
Simultaneously, they work to both optimize their ES by improving how
processes ow and t with the system and business needs, and informate work
by using robust data access and analytic capabilities to transform ES data into
useful knowledge that can be applied to an organizations unique business
problems and work forces.
For those executives who feel their organizations have yet to realize the
promise of ESs, the answer is clear: do not give up yet. This is a great time of
opportunity. Many, if not most, large organizations today are on the cusp of
realizing signicant value from their ESs. Successful organizations will learn
how to effectively manage their ESs on an ongoing basis; they will continually
integrate, optimize, and informate to maximize the value of one of their most
under-utilized yet powerful resource.
Our research suggests that some factors are more likely to lead to perceived
value than others with ESs. It would be preferable, of course, to know the
factors that drive actual, objective value rather than perceived. In order to
identify these factors, researchers would need to spend considerable time
within a single organization and measure value themselves, or nd one of the
(few if any) organizations that has carefully measured value.
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