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What is ERP? A guide to enterprise resource planning systems

Thomas Wailgum | July 28, 2017
Enterprise resource planning (ERP) software doesn’t live up to its acronym. Forget about planning — it doesn’t do much of that — and forget about resource, a throwaway term. But remember the enterprise part. This is ERP’s true ambition. It attempts to integrate all departments and functions across a company onto a single system that can serve all those different departments’ particular needs.

More recently, MillerCoors sued IT services firm HCL in March 2017 over a failed SAP implementation, seeking "compensatory damages in an amount to be determined at trial in excess of $100,000,000."

 

How do I configure ERP software?

 

Even if a company installs on-premises ERP software for the so-called right reasons and everyone can agree on the optimal definition of a customer, the inherent difficulties of implementing something as complex as ERP is like, well, teaching an elephant to do the hootchy-kootchy. The packages are built from database tables, thousands of them, that programmers and end users must set to match their business processes; each table has a decision "switch" that leads the software down one decision path or another. By presenting only one way for the company to do each task — say, run the payroll or close the books — a company’s individual operating units and far-flung divisions are integrated under one system. But figuring out precisely how to set all the switches in the tables requires a deep understanding of the existing processes being used to operate the business. As the table settings are decided, these business processes are reengineered the ERP system's way. Most ERP systems are not shipped as a shell system in which customers must determine at a very granular level how all the functional procedures should be set, making thousands of decisions that affect how their system behaves in line with their own business activities. Instead, most ERP systems are preconfigured, allowing just hundreds — rather than thousands — of procedural settings to be made by the customer.

Even the new on-demand or SaaS) ERP offerings necessitate some system configuration and customization to each company's individual requirements. This process, however, generally takes less time and resources than with an ERP application that's installed on-premises.

 

How do companies organize ERP projects?

 

Based on our observations, there are a few common ways companies install ERP.

The big bang — In this, the most ambitious and difficult of approaches to ERP implementation, companies cast off all their legacy systems at once and install a single ERP system across the entire company. Though this method dominated early ERP implementations, few companies dare to attempt it anymore because it calls for the entire company to mobilize and change at once.

Most of the ERP implementation horror stories from the late ’90s warn us about companies that used this strategy. Getting everyone to cooperate and accept a new software system at the same time is a tremendous effort, largely because the new system will not have any advocates. No one within the company has any experience using it, so no one is sure whether it will work.

 

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