The aim of this essay is to define the term ERP and present the context of the term under the form of real life examples. In the end, there will be a clear distinction between ERP and Legacy systems that will be made.
ERP which stands for ‘Enterprise resource planning’ is the process by which data and information belonging to an organization or company may be unified in a single system. This desiderate can be achieved by using different hardware and software tools for creating a sole database of information and data. But what are the advantages of such a resource planning tool for a company, particularly a multinational company that has many subsidiaries all around the world? Multinational companies, according to the definition, are commercial entities that conduct a large part of their activity abroad, having many subsidiaries spread worldwide, in order to better cover the market and meet the most diversified demands of the current and possible customers. The multinationals have basically two major approaches in doing business abroad – standardization and adaptation.
First of all, adaptation approach refers to the company’s technique to tailor its business approach to local or regional culture. This is the strategy used by Nestle, a multinational giant having a wide range of products and serving customers all over the globe. Although it assumes larger costs for the company, it may bring enhanced revenues and more satisfied customers. Such an approach would earn new customers, as they may be open in buying a product which serves a particular customer’s special interest and not someone else’s.
In Nestle terms, the decentralized strategy brought besides a wide range of their products, inefficiency and large costs. The inefficiency can be explained by the company’s decision to divide its activity into regional subsidiaries, for example Nestle USA, Nestle Europe, Nestle Canada and so on. Each subsidiary had in fact been split into different independent companies, one for each brand it manufactured, distributed and sold. This situation lead to lack of synchronization between the company’s branches. The company was unable to gather information from retailers in order to evaluate subsidiary’s performance due to the numerous entities (about 500). The other aspect was related to the huge expenditures incurred by Nestle due to the lack of bargaining power with the supplier. This was possible because of Nestlé’s policy to allow each branch to negotiate individual contracts with the suppliers. Although there was a sole supplier for a certain type of raw material, for example, each branch negotiated its orders and payments, so Nestle was unable to receive important discounts or grace periods.
Secondly, the standardization means the company uses the same approach in doing business all around the globe, starting from purchasing, manufacturing, sales, distribution and post-sales services, including advertising and repairs. The benefits of this approach would be that the company’s activity could be easily monitored, as it has the same practices in doing business within the entire cycle of the production, distribution, and post-sales activities. Also standardization reduces costs, by using the same marketing and distributional activities. The ERP (Enterprise Resource Planning) method could be used here for integrating huge amounts of data, for example from subsidiaries about their sales, promotion activities, distribution, and malfunctions in different fields. In this way, the company could save funds and increase its overall capacity of better evaluating its commercial and economical performance. ERP was chosen by Nestle as the optimal method for reducing costs and improving the information communication system within the enterprise.
Legacy systems are one of the causes why new Enterprise Resource Planning methods are not implemented in today’s companies. As a definition, we may conclude that legacy systems refer ‘to existing computer systems which continue to be used due to the fact that the user (usually, an organization) does not want to replace it or redesign it.’(Wikipedia, 2007) The main element that stands in the way of evolvement is the fact that integration could not be realized on these systems as they normally run on obsolete computer systems, having hard to find spare parts, and having distinct software packages. This is one of the reasons why Nestle’s integration of worldwide activities into a single, centralized one, is observed to be such a difficult thing. Another issue would be that, when it was first proposed, this approach was not considered as having such deep influences on Nestle’s corporate culture. This is the reason why people, especially at the lower levels of hierarchical ladder were not included in the project team that later on decided on the implementation of this method. And they registered difficulties in executing the new central program.
Adding up all things mentioned, the specialists in the company made an estimate that in a couple of years, the company would solve the accommodation problem, and would start making their activity more efficient.
1) Laudon & Laudon (2004) Management Information Systems: Managing the Digital Firm, 8th Ed Prentice Hall pg 54
2) 2007 Jupitermedia Corporation , author Federico Zoufaly, available at www.developer.com/mgmt/article.php/1492531 – 66k
3) Bisbal, J., Lawless, D., Wu, B. & Grimson, J. (1999). Legacy Information System Migration: A Brief Review of Problems, Solutions and Research Issues. IEEE Software, 16, 103-111.
2. ‘Business Excellence through Systems Technology’ project and the challenges posed by projects of this nature
This essay would try to bring before the reader’s eyes the BEST project and the challenges that stand in its development and implementation stage. The example used for this report would be the Nestle Case Study, and its efforts in trying to minimize costs and improve communication through a web platform.
In the ’90, the Nestle Corporation was trying to reconfigure its activity by moving from an adaptation strategy to a standardized one. This project, therefore referred by the company as BEST (Business Excellence through Systems Technology) would be performed by implementing a SAP, a system of enterprise resource planning which assumed launching a personalized web platform, where each employee of the company’s staff would work on its own page according to his position and responsibilities. The program will be elaborated based on the proposals of the project team, namely: 50 business professionals for setting the criteria and organization of the future informational system of the company – referring to the best practices for the company, and 10 technical engineers for data analysis. This project team will come up with a common-work procedures for the entire line of company’s activities and procedures, from manufacturing to post-sales performance. This common work procedures will assure a continuity in Nestlé’s activity, leading to enhanced collaboration within the company and a better forecasting and planning activities (as the company’s managers could observe at a central level, for example the efficiency of a promotional activity of one product, as compared to a similar campaign for the same product in different regions of the world). Also the company would renounce to having more product names for the same item and the bureaucracy within the company would be reduced to minimum levels, as the paperwork would be replaced by electronic documents, which could be easily prepared, sent and stored on individual and server storage spaces.
The above lines seem to present the perfect approach for a company to move from a decentralized strategy to a centralized one, in order to reduce costs and improve its communication system on a global basis. But this was not really the case for Nestle. First of all, the project was tested on US Nestle subsidiary, which recorded 8.1 billion dollar revenues in 2001.It was supposed to work like this:if the BEST project would have been a success than it would have been been next introduced within other branches. As it was considered that this is a very innovative approach, and very risky in the same time, it was decided by the company’s board to launch the SAP platform only for the supply chain section. This program was named ‘Manugistics’ and aimed at reducing the costs of negotiating individual supply contracts, setting and respecting more strictly the purchasing and manufacturing standards of the company.
The problems emerged in the implementation phase, as blue-collar workers did not fully understand the role of the program, and consequently did not perform their tasks and roles as the central managers considered, but as they were used to, based on regional and local orders, suggestions and initiatives. This issue was caused by inadequate planning process – low level employees were not included in the project team in charge of the BEST program, so it was quite normal to feel disoriented not exactly knowing what they were supposed and expected to do. The result of overabundant help line, with workers asking for further instruction, was a normal thing caused by an improper implementation of the program. Another problem was that the upper management did not realize the impact of the program. That was that beside cutting costs and improving the communication system within the company, the BEST project would undermine the corporate culture of Nestle Corporation. The common beliefs of Nestle Company had to change in order to adapt to the centralized strategy, as employees had to change the way their work was performed (paperwork replaced by electronic documents), change in authority – the regional/local authority was replaced by a central one, and a modification in objectives.
The implementation of the program cost Nestle nearly 280 million dollar, but the improvements brought by the program would definitely overpass its costs. The communication system will permit the company to better evaluate its performances, to accumulate data about competition, market and opportunities on a global level. The funds saved by the introduction of this particular program could be used in other departments of the company, for example in Research and Development, or in building Manufacturing facilities that are environmental friendly
3. ETHICS and SSM possible contribution to BEST project development
The aim of this report is to discover and present the ways the ETHICS and SSM might have helped improve the BEST project situation by limiting the drawbacks and enhancing the strong points of this program.
Nestle case study presented the BEST project for reconfiguring the company’s activity from a decentralized strategy into a centralized one, in order to reduce costs and improve the communication systems within the company. The project had some drawbacks in the sense that blue-collar workers (low level employees) failed to perform their operational duties and the fact that the project changed the entire corporate culture of the company. This action was unpredicted by Nestlé’s top management, and its main consequence was that it disoriented the entire staff –beginning with the top managers and ending with the lower level workers. The ETHICS (Effective Technical and Human Implementation System) refers that in order for a system to be efficient, the technological aspect of the problem must closely fit to the social and organizational issue. In my opinion, this aspect was not taken into consideration by the project team, and I will elaborate on my point in the next paragraph.
Although the Nestle initiative correctly tried to improve the organizational structure of the company, by reducing the bureaucracy and paperwork, the company failed to underline another dimension of the project. Lower level employees, or at least their representatives, must have been included in the project team in order to better formulate their goals, to highlight the boundaries set by their education, training and experience, and also formulate requirements that are about to be set by the company regarding working quality conditions and job satisfaction. As any important change, this modification undertook by Nestle puzzled the lower level employees, adding an extra stress on their activity, causing them to fail meeting their operational tasks. According to the ETHICS program, Nestle should have had a discussion, and then training sessions, with the blue-collar workers in order to understand their point of view on their needs, expectations and aspirations regarding their future tasks and responsibilities. Another important aspect that the company must underline to the lower level workers it that this centralized strategy would enhance the overall efficiency of the company, and the blue-collared worker’s contribution would be exactly what the company expected of him as the web platform is personalized according to each position within the company. Also the task structure would not change its content, but it would change its form – employees would perform the same tasks, but would report the information about their performances on a central based method, in order to permit a better activity evaluation. If top management and the blue collared workers do not come to an agreement and understanding of each party’s responsibilities, Nestle could have used a facilitator – an external mediator which would have decreased the closure between the two parties. Another important aspect is that, according to the ETHICS statements, the Technical team involved in the project should clearly evaluate the activity of the company, following this important change in organization so that the company board could adopt its future decisions to better improve its overall activity.
SSM (Soft System Methodology) is another solution for improving the development of the BEST project. It represents a blend of conventional data analysis and collection together with creative thinking tools to characterize business problems (with a strong social and political character) and suggesting adequate remedies for solving the problem. This approach suggests some points that were not respected by Nestle in its project, and that could have a big impact on its development:
1) find out about the problem situation: Nestle could express under the form of cartoon diagrams the social, economical and technological boundaries of the project (for example the low educational level of the blue collared may be an impediment in understanding and the implementation of the project by these stakeholders), participants, communication barriers (linguistic, time spans, imprecision) that could exist between operators and top management.
2) find motivation for each stakeholder: the operator must be motivated by this change as it could facilitate his activity in time and it would increase his knowledge in his field of work, acquiring new skills; while the reasons for the top management are obvious, if the project is successful: the company reduces costs, increases profits, and shareholders would have incentives to offer them pay rises or other material and non-material benefits.
3) identify conceptual models: present ideal situation for each stakeholders involved under the form of a simplified diagram (the top management may find it ideally to obtain a profit level around the figure desired by the shareholders, and the workers might wish excellent working conditions and higher wages, simultaneously with a reduced working timetable)
4) compare these ideal situations with the real life facts, in order to discover the discrepancies between the two situations. This step is a crucial one because it underlines the issues that must be solved so that the project is successfully implemented.
5) develop a solution that will be implemented at a global level, following the evaluation for the feasibility of this particular selected method. Further more, the evaluation procedures must also be taken into consideration in order to make the necessary adjustments in solving the operational issues that appear after the centralized information system was launched.
Taking into consideration all the above mentioned, the BEST project can be improved in many ways: integrating blue collared workers into the project decision making process, closely executing the 5 stages of the SSM approach in order to obtain the ideal perception of each stakeholder and compare it with the reality, and also induce an evaluation procedure, which should correct the possible inaccuracies in the implementation of the program. Observing all these steps, plus the procedures already undertaken by the Nestle corporation, would lead to a smooth implementation of the project, so that it reaches the objectives for which has been created – reducing costs and improving the internal communication system.
1) Laudon & Laudon (2004) Management Information Systems: Managing the Digital Firm, 8th Ed Prentice Hall pg 54
2) information on ETHICS (unknown author) http://www.cems.uwe.ac.uk/~gwatkins/isdp2/04-05/lec8ethics.doc
3) Author Anthony Hickson: http://www.managers-net.com/ssm1.html