Contents

SECTION 1- THE PAST, PRESENT AND FUTURE OF ENTERPRISE RESOURCE

PLANNING................................................................................................................ 2
INTRODUCTION.................................................................................................... 2
The Evolution of ERP............................................................................................... 2
APPLICATIONS OF MRP......................................................................................... 4
TYPES OF FIRMS / ORGANIZATIONS WHERE MRP CAN BE APPLIED.......................5
Evolution of MRPII.................................................................................................... 5
ERP TODAY.............................................................................................................. 7
Advantages of ERP (Enterprise Resource Planning) System:...................................8
Disadvantages of ERP (Enterprise Resource Planning) Systems:............................9
Next Generation Enterprise Resource Planning.....................................................10
ERP II ( second generation ERP) Definition.........................................................10
How Has SAP Implemented ERP ii System?........................................................11
ERP III.................................................................................................................... 11
SECTION 2 CASE STUDY...................................................................................... 13
ERP IMPLEMENTATION FAILURE AT HP................................................................13
ERP MIGRATION FAILURE.................................................................................... 13
ANALYSIS............................................................................................................ 15
THE IMPACT........................................................................................................ 15
LEARNING FROM CASE STUDY............................................................................15

SECTION 1- THE PAST, PRESENT AND FUTURE OF ENTERPRISE

RESOURCE PLANNING
INTRODUCTION
The ERP system is an information system that integrates business processes, with the aim of creating
value and reducing costs by making the right information available to the right people at the right time
to help them make good decisions in managing resources productively and proactively. An ERP is
comprised of multi-module application software packages that serve and support multiple
business functions including accounting, manufacturing, human resource management,
purchasing, inventory management, inbound and outbound logistics, marketing, finance,
and, to some extent, engineering. These large automated cross-functional systems are
designed to bring about improved operational efficiency and effectiveness through
integrating, streamlining, and improving fundamental back-office business processes.
Traditional ERP systems were called back-office systems because they involved activities and
processes in which the customer and general public were not typically involved, at least not directly.
Functions supported by ERP typically. The objective of traditional ERP systems in general was greater
efficiency, and to a lesser extent effectiveness. Contemporary ERP systems have been designed to
streamline and integrate operation processes and information flows within a company to promote
synergy and greater organizational effectiveness. Many new ERP systems have moved beyond the
backoffice to support front-office processes and activities. The goal of most firms implementing ERP is
to replace diverse functional systems with a single integrated system that does it all faster, better, and
cheaper.

The Evolution of ERP

The origin of ERP can be traced back to materials requirement planning (MRP). While the concept of
MRP was understood conceptually and discussed in the 1960s, it was not practical for commercial
use.It was the availability of computing power (processing capability and storage capacity) that made
commercial use of MRP possible and practical. While many early MRP systems were built in-house,
often at great expense, MRP became one of the first off-the-shelf business applications. In essence,
MRP involves taking a master production schedule, inventory records, and a bill of
materials and calculating time-phased material, component, and sub-assembly
requirements, both gross and net. The shear volume of calculations necessary for MRP with
multiple orders for even a few items made the use of computers essential. Initially, batch processing
systems were used and regenerative MRP systems were the norm, where the plan would be updated

periodically, often weekly. MRP employed a type of backward scheduling wherein lead times were used
to work backwards from a due date to an order/start date. While the primary objective of MRP was to
compute material requirements, the MRP system proved to be a useful scheduling tool. Order
placement and order delivery were planned by the MRP system

Not only were orders for materials and components

generated by a MRP system, but also production orders for manufacturing operations that used those
materials and components to make higher-level items like sub-assemblies and finished products. As
MRP systems became popular and more and more companies were using them, practitioners, vendors,
and researchers started to realize that the data and information produced by the MRP system in the
course of material requirements planning and production scheduling could be augmented with
additional data and meet other information needs. One of the earliest add-ons was the Capacity
Requirements Planning module, which could be used in developing capacity plans to produce the
master production schedule. Manpower planning and support for human resources management were
incorporated into MRP. Distribution management capabilities were added. The enhanced MRP and its

many modules provided data useful in the financial planning of manufacturing operations, thus
financial planning capabilities were added. Business needs, primarily for operational efficiency and, to
a lesser extent, for greater effectiveness, and advancements in computer processing and storage
technology brought about MRP and influenced its evolution. What started as an efficiency-oriented tool
for production and inventory management had become a cross-functional information system serving
diverse user groups.
MRP systems use four pieces of information to determine what material should be ordered and when
1.

the master production schedule, which describes when each product is scheduled to be
manufactured

2.

bill of materials, which lists exactly the parts or materials required to make each product

3.

production cycle times and material needs at each stage of the production cycle time

4.

supplier lead times.

The master schedule and bill of materials indicate what materials should be ordered; the master
schedule, production cycle times and supplier lead times then jointly determine when orders should be
placed.

APPLICATIONS OF MRP
The technique was applied first to mobile and airplane industry.
SATO was one of the many companies that recognized the need of MRP system. SATO is a dynamic
business that deals with the design and the production of office furniture. Because of the increasing
demands of the market during the last years and the competition, SATO, like many other companies,
had to confront with the following challenges:
1.

good quality products

2.

competitive prices

3.

reduction of the deliver time

4.

great variety of products

SATO recognized that one of the most significant factors in order to face these challenges was the
effective production management. The implementation of the MRP system had as result led to the
increase of productivity and the reduction of the production cost.

TYPES OF FIRMS / ORGANIZATIONS WHERE MRP CAN BE APPLIED

MRP is being used in a variety of industries with a job-shop environment (meaning that a number of
products are made in batches using the same productive equipment). The list below includes process
industries. MRP is most valuable to companies involved in assembly operations and least valuable to
those in fabrication.

MRP does not work well in companies in companies that produce a low number of units annually.
Especially for companies producing complex expensive products requiring advanced research and
design, experience has shown that lead times tend to be too long and too uncertain, and the product
configuration too complex for MRP to handle. Such companies need the control features that networkscheduling techniques offer.

Evolution of MRPII
A very important capability to evolve in MRP systems was the ability to close the loop (control loop).
This was largely because of the development of real time (closed loop) MRP systems to replace

regenerative MRP systems in response to the business need and improved computer technology-timesharing rather than batch processing as the dominant mode of computer operation. On time-sharing
mainframe systems, the MRP system could run 24/7 and update continuously. Use of the corporate
mainframe that performed other important computing tasks for the organization was not practical for
some companies because MRP consumed too many system resources. Subsequently, some opted to
use mainframes (they were becoming smaller and cheaper, but increasing in processing speed and
storage capability) or mini-computers (which could do more, faster than old mainframes) that could be
dedicated to MRP. MRP could now respond to timely data fed into the system and produced by the
system. This closed the control loop with timely feedback for decision making by incorporating current
data from the factory floor, warehouse, vendors, transportation companies, and other internal and
external sources, thus giving the MRP system the capability to provide current (almost real-time)
information for better planning and control. These closed-loop systems better reflected the realities of
the production floor, logistics, inventory, and more. It was this transformation of MRP into a planning
and control tool for manufacturing by closing the loop, along with all the additional modules that did
more than plan materials-they planned and controlled various production resources-that led to MRPII.
MRPII is a computer based planning and scheduling system designed to improve
managements control of manufacturing and its support functions.
The MRP system had evolved as an enterprise information system for manufacturing. As time passed,
MRPII systems became more widespread, and more sophisticated, particularly when used in
manufacturing to support and complement computer integrated manufacturing (CIM). Databases
started replacing traditional file systems, allowing for better systems integration and greater query
capabilities to support decision makers, and the telecommunications network became an integral part
of these systems in order to support communications between and coordination among system
components that were sometimes geographically distributed, but still within the company. In that
context, the label CIM II was used to describe early systems with capabilities now associated with ERP.
Companies in non-manufacturing sectors such as health care, financial services, aerospace, and the
consumer goods sector started to use MRPII like systems to manage critical resources.
MRP II was mostly for automating the business processes within an organization, but ERP, while
primarily for support of internal processes, started to support processes that spanned enterprise
boundaries (the extended enterprise). While ERP systems originated to serve the information needs of
manufacturing companies, they were not just for manufacturing anymore. Early ERP systems typically
ran on mainframes like their predecessors, MRP and MRPII, but many migrated to client/server
systems where, of course, networks were critical and distributed databases more common. The

growth of ERP and the migration to client/server systems really got a boost from the Y2K scare. Many
companies were convinced by vendors that they needed to replace older main-frame based systems,
some ERP and some not, with systems using the newer client/server architecture. After all, since they
were going to have to make so many changes in the old systems to make them Y2K compliant and
avoid serious problems they might as well bite the bullet and upgrade. Vendors and consultants
benefited from the Y2K boost to ERP sales, as did some of their customers. Since Y2K, ERP systems
have evolved rapidly, bringing us to the ERP systems of today. Present day ERP systems offer more
and more capabilities and are becoming more affordable even for small-to-medium-sized enterprises

ERP TODAY
As ERP systems continue to evolve, vendors like PeopleSoft and Oracle are moving to an Internetbased architecture, in large part because of the ever increasing importance of E-commerce and the
globalization of business. Beyond that, perhaps the most salient trend in the continuing evolution of
ERP is the focus on front-office applications and inter-organizational business processes. Front-office
applications involve interaction with external constituents like customers, suppliers, partners, and
more-hence the name front office because they are visible to "outsiders." Key players like Baal,
Oracle, PeopleSoft, and SAP have incorporated advanced planning and scheduling (APS), sales force
automation (SFA), customer relationship management (CRM), supply chain management (SCM), and
e-commerce modules/capabilities into their systems, or repositioned their ERP systems as part of
broader enterprise suites incorporating these and other modules/capabilities.
While some companies are expanding their ERP system capabilities (adding modules) and still calling
them ERP systems, others have started to use catchy names like enterprise suite, E-commerce
suite, and enterprise solutions to describe their solution clusters that include ERP among other
modules/capabilities.Perhaps, most notable about ERP today is that it is much more than
manufacturing resource planning. ERP and ERP-like systems have become popular with nonmanufacturing operations like universities, hospitals, airlines, and more, where back-office efficiency is
important and so, too, is front-office efficiency and effectiveness. While integration of internal
functions is still important, and in many organizations still has not been achieved to a great extent,
external integration seems now to be a primary focus. Progressive companies desire to do things-all
things-faster, better, and cheaper (to be agile), and they want systems and tools that will improve
competitiveness, increase profits, and help them not just to survive, but to prosper in the global
economy. Vendors are using the latest technology to respond to these evolving business needs as
evidenced in the products and services they offer.

Advantages of ERP (Enterprise Resource Planning) System:

1. Complete visibility into all the important processes, across various departments of an organization
(especially for senior management personnel).
2. Automatic and coherent workflow from one department/function to another, to ensure a smooth
transition and quicker completion of processes. This also ensures that all the inter-departmental
activities are properly tracked and none of them is missed out.
3. A unified and single reporting system to analyze the statistics/status etc. in real-time, across all
functions/departments.
4. Since same (ERP) software is now used across all departments, individual departments having to
buy and maintain their own software systems are no longer necessary.
5. Certain ERP vendors can extend their ERP systems to provide Business Intelligence
functionalities that can give overall insights on business processes and identify potential areas of
problems/improvements.
6. Advanced e-commerce integration is possible with ERP systems most of them can handle webbased order tracking/ processing.
7. There are various modules in an ERP system like Finance/Accounts, Human Resource
Management, Manufacturing, Marketing/Sales, Supply Chain/Warehouse Management, CRM, Project
Management, etc.
8. Since ERP is a modular software system, its possible to implement either a few modules (or)
many modules based on the requirements of an organization. If more modules implemented, the
integration between various departments may be better.
9. Since a Database system is implemented on the backend to store all the information required by
the ERP system, it enables centralized storage/back-up of all enterprise data.
10. ERP systems are more secure as centralized security policies can be applied to them. All the
transactions happening via the ERP systems can be tracked.
11. ERP systems provide better company-wide
collaboration across all the departments.

visibility

and

hence

enable

better/faster

12. It is possible to integrate other systems (like bar-code reader, for example) to the ERP system
through an API (Application Programing Interface).
13. ERP systems make it easier for order tracking, inventory tracking, revenue tracking, sales
forecasting and related activities.

14. ERP systems are especially helpful for managing globally dispersed enterprise companies,
better.

Disadvantages of ERP (Enterprise Resource Planning) Systems:

1. The cost of ERP Software, planning, customization, configuration, testing, implementation, etc. is
too high.
2. ERP deployments are highly time-consuming projects may take 1-3 years (or more) to get
completed and fully functional.
3. Too little customization may not integrate the ERP system with the business process & too much
customization may slow down the project and make it difficult to upgrade.
4. The cost savings/payback may not be realized immediately after the ERP implementation & it is
quite difficult to measure the same.
5. The participation of users is very important for successful implementation of ERP projects
hence, exhaustive user training and simple user interface might be critical. But ERP systems are
generally difficult to learn (and use).
6. There maybe additional indirect costs due to ERP implementation like new IT infrastructure,
upgrading the WAN links, etc.
7. Migration of existing data to the new ERP systems is difficult (or impossible) to achieve.
Integrating ERP systems with other stand alone software systems is equally difficult (if possible).
These activities may consume a lot of time, money & resources, if attempted.
8. ERP implementations are difficult to achieve in decentralized organizations with disparate
business processes and systems.
9. Once an ERP systems is implemented it becomes a single vendor lock-in for further upgrades,
customizations etc. Companies are at the discretion of a single vendor and may not be able to
negotiate effectively for their services.
10. Evaluation prior to implementation of ERP system is critical. If this step is not done properly and
experienced technical/business resources are not available while evaluating, ERP implementations can
(and have) become a failure

Next Generation Enterprise Resource Planning

The next generations of Enterprise applications, or ERP ii systems, extend the back office ERP
system processing to the extended supply chain. They extend the enterprise into the supply chain
outside of their legal entity borders as an active participant. This would include VMI (Vendor Managed
Inventory) processing and KANBAN type demand and supply signals to vendors for JIT (Just In Time)
stock management. But it goes far beyond that, it is the innovation portion of the value proposition
that is addressed here.
SAP includes ERP ii type extended supply chain applications like SRM (Supplier Relationship
Management), APO (Advanced Planning and Optimization), and PLM (Product Lifecycle Management)
to help move the supply chain beyond the enterprise borders.

ERP II ( second generation ERP) Definition

Through collaboration, SOA, and other interface, data exchange, or interaction methods the ERP ii
systems move beyond Enterprise boundaries (or a basic ERP system) and into the vendor space
including the supply, design, and engineering collaboration areas. ERP ii systems continue to enhance
operational excellence and start to introduce a measure of the innovation value proposition.
ERP II Creates Collaboration Hubs Beyond Planning and Distribution Functions
Together with the extended supply chain applications there are a number of various exchanges such as
common catalogs that are published to the web and integrate with their customer ordering. Some
examples of external exchanges can be seen in initiatives such as Covisint for the automotive
industry, or Graingers online catalog system (although it is not a competitive based platform like
Covisint), and many others.
One of the key functions or features of ERP ii systems is supply chain or vendor collaboration, which
extends to engineering design and development. Most enterprises using SRM systems use this to
focus on cost reductions, vendor competition, and supply chain efficiencies. They are generally geared
to the operational excellence system domain but there is a LOT of untapped possibility.

The highest and best use of ERP ii functionality includes active collaboration with vendors to reduce
cost, improve quality, reduce extended supply chain cycle times, and even co-engineer (or codevelop) better products and services.

Many ERP ii solutions now include some type of built-in reverse auctions where companies can place
requirements out for competitive bids in various formats. These exchanges might include data
interchange methods such as EDI (Electronic Data Interchange) or other standards compliant
communication protocols, but they are much more, they are active collaboration hubs. Together with
these collaboration hubs, SOA extensions are being used to extend collaboration and engineering
design work to the extended supply chain.

10

How Has SAP Implemented ERP ii System?

SAP has created an entire collaboration network called the SAP Community Network or SCN
(http://scn.sap.com) where customers, vendors, consultants, and any interested party can exchange
information, ideas, or dialog. SAP has implemented ERP ii systems internally through the
development of specialized vendor partnerships it calls an Ecohub (http://ecohub.sdn.sap.com/).
This is a place where vendors, partners, or other firms with specialized SAP solutions can integrate
and promote their offerings to enhance SAPs various software offerings. Along with that there are
code exchanges, how-to articles, discussion forums, and many other types of collaborative
information exchanges.
ERP ii systems integrate the external vendors and suppliers into enterprise processes so that they can
directly impact productivity, cost, and efficiency. Some elements of ERP ii include engineering staff
augmentation, free or at a very reasonable rate to the customer company, and as a value added
service from vendors. For vendors the ability to augment engineering functions can mean customer
retention; for the customer companies this may mean higher quality and lower cost products or
services.
SAPs ERP offerings include PLM (Product Lifecycle Management) with CAD integration for several off
the shelf CAD programs. Although the PLM functionality is primarily used for internal engineering
processes it can be pushed out into the extended supply chain for collaborative engineering and
design. That collaboration can be used for innovation if it is properly structured and implemented.
This is in conjunction with other integrated application offerings such as SRM and APO.
By extending engineering or collaboration functions outside of the enterprise, but still within the
supply chain, innovation can be introduced into the ERP ii enterprise (see the entire series on Process
Execution of Business and IT Innovation). However, the primary feature of ERP ii systems is the
additional operational excellence that is brought about by extended supply chain processing. Very few
companies have succeeded at collaborating with the extended supply chain by introducing extended
engineering capabilities, or vendor insight to produce significant innovation. Most ERP ii systems only
work to extend the supply chain beyond the boundaries of the enterprise for cost savings and
efficiencies (operational excellence).

Using SOA (Service Oriented Architecture) for Creating ERP ii and ERP iii Enterprises
The promise of ERP ii system success that moves toward ERP iii is SOA or Service Oriented
Architecture.
In laymans terms, SOA is the ability to create a set of talking points from any internal system to
external systems.
They are the data structures and data schemas that are published for other systems to interact with
and begin to create the framework for the borderless enterprise.

11

ERP III
ERP iii addresses the final domain of enterprise class applications by addressing the customer
focus value proposition. It is the extension of technology capabilities which brings collaboration with
customers and the broader marketplace into the enterprise system. This goes way beyond what we
currently refer to as CRM (Customer Relationship Management) systems of today. Todays CRM
applications still operate within the walls of the enterprise and are generally used for managing the
sales force rather than moving the enterprise out into the wider marketplace and to direct interaction
with customers.
ERP iii from a high level is fairly easy to define, however what it looks like in a few years is difficult to
predict. The areas that ERP iii touches are in a rapid state of change because of the dynamic nature of
social media and the global marketplace.
ERP applications integrate enterprise operations within and across enterprise legal entities, or
company codes.
ERP ii applications extend supply functionality to external enterprises (generally vendor-affiliated
companies or enterprises) to reduce cost, improve supply chain efficiency, and to perform
collaborative innovation.
ERP iii enterprises go to the next level of integrating the ERP and ERP ii functionality to include
customers and the sales side of the marketplace in general.
The end state of the ERP iii enterprise would include a dialog between customers (and potential
customers), the ERP organization, and the extended supply chain so that even suppliers would
participate in the sales side of the marketplace. Because there is little or no information in the
marketplace about ERP iii direction and design I am offering a more detailed definition here:
Through collaboration, direct contact, social media, and various data streams within and outside of the
enterprise ERP iii integrates marketplace fans and critics into the extended ERP and ERP ii
organizations. From the integration of customers and vendors beyond the enterprise boundaries a
constructive dialog or information exchange is created to innovate, produce, and then sell (or
distribute) better products or services.
ERP iii will create the borderless enterprise by bringing together a host of technology sources such
as:
1.

Collaboration tools (within the enterprise and across the supply chain and marketplace)

2.

Social media

3.

Internet technologies

4.

SOA

12

5.

Smart information integration and synthesis (specialized search with analytics or within
specific information domains). An early example of this type of search is a web service called
Lijit. Lijit allows you to manually assign searchable information sources for a customized,
high value search engine.

6.

Extended marketing analytics that are like tracking cookies but less invasive and use
additional sources of information and research beyond the web (a good example is like grocery
store checkout programs that automatically print coupons on the back of your store receipts
based on what you just purchased).

SECTION 2 CASE STUDY

ERP IMPLEMENTATION FAILURE AT HP
We executed poorly on the migration. The migration was more disruptive
than wed
anticipated.
- Carly Fiorina, Former Chairman and Chief Executive Officer, HP.
We are very well aware of the difficulty of integrating systems and business
processes and are taking steps to fix it, but we werent aware of this in
time.
- Gilles Bouchard, Chief Information Officer, HP.
HP conducted an internal investigation to review the causes of failure of the ERP project. The report
revealed that the major problem did not relate to SAP4 software but to execution related issues. It
was found that the technical glitches were small but the contingency planning for the ERP project
implementation had left many issues unaddressed.
HP had a highly decentralized organizational structure and every business unit independently
designed, marketed and manufactured its own products. In the light of increasing demand for its

13

products, HP decided to re-organize its business processes to manage its complex manufacturing and
logistics operations efficiently.
HP selected the SAP integrated R/3 suite of client/server applications software as it provided a high
level of functionality for global use, this was done in 1993.
Later on 2000 HP considered SAPs Internet-enabled technology product MySAP as a good fit for its
business. The implementation of MySAP solution would reduce the huge costs incurred on IT support
and deployment because everything would run on a browser. It would also provide employees with a
single, tightly integrated front end to the entire SAP back end. It would eliminate the need to create
custom SAP interfaces which would not only save cost but also provide greater speed in
implementation.
By early 2001, the demands placed on HPs supply chain and data workflow had increased
tremendously. Hence, HP decided to implement MySAP APO module, the central element of MySAP
Supply Chain Management (SCM). The rationale was to enable the company to develop a single
backbone to link employees, customers and partners.
The main aim was to cut costs, increase transparency, and equip HP to embrace new business models
rapidly.
The MySAP solution aimed to provide the division with the latest forecasting procedures and to enable
integration of relevant data in a single system. This project took just five months to complete and
introduced new configuration and pricing capabilities.
After its merger with Compaq Computer Corporation10 in May 2002,

ERP MIGRATION FAILURE

The model aimed to merge the Business and IT groups at both regional and country level. This
operation was officially completed by HP on May 01, 2004 and had led to increased interdependencies
between groups in the company. The migration of the Industry Standard Server (ISS) division, one of
the biggest divisions of HP with $7.5 billion of annual revenues, onto ERP systems was also
simultaneously completed in May 2004.
Through the SAP Fusion Order Management (FOM) Platform, HP was working to unite its SAP order
management systems with those from Compaq. It involved a migration from separate HP and Compaq
legacy SAP R/3 order management systems to a new, broad-based SAP ERP system. It involved more
than 70 supply chain systems and also included an upgrade to SAP R/3 Version- 4.6C.
The company anticipated disruption of three weeks for IT problems and catered to the business aspect
by taking over a portion of an empty factory at Omaha as a provider of buffer stock for any
customized order.
As soon as the project went live in June 2004, migration problems began to surface. Around 20% of
the customer orders for servers could not move from the legacy order system to the new SAP system
due to programming errors. HP fixed these errors within a month.
However, orders began to backlog and the company did not have enough manual processes in place to
be able to meet the demand. The project team had not been able to adequately comprehend the
business repercussions of the data integration problem.

14

HP internal investigation team found following causes in ERP failure:

Project Team Constitution: Difficulties in program management arose due to the high level of
dependence among the teams. There were problems of communication between the varied groups.
For example, smooth communication flow between back-end logistics group and the order-taking
group at the front end could not be maintained.
Data Integration Problems: These problems surfaced between the legacy system and the new SAP
system being implemented, as soon as the implementation went live. Lack of effective product
training and improper product data management were identified as the major causes of these
problems.
Demand Forecasting Problems: The division could not predict the actual demand for customized
server products which turned out to be 35% higher. The divisions contingency planning team had
planned for a buffer inventory of three weeks on an assumption of 50:50 ratio of sales of standardized
servers and customized servers. The additional orders could not be handled by the Omaha factory.
Poor Planning and Improper Testing: In retrospect, company officials felt that pre implementation
preparation activities were not planned properly. The system had been tested for standardized orders
but it was not adequately tested for customized orders because the marketing team failed to envision
all the configurations, customers could order. When the system went live, some orders passed through
the system while some were unaccounted for. The contingency plan was inadequate to handle this
situation as it was only an expanded version of an old plan which had been used for earlier migrations
and did not involve in-depth assessment of the ISS division.
Inadequate Implementation Support/Training: The IT personnel were subjected to the new
technology without having adequate time to develop their skills for the new system. The customer
service representatives were given training two weeks in advance and they had cleared the proficiency
tests. However, due to inadequate revision they made mistakes when the implementation went live.
This worsened the order backlog situation. Later, refresher training was launched but by that time it
was too late to be beneficial as order backlogs kept increasing to unmanageable levels.
In the words of Bouchard, We had a series of small problems, none of which individually would have
been too much to handle. But together they created the perfect storm.

ANALYSIS
The HPs company culture had not allowed for much active involvement of employees, and as a result
the problems which surfaced ultimately became more and more difficult to overcome. The company
seemed to have ignored valuable suggestions from employees. Media reports claimed that many HP
insiders knew that the project, code-named Fusion, had huge risks despite the companys expertise
with SAP migrations.
The reports also said that the company sales staff had warned that it was not enough on the
companys part to choose the traditionally slowest quarter for the rollout. The staff had suggested that
some kind of backup system should be put in place to overcome failure risks but the companys top
management turned a deaf ear to this.
Many Vice-presidents across HP, including those in the ESS division, had left the company to join rival
firms. This high attrition must have affected project implementation. A survey of employees at HP
cited that employees had been under a steady fear of layoffs. It also revealed that there was ample
distrust of upper management and they were perceived as being overpaid and inefficient. Some

15

employees pointed to a cultural divide within the company which they felt was a matter of serious
concern leading to non-co-operation between the IT management team and the business team.
Most analysts felt that HP had traditionally been very systematic, risk averse and slow; Compaqs
culture had been very aggressive and risk loving.
HP should have hired an outside operations chief for strict control over operational issues.

THE IMPACT
Technical glitch had led to improper routing of orders and caused backlogs to escalate till the end of
August 2004.
HPs customers were unhappy and there were continuous complaints about delayed processing,
systems with wrong configurations and even duplicated orders. HPs employees had to hand-label
shipments of products like the million-dollar Superdome servers.
HP was supposed to assist customers in their ERP roll-outs by ensuring that problems like sudden
order system failures or demand escalations were checked. HP claimed to have great capabilities to
handle such problems. However, it was unable to handle the same problems within its own company.

LEARNING FROM CASE STUDY

ERP implementation failure at HP was a demonstration of how such failure could impact overall
business performance.
Every implementation of an ERP package warrants a fresh approach and if its not mapped out in
detail, it might miss its objectives. ERP essentially involved a business change in many divisions of an
organization and therefore there could be no standard approach to its implementation. It has been
found that this was precisely the reason why the success of an ERP implementation depends upon how
well it had been planned. The planning ought to consider the business aspects along with the technical
aspects.
A major issue that was brought to light was the inadequacy of existing business processes. HP officials
accepted that they had tried to install ERP software to reflect the existing order processing system
which itself was inadequate to handle the increased demand and no amount of advanced information
technology could offset the problem of a flawed business strategy and poor business processes.
Business evolution of ERP is more about project management rather than software tools. The success
of an ERP implementation could be assessed by its ability to align IT and business management
objectives, program management skills and a well-defined process for success.
The three basic building blocks to a successful ERP implementation are:

Defining the requirements

Developing a plan
Implementing plan with technology integration and user training.

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17