F E AT U R E
Manager’s Guide to Enterprise Resource
Planning (ERP) Systems
By Les Pang, Ph.D.
O
ver the last decade, many organizations have experi-
enced significant changes in their core business appli-
cations. These applications have moved from a cen-
tralized mainframe platform toward a distributed client-server
architecture, changed from monolithic customized software
systems to commercial off-the-shelf (COTS) software modules
with graphical development tools and expanded from a local
area network environment to one with the broad reach of the
World Wide Web. Business applications also have changed to
support the globalization of their organization with the addi-
tion of multisite and multicurrency functionalities.
Along with these changes, many managers have wanted
integration among functional applications that support data
flow among the business units and have a common look and
feel among the modules. Business managers have long been
aware of the limitations evident in an environment of stove-
piped systems and databases. When data need to flow from
department to department, data must flow slowly in batches
and often need to be repackaged and even manually reentered
because of the differences in format, platform and data mean-
ing among the functional departments. Managers have recog-
nized the benefits of integrated systems where there is a cen-
tralized data source shared among the departments. The advan-
tages of this approach include: a rapid and seamless access to
data, all data represent the “single truth,” and a reduction of
errors associated with repackaging data.
To address these many changes, a new type of software sys-
tem was developed—enterprise resource planning (ERP) sys-
tems. These systems are applications of integrated software
solutions that support enterprisewide business requirements.
They consist of modules that focus on specific aspects of the
enterprise’s business such as finance, human resources, logis-
tics and procurement.
What Is an ERP?
An ERP integrates all departments and functions across an
organization onto a single computer system that aims to serve
practically everyone’s particular needs. It eases the exchange
of data and facilitates communication among departments.
ERP systems run on client-server networks—personal comput-
ers connected to more powerful servers (including possibly
mainframes) that feed them data. Each module works separate-
ly, performing specific data-processing functions.
Examples of ERP modules include the following:
• Human resource management
• Financial management
• Supply chain management
• Procurement
• Logistics and materials management
• Planning and budgeting
• Sales and distribution
• Student administration
Many ERPs include the capability to interface data ware-
houses to support managerial reporting and business intelli-
gence requirements such as online analytical processing and
data mining.
Current ERPs are structured on a client-server architecture
that consists of presentation, Internet-enabling, application and
database layers. These layers could either be installed in one
server, e.g., an enterprise server or mainframe, or distributed
among a number of servers for scalability. Also, the heart of
the ERP is a relational database management system that
ensures data consistency and integrity. Another feature is a
workflow manager that supports the management of a dynamic
work process.
Historical Background
The origin of ERPs goes back to the 1960s and 70s in the
form of materials requirement planning (MRP) systems. This
precursor to ERP systems aimed to support inventory require-
ments for a manufacturing systems. These systems expanded
to accommodate master schedules that controlled the sequence
of components for the final assembly of products. In 1972, five
former IBM employees in Mannheim, Germany, created an
ERP system with the vision of an end-to-end business applica-
tion that would address all of the needs of an enterprise. In
1978, a mainframe-based ERP architecture was developed. It
evolved to a client-server platform in 1992.
ERP systems have grown in popularity astronomically. In
1993, ERP revenue in North America was US $319 million;
by1999, it grew to US $17.7 billion, representing a 55-fold
increase. In 2000, estimated revenue grew to US $23 billion, a
30 percent increase in just one year. The Y2K preparation in
1998 and 1999 drove the implementation of ERP in many
organizations.
A number of ERP vendors have experienced occasional
slumps in sales and revenue but the overall long-term trend for
ERPs has been continued growth.
ERP Vendors
ERP vendors include the following:
• SAP (Systems, Applications and Products in Data
Processing) is the global market leader in ERPs; it has
approximately 30 to 60 percent of the world market. The
strengths of its R/3 product include support for multicountry,
multicurrency environments and wide scalability. The
 company spends a large percentage of its revenues in
research and development.
• Oracle is the second-largest software company in the world.
Its ERP product, Oracle Applications, includes the popular
Oracle Financials module. It has the reputation for develop-
ing a product that can be interfaced with others to create a
best-of-breed ERP package. It should be pointed out that
Oracle Applications should be distinguished from the Oracle
relational database management system, which often is part
of other ERP products such as PeopleSoft and SAP.
• PeopleSoft has its origins in human resource management
software that evolved to a full feature product with the addi-
tion of other modules. However, its strength still remains its
human resource management systems. PeopleSoft has a
major presence in the US federal government.
• Baan has developed a number of componentized products.
Recently, it has struggled financially because of questionable
financial reporting practices and changes in leadership.
However, it is still a relatively dominant player in the ERP
market.
• JD Edwards has a product called OneWorld with origins in
the AS/400 environment. Its target customers are primarily
smaller organizations wiht less than 2,000 users.
Figure 1 shows the approximate market share by vendor.
Figure 1: ERP Market share
Other
SAP
39%
33%
Oracle
10%
Baan
J.D.
5% PeopleSoft
Edwards
6%
7%
There are many other ERP vendors, most of which are pri-
marily aimed at specific markets. Microsoft recently acquired
Great Plains, a company traditionally known for its financial
management applications.
SAP, Oracle, PeopleSoft and other vendors have financial
modules that are certified by the US government’s Joint
Financial Management Improvement Program. This program
supports the improvement of financial management practices
in the US government and is supported by the US Treasury,
General Services Administration, Office of Personnel
Management and Office of Management and Budget.
There are numerous other vendors, which support the com-
panies listed previously. They include consultants, trainers,
implementers and others. These vendors constitute a major
expense to ERP end users in terms of implementation support
and maintenance.
Benefits of ERP
Besides integrating organizations’ activities, ERPs employ
best practices that have been proven in the real world. At least
one ERP software package incorporates more than a thousand
best practices.
ERPs also enable organizational standardization. The user
interface, the sequence of operations for a process and system
maintenance procedures can become common standards across
the organization.
ERPs improve information management by having a single
database as opposed to multiple, often duplicative systems.
Because of this centralized data source, ERPs provide online
and real-time information and facilitate intra- and inter-organi-
zation communication and collaboration.
ERP Drivers
From a business perspective, factors that drive organizations
to implement ERPs include: customer satisfaction, more effi-
cient processes, meeting business process reengineering
requirements, competitive challenges and labor shortages.
From an information technology perspective, drivers
include: addressing the Y2K problem (which may no longer be
applicable), the need for systems integration that is difficult to
do with legacy systems, modernization of hardware and soft-
ware systems built decades ago and the need for online collab-
oration, particularly on the Internet.
Who Is Using ERPs?
In the private sector, 70 percent of the 1,000 largest compa-
nies have implemented ERPs. Major corporations include
Microsoft, IBM, General Motors, Hewlett Packard, CSX,
Boeing and Mercedes-Benz.
ERPs only recently have been implemented within the US
federal government. In the US Department of Defense, agen-
cies either planning to implement or who have implemented
ERP modules include:
• Defense Logistics Agency—Business systems modernization
• National Security Agency/Defense Intelligence
Agency/National Imagery and Mapping Agency—Integrated
human resources and payroll solution across all three
agencies
• Defense Finance and Accounting System (DFAS)—Defense
procurement pay system—Contract and vendor pay entitle-
ments; DFAS corporate database (DCD)—Standard general
ledger for the Air Force
• Navy—Interim modernization for the Navy—Accounting,
payroll, human resources, acquisitions, procurement,
operations
• Army—Wholesale logistics modernization program
Non-defense agencies implementing or that have
implemented ERPs include:
• Interior, Health and Human Services, General Services
Administration, Labor, Veteran Affairs—Human resources
• Treasury’s US Mint—Consolidated information system
(COINS) and human resources
• NASA Jet Propulsion Lab—Financial and human resources
including payroll
• Energy—Administration and resource management
• Transportation, Commerce—Financials
Key ERP Issues
Process issues concern whether an organization follows the
practices dictated by the software or the organization
customizes the software to match the current process. In the
first case, such an action will mean considerable business
process changes for the organization. This will generate con-
siderable turmoil particularly in terms of people issues. In the
second case, implications include high cost, additional mainte-
nance requirements associated with upgrades and compatibility
issues.
People issues include employee resistance that requires
retraining and reorientation on the part of employees and man-
agement. ERPs often require more data collection screens than
legacy systems, thereby increasing employee workload. A key
issue involves employee retention. In anticipation of an ERP
implementation, some employees may leave the organization
or retire early. Individuals directly involved with the ERP may
exit the organization due to the high demand for experienced
ERP programmers and implementers. Also, security is an issue
because employees are exposed to enterprisewide business data
instead of limited departmental or legacy system data.
Technology issues include the difficult data migration from
legacy systems to the ERP database; the lack of interoperabili-
ty among different vendor products, particularly when apply-
ing the best-of-breed approach; and the continual maintenance
of the ERP.
A critical financial issue is the high cost of ERP software.
The typical range of cost is between US $400,000 - $300 mil-
lion. It has been estimated that the total cost of ownership is
US $53,320 per user. There are significant hidden costs with
ERP implementation including training, integration and test-
ing, data conversion, data analysis, consulting fees and
turnover.
ERP Horror Stories
As with most emerging technologies, ERP efforts have had
their share of drawbacks. The following are descriptions of
recent catastrophic ERP failures in the private sector:
• Hershey Foods—A 19 percent drop in earnings was caused
by an incompetent ERP implementation that wreaked distrib-
ution havoc during one of its most profitable seasons in the
US: Halloween.
• FoxMeyer Drugs—This pharmaceutical distribution compa-
ny was forced to declare bankruptcy after an unsuccessful
ERP implementation.
• Whirlpool—ERP implementation crippled its shipping sys-
tem, leaving appliances stacked on loading docks and not
delivered to paying customers for a full eight weeks.
• Volkswagen—Significant delays in parts shipments caused
product inventories to build up to costly levels.
It has been estimated that half of the issues in ERP disasters
are not technical but are people- and culture-related. Many of
the failures can be attributed to poor change management in
the form of inadequate training. Trainers need to understand
the legacy system processes and know how to translate these
process into the new processes called for in the ERP.
In the US government, the General Accounting Office has
identified the following problem with ERP implementations:
• Department of Defense—Defense civilian personnel data
system: Costs rose US $248 million to about US $1.3 bil-
lion, and deployment was pushed from September 1999 to
March 2001.
• Labor Department: Costs jumped from US $26.5 million to
US $71 million, due to underestimating implementation and
operating costs.
• Department of Veteran’s Affairs: Costs jumped from US
$170 million to US $417 million, and the project is currently
two years behind schedule.
• NASA: Its ERP failed to produce accurate financial reports.
The system was unable to close year-end books on a Cal
Tech contract.
These horror stories point out a number of key considera-
tions. First, there is a need to carefully plan and execute an
ERP implementation, because the failures can be catastrophic.
This undertaking is definitely not for risk-averse organizations
unless there is a crisis driving the organization toward an ERP.
Second, ERP vendors rarely discuss these failures (unless they
involved a competitor); therefore, you must be able to see
through the hype and understand possible consequences of
ERP implementation. Finally, these horror stories serve as
valuable experiences, keeping other implementers from falling
into the same trap. (Note: These stories were considered in the
development of the list of lessons learned discussed later in
this article.)
Implementation Strategies
Implementation steps are summarized below, using, as a
guideline, the accelerated implementation techniques used by
SAP consultants. They include:
• Project preparation—Determine the implementation strategy,
organize the project team, define the system landscape, iden-
tify technical demands, select the hardware and database
vendors and gain consensus among stakeholders.
• Business blueprint and realization—Create the technical
design and, based on this design, configure the ERP soft-
ware. Based on the requirements, test the software, install
the production system and start planning the data migration
strategy from the legacy systems.
• Final preparation—Check the system settings, test the sys-
tem throughput for key business processes and establish a
help desk.
• Go live and support—Start the production system, ensure its
availability, monitor key business processes, manage the help
desk and define the long-term release strategy.
Key Planning and Implementation Decisions
This discussion looks at a number of the key decisions that
need to be made when considering an enterprise integration
effort.
ERP or Not to ERP?
The decision to implement an ERP should be based on a
business case rationale. Possible business cases involve tech-
nology, process improvements, productivity improvements and
strategic considerations.
Technology justifications include the need to address the
Y2K problem (in most cases, this is no longer applicable),
integrate the functions of disparate systems, replace poor-qual-
ity existing systems and merge acquisitions with new capabili-
ties such as web accessibility into the business environment.
Process improvements address actions that result in personnel
and IT cost reductions. Productivity improvements include the
need to close the financial cycle and increase overall produc-
tion from an enterprise standpoint. Strategic considerations
address the ability to implement new strategies not supported
by the current software, improve customer service and satisfac-
tion, respond to competitive pressures and enhance customer
responsiveness.
Follow Software’s Processes or Customize?
This key decision may determine the success or failure of
the ERP effort. If the organization decides to follow the
processes of the software, this will result in the organization
following best practices within its sector, thereby giving it a
chance to improve and standardize their processes. This
approach will also facilitate future changes to the ERP soft-
ware. However, this approach can create significant turmoil by
requiring employees to change their ways of doing business.
If the organization decides to stick with its current process-
es and customize the software to fit these processes, the orga-
nization obviously will not have to experience the pain and
stress associated with changing its processes. However, it will
be very costly to customize and maintain the software over
time. Interfaces and modular compatibility need to be sus-
tained.
Inhouse or Outsource?
Outsourcing has the advantage of allowing the organization
to continue to focus on its core mission, avoid a relatively sub-
stantial financial commitment (in some cases) and minimize
the impact on the MIS department. On the downside, providing
opportunities to those external to the organization may poorly
impact employee morale and may give rise to security issues.
The upsides to an inhouse implementation include: a better
match between the software and the business, applications
optimized for the organization and better maintained security.
However, an inhouse approach cannot be accomplished if there
is a lack of internal expertise and personnel to support such an
effort.
“Big Bang” or Phased Implementation?
A “big bang” implementation involves having all modules
at all locations implemented at the same time. Characteristics
of this approach include no need for temporary interfaces, lim-
ited requirement to maintain legacy software, cross-module
functionality and lower overall cost if no contingencies arise.
Phased implementation is when modules are implemented
one or a group at a time, often a single location at a time.
Benefits of this approach include: a smoothing of resource
requirements, an ability to focus on a particular module, avail-
ability of existing legacy systems as a fall-back, reduced risk,
the knowledge gained with each phase and the usefulness of
demonstrable working system.
Other implementation approaches include:
• The wave approach—This approach involves the application
of different waves of change to different business units or
regions.
• Parallel implementations—This approach involves both ERP
and an existing system running together for a period of time.
Its attributes include: having a basis of comparison; existing
system serves as backup; requires more computing and
human resources—more costly; existing system may not be
properly maintained during the period; and reengineering not
supported by existing systems.
• Instant cutovers (flip-the-switch)—This approach is lower in
cost, motivates users to seriously convert to the new system
and reduces the need for redundant systems. However, it
tends to be risky, stressful to users and requires a high level
of contingency planning.
Single Package or Best-of-Breed?
Single package implementation involves the installation of
the full suite of a vendor’s ERP software. Advantages under
this approach include high interoperability among modules,
common look and feel, and standardization.
A best-of-breed approach involves selection of the most
appropriate modules coming from different vendors.
Characteristics of this approach include: the required function-
ality is met, higher cost and an incompatibility among modules
and among systems thereby requiring customized interfaces.
Which ERP Package?
In general, the ERP package an organization selects should
be based on four factors: functional capabilities, technical
attributes, partnership and cost. Detailed considerations include
the following:
• Functional fit with the organization’s business practices
• Degree of integration among components of the ERP system
• Flexibility and scalability
• User friendliness
• Quick implementation
• Ability to support multisite planning and control
• Technology—Client-server capabilities, database indepen-
dence, security
• Availability of regular upgrades
• Amount of customization required
• Local support infrastructure
• Costs—License, training, implementation, maintenance,
customization, hardware requirements
Lessons Learned
Based on experiences from recent ERP implementations
both in the public sector and in industry, the following lessons
were identified:
• Define the business value—Identify what benefits the
organization needs to get out of an ERP, and focus on these
 benefits throughout the implementation to ensure that they
are achieved.
• Set up regular review measures—Establish metrics to mea-
sure how well the objectives of the ERP effort are being met.
• Don’t underestimate the art of change management—Keep
management and users well informed of changes, provide
the necessary training and support throughout the transition
and involve all stakeholders.
• Make sure that every vendor involved in the project has
“skin in the game”—Every vendor should share in the risk of
the venture; consider using the “fix time, fix price” type of
contract to ensure the effort is completed on time and within
budget.
• Do not lose sight of the impact on the customer—The imple-
mentation should be transparent to the customer.
• Assign a high-level business manager to the project, adding
credibility to the effort and forcing upper management to
take ownership of the project.
• Engage the users throughout the process—Make sure they
are aware of the progress of the implementation and
upcoming changes.
• Avoid customization—This can be very costly both as a one-
time expense and whenever there are upgrades to the vendor
software. However, there are times when customization is
required because the software does not address some aspect
of the user requirements.
• Ensure that the infrastructure can support the ERP, for exam-
ple, the network should be built to support the web-access
capabilities of ERPs.
• Outsource—This will target situations when the organization
does not have a sufficient skill pool to support an ERP
implementation.
• Stick with a mainstream vendor—Using a vendor that may
not be around in a few years is risky. For example, in the US
government, agencies should select financial modules that
comply with Joint Financial Management Improvement
Program (JFMIP) Certified Software (www.jfmip.gov) stan-
dards. This is an indication that the vendor’s financial mod-
ule meets governmental financial system requirements.
• Perform pilot implementations—This helps minimize risks
associated with large implementations.
• Be prepared for turmoil during the transition phase—The
transition period can produce a stressful environment for
managers and employees.
• Provide staff training and orientation—This training should
not be the one-size-fits-all type; it must be customized for
the particular environment. Trainers need to be familiar with
the processes associated with the legacy system and under-
stand how these processes map against the processes associ-
ated with the new ERP system.
Maintenance of an ERP
ERP projects do not end with its implementation. It is a
continuing effort that must address new and/or changing
requirements associated with the following:
• System bugs
• User assistance
• Changes to system
• Managment of different input and output requirements
• Documentation
• Training
• Maintenance and update of software
• Budget
Future of ERPs
ERPs will enhance web interfaces to better support e-com-
merce, enterprise portals and extensible markup language
(XML), which facilitates data interchange over the Internet.
Also, application service providers (ASPs) will have a growing
role in the outsourcing of the often expensive ERPs.
Improvements in enterprise application integration (EAI)
middleware for linking ERP with legacy systems are expected
probably in terms of CORBA and COM technologies.
“ERP II” is the term, recently coined by the Gartner Group,
for the next generation of ERP tools that “better support” inter-
nal and external collaboration, have more industry-specific
requirements and human capital management.
Conclusions
The implementation of an ERP and its associated business
practices is a major business and IT strategy for meeting an
organization’s vision and goals. It has the potential of high
reward, but at a price—high cost and high risk of failure. To
address the risk, carefully planned change management is a
critical success factor involving the smooth transitioning of
people, process and systems to the new ERP environment. One
way to accomplish this is to follow ISACA’s Control
Objectives for Information and related Technology (COBIT)
guidelines, which provides a framework for management to
understand and manage technical risks in an uncertain environ-
ment. COBIT® 3rd Edition© is available as a complimentary
download from www.isaca.org/cobit.htm.
Note: This article has an accompanying web site at:
www.members.aol.com/lpang10473/erp.htm
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Disclaimer
The views expressed in this article are those of the author
and do not reflect the official policy or position of the National
Defense University, the Department of Defense or the US gov-
ernment.

Les Pang, Ph.D.

is a professor of Systems Management at the Information
Resources Management College, which is part of the National
Defense University in Washington, DC, USA. He teaches
courses to military and civilian leaders on enterprise applica-
tions, data management technologies, modeling and simula-
tion, the Internet, software technologies and multimedia tech-
nologies. He received a Ph.D. in engineering from the
University of Utah in 1983 and a Masters in Business
Administration from the University of Maryland College Park
in 1988.