Research & Publications
Enterprise Resource Planning: Common Myths Versus Evolving Reality
2001, Business Horizons
V. A. Mabert, Ash K. Soni, M. A. Venkataramanan
Can an ERP system success fully become the backbone of company operations in the new economy?
The myriad challenges faced today by global businesses are expected to grow in intensity and complexity as we move further into this century. Expanded global competition has become the norm rather than the exception, with an unprecedented number and variety of products available to satisfy consumer needs and desires. The dynamics of faster product development, more customized manufacturing, and quicker distribution have benefited the consumer. At the same time, these changes have led to new and very high consumer expectations and standards for companies to meet in the marketplace. Satisfying the customer's desire for high quality and quick service in the current business environment has added pressures not historically present.
To meet these new challenges, companies around the world have invested heavily in Information Technology, taking advantage of IT systems to radically alter the conduct of business in both domestic and global markets. In particular, many firms have implemented company-wide systems called Enterprise Resource Planning (ERP) systems, which are designed to integrate and optimize various business processes such as order entry and production planning across the entire firm. By the late 1990s, companies were spending over $23 billion a year on enterprise software, of which a major portion was ERP software. Out of more than 100 ERP providers worldwide, SAP-AG, Oracle, J.D. Edwards, PeopleSoft, and Baan--collectively called the "Big Five" of ERP software--control approximately 70 percent of the ERP market share.
ERP systems are complex, and implementing one can be a difficult, time-consuming, and expensive project for a company. Implementation can take many years to complete and cost tens of millions of dollars for a medium-sized company and $300 to $500 million for large international corporations. Moreover, even with significant investments in time and money, there is no guarantee of the outcome.
Judging from limited reports in editorials and the popular press, the story of the success of these systems in achieving their stated objectives is mixed at best. Some maintain the failure of ERP implementations can threaten the very existence of a company, as was the case at FoxMeyer Corporation. Other reports emphasize that ERP is a key ingredient for gaining competitive advantage, streamlining the supply chain, contributing to lean manufacturing, and managing customer relationships. Thus, opinions differ on whether ERP systems are an asset that can deliver on the stated promises or a liability with significant cost consequences.
Here we present an objective view of ERP systems as a management tool for coordinating and guiding the activities of a firm. Our observations are based on a set of interviews with operating managers and IT personnel at both large and small corporations that have implemented ERP systems, as well as consultants who have assisted hundreds of corporate clients. To set the stage, we begin by providing background information on the development of and motivation for ERP systems.
Mabert, V. A., A. K. Soni, and M. A. Venkataramanan (2001), "Enterprise Resource Planning: Common Myths Versus Evolving Reality," Business Horizons, Vol. 44, No. 3, May, pp. 69-76.