Enterprise Resource Planning: Common Myths vs. Evolving Reality

Many firms have implemented company-wide systems called Enterprise Resource Planning (ERP) systems, designed to integrate and optimize various business processes, such as order entry and production planning, across the entire business. Such systems are complex, and implementing one can be difficult, time consuming, and expensive. Limited reports in the popular press suggest that these systems have achieved mixed success at best; some imply that failure of implementation threatens the existence of the company. Here we present an objective view of ERP systems, based on interviews with operating managers, IT personnel, and consultants. The dominant reason for adopting ERP was to simplify and standardize IT systems; the second most common reason was to have access to accurate information. Cost of implementation generally ranged from 1.5% to 6% of annual revenues, with the software portion of the costs being just the tip of the iceberg. Implementation time varied from 12 months to 4 years. Return on investment in ERP was mixed--from 5% to 20%. For all the negative press ERP systems have received, our interviews indicated that all firms represented in our sample were pleased with them, despite some problems. Successful implementations were characterized by thorough senior management involvement, a cross-functional implementation team, clear guidelines for performance measurement, and detailed plans for training users. Importantly, a single ERP system does not provide an end-to-end solution, as most companies use other systems for specialized functions. Overall, though, the future of ERP is very promising.

• IT management
• Information systems
• Operations strategy