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Chapter 2
This chapter will help you to understand how and why ERP systems came into being and what
20 the future might hold for business information systems. The chapter follows this sequence:

• Review of the evolution of information systems and related causes for the recent

development of ERP systems

• Discussion of the few ERP software vendors that dominate the market; the current industry

leader, German software maker SAP AG’s industry-leading software product, SAP ERP, is

discussed as an example of an ERP system.

• Review of the factors influencing a company’s decision to purchase an ERP system

• Description of ERP’s benefits

• Overview of frequently asked questions related to ERP systems

• Discussion of the future of ERP software, including the emphasis being placed on mobile

applications and accessibility of data

THE EVOLUTION OF INFORMATION SYSTEMS
Until recently, most companies had unintegrated information systems that supported only
the activities of individual business functional areas. Thus, a company would have a
marketing information system, a production information system, and so on—each with its
own hardware, software, and methods of processing data and information. Information
systems configured in this way are known as a silos because each department has its
own stack, or silo, of information that is unconnected to the next silo; silos are also known
as stovepipes.
Such unintegrated systems might work well within each individual functional area,
but to be competitive, a company must share data among all the functional areas. When a
company’s information systems are not integrated, costly inefficiencies can result. For
example, suppose two functional areas have separate, unintegrated information systems.
To share data, a clerk in one functional area needs to print out data from another
area and then enter the data into her area’s information system. Not only does this data
input take twice the time, it also significantly increases the chance for data entry errors.
Alternatively, this process might be automated by having one information system write
data to a file to be read by another information system. This would reduce the probability
of errors, but it could only be done periodically (usually overnight or on a weekend) to
minimize the disruption to normal business transactions. Because of the time lag in
updating the system, the transferred data would rarely be up to date. In addition, data
can be defined differently in different data systems; for instance, products might be

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