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16 Chapter 1 • Introduction to Enterprise Systems for Management

•Complexity of installing, configuring, and maintaining the system increases, thereby
requiring specialized IT staff, hardware, network, and software resources.
•Consolidation of IT hardware, software, and people resources can be cumbersome and
difficult to attain.
•Data conversion and transformation from an old system to a new system can be an
extremely tedious and complex process.
•Retraining of IT staff and personnel to the new ERP system can produce resistance and
reduce productivity over a period of time.
The business benefits and limitations of ERP systems are as follows:
•Increasing agility of the organization in terms of responding to changes in the environment
for growth and maintaining the market share in the industry.
•Sharing of information across the functional departments means employees can collaborate
easily with each other and work in teams.
•Linking and exchanging information in real time with its supply chain partners can
improve efficiency and lower costs of products and services.
•Quality of customer service is better and quicker as information flows both up and down
the organization hierarchy and across all business units.
•Efficiency of business processes are enhanced due to business process reengineering of
organization functions.
•Retraining of all employees with the new system can be costly and time consuming.
•Change of business roles and department boundaries can create upheaval and resistance to
the new system.
•Reduction in cycle time in the supply chain from procurement of raw materials to production,
distribution, warehousing, and collection (see example in Box 1-1).

BOX 1-1 Microsoft’s ERP Implementation

Microsoft’s rapid growth in the 1990s created major support problems for the IT staff, which felt it had
lost control over the systems they administered. The problems arose due to the number of redundant
applications that had been developed to support the company’s operation. At one point as many as
90 percent of the 20,000 batch programs that were retrieving and passing data between applications
were redundant. The move to a single architecture with SAP improved integration between Microsoft’s
business units and its suppliers and customers. Microsoft spent 10 months and $25 million replacing
33 existing systems in 26 sites with SAP. Microsoft claims to have saved $18 million annually as a
result, and Bill Gates (founder of Microsoft) reportedly has expressed great satisfaction with the SAP
software. 5,6 The key production benefits of ERP systems were as follows:
•Reduction of planning cycle (95 percent)
•Reduction of delivery times (10–40 percent)
•Reduction of production times (10–50 percent)
•Lower stock levels (10–25 percent)
•Reduction of late deliveries (25–50 percent)
•Increase in productivity (2–5 percent)

5 Kalakota, R., and Robinson, M. (1999). E-Business—Roadmap to Success. Reading, MA: Addison-Wesley.
6 White, B., Clark, D., and Ascarely, S. (March 14, 1997). Program of Pain. Wall Street Journal, 6.