KELLEY SCHOOL OF BUSINESS, INDIANA UNIVERSITY

ERP Case Study

Assignment #2

ANKITA MISTRY ESHA PONNAPPA PRAGYA BHARARA SMRITI PANDEY DATE: 04/17/2011

We have neither given nor received unauthorized aid on this deliverable.

To achieve success in todays highly competitive business environment, the organizations need to manage their data efficiently. A system such as ERP (Enterprise Resource Planning), which can integrate information across different departments in an organization and can enable cross functional business processes, can prove very helpful. While ERP offers various benefits and transforms the way of doing business, there are also many risks associated. Based on an ERP research, five factors have been identified for a successful ERP implementation: (1) top management is engaged in the project, not just involved; (2) project leaders are veterans, and team members are decision makers; (3) third parties fill gaps in expertise and transfer their knowledge; (4) change management goes hand-in-hand with project planning; (5) A satisficing mindset prevails (Brown and Vessey, 2003). The following two factors stand out amongst the above. Top management is engaged in the project, not just involved An ERP implementation not only involves huge capital investment but also a major business process changes along with a need to change the prevailing mindset. Slevin and Pinto, define top management support as the willingness of top management to provide the necessary resources, and authority or power for project success (1987). With the exposure and expertise of the top management, comes deep business knowledge and good project management practices. When such experience is used to drive an implementation team, the vision which entails the overall scope of the required changes, can be easily promulgated to everyone from the middle management to the leaf nodes of the company. An assertive backing from the top management also helps streamline change management activities (another important factor), as they have the power to impose restrictions

and policies which will prove to be beneficial in the long run. Active involvement by the management ensures quick redressal of impending issues and suppresses bureaucratic barriers. Change management goes hand-in-hand with project planning Davenport (1998a), Gibson, Holland and Light (1999) all agree that most companies adopting an ERP system will be required to reengineer the companys core business processes to fit the requirements of the system. The transition from legacy systems to a complex ERP structure is major change which requires modification of an equivalent magnitude to the prevalent business processes. Business processes that are not successfully reengineered to fit with the ERP systems are one of the critical failure factors in ERP implementations (Wong et al, 2005). Change management requires rigorous user training and efficient documentation of the process changes. Also, an effective channel of two-way communication needs to be maintained between the project team and the other associates to provide a sense of direction and to be watchful if any function is being adversely affected due to the changes. The cost associated with change management, money and time-wise is vital. Hence, change management must be inculcated with project planning for a successful ERP implementation.

Case Study: The strengths and weakness of NIBCOs ERP approach

Human Resources used NIBCO used its top management and the best members with suitable ability and experience for the ERP implementation team. The team included 7 NIBCOs directors involved full time in the project. The CEO of NIBCO, Rex Martin, was both a project champion and a sponsor, which helped clear all the roadblocks in the way of the project.

Big Bang approach Although Big Bang approach has high risk factor, the involvement of the best resources from CEO to consultants, their confidence to make aggressive strategies, and their dedication, was bound to do wonders for the company. To minimize the complexity SAP was used in its purest form as it also had enough functionality to accomplish NIBCOs goals. Work environment TIGER den was a location where all the team members, including directors were housed with no privacy and no telephone. The den fueled the interactions between the team members, brought the best out of them, and succeeded in being a productive work environment. NIBCO also established an incentive pay bonus to enhance every individuals output. Consultants to fill in gaps and transfer knowledge Many consultants were brought in to the core team to use their experiences of R/3 implementations at other companies, and to help NIBCO avoid similar pitfalls. Consultants were also used to effectively transfer knowledge to the NIBCO employees, which enabled NIBCO to work on its own, a week before the Go-Live date. Excellence in change management As identification and categorization of key changes involved team members who also belonged to different divisions of NIBCO, different perspectives from different areas were involved. This induced change management at the individual level. Change management was an integral part of NIBCOs implementation. Therefore, the team ensured that all the changes were handled before the Go-Live date. The internal communication plan involving Focus Group, TIGER talks, newsletters, and change adoption curve, together led to an effective change management in ERP implementation.

Methods for cost reduction NIBCO took several measures to reduce the cost. The IS team built number of tools to help with process scripting and project management. Consultants were let loose after knowledge transfer, even before the Go-Live date. The distribution centers were consolidated from 17 to 4. Delay in Go-Live date was utilized by the change management team for user training. Applaudable confidence and planning NIBCO refuted Boston Consulting Groups idea to implement ERP over period of 3-5 years, and after thorough analysis of the ERP systems and approaches, it decided to implement R/3 using the most aggressive Big Bang approach. The core team planned a 30 day grace period that came handy during the delay of Go-Live date. The team knew that there will be problems in the beginning period after the Go-Live date, and was hence prepared to handle the drop. Selection of IBM consultancy, risky Since IBM had not done a successful Big Bang or ERP specific change management until NIBCOs project, Cap Gemini was a better choice for NIBCO. Flaw in estimation The NIBCO core team went wrong in estimating the time to load master data, buffer time required to retest, and time to consolidate distribution centers. Hence, there was a delay in the Go-Live date. Also, by the first Go-Live date in November, the new staff neither knew NIBCOs business partners, nor was prepared for a new system to go live. Learning from the NIBCO case study The NIBCO teaching case grew out of a larger research investigation on ERP adoption and implementation issues. There are many factors in NIBCOs approach that can be applied to both ERP and Non ERP based large scale IT implementations. Without a corporate strategy to

reach defined corporate goals, innovation will be misdirected and unguided. (Wiedower, 2007). Therefore, as NIBCO did, companies have to make strong business strategy to indentify and implement changes required to be in sync with the business objectives. A budget in terms of time and cost has to be decided and it should be communicated to all the teams. The planning must be done to adhere to the pre-decided budget as much as possible, and milestones must be defined accordingly. An ERP implementation requires large scale business process changes and these changes should be made to fit the ones packaged with the ERP systems. The changes should be handled as an integral part of implementation phase to save time and manage employees attitude towards the change. Core team members are also required to put in an extra effort to make sure these change goes smoothly. Also, to keep the employees motivated some incentive options must be offered. Once the implementation is underway, the users must be trained adequately to work on the new systems so that they get enough time to familiarize themselves with the new systems in a timely manner. Unique circumstances in NIBCO case The perfect combination of triad leadership and top managements support is a rarity. Consolidation of distribution centers from 17 to 4 was a unique opportunity that NIBCO came across for the cost reduction. The existence of IS team in a company is not common. But since NIBCO already had an IS department, it could make efficient use of the tools for project management and process scripting, further reducing the cost. A circumstance where a company has to select an implementation partner, which would not have had enough experience, does not occur today. But since ERP was considered very risky when NIBCO implemented it, NIBCO did not have options to select a consulting partner with good ERP or Big Bang experience. Also, the resources in NIBCO were just suitable for Big

Bang approach while the same might not be the case with other companies. For example, when Siemens chose to implement ERP, it chose a phased approach because of a constraint of not having sufficient resources due to the organization firing one-third of its employees (Emile, 2006). Because of the support of the top management, NIBCO core team could successfully implement all their plans, with hardly any problems. It not only used the technical expertise of the contracted IBM consultants but also made sure that a sound knowledge transfer was given to the NIBCOs core team. Also, consultants from SAP were brought in to provide knowledge on the working of SAP and it functions. This helped the core NIBCO team to be independent of the consultants before the go-live date. While NIBCO had the opportunity and support to make use of the available resources, other companies may not have the same privilege. NIBCOs ERP purchase was a good IT solution When NIBCO planned to implement ERP, both ERP and Big Bang were considered very risky with very low success rate. But the risks overtake success only when risks are not well understood, and when the company lacks planning and preparation to make the right decisions. But since NIBCO met all the prerequisites for ERP implementation, ERP was a good decision. After the implementation, the efficiency of NIBCO increased in every domain. While the legacy system used to take 2-3 weeks to close books, ERP systems took 2-3 days. NIBCOs inventory levels went down by 25%, fulfillment rate increased from 80% to 95%, and by mid 2000 the service improved to 98%. And unlike many other companies, ERP helped NIBCO avoid the Y2K remediation cost. In April 2000 business intelligence report for NIBCO management benchmarked the firm as an IT leader within its industry (Giachetti & Truex, n.d.), Thus proving ERP to be a big success for NIBCO and the others.

References Brown, C. V. & Vessey, I. (2000). NIBCOs Big Bang. Brown, C. V. & Vessey, I. (2003). Managing the next wave of enterprise systems: leveraging lessons from ERP. MIS Quarterly Executive, 147-159. Davenport, T. (1998). Putting the enterprise into the enterprise system. Harvard Business Review, July-August, 121-131. Emile, A. C. (2006). NIBCO and Seimens power corporation. Retrieved April 15, 2011, from http://www.cis.gsu.edu/~dtruex/courses/Compare-ContrastExamples/Emile_NIBCOandSiemens.pdf Giachetti, E. R., & Truex, P.D. (n.d.). NIBCO case study discussion. Retrieved April 15, 2011, from http://www.cis.gsu.edu/~dtruex/courses/MBA8125/Lectures-pdf/Followup-NIBCOCaseStudyDiscussion.pdf Gibson, N., Holland, C., & Light, B. (1999). A case study of a fast track SAP R/3 implementation at Guilbert. Electronic Markets, 190-193. Heskett, J. (2007). What is management's role in innovation. Retrieved April 15, 2011, from http://hbswk.hbs.edu/item/5821.html Leon, A. (2008). Enterprise Resource Planning. New Delhi: Tata McGraw Hill. Slevin, D., & Pinto, J. (1987). Balancing strategy and tactics in project implementation. Sloan Management Review, 33-44. Wong, A., Scarbrough, H., Chau, P., & Davison, R. (2005). Critical failure factors in ERP implementation. PACIS 2005 Proceedings, 40.