ERP: Transcending Boundaries

Organizations, especially those in the area of IT, are more global today than ever before. Indian IT organizations typically are transnational with development centers and sales offices spread across the globe. Almost all have implemented enterprise resource planning (ERP) systems to integrate the complete range of a business processes and functions and present a holistic view of the business.

In transnational organizations, misalignment of a firms global ERP system with its international strategy is one of the primary reasons for delayed or failed ERP implementations. Evidence suggests that these misalignments can hamper a firms efforts to effectively control and coordinate its business activities, and can affect its finance negatively. For example, after the implementation of the human resources module of its ERP system in 1997, Dell Computers temporarily shelved its ERP project until it could improve upon the alignment between the ERP system and its business imperatives. Hence defining the scope of implementation and aligning process, data, and configuration of the ERP systems across the dispersed organizational units is both challenging and involved.

In this article, we explore the challenges in adopting an ERP system and possible solutions in a transnational IT organization having presence in many countries around the world.

Business Process Architecture

Due to technology and market disruptions, mergers, acquisitions, and setting up of near-shore and on-site centers, organization structures, and business processes are often dynamic in transnational IT organizations. However the foundation block to successful ERP implementation is the stability of both. It is never recommended to implement or configure an evolving process in an ERP environment. If some processes are still evolving and not mature enough, it may be beneficial to develop in-house applications to support these processes.

In general, the global policies and processes of the organizations need to be relatively generic. The details of process implementation shall be as per the requirements of each country. For example, the leave policies of the organizations can be generic. However the paternity leave, which is quite common in European countries, can be implemented only for the European users. In India, employees leaving the organization have to fulfill certain obligations such as notice period and compensation. However, in the US or European countries, the concept of notice period cannot be enforced and hence the process needs to be tweaked as appropriate. Moreover, the financial years are different in different countries (Jan-Dec in Europe and the US and Apr-Mar in India). Hence account disclosures of the parent organization and child entity in a different geography could be different. The accounting process shall be tuned to take care of these disparities.

Furthermore, the processes should be aligned with the key performance metrics of the organization as a whole. When the local country-level process is under execution, one should be able to aggregate metrics from the process across the globe to provide an unified view of the organization performance. In general, the global processes are architected at the headquarters and percolated to the different subsidiary sites. At the time of implementation, customization at local sites are required so that processes are adaptable to the respective local requirements.

The general principle of ERP systemone size fits all may not be applicable in a transnational set-up. The selected ERP system might not be able to accommodate all processes. The decision to adopt industry best practices as present in the ERP system versus customizing the ERP system to suit company practices depends on the amount of customization of the selected ERP system, the business benefits, the maturity of company practices, and the long-term sustenance and adoption of the system.

Data Architecture

• Confidentiality and Privacy of Information: Confidentiality, Integrity, and Authentication (CIA) of the data needs to be carefully architected in the implementation of ERP systems across geographies. For example, protecting the privacy and confidentiality of employee data is of paramount importance in Europe and the US compared to India. The result of a simple look up of company directory shall vary widely across sites. While pictures of employees including email address and mobile numbers can be displayed in Indian sites, the same may not be acceptable in other sites. Even individuals are sensitive to divulging certain personal information across geographies. In most of the European countries, acquisition of personal information for organizational purposes requires approval by works council. Hence the implementation managers need to be good at negotiating with the stakeholders on sensitive personal data to be ported on to the ERP system, of course, while complying with the specific legal and regulatory requirements of the countries concerned.

Hence the personal information has to be carefully defined across sites so that there is no violation of privacy and confidentiality. Personal data protection laws such as Health Insurance Portability and Accountability Act (HIPAA) in the US and End User Defined Phrase (EUDP) in Europe are stringent. Though the latest Indian IT Act Amendment in 2008 is framed along the lines of HIPPA and EUDP, enforcement is still a long way to go.

• Location of Data: The location of hosting the data also is important in ERP implementations. In a transnational implementation, certain countries dictate that personal data to be stored in their home country or near-shore centers and insist on alternative disaster management data sites. In case of centralized hosting outside the geographical territories, compliance to international data transfer clauses in Data Protection Acts becomes important. The implementation plan should consider this aspect, which might involve other third parties to sign off on certain transfer agreements.

The period for which data needs to be preserved and the way of handling data after the stipulated period also varies across countries. While most of the European countries adhere to the adapted versions of the EU Commissions Data Retention Regulation, in India there is no central Act that lays down provisions of data retention. For example, countries such as Finland require that the employee data be destroyed and not archived beyond 3 months after the employee exits the company. In India, the employee data is typically archived since the employee might rejoin later, possibly due to volatility in attrition especially in the IT sector, so that the service and experience data can be reused. This requires different data management practices across sites. It is quite often the case that Indian IT organizations have a portal to automate talent acquisition process in which aspirants can submit resumes. However, in European countries, minimal personal data on individuals can be captured and stored in an organizations repository before an employment contract is signed between the employer

and employee.

Hence the data structure and storage mechanisms have to be flexible enough to allow configuration as per individual country requirements, yet compliant enough to deliver required performance metrics.

Information Systems Architecture

In a transnational organization, varied languages and government requirements across the different sites pose challenges. Employee self-service process needs to accommodate different languages of the end-users. However software internationalization goes beyond language translation to include: date and time format, currency format, alphabets and numerals, language character coding sets for textual display, name and titles, telephone numbers, addresses and international postal codes, weights and measures, and accounting and taxation models.

Country Localization

While most of the off-the-shelf ERP systems have localization modules that take into account compliance to the law of the land, the CIO and the implementation team need to make a trade-off decision between obtaining license for localization components or plug-in third party solutions. Invariably, the reporting requirements in different countries, statutory or otherwise, always vary considerably and hence need customization. An appropriate model of procurement needs to be followed taking in to account licensing cost, outsourcing cost, and availability of local systems support. The advantage with native implementation is that the ERP vendors keep the product updates and patches in tune with the changing rules and regulations. It is equally important to have functional knowledge available within the organizations to interpret the regulatory and legal requirements as applicable to respective entities into system language for better implementation. Organizations engage local experts to partner with them during localization. Localization is critical for adoption and hence the importance of planning resources and time for the same.

External Interfaces

Furthermore, interfaces to government agencies and banks can be quite varying across countries. For example, in Mexico, tax invoices need to be integrated with various government departments and transported in Spanish. In European countries, the payment to vendors and contractors are by default done using real-time Electronics Fund Transfer (EFT) using banks Electronics Clearing System (ECS). However, in India, though EFT exists for many processes (eg, employee salaries, vendor payment), the legacy practice of using cheques and the corresponding cheque clearance processes are still in use. Hence the connectivity and interfacing requirements with financial institutions vary widely. Moreover, the bank integration functionality is normally offered as a separate licensed module and may be part of other bigger items like Treasury module. The cost of licensing for a limited use may be quite high. On case by case basis, the decision to procure native modules versus a third party solution shall be taken up by the CIO and the team for interfacing the ERP system to external agencies.

Enterprise Mobility

The rapid proliferation of powerful mobile devices with different form factors is spurring growth in enterprise mobility (EM). Businesses are seeking cost-effective, agile mobile solutions that can positively impact bottom-line results as enterprise knowledge workers gain real-time access to company data, anytime, anywhere. The enterprise mobility segment appears to be moving away from BlackBerry dominance to an explosion of other platforms, including Google Android, Apple iPhone, Microsoft Windows Phone 7, and webOS devices. The new paradigm of Bring Your Own Device (BYOD) and the associated compatibilities would pose a bigger challenge to both product companies as well as the ERP implementation team. CIO and the implementation team may need to provide standards of operations and interoperability guidelines from time to time for better adoption.

Integration of Multiple ERP Platforms

It is not uncommon, especially in a transnational organization, to have legacy systems and even multiple ERP systems in operation. For example, most organizations use Oracles PeopleSoft for Human Resources while the business processes are supported using SAP R/3. Stitching together multiple ERP systems is a nightmare for IT managers. Depending on the trade-off between flexibility and unification, the manager has to decide whether and when to unify the ERP systems on to one or stitch a glue between them for data and process transport. If one of the systems is retired, then change management needs to be put in place so that the users are seamlessly migrated to the unified system. In the event of running multiple ERPs, unifying the organization performance metrics should be the paramount driver while designing the interfaces.

Partner Selection

Typically, partners provide wide-ranging services, including Business Process Reengineering (BPR), ERP product selection, business process mapping, customization, implementation, and testing. Hence it is important for the organization to select a partner that fits its needs. Most of the software companies that implement ERP system may themselves be partners and hence will be able to leverage on their in-house experience. However, for those software companies that do not work on ERP systems, selecting a good partner and having a good engagement model will is one of critical success factors.

In global ERP implementations, partners who have experience and support facilities in dispersed geographical locations of implementation tend to be better than partners who have done projects in only one or few sites. A transnational partner will be able to pool in their local expertise to cater to specific country localization requirements. If the business processes of the organization are not stable, then it is better to have a contract with the partner to engage in BPR before implementing the ERP system.

Cultural Integration

The adoption of ERP systems is closely related to cultural orientation of employees at different geographical sites. For example, while a purchase requisition requires multi-level approval in large organization India, the same is non-existent in European countries. Incorporation of multiple management controls possibly due to frequent financial fraud incidents in one location would be detested by users in countries where those events do not occur. Hence forcing a process that does not fit a culture might in fact back fire leading to ripples across the organization. Similarly when a larger firm acquires a smaller firm, it is important to get adequate involvement in the planning stage so that the processes decided at the headquarters are not force fitted in the smaller entities. Retirement of legacy systems and archival of past data especially in smaller entities of the organization needs appropriate planning. A strategic and involved approach from those geographically diverse entities is a must to get increased acceptance and even appreciation.

Implementing an ERP system in an IT firm also has its own challenges. It is difficult to convince an IT professional to stick to an industry best practice as they often argue that the ERP as a software can be easily customized to meet our specific requirements. What tends to get ignored in these arguments is the organization-wide suitability and maintainability of the customized software piece.

In most situations, due to cultural differences, there is a tendency to perceive employees in certain countries, especially in Europe and US, as being sophisticated. However that may not be the case and hence it is very important to administer user trainings after doing reality checks.

Change Management

The implementation and usage of ERP systems requires a comprehensive change management exercise. It has to be championed by the top management and implemented by the CIO, the IT team, and functional representatives with active involvement of the end-users for successful implementation.

The IT managers need to adhere to core organization processes, tweak them to country specifics considering the trade-offs involved, adhere to CIA of data as applicable, provide effective interfaces of ERP systems with outside agencies as appropriate, and be aware of the cultural differences. An ERP implementation can be successful if it is approached and implemented as a business initiative and not as a standalone IT project.