Investing in ERP

Industry consolidation and vendor research and development are combining to produce ERP systems with a multitude of modules. Should CIOs take all the modules on offer or invest in best-of-breed applications and integrate them with their core ERP systems?

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By  Abeer Saady Published  May 30, 2005

|~|yasser-website.jpg|~|End users need to identify the cost of ownership, according to SAP Arabia’s Yasser Refaat. |~|Enterprise resource planning (ERP) solutions vanquish an enterprise’s old standalone computer systems in finance, human resources (HR), manufacturing and the warehouse, and replace them with a single unified software program divided into various modules that roughly approximate the legacy systems.

Finance, manufacturing and the warehouse still get their own software, except now the software is linked together so the finance department can look into the warehouse software to see if an order has been shipped. An ERP software package is usually flexible enough, allowing end users to install some modules without buying the entire package. Many enterprises, for example, will just install an ERP finance or HR module and leave the rest of the functions for another day.
One such organisation is the Kuwait Oil Company (KOC).

The oil giant has deployed selected modules of Oracle’s ERP solution that not only fulfill its requirements, but also integrates seamlessly with its existing applications. “We made the decision to use the Oracle solution two years ago. We were looking for seamless technical functionalities and the Oracle solution [happen] to be the ideal fit for our requirements,” says Hesham Al Nouri, CIO of the Kuwait Oil Company.

“My organisation had specific needs. We [required] a solution that integrated well with our existing applications. We did not want to change our entire IT platform,” he adds. Today, the company is enjoying huge return-on-investment (ROI). Hesham says the solution has helped streamline day-to-day operations of the company and provide the management with a 360-degree view of daily activities.

It is crucial for oil companies like the KOC to have up-to-date information of their operations 24/7, and the ERP solution is able to facilitate that. “With the new solution, the [organisation] is able to enjoy benefits that would not have been possible otherwise. One thing with Oracle was that it provided us with ready-made packages, which means we did not have to do too much customisation.” Hesham’s advice to fellow CIOs is they should identify the requirements of their organisations prior to selecting the best-of-breed ERP modules in order to optimise the ROI. “It is crucial that CIOs select the right modules of a software package when it comes to upgrading or deploying a solution on an existing IT platform, which has various different applications already sitting on it,” he explains.

Tier-one ERP player SAP shares Hesham’s sentiments. The vendor says end users should identify and understand their needs well in advance. Requirements differ for different organisations and knowing their specific needs not only helps them, but also the solution provider. “Since its inception, SAP has tried to provide comprehensive solutions to its customers,” says Yasser Refaat, Egypt-based country manager for SAP Arabia.

According to Refaat, an ERP solution entails costs of ownership and implementation; hence it is crucial for enterprises to identify the total costs of ownership (TCO) and obtain the maximum ROI. The vendor, which encounters TCO and ROI issues regularly, says enterprises have to afford the initial costs of investing in an end-to-end solution. SAP says the total cost of investing in isolated or partially integrated systems have higher costs, and more importantly, the ROI is minimum. "An ERP system is not an end in itself. It is a means towards vertical strategic and operational management of business resources under industry specific circumstances and scenarios," Refaat asserts.

He also stresses that accomplishing a successful ERP deployment requires a certain level of human skills development and interpersonal synergies to leverage the benefits of such complex technology. "We should not underestimate the impact of qualified, skilled people and good training. Corporations should not only invest in IT solutions, but also in their IT staff,” he adds.

Atef Helmy, managing director of Oracle Egypt, says most Egyptian companies have had their “fingers burnt” one way or another over the last 20 years trying to integrate home-grown solutions developed by local independent software vendors (ISVs) onto their existing IT network. He adds that due to such poor past experiences, companies in the region are increasingly considering internationally recognised ERP providers to solve their technology issues. For Oracle, the argument of being "too big for our needs" is defeated by the fact that its e-business suite can be implemented by modules or by selected business flows.

Helmy says the modules are built on a single data model that resolves the issue of seamless integration. “Based on Oracle's experience in the region, when the advantages of an integrated solution over point solutions are presented to clients, they select an integrated software package,” he adds. Helmy claims his organisation has never failed to win this argument with any prospective client because it is a simple common business sense.

However, is the cost of application integration really such a big deal? According to Ayman Abouseif, senior marketing director at Oracle Middle East and Africa, Eastern and central Europe, it is. "Gone are the days of buying different applications from a host of technology vendors and spending countless months and dollars integrating them," says Abouseif. He believes that enterprises do not need to spend time or money on physical integration efforts, and working with a single vendor minimises maintenance issues. Multinationals such as Oracle take care of co-coordinating the release of new application functionalities.

Multinationals integrating their supply chains with ERP and other enterprise applications can expect to spend a huge amount of money on software integration and consulting services in the first year. However, that is not all, each time one of these application vendors introduces a new release, the integration will need to be re-visited.

Furthermore, merely linking the applications is not enough. It may enable a company to process transactions such as orders and customer information back and forth, but it does not provide an integrated view of the activities that span both systems. Gaining that view by using integrated software is where companies really begin to enjoy savings. "Using the best-of-breed applications is an excellent approach as it considers best applications in the market in each business area," states Tamer Tohamy, operation manager for Global Business Solutions, which represents Epicor Scala in Egypt.

However, he adds that integrating these applications can be expensive and requires strong ongoing in house skill sets for development and maintenance. "Although multiple applications may not provide all the benefits of a specialised application, but having a single point of contact for services and support reduces the total cost of ownership significantly," Tohamy adds. "By the time enterprises start the second or third phase of the implementation, other companies are harvesting the benefits of their experience and data build up.”

Deploying ERP solutions is becoming a necessity for businesses in the Middle East as they look for ways to improve customer service and enhance daily operations through the use of appropriate and robust technologies. "The usual approach is to consider all the modules from one vendor, however in some cases, enterprises may consider the main modules only due to the cost involved,” Tohamy explains.

Tamer Elhamy, partner and sales manager for Microsoft Egypt, says an ERP system can grow with business needs. An enterprise may deploy a few modules initially, with a hope of installing the entire package over time. "My advice to businesses is they should try to use the ERP solution as much as possible and avoid complex integrations," Elhamy says. Corporations in the Middle East including Egypt try to fulfill all their business needs from one application.

“Most businesses in Egypt fall into the mid-market category and they are not in a position to go for best-of-breed solutions. Large corporates are the only ones that opt for such solutions. There is no one answer for all clients' needs," Elhamy notes. ||**|||~||~||~|There are core modules like finance, sales and inventory, which end users prefer to purchase from one vendor. However, there are other modules like HR or payroll, which customers can integrate themselves. “It is difficult to integrate the core modules, but HR and payroll integration is simple and feasible for end users.”

As for the future of ERP systems in the Middle East, Elhamy anticipates these solutions will become more adaptable, flexible and easier to deploy over time. He believes the new trend where the software will become a service-based solution offered, as an outsourced product will take off in the region. “It is just a matter of time before enterprises realise the benefits of such a concept.”

Last April, Raya Holdings, which is an IT and telecommunications player, attracted the attention of the Middle Eastern business community when it established a new company in partnership with the National Bank of Egypt (NBE), to provide outsourcing of IT services including ERP systems to the region’s banking sector. “The setting up of a company, which specialises in IT solutions is a direct response to the increasing demand from customers for advanced solutions,” says Ibrahim Srhan, managing director of Raya Holdings.

“From all indications, the banking sector is poised for tremendous growth over the next few years. Recent studies show the financial services sector is among the top most growth areas. The global IT investment in the financial services sector has topped US$ 52 million and expected to cross US$ 81 billion by 2008.”

Sarhan says Raya’s ERP solution is a fully integrated set of business applications, which allow corporations to automate and manage core business activities. "Outsourcing is the new ERP," states Sarhan. “Outsourcing means that businesses no longer have to own an ERP solution and upgrade it. Large and medium companies have already started to use this world wide and I believe it is suitable for small companies to [adopt] it in the Middle East.”

Maged Asaad, IT associate director for Sekem Group, who has 15 years of IT expertise and has managed more than 18 ERP implementation projects, believes it is better for enterprises to work with an entire ERP package rather than choosing best-of-breed applications and integrating them together. "A full ERP package has the ability to provide an end user with the default integration safely and securely. The whole process will be faster as well,” he explains. "Sekem is an Egyptian company, which follows European [concept],” states Asaad.

“Our decision of taking the full bundle of ERP package was based on our company’s structure. We have six subsidiaries, which include the holding company and two non-government organisations (NGOs); hence there was a need for the entire package,” he explains. Asaad’s says CIOs should not forget the success of an ERP implementation is dependant on the support from the top management, knowing the exact requirements prior to purchasing the solution and ROI expectations, besides having the right solution.

Toshiba-El Araby, which has overhauled its legacy IT infrastructure with a complete ERP solution, believes in the implementation of an entire package rather then the best-of-breed modules. However, the company says the deployment should be done in a phased manner. "No risks, no gains," says Medhat El Araby, head of office equipment and computer division at Toshiba El Araby. “I am not saying that there are no risks involved in switching from an existing system to a new one. However, we decided to take a calculated risk and it has worked for us,” he adds.

El Araby formed a task force comprising inhouse and SAP IT specialists to deploy the new solution. The team worked in conjunction with the legacy system to ensure smooth transition. Currently, the solution is piloted at the new division of the El Araby Group. While some corporations believe in customising their IT solutions to meet the requirement of their staff, El Araby decided to re-train its workers to use the new technology. "Customisations make the software unstable and harder to maintain," he justifies.

However, when Juhaina Food Industries Company (JFIC) decided to overhaul its ERP system, it set up an inhouse team rather than seeking external consultants. The company believes some consultants may not provide fair advice due to their relationships with ERP vendors. "Buying the entire ERP package from SAP was our IT department’s decision that has taken after months of discussions," says Amr Aboul Ezz, CIO of the JFIC. The company’s new system went live in May. Aboul Ezz believes that major ERP vendors are happy to help out with the implementation and customisation of the solution, not only because it is profitable, but also because it strengthens their reputation.

Intel Egypt, whose parent company uses SAP technology, says when it decided to deploy the entire ERP package, the decision-making process was challenging. Karim Fahmy, general manager of Intel Egypt, says there was a lack of information on the success of such implementations. "We had to know the success stories or the difficulties faced by companies that had already made the move. However, it was not all that easy to get the information,” says Fahmy.

Needs and requirements of an enterprise shape its decision, says Rafik Aziz, IT and HR manager for LG Egypt. However, these needs change over time and they should be taken into consideration. "Enterprises should deploy modules that can be easily customised to their changing needs and easily upgraded," he says. According to Aziz, when his organisation decided to deploy an ERP solution, it was honest with Epicor Scala about its requirements. “We made sure that that we had all our questions answered by the vendor. The company knew our expectations and we knew what the company had to offer. In the end everything worked out fine.”

According to a Meta Group study, it takes eight months for enterprises to start enjoying ROIs on ERP deployments. Aptec Egypt, which has deployed Epicor Scala’s ERP solution, says it is easy to communicate with global corporations with similar systems. Two years ago, when Aptec strengthened its operations, it needed to add a new module to the existing ERP system, however the cost was relatively high, so it decided to use a local product. “It worked, but we would have preferred to have the new module from the existing software,” says Abeer Elnosairy, MIS manager for Aptec Egypt. For this reason, Elnosairy welcomes the idea of leasing ERP packages.

Another aspect that corporations usually do not pay close attention to when deploying software solutions is consultation. In order to have a successful deployment, especially when standalone solutions are added to the existing IT infrastructure, businesses must know the advantages and disadvantages well in advance.

HP, which provides pre-deployment consultation, says enterprises need to integrate IT solutions in a phased manner on their existing IT infrastructure. "The best-of-breed application is a successful model. We would go for it, however the model is dependant on customer requirements,” says Ahmed Samy, managing director of HP Egypt. “Although we have business relationships with most ERP vendors and know everything about their modules and applications, we would choose what is suitable for the customer,” he clarifies. Among the reasons why some companies prefer to take the whole package is because ERP vendors entice them with various after sales benefits, according to Samy.

Professor Yousry Zaki, chairman of the Chamber of Information Technology (CIT), says the difficulties facing end users in deploying a full ERP solution varies according to the capital and business volume of the company. "If we are talking about large corporations, cost will not be an issue. The issue will be about moving to a single new solution and customisation. End users will have to customise the solution,” he explains. Professor Zaki believes that outsourcing and leasing of ERP software has enormous potential in the Middle East. The concept may be new, but it will take off over time. He says these models will not only save end users money, but also take away the headache of constant upgrades. “For a small fee, end users of all sizes will be in a strong position to enjoy best-of-breed ERP solutions,” he enthuses. ||**||

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