198 Part II • Applying Information Technology
many businesses use the Web to order networking
equipment from Cisco Systems, and both businesses and
consumers use the Web to order PCs from Dell.
Enterprise Resource Planning Systems
Enterprise resource planning (ERP)systems are also
transaction processing systems, but they go well beyond
traditional transaction processing system functionality—
and thus deserve treatment as a separate application area.
An ERP system is a set of integrated business applications,
or modules, that carry out common business functions
such as general ledger accounting, accounts payable,
accounts receivable, material requirements planning, order
management, inventory control, and human resources
management. Usually these modules are purchased from a
software vendor. In some cases, a company might buy only
a subset of these modules from a particular vendor, mixing
them with modules from other vendors and with the
company’s existing applications.
An ERP system differs from earlier approaches to
developing or purchasing business applications in at least
two ways. First, the ERP modules are integrated, primarily
through a common set of definitions and a common
database. As a transaction is processed in one area, such
as the receipt of an order, the impact of this transaction is
immediately reflected in all other related areas, such as
accounting, production scheduling, and purchasing.
Second, the ERP modules have been designed to reflect a
particular way of doing business—a particular set of
business processes. Unlike a functional IS approach, ERP
systems are based on a value-chain view of the business in
which functional departments coordinate their work. To
implement an ERP system, then, a company is committing
to changing its business processes. If a company is
purchasing an ERP system, the company might need to
change its processes to conform to those embedded in the
software package. The company adapts to the ERP
software package, not vice versa.
Why did ERP become such a hot topic in the late
1990s and early 2000s, with most large and medium-sized
firms either installing ERP systems or seriously thinking
about it? The benefits from ERP will be specific to a given
firm, but some common benefits have emerged. In many
cases, the companies are not happy with the old way of
doing business—by separate functional departments—and
they do not have the integrationof applications (and there-
fore the data) to support their decision-making and
planning needs. The current applications often do not
“talk” to each other, making it a time-consuming and
difficult job to gather data, present a coherent picture of
what is happening in the firm, and make informed
decisions and plans. This situation is not new, but, until
recently, packaged solutions were not available to
companies. The cost to develop a set of integrated applica-
tions internally is prohibitive; even if the company had the
IS resources to perform the task, it would take years. From
previous reengineering efforts, many companies know that
their internal business processes need to be changed, and
they believe that the best and easiest way to fix them is by
adopting the processes built into an ERP system that can
be purchased. Thus, implementing an ERP system is a way
to force business process reengineering.
In the late 1990s, the Year 2000 (Y2K)problem also
added to the demand for ERP systems. At that time it
became clear to many companies that their key application
programs would cease to function correctly when dates
past December 31, 1999, were used. When these programs
were coded—often using COBOL—the programmers
allowed only two digits to represent the year. They did not
imagine that their programs, written in the 1970s and
1980s, would still be used when the millennium arrived.
For companies with this problem, the effort and cost to
change every reference from a two-digit year to a four-
digit year in their programs would be substantial. Adopting
an ERP system which correctly provided for dates beyond
the year 2000 was a good, albeit expensive, solution to the
problem. Rarely was the year 2000 problem the sole
reason to implement an ERP system, but if the company
was not happy with its existing, nonintegrated set of
applications, then the year 2000 problem might well have
tipped the balance.
It should be emphasized that implementation of an
ERP system is extremely difficult because the company
must change the way it does business. Further, ERP
systems are very expensive. A typical large-scale ERP
implementation costs tens of millions of dollars and takes a
year or more. These implementation costs include not only
the software licenses but also hardware and network
investments and often consulting costs.
Further, choosing the right ERP software is a
difficult task. The two giants in the ERP marketplace are
SAP and Oracle. SAP (based in Germany) has been the
leading ERP vendor since the beginning, and Oracle has
grown in part by acquiring ERP vendor PeopleSoft in a
hostile takeover in 2005 (PeopleSoft had, in turn, acquired
ERP vendor J. D. Edwards in 2003). Other ERP vendors
include the Sage Group (United Kingdom), Infor Global
Solutions, and Microsoft with its Dynamics applications.
For ERP purchases, there are strong arguments for
picking a single vendor, such as the tight integration of
applications that is possible and the standardization of