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Article Excerpt
ABSTRACT
This case describes the implementation of an enterprise information system at the printed materials division of a multinational investment company. There are several issues in the implementation that are worthy of class discussion. These issues include enterprise system implementation rationale and investment justification, software and consultant selection, business process reengineering, change and project management, and evaluation of enterprise system success.
Keywords: business process reengineering; change management; project management; ERP; enterprise system; software selection; software consulting; systems implementation.
COMPANY BACKGROUND
Headquartered in Chicago, Illinois, PMB Investments, Inc. (1) has offices in all major cities throughout the world and employs over 7,000 people across eight divisional units. PMB offers a broad array of financial services to investment institutions and individual investors including investment fund management, brokerage services, insurance services, tax planning and advice, and securities sales. (See Exhibit 1 for selected financial and demographic data for PMB.) The Amscot division of PMB is responsible for printing, assembling, and distributing all printed materials regarding financial services and investments to both internal and external customers. Simply put, Amscot fulfills PMB's customer correspondence needs. In 1994, Amscot built a new, centrally located plant facility just outside Little Rock, Arkansas. The plant consisted of four large office buildings, a warehouse, and a printing center that served to consolidate and replace buildings at two locations--Chicago, Illinois and Houston, Texas. PMB fel t it was important to consolidate the printing operations due to the anticipated growth rate in the business. About 1,300 transplants from Houston and Chicago and 2,500 new employees staffed the plant. PMB constructed state-of-the-art buildings.
The OSCAR Legacy System
Soon after the Little Rock site opened, Amscot hired Kevin Nichols as Vice President for Systems Development. At the time, there were only six people employed in the information systems function. Kevin immediately realized that despite the investments made in Little Rock to provide state-of-the-art technology for printing, moving, assembling, and shipping products, the primary software used to manage the facility was an outdated legacy application system called OSCAR. OSCAR, created by a PMB programmer, tracked materials, work in process, and finished goods inventories. It also sent financial data to PMB's accounting system for corporate financial reporting purposes and interfaced with the company's customer order software. According to Kevin, OSCAR had become inadequate:
By 1994 the home-grown system appeared to have been built in someone's garage because there had been so many add-ons and workarounds since it was first created. There were bandaids all over the place and people holding their fingers in the dike. We needed loads of people just to nurse the legacy system.
From 1994 through 1996, it became even clearer that Amscot had outgrown OSCAR. The system could not handle a growing volume of transactions that was projected to increase at about 15 to 25 percent each year. Serious problems that limited Amscot's ability to service its clients' needs began to emerge regularly. As an example, Public Investments (PI), an internal Amscot customer serving broker dealers, had an information system called KIM that interfaced with OSCAR. If a broker dealer wanted literature for a client, the order would flow through KIM into OSCAR where Amscot would be expected to fulfill the order. However, once every few weeks the interface between KIM and OSCAR would go down for between 12 to 18 hours resulting in customer orders literally disappearing into cyberspace somewhere between KIM and OSCAR. Naturally, P1 and its broker dealers were very frustrated because the system frequently lost customer order information. At one time, OSCAR itself was down for 36 hours--and this was the inventory m anagement system that was running the organization! Often, employees would go to the warehouse floor to physically count the inventory because they did not trust the numbers that OSCAR reported. In an effort to overcome OSCAR's limitations, inventory numbers were stored in several other information systems and spreadsheets. Clearly, Amscot's technology infrastructure could no longer support the size and complexity of its business.
The Benefits of Enterprise Systems
In the 1990s, many large companies chose to consolidate their information systems by implementing enterprise-wide information systems. The most urgent reason companies opted for enterprise systems (also called ERP for Enterprise Resource Planning) was that the new software helped them avoid the Year 2000 (Y2K) problem. As the end of the millennium approached, many information systems were at risk of crashing because programmers had used only two digits to identify year dates (e.g., "89" for 1989). This was the case with OSCAR. Inventory software with this problem could report inventory as outdated if it had a purchase date of "02." While the "02" might mean 2002, the software would see it as 1902, and therefore could categorize it as obsolete and produce an order to destroy it. Accordingly, management could either spend money to fix the Y2K programming flaw, or upgrade to a new system.
Beyond Y2K compliance, the long-run benefits of an enterprise system that consolidated financial, human resource, manufacturing, and distribution applications into one central database system attracted many businesses. Amscot envisioned that an enterprise system would eliminate problems associated with multiple information systems, such as data redundancy and integrity issues, and easily provide Amscot's managers with information needed for decision making. Real-time information could also compress processing time. A customer order would trigger immediate fulfillment and shipment. Ideally, the enterprise system would coordinate the entire supply chain, thereby reducing inventories of printed materials, decreasing shipment and receipt cycle time, and enabling Amscot to operate its business at peak efficiency.
Justifying the Investment in an Enterprise System
Despite the OSCAR system's limitations mentioned earlier, it was a challenge for Amscot to convince PMB's top management to invest in fixing its problems. Kevin Nichols had started creating awareness of OSCAR's constraints back in 1994, but as of January 1996, PMB's senior management was still undecided on the issue. One major concern was Amscot's estimate of a $20 million enterprise software implementation price tag. This level of financial commitment, coupled with the reality that many companies have either failed in their quest to implement enterprise systems or have experienced substantial cost and time overruns, created skepticism within PMB. Further, Amscot was a cost center, and couldn't demonstrate a return on the investment in terms of revenue growth. Kevin Nichols explained the cost-justification issue:
We didn't do a lot of...
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