The last half a century has come with major advances that have been made in the technological environment. These technology enhancements have transitioned from generic and monolithic information systems to more modernized and unique systems fit to a business organization’s practices. The following academic essay by the researcher opens by gathering an understanding on legacy systems that are a key component of an organization’s business processes. Thereafter, as a result of the evolution of information systems, an analysis on the modernization of legacy systems is addressed as a pre-entry to understanding the newly updated enterprise systems of organizations.
The sole objective of the academic essay however is research regarding enterprise systems and their selection process criteria within an organization’s business functions. Focal areas attached to uncovering this objective is undergone by presenting the mass evolution towards enterprise systems, dating back to the 1960s information system mechanisms, to systems that are currently in operation. Furthermore, the researcher has formulated a hypotheses study based off prior researchers’ studies of comparing adopters and non-adopters of enterprise systems within their organization. An overview of the acquisition processes of an enterprise system is then conducted by analyzing two independent selection criteria namely: the Systematic Help for ERP Acquisition (SHERPA) methodology and the Gartner Magic Quadrant Research Methodology. The researcher lastly provides a probable recommendation of a hybrid system approach containing key stand-alone components existing in the legacy system that will be utilized in parallel with the structures of an entire enterprise system for an organization and their business functions.
According to (Bennett, 1995), legacy systems are commonly defined as large software systems that are vital to an organization’s processes but hold difficulty in coping with the ever-changing software systems environment. With the growth in the modernization of legacy systems, most organizations have turned to transform their applications in order to meet new business demands as a result of outdated traditional maintenance practices. Due to their significance in an organization’s business operation since they consolidate a corporation’s data, gathering an adequate modernization technique proves to be essential in making legacy systems more flexible to change (Bennett, 1995). According to an informal industry poll conducted by (Erlikh, 2000), the obtained results presented stated eighty-five to ninety percent of information systems budgets go to the maintenance and operations of legacy systems. This study provides emphasis of the dilemma pertaining to the transition from legacy systems and their very different software constraints toward more modernized and newer systems.
The road to a transformation of legacy systems vary according to the region the system falls in; and additionally addresses components that are worth saving from this transformation process (Erlikh, 2000). With a view toward a low-quality legacy system offering generic industry solutions, would typically have to be replaced with off-the-shelf enterprise resource planning packages. In contrast, high-quality legacy systems providing a competitive advantage within its industry is worth nurturing unless external forces such as business pressures dictate a change process.
Modernization of Legacy Systems
As a result of the significance of the corporate data held in these software systems, the characteristic of modernizing legacy systems in the domain of software maintenance has emerged. Modernization as discussed by (Agilar, Almeida and Canedo, 2016), is defined as the “evolution of systems towards new business requirements of the organizations” that involve new functionalities or technological updates.
The researchers of (Agilar, Almeida and Canedo, 2016), suggested the main reasons leading to why organizations may choose to modernize its legacy systems; they were described to be four main reasons:
- Error proneness: where a lack of updated documentation and modernization efforts are often made with the consideration of source code as reliable documentation;
- Lack of knowledge: whereby a necessary understanding of the system design is considered as a requirement for implementing the change process by organizations;
- Lack of system integration: with software integration allowing automation of business processes presents an opportunity of improved resourced management, the demand for integrating existing systems is growing amongst organizations; and lastly
- Reduction in maintenance costs: This is considered as one of the major barriers that need to be overcome by organizations.
Enterprise systems and Enterprise Resource Planning (ERP) systems are terms with synonymous meanings. (IGI Global- Disseminator of Knowledge, 2019), defines these systems as “large complex computing systems which handle large volumes of data and enable organizations to integrate and coordinate their business processes”. Enterprise systems look for business benefits in four areas: (1) cost savings for IT, (2) efficiency in business processes, (3) being a business process platform for process standardization; and (4) a catalyst for business innovation as researched by (Gartner IT Glossary, 2019).
With enterprise systems being designed to replace the traditional patchworks of the legacy systems across a business organization, (Hunton, Lippincott and Reck, 2003) emphasized how it provides a “synchronized suite of enterprise-wide applications”. This pertains to the possible benefits that is included with the ERP system of improvements in productivity and quality in key areas of customer service, knowledge management and product reliability.
Evolution toward Enterprise Systems
By scaling back to the 1960s, the focus for most business software systems was attributed to inventory control. Most of the compiled software packages were designed to handle inventory based on traditional practices. In the 1970s, with substantial knowledge by organizations regarding the inefficiency in maintaining large inventory quantities led to the emergence of material requirements planning (MRP) systems as researched by (Umble, Haft and Umble, 2003). The movement towards MRP systems proved beneficial for organizations as it systematically and efficiently scheduled all relevant business parts which resulted in a forward step for productivity and quality within the organization.
In the 1980s, with organizations taking as much advantage of the increased affordability of available technology such as the Internet, providing them with the ability to couple their inventory controls with overlapping financial activities. The induction of the manufacturing resources planning (MRP II) systems evolved to incorporate financial accounting and management systems along with manufacturing and material management systems (Umble, Haft and Umble, 2003). This provided organizations with more business-integrated systems with material requirements that associate themselves with allowed input of detailed financial activities.
By the 1990s, with continuous improvement in technology allowed for the MRP II system to expand itself to incorporate all resource planning for the complete enterprise. The resource plan areas comprise of aspects such as finance, human resources, operations and logistics and lastly, sales and marketing. With the diversifying of the MRP II system to alternate resource areas presented the induction of the term ERP systems; which can be used not only in manufacturing firms, but in an organization that aims to enhance its competitive advantage by effectively using its assets and information (Umble, Haft and Umble, 2003).
The movement of organizations towards enterprise systems is due to the strong change within the business environment. Today, organizations are facing challenges of increased competition, expanding markets and a rise in customer expectations as addressed by (Umble, Haft, and Umble, 2003), companies have to handle the pressures of lowering total costs, reducing inventories, improving their product’s quality and efficiently coordinating with the global demand, supply and production processes.
Utilizing enterprise systems provides two benefits that do not exist in generic software systems of (1) a unified business enterprise view encompassing all business functions and departments; and (2) an enterprise database where all business transactions are inputted, recorded, processed, and monitored and reported. The abovementioned benefits enable organizations to achieve their objectives of increased communication and responsiveness to stakeholder parties as stated by (Umble, Haft and Umble, 2003). In addition, a unified business view helps in increasing the requirement for interdepartmental coordination and cooperation.
Comparison of firm performance of enterprise systems adopters and non-adopters
With enterprise systems reflecting an innovative business strategy, differentiating between an organization with an enterprise adoption in place, and one without its adoption presents an examination of financial performance as an indicator (Hunton, Lippincott and Reck, 2003). The researchers (Hunton, Lippincott and Reck, 2003), conducted a hypotheses study with the financial performance indicator comparing adopters and non-adopters of enterprise systems formulated around:
- ERP systems and its innovative component; whereby a reported positive relationship between innovative IT investments and firm performance. The innovative component obtained by implementing an enterprise system must be able to facilitate key business process improvements such as greater accuracy and efficiency in identifying problems and opportunities, a reduced number of organizational levels and lastly, accurate and available organizational intelligence from internal and external sources.
- The firm’s performances with ERP systems; whereby a comparison of the competitive marketplace presented an expectation of a deterioration in performance for ERP non-adopters as a result of exogenous factors such as the competitive intensity and adoption rate of competitor firms.
- Financial performance indicators; evaluate a firm’s performance through an analysis of financial statements. The analysis undergone in the hypotheses used four performance measures of: return on assets (ROA) which incorporates both firm profitability and efficiency, return on sales (ROS) as a measure of a firm’s profitability or margin, asset turnover (ATO) as a measure of asset efficiency, and return on investment (ROI) as the last measure included as it has been cited as a key performance measure for ERP implementation (Hunton, Lippincott and Reck, 2003).
The results of the hypotheses study of ERP adopters and non-adopters presented significant evidence on the importance of an ERP implementation and procurement process. The researchers of (Franch and Pastor, 2000), stated that the practice of an “ERP procurement becomes a strategic and mission-critical process for organizations considering the adoption of an ERP”; this statement is aligned to the scope of the organization. An ERP implementation for organizations aims them to enable an overall informational integration of the functional areas across their business processes by replacing most of their proprietary legacy systems and thus limiting future needs for in-house IS developments. This provides emphasis on how a well-established ERP procurement process presents itself as a good foundation for a successful ERP implementation and usage experience for the organization (Franch and Pastor, 2000).
- Overview: Selection Processes for Enterprise System implementation
Systematic Help for ERP Acquisitions (SHERPA)
The SHERPA methodology as defined by (Illa, Franch and Pastor, 2010), presents a systematic selection of phases for ERP acquisitions for small and medium-sized organizations. The methodology covers the entire ERP acquisition process, from the search for ERP candidates to the signatures of contracts with the vendors of the selected enterprise system and its related services. However, the SHERPA methodology has no coverage over the implementation of the selected ERP system within the organization. The process follows a methodology placed into phases used in the evaluation process of an ERP vendor, which goes as follows:
- Phase 0: Study strategy and the business processes and decision for an ERP acquisition
The phase is split into two separate stages. The first stage consists of the project team studying the organization’s mission and strategy, its business functions and processes. The second stage consists of a committee that makes the decision regarding the acquisition of an ERP by the organization.
- Phase 1: First filter and search for ERP candidates
Based off the expertise and knowledge uncovered from Phase 0, the project team conducts a market research initiative by looking for candidate ERP systems that may suit the organization
- Phase 2: Second filter and a thorough analysis of ERP candidates
At this phase, the project team is expected to elaborate further on the ERP candidates from Phase 1. This involves applying an in-depth list of more detailed selection criteria; these would have to be adapted and refined to that of the organization. The project team is expected to select two or three ERP candidate solutions
- Phase 3: Analysis and demonstration of ERP candidates and visits to the vendors
This is the point whereby ERP vendors are expected to demonstrate their products to the project team, the organization’s top and middle management. The purpose of this is to gather a deeper knowledge of the solution specifically its adaptability and functionality to the organization. After this has been conducted, the project team gathers all the opinions; and goes onto refining and review the application of the criteria list to each candidate ERP system and prepares for a selection proposal that requires approval.
- Phase 4: Final decisions, negotiations and planning procedures
The final phase comprises of the project team negotiating contractual agreements with the selected ERP vendor; this includes a cost estimation and an overall implementation plan. This obviously requires the final approval and signatures of IT management and top management and the ERP vendor before they can proceed.
Gartner Magic Quadrant Research Methodology
The Gartner Magic Quadrant as explained by (Gartner, 2019), provides a graphical competitive position of technology providers that may be considering a specific investment opportunity. The methodology features four types of technology providers in markets where the possibility of growth is emerging or already distinguished with the presence of distinct providers namely:
- Leaders who are vendors that execute well against their current vision plan and are likely to influence the market's broader growth and direction;
- Challengers who are vendors that may dominate a large segment of the market but have a limited understanding of the direction of the market;
- Visionaries who are vendors that have an understanding of the direction of the market or hold a vision for changing the rules of the market but do not have a thorough execution plan yet; and lastly
- Niche players who are vendors successfully focusing on a small market segment. They hold the possibility of falling into one of two categories of either being “Visionaries in waiting” since they have a degree of vision in their market, or they fall as vendors of being “Challengers in waiting” as they are from an adjacent market who are still maturing their solutions in the set market.
To expand further on the Gartner Magic Quadrant, the decision-making tool in relation to an organization’s process is composed around two evaluation criteria definitions of their “Ability to Execute” an investment of enterprise systems on the y-axis of the matrix model and the organization’s “Completeness of Vision” on the x-axis as defined by (Hesterman, Pang and Montgomery, 2010).
Criteria One: Ability to Execute
An organization’s depth of functionality and the technology of enterprise systems are highly rated components of an ERP vendor’s ability to execute an opportunity. Furthermore, it is important that enterprise systems have the ability to serve solutions of subsidiaries at an operating system level running smaller divisions or an organization. An important note mentioned by (Hesterman, Pang and Montgomery, 2010) regarding the implementation of enterprise systems is that automation towards ERP vendors must be a functional fit with additional factors of having a system that has ease of adapting or modifying solutions; having a broad understanding of the user interface component, and must hold an overall simplicity or complexity of the solution at hand.
The abovementioned evaluation criteria are composed of seven mechanisms with a weighted score ranging between low, standard and high degree weights. They are namely:
- Product or Service: these are the core goods offered by vendors that serve in the defined market.
- Overall Viability (Business Unit, Financial, Strategy, and Organization): this includes an assessment of an organization’s overall financial health, the financial and practical success of its business unit, and lastly the possibility of the individual business unit continuing to invest in its products and services and their continuous offering within the organization’s portfolio.
- Sales Execution/Pricing: the capability of the vendor in all pre-sales activities and its supporting structures.
- Market Responsiveness and Track Record: this looks at the vendor’s ability to respond, change direction, their flexibility and their competitive success to achieve opportunities, responding to competitors’ acts and the needs of customers.
- Marketing Execution: the creativity and quality of the programs designed to deliver an organization’s message to influence the market, promote the brand and business, and increase awareness of the products and services.
- Customer Experience: the relationships, products and services that enable clients to be successful with the evaluated products.
- Operations: the organization’s ability to meet its commitment and goals.
Criteria Two: Completeness of Vision
For organizations pursuing the use of enterprise systems, there should be an understanding of the market and their ability to recognize the needs and wants of consumers and should be able to translate them into meaningful products and services. In addition to that it is significant for vendors to show the highest degree of vision as suggested by (Hesterman, Pang and Montgomery, 2010) in order for them to understand consumer needs and wants for them to be augmented with the enterprise systems visions. Vendors that simply adapt and respond to current market requirements without acknowledging future requirements, in the long term will evidently not be successful as a result of the complexity of the market they represent.
The abovementioned evaluation criteria like the former is composed of eight mechanisms with a weighted score ranging between low, standard, and high degree weights. They are namely:
- Market Understanding: the ability of the vendor to understand the needs and wants of consumers and translate them into products and services.
- Marketing Strategy: a concise and clear set of messages that are communicated throughout the organization on a consistent basis.
- Sales Strategy: the proposed strategy for selling products, using the appropriate network of direct and indirect sales, service and communication measures that extend the depth and scope of the designated market.
- Offering (Product) Strategy: the approach undertaken by the vendor for product development and delivery that places an emphasis on differentiation, functionality and feature sets of mapping current and future requirements.
- Business Model: the model logic of the vendor’s underlying business proposition.
- Industry Strategy: the vendor’s strategy to direct resources and skills and offerings for meeting the specific needs of individual market segments.
- Innovation: the direct and related layout of necessary capital, expertise and resources for investment opportunities.
- Geographic Strategy: the strategy of vendors for direct resources, skills and offerings for them to meet the needs of geographies outside its native environment; be it direct or indirect channels appropriate for that geography and market.
Completeness of Vision
- Ability to Execute
- Hybrid Systems
The major advancements in terms of computing technologies has provided an enormous amount of information available for use in business operations (Xu, 2011). Due to the fact that enterprise systems generally comprise many complex business processes, they can be looked upon as an integrated information system for collecting, analyzing and utilizing information in key business processes. Although the transition to newer and more powerful information systems in business organizations is an evident example of business growth, key personnel of organizations should not deviate from the importance of collating important aspects of former legacy systems. The knowledge that we have obtained regarding the data held by legacy systems promotes the ideal solution of transforming the systems to newer and more productive platforms so that organizations have the ability to exploit faster and cheaper development technologies (Erlikh, 2000). Hence, this presents the notion of hybridization of information systems which is becoming a widely cited trend. This implies a model of keeping key legacy system structures that are able to work concurrently with enterprise systems in an organization’s business processes. Enterprise systems represent a framework of reference of organizing and coordinating activities of organizational actors to manage the distribution of the organization’s information and resources. Obtaining a balance between monolithic legacy systems and enterprise systems shifts the focus to functionality and not infrastructure; this entails that an organization can respond quickly to changing business requirements and technological enhancements (Erlikh, 2000). The conversion of legacy systems to stand-alone components, in turn can transform this source of business knowledge into a competitive edge.
As a result of the ever-changing technology industry, researchers within the field are always presented with new studies concerning information systems. The purpose of this academic essay was to address key mechanisms regarding the selection processes of enterprise systems. These enterprise systems are formulated around a framework of enhancing an organization’s business functions. The researcher presents two selection criteria that can aid the transition towards enterprise systems, which follow different practices of an ERP acquisition. The SHERPA methodology and Gartner Magic Quadrant methodology apply two independent criteria of selecting the most feasible ERP vendor; as mentioned before, the SHERPA methodology has a limitation in its process of not covering the implementation component of these ERP systems. Additionally, the researcher addressed the comparison of the organizations that adopt ERP systems; and those of non-adopters. The result of this study, citing prior research emphasizes the limitation of research available in this hypotheses studies; however an evident result of the findings concerns how ERP non-adopters, will fall back within their industry to ERP adopters due to the transition to these modern systems coupling an organization a competitive edge. Lastly, the aspect of hybrid systems of concurrently utilizing key legacy system components with unique enterprise system applications is presented as a recommendation for organizations that look to pursue the investment opportunity of acquiring an ERP system.
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