UDe: 007

Original scientific paper

THE STRATEGIC APPROACH TO ERP SYSTEM DESIGN AND

IMPLEMENTATION

Josip Brumec, Vesna Dušak, Neven Vrček

University of Zagreb, Faculty of Organisation and Informaties, Varaždin, Croatia
E-mail: (jbrunlcclvdusaklnvrcck}@foi.hr

The use of modern information technologies (IT) will be successful only if information system
(IS) development is closely connected to a business processes development strategy. Despite
the fact that ERP systems are complex application packages with full functionality, they
cannot be implemented immediately "from the shelf". The only way to maximise business
ejJects, using modern IT for enterprise resources planning, is through the deliberate and
extensive alignment of ERP capabilities with the business system (ES) development strategy.
In this way, support for the business processes and enterprise resource planning (ERP) can
be maximised. Such an approach is usually regarded as the strategic planning of the
information systems (SPIS). There is no unified methodology which could be applied white
performing SPIS. There are several methods, techniques and templates that should be
inventively integrated to develop an optimal approach to ERP system design and to develop
the implementation development of each particular manufacturing system. Thus, SPIS and
ERP implementation appear as two parallei and closely connected projects, and the main
outcome is a reengineered business system, supported by modern IT.
This paper illustrates how this integration of SPIS and ERP can be performed in order to
obtain a consistent methodology. This methodology has been proved and applied in six large-
scale projects in very different business systems. In this way, the theoretical approach was
confirmed and extended by the new experiences presented in this article.
Keywords: strategic planning, enterprise resource planning, infonnation system, business
process re-engineering, methodology.

1. Introduction

Discussions about IT implementation and IS development for production-oriented

business systems might seem old-fashioned, insufficient, or not useful. Despite the
challenge of discussions about the "post-industrial" or "information" society, and the
ever increasing role and significance of the "service sector" in overall economic
activities, we must not forget, not even for a moment, that those attributes can only
describe those societies which will be able to continually meet their members'
demands. Production, in any case, is the only economic branch that delivers new
material goods. So, production is the basis and precondition for social prosperity; it is
the pre-condition for people's existence and thus the pre-condition for the information
society. A marketing orientation and an improvement in the efficiency of production

IS
 J. Brumec, V. Dušak, N. Vrček. The strategic approach to ERP system design

systems are an improvement points of major interest for the new Central European
democracies that have a long industrial tradition and educated inhabitants, but they are
miles away from their West European equals when you compare them in terms of
modern industrial management and business management. Based on these facts, let us
discuss this problem once again, with both a general approach and by looking at it
from a different point ofview.
For the future development of human society, it is necessary to increase
continuously requested production volume (Vr). Each year, more and more material
goods should be produced because there are more and more people (P) and because of
increases in demand (D). In general, this could be written as:
Vr = Ji(P.D).
On the other hand, the possible production volume (Vp) depends on the availability
of natural resources (R), on overall production knowledge (K), and on those human
resources (lI) that will be incorporated into production:
Vp =f2(R,K,H).
The upper functions are monotonically increasing functions defined for all the
positive values of the independent variables. If we equalise the requested and the
possible production volumes
fl(P,D) =f2(R,K,H),

then the result that was obtained is a very interesting equation for qualitative
consideration. As natural resources (R) are restricted and the number of people who
will deal with production (lI) decreases, then the increasing demand for produced
goods can be provided only by continuously increasing the knowledge (K)
implemented in production. Here we are considering overall production-technology
knowledge and also knowledge about the efficient management of complex
production-business systems. Therefore this is the reason for the extremely close
interrelation betwen IS development strategic planning and the ERP selection, design
and implementation, according to the methodology presented in this paper.

2. Present State of Information System Strategic Planning Methodologies

The strategic planning of information systems has become a very challenging

subject for scientists and practitioners in recent years. Research conducted by Berndt
and Morrison [1] shows that investment in IT gives a much lower ROI than initially
expected. According to recent studies, there are two main reasons for the relatively
poor contribution of IT to increasing the efficiency of manufacturing systems, even in
situations where the IS works well technically.
First of all, companies use modern IT to automate old, ineffective proces ses [14].
Therefore, Hammer and Champy advocate that the capabilities of modern IT shou1d be
used to radically redesign business processes in order to achieve dramatic
improvements in their performance. However, real BPR projects have performed with
an unacceptable failure rate of nearly 70% [15]. Thus, IS planning and the application

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 Zbornik radova. Volume 24. Number 1(2000)

of modem IT cannot be exclusively perfonned by IT experts, but it becomes the

fundamentaI problem of the enterprise management [19].
Secondly, it is not generally accepted that ERP should be considered more as a
business process rather than a technology initiative [12]. The actuaI benefits that could
be achieved from successfuI ERP implementation come from what will change within
the business processes. Implementing a fully integrated ERP system requires process-
oriented organisation and highly synchronised processes throughout the whole
organisation.
In the early nineties Earl [10], [Il] detennined certain rules in IS/IT planning and
presented them as five-phased evolution modeIs. Different authors [7], [9], [13], [23]
explained the problems conceming the appropriate use of IT and IS planning in
business enterprises. Therefore, it might be concluded that up until 1995 the problem
of efficient IT usage was recognised, and several papers that were published presented
techniques, methods and directions which might be used during the planning stage.
However, there was no consistent methodology for the strategic planning of
infonnation systems.
Another approach to boost the overall efficiency of business systems appeared in
the second half of the nineties with the famous Hamrner book [15] that introduced
BPR. Soon after, other authors [28], [24], [26], [27] emphasised the relationship
between business strategic planning and IS development. At the same time, several
methods and techniques were published [25], [28], [29] to enhance successful IS/IT
planning in enterprises that had a strategic vision for their development [17], [22].
These methods can be put into three groups. The first group presents the methods that
were dedicated to specific problems related to IS planning such as BSP, Ends-Means
analysis, and CSF analysis. The second group of methods had already been used in
business planning and were just modified for' SPIS (e.g. 5F method, SWOT, BCG
analysis [20]). The third group of methods was based on BPR (e.g. Value Chain).
These group s of methods, along with any others that might be useful for strategic ERP
system design and implementation are concisely presented in Table I and Pictures I
and II, and are described in the following sections.
According to previous observations, we have to conclude that ERP system
implementations must be part of the IS strategic planning within each particular
organisation. This strategic plan has to answer the question what has to be done to
fulfil the organisation 's mission and long-term goals, i.e.:
o Which business functions are critical for the development and business success
of each particular organisation?
o Should BPR be performed and how exactly should il be carried out?
o Should the ERP system be developed by the organisation's own resources or
should it be outsourced?
o Should il be developed as special software for a particular organisation. or
should it be bought off the shelf and adjusted to particular business processes?
o How are the organisation's system performances to be measured before and
after BPR?

17
 J. Brumec, V. Dušak, N. Vrček. The strategic approach to ERP system design

For the successful implementation of a new SPIS methodology, an exact definition

of the strategic planning of the information system should be adopted. Based on the
theoretical elaboration presented in the papers we mentioned earlier we can use the
following definition:
Strategic planning of the information system (SPIS) is the long-term planning of
the useful effects of the information system and the application of information
technologies aligned with the strategic planning of the overall business system
development. The result of this procedure should be a documented project that
contains:
o An organisation model of the existing and re-engineered organisation
o A business process model
o A business data model
o A technical resources model
o A development activity plan for the new IS.
According to this definition, a new SPIS methodology was developed and
theoretically elaborated in [2], [3], [4], [5]. At the same time, it was practically .
implemented in various enterprises with remarkable resuits. A brief description of the
SPIS methodology is presented in the following sections.

3. Strategic Planning of an Information System Methodology Framework

A large number of methods and techniques used in the planning and design of
information systems have been discussed theoretically and applied practically. It is
important for a designer, when designing a particular IS, to fully recognise the goals,
characteristics and principles of a business system functioning. Information system
strategic planning and designing needs a proper methodology. The methodology
proposed in this paper has been developed by choosing, group ing and linking proper
methods and techniques, as shown in Table I. 1 The proposed SPIS methodology
consists of specially chosen and specifically interrelated methods and techniques that
are gradually applied to perform individual steps, while modelling the entire
information system. The basic SPIS methodology propositions are:

o The reason for every aspect of business re-engineering is to improve system

performances,
o IS development should realise the goals that were planned,
o The goal realisation level should be measurable.

I Usability ofmethods:
Very powerful-methods or technique giving clear and strong conclusions about the object system functioning.
Should not be avoided in suggested methodology step (e. g. Value chain model in step 2.).
Powerful - method or technique giving clear conclusions about object system functioning from difTerent
aspects or verifying reaching resuIts (e, g. Life cycle v, s. Affinity matrix in step 6.).
Useful-method or technique giving a clearer or more detailed approach to observing the object system. Its
application is useful, but without new crucial results (e, g. Decision trees and tables in step 7.). It could be
avoided.

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 Zbornik radova, Volume 24, Number 1(2000)

Tab!e I: SPIS methodo!ogy as connections between problern-solving steps and those

methods used

Methods and techniques Usability

Problemlstep in IS design (§ -strategic, Inputs and deliverables Very powerful
# -srructured, Inputs IOutputs Powerful,
o -object oriented)
Useful
I. Description of business Interviewing Missions and goals of current BS I Business strategy;
system (BS) Business orocesses (BP)
2. Evaluation of the impact o § Balanced Scorecard BP I Performances of existing BS V
new IT on the business § BCO-matrix Business strategy / IS development priorities P
system § 5F-model Business strateg)' I Information for top-management U
§ Value-chain model BP I Basic (primary and support) business processes V
(BBP)
3. Redefinition of business # BSP-decomposition BBP I New organizational units (OU) P
processes # Life cyeie analysis for the Basic system resources I Business processes portfolio p
resources
4. Business system re- § BPR Business Processes Portfoiio I New business P
engineering § SWOT processes (NBP)
Business Processes Portfotiot SWOT anaiysis for V
NBP
5. Estirnation of critical § CFS analysis (Rockart) NBP I Critical information for NBP P
infonnation # Ends-Means analysis NBP I lnfonnation for efficiency and effectivity U
imorovement
6. Optimization of new IS # Matrix processes-entities NBP / Business process relationships V
architecture # Affinity analysis, Genetic Business processes relationships I Clusters; P
alzorithms Subsvstems of new IS
7. Modeling of new # Work flow diagrarn (WFD) NBP I Responsibility for NBP V
"Business Technology" # Organizational flow diagram New OU I Flows between new OU P
(Bn (OFD)
#Activitv flow diazrarn (AFD\ NBP I Activities for NBP U
8. Modeling of new business # Data flow diagram (DFD) NBP I NBP supported by IT (IS processes); Data V
processes, supported by IT # Action diagram (AD) f1ows; Business Data
p
IS processes I Internal logić of IS processes
9. Evaluation of new IS # Simulation model ing IS processes / Guidelines for BP improvernents U
effects
10. Business data model ing # ERA-model Business DOla/ ERA model V
c Object-model Business data I Objects model P
Il. Software design # HIPO- diagram IS processes / Logical design of program procedures V
a Transition diagram (SW)
Dala flows / Events and transactions P
12. Detail design of programs # Action diagram Logical design of progrom procedures (SW) I Model P
and procedures n Object scenario of program logic
p
Object model; Events and Transactions I Objects
behavior
13. Data model development # ReIational model; ERA modeli Relational model V
Nonnalization
14. Software development # CASE tools and 4GL Model of progrom logic; Relotionol modeli Programs P
and procedures
p
n OO-CASE tools Ob 'ect behaviour I OO-procedures
15. Implementation of new IS Case-study; Business games Programs and procedures / Perfonnances of new IS p

16. Evaluation of new BS # Balanced scorecard Performances of existing BS; Performances of new IS V
performances I Measure for success

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 J. Brumec, V. Dušak, N. Vrček. The strategic approach to ERP system design

It is impossible in this paper to discuss all the SPIS methodology steps in detail
(these parts are discussed in [3], [4], [5]. Here we want to point out the major
characteristics of the SPIS methodology:
o The starting point of the SPIS methodology is an analysis of the present
business system and a definition of its future mission and main goals;
o The second methodology step examines those function areas where new IT
could show the best contribution it can make towards the efficiency of business
processes;
o Step 9 (central in relation to all the steps) presents an evaluation of the effects of
the new IS on future business processes. This evaluation should be performed
using the simulation model (developed from the IS conceptual model) before
starting the long-term and complex project ofmaintaining the IS.
o The 16th step controls and confirms the effects of investment in the new IS/IT.
During the second step, Evaluation oj the impact oj new IT on the business system,
system performances and an evaluation of the IT influence on the improvement of
business processes are derived together with the information needed for the realisation
of business goals. These issues are the basis for the redefinition of business processes
supported by modem IT.
The 9th step, Evaluation oj new IS effects, presents a measurement of the
satisfaction with the effects of the proposed IS conceptual model and generates the
parameters for the improvement of business processes. If the new IT increases the
effectivity of the business system sufficientIy, then the process for choosing or
developing the new IS could start.
The 15th step, Implementation oj new IS, deal s with the implementation of a
specially developed new IS or a chosen ERP system of a known SW producer. So, the
stage Detail design oj IS could be pro vided or avoided by chosing a proper ERP
system during its implementation [16], [21]. The validation of new IS effects will
resolve the dilemma: if we did, or did not, perform the proper action to obtain the
necessary improvements. The second item, Eva/uation oj new business system
performances, deals with the measuring of the performances of the new business
system. The performances of the new business system are measured after the
implementation of the new IS/IT and are compared to the business system
performances that existed before the investment in BPR and ERP!IS.

4. SPIS Methodology Meta-Model

The activities described in Table 1 form the following characteristic stages:

o Formalisation of the Business Model,
o Conceptual Design of the IS Model,
o Detail Design of the IS, and
o Implementation of the new IS.

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 Zbornik radova. Volume 24. Number 1(2000)

Picture I describes the content of these stages (their activities, perfonning

sequence, inputs, deliverables and interrelationships) and represents the so-called SPIS
Meta-Model.
The Formalisation of the Business Model stage deal s with the redefinition and re-
engineering of the business processes based on a new business strategy and modern IT
solutions, and these are essential steps in ERP system designing and planning. To
support the redefined business system (as a main stage issue) with the new IS (as a
main task at this stage) it is necessary to develop a conceptual model, which will be
done in the following stage - IS Conceptual Design of IS Model. This stage is critical
for the further planning of the IS that will offer proper support to the business
processes in both cases: in the case of an organisation's own IS development or in the
case of buying it as a standard program package. The quality of the conceptual model
for the new IS depends on the quality of the activities perfonned in the earlier stages.
The result of the Detai! Design of IS stage is new IS software. The activities in this
stage could be avoided if the decision made earlier about how to achieve the proper
software favours buying rather than the independent development of an ERP system.
For both altematives, the business system and conceptual IS model (that were
modelIed earlier) are actuaUy the basis for measuring software perfonnances. An
appropriate ERP system performance could be reached in the Implementation of new
IS stage only if its functions were specified not only in the earlier modelled and
redefined business system but also in its IS conceptual model.
The critical points of this process, i.e. those to which computer experts usuaUy pay
too little attention or disregard completely, are steps 2, 3, 6 and 9. Additional
difficulties occur because of the fact that entities and concepts in different methods are
not the same. For example, a business technology matrix works with data classes,
DFDs work with data flows and storages, an ERA-model works with objects and
relations, a relational model works with relational schemes and keys, and an object
scheme works with classes. These constructs are interrelated, but their characteristics
and meanings are different. It is, therefore, impossible to fonnalise the transfer of one
concept to another. An IS designer should have the necessary knowledge, experience
and inventiveness. It is precisely for this reason that we stiU do not have a complex
CASE tool that fuUy covers the strategic planning of IS. We believe that our proposed
SPIS methodology could be the framework for the development of such functions for
ICASE.
The deliverables from each SPIS methodology method and technique and their
interrelations and communication subjects with other stages are described exactly in
Picture II, and this represents the activities from the Conceptual Design of IS model
stage. This stage was chosen for a detailed presentation because of its importance
within the strategic planning of a business system and its ERP system. All these
methods and techniques have different expressions of power and different issue valu es
for different enterprises and institutions. So, the careful selection of these methods and
techniques is the most important part of tailoring the precise methodology for a
specific system in accordance with system perfonnances and the future business line.

21
~ I Fonnallsatlon of business model ---- .----

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Bnd g08/5 ~B~u~si".!.ne~s~s~s".!.t'~.t~eg~y~*""::-:::--:--:-_-, ~
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:-::::
I oi .--.-- -_._--- ,~-··------------4f
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"g.
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r ~
d 8. Modellingof Responsibi1ilyfor NBP New business processes (NBP)
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Ves
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cl>
tD
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~i i
~~Ih-~~-----------_ij~t-----r_- .__ I <">
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ERA-model Normalised relationsl model
~
Objed model Model of program logic
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RS
'1l
~
ail ~
~a ~
I -----------.--------.--------- - " ~•..------_I ~
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---------
Pieture L SPIS Methodology Meta-Model
 Zbornik radova, Volume 24, Number 1 (2000)

I FormalIsation
business model
of
II
New business processes (NBP)

o,
~
~
.~
I
.~
Conceptual Design of IS model

~
f
...
o
~~
7. Modelling of new business technology

I
New business processes
5. Estirr~tion of critica
infon nations

"'-"- H I I I
q) 'i:
Organiz.ational Wori<llow
~
CO
flO'N diagram
I diagram Critical informations for NBP
CFS analysis
(Rockart)

c '--- I Activityllow c, Infoftnation for efflCiency 1 Ends-Means I

~ ;:,
diagram <xl and e(feclivify iprovement I anatysis
~ O ~
e ~ ~ =:: ;f
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ec
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.1l ".~, t~
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8. Modelling of NBP. supported by Il
lE Subsystems of new IS

~rl Dataftow
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6. Optimization of new IS architecture

~
o,
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Affinity Genetic
!e?
I analysis
I I algorithms

9. Evaluation of

J
I
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Simulation I process
Business
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I Matrix
I processlentity
I Business
I process relationship
r
Internat logic of IS processes

Business data ttows "I

Detail design
Data fIows 'I
01 IS
IS ixocesses :1

Picture II: Activities, providing methods and techniques, input and deliverables at the
Conceptual Design of IS Model stage

5. Conclusion

The importance of production justifies any effort that may increase the efficiency
of any kind of production system. That is the reason for the extremely close
interrelation between SPIS and ERP selection, design and implementation. In this way
the limited resources of all kinds of companies are engaged at the same time in order
to reach optimal business resuIts. For these reasons we need the strategic and operative
planning for all of the resources ofa company.
In order to succeed, enterprises have to change the perception they have of IT as
being away of automating old processes. The real approach is to perform a strategic
planning of the information system and to streamline the usage of IT with the business
strategy. The whole business system must be analysed and reengineered in order to
synchronise the information system and the business processes. To achieve such a high
performance target, significant efforts must made. The challenge here is even greater if
a company introduces a standard ERP system, since its ability to change is limited.

23
 J. Brumec, V. Dušak, N Vrček. The strategic approach to ERP system design

This paper has presented a complex methodology that relates to SPIS and ERP
system implementation. It is obtained by the selection and grouping of a large number
of methods and techniques and has been proven theoretically and in practice. By
applying the prementiened methodology, the risks with such complex projects can be
significantly reduced, and can really lead an enterprise during the change from
industrial to information society.

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 Zbornik radova, Volume 24, Number 1(2000)

(16] Holland, C.P., Light, B. (1999). Global Enterprise Resource Planning Implementation.
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Received: 7 February 2000

Accepted: 24 March 2000

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 J. Brumec, V. Dušak, N. Vrček. The strategic approach to ERP system design

Josip Brumec
Vesna Dušak
Neven Vrček

STRATEŠKI PRISTUP OBLIKOVANJU I PRIMJENI PRP SUSTAVA

Sažetak

Upotreba modernih informacijskih tehnologija (IT) bit će uspjesna samo ako je razvoj
informacijskog sustava (IS) tijesno povezan s razvojnom strategijom poslovnog sustava.
Usprkos činjenici da su sustavi za planiranje resursa poduzeća (PRP sustavi) složeni
aplikacijski paketi pune funkcionalnosti, ne mogu se primijeniti odmah 's police". Jedini način
maksimalizacije poslovnih učinaka, korištenjem modernih IT za planiranje resursa poduzeća,
je putem promišljenog i sveobuhvatnog usklađivanja mogućnosti PRP sustava s razvojnom
strategijom poslovnog sustava (PS). Ovakav pristup obično promatramo kao strateško
planiranje informacijskih sustava (SPIS). Ne postoji jedinstvena metodologija koju je
moguće primijeniti prilikom izvođenja SPIS-a. Postoji nekoliko metoda, tehnika i predložaka
koje je moguće inventivno integrirati u svrhu razvoja optimalnog pristupa oblikovanja PRP
sustava i procesa uvođenja za svaki pojedini proizvodni sustav. Tako se primjena SPIS-a i
PRP-a javlja kao dva usporedna i čvrsto povezana projekta, a glavni njihov rezultat je
restrukturirani poslovni sustav podržan modernim IT.
Rad prikazuje kako je ovakvu integraciju SPIS-a i PRP-a moguće provesti uz pomoć
konzistentne metodologije. Predstavljena metodologija dokazana je i primijenjena na šest
opsežnih projekata u vrlo različitim poslovnim sustavima. Na taj način je teoretski pristup
potvrđen i proširen novim iskustvima prikazan im u ovom radu.
Ključne riječi: strateško planiranje resursa poduzeća, informacijski sustav, restrukturiranje
poslovnih procesa, metodologija.

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