In the 1990s, the need to bring the organization’s information back under centralized control became more apparent. The enterprise resource planning (ERP) system (sometimes just called enterprise software) was developed to bring together an entire organization in one software application. Simply put, an ERP system is a software application utilizing a central database that is implemented throughout the entire organization. Let’s take a closer look at this definition:
- “A software application”: An ERP is a software application that is used by many of an organization’s employees.
- “utilizing a central database”: All users of the ERP edit and save their information from the data source. What this means practically is that there is only one customer database, there is only one calculation for revenue, etc.
- “that is implemented throughout the entire organization”: ERP systems include functionality that covers all of the essential components of a business. Further, an organization can purchase modules for its ERP system that match specific needs, such as manufacturing or planning.
ERP systems were originally marketed to large corporations. However, as more and more large companies began installing them, ERP vendors began targeting mid-sized and even smaller businesses. Some of the more well-known ERP systems include those from SAP, Oracle, and Microsoft.
In order to effectively implement an ERP system in an organization, the organization must be ready to make a full commitment. All aspects of the organization are affected as old systems are replaced by the ERP system. In general, implementing an ERP system can take two to three years and several million dollars. In most cases, the cost of the software is not the most expensive part of the implementation: it is the cost of the consultants!
So why implement an ERP system? If done properly, an ERP system can bring an organization a good return on their investment. By consolidating information systems across the enterprise and using the software to enforce best practices, most organizations see an overall improvement after implementing an ERP. Business processes as a form of competitive advantage will be covered in chapter 9.
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