Benton Manufacturing Company, Inc., is a U.S. manufacturer of a varied line of consumer durables. Although its stock is publicly traded, a single family holds a controlling interest in the company. In 1998 Benton had net sales of almost $1 billion and an operating profit of about $180 million. Benton's 5,200 employees operate seven factories and 57 distribution centers located throughout North America. In the past few years Benton has acquired several companies, and two of Benton's factories have been added as the result of acquisitions that broadened Benton's product line. Benton's products are sold through thousands of independent dealers who may sell both Benton's and competitors' products. Benton is the leader in its industry with its products claiming some 40 percent of the market. However, industry demand is growing very slowly while the structure of the industry is undergoing rapid change as formerly independent dealerships are being acquired by large chains. This consolidation is changing the power relationships between Benton and its dealers and causing Benton's traditional profit margins to erode. 1 Benton has responded to this pressure by pursuing a Continuous-Improvement strategy that so far has increased productivity more than 25 percent, reduced in-process inventory 30 percent, freed up thousands of square feet of factory space, and reduced new product development cycle times. Benton has a history of continuous growth in sales and profits. In order to continue this growth in today's increasingly competitive environment, Benton management has focused on growth through the following strategies: (1) customer-driven new product development, (2) the acquisition of new businesses that complement existing ones, (3) international expansion, and (4) emphasis on the Continuous-Improvement approach. Enterprise Resource Planning Systems As one response to growing competitive pressure, Benton management is considering acquiring an Enterprise Resource Planning (ERP) system. An ERP system is a comprehensive set of software modules that integrate a company's financial, human resources, operations and logistics, and sales and marketing information systems, storing the data for all these systems in a central database so that data are entered only once and the results of each transaction flow through the system without human intervention. An ERP system can replace many separate poorly integrated computer applications systems that a company has purchased or developed over the years. During the 1990 s the use of purchased ERP packages exploded among Fortune 500 companies, making the leading vendor, Germany's SAP, the fastest-growing software company in the world. Thomas H. Davenport 2 explains why ERP systemssometimes called Enterprise Systems (ES) are so popular: An ES streamlines a company's data flows and provides management with direct access to a wealth of real-time operating information. For many companies, these benefits have translated into dramatic gains in productivity and speed. Autodesk, a leading maker of computer-aided design software, used to take an average of two weeks to deliver an order to a customer. Now, having installed an ES, it ships 98 percent of its orders within 24 hours. IBM's Storage Systems division reduced the time required to reprice all of its products from 5 days to 5 minutes, the time to ship a replacement part from 22 days to 3 days, and the time to complete a credit check from 20 minutes to 3 seconds. Fujitsu Microelectronics reduced the cycle time for filling orders from 18 days to a day and a half and cut the time required to close its financial books from 8 days to 4 days. Along with the successes, however, there have been a number of resounding failures in attempts to utilize ERP systems. Davenport 3 reports on problems with enterprise systems: The growing number of horror stories about failed or out-of-control projects should certainly give managers pause. FoxMeyer Drug argues that its system helped drive it into bankruptcy. Mobile Europe spent hundreds of millions of dollars on its system only to abandon it when its merger partner objected. Dell Computer found that its system would not fit its new, decentralized management model. Applied Materials gave up on its system when it found itself overwhelmed by the organizational changes involved. Dow Chemical spent 7 years and close to half a billion dollars implementing a mainframe-based enterprise system; now it has decided to start over again on a client/server version. Some of the blame for such debacles lies with the enormous technical challenges of rolling out enterprise systems-these systems are profoundly complex pieces of software, and installing them requires large investments of money, time, and expertise. But the technical challenges, however great, are not the main reason enterprise systems fail. The biggest problems are business problems. Companies fail to reconcile the technological imperatives of the enterprise system with the business needs of the enterprise itself. An enterprise system, by its very nature, imposes its own logic on a company's strategy, organization, and culture. It pushes a company toward full integration even when a certain degree of business-unit segregation may be in its best interests. And it pushes a company toward generic processes even when customized processes may be a source of competitive advantage. If a company rushes to install an enterprise system without first having a clear understanding of the business implications, the dream of integration can quickly tum into a nightmare. The ERP Study Aware of the growing use of ERP systems and concerned that Benton might be missing an important development, Benton President and CEO Walter S. McHenry has formed a two-person team, composed of Adam T. Meyer 3 Mid., pp. 122-3. and Jerry L. Cook, to investigate whether or not Benton should purchase such a system. Meyer is a senior systems analyst who has been a star with the Benton IS department for 15 years and has led many successful projects. Starting in engineering 12 years ago, Cook has worked in several areas throughout the company, including production, finance, and market research. Although not an IT professional, Cook is quite comfortable with computer technology and has led the introduction of CAD and LANs into engineering. McHenry told Cook and Meyer: ERP seems to be the direction that our industry is going, and we probably need one too. However, I don't know the specifics of what an ERP system involves or what it might bring to the company, so I want you to do a quick study and determine whether ERP is for us, and if so how we should approach it. The study team found that there are four major ERP software vendors they might consider: SAP, J.D. Edwards, Oracle, and PeopleSoft. Each of these vendors is financially stable, supports global companies, has a full line of highly integrated modules, and is a leader in R \& D. There are a number of "Tier 2 " vendors, but Cook and Meyer believe that none of them is suitable for a long-term partnership. After a great deal of study, attending a number of conferences, and talking with several people from companies that are using ERP systems, the study team is convinced that Benton should replace its legacy "back office" systems with an ERP system. Meyer explains: We believe that information technology is crucial to survival in today's competitive environment. Our present systems are growing old and hard to maintain, and will have to be replaced in the next few years. ERP systems have much more functionality and much better integration than our internal IT staff can possibly provide, so we have to use them just to keep up with our competitors who are starting to install them. Furthermore, Benton management has established strategic business plans that cannot be realized without an ERP system. These plans include the following emphases that cannot be fully supported by our present information systems: - International expansion - Mergers and acquisitions - Use of IT as a strategic weapon - Integration with suppliers and customers - Reduction of operational costs - Product line expansion - Process standardization across different units of the company Case Study III-3 - ERP Purchase Decision at Benton Manufacturing Company, Inc. 451 Adopting an ERP system will be a monumental undertaking for Benton. According to Cook: An ERP system is not just a huge infusion of software and technology. We have learned that this is not just an IT project. Rather, it will require wholehearted commitment from all departments. They have to be willing to change their work processes to conform to those dictated by the ERP-the software is almost an afterthought. Benton has never faced change of this magnitude! Reactions to the ERP Proposal Cook and Meyer know that there is strong support for an ERP system from IT management, and they are confident that, although President McHenry does not seem to want to get personally involved, he is supportive of an ERP system. To make sure that McHenry understands the issues involved in adopting an ERP, Cook and Meyer have urged him to visit with a friend of his who is the CEO of a company that installed an ERP two years ago and is reported to be very pleased with the results. There is also a great deal of support for an ERP system from operating-level management. But the reaction of VP-level management (see the partial organization chart in Exhibit 1) is mixed. According to Cook: Contrary to what Benton management believed in past years, we're going to have to change. Although the structure of our industry is changing, our dealers are changing, and the economy is changing, the need for us to change is not universally recognized in the company management. We have some managers whose view is more defensive and who are less willing to embrace change. Benton's present human resources information systems are old and inadequate. Susan R. Hamilton, human resources vice president, is an enthusiastic supporter of an ERP system. Hamilton says: I have talked with human resources managers who have ERP systems from several different vendors, and they are all enthusiastic about their systems. I know that an ERP system will enable us to increase productivity, serve the needs of our employees much better, and significantly improve the management of our human resources at Benton. Although I realize that converting to such a system will be a long and difficult process, I can't wait to get started. Tracy C. Scott, vice president for distribution, has seven years' experience with Benton and is one of the few top managers that have management experience outside the company. Scott advocates an ERP system: Our present computer systems work well at the distribution centers, but they only provide local information-I can't get a quick picture of the entire Benton Manufacturing Company, Inc., is a U.S. manufacturer of a varied line of consumer durables. Although its stock is publicly traded, a single family holds a controlling interest in the company. In 1998 Benton had net sales of almost $1 billion and an operating profit of about $180 million. Benton's 5,200 employees operate seven factories and 57 distribution centers located throughout North America. In the past few years Benton has acquired several companies, and two of Benton's factories have been added as the result of acquisitions that broadened Benton's product line. Benton's products are sold through thousands of independent dealers who may sell both Benton's and competitors' products. Benton is the leader in its industry with its products claiming some 40 percent of the market. However, industry demand is growing very slowly while the structure of the industry is undergoing rapid change as formerly independent dealerships are being acquired by large chains. This consolidation is changing the power relationships between Benton and its dealers and causing Benton's traditional profit margins to erode. 1 Benton has responded to this pressure by pursuing a Continuous-Improvement strategy that so far has increased productivity more than 25 percent, reduced in-process inventory 30 percent, freed up thousands of square feet of factory space, and reduced new product development cycle times. Benton has a history of continuous growth in sales and profits. In order to continue this growth in today's increasingly competitive environment, Benton management has focused on growth through the following strategies: (1) customer-driven new product development, (2) the acquisition of new businesses that complement existing ones, (3) international expansion, and (4) emphasis on the Continuous-Improvement approach. Enterprise Resource Planning Systems As one response to growing competitive pressure, Benton management is considering acquiring an Enterprise Resource Planning (ERP) system. An ERP system is a comprehensive set of software modules that integrate a company's financial, human resources, operations and logistics, and sales and marketing information systems, storing the data for all these systems in a central database so that data are entered only once and the results of each transaction flow through the system without human intervention. An ERP system can replace many separate poorly integrated computer applications systems that a company has purchased or developed over the years. During the 1990 s the use of purchased ERP packages exploded among Fortune 500 companies, making the leading vendor, Germany's SAP, the fastest-growing software company in the world. Thomas H. Davenport 2 explains why ERP systemssometimes called Enterprise Systems (ES) are so popular: An ES streamlines a company's data flows and provides management with direct access to a wealth of real-time operating information. For many companies, these benefits have translated into dramatic gains in productivity and speed. Autodesk, a leading maker of computer-aided design software, used to take an average of two weeks to deliver an order to a customer. Now, having installed an ES, it ships 98 percent of its orders within 24 hours. IBM's Storage Systems division reduced the time required to reprice all of its products from 5 days to 5 minutes, the time to ship a replacement part from 22 days to 3 days, and the time to complete a credit check from 20 minutes to 3 seconds. Fujitsu Microelectronics reduced the cycle time for filling orders from 18 days to a day and a half and cut the time required to close its financial books from 8 days to 4 days. Along with the successes, however, there have been a number of resounding failures in attempts to utilize ERP systems. Davenport 3 reports on problems with enterprise systems: The growing number of horror stories about failed or out-of-control projects should certainly give managers pause. FoxMeyer Drug argues that its system helped drive it into bankruptcy. Mobile Europe spent hundreds of millions of dollars on its system only to abandon it when its merger partner objected. Dell Computer found that its system would not fit its new, decentralized management model. Applied Materials gave up on its system when it found itself overwhelmed by the organizational changes involved. Dow Chemical spent 7 years and close to half a billion dollars implementing a mainframe-based enterprise system; now it has decided to start over again on a client/server version. Some of the blame for such debacles lies with the enormous technical challenges of rolling out enterprise systems-these systems are profoundly complex pieces of software, and installing them requires large investments of money, time, and expertise. But the technical challenges, however great, are not the main reason enterprise systems fail. The biggest problems are business problems. Companies fail to reconcile the technological imperatives of the enterprise system with the business needs of the enterprise itself. An enterprise system, by its very nature, imposes its own logic on a company's strategy, organization, and culture. It pushes a company toward full integration even when a certain degree of business-unit segregation may be in its best interests. And it pushes a company toward generic processes even when customized processes may be a source of competitive advantage. If a company rushes to install an enterprise system without first having a clear understanding of the business implications, the dream of integration can quickly tum into a nightmare. The ERP Study Aware of the growing use of ERP systems and concerned that Benton might be missing an important development, Benton President and CEO Walter S. McHenry has formed a two-person team, composed of Adam T. Meyer 3 Mid., pp. 122-3. and Jerry L. Cook, to investigate whether or not Benton should purchase such a system. Meyer is a senior systems analyst who has been a star with the Benton IS department for 15 years and has led many successful projects. Starting in engineering 12 years ago, Cook has worked in several areas throughout the company, including production, finance, and market research. Although not an IT professional, Cook is quite comfortable with computer technology and has led the introduction of CAD and LANs into engineering. McHenry told Cook and Meyer: ERP seems to be the direction that our industry is going, and we probably need one too. However, I don't know the specifics of what an ERP system involves or what it might bring to the company, so I want you to do a quick study and determine whether ERP is for us, and if so how we should approach it. The study team found that there are four major ERP software vendors they might consider: SAP, J.D. Edwards, Oracle, and PeopleSoft. Each of these vendors is financially stable, supports global companies, has a full line of highly integrated modules, and is a leader in R \& D. There are a number of "Tier 2 " vendors, but Cook and Meyer believe that none of them is suitable for a long-term partnership. After a great deal of study, attending a number of conferences, and talking with several people from companies that are using ERP systems, the study team is convinced that Benton should replace its legacy "back office" systems with an ERP system. Meyer explains: We believe that information technology is crucial to survival in today's competitive environment. Our present systems are growing old and hard to maintain, and will have to be replaced in the next few years. ERP systems have much more functionality and much better integration than our internal IT staff can possibly provide, so we have to use them just to keep up with our competitors who are starting to install them. Furthermore, Benton management has established strategic business plans that cannot be realized without an ERP system. These plans include the following emphases that cannot be fully supported by our present information systems: - International expansion - Mergers and acquisitions - Use of IT as a strategic weapon - Integration with suppliers and customers - Reduction of operational costs - Product line expansion - Process standardization across different units of the company Case Study III-3 - ERP Purchase Decision at Benton Manufacturing Company, Inc. 451 Adopting an ERP system will be a monumental undertaking for Benton. According to Cook: An ERP system is not just a huge infusion of software and technology. We have learned that this is not just an IT project. Rather, it will require wholehearted commitment from all departments. They have to be willing to change their work processes to conform to those dictated by the ERP-the software is almost an afterthought. Benton has never faced change of this magnitude! Reactions to the ERP Proposal Cook and Meyer know that there is strong support for an ERP system from IT management, and they are confident that, although President McHenry does not seem to want to get personally involved, he is supportive of an ERP system. To make sure that McHenry understands the issues involved in adopting an ERP, Cook and Meyer have urged him to visit with a friend of his who is the CEO of a company that installed an ERP two years ago and is reported to be very pleased with the results. There is also a great deal of support for an ERP system from operating-level management. But the reaction of VP-level management (see the partial organization chart in Exhibit 1) is mixed. According to Cook: Contrary to what Benton management believed in past years, we're going to have to change. Although the structure of our industry is changing, our dealers are changing, and the economy is changing, the need for us to change is not universally recognized in the company management. We have some managers whose view is more defensive and who are less willing to embrace change. Benton's present human resources information systems are old and inadequate. Susan R. Hamilton, human resources vice president, is an enthusiastic supporter of an ERP system. Hamilton says: I have talked with human resources managers who have ERP systems from several different vendors, and they are all enthusiastic about their systems. I know that an ERP system will enable us to increase productivity, serve the needs of our employees much better, and significantly improve the management of our human resources at Benton. Although I realize that converting to such a system will be a long and difficult process, I can't wait to get started. Tracy C. Scott, vice president for distribution, has seven years' experience with Benton and is one of the few top managers that have management experience outside the company. Scott advocates an ERP system: Our present computer systems work well at the distribution centers, but they only provide local information-I can't get a quick picture of the entire