Going global with ERP

Wednesday Jul 1st 1998 by Emily Kay
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Many companies are finding that they can't compete without international enterprise resource planning rollouts. Although these implementations bring many challenges, the benefits add up to unified business operations.

More and more multinational corporations are taking the global enterprise resource planning (ERP) plunge to unify their worldwide business operations. For these organizations, the payback is clearly worth it. "To be able to work as a total entity and manage your dollars, materials management, people, and information, and to analyze where your market is and what your products are doing--that's the real synergy. You get the big picture," says Tom Pike, CIO of the $1.2 billion electrical-equipment manufacturer MagneTek in Nashville.


"To be able to work as a total entity and manage your dollars, materials, people, and information, and analyze where your market is and what your products are doing--that's the real synergy. You get the big picture." says Tom Pike, CIO of MagneTek.
Photo: William Jackson Goff/Mercury Pictures
MagneTek runs Oracle 10.7 on an HP 9000 UNIX server and an Oracle 7.x relational database in the United States. Within the next year, the company will extend its ERP system to Italy, where it will run Oracle applications on the same infrastructure.

Although the specifics differ, all organizations that choose to standardize their business operations worldwide on complex and expensive ERP systems from vendors that include Baan, J.D. Edwards, Oracle, PeopleSoft, and SAP face huge barriers to success. In rolling out enterprisewide financial, manufacturing, and human resources applications around the world, corporations as diverse as disk-drive makers and car manufacturers have to deal with a unique set of organizational, political, and cultural glitches. Moreover, global rollouts can create technological dilemmas that are unknown in a home country implementation.

Notwithstanding the tribulations of global rollouts, ERP project managers claim that their companies can't compete without them. IBM's San Jose-based Storage Systems division (SSD) was forced to go global. "We had no choice but to implement an international system," says Millie Clarke, SSD's reengineering director. According to Clarke, the company could not grow its SSD business without selling products to non-IBM companies outside the U.S. "It is clearly fundamental to our business," she says, to improve efficiency and remain competitive. The fact that each of its international SAP implementations delivered a 12-month payback on expenditures was an added bonus.

Reach out and touch someone

Although money can solve some problems that arise during a global ERP implementation, more often, companies must discover solutions through hard work and sheer determination. Santa Clara-based Bay Networks is one such company. Bay Networks ran into telecommunications problems when it rolled out SAP AG's R/3 ERP system internationally. For instance, customer service reps in France were in the middle of taking customer orders when their PCs froze. A message saying, "Call your systems administrator for assistance," flashed onto their screens. But while it was noon in France, it was 3:00 A.M. in California where the help desk is located. To avoid this problem in the future, Bay's network managers had to redesign the transcontinental network to eliminate any pause in transmission, which is what had caused the system to disconnect users it believed had logged off the system.

Even the best telecommunications networks can't avoid the multiple connections that overseas transmissions require. "Between France and Santa Clara, [the transmission] may have to go from France to the U.K., to Seattle, to San Jose, to Santa Clara, and each hop adds some delay," says Jorge Taborga, Bay's vice president of global business applications. "To go to Boston, it might go from here to San Francisco to Boston, and the number of hops would be small and insignificant."

AT A GLANCE: MagneTek

The company: Nashville-based MagneTek is a $1.2 billion electrical-equipment manufacturer with 12,000 employees.

The problem: How to implement a global enterprise resource planning solution.

The solution: Two separate instances of Oracle 10.7 financial, manufacturing, and supply chain planning applications, one in the United States and the other in Europe.

The IT infrastructure: HP 9000 UNIX servers, HP desktop 586 clients, an Oracle 7.x database, and an Oracle 10.7 ERP solution.

IBM's SSD team members had to spend considerable time negotiating communications arrangements with government telecommunications officials in Thailand when it wanted to deploy R/3 in that country last year. In Thailand, all incoming and outgoing data transmissions must be routed through the government facilities, because the government owns and controls the communications network, says SSD's Clarke. "You can't just put a satellite dish at your headquarters and just beam everything up." And this is true for the governments of other nations, as well. "We had to work with government officials on how to link into the government's telecommunications lines. That takes time."

One size doesn't fit all

Organizations deploy ERP systems to standardize business practices. But just as there are a number of different ways to address telecommunications issues, there are also many ways to deploy ERP systems. The Toro Co., a $1 billion commercial outdoor environmental-machinery manufacturer headquartered in St. Paul, expects to achieve worldwide consistency by running R/3 version 3.1h from a centralized IBM SP2 server in St. Paul for all of its North American and recently acquired Australian facilities. "We are a tightly, centrally coupled organization, so it makes sense to have a tightly coupled, shared database and uniform presentation of the applications," says Steve Hansen, Toro's vice president of corporate IS.

Running ERP applications from one location makes sense for companies that operate as centralized organizations. But while it would appear to be a systems manager's nirvana to have to deal with boxes in only one building rather than spread throughout the world, backup and other systems maintenance becomes a scheduling nightmare.

When IBM SSD first rolled R/3 out in Europe and Singapore, network administrators found that running systems backups and reports at midnight in California caused "terrible" system response times in Singapore, where it was 9:00 A.M., says SSD's Clarke. Other nonpeak hours in San Jose conflicted with prime time in London. After "painful" experimenting, the support staff found times to run reports and backups that would cause minimal disruptions worldwide. But making sure these maintenance chores don't interrupt crucial business operations requires constant vigilance. Because workloads vary, IBM monitors site workloads on a daily basis, then adjusts its backup schedule accordingly. "With an international system, it's always prime shift [somewhere]," Clarke says.

"The scheduling of different time zones is a major thing and not to be taken lightly," says MagneTek's Pike, who is applying lessons he learned from deploying BaanERP at a previous employer's U.S. and Ireland locations to the current MagneTek project. In the previous project, he says, "we wanted to run datacenter backups on the East Coast [of the U.S.], but they were ready to start working at that time in Ireland." To sidestep this problem, MagneTek will implement two separate instances of Oracle 10.7 financial, manufacturing, and supply chain planning applications in the U.S. and Europe, primarily because it's so difficult to manage worldwide networks.

Key global ERP costs

Global ERP implementations incur additional expenses compared with domestic rollouts in the following areas:

Travel
Training
Documentation translations
Purchase of additional ERP modules to accommodate local tax laws
Upgraded telecommunications infrastructures
Additional consultants, who will command higher fees in some less-developed countries

Not all companies operate in the same centralized way. St. Paul-based Pentair, a $1.8 billion diversified manufacturer of water and fluid treatment control and professional tools, runs a mix of J.D. Edwards' WorldView 7.3x host-based and OneWorld 7.x client/server applications on AS/400 servers in seven countries, largely in order to take advantage of existing infrastructure. "It makes no economic sense to tear out what we have," says Pat Warner, vice president of IT with Pentair.

For General Motors, it's a matter of capacity. One central server simply can't accommodate 650,000 potential R/3 users in 50 countries. So GM has between one and three HP V-class servers in each of four regional server processing centers in Europe, North America, South America, and Asia Pacific. "If we get to the point where the network and servers can handle the volume of transactions a company our size would generate, we'd reconsider moving to a global central instance for easier maintenance and consolidation of information," says Al Stolpe, enterprise applications director with GM in Detroit. An instance is an installation of R/3. Depending on the context, global instance might mean that the customer is using one R/3 database worldwide.

It's not about technology; it's about change

Regardless of the kind of implementation a company has, technology is not the only concern. "ERP is not a technological implementation. It's change management, which is about people, processes, procedures, and new ways of doing things, which are always more taxing," says Anil Gupta, VP of marketing for supply chain solutions with Baan in Santa Clara. "Such things are difficult within a geography. When you go outside, communication is more difficult, and for change management to succeed quickly, communication is key."

Effective communication begins with language. MagneTek's Pike remembers his experience with a previous employer that expanded its German BaanERP implementation to France, and he had to assure his French counterparts that training documentation would be in their language. "The French made it clear that if they saw one word of German, they'd throw the whole thing out," he says. A French-speaking member of Pike's implementation team "spent hundreds of hours making sure no German words would appear."

Communication remains the primary obstacle to successful global ERP efforts. More than anything, it takes time to comprehend different languages and cultures. "You may think that people understand what others are saying, but they don't really," says David Johns, VP and CIO of Owens Corning, a $5 billion building-materials manufacturer headquartered in Toledo, Ohio. "The only way to bridge those gaps is to continue to communicate." At Owens Corning, all R/3 modules except payroll and human resources are in production in more than 80 sites worldwide, mostly in North America, with some in Europe and Asia. The company will finish deployment to other business units by first quarter 1999.

When Pentair began deploying J.D. Edwards' ERP applications in seven countries simultaneously, it had many communication obstacles to hurdle. "Everyone has the 'not invented here,' 'we've always done it this way' [mind-set]," says Pentair's Warner. "Overcoming those natural instincts and getting people to work together for a common process" ranks as a primary challenge for any company, he notes.

"Technology is not the issue at all," Warner continues. Fear, lack of understanding, and "some real honest-to-God cultural differences" make global ERP rollouts "purely a people problem." Indeed, during Pentair's European ERP rollout in 1996, the J.D. Edwards project team discerned many disparities in the ways American, French, and German businesspeople approach problems. Americans tend to be more apt to try something new, while Germans "want all contingencies in place before they start," says Warner. Germans can sound too "pedantic" to Americans, and Germans sometimes perceive Americans as "frivolous."

To span the communications chasm, Pentair's HR department ran a cultural dynamics class. As part of a meeting that spans several days, the management teams from each country track their everyday expressions, like "go for the gusto" or "my two cents' worth" Americanisms. Such sayings are "absolutely meaningless in other languages and can't be translated," says Warner. Projecting each country's clichés onto a screen made the discussion more enjoyable, a technique that fostered cooperation, he notes.


Key global ERP challenges

Overcoming cultural, language, and operational differences
Mastering communications
Adhering to local legal and tax requirements
Supporting systems across different time zones

But even with goodwill, different languages still present an unresolved problem. "Its difficult to support French users from a German-speaking help desk," Warner says. "We haven't figured out yet how to do that."

Cooperate for consistency

Convincing people who work across the globe to cooperate with one another is the first step toward successfully implementing a standard set of business applications. Achieving such consistency is hardly a slam-dunk proposition, however, especially if the global entities started as separate businesses.

Toro hopes to go live in Australia this July with a smaller version of the R/3 manufacturing, sales, general administrative, and accounting packages that it runs at corporate headquarters. When Toro acquired the Australian company two years ago, the two operations didn't jibe. For one thing, each facility analyzes and reports sales and profits differently. So adopting consistent financial systems will let managers in both companies match results uniformly, which will enable quicker responses to customer queries, says Toro's Hansen. "We had to communicate that to [the Australian shop], persuade them it's a usable model, and get them to go along with it," he says. "It's difficult for them to understand the Toro model to begin with, and the SAP model is set up to support Toro's business model."

Lessons learned

Reengineer business processes before implementing the software. To do otherwise presents too many moving parts and adds layers of complexity, says David Johns, VP and CIO of Owens Corning.
Be prepared to work hard. "Anyone who attempts [a global ERP rollout] has to appreciate that," says Steve Hansen, VP of corporate IS with The Toro Co.
Establish adequate communications and issue-resolution processes to manage disagreements. Compared with their "energetic, highly results-oriented" manner, says Toro's Steve Hansen, "Australia finds our pace glacial in nature."
Obtain top executive support. When IBM SSD hired an experienced local manager for its Singapore plant, the manager "was used to running his own systems and wanted local control [of the system]" says IBM's Millie Clarke. SSD's president persuaded the plant manager to try the centralized approach for one year, with the entire system in California.
Relocate team members to a central location. ERP project managers agree that bringing people together from around the world is critical in order to achieve cooperation and development of consistent business processes.
Don't underestimate training. "Intensive pre- and post-implementation training and support are required for about three months before and after. Then, ongoing training is required," says IBM's Millie Clarke. "Procedures and processes can fall by the wayside, especially with the high workforce turnover in some developing countries."
Deal with language differences. Tom Pike, CIO of MagneTek, has bilingual trainers on his Oracle project team for the company's rollouts in Italy and Hungary. "When we train overseas, we want to do it in the local language," he explains.
IBM SSD encountered similar problems when it was coordinating development efforts among three locations in the U.S., Singapore, and England. English managers had definite ideas about how customer orders should look, while Singapore coordinators had strong views about manufacturing issues. After project leaders brought the teams together to illustrate how a change to one component affects every other part of the system, everyone agreed that central development made sense.

Adding up the costs

Costs accrue in global ERP rollouts that are absent from domestic implementations. MagneTek's Pike says an international implementation costs about 5% more, with cost items including travel and translations for training material. IBM's Clarke estimates that it may cost 20% more for a single international implementation than for a domestic project, due to higher international networking costs and travel.

Kyle Pond, research analyst with Gartner Group, doesn't necessarily agree. "Most companies who implement globally have global support. Costs are relative on a regional basis, so saying one is more expensive is not necessarily true," he says.

It may be better to say that costs will depend on the company doing the implementation. "It's difficult to put a percentage on incremental costs. It's more a question of how [companies] approach it. Domestic [implementations] can be more expensive if you don't address the real issues and don't have the support from the business die," says Thomas Schober, vice president of Boston-based Plaut Consulting. "From my view, the key is to have the company lined up before you go there, and the support of different business executives to make sure in their division, their country, or their site, what the goals to accomplish and functions needed to execute are."

Toro's Australian company used to send financial results to the corporate office at the end of each month and quarter. Using R/3 enables it to send real-time transmissions, but that requires replacing dial-up communications with leased lines that will cost about ,000 more per month. With few employees in Australia having enough R/3 experience, Toro had to hire one implementation consultant for every three employees there, compared with one consultant for every nine or 10 workers in the U.S. Even with such expenses, ,000 for additional software licenses is Toro's big-ticket item, says Hansen.

Travel expenses add up quickly for many companies. Consider Bay Networks, which spent about ,000 to send some nine business analysts and developers to Ireland for two months. "A month before cutover, people were doing training," Taborga says. "Then they stayed there for a couple of months to ensure that everyone was assimilated and knowledgeable. Travel costs alone were high compared with a local implementation."

The benefits outweigh the challenges

Despite the incremental costs, many ERP project managers believe they actually save money through international rollouts. GM and Pentair both saved a bundle by negotiating global contracts rather than individual regional deals with SAP and J.D. Edwards, respectively. Applying the experience gained through a domestic implementation to an international deployment also saves money through faster deployment cycles. "You avoid a lot of rework in different regions of the world because you can jump start those implementations," says GM's Stolpe.

With help from Deloitte & Touche consultants, Pentair is developing a template of a J.D. Edwards installation, which will enable the company to institute best-practice processes in all facilities without reinventing the wheel every time. Each country's laws require specific financial reporting structures, but Pentair can apply cookie-cutter methods for processing orders, paying bills, and other business applications. "This should make us more efficient and enable us to integrate new acquisitions more efficiently in the future," says Warner.

To deploy ERP systems globally means project team members must put in long hours of hard work, often far from home, with people who approach business challenges in dramatically different ways. "It's not only a geographic [challenge], but [it's also] a cultural challenge to get synergy within your team," says MagneTek's Pike.

Standardized ERP systems that result in greater customer satisfaction through smaller inventory backlogs and faster product deliveries can also translate into huge financial benefits. That's certainly true for Dallas-based Texas Instruments, a semiconductor maker that will run one global instance of R/3 on Sun Enterprise 10000 Servers for several sites in the U.S., Europe, and the Far East. The first half of TI's solution, which will be a global implementation of financials and procurement, will be up and running in January 1999. The second half, slated to go live in August 1999, will involve sales, distribution, and logistics. "We're talking about hundreds of millions of dollars of profit impact per year from both revenue and cost improvements," says Phil Coup, TI's CIO. //

Emily Kay writes about technology as a principal with Choice Communications, an editorial consulting firm in Chelmsford, Mass.

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