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Combining Enterprise Architecture and ERP Systems

Master’s thesis at the iT university of Copenhagen

By Jens Keld Nørgaard Trinskjærjenskeld@jenskeld.dk

Supervised by John Gøtze

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Reference: Jens Keld Trinskjær. Combining Enterprise Architecture and ERP Systems.

Master’s thesis, the IT University of Copenhagen, February 2009.

AbstractThis master’s thesis is an integrated part of the E-business programme at the IT University of

Copenhagen and results in receiving a M.Sc. degree in Information Technology.

An Enterprise Resource Planning(ERP) project is naturally comprehensive and may have

a significant impact on any organisation. The risk inherent in such a complex IT undertak-

ing seems to be a given; accounts of failed or failing ERP attempts are well-known. Enterprise

Architecture(EA) offers an approach to integrating strategy, business processes, and technology.

As such, EA covers the areas which ERP systems seem to affect. The thesis therefore investigates

the connexion between EA and ERP systems and the possibility of increasing the chances of

ERP success by means of EA. The research question reads as follows:

How can Enterprise Architecture be used to improve upon the implementation and

continuous use of ERP systems?

A key concept in the thesis is competitive strategy. Based on Porter (1996) the thesis distin-

guishes between operational effectiveness and strategy. It is argued that only the latter can

create a sustainable competitive advantage.

The thesis discusses the theoretical relation between EA and ERP and, based on the distinc-

tion between operational effectiveness and strategy, discusses the strategic potential of both – in

isolation and in combination.

A case study is carried out which analyses combined EA and ERP efforts at Carlsberg and Post

Danmark. Consultants from Accenture and Rambøll Management also contribute to the study.

Finally, based on Prahalad & Krishnan (2008) and Hamel (2007) the primary competitive

challenges of the future are discussed; the influence on EA and ERP is emphasised.

The main conclusions of the thesis are:

Concurrently with the dynamics of competitive advantage, the scope of ERP systems is •

changing to ensure a continued strategic potential.

There are limits to the potential strategic contribution from ERP technology in itself; to •

realise the full potential of an ERP system, the system must be recognised as part of a

whole with EA as the governing frame.

The future of competition will imply an increased globalisation of resources and indi-•

vidualisation of customers. This will require entirely new ways of managing organisa-

tions and utilising technology which will inevitably affect EA and ERP efforts. The future

competitive winners will be the ones who understand the new competitive paradigm and

put it into practice.

Key words: enterprise architecture, enterprise resource planning, strategy, enterprise, innova-

tion, SAP.

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PrefaceWriting this thesis has been a pleasure. From the preliminary attempts to formulate an interest-

ing and relevant subject to the concluding reflections on the future of business software the

process has been both exciting and educating. There are a number of people whom I would

like to thank for their role in making this possible.

I would like to thank John Gøtze for his counselling and for his genuine interest in my efforts.

This has been invaluable.

I would like to thank Stine Staun for her assistance in creating an aesthetically pleasing and

reader friendly layout of the final report. I would also like to thank Stine for her general support

and patience.

From Carlsberg, Post Danmark, Accenture, and Rambøll Management I would like to thank

Anders Odgaard, Jan Svärd, Khaliq Khan, and Nils Bundgaard for taking their time to answer

my questions. Without their input central parts of the thesis would not have become reality.

Finally, I hope the reader will enjoy the thesis as much as I have enjoyed writing it.

Jens Keld Trinskjær

Copenhagen, January 2009

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Table of Contents

CHAPTER 1 – SETTing THE SCEnE 11

introduction 13

Research Question 13

Methodology 14

Theoretical Discussions 14

Research Design 15

Composition of the Thesis 18

Usage of SAP as a Basis for Generalisation 18

Clarification of Terms 19

Delimitation 19

CHAPTER 2 - APPliEd THEoRy 21

Acting Strategically 23

Distinguishing Between Strategy and Operational Efficiency 23

does iT Have Strategic Relevance? 24

Carr’s counterparts 25

Core or Context 26

Dynamics 26

Critique 26

Recap 27

CHAPTER 3 – THEoRETiCAl ConSidERATionS 29

Defining Enterprise Architecture 31

The Semantics of Enterprise Architecture 31

Understanding Enterprise Architecture 32

Recap: What is Enterprise Architecture? 35

Defining ERP 36

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ERP systems in general 36

ERP systems Applied 36

The Business Effect Of ERP Systems 37

Perspectives on ERP Systems 39

Enterprise Architecture and ERP systems as a Strategy? 41

A Continuous Focus on Strategy 41

Limits to Strategy? 41

A Strategic Frame 42

A Comprehensive View 45

Strategic possibilities 47

Part Conclusion: What is the theoretical relation

between Enterprise Architecture and ERP systems? 48

CHAPTER 4 – EMPiRiCAl FindingS 51

The Case of Carlsberg 53

A Matter of Standardisation and Integration 53

Project Motivation 54

Carlsberg’s Use of EA 55

The Hypotheses Compared to the Carlsberg Case 56

Recap: Carlsberg revisited 58

The Case of Post danmark 58

Case presentation 58

The Business Benefit of the Project 59

Controlling Two Tracks: A Need for Enterprise Architecture 60

The ERP Project without Enterprise Architecture 61

The Hypotheses Compared to the Case of Post Danmark 62

Recap: Post Danmark revisited 64

generalisation of Findings 64

The Scope of ERP systems 64

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The Dependence of ERP systems upon the Context 65

The Comprehensive View 66

Part Conclusion: How are Enterprise Architecture

and ERP systems combined in practice? 67

CHAPTER 5 – FuTuRE CHAllEngES 71

The Future of Competition: globalisation Applied 73

Global Resources 73

Unique, Customer-centric Solutions 74

New Requirements 75

Combining Efficiency and Flexibility – an Oxymoron? 75

The Role of Management 75

The Future of Management in Practice 78

The iT Challenge 80

The Technology Architecture of the Future 81

ERP Systems in Transition 83

EA as the Mediator 87

Part Conclusion: How can the combination of Enterprise

Architecture and ERP systems be used to handle the

challenges of the emerging globalised marketplace? 90

CHAPTER 6 – CloSing REMARKS 93

Conclusion: How can Enterprise Architecture be used to improve

upon the implementation and continuous use of ERP systems? 95

Criticism 96

Validity of the First Part 96

Validity of the Second Part 97

Perspectives 97

BiBliogRAPHy 101

APPEndiCES 105

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1Chapter 1 – Setting the Scene

“The beginning is the most important part of the work” (Plato n.d.)

Plato

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Chapter 1 - Setting the Scene

introductionEnterprise Resource Planning (ERP) is one of the hottest subjects in the business world today.

Huge amounts of money is invested in ERP projects, and in them many organisations see op-

portunities for costs savings and/or competitive advantage. Due to their all-embracing nature,

ERP systems may have far-reaching consequences for any enterprise. Experience shows us that

these consequences can be negative or positive – success never seems to be a given in large IT

projects.

In fact, the list of failed or failing IT projects is quite long and still growing. This can some-

times prevent ideas with sound business cases from being turned into reality – or cause the can-

cellation of ongoing projects. The risk of failure weighs heavily when budget figures are count-

ed in millions. However, when budget figures are counted in millions, the potential benefit

may be measured on that scale as well. A significant potential may therefore be lost if large IT

undertakings are avoided entirely. A more prudent approach would be to attempt to understand

the nature of ERP systems and the critical factors in assuring success in ERP projects.

One concept which is often mentioned in connection with large IT projects is Enterprise Ar-

chitecture (EA). EA offers a comprehensive approach to managing strategy, business processes,

and technology; it would therefore seem intuitively reasonable to assume that some kind of

connexion exists between business software success and the application of EA. The thesis is

based on that assumption.

In addition, the thesis is based on the assumption that obtaining maximum benefit from IT

investments is not determined by programming skills nor knowledge of specific technologies.

Instead it is assumed that true benefit from IT is obtained by understanding the potential of IT

from a business point-of-view. The very purpose of EA is exactly to create a foundation for fact

based, business connected IT decision making. The overall question of this thesis therefore

reads as follows:

Research QuestionHow can Enterprise Architecture be used to improve upon the implementation and continu-

ous use of ERP systems?

The research question is quite specific but at the same time very complex. One approach to

manage this complexity is to divide the overall question into a number of sub questions. This is

exactly what we will do. Each sub question deals with different aspects of the overall question.

The first step in answering the research question is to look into what knowledge already ex-

ists about the main subjects. Existing theory is a natural starting point for any scientific investi-

gation. The first sub question therefore reads:

What is the theoretical relation between Enterprise Architecture and ERP systems?•

Apart from clarifying the theoretical relationship between EA and ERP systems, the first sub

question is supposed to answer a fundamental question: What are the concepts all about? In

daily life both terms are generally used with many different meanings, so without an answer to

this question, further study would be pointless.

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Pure theoretical knowledge is valuable in many ways, but an empirical angle on problems

is often necessary to ensure scientifically valid explanations. The second sub question is an

attempt to complement the theoretical part of the thesis by investigating the practical implica-

tions of a combination of EA and ERP systems. It reads as follows:

How are Enterprise Architecture and ERP systems combined in practice?•

In a world where a global financial crisis can overthrow long-established enterprises, and

where change is the only constant, the events of tomorrow are almost more interesting than

the events of today. It is therefore an interesting problem whether or not the combination of EA

and ERP systems will have a role to play in the future. We will therefore conclude the thesis by

answering a final question:

How can the combination of Enterprise Architecture and ERP systems be used to handle •

the challenges of the emerging globalised marketplace?

As a whole, the answers to the three sub questions can provide an adequate answer to the

research question. This answer can hopefully act as a step towards a better understanding of the

relation between EA and ERP systems as well as the mechanisms which determine success or

failure in large IT projects. Ultimately, one could hope that the thesis will serve as guidance to

businesses which are interested in leveraging the benefits of EA as well as ERP systems, but fear

the risks inherent herein.

MethodologyHaving defined the research question, the time has come to ask another fundamental question:

How will the research question be answered?

In this section we will investigate the approach used in the thesis as well as the line of

thought which has led to the approach. First, we will discuss some basic problems in relation

to scientific research. Second, based on this discussion we will describe the way the thesis is

structured, and the way empirical data was collected for the thesis. Finally, we will discuss a

few key terms, which must be further treated, before we can move on to provide an answer to

the research question.

Theoretical DiscussionsWhen it comes to scientific research one must understand the fundamental distinction between

quantitative and qualitative research. As indicated by the wording, quantitative research at-

tempts to measure and to quantify phenomena, to isolate causes and effects, and to undertake

the research process in a way which allows generalisation of findings and the formulation of

general laws. For instance, random samples of populations are selected to ensure representa-

tiveness. Furthermore, it is a natural goal to exclude the researcher’s influence on the study as

far as possible. In other words, the purpose of quantitative research is to ensure objectivity and

measurability of results(Flick 2002:2-3). Quantitative research could be called positivistic.

Unfortunately, quantitative research methods have turned out to have limitations in certain

settings; this has proven especially true in the case of the social sciences. First of all, findings

based on quantitative methods often remain too far removed from everyday questions and

problems to be considered relevant. Second, it has turned out that, despite the efforts to ensure

objectivity, research and findings are unavoidably influenced by the interests and the social and

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cultural backgrounds of those involved. This is the case in relation to the formulation of re-

search questions and hypotheses as well as the interpretation of results. Thirdly, trying to isolate

cause and effect can oversimplify a subject. Concepts must often be analysed in their context –

to do justice to the complexity of them.

The central characteristics of qualitative research differ fundamentally from those of quanti-

tative methods. Qualitative research is basically relativistic and accepts the presence of sev-

eral perspectives on the same subject as a premise of research. The active contribution of the

researcher to the angle of research is therefore accepted and embraced. This is not the case

because qualitative research should necessarily have an agenda; rather, the researcher’s reflec-

tions are considered an integral part of the research process(Flick 2002:4-5). This is appropriate

because:

our intellectual and social procedures will do what we need in the years ahead, only if

we take care to avoid irrelevant or excessive stability, and keep them operating in ways

that are adaptable to unforeseen – or even unforeseeable – situations and functions.(Flick

2002:13)

Based on this line of thought, the subjective findings of the researcher can actually contribute

to the novelty of the research; it is considered a precondition to proper qualitative research to

disregard predetermined ideas in favour of a general openness to the research field. The fun-

damental idea is that the active contribution of the researcher is necessary to obtain relevant

research. This is furthermore obtained by

actively selecting appropriate methods and theories•

recognising the perspectives of the participants and their diversity•

selecting a variety of methods and approaches(Flick 2002:5)•

It is important to emphasise the equal importance of quantitative and qualitative research

methods. To judge one approach more valuable than the other would be a misunderstand-

ing. Instead it should be recognised that each approach has its strengths which can potentially

complement the strengths of the other approach. This is actually reflected in the approach used

in this thesis.

Research DesignIn quantitative research the research process is linear: Theoretical knowledge is assessed, and

hypotheses are created, which are operationalised and tested against empirical conditions. The

aim is to be able to generalise about the subject matter. In contrast to this, qualitative research

aims to create a theory in the course of the research process, a so-called grounded theory(Flick

2002:40-45). You might say that quantitative research builds a theory a priori, whereas quali-

tative research aims to do this a posteriori. The research method employed in the thesis is a

combination of these two approaches:

Creating HypothesesThe thesis contains descriptions and interpretations of empirical data. However, before the em-

pirical data is presented, assertions are made about the subjects of study in the form of hypo-

theses. This is an obviously quantitative feature, which is considered fitting for two reasons:

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The main concepts of the thesis are well described in existing literature; hence it is natu-•

ral to include existing knowledge

A starting point is necessary to ensure that the scope of the empirical data collection •

does not become too wide

On the other hand, the process which leads to the creation of the hypotheses is qualitative

in itself: The hypotheses are based on subjective interpretations of existing literature regarding

strategy, EA, and ERP systems. This is reasonable, because all of these subjects are complex en-

tities of which no unquestionable definitions exist. In other words, a traditional quantitative at-

tempt to isolate objective, scientific truths about the subjects would probably prove to be futile.

Problems in Qualitative Data CollectionSeeing that the hypotheses are based on subjective interpretation of existing theory, it is an

obvious necessity to test their validity and possibly revise them based on empirical findings. For

this reason empirical data plays an integral part in the thesis. The collection of empirical data

has been carried out in ways which are characteristic to qualitative research:

The collection of data has first and foremost been carried out through interviews•

There has been no specific aim of representativeness in the empirical material. Instead •

sources have been selected which can be assumed to have a broad and deep under-

standing of EA as well as ERP systems

Triangulation(Flick 2002:49-50) has been aimed at in several areas:•

• Interviews have been conducted with business people with both specific and general

knowledge of the subject. Furthermore, an expert from the educational sector has been

included

• Several angles have been employed on the subject of study: The technological possi-

bilities as well as the business context have been considered

To complete the triangulation, several methods of data collection could have been employed.

For instance, questionnaires could be handed out to an array of major Danish companies to

complement the interviews*. That has not been done as part of the thesis research, but could be

an interesting starting point for further study.

Creating Interview GuidesAn interview guide** is a precondition to any interview of a certain quality. Several interview

types exist; some are more firmly structured than others, just as some interview types emphasise

the role of the interviewer more than others. In the collection of empirical data for this thesis

only semi-standardised interviews(Flick 2002:81-82) have been conducted. Semi-standardised

interviews aim at allowing interviewees to express their personal views(Flick 2002:74).

Each interview guide used in connection with the thesis contains several topics. Each topic

is introduced by an open question; its purpose is to allow the interviewee to give an immediate

answer based on his subjective opinion.

* This is actually a quantitative move, but could be considered a triangulation of traditional qualitative research methods

** The interview guides used in connection with this thesis can be found in appendices F-J

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The open question is followed by a number of theory-driven, hypotheses-directed questions.

These are generally based on theoretical presumptions, and in the case of the thesis they are

based on the previously established hypotheses. The purpose of this kind of questions is to

make sure that all parts of each topic are covered.

Finally, each topic is concluded by a confrontational question. Confrontational questions re-

spond to the interviewee’s previous answers by presenting a competing alternative answer. This

is done in order to re-examine what has been said already, possibly allowing the interviewee

to further elaborate on each topic. The contingent nature of confrontational questions makes it

impossible to prepare them beforehand. Therefore, only a few confrontational questions are ac-

tually included in the interview guides. It is very important to present confrontational questions

in a careful way in order to ensure the continued acceptance of the interviewee(Flick 2002:83).

Reflections on the Data CollectionIn practice, it has turned out difficult to strictly follow interview guides all the way through each

interview. Instead the interview guides have worked more like overall guidance than a specific

script to control interviews in detail. This makes perfect sense, since the exact purpose of semi-

standardised interviews is to allow interviewees to express their personal views.

Another thing which has turned out to function differently in practice is the use of confron-

tational questions. In a real setting it is not always fitting to present entirely different views on

the discussed subjects – this can actually give the impression that the interviewer has misunder-

stood part of the interview. On the other hand, confrontational questions have been asked on a

few occasions where they have proved to be very valuable by facilitating further elaboration on

topics.

From Data to InformationThe collection of data is documented in appendices A-E as transcriptions of all interviews. In

order to turn the raw data in the transcriptions into relevant information, a so-called analytic in-

duction has been carried out. The purpose of analytic induction is to test and refine hypotheses.

Analytic induction achieves this by methodically seeking to find the exception, the case which

is deviant to the hypothesis(Flick 2002:227).

The starting point for analytic induction is a preliminary theory. As mentioned, the develop-

ment of hypotheses based on existing literature is a central part of the thesis. In practice, we

use these hypotheses as the preliminary theory for a process of analytic induction based on the

empirical data.

Therefore, we discuss each case in the light of each hypothesis to find out whether the hy-

pothesis corresponds to the facts in the case. If a hypothesis is not correct, we reformulate the

hypothesis to make sure that it corresponds to the practical experiences documented by the

empirical data*.

This process ensures an appropriate combination of theory and empirical data in answering

the research question.

* This process corresponds to the steps of analytic induction described in (Flick 2002: 228)

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Composition of the ThesisThe composition of the thesis is based on the above discussion of research methods and

problems. In addition, the first part of the thesis is dedicated to the establishment of a common

frame for the discussions in the later parts of the thesis.

Therefore, in addition to the introduction and this methodology section, chapter 1 contains

definitions of a few key concepts, which are recurringly used in the thesis. It furthermore

contains a delimitation, which excludes some otherwise interesting problems from the thesis in

order to ensure a fitting scope.

Chapter 2 defines the concept of strategy. It moreover discusses a number of theoretical

standpoints which can further enhance the understanding of strategy, since this concept is cru-

cial to the thesis.

Many and varying definitions of EA and ERP systems exist. It is a precondition to meaning-

ful research that the definitions of central concepts are clear and agreed upon. Chapter 3 is

therefore used to establish common definitions. In addition, the strategic possibilities of EA and

ERP systems are compared – based on the definition of strategy created in chapter 2. Finally, a

number of hypotheses are established regarding the theoretical relation between EA and ERP

systems. Based on these hypotheses a model is created to serve as starting point for the collec-

tion of empirical data. In addition, the model presents a comprehensive view of EA and ERP

systems. In total, this chapter answers the first sub question of the research question.

The results of the empirical data collection are presented in chapter 4. The context and

content of the cases are described one case at a time. The hypotheses are revised for each case

by means of analytic induction. Once all of the empirical data have been presented, general

conclusions are presented based on the combination of theoretical and empirical findings.

A revised model of the comprehensive view is presented based on these conclusions. This

chapter answers the second sub question of the research question.

In chapter 5 the future of competition is discussed based on literature about current busi-

ness trends. Since the chapter is concerned with the future, its findings cannot be considered as

definitive as the previous chapters’. This chapter provides an answer to the third sub question of

the research question.

Chapter 6 concludes the thesis. It presents the final conclusions. It furthermore discusses the

validity of the findings as well as the perspectives of the thesis.

Usage of SAP as a Basis for GeneralisationSAP is often mentioned in the thesis. In fact, hardly any other vendor of ERP systems is men-

tioned at all. This is not a mere coincidence, and therefore we will sum up the reasons for this

in a few words.

A lot of literature exists which deals with the concept of ERP systems on a general level. Such

literature is frequently referred to in the thesis. Furthermore, to gain access to knowledge about

recent ERP trends an interview with a representative for an ERP research project(appendix A)

has been conducted. However, whenever a concrete example of an ERP system is needed in

the thesis, SAP is used. SAP is one of the largest suppliers of ERP systems worldwide, and SAP

has been involved in the ERP business since the 70’s. Furthermore, SAP’s ERP product suite is

extensive and covers the entire value chain from suppliers to customers.

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One could argue that the inclusion of SAP’s competitors in the thesis would enrich the

discussion; for instance SAP is not very strong in solutions aimed at SME’s(Small and Medium-

sized Enterprises). However, on a general level SAP’s products will work fine as examples. This

is especially true, since the other major subject of the thesis is EA, which is traditionally used in

large enterprises only. Therefore, to avoid putting too much effort into a discussion of different

vendor’s solutions, we will generalise about the properties of ERP systems based on SAP. This

will keep things simple and allow us to focus on what matters: The relation between EA and

ERP systems.

Clarification of TermsA few terms are used recurringly through the thesis. To ensure a common understanding of

these terms, we will define them here.

EA programmeWhen we refer to the work which is done in connection with EA, we will only use the term EA

programme. This wording has been chosen because a programme – as opposed to a project

– by definition has no exact start or end date. This emphasises the continuous character of EA

work.

ERP projectAs opposed to programmes, all projects have clearly defined start and end dates – otherwise

they could not be called projects. In general, implementations of ERP systems are treated as

traditional projects with a scheduled start and end. We will therefore use the term ERP project

to describe the work which is done in connection with the implementation of ERP systems.

DelimitationA central part of an EA programme is the related governance processes: A formal way of

handling compliance issues, exceptions, and organisational inputs to architecture is abso-

lutely crucial(Carbone 2004:150-151). However, we will consider IT governance out of scope

because of the thesis’ narrow focus on the conceptual relation between EA and ERP systems as

well as the perspectives in a combination thereof.

Today, outsourcing is considered one of the defining characteristics of the globalised econo-

my, and few if any of the large companies of today do not employ outsourcing to some extent.

In addition, the subjects of strategy and outsourcing are interrelated, since outsourcing is often

considered a strategic move. However, the thesis will not dig into the subject of outsourcing.

The identification of strategic activities is crucial to the thesis, but the effect of strategy on the

choice to outsource and on the execution of outsourcing is out of scope.

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2Chapter 2 – Applied Theory

“The quest for productivity, quality, and speed has spawned a remarkable number of management tools and techniques: total quality management, benchmarking, time-based competition, outsourcing, partnering, reenginee-ring, change management. [...] And bit by bit, almost imperceptibly, manage-ment tools have taken the place of strategy” (Porter 1996:61)

Michael E. Porter

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Chapter 2 – Applied TheoryIn this section we will go through theory which is crucial to the thesis, but which is not directly

related to the main subjects – EA and ERP systems. The section mainly deals with the concept

of competitive strategy. In addition to clarifying the concept, we will discuss a natural ques-

tion: Does IT have strategic relevance? A common definition of strategy is a precondition to this

discussion.

Acting Strategically Porter(1998) defines strategy as “the search for a favorable competitive position in an industry,

the fundamental arena in which competition occurs. Competitive strategy aims to establish a

profitable and sustainable position against the forces that determine industry competition”(p. 1).

Based on this we can create the following rough definition of strategy for our own use:

strategy should create profitability and sustainability•

strategy takes place in an industry•

The search for profit in the long term is a defining characteristic of strategy. But the notion

of industry is especially remarkable. To Porter, understanding industry structure is at the heart

of competitive strategy. His well-known five forces form a framework for this; and analysing

the five competitive forces is a necessity in order to understand what constitutes a favourable

strategic position.

However, it is a key point to Porter(1998) that strategy is not only about “understanding

the five forces better than competitors [... A firm] can fundamentally change an industry’s

attractiveness”(p. 7).

Therefore, instead of just accepting the competitive environment, a competitor should be

proactive in creating a more favourable position for itself or for its industry as a whole. To en-

hance our definition of strategy we will add pro-activity and the element of change - dynamics:

strategy should create profitability and sustainability through pro-activity•

strategy takes place in a dynamic industry •

Other views on competitive strategy have been presented through time*, and much more

could be said about Porter’s understanding of strategy or strategy in general. For our use this

basic definition is well-suited though. It contains the main characteristics of thinking strategi-

cally while maintaining simplicity. Therefore we will move on to discuss strategy development.

Discussing what strategy is not indicates a useful path to understanding this.

distinguishing Between Strategy and operational Effectiveness Businesses of today are facing an entirely different competitive situation than just a few decades

ago. Competition is now truly global, and IT has enabled new levels of internal efficiency.

According to Porter it is dangerous to focus too narrowly on responding to the rapidly chang-

ing conditions of today’s markets by chasing productivity, quality and speed. To do this is to

sacrifice strategy in favour of what Porter calls operational effectiveness.

It is important to stress that operational effectiveness is not in itself a bad thing; indeed opera-

tional effectiveness is necessary, however not sufficient, to sustain superior performance.

* See (Prahalad & Hamel 1990) for an example of a resource-based view of strategy

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Porter finds support for this claim in the fact that many companies face difficulties in translat-

ing gains in operational effectiveness into sustainable profitability(Porter 1996:61). Doing what

everybody else does, seems to be a dead end in terms of establishing a durable competitive

advantage.

Instead Porter(1996) proposes distinction as the path to competitive advantage: “A company

can outperform rivals only if it can establish a difference that it can preserve”(p. 62).

The logic behind this statement is that efficiency can lower costs, while delivering greater

value than competitors through distinction allows for higher pricing*. Only the latter sustains

profitability in the long run, which is a defining characteristic of strategy.

One may wonder how a strategic position can become durable. Theoretically, one should

think that anyone could copy a competitor’s position and thereby attain results similar to the

competitor’s. Porter is explaining this apparent contradiction with the concept of trade-offs.

Choosing a distinct strategy carries with it a trade-off. As an example, being a low-cost airline

operator requires all unnecessary activities to be phased out. This makes it harder for a com-

petitor with a different strategy to copy the concept(Porter 1996:68). Porter uses the concept of

fit to explain this phenomenon. It is a defining characteristic of strategy that it is about com-

bining activities: “The competitive value of individual activities cannot be separated from the

whole”(Porter 1996:72).

In other words, strategy is distinction achieved through the sum of individual activities, not

each individual activity by itself. This is why operational effectiveness is not strategy: Opera-

tional effectiveness is about achieving excellence in individual activities or functions. We will

therefore add two notes to our definition of strategy:

strategy should create profitability and sustainability through pro-activity •

• sustainability is possible through distinctiveness only

• distinctiveness can only be achieved if all individual activities are treated as a whole

strategy takes place in a dynamic industry •

Porter would say that misjudging operational effectiveness as strategy will ultimately lead to a

poor competitive position. Since IT is one of today’s major sources of operational effectiveness,

it is very relevant to examine IT’s strategic relevance further. This is exactly what we will do in

the next section.

does iT Have Strategic Relevance? In 2003 Nicolas Carr published “IT Doesn’t Matter”(Applegate et al. 2007:248-257) which

caused a heated discussion on the business impact and value of IT. Carr’s argument is relatively

simple as well as plausible: By comparing IT to other major inventions like electricity and

railways he concludes that IT has matured and has become nothing but common infrastructure.

His argument is based on the following assertions:

* Economic theory distinguishes between perfect and imperfect competition. When a line of trade experiences perfect

competition, profit is an impossibility, since all goods are equal and sold at the same market price. One way to slide

the bar towards imperfect competition is differentiation of products. When a product differs from those of competitors,

the producer is able to charge a premium price without losing all of its sales. For more on this subject, see (Frank &

Bernanke 2004: 222-223)

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IT is the subject of rapid price deflation•

The Internet has accelerated commoditisation and the use of standard systems•

IT is first and foremost a transport mechanism•

Carr concludes that IT has no strategic value which corresponds very well with our definition

of strategy. After all, how can IT create distinctiveness if it is cheap, standardised and commodi-

tised? This is actually stated directly: “When companies buy a generic application, they buy a

generic process as well. [...This makes] the sacrifice of distinctiveness unavoidable”(Applegate

et al. 2007:251).

It is an important point that Carr does not deem IT useless. In fact he labels it “essential to

competition but inconsequential to strategy”(Applegate et al. 2007:254).

Therefore his business advice is to focus all efforts on reducing IT costs while maintaining the

highest possible levels of service quality. However, this conclusion was not left unchallenged

for long. We will now look into the counter-arguments which followed in the slipstream of

Car’s article.

Carr’s counterpartsIt should come as no surprise that the counter-arguments to “IT Doesn’t Matter” were many.

An entire thesis could be based on this discussion alone. Instead of doing that we will look at

the relation between Carr’s initial assertions and the vast majority of the counter-arguments(see

Applegate et al. 2007:258-276).

First of all, it should be noted that the notion of IT as the subject of price deflation is more or

less taken as given. Moore’s law was first suggested more than 40 years ago, and it still seems to

hold. Second, the Internet’s role in establishing standards and making software broadly avail-

able is not questioned to an extent worth mentioning. In turn, most counter-arguments focus

on Carr’s third assertion that IT is first and foremost a transport mechanism. The most prominent

claim is:

IT is not just a transport mechanism, IT can spur innovation and thereby create competi-•

tive advantage

One debater states that: “IT may become ubiquitous, but the insight required to harness its

potential will not be so evenly distributed. Therein lies the opportunity for significant strategic

advantage”(Applegate et al. 2007:258).

This leads to the conclusion that extraction of value from IT is a matter of innovation in

business practices. Another debater continues on this track and proposes that IT can be looked

upon in several ways. A CEO should focus on using IT for improvement of cost savings and ef-

ficiencies as well as for creation of strategic advantage(Applegate et al. 2007:263).

The outcome of this discussion seems to be that the effect of IT depends on the way in

which it is applied. Sometimes IT has a strategic impact, sometimes it does not. Another way to

describe this relation is to distinguish between core and context processes. We will look into

exactly this distinction to conclude the discussion of the relation between IT and strategy.

26

Core or ContextGeoffrey Moore is one theorist who is engrossed by the distinction between core and context

processes. To him, running a business is a matter of understanding which business process are

core, and which are context, since core processes are the business processes that directly af-

fect the competitive advantage of a company(Moore 2000:27). In addition, core processes are

what drives stock prices. Stock prices being essential to Moore, designing and maintaining core

processes are crucial.

Having established that core processes are what drives competitive advantage, it would seem

reasonable to argue that core processes are also what supports strategy. On the other hand,

it could be argued that context processes create operational effectiveness only: “The goal for

context tasks is to execute them effectively and efficiently in as standardized and undifferenti-

ated a manner as possible [...] Differentiating on context is the single biggest waste of resources

in Fortune 500 operations”(Moore 2000:27).

This sustains Porter’s view that operational effectiveness is not strategy. However, it is im-

portant to note that context processes are not regarded as needless. Instead context processes

should be regarded as a prerequisite to the core processes, and therefore the concepts inter-

operate and are both fundamental to an organisation. Making sure that the right mix of processes

is achieved is a management task: “Without careful management to the contrary [...] context

always gets in the way of core”(Moore 2000:28).

DynamicsOne thing which complicates management’s job of distinguishing between core and context

processes is the dynamic nature of core and context processes. Eventually, what once was a

core process will become context(Moore 2000:30). This is a natural result of the continuous

technological development as well as the rapid commoditisation which Carr has also empha-

sised. The lesson Moore wishes to teach is that we must learn to recognise when a process

that used to differentiate no longer does; in turn we must learn to substitute standard packaged

software for custom or customized software to perform IT functions that do no longer differenti-

ate a company’s marketplace offerings.

CritiqueMoore’s great idea is that companies should not spend resources unnecessarily on tasks which

cannot add shareholder value. The strict focus on shareholder value is probably a result of

the time when “Living On The Fault Line” was written – it was published in 2000 before the

dot-com stock bubble burst. This, however, does not disqualify all of his findings. The distinc-

tion between core and context serves to make the distinction between strategy and operational

effectiveness more specific. And in continuation of this, his recognition that the core processes

of today will be the context processes of tomorrow emphasises the dynamic nature of strategy

and points out that managers of the future will experience development and selection of core

processes as a central challenge.

27

RecapThis chapter primarily discusses the relation between the concepts of IT and strategy. The main

conclusion is that IT can sometimes have a strategic impact, but that this is not a result of the

technology itself but rather of the way it is applied. When IT is not applied in a way which creates

a competitive advantage, it has no strategic impact; instead it sustains operational effectiveness.

Four pairs of concepts can further illustrate this difference. First of all, the distinction

between core and context is central: When IT is used to create or alter core processes, a stra-

tegic distinction is created, whereas the use of IT to support context processes sustains opera-

tional effectiveness only.

Second, the concept of distinction is in itself a central part of the strategy discussion. Without

distinction, no strategic advantage can be created, and IT will have no effect in terms of sustain-

ing long-term profitability.

Third, distinction is achieved by looking upon all individual activities as a whole. Failing to

do so will prevent common strategic goals.

Fourth, what constitutes core processes and creates distinction is dynamic. Therefore the abil-

ity to change – or the degree of volatility – is an important part of strategy.

Based on these conclusions we can set up four conceptual pairs which further illustrate what

constitutes strategy. These pairs are going to be a central part of our analysis later on. To sum

up, the pairs are:

Strategy vs. Operational effectiveness

Core vs. Context

Distinctiveness vs. Similarity

Whole vs. Parts

Volatility vs. Non-volatility

Table 1: Characteristics of Strategy and Operational Effectiveness(own production)

28

29

3Chapter 3 – Theoretical Considerations

“And yet, if every company employs its ERP system in a similar manner, it is questionable whether any will gain a sustainable competitive advantage from the ERP itself given that the other companies it competes with employ an equivalent ERP system” (Ragowsky & gefen 2008:36)

Arik Ragowsky and David Gefen

30

31

Chapter 3 – Theoretical ConsiderationsThe concepts of EA and ERP systems are defined one by one in this chapter. Afterwards, the

relation between the concepts is discussed. The distinction between strategy and operational

effectiveness which we discussed in the previous chapter is a central part of this analysis. In the

end we set up a model and a number of hypotheses regarding the relation between EA and ERP

systems. These hypotheses and the model are the foundation for the empirical study described

in chapter 4.

Before defining ERP systems we will take a look at EA because of the holistic nature of the

subject as opposed to the relatively more delimited nature of an ERP system.

Defining Enterprise ArchitectureThe term enterprise architecture was probably first coined by Steven Spewak in his book “Enter-

prise Architecture Planning”(Bernard 2005:32). Later on, John Zachman’s framework for Infor-

mation Systems Architecture established itself as a central reference for anyone who wished to

gain a deep understanding of the field of EA.

After a short look at the term “Enterprise Architecture” in itself we will use Zachman’s frame-

work as the starting point for a discussion of the meaning and use of EA since Zachman’s initial

thoughts up until today.

The Semantics of Enterprise Architecture

What is an enterprise?An enterprise is an entity which is in some way related to one or more organisational units. In

everyday language the word “enterprise” is used quite casually. An example of this is the term

“enterprise software” which is used though no clear definition of it exists. For our use

Scott Bernard’s definition of an enterprise is very fitting: “An area of common activity and goals

within an organization or between several organizations, where information and other resources

are exchanged“(Bernard 2000:31).

Consequently, an enterprise can be part of a larger organisation, be the entire organisation or

run across several organisations. What matters is that information and resources are exchanged.

If that was not the case, we would be speaking of two or more autonomous units rather than an

enterprise.

What is architecture?The word architecture implies a structured approach to the analysis, planning, and develop-

ment of resources(Bernard 2000:32). Architecture is traditionally considered a discipline related

to the construction of buildings. Therefore the common understanding of a traditional architect

can be useful in order to understand the concept of EA.

An architect designs a solution to a problem and he/she then devises a plan to realise the

solution. In other words, architecture is about documentation and planning. The logic behind

architecture is that the construction of a house should be based on an overall plan. In turn, EA

is an attempt to make sure that an enterprise is constructed and maintained according to an

overall plan. In this way EA distinguishes itself from traditional IT architecture, since EA does

32

not look upon IT in isolation. Instead EA emphasises the need for a holistic view upon an en-

terprise in its entirety. This need was the exact motivation behind the initial experiments into he

field of EA.

Understanding Enterprise Architecture

A Quest for DocumentationIn the late 80’s the complexity of information systems had reached a level which made it

imperative to construct some sort of framework for controlling the interfaces and integration of

enterprise-wide systems. This was what John Zachman set out to create; his goal was to create

the foundation for systems that “allow flexibility in managing business changes and coherency

in the management of business resources”(Zachman 1987:276).

In other words Zachman aimed to create a closer integration of business and technology.

This was a result of firms depending still more on technology to achieve success – a factor

which must be considered to have grown even stronger ever since. The result of Zachman’s ef-

forts was the Information Systems Architecture(ISA) framework. Even though Zachman did not

use the term EA himself, we will use his works as an example of a basic EA framework. This is

possible since Zachman’s framework is generally regarded as one of the earliest examples of an

EA framework.

Zachman’s ISA FrameworkThe construction metaphor is very popular when trying to describe EA, and Zachman’s frame-

work is no exception. Zachman uses the need for different views upon a construction project as

an explanation for the way his framework is composed. To document a traditional construction

project several artefacts are needed(Zachman 1987:280-282):

Bubble charts which illustrate the overall concepts of a project•

The architects’ drawings which are used to make overall decisions regarding a project•

The architects’ plans which are used for negotiation with the contractor•

The contractor’s plans which are created from the builder’s point-of-view•

Shop plans which are created of separate parts/sections where necessary•

The actual building•

None of these artefacts are considered more “correct” presentations of the subject matter

than others. In turn, they represent different layers of abstraction of the construction project, not

merely different levels of detail. Only by combining all of the layers can a complete view of the

project be perceived. This logic is transferred to EA by Zachman’s framework.

Zachman’s EA artefact counterparts to the construction project are:

Scope/objectives•

Model of the business•

Model of the information system•

Technology model•

Detailed description•

Machine language description/object code (no construction counterpart)•

The actual information system•

33

By providing documentation of all of the different perspectives, Zachman’s framework is sup-

posed to provide a complete view of an enterprise. The machine language description is omit-

ted in the final framework since it is not interesting from an architecture point-of-view(Zachman

1987:284). For natural reasons the actual information system is not included as an artefact

either.

When describing one of the perspectives in Zachman’s framework, different types of de-

scriptions of the same artefact are possible. In the original version of the framework from 1987

descriptions of “what”, “how” and “where” were addressed. The descriptions of “who”, “when”

and “why” were touched upon lightly, but not completely elaborated upon. In the revised

version of the framework from 1992, all six levels of description were included in the form of

“data”, “function”, “network”, “people”, “time”, and “motivation”. By placing the different per-

spectives coupled with the different types of description in a matrix structure, we get Zachman’s

complete framework:

Fig. 1: Zachman’s ISA framework(Sowa & Zachman 1992:600-601)

Since all elements on either axis of the matrix are explicitly different from each other, each

cell is also explicitly different from all of the other cells. By combining all cells, complete docu-

mentation of the entire enterprise should be achieved.

With a holistic view of the enterprise like the one Zachman’s framework provides, more

coherent business and technology related decisions are possible; this in turn will allow more

flexibility in managing business changes – in keeping with Zachman’s original intentions. How-

ever, Zachman’s framework is focused on documentation and lacks a methodology to put it into

action. This is one of the major subjects of criticism in relation to the framework.

34

Critique of Zachman’s FrameworkIt is important to note that Zachman’s framework includes no strategic planning methodology

which can support the move from business strategy through information systems strategy to a

concrete architecture(Zachman 1987:277). Other enterprise architects have attempted to nullify

this shortcoming by developing frameworks for EA which include a methodology for getting

to a desired future state. One of these architects is Bernard. We will look into his framework

shortly.

Another characteristic of Zachman’s framework which has been subject to critique is its

scope. Filling out all 30 cells of the framework to a satisfying level of detail can be a daunting

task – though Zachman himself is confident that “at some point in time, the Enterprise is going

to wish it had all of those design artifacts [...] made explicit, Enterprise-wide, horizontally and

vertically integrated at excruciating levels of detail”(Zachman 2000:1).

Critics(Bloomberg & Schmelzer 2006:123) have argued that the scope of Zachman’s

framework, apart from making it resource consuming, can make it impossible to generate

useful EA artefacts before conditions have changed, i.e. in time for the framework to have

relevance. One might say that when it comes to EA, perfect is the enemy of good. Later on,

we will dig into Jane Carbone’s IT Architecture Toolkit the purpose of which is to provide an

framework for EA “within the real-life constraints of tight timeframes, limited resources, and

ongoing business course corrections [...] the Toolkit provides a way to deliver “good enough”

architecture”(Carbone 2004:13).

First, however, it is time to have a look at Bernard’s idea of an EA methodology.

Enterprise Architecture as a Methodology: Scott BernardBernard distinguishes between EA as an idea, and EA as a practice. As an idea, he sees EA as

an approach to create abstract views of an organisation that help to make better plans and

decisions(Bernard 2005:33). This is very much in line with the definition which is the founda-

tion for Zachman’s framework.

In practice, on the other hand, Bernard sees EA as both a management programme and a

documentation method. As a management programme EA is an approach to planning, deci-

sion-making and resource development on a general level as well as on a specific level. It is

important that EA is regarded as an integrated part of the general governance structure of an en-

terprise. This enables EA to take part in uniting an enterprise’s strategic goals, each department’s

goals, and the specific IT projects which are undertaken to achieve the goals.

An integral part of Bernard’s approach to EA documentation is the EA management plan.

The management plan devises a path from the documented current state(as-is) of the en-

terprise to the desired future state(to-be). Encompassing these EA elements is a modelling

framework(Bernard 2005:34-35). In comparison to Zachman, Bernard adds dynamics in the

form of an architecture management plan. Furthermore, by viewing EA as a management pro-

gramme and not just a documentation method, Bernard emphasises the integration of EA into

the remaining governance initiatives in an enterprise. This further underlines the holistic nature

of EA.

35

A Pragmatic Approach to Enterprise ArchitectureThe holistic nature of EA may very well be what constitutes EA’s unique value proposition. Still

it may also be the concept’s most serious weakness. In a world where the bottom line of the

present fiscal year is driving many business decisions, it is hard to justify extensive technology

investments that have no immediate return – or maybe have no immediate return at all.

Carbone addresses this issue in several ways(Carbone 2004:118-121):

Instead of modelling all data before data implementation, the most critical pieces should •

be selected an implemented.

Instead of attempting to secure funds for all elements of a target state (though it may •

seem right), one should focus on target elements that solve specific and urgent enterprise

needs.

Large target state projects should be carried out in small chunks.•

In general, Carbone’s approach to EA is pragmatic and focused on getting things done while

obtaining immediate benefit.

The pragmatic nature of EA is further elaborated by Herzum(2003). First of all, he criticises

the construction metaphor, because it does not recognise the dynamic nature of EA. A better

metaphor would be “to transform a skyscraper into a totally different skyscraper while everyone

residing in the first skyscraper still lives there”(Herzum 2003:3).

He states that EA is about transformation and modelling for change as much as it is about

documentation. He therefore goes on to propose urbanism or even ecology as better metaphors

for describing EA, because both of these concepts are concerned with allowing independent

systems to evolve while achieving some overall vision.

In this way it is important to Herzum to establish that EA is not all about control. EA is about

enabling enterprise agility and supporting change. The basic thought is that true freedom to

evolve and innovate can only be achieved with some overall architectural considerations as a

foundation: “From an IT perspective, autonomy can only be enabled by architecture; autonomy

does not come for free”(Hersum 2003:5).

The basic consequence of this line of thought is that EA is not an end in itself, but rather a

means to an end. In this way Herzum provides strong arguments for selecting EA measures

carefully based on the enterprise’s business needs – and thereby maintaining a pragmatic

approach to EA in practice.

Recap: What is Enterprise Architecture?Before we continue to discuss ERP systems, we should sum up our findings until now. First

of all it should be noted that EA is a holistic concept. By viewing an enterprise from strategy,

business and technology perspectives, EA creates a more complete image of the enterprise.

Furthermore, we have established that EA is a documentation method as well as a management

programme. Finally, working with EA in practice involves different kinds of pragmatic con-

siderations, which makes it difficult if not impossible to speak of perfect EA, but rather of best

possible EA. The fundamental characteristics of EA can be described as follows:

36

EA is a holistic approach to documenting and managing an enterprise’s current and future

states in terms of strategy, business processes and technology.

The purpose of EA is to enable enterprises to make informed decisions and to implement the

decisions as efficient as possible.

In practice, an EA programme needs to address the dynamic and political nature of enter-

prises making EA a pragmatic exercise.

The distinction between making decisions and implementing them is especially interesting

from a strategic perspective. This stresses the dual purpose of EA to enable enterprises to

Do the right things (strategy)•

Do things right (operational effectiveness)•

We will return to the business effects of EA after having a closer look at what ERP systems are

all about.

Defining ERPOur presentation of ERP systems has the general characteristics of ERP systems as its starting

point. After a short introduction, a few widely discussed properties of ERP technology are pre-

sented. Finally, with these properties as a starting point, the recent trends in the ERP business

are described and the perspectives of the technology are discussed.

ERP systems in generalMany diverging definitions of ERP systems exist; we will introduce a couple of them as an

introduction and continue by elaborating on a few key characteristics of the subject. The first

definition goes as follows: “ERP systems are information systems that support online, integrated

real time transaction registration, data handling, and reporting in connection with a company’s

business processes by means of a central database, often in a client/server IT-architecture”(The

author’s translation of Rikhardsson, Møller & Kræmmergaard 2004:17).

A few interesting details stick out from this definition. First of all, we can establish that ERP

systems are information systems. Second, ERP systems support business processes and are

based on a central database. A further look at the concept reveals that “ERP systems [...] inte-

grate all the information related to a company’s business [...] and facilitate decision-making.

[...] An ERP system [...] can in some settings have a strategic impact by integrating all the busi-

ness functions of a company”(Ragowsky & Gefen 2008:34).

Thus we can furthermore conclude that, theoretically, ERP systems can support all areas of a

company’s business, and that this may possibly have a strategic impact.

The possible strategic impact of ERP systems is something that we will discuss later. First

of all we will investigate the practical implications that follow from implementations of ERP

systems. Then we will discuss the business perspectives and possible strategic impact of ERP

systems. After that we will look at the current trends in the ERP business to conclude the discus-

sion.

ERP systems AppliedMany different vendors offer ERP solutions which match the description given above. SAP is the

leading vendor, but other companies such as Oracle and Microsoft have recognisable market

37

shares. Some companies use ERP solutions that have been developed in-house(Rikhardsson

et al. 2004:20). What is common to the different solutions is that they all represent a piece of

technology as opposed to EA which is an approach and is not tied to any specific technology.

We will leave the in-house developments out of account for the rest of this discussion, since

the current trend in the ERP business is towards systems developed by independent vendors -

probably because of the high costs associated with developing ERP systems in-house. With this

precondition, it seems reasonable that ERP systems can be considered commodities. Moreover,

ERP systems are frame systems meaning that ERP systems present a frame per default and must

be configured to work in the specific context of a company before they can

be used(Rikhardsson et al. 2004:21).

The configuration of an ERP system has a broader perspective than configurations of tradi-

tional office software. Since an ERP system supports business processes, the business processes

to be supported must be identified and compared to the possibilities of the ERP system in

question. Based on this comparison, any company implementing an ERP system must make the

decision whether to go for the possibilities inherent in the system, or if the system should be

customised to meet the specific needs of company.

The standard processes of ERP systems are based on best-practice business processes. Should

a company choose to go for a standard implementation, it would have to adapt its internal

processes to the best-practice processes of the ERP system. One might say that implementing a

standard ERP installation will help a company to achieve best-practice, but at the same time it

will make the company lose its distinctive mark.

On the other hand, should a company choose to make customised changes to an ERP sys-

tem, this might have unforeseen consequences for the remaining parts of the system, which are

often interrelated, as well as it may become difficult to include future updates in the system.

Because of this schism, the choice of ERP system vendor is considered crucial. It is important

to choose an ERP system in which the best-practice processes support the specific needs of the

implementing company(Rikhardsson et al. 2004:59-60).

The Business Effect Of ERP SystemsThe effect of ERP systems can be viewed from several angles and a lot of literature exists which

discusses this subject. In this section we will have a closer look at the competitive contribution

of ERP systems as well as a subject which is closely related to this: The relationship between the

use of ERP systems and an organisation’s ability to adapt to environmental changes.

Competitive ContributionFor decades, information has been an important asset for any enterprise. The purpose of an ERP

system is to manage information(Rikhardsson et al. 2004:25-26). Having established that the

ability to achieve distinction from competitors is part of strategic positioning, it seems intui-

tively unlikely that a standardised product like an ERP system should be capable of creating

competitive advantage. The main question is if an ERP system can create competitive advantage

in itself, or if competitive advantage is created when ERP systems are employed in new and

distinct ways. This view is further elaborated by Bernard who claims that

38

Technology is often a key enabling element in increasing value, but should not be the

driving factor in the reengineering or improvement of business services [...] It is impor-

tant to review and adjust the process before IT is applied to ensure that optimal value

and efficiency are achieved.(Bernard 2005:106)

In other words, competitive advantage is created by business processes which are enabled by

technology, not by technology as a separate entity. This is in line with the previous discussion

on the strategic nature of IT and stresses the importance of establishing well-functioning busi-

ness processes before employing technology to support them – not the other way around. This

discussion is further elaborated by Hammer, who claims that “companies tend to use technol-

ogy to mechanize old ways of doing business”(Hammer 1990:104).

Hammer’s point is that obliteration of existing business processes is a precondition to creat-

ing new business processes which can dramatically improve business performance. Proponents

of ERP systems might say that this is exactly what the implementation of an ERP system should

result in – and they might as well be right. But Hammer’s point is still necessary and important

since it further sustains the view that technology can create a competitive edge only when it is

employed in new and innovative ways.

This particular view on the strategic contribution of ERP systems is elaborated by Ragowsky

and Gefen:

if every company employs its ERP system in a similar manner, it is questionable whether

any will gain a sustainable competitive advantage from the ERP itself [...] in order to

compete better, companies have to use resources that are not available to their competi-

tors.(Ragowsky & Gefen 2008:36)

Ragowsky and Gefen continue to emphasise the importance of having something beyond the

software itself that can create a competitive edge. This “something” may come about from

either the way the ERP system is used or from company specific circumstances. It is a major

point to Ragowsky and Gefen that there is no unconditionally correct way of managing and

using IT. Instead they take on a contingency approach to IT management. Some companies use

an ERP system for strict operational purposes only, while others stride to achieve competitive

advantage through the use of an ERP system. In either case, the management of the ERP system

must be aligned to the desired benefit from using the system. In other words, it is necessary to

make sure that the governing frame around the system is appropriate.

ERP Systems And Organisational ChangeAs we established in chapter 2, strategy takes place in a dynamic industry meaning that change

and strategy are interdependent concepts. The intuitive consequence of this relation is that ERP

systems which are used on a strategic level must be able to handle constant change. However,

this may not always be an easy task.

One of the ways to create a competitive advantage through the use of an ERP system is to

customise the system to accommodate specific needs. This may become impeding to future

changes to the system: “The high cohesion between the individual choices in a configura-

tion means that it is hard to change the basic configuration later on”(the author’s translation of

Rikhardsson et al. 2004:22).

39

This is backed up by empirical studies which document that each dollar spent on customisa-

tion during the implementation of an ERP system will result in a three-dollar cost each time the

customisation must be reinstalled because of upgrades or new releases of the system – which

can occur once or even twice a year(Noyes 2003:55). This is tangible proof that achieving a suc-

cessful combination of ERP systems and highly volatile business processes is not an easy task.

Summing UpOverall, the potential benefit from ERP systems cannot be questioned. Studies comparing

adopters and non-adopters of ERP systems(Hunton, Lippincott, & Reck 2003:165) show that in

terms of financial measures like ROI and ROA, adopters perform significantly better than non-

adopters over a 3 year period. Interestingly, this superior performance is not owing to improved

results by the adopters, but rather deteriorating results by non-adopters. This seems to document

the dynamic nature of competitive advantage.

On the other hand, ERP systems do not create a competitive advantage in themselves, as we

have just discussed. Competitive advantage is created by the way ERP systems are employed.

However, some inherent properties of ERP systems seem to limit the potential competitive

advantage which can be enabled by ERP systems. The difficulties associated with customisation

of ERP systems are an example of this. This has also been realised by the ERP industry, which is

why we will now look into the current trends in the industry.

Perspectives on ERP SystemsIn 2000 Gartner Group coined the term ERP II as opposed to ERP. ERP II is characterised by

a change in scope of ERP projects from optimisation of internal functions to outward-facing

elements which can help an enterprise position itself optimally within the supply chain(Bond,

Genovese, Miklovis, Wood, Zrimsek, & Rayner 2000:1). Where the key word of ERP was opti-

misation, the key word of ERP II is collaboration.

From a business point-of-view, ERP II extends the scope of ERP Systems to cut across indu-

stries and any process or sector within these industries. From a technological perspective, ERP II

is web-based, componentised and externally connected through open standards based interfaces.

This forms a contrast to the web-aware, monolithic, closed standards based traditional ERP

systems(Bond et al. 2000:2). The development of the ERP concept shows us that the definition

of an ERP system is in a state of constant flux. This is why we will now look into the most recent

trends in the field. That should complete this section and be the last brick in creating a compre-

hensive image of what the ERP concept is all about. In addition it is a great starting point for a

discussion of the future business impact of ERP systems.

SAP’s ApproachSAP provides a great example of the development of ERP technology. SAP started a move

towards ERP II by the end of the 20th century. At this time, the firm announced plans to inte-

grate its products with e-commerce and web technologies. This was a result of a shift in think-

ing towards a more collaborative environment(Muir & Kimbell 2008:36). Today the latest SAP

version is based on a blueprint for enterprise computing called Enterprise Service-Oriented

Architecture(ESOA), and a technology integration platform called SAP NetWeaver(Muir &

40

Kimbell 2008:37). First of all, this move is caused by a wish to ensure integration of data across

enterprises.

In addition to ESOA and NetWeaver, SAP provides a broad array of best practice business

processes, which can be implemented across areas as diverse as Customer Relationship Man-

agement (CRM), operations, manufacturing and financials. Altogether, SAP’s product suite is

supposed to deliver out-of-the-box applications “that can be used to work for an organization

with little or no customization involved”(Muir & Kimbell 2008:51).

At the same time, the current product line aims at helping enterprises to adapt to changes,

reduce costs, and extend processes beyond enterprise borders. In short, SAP is an example of

an ERP vendor which wishes to allow its customers to obtain(Muir & Kimbell 2008:56)

differentiation•

productivity•

flexibility•

On the face of it, it seems that this approach addresses the apparent shortcomings of ERP

systems with regards to competitive contribution and organisational change, as we discussed

above. One might say that this could be an example of ERP III, or the third generation of ERP –

a term which has actually been coined already.

Third generation ERPThe 3gERP project is a collaborative strategic research project with partners Copenhagen Business

School, Department of Computer Science at the University of Copenhagen and Microsoft Devel-

opment Center Copenhagen and with funding by the Danish National Advanced Technology

Foundation. The purpose of the 3gERP Project is to establish the academic and market founda-

tion for developing a standardized, yet highly flexible and configurable global ERP system for

small- and medium-sized enterprises (SMEs), which can be implemented and maintained at a

fraction of the cost of current ERP systems(The 3gERP Project n.d.). Though the 3gERP project is

still running, a few things can already be said about the conclusions of the project.

The third generation ERP system is modular and based on a Service-Oriented

Architecture(SOA). The purpose of this is to enable better support for organisational

changes(Appendix A:1). Open standards based interfaces will be a natural part of the system.

This will allow the system to be used in more agile ways, as well as it will enable the distribu-

tion of the system through networks as a service (Software as a Service) or through traditional

distribution methods. Another goal of the future ERP system is to make it cheaper(Appendix

A:5). In most ways, the conclusions of the 3gERP project are similar to the direction which SAP

has taken with its ESOA approach.

On the face of it, it might seem like the 3gERp project is just another step towards a com-

moditisation of IT, which makes differentiation through IT difficult. At the 3gERP project, how-

ever, it is believed that this problem can be solved by creating a standard system with enough

flexibility to accommodate the specific needs of each individual enterprise. In this way, the

whole of an ERP system becomes more valuable than the sum of the parts. This is what creates

the competitive contribution of the future ERP system. With a complete and integrated view of

the entire organisation, the ERP system can allow enterprises to differentiate themselves from

competitors(Appendix A:7-8).

41

The ability to achieve competitive advantage from an integrated view of an enterprise is an

interesting thought, which we have already argued in chapter 2. EA is exactly about thinking

holistically and across traditional boundaries. Therefore we will conclude chapter 3 by looking

into the possible combination of EA and ERP systems.

Enterprise Architecture and ERP systems as a Strategy?In addition to considering the potential benefit from a combination of EA and ERP systems, this

section will sum up the findings in the chapter up till now in three hypotheses. Along with a

model based on them they are the foundation for the empirical study described in chapter 4.

If it turns out to be necessary, the hypotheses will be revised later on based on the empirical

study.

A Continuous Focus on StrategyThere has been a change in the way ERP systems are developed and structured. With internal

accounting systems as a starting point, ERP systems of today have developed into all-embracing

systems which can potentially support all internal and external parts of an enterprise’s value

chain. Furthermore, there has been a shift in the way ERP systems are used. ERP systems are

no longer inflexible standard systems, which support predefined business processes, and which

have few configuration possibilities. Modern ERP systems are configurable, service oriented and

can be combined into powerful new configurations.

To formulate our first hypothesis we will turn to our initial distinction between operational

effectiveness and strategy presented in chapter 2. One of the defining characteristics of strategy

is dynamics. This is exemplified by Moore’s distinction between core and context: Moore con-

cludes that the core processes of today may very well be the context processes of tomorrow. In

other words, the nature of competitive advantage is changing continuously, and only on rare

occasions will companies find themselves in a position of sustainable competitive advantage.

If this is true, then maybe the purpose of ERP systems has been the same all along. Maybe the

purpose of ERP systems has always been strategic, whereas the nature of competitive advantage

has changed, forcing ERP vendors to improve the quality and extend the scope of their systems.

Based on this assumption, we will formulate our first hypothesis:

Concurrently with the dynamics of competitive advantage, the scope of ERP systems is

changing to ensure a continuous strategic potential.

The potential strategic benefit from ERP systems is the starting point for the development of

our second hypothesis, which will be discussed in the next section.

Limits to Strategy?As mentioned in our previous discussion on the competitive contribution of ERP systems,

Ragowsky and Gefen emphasise the importance of having access to resources that are not

available to competitors in order to compete better. This is in line with the key characteristics

of strategy, one of them being distinctiveness. Since ERP systems are standardised and based

on industry best-practices, it seems intuitively impossible to achieve distinctiveness through

the use of ERP systems alone. In fact, Ragowsky and Gefen emphasise the need of something

beyond the system itself in order to achieve a competitive advantage.

42

SAP and other ERP vendors have tried to counter this apparent limitation of ERP technology

by further improving the customisability and adding to the already large amount of available

industry-specific ERP modules. Still, a question remains urgent from a strategic as well as an

innovative perspective: How can competitive distinctiveness be achieved, if business processes

are based on best practices and standardised systems? In order to answer this question, we will

design the second hypothesis as one of the starting points for the empirical study. The hypo-

thesis read as follows:

There are limits to the potential strategic contribution from ERP systems.

In its nature, this hypothesis isolates the competitive contribution of an ERP system from the

remainder of the enterprise. This is a strength, since the hypothesis is intended as the basis for

further empirical research. However, this may also be a weakness because of the holistic nature

of competitive strategy.

This view is sustained by the 3gERP project which concludes that the whole of an ERP system

becomes more valuable than the sum of the parts. Therefore our third hypothesis aims at under-

standing the strategic frame of ERP systems: The way the systems are and should be used in an

enterprise context.

A Strategic FrameAs we have established earlier, ERP systems are maturing and have developed from monolithic

applications with a back office scope into service oriented architectures which span across

enterprise boundaries. In this section we will argue that the growing maturity of ERP systems

entails a need for EA as a governing frame of ERP systems. We will also argue that EA is a pre-

condition to achieving the optimum benefit from an ERP system.

ERP maturityThe first step in our argumentation is to create an explicit model to describe the different

maturity stages which ERP systems have gone through. Four overall stages in the history of ERP

development can be identified and described with SAP’s product suite as examples.

The first version of SAP was developed in the 70’s and was called R/1. R/1 was a financial

accounting package. The next version was called R/2, and had a more broad scope. R/2 was

general business application software. SAP R/1 and SAP R/2 can both be considered part of

the first stage of ERP systems maturity. These systems had an entirely internal scope, and were

aimed at solving very specific problems. Furthermore they were monolithic applications which

ran on centralised hardware such as a mainframe computer, which is why we will label this

maturity stage “Monolithic ERP”. During this period, ERP systems were standardised, though

there was a trend towards more adaptable systems(Muir & Kimbell 2008:32-33).

SAP R/3 ushered in a new age of ERP systems. ERP systems were no longer a matter of pro-

grammers writing code. R/3 introduced a world of applications and user interfaces that made the

system more accessible to users. Furthermore, SAP R/3 was based on a three tier client-server

architecture. This made the system more flexible. Finally, SAP R/3 aimed at ensuring abstraction

of the technology in the system. This meant that users and even programmers would not need to

understand the underlying code in order to use or customise the system(Muir & Kimbell 2008:34-

36). This is an example of a new maturity stage which we will label “Client-server ERP”.

43

Gartner Group’s notion of ERP II by the turn of the century marks a new maturity stage for

ERP characterised by integration with e-commerce and web technologies to enable a more

collaborative environment for users(Muir & Kimbell 2008:36). The characteristics of ERP II have

already been described in the section called “Perspectives of ERP systems”. The trend towards

ERP II represents the third stage of ERP systems maturity, and we will use Gartner Group’s

notion of ERP II as the label for this stage.

Today, ERP systems are characterised by a continuous focus on flexibility as well as differen-

tiation and productivity, as described in the sections on SAP’s ESOA approach and the 3gERP

project at Copenhagen Business School. This is achieved through the use of SOA and open

standards. We will label this stage ERP III.

The four ERP maturity stages are summed up in the table below:

Stage Monolithic ERP Client-server ERP ERP ii ERP iii

Architecture Monolithic Client-serverWeb-enabled,

client-serverSOA

Hardware Mainframe Servers and PC’s Any hardware Any hardware

Flexibility Low Medium Medium High

Organisational

scopeInternal Internal Internal/external Internal/external

Purpose Specific General General General

Business impact Automation AutomationAutomation/col-

laborationDifferentiation

Table 2: ERP Maturity Model(Own Production)

The classification of the ERP maturity model into the four stages reflects a subjective interpre-

tation of the development of ERP systems since the 70’s. Being an interpretation, this classifica-

tion just as the characteristics of each stage could be subject to further discussion. However,

what cannot be questioned, is the fact that ERP systems have matured considerably since the

first financial accounting system was created in the 70’s. This is satisfyingly reflected in the

table, which makes it suitable for our purpose: To understand the developing strategic impact

of ERP systems and the way in which this affects and is affected by EA.

44

Joining EA Maturity and ERP Systems MaturityJust like ERP systems the progress in an EA programme can be described with a maturity model.

To illustrate the connection and increasing need for EA as the governing frame around an ERP

system, we will compare our newly created ERP maturity model to an EA maturity model.

The model that we will use for this purpose also has four stages. It can be seen below. The

purpose of the model is to illustrate the characteristics of the different phases in an EA pro-

gramme:

Figure 2: EA Maturity Model(Own Production Based on Ross, Weill & Robertson 2006:72-83)

In an ERP context the model is interesting since it describes the technological and business-

related possibilities enabled by each EA maturity stage. This implies that an enterprise’s EA

maturity level will have an impact on the potential benefit from an ERP system. Given the

maturing perspectives of ERP systems, EA maturity becomes increasingly important to achieving

full benefit from an ERP system.

If we compare the ERP maturity model to the EA maturity model, it can be seen that the first

generation of ERP systems, ERP I, did not require any specific architecture frame. For instance,

an old-fashioned monolithic ERP system would probably live up to its full potential in an

enterprise at the “Business Silos” EA maturity level. The system’s specific purpose and its focus

on internal automation would work just as well in this setting as in enterprises with higher EA

maturity levels.

On the other hand, in order to realise the potential strategic impact of a modern ERP III sys-

tem, most properties of the EA maturity levels 2, 3 and 4 will be necessary:

- No technology standards

- Focus on delivering solutions for local business problems

Business Silos

- Technology standards reduce platforms and complexity

- Investment in shared infrastructure

Standardised Technology

- Digitising core data and/or business processes to capture the essence of their business

- Centralising business processes

- Identify IT capabilities required to implement the company's operating model

Optimised Core

- Enables strategic agility through customised or reusable modules

- Ideally, the distinction between IT and business disappears

Business Modularity

45

A shared infrastructure with agreed upon technology standards as on EA maturity level 2 •

is necessary to create a service oriented architecture.

The organisation-wide scope of modern ERP systems can only become reality if core •

data and processes are digitised and governed centrally as on EA maturity level 3.

Finally, if an ERP system is to create strategic distinction, it must be recognised that IT •

and business are two sides to the same story – as on EA maturity level 4. Otherwise the

dream of IT as a strategic enabler will stay a dream.

Many more examples of the connection between EA maturity and ERP benefit could be

given. We will not do that now, since we are only creating an interim hypothesis as the basis

for future empirical studies. Instead we will use the connection outlined above to infer that a

mature EA programme should be considered integral to any modern ERP implementation.

It is especially important to understand this link since an EA maturity level cannot simply be

acquired – in contrast to a modern ERP system. Any enterprise which wishes to reach a certain

EA maturity level must work hard to reach it – it can take years to move from one level to

another, and only with great difficulties can levels be skipped(Ross et al. 2006:86-87).

The link between EA maturity and the potential benefit from an ERP system forms the founda-

tion for our third hypothesis, which goes as follows:

using EA as the governing frame is necessary to realise the full potential of an ERP system.

This hypothesis corresponds well with the idea of strategy being closely coupled to viewing

an organisation’s individual activities as a whole. This connection was discussed in chapter 2.

The hypothesis is further supported by Weil et al, who are concerned with the potential strate-

gic impact of IT. Their fundamental claim is that sustainable competitive advantage is enabled

by the foundation, which EA creates(Ross et al. 2006:77). This makes perfect sense since our

own definition of EA emphasises the ability to integrate strategy and operational effectiveness.

The idea of EA as the governing frame around ERP systems is also backed by Bernard, who

states that “While ERPs accomplish some of the goals of EA, they fall short of providing the

holistic planning, documentation, and decision-making support that EA is intended to develop

and maintain”(Bernard 2005:127).

In other words, EA allows business leaders to study an enterprise in its entirety and provides

a fact-based foundation of the implementation of an ERP system. In very much the same way,

we will now integrate our findings until now in order to allow one to study them as a unified

whole.

A Comprehensive ViewA picture is worth a thousand words, the saying goes, and therefore we will try to illustrate

the relation between our three hypotheses as well as their link to competitive strategy with the

picture below:

46

Figure 3: A Comprehensive View of EA, ERP systems, Business Processes, and Strategy(Own Production)

In order to understand the placement of EA and the different ERP generations in the figure, it

is a precondition to understand the roles of the vertical and horizontal axes. In short, the labels

on the axes illustrate the assumptions made about strategy in chapter 2, whereas the placement

of the objects inside and around the axes illustrate the hypotheses, which we have just created.

Understanding the AxesThe distinction made on the vertical axis between volatile and non-volatile business processes

is important because the ability of ERP systems to handle change has improved over the diffe-

rent generations of ERP systems. The notion of volatility is inseparable from the distinction

made between strategy and operational effectiveness which is reflected on the horizontal axis.

As we established in chapter 2, strategic advantage is dynamic: What used to be core processes,

will become context over time, and hence stop contributing to an enterprise’s competitive

advantage. This is actually illustrated in figure 3: The dotted arrow below the horizontal axis

marks the continuous shift from core to context – from strategy to operational effectiveness.

Understanding the Content of the FigureThe three hypotheses which we have recently established are all represented in the figure.

The first hypothesis is:

Concurrently with the dynamics of competitive advantage, the scope of ERP systems is

changing to ensure a continued strategic potential.

Custom system

s

Op. EffectivenessContext

Similarity

Volatile Business Processes

Non-volatileBusinessProcesses

EA

Strategy Core

Distinction

ERP IIIERP II

ERP I

47

This hypothesis is not only reflected in the figure; it is also reflected in our ERP maturity

model. The various stages of ERP maturity have therefore been added to the figure to illustrate

the dynamic strategic impact of ERP systems*. The hypothesis is illustrated by each new maturity

stage covering more volatile and strategic parts of the figure than the previous ones. It follows

from the dynamic nature of strategy that the figure can only be considered a snapshot of the

present situation. ERP I may have had a significant strategic impact at the time of its introduc-

tion. But systems similar to ERP I are considered obligatory today, which is why ERP I only

covers a fraction of the figure now.

The second hypothesis is:

There are limits to the potential strategic contribution from ERP systems.

This hypothesis is reflected in the figure by the fact that not even ERP III covers all possible

combinations of business processes. Rather, a dotted circle illustrates the way custom-made

systems can supplement an ERP system.

The third hypothesis is:

using EA as the governing frame is necessary to realise the full potential of an ERP system.

This hypothesis is illustrated by the dashed square surrounding the entire system of co-ordi-

nates, which represents EA.

Strategic possibilitiesAltogether, figure 3 illustrates the powerful potential in a well-considered combination of EA

and ERP systems. This potential can be summed up in a few key points:

Firstly, EA can ensure top-level attention to the strategic possibilities of IT; this can actually be

considered a precondition to strategic use of IT – along with a well-functioning frame around

an enterprise’s IT resources(Applegate et al. 2007:426-428). As mentioned in the section on the

competitive contribution of ERP systems there is a need for contingency management in order

to achieve the optimum benefit from an ERP system. EA can deliver this form of management.

Secondly, there are obvious similarities between the purposes of an ERP system and EA. Both

are an attempt to integrate data and processes across entire enterprises. Both seek to facilitate

fact-based decision making. But where an ERP system is a piece of technology, EA is a docu-

mentation method and a management approach. Together, the concepts seem to complement

each other very well.

Thirdly, EA can handle the dynamic nature of competitive advantage and ensure that IT is

applied correctly to maximise the strategic potential of an enterprise. Moore’s distinction

between core and context processes is an example of this: Not only will core processes con-

tinue to become context processes. Context processes can actually get in the way of the core:

“the winning teams in this new age will be those that manage context in order to make room

for core”(Moore 2000:38).

In other words, there is an explicit need for an approach to handle core and context busi-

ness processes and technology, including ERP, as a whole. This alone justifies the need for an

integrated view of EA and ERP systems instead of viewing each concept in isolation.

* Monolithic ERP and Client-Server ERP are included by the common denominator ERP I

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Part Conclusion: What is the theoretical relation between Enterprise Architecture and ERP systems?EA is an integrated approach to manage strategy, business processes, and technology resources

in large organisations. Since Zachman’s framework for Information Systems Architecture was

introduced in 1987, the term has been in a state of constant development. Today EA can be

defined as follows:

EA is a holistic approach to documenting and managing an enterprise’s current and future

states in terms of strategy, business processes and technology.

The purpose of EA is to enable enterprises to make informed decisions and to implement the

decisions as efficient as possible.

In practice, an EA programme needs to address the dynamic and political nature of enter-

prises making EA a pragmatic exercise.

Whereas EA can be considered a general approach to the management of large IT land-

scapes, an ERP system is a specific piece of technology. ERP systems can be defined as follows:

ERP systems are information systems that support online, integrated real time transaction

registration, data handling, and reporting in connection with a company’s business processes by

means of a central database, often in a client/server IT-architecture.

ERP systems have developed considerably over the years. Starting out as specific-purpose

financial software, ERP systems now encompass most imaginable business processes. Still,

numerous studies have questioned the general flexibility of ERP systems once configured. The

latest generation of ERP systems therefore offers a service-oriented architecture which should

eliminate this short-coming.

The strategic potential of ERP systems seems to change as new and more advanced ERP

generations appear. Realising the full potential of the latest ERP generation requires some of the

organisational characteristics, which EA can enable. Underlying this fact is the primary relation

between EA and ERP systems: Achieving the biggest possible ERP success and developing a

mature EA programme are tightly connected organisational abilities.

Overall, the findings of the chapter can be summed up in the following three hypotheses:

Concurrently with the dynamics of competitive advantage, the scope of ERP systems is •

changing to ensure a continuous strategic potential.

There are limits to the potential strategic contribution from ERP systems.•

Using EA as the governing frame is necessary to realise the full potential of an ERP system.•

These hypotheses form a starting point for the empirical study which is described in the fol-

lowing chapter.

49

50

51

4Chapter 4 – Empirical Findings

“on the other hand, if you have some people in the implementation of ERP, who understand how to engage the business and how to make the business understand the way the ERP system works, it is crucial for success” (the au-thor’s translation of appendix C:3)

Nils Bundgaard

52

53

Chapter 4 – Empirical FindingsHaving established the theoretical foundation for a comprehensive understanding of EA and

ERP systems, the time has now come to compare our theoretical findings to the realities of an

empirical study. Our empirical study is based on four sources: Carlsberg, Post Danmark,

Accenture and Rambøll Management*.

Carlsberg and Post Danmark both present specific cases of combining EA and ERP systems

in practice. We will go through these cases one at a time. For each case we will revise the

hypotheses we created in the previous chapter; by doing this, we synthesise our theoretical and

empirical findings.

Accenture and Rambøll Management are consulting companies, and the empirical material

from these companies is of a more general nature. We will therefore use the empirical material

concerning these two companies to support our final conclusions.

To conclude the chapter we present a revised version of the comprehensive model presented

in chapter 3.

The Case of CarlsbergCarlsberg is a large brewery headquartered in Copenhagen, Denmark. At the moment

(January 2009) Carlsberg is in the middle of a large ERP project, which aims to integrate six

different SAP-installations in nine countries into one solution. The project is scheduled to end

in 2013 and is carried out by Carlsberg IT, a subsidiary company(Møllerhøj 2008). We will now

look into the content and perspectives of the project. Our source is an interview with

Anders Odgaard, who is Senior Application Director at Carlsberg IT**.

A Matter of Standardisation and IntegrationIn general, Carlsberg’s integration project is not considered a traditional ERP project, rather it is

considered a business project. This is expressed by the goal of the project which is to standardise

business processes and to integrate master data across the nine affected countries. The actual

ERP solution developed as part of the project is only considered a means to reach this end.

The project scope distinguishes between production IT and traditional ERP. Production, plan-

ning, and similar business activities are not part of the project, though these are subject to a

high degree of standardisation as well. Only supporting processes such as finance, controlling,

HR, sales, marketing, and procurement are included.

If you look at the project from a value chain perspective, there is a differing degree of stan-

dardisation and integration in the various parts of the value chain: “The closer we get to the

customers, the more diffuse the picture becomes. […] Because in that area, Carlsberg is not the

only driver behind the standardisation”(The author’s translation of appendix D:1).

Since the project integrates solutions across different countries, Carlsberg has to handle a lot

of different ways of distributing beer. In some countries, Carlsberg may have to distribute beer

directly to bars and pubs bundled with all kinds of non-beer products; in other countries beer is

distributed through a network of distributors. In effect, the bargaining power of Carlsberg’s

* Transcriptions of all interviews related to the empirical study can be found in appendices A-E

** The following section is entirely based on the interviews documented in appendices B-E, but only explicit citations are

referenced.

54

customers forces the brewery to adapt its business processes to the individual needs of its cus-

tomers instead of just standardising processes across countries.

One should think that a similar tendency applies for the integration towards suppliers. How-

ever, in the case of suppliers Carlsberg has considerably more bargaining power because of the

size of the brewery. Therefore Carlsberg can demand more standardisation from suppliers than

is possible from customers. For that reason, this part of the project aims at two things: Increased

efficiency, and, as a derived effect, an improved overview of the quality of the different supplier

relationships.

We will get to the overall motivation and ambition behind the project later. Now we will

have a look at the technological background.

SAP and Microsoft in the Driver’s SeatFrom a technological perspective Carlsberg employs a combined SAP and Microsoft strategy. As

a starting point for any IT related investment, Carlsberg asks the question: Why not use one of

these two vendors? In practice SAP is used for everything transaction related, whereas Microsoft

software is used for all presentation of data.

This strategy is based on a recognition that Carlsberg has already invested huge amounts of

money in the existing platform based on SAP and Microsoft:

It will be reasonable to exploit that we have business knowledge on these two platforms

in-house. Because it will be an enormous switching cost […] and then we could choose

Oracle or Baan, and then we would have to conclude that moving the entire organisa-

tion to a new platform would cost more than the entire project.(The author’s translation

of appendix D:6)

In other words, Carlsberg is locked-in to its existing technology base. However, it should be

noted that Carlsberg does use best-of-breed solutions from other vendors in selected areas. This

is based on the recognition that if you force everything into the combined SAP and Microsoft

platform, you will not always be able to meet the enterprise’s needs to a satisfying degree.

Project MotivationFrom a business perspective, Carlsberg’s IT strategy is much more than just SAP and Microsoft.

Carlsberg has chosen to integrate data and to standardise processes across nine countries; there

are three overall reasons for this:

To begin with, Carlsberg wishes to lower Total Cost of Ownership of its IT platform (TCO).

Second, Carlsberg needs an IT foundation which enables faster adaptation to changes of the

business model. And finally, Carlsberg wishes to reduce the complexity of its IT set-up – which

is also considered a lever to lower IT costs.

One might say that Carlsberg’s use of IT aims at both creating operational effectiveness – to

lower costs – and creating a strategic advantage – by helping the company respond to changes.

In fact, Carlsberg’s internal view on IT is changing, and Carlsberg IT wishes to develop itself

into a strategic partner to the main business:

Until now, the mantra has been: IT must just deliver when the business has decided

what it is that they want. […] And here, the challenge is actually: How do we get to put

IT more on the agenda […] the thought is that we must support what they need, but we

55

must do it in line with our strategy and our principles regarding enterprise architecture.

(The author’s translation of appendix D:6)

Anders Odgaard believes that IT can potentially play a more strategic role at Carlsberg:

IT can actually be an enabler for sales or development of your business. And I don’t think

that we are quite there – yet. Because we actually consider this a pure business project.

And then you look at IT more like a tool, more than you look at what possibilities do we

have, if we actually open the box a little bit more?.(The author’s translation of appendix

D:6)

The use of EA at Carlsberg can be taken as a token of this development. Therefore we will

look into this subject now.

Carlsberg’s Use of EAEA is a quite new thing at Carlsberg, and the recent focus on EA is a result of a report from

Gartner Group which recommended EA as a future focus area for Carlsberg. The overall pur-

pose of EA at Carlsberg is to provide a framework for IT decisions. As an addition to the SAP

and Microsoft strategy, Carlsberg’s EA programme provides a guide for Carlsberg towards decid-

ing when to step outside the existing platform, and when not to. In this way EA ensures

Carlsberg’s move towards a more clean an nimble IT environment.

Anders Odgaard expects a two-sided outcome of the EA programme:

It is going to affect our interaction with the business, what can we do, and what can’t we

do? But also on the IT side to know, where do we have some challenges in relation to

cleaning up the undergrowth of different platforms and applications, but also onwards,

how do we choose things?.(The author’s translation of appendix D:4)

In this way, EA is actually what can potentially create a link for Carlsberg between IT, EA and

strategy. This is why the EA programme is now considered an integrated and important part of

the ERP integration project.

PrinciplesAt the moment (January 2009) Carlsberg’s EA programme is still in its making, and therefore

some questions regarding the programme must remain unanswered. However, as a starting

point, Carlsberg expects to create seven or eight basic principles as a guide for most IT related

decisions. The primary principle is to work within the strategic platform whenever possible. If

that is not possible, one must move on through the principles, until only one application choice

matches them. In that way, Carlsberg IT considers EA as a way of creating a fact-based founda-

tion for IT decision-making:

With enterprise architecture just like so many other things, a 90-10 rule, or an 80-20 rule

applies. […] this is the main track we are following. And then we know very well, that

from time to time there is a side road that we have to take. What enterprise architecture

does […] is to guide us to make the right choices.(The author’s translation of appendix

D:5)

One might say, that in addition to providing decision-support, this process serves as gover-

nance of exceptions. And as we recall, exceptions, the ability to do something different, is key

to strategic action. We will therefore investigate Carlsberg’s way of differentiating based on IT.

56

Differentiating on ITSince an ERP system is a central part of Carlsberg’s application landscape, it seems reasonable

to ask the question: How can the system’s standard, best-practice processes create strategic dif-

ferentiation? At Carlsberg this question is not hard to answer: Best-practice processes are only

considered a starting point, not necessarily the blueprint for a final solution.

SAP actually markets a brewery-oriented solution with what is considered best-practice

within the brewing business. And naturally, Carlsberg can match this solution in a lot of areas.

However, according to Anders Odgaard:

then there are some other areas, where you say, well, maybe what makes Carlsberg

unique in some areas, is that we don’t do what everyone else does. So therefore it is not

necessarily best-practice which defines how we act, it is more a choice about saying, this

is where we will differentiate and do things in another way.(The author’s translation of

appendix D:7)

In the end, with best-practice processes as a lever, Carlsberg’s EA can be adjusted in order

to optimise procedures, employ less resources, and maybe thereby free resources to be able to

apply them to activities which create more value; this is actually considered one of the most

important benefits of the project.

Relation between EA and ERPIt is obvious that there is a relation between ERP and EA at Carlsberg. EA helps Carlsberg IT

make informed decisions regarding its platform in order to secure the right application environ-

ment. Actually, Anders Odgaard believes that running a large ERP integration project like the

one at Carlsberg would be a significantly different challenge without EA:

I think the SAP project would be there, but we would probably have a more diffuse land-

scape. […] What we really want, and what it needs to fit into, if that is unknown, when

we make an application decision, then it will all fall apart. And then things become more

emotional than fact-based.(The author’s translation of appendix D:5)

Among other things the obvious relation between EA and ERP systems as illustrated by the

Carlsberg case is a crucial part of the three hypotheses. Therefore we will now look into the

implications that the Carlsberg case has to them.

The Hypotheses Compared to the Carlsberg CaseOn the face of it, the Carlsberg case seems to support the hypotheses established in chapter 3

well: The case documents a clear positive correlation between the use of EA and obtaining the

desired benefit from ERP systems. However, if we dig into the Carlsberg case in more detail, we

will see that at least in some areas things are not as straightforward as they look.

The Scope of ERP systemsMost importantly, it is hard to find evidence in the case to support the first hypothesis:

Concurrently with the dynamics of competitive advantage, the scope of ERP systems is

changing to ensure a continued strategic potential.

On the other hand, it would not be reasonable to conclude that the Carlsberg case rejects

the hypothesis. The hypothesis is based on an overall view of the development of ERP systems

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through time, while the Carlsberg case represents a snapshot of the current situation. We must

therefore consider the case unsuitable for falsifying or sustaining the hypothesis. We will accept

this for now. However, to ascertain the validity of the hypothesis we will compare it to the case

of Post Danmark as well as the empirical material from Accenture and Rambøll Management in

later parts of this chapter.

Potential ERP BenefitThe second hypothesis reads as follows:

There are limits to the potential strategic contribution from ERP systems.

The strategic contribution of ERP systems is a dominant subject in the case of Carlsberg.

SAP’s ERP solution plays a major role in Carlsberg’s IT platform, and it is the hope of Carlsberg

IT, that IT will play a more strategic role at Carlsberg in the future. The important role, which

the ERP system is currently playing and will continue to play, suggests that Carlsberg IT does

not perceive any immediate limits to the strategic contribution from ERP systems.

On the other hand, Carlsberg has no ambitions to extract a sustainable competitive advan-

tage from the best-practice processes of a standardised version of the ERP system. Carlsberg

considers best-practice processes a starting point for the discussion of how to design the com-

pany’s own unique process landscape.

In keeping with this line of thought, we will not reject the second hypothesis. However, to

include the findings of the Carlsberg case, we will refine the hypothesis as follows:

There are limits to the potential strategic contribution from ERP technology in itself; the

strategic contribution of an ERP system depends on the way the system is employed.

The idea of creating competitive advantage by looking at technology in connection with the

surroundings is very much in keeping with the third hypothesis. It also harmonises with our

initial conclusion that the competitive effect of IT depends on the way it is employed. Further-

more, Carlsberg is starting to realise that IT can play a more strategic role, if the business starts

considering it an integrated partner, instead of looking at IT as an isolated, supporting element.

Therefore we will now move on to investigate the connection between our third hypothesis and

the Carlsberg case.

Enterprise Architecture at CarlsbergThe third hypothesis goes as follows:

using EA as the governing frame is necessary to realise the full potential of an ERP system.

At Carlsberg EA has a two-sided effect: It improves the interaction between IT and business,

as well as it helps Carlsberg IT make decisions in relation to future improvements. In fact, EA

is what links IT and strategy together. By creating a fact-based foundation for deciding how to

handle the 10-20 percent of the company’s IT landscape, which do not fit well into the ERP

system, EA ensures that Carlsberg makes the right decisions in relation to its ERP system as well

as the remaining IT systems. Anders Odgaard actually states directly, that the ERP project would

not have been the same without EA; without a solid foundation for decisions, it would have

resulted in a more diffuse landscape, and the risk of failure would be greater.

In other words, the third hypothesis is fully supported by the Carlsberg case, and we will not

spend more time on it here.

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Recap: Carlsberg revisitedThe case of Carlsberg demonstrates the potential benefit from an integrated view of theory

and empirical data. Not only do theoretically established hypotheses gain more weight when

backed up by empirical material – empirical material also holds the potential to improve

hypotheses.

Carlsberg is in the middle of a large ERP integration project across nine European countries

and six SAP installations. The most characteristic features of the project are as follows: SAP

plays a major role in establishing a common IT platform across the involved countries – and the

establishment of an EA programme is a prerequisite to realising the full potential of the project.

The first of our initial hypotheses is not suitable for testing against the case and is therefore

left unchanged. The second hypothesis regarding the strategic potential of ERP systems needs to

be revised in order to fully reflect the findings of the case. Finally, the third hypothesis is fully

supported by the case.

Including the implications of the Carlsberg case, our hypotheses are as follows:

Concurrently with the dynamics of competitive advantage, the scope of ERP systems is •

changing to ensure a continued strategic potential.

There are limits to the potential strategic contribution from ERP technology in itself; the •

strategic contribution of an ERP system depends on the way the system is employed.

Using EA as the governing frame is necessary to realise the full potential of an ERP system.•

The Case of Post danmarkPost Danmark A/S is responsible for the Danish postal service. In 2003, Post Danmark initiated

a large ERP project worth 700 million DKK. As of the 1st of October 2008, the last part of the

project went live, which marked the end of the project for the present. At this point, the project

had cost Post Danmark an estimated 1 billion DKK. On the following pages we will investigate

the main challenges and benefits which Post Danmark has experienced in connection with the

project. The main source of this section is an interview with Jan Svärd who is part of the archi-

tecture group at Post Danmark.

Case presentationBack in 2003 the management of Post Danmark had a feeling that it was impossible to achieve

a realistic, general view of the organisation. This was caused by a lack of trust in the informa-

tion which the management received from the IT department and the business units, which in

turn led to a feeling of uncertainty about decision-making processes. Though Jan Svärd is not

himself part of the general management at Post Danmark, he believes that the desire to achieve

a better data quality in order to enable better decision-making was the primary driver between

the project.

Today, at the immediate end of the project, the project is considered a definite success, and it

is believed that in a few years, all of the initial goals will have been reached.

Consuming the IT SpaghettiOverall, the purpose of the ERP project was to integrate corporate data and to standardise busi-

ness processes. One could say that the primary purpose of the project was actually purely busi-

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ness related: To establish a unified operating model for Post Danmark*. Instead of allowing the

dispersed departments of the enterprise to maintain their own databases and their own process

descriptions, both of these aspects have been subject to centralised governance as part of the

project. The previous existence of 14 different invoicing systems is an example of this. Today,

only three systems remain, and in the course of 2009, two of these will be eliminated as well.

The technological outcome of the project is a combination of an SAP solution and non-SAP

elements. SAP does not market a dedicated solution for mail services, and therefore the heart

of Post Danmark’s operations is a non-SAP database: “Of course we have a gigantic data-

base with all addresses in this country. And it is almost as expensive as the entire SAP-system

altogether”(The author’s translation of appendix E:10).

SAP Netweaver is used to integrate the different elements of the system landscape. The

landscape includes both SAP CRM and SAP SCM solutions, while SAP R/3 is the turning point

around which the other modules are organised.

As can be seen from the selection of modules, most aspects of Post Danmark’s business are

integrated in the system. The SCM module integrates directly towards suppliers, so that new

supplies can be ordered through SAP’s user interface. In the other end of the value chain, the

system offers an integrated approach to CRM, which gives Post Danmark management access

to a coherent view of its customers.

On a general level the outcome of the project is an integrated system of all business applica-

tions at Post Danmark. To understand why it is worth spending a billion DKK on that we will

now investigate the benefit model of the project.

The Business Benefit of the ProjectTo fully understand the nature of the benefit of the project it is necessary to distinguish between

the immediate effect of the project and the business possibilities enabled by this effect. We will

look into the immediate effect and the overall resulting benefit at first.

The Overall BenefitThe immediate effect of the ERP project is a significantly simpler system landscape. Of the 200

important applications which existed before the ERP project, only 50 remain by the end of

2008. The new system landscape results in a far better data quality than was possible before:

We don’t end up with getting some figures from several different places, expecting them

to be aligned, but they don’t, and it’s impossible to explain why. […] We have always

managed to make it look acceptable, but it is not until SAP, that we can say without a

doubt: This is what it looks like. And say it without hesitating.(The author’s translation of

appendix E:5)

In other words, the overall benefit of the ERP project is an improved data quality. Several

benefits result from this basic premise.

* For more on operating models, see (Ross et al. 2006:29). It is a key point that deciding upon an operating model is a

precondition to EA. We will cover Post Danmark’s use of EA in a later section.

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Resultant BenefitsA number of business possibilities could be attributed to the improved data quality of Post

Danmark’s systems. The following list of examples should therefore not be considered exhaus-

tive; on the other hand, it contains the most important ones.

First of all, the improved data quality results in an increased measurability of business initia-

tives. This, in turn, results in an improved ability to point out potential improvements of the

business: “Now, all of a sudden, we can see a tendency, which we have never been able to

see before. Because we have taken it from all places. There has been a homogenous basis”(The

author’s translation of appendix E:6).

This is actually an example of another resultant benefit as well: The ability to create reliable

analyses across modules. When data is entered into a sales and distribution module, the same

data will be mirrored correctly in the CRM module, since they are both part of the same system

landscape.

A tangible example of this is Post Danmark’s improved ability to create coherent deals with

suppliers or customers instead of creating deals with large numbers of sub deals, of which it

is very hard to calculate discounts and other price-related aspects. In fact, the ability to create

coherent deals alone has created additional revenue of 300 million DKK per year.

What sums up all of these points very well is that they have all contributed to creating a more

intelligent organisation. The improved data quality has contributed to building a more flexible

organisation – in spite of the fact that an ERP system may in itself be hard to change once con-

figured, as we discussed in chapter 3. Jan Svärd sums this up perfectly himself:

SAP is a big old beast – and annoying in many ways. But one should not fail to appreci-

ate the stability in the data in SAP. And the level of detail which can also be found in the

data […] What matters is to assemble and control all processes. […] And then a lot of

things may seem a bit, er... A bit odd, right? But that doesn’t change the fact that it puts

you in a better position.(The author’s translation of appendix E:8)

Controlling Two Tracks: A Need for Enterprise ArchitectureAs mentioned earlier, Post Danmark’s system landscape combines SAP and non-SAP elements.

This is reflected in the way Post Danmark handles IT projects; there is a project model for SAP

projects and a project model for non-SAP projects.

What is common to both of these tracks is that all projects must go through the architecture

department. This is the department, which Jan Svärd belongs to. No projects can be implemented

without letting the architecture department create an outline for the project. This is how Post

Danmark handles EA in practice.

Enterprise Architecture in PracticeIn addition to approving and influencing all major major IT projects at Post Danmark, the

architecture department also creates principles and standards to support its decisions. In this

way, the architecture department ensures the appropriate coupling between business and IT,

because the IT principles and standards of the architecture department are based on the goals

and visions of Post Danmark’s management. Standards are typically created based on a decen-

tralised model, where affected departments have a say in developing each new standard. On

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the other hand, IT principles are typically developed by the architecture department entirely.

However, even though standards and principles are the most visible output from the architec-

ture department, a more invisible part of the architecture work is probably just as important.

Enterprise Architecture as a Management MethodTo Jan Svärd, the informal effort to achieve organisational acceptance of the architecture guide-

lines is key to succesful EA: “We have tried some different formal things in the past […] where

IT practically decided what the business should do. Instead we have drawn a line and chosen

to implement a cooperative model”(The author’s translation of appendix E:8).

The consequence of this approach is that much EA work becomes a matter of discussion.

And in this connection, a discussion is considered to be a positive event in any way imagin-

able. Because, as Jan Svärd states:

If we don’t agree with people, then it would be a bad idea to force them to implement it.

The people who are going to run it, use it, and pay for it. If they wanted something else.

Then it is better to discuss things.(The author’s translation of appendix E:9)

The case of Post Danmark is a vivid example that management methods are an integral

part of EA. One might say that the architecture department at Post Danmark has realised the

harsh realities of EA as depicted in chapter 2: EA is a pragmatic exercise, and one must aim at

achieving the best possible solution under the given circumstances. In that way EA has become

an integrated and institutionalised part of Post Danmark. This can probably be tracked back to

the fact that Post Danmark’s EA programme has been running for years contrary to Carlsberg’s

EA programme, which is still in the making. This makes it ever more interesting to examine the

benefits realised through EA at Post Danmark.

The Business Benefit of Enterprise ArchitectureThe primary benefit of EA at Post Danmark is considered to be fact-based decision making. By

employing principles and technology standards, the subjective preferences of individuals is

replaced by objective measures: “They are sacred, those silos. To remove their sacred glare - it

turns out, that every time we manage to do that - it is a revealing experience for everyone”(The

author’s translation of appendix E:12).

In the long term the EA programme and the resulting system landscape can release IT re-

sources from routine maintenance tasks allowing them to focus on tasks which create more

value to the company.

The ERP Project without Enterprise ArchitectureOn a specific level, EA’s role in the management of Post Danmark is expressed in the way it

affects the ERP project. By creating an overall frame for the project, it contributes – directly or

indirectly – as guidance for analysts, business architects, and solution architects. The result is a

system which is as lean as possible. The result of an ERP project without EA would probably be

quite the contrary:

There would have been more in-house development in SAP. There would be less con-

trol that the same functionality was not developed in several areas of the SAP-system.

There would be significantly less reuse[...] We notice when they order something that we

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already have. We can say: We already have that! You will just have to use that. And then

they receive training, and then they have it.(The author’s translation of appendix E:10)

In other words, without EA the ERP project would have been much more random and

inefficient.

Another way in which EA has affected the ERP project is expressed in the overall guidelines

of the project. At the beginning of the project, it was a stated goal, that where SAP did not fit

business processes, a standard system should be bought. Only where this was not possible

should a system be developed in-house.

Today, all processes which cannot be fitted into the SAP system are generally supported by

systems developed in-house. Open standards based interfaces and SAP certifications of com-

modity systems are unimportant in that connection. What matters is the ability to fit the existing

data model of the SAP system into an external addition. That is only possible with inhouse-de-

veloped custom solutions, and that is therefore the approach, which the EA programme recom-

mends. In that way the demands of EA are taken into account by the SAP-project.

This line of thought is further expressed when Post Danmark creates new strategic solutions.

These are often based on a combination of SAP functionality and added in-house develop-

ment. An example of this is a new webshop, which combines a standard SAP webshop with an

existing login mechanism. As stated by Jan Svärd, this combination was facilitated by EA: “And

there, I think, enterprise architecture plays a huge role. Because without it, we would have

reached the conclusion that SAP can only solve 80 percent of the problem – and then we can-

not do it in SAP!”(The author’s translation of appendix E:11).

Customisation of ERPAs far as possible, Post Danmark attempts to avoid adjustments directly in the ERP system.

Instead, Post Danmark typically aims at adapting its business processes. This approach has been

chosen because the high cohesion between different parts of the ERP system implies that home-

grown adjustments cannot be reused after future version upgrades. This documents a major

point made in chapter 3: Each dollar spent on customisation during the implementation of an

ERP system will result in a three-dollar cost each time customisations must be reinstalled.

The high cost of adjustments is ample reason to focus solely on standard versions of the ERP

software. This approach creates a more agile and light-weight system landscape; on the other

hand, the need to adapt existing business processes to the system requires extra effort in introduc-

ing and managing change, which could eventually seem unnecessary to ordinary employees.

In making these organisational changes successful EA ends up playing a vital role since the

management aspects of EA are highly prioritised at Post Danmark.

EA further helps in deciding when additions to the system are actually acceptable. This is

typically the case when the system has a clearly defined interface which can be expected to

persist through version upgrades. EA controls the selection of additions, and how they should

be implemented.

The Hypotheses Compared to the Case of Post DanmarkThe case of Post Danmark clearly illustrates the link between a successful ERP project and an

integrated EA approach. In this way, the case seems to document at least one of our hypotheses.

63

More importantly, the case emphasises the role of EA in creating new strategic solutions, and in

doing this by combining elements of SAP and non-SAP systems. This indicates a possible con-

nection between at least two of the hypotheses – a line of thought which we will pursue further

in the following section which discusses the relation between the case of Post Danmark and

our hypotheses.

Scope of ERP systemsThe case of Post Danmark indicates that the perspectives of implementing ERP technology are

clearly strategic. The ERP project has enabled business possibilities at Post Danmark which

would have been considered imaginary just a few years ago. On the other hand, this does not

clearly support our first hypothesis since the case does not deal with ERP technology from a

historical point-of-view. Since this is true for the case of Carlsberg as well, we must still consider

the hypothesis to be valid. At the same time, we must also note that the hypothesis is practi-

cally unchallenged. To counter this limitation of the study, we will conduct a general discussion

of the hypothesis later – with the nature of competitive advantage as a starting point. For now,

however, we will leave the hypothesis as follows:

Concurrently with the dynamics of competitive advantage, the scope of ERP systems is

changing to ensure a continuous strategic potential.

Instead we will focus on our last two hypotheses and the possible link between them.

Does Potential ERP Benefit Follow on EA Quality?It is obvious that Post Danmark’s ERP system has a strategic impact. However, what is also obvi-

ous is that this strategic impact is not created by the system alone, rather it is created through

an interplay between the system, its technological context (other applications), and its manage-

ment context (the EA programme). In other words, the case of Post Danmark fully supports our

second hypothesis:

There are limits to the potential strategic contribution from ERP technology in itself; the

strategic contribution of an ERP system depends on the way the system is employed.

As mentioned in chapter 3, the original version of the second hypothesis had its shortcom-

ings: By focusing too narrowly on ERP systems, it dismissed the holistic nature of competitive

strategy. Apparently, this second version of the hypothesis is empirically supported, as well as it

takes into account the context of an ERP system - to some degree.

However, the fact that Post Danmark creates a competitive advantage through an interplay

between an ERP system, home-grown applications and an EA programme not only supports our

second hypothesis; it also supports our third hypothesis, that EA as a governing frame is neces-

sary to realise the full potential of an ERP system. In order to reflect this apparent connection in

our findings, we will acclaim the principle of simplicity and unify the two hypotheses into one:

There are limits to the potential strategic contribution from ERP technology in itself;

to realise the full potential of an ERP system, the system must be recognised as part of a

whole with EA as the governing frame.

This combined version of our second and third hypotheses reflects the key points of both

previous hypotheses:

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The benefit of an ERP system depends on the way it is used•

A governing frame is necessary to realise an ERP system’s full potential•

This new hypothesis incorporates an additional key point by stressing the importance of view-

ing an ERP system as part of a greater whole. This point can be considered a cornerstone of EA.

Recap: Post Danmark revisitedThe case of Post Danmark has further refined the hypotheses as a combination of theoretical

and empirical data.

In 2003 Post Danmark initiated a large ERP project which was completed in the autumn of

2008. The most characteristic features of the project are the following: An SAP solution has had

a major role to play in the project, but the integration and combination of SAP and applications

developed in-house has been just as important. EA is the overall frame which has made this

holistic approach successful.

Just as with the Carlsberg case, the first of our initial hypotheses is not suitable for testing

against the case and is therefore left unchanged. The second and the third hypothesis have been

integrated to reflect the interdependent nature of EA, the ERP system and applications devel-

oped in-house.

Including the implications of the case of Post Danmark, our hypotheses are as follows:

Concurrently with the dynamics of competitive advantage, the scope of ERP systems is •

changing to ensure a continued strategic potential.

There are limits to the potential strategic contribution from ERP technology in itself; to •

realise the full potential of an ERP system, the system must be recognised as part of a

whole with EA as the governing frame.

generalisation of FindingsThe purpose of this section is to discuss the revised version of the hypotheses and to bring them

from the specific level of the cases to a general level – to turn the hypotheses into conclusions.

To support our conclusions we will include the findings from the two general cases: Accenture

and Rambøll Management.

The Scope of ERP systemsAs discussed earlier, the cases of Carlsberg and Post Danmark do not contain empirical material

which can support nor challenge our first hypothesis. We will therefore combine this hypothesis

with the empirical data from Accenture and Rambøll Management.

The General PerspectiveThe ERP maturity model in chapter 3 documents a change in the function of ERP systems.

Recognising the dynamic nature of strategy, this may very well reflect a continuous aim to pro-

vide a competitive advantage.

If we look at the empirical material from Accenture and Rambøll Management, it sustains

this idea. Nils Bundgaard from Rambøll Management mentions the need for ERP vendors to

maintain a continuos focus on responding to new market challenges. When asked about the

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impact of SAP’s new ESOA paradigm, Nils Bundgaard from Rambøll Management puts the

challenge of ensuring continuous competitiveness into words:

At some time, SAP have chosen to say, that if they don’t improve their existing architec-

ture and its ability to change – and we’ve met many companies which find it hard to

change... Then SAP will not be competitive in a number of years […] It is going to be

exciting to watch the development in the following years, whether they will be success-

ful in creating that flexibility.(The author’s translation of appendix C:2)

Khaliq Khan from Accenture further elaborates on the new service oriented ERP paradigms

and the effect of ERP implementations: “both Oracle and SAP are working on a journey where

they are saying: Our architectural solution will be much more flexible, you’ll be able to glue

pieces together, to fit it to your process, as you like it”(The author’s translation of appendix B:1).

The statements from both consultants illustrate the effort which is being put into ensuring a

continuous improvement of ERP software. This fact coupled with the dynamic nature of strategy

seems to be evidence that the hypothesis holds true. We can therefore conclude:

Concurrently with the dynamics of competitive advantage, the scope of ERP systems is

changing to ensure a continued strategic potential.

This conclusion actually reinforces our second hypothesis, since both hypotheses are based

on the common assumption that IT is not strategic in itself, but that the strategic potential of

IT depends on the context. To examine whether our second hypothesis is also in line with our

general empirical findings is therefore a natural next step.

The Dependence of ERP systems upon the ContextAs opposed to the first hypothesis, the second hypothesis is supported well by the cases of both

Carlsberg and Post Danmark. Both companies, though in different phases of an ERP project,

emphasise the need for an EA programme to ensure optimum benefit.

The outcomes of EA at Carlsberg and Post Danmark can be divided into two related benefits:

EA provides a coupling between the business side and the IT side of the companies, •

which ensures fact-based and successful decision-making in relation to IT.

The ERP system in itself does not provide a competitive advantage to the companies, but •

EA facilitates a holistic view of the ERP system, other applications, and the business to

create unique strategic possibilities.

In that way, the cases of Carlsberg and Post Danmark fully support our second hypothesis.

The second hypothesis is further backed by Nils Bundgaard as well as Khaliq Khan.

Nils Bundgaard states:

ERP implementations can tend to become a piece of technology work. But it also turns out

that where it is just a piece of technology work, it becomes very hard to make it success-

ful. On the other hand, if you have some people in the implementation of ERP, who under-

stand how to engage the business and how to make the business understand the way the

ERP system works, it is crucial for success.(The author’s translation of appendix C:3)

On what happens when ERP implementations fail, he continues:

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Typically, I would say that the reason – as in many other IT-projects – is that you overlook

the extent and necessity of the organisational implementation […] the SAP consultants

who belong to an implementation only worry about making it run, implementing it as stan-

dard.[...] But if the precondition for a pervasive coherence is that you need to have control

of more information than before, then if you don’t get that to be worked in, and encourage

a different and coherent way of thinking among the people who are to control this, then

ERP systems are not going to work either.(The author’s translation of appendix C:3)

Nils Bundgaard’s statements document that a connection between business and IT matters

is crucial to achieving a satisfying level of benefit from an ERP system. The other part of the

hypothesis, the potential benefit from ERP systems alone, is explained by Khaliq Khan: “What

your question was, is an IT-system a differentiator, customised IT a differentiator? And I said

no. Can ERP be a differentiator? Absolutely, depending on how you implement it”(The author’s

translation of appendix B:3).

Khaliq Khan further continues: “There has to be a frame, in which all your systems exist. And

use your ERP and all the satellite systems. […] I think an enterprise architecture is essential for

any large IT project, any IT-project I would say”(The author’s translation of appendix B:4).

Based on these statements as well as the findings of the cases of Carlsberg and Post Danmark,

it seems obvious that our second hypothesis is in line with reality. We therefore conclude:

There are limits to the potential strategic contribution from ERP technology in itself;

to realise the full potential of an ERP system, the system must be recognised as part of a

whole with EA as the governing frame.

With both of our hypotheses confirmed, it is now time to merge them into a comprehensive

view of the relation between EA and ERP systems. To do this we will investigate the conse-

quences which our revision of the initial hypotheses has for the comprehensive view originally

presented in chapter 3.

The Comprehensive ViewWith our recent conclusions taken into account, the comprehensive view of EA, ERP systems,

business processes and strategy looks as follows:

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Figure 4: Revised Comprehensive View of EA, ERP systems, Business Processes, and Strategy(Own Production)

In many ways, the figure is equal to the original version: The axes are the same, EA still sur-

rounds the system of coordinate as a governing frame, and the three generations of ERP systems

are still represented.

The only change in the figure reflects our revised understanding of the strategic impact of

ERP systems as well as the role of custom systems in this connection. The circles representing

the different ERP generations now cover all imaginable combinations of business processes –

with the exception that some business processes must be supported by custom built systems.

This is why a number of “other systems” are placed in the figure as well. To manage this combi-

nation of ERP systems and other types of system, EA still plays the governing role.

All in all, the figure illustrates, how EA, ERP systems and other types of information tech-

nology should be combined and understood in order to ensure the best possible business

outcomes. It should be noted that the figure is still to be considered a snapshot of the current

possibilities of ERP systems. The dynamic nature of competitive advantage will eventually result

in the system of coordinates extending upwards and to the right leaving space for new strategic

possibilities and solutions. To conclude the thesis, we must therefore discuss the challenges and

requirements which this inevitable development will present. This is what we will do in the fol-

lowing chapter.

Part Conclusion: How are Enterprise Architecture and ERP systems combined in practice?

The cases of Carlsberg and Post Danmark both illustrate the necessity of a comprehensive view

of EA and ERP systems. Both companies have run or are still running large ERP projects across

large parts of their organisations, and both companies have found it necessary to design some

kind of EA approach to support the projects as well as the general use of IT in their organisa-

tions.

Op. EffectivenessContext

Similarity

Volatile Business Processes

Non-volatileBusinessProcesses

EA

Strategy Core

Distinction

ERP III

ERP II

ERP I

OtherSystem

OtherSystem

OtherSystem

OtherSystem

OtherSystem

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Without EA, both companies believe that their ERP projects would have taken different

directions. Some of the perceived benefits of EA are as follows:

increased reuse of existing components / a more lean system landscape•

a more fact-based decision model which leads to better coupling between strategy, •

business and IT

less expensive customisation of ERP systems•

Interestingly, none of the companies doubt the competitive advantage which is created by

ERP systems. In this way, the cases form a contrast to the second hypothesis established in

chapter 3. On the other hand, both companies emphasise the need for EA to realise the full

strategic potential of an ERP system. This finding is sustained by both Nils Bundgaard from

Rambøll Management and Khaliq Khan from Accenture. We can therefore revise and merge the

second and the third hypothesis from chapter 3 and conclude:

There are limits to the potential strategic contribution from ERP technology in itself;

to realise the full potential of an ERP system, the system must be recognised as part of a

whole with EA as the governing frame.

The first hypothesis from chapter 3 is not supported by the cases of Carlsberg and Post

Danmark. However, it is not challenged either. This is probably caused by the dynamic nature

of the hypothesis as opposed to the snapshot-like case presentations. On the other hand, the

representatives of the consulting companies support the idea of the potential competitive

advantage from ERP systems as a moving target. We can therefore conclude further:

Concurrently with the dynamics of competitive advantage, the scope of ERP systems is

changing to ensure a continued strategic potential.

This conclusion is what leads us to the next chapter. If ERP systems are changing to meet the

dynamics of competitive advantage, we need to investigate what challenges will become reality

in the competitive world of tomorrow.

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5Chapter 5 – Future Challenges

“What we have learned from the study of earthquakes is that buildings with rigid structures (with bricks-and-mortar construction, interestingly enough, topping the list) fare the worst when the ground underneath them shifts. By contrast, buildings engineered to sway with the wave of force are able to restore themselves to balance safely” (Moore 2000:229)

Geoffrey Moore

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Chapter 5 – Future ChallengesAs we have seen until now, the use of ERP systems reinforces a tendency to create enterprise-

wide IT solutions to enterprise-wide problems. This tendency inevitably entails a potentially

enterprise-wide strategic impact from IT. The strategic impact, however, does not come for free.

Obtaining a strategic impact from IT requires an integrated approach to IT and business prob-

lems. The thesis proposes EA as the answer to this problem.

However, the thesis also concludes that the nature of competitive advantage is dynamic.

Therefore there is a constant need to discuss what will be the primary challenges of tomorrow’s

competitive world – and to clarify what role EA and ERP have to play in handling these chal-

lenges. That is the purpose of this section.

C.K. Prahalad and M.S. Krishnan have done a thorough investigation of the current trends

of competition and value creation. Based on a presentation of their findings mixed with other

literary sources we will discuss the requirements of future businesses. Gary Hamel’s thoughts

on the future of management will play a central part in this discussion. Furthermore, we will

discuss which challenges enterprise architects and ERP vendors must overcome to meet the

requirements and ensure a continued raison d’être.

The Future of Competition: globalisation AppliedWhen Henry Ford pioneered manufacturing in the beginning of the 20th century, he did it on

conditions which are completely opposite to the potential challenges of future competition.

Companies were vertically integrated and goods were produced under the assumption that

customers were undifferentiated: One could have a Ford T painted any colour so long as it was

black.

While a vertically integrated value chain used to be a strength, total vertical integration is

most often a weakness today. Transaction costs have lowered substantially making it benefi-

cial to create value chains which span multiple parties(Wagter, Berg, Luijpers, & Steenbergen

2005:17) before products or services reach the end consumer.

Furthermore, the role of the end consumer has changed. Many companies offer customised

solutions to fit the needs of the individual customer. To sum up, companies respond continu-

ally to customer needs while utilising resources from across the globe: The resources of many to

satisfy the needs of one(Prahalad & Krishnan 2008:6).

We will now investigate this tendency further in order to create an overall view of the future

of competition.

Global ResourcesApple provides a prime example of the way value chains often span multiple organisational

borders. The company’s iPod is the result of a global network of suppliers: The disk drives

are made by Toshiba, the RAM is made by Samsung, and the video processors by Broadcom,

whereas the final assembly of the device is carried out in China by a Taiwanese company.

The iPod itself is designed by Apple in California(Prahalad & Krishnan 2008:23).

The cross-organisational iPod value chain exemplifies the virtual organisation in which

several enterprises band together as nodes on an information network to increase scope

and scale(Applegate et al. 2007:2).

74

The immediate benefit from a global network of suppliers is obvious: Access to the world’s

best and most efficient manufacturers of specific components allows for unprecedented effi-

ciency. However, the benefits are far more complex than traditional operational effectiveness:

Product co-development across time zones allows for an incredible speed, which can yield

a significant competitive advantage. Furthermore, the access to virtually all manufacturing

resources on the globe creates the foundation for practically unlimited scalability.

Finally, and perhaps most important of all, a global network of suppliers entails access

to a wide range of knowledge resources. Each node on the network can focus on its core

competencies(Applegate et al. 2007:58). Moore’s idea that context activities should be out-

sourced can be realised in this way. Small companies from San Francisco to Bangalore can

focus on innovation on a continuous basis. The tendency towards outsourcing does not only

pose benefits, though. It also presents a fundamental market condition.

The globalisation applies to customers as well; competing for customers on a global scale

creates new requirements(Woods & Mattern 2006:41-42). The sum of these trends forms a

foundation for the second main aspect of the future competitive game change: The ability to

serve the unique needs of individual costumers. Without global value networks tailor-made

solutions would often become too expensive, while manufacturers would be too inflexible to

adapt to changing customer needs. To understand this, we will use Apple as an example of

how cutting-edge companies use global value networks to create solutions to match individual

customer needs.

Unique, Customer-centric SolutionsIt is of paramount importance to understand that the emerging trend towards individualised

customer solutions is not equal to the by now widespread idea of mass customisation. Accord-

ing to Prahalad & Krishnan, the new age of innovation represents a departure from the traditional

firm-centric view of value creation, of which traditional mass customisation is an example. In the

future, value will be co-created by companies and customers. In this way, the customer becomes

the centre of value creation and an integral part of the cross-organisational value chain(Wagter et

al. 2005:18). This is typically done by producing goods which combine product, service, and ex-

perience to create a customisable frame which meets the needs of the individual customer. Such

a frame requires technology which is easy to use to almost anyone in order to expand the pool of

potential “developers” of new solutions(Woods & Mattern 2006: 59).

Apple’s iPod business model is a good example of this. By providing customers with a simple

music playback unit and an integrated music store, each customer can design his/her own

unique music experience. The iPhone further enhances this line of thought. In addition to pro-

viding the traditional iPod experience, the iPhone comes with an API as well as the App Store

which sells applications in a way very similar to iTunes. In this way the iPhone is much more

than a product. The API, the App Store, and iTunes allows any customer to obtain a unique,

personalised experience based on his/her own input and preferences.

The idea of co-creating value puts entirely new demands upon businesses. Technology must

remain efficient while supporting an ever-finer parsing of customer demographics, a greater

stratification of products, and more flexible supply chains and manufacturing operations(Woods

& Mattern 2006:41). Instead of delivering off-the-shelf products and then forgetting about them,

75

it will become necessary to interact with customers on a continuos basis to create partnerships.

This is in many ways contrary to the traditional ways of doing business.

New RequirementsAs argued in chapter 2 operational effectiveness and strategic differentiation are both important

to a continuously viable business model. The fact that the primary challenge of future businesses

will be to meet the needs of individual consumers just reinforces this fundamental rule.

Even though the primary competitive quality of iPods or iPhones is not the price or the sound

quality, these properties must meet customer expectations just as well as the more advanced

features of the products. This dual requirement outlines the primary business challenge of the

future: Products must meet basic requirements such as availability, low price, and high quality,

and at the same time companies must be able to innovate to adapt to the ever changing

demands of the market(Prahalad & Krishnan 2008:175-176). Demonstrating efficiency and

flexibility at the same time, will be key to business success in the future.

Combining Efficiency and Flexibility – an Oxymoron?On the face of it, efficiency and flexibility are contradictory concepts. After all, if efficiency is to

be realised, variances should be avoided. On the other hand, embracing variance is a precon-

dition to flexibility. It is therefore very difficult to combine big company advantages and small

company strengths in one organisation(Applegate et al. 2007:59). This requires a technological

foundation which combines distribution and centralisation(Woods & Mattern 2006:7). Never-

theless, integrating efficiency and flexibility seems to be the dominant business challenge of the

near future: Business models often change more than once a year, and new processes must be

implemented within a few months or even weeks(Woods & Mattern 2006:4).

According to Prahalad & Krishnan the combination of efficiency and flexibility is not an oxy-

moron. However, if it is to be achieved, one must realise the fundamentally new game plan of

the competitive arena: The globalisation of resources and the customer-centric nature of value

creation.

In describing their blueprint for a combination of efficiency and flexibility, Prahalad &

Krishnan distinguish between social architecture and technical architecture. Before investigat-

ing the notion of a technical architecture, we will investigate the future role of social architec-

ture, which in turn is determined by management.

The Role of ManagementSocial architecture can be defined as: “the sum of the systems, processes, beliefs, and values

that determine an individual’s behaviors, perspectives, and skills in an organization”(Prahalad

& Krishnan 2008:148).

In order to understand the connection between efficiency/flexibility and social architecture, it

is a good starting point to list Prahalad & Krishnan’s requirements of future social architecture.

This is exactly what we have done in table 3 below:

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Social Architecture

Efficiency Requirements Flexibility Requirements

Culture and training are based on process

execution excellence

Culture and management are oriented for

change and transparency

Incentives exist for operational excellence

and variance reduction

Incentives exist for experimentation

There is clarity and certainty in business

process metrics and outcomes

Employees have the capacity to learn

and adapt

There is clarity in performance outcomes There is clarity in decision rights to facilitate

fast changeTable 3: Characteristics of Future Social Architecture(Own Production Based on Prahalad & Krishnan 2008:182-183)

The table illustrates quite well the apparent contradiction between efficiency and flexibility.

As an example, flexibility requires incentives for experimentation, whereas efficiency requires

incentives for variance reduction. Our goal must be to create the outline of a social architecture

which accommodates these conflicting requirements. Unfortunately, modern management will

not be of much help in doing this. Gary Hamel describes modern management as follows:

“as managers, we are captives of a paradigm that places the pursuit of efficiency ahead of every

other goal. This is hardly surprising, since modern management was invented to solve the prob-

lem of inefficiency”(Hamel 2007:12).

Hamel goes on to credit thinkers such as Taylor and Weber with the properties of manage-

ment today: “though Max Weber has been dead for nearly 90 years, control, precision, stability,

discipline, and reliability – the traits he saluted in his anthem to bureaucracy – are still the

canonical virtues of modern management”(Hamel 2007:14).

Hamel’s description of modern management does not correspond very well with the require-

ments of future social architecture outlined above. A full-grown hierarchical organisation lacks

some of the characteristics necessary to attain both efficiency and flexibility(Applegate et al.

2007:61-62). Hence, if we wish to create a social architecture which matches these require-

ments, there is a need for innovative management thinking. This is Hamel’s exact point.

The Necessity of Management InnovationThe importance of management innovation in establishing a sustainable competitive advantage

can hardly be underestimated. In fact, management innovation may be the kind of innova-

tion which yields the highest amount of value and competitive defensibility(Hamel 2007:32,

Skarzynski & Gibson 2008:99-100). Hamel’s competitive hierarchy of innovation can be seen

in the figure below:

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Figure 5: The Innovation Stack(Own Production after Hamel 2007:32)

Very much in line with our discussions of operational effectiveness in chapter 2, operational

innovations tend to diffuse rapidly. Outsourcing agreements, consulting assistance, and diffu-

sion of advances in technology all contribute to the transfer of best practices from exceptional

companies to mediocre ones.

Though an iconic product can sometimes lift a company from obscurity to cult status, the case

if almost the same for product innovation. Only patent protection can hinder this tendency.

Strategic innovation definitely can turn around competitive conditions. Still, Hamel argues

that a strategy innovation is more easily copied than a management innovation: “Wal-mart’s

supposedly invincible lead in discount retailing hasn’t prevented other retailers, like Costco and

Target, from flourishing”(Hamel 2007:33).

On the other hand, it took American car makers 20 years to figure out that Toyota’s basic

competitive advantage was based on a different management approach: “Unlike its Western

rivals, Toyota believed that first-line employees could be more than cogs in a soulless manu-

facturing machine. If given the right tools and training, they could be problem solvers, innova-

tors, and change agents”(Hamel 2007:29).

If we are to acknowledge Hamel’s proposition that management innovation is the most

durable source of competitive advantage, we need to understand the line of thought which

leads to this conclusion.

The Importance of ParadigmsToyota’s radically different approach to management is an example of paradigmatic differences:

[A] paradigm is a criterion for choosing problems that […] can be assumed to have

solutions […] A paradigm can, for that matter, even insulate the community from […]

important problems […] because they cannot be stated in terms of the conceptual and

instrumental tools which the paradigm provides.(Kuhn 1970:37)

The excluding nature of paradigms can potentially limit people’s way of thinking. Findings

which counter a dominant paradigm may be perceived as false instead of refuting the para-

digm. In this way paradigms can curtail the potential of progress and new thinking within a

given subject.

Operational innovation

Product/service innovation

Strategic innovation

Management Innovation

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As quoted above, it is Hamel’s starting axiom that the paradigm of modern management

places the pursuit of efficiency ahead of every other goal. Recognising Prahalad & Krishnan’s

proposition that the future of competition requires efficiency and flexibility, it is obvious that

there is a need for a paradigm shift within the world of management. Such a paradigm shift

would have a two-sided relationship to the social architecture of an organisation.

On the one hand, a paradigm which recognises efficiency and flexibility as equally important

goals would affect the social architecture of organisations – the way people interact with each

other. But on the other hand, a radically different social architecture is also a precondition to

such a paradigm shift, since a paradigm shift requires radically different thinking; this is self-

evident. That is probably the reason why one of the most prominent characteristics of innovative

organisations is diversity. When people of different genders, races, cultures, and ages are as-

sembled, they obtain the ability to understand and leverage the rapidly changing demographics

of customers, markets, and employees around the world(Skarzynski & Gibson 2008:28). This

kind of diversity is a precondition to continuous innovation; furthermore, because of the ability

of paradigms to limit unconventional thinking, this diversity is also a precondition to a para-

digm shift:

The people who have got a stake in the old technology are never the ones to embrace

the new technology. It’s always someone a bit on the periphery - who hasn’t got anything

to gain by the status quo - who is interested in changing it.(Drexler 2005)

Unfortunately, the social architecture of today’s companies rarely allows the people on the

periphery any influence on the future business development:

if you draw a typical organizational pyramid with senior management at the top, the

question is, Where in that pyramid do you usually find the least diversity when it comes

to thinking about the company’s future, the industry, the competition, and the custom-

ers? It would be at the top. Yet, ironically, where in that pyramid do we place almost all

the responsibility for strategic innovation? It’s invariably with the same set of managers.

(Skarzynski &Gibson 2008:29)

This is why social architecture is at the heart of ensuring competitiveness in the future. For

companies who fail to realise the need for a paradigm shift rooted in their social architecture,

there is a real risk that the train towards the future will have left the platform long before they

get there.

The Future of Management in PracticeHamel lists a number of interesting requirements of the future of management, and indeed, if

these requirements can be met, they hold a revolutionary potential. However, one might ask,

how can this potential be realised in practice? To answer this question we will now refer to a

few examples of alternative management approaches. We will not dig deeply into these ex-

amples, that is not our purpose here. Rather, our purpose is to document that Hamel’s ideas are

more than just futuristic visions.

Across trades as diverse as retail, materials, and Internet search, Whole Foods, W.L. Gore,

and Google have pioneered management innovation*. Despite the obvious differences between

* Information on the three cases can be found in (Hamel 2007), chapters 4, 5, and 6. The following section is based on

these chapters.

79

the three companies they have several common denominators. First of all, the use of traditional

hierarchies as a way of managing employees is almost non-existent.

Little or No HierarchyAt Whole Foods and Google, employees are organised in small autonomous teams. At W.L.

Gore everyone is entitled “associate”; there are no bosses.

Obviously, these kinds of organisations demand a well-developed sense of autonomy from

individual employees; not surprisingly, modern management theory would probably expect

these management models to result in anarchies. However, what reality teaches is, that all three

examples of management innovation are actually quite efficient. Why is that?, one might ask.

Apparently, the absence of bosses encourages individual initiative. Natural leaders flourish

in these organisations. This is a strength which is not achieved solely by eliminating hierarchy

though. The one thing which prevents these flat organisations from turning into counter-produc-

tive anarchies is the high accountability of each employee.

Accountability of the IndividualAt Whole Foods new employees have to be approved by team mates. The peer-based selection

process coupled with profit rankings of each team every four weeks forces all employees to do

their best on a continuous basis: The size of pay checks depends on performance.

W.L. Gore fosters accountability in a way similar to Whole Foods. Seniority has no influence

on compensation. Once a year, all associates are ranked based on an extensive peer review:

“The formula is unblinking: the more you contribute, the more highly regarded and rewarded

will you be”(Hamel 2007: 92).

In like manner, Google distributes differential rewards based on added value. Though the

average salary at Google is slightly lower than the industry average, the standard deviation

around that average is significantly higher than at most other companies.

To sum up, all three example companies create incentives for employees to add additional

value instead of forcing initiative through hierarchy. This method is a way of creating account-

ability, but most important of all it is an expression of trust in the will of each employee to

make a difference.

Space for ExperimentationThe very idea of trust is the foundation for a third cornerstone in Hamel’s examples of manage-

ment innovation: Experimentation. Instead of creating isolated R&D departments to handle

development, experimentation is an ongoing concern for all employees. At Whole Foods, small

teams are responsible for all key operating decisions. Stores are encouraged to buy locally at

the same time, so all stores carry unique product mixes.

At both W.L. Gore and Google, experimentation is institutionalised – but in very unconven-

tional ways. At W.L. Gore, all employees are granted half a day a week of dabble time. This

time can be spent on any initiative of their own choosing.

Likewise, any Google employee is allowed to spend up to 20 percent of his/her time on

non-core initiatives. This approach to experimentation has actually yielded several of Google’s

products.

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High ProfitabilityIntuitively, one could expect companies such as Whole Foods, W.L. Gore, and Google to have

a hard time achieving sustained profitability. This is not the case. These companies have experi-

enced sustained innovation which in turn leads to continuous profitability. This does not imply

that all companies should create management models similar to the ones described above. Dif-

ferent companies in different trades need different kinds of management, which would also be

revealed by closer inspection of the three examples.

Instead, there is one important lesson to learn from the cases altogether: In order to thrive in

the competitive world of the future, managers need to think of management in entirely different

ways.

Challenging Dominant LogicThe social architecture of an organisation leads to a predictable way of thinking about

strengths, weaknesses, competition, consumers, and performance. This is what determines

the organisation’s management style and could be called the dominant logic of the

organisation(Prahalad & Krishnan 2008:148). The dominant logic works as a lens through

which the world is perceived. Therefore the dominant logic must be challenged, if a tradition-

ally thinking business wishes to reap the full benefit of Hamel’s proposed management innova-

tion. As illustrated by the above examples managers must learn a basic lesson: “discipline and

freedom can coexist, but not if companies rely on stick-instead-of-carrot methods for keeping

employees in line”(Hamel 2007:137).

The alternative to challenging dominant logic is the status quo: Traditional hierarchy-based

management. Managers who choose to walk down this path must ask themselves if they are

willing to run the risks inherent in this management model. As Hamel points out: “an organiza-

tion that worships regularity with a single-minded devotion is likely to have trouble distinguish-

ing between value-destroying irregularities and value-creating irregularities”(Hamel 2007:153).

The main management challenge of the future will therefore be to challenge dominant logic.

Only by doing that can a social architecture be created which marries immediate contrasts like

obedience and creativity, experimentation and variance reduction – and hence, on a general

level, efficiency and flexibility.

The iT ChallengeHamel’s thoughts on management innovation are based on the assumption that ordinary

employees are capable of contributing to the competitive advantage of a company - a thought

which is clearly inspired by Douglas McGregor’s Theory Y(Hamel 2007:86). For instance,

Hamel places the competitive contribution of human capabilities into a hierarchy as depicted

below:

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Passion 35 %

Creativity 25 %

Initiative 20 %

Intellect 15 %

Diligence 5 %

Obedience 0 %

Total 100 %

Table 4: The Relative Contribution of Human Capabilities to Competitive Success(Hamel 2007:59)

What Hamel wishes to emphasise, in keeping with the distinction between operational effec-

tiveness and strategy, is that capabilities such as obedience and diligence have a limited impact

from a competitive point-of-view. This does not imply that obedience and diligence should be

disregarded, but merely that it takes something else to achieve sustainable competitive success -

capabilities such as creativity and passion. Mobilising the imagination of every single employee

holds a potential for great competitive value(Skarzynski & Gibson 2008:238).

The need for creative and passionate employees creates very demanding requirements to the

technology architecture of the future. Employees may be brimming with creativity and passion,

but if their everyday work is based on a constraining technology platform, these valuable prop-

erties may never be expressed. Still, even though the future will require even more complex IT

solutions, the general requirements seem obviously simple: Future IT-systems must support a

social architecture which marries efficiency and flexibility. While remaining efficient, IT systems

must enable creativity and experimentation.

In this section we will investigate these general requirements in further detail. We will pres-

ent a conceptual technology model which meets these requirements. Using this model as a

starting point we will investigate the future requirements of ERP systems. Finally, we will dis-

cuss the role which EA has to play in this connection.

The Technology Architecture of the FutureSince future technology architectures will need to support both efficiency and flexibility, it

makes good sense to distinguish between efficiency-oriented and flexibility-oriented require-

ments – just as we did in the section on social architecture. An example of this can be seen in

the table below:

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Technology Architecture

Efficiency Requirements Flexibility Requirements

Standard process templates and best-practices

applications are used

The ability exists to connect with multiple

devices within and in an extended enterprise

including customers and vendors

The focus is on variance reduction, to moni-

tor variance in business processes

The capability exists to facilitate collabora-

tion across the enterprise and its partners and

thus identify new opportunities for process

innovation and customer value

There are rigid controls for changes Interconnections are accomplished easily

with other systems from within the enterprise

and vendors

The database and systems are transaction

oriented

The data focus is beyond the transactions. The

capacity exists to generate insights based on

new trends and weak signalsTable 5: Characteristics of Future Technology Architecture(Own Production Based on Prahalad & Krishnan 2008:182-183)

Just as it is the case for social architecture, the requirements of future technology architecture

may seem contradictory at first glance. However, as we have already discussed, efficiency and

flexibility is no oxymoron – by rethinking traditional ways of doing things it is possible to tear

down existing dogmas and reach new levels of competitiveness.

Rethinking the way we do things is exactly what Hamel wishes to do by creating an integrat-

ed view of technology and social architectures to outline the future of management. His holistic

approach to management and technology is in line with our attempts to unify the concepts of

EA and ERP systems. We will therefore use Hamel’s vision of the future of management as a

starting point for our discussion of future technology architectures.

The Web as MetaphorThe popular term Web 2.0 is characterised by social interaction mediated by the Internet as

exemplified by websites such as Facebook, Wikipedia, and Youtube. Web 2.0 sites have many

inherent properties which resemble the management innovation examples of Google, Whole

Foods, and W.L. Gore. A few of these are(Hamel 2007: 253-254):

Decisions are peer-based•

Decentralisation•

The only hierarchies are “natural” hierarchies•

The tools of creativity are widely distributed•

Capability counts for more than credentials and titles•

Resources are free to follow opportunities•

Hamel uses Web 2.0 as a metaphor to describe his vision of the future of management. If

the overall purpose of management is to amplify and aggregate human effort, this makes per-

fect sense: The Internet amplifies creativity and aggregates effort through pervasive, real-time

connectivity(Hamel 2007:251). If the technology architecture of the future is to align to this

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vision of the future of management, it must likewise imitate the architecture of the Internet:

The technology architecture of the future must be organised in a pervasive network, where

small nodes can potentially be connected to any other node on the network. The current trend

towards SOA can be perceived as a concretisation of this thought, and should therefore be re-

garded as much more than a technological method. In fact, it should be considered a business

concept.

If a technology architecture resembling the Internet is built which creates a foundation for

employees on any organisational level to combine information, to extract new insights, and to

create new business processes, an entirely different kind of organisation will appear which has

the same beneficial characteristics listed above for Web 2.0.

Creating this organisation and the necessary technology architecture will require a radically

different way of thinking about IT. IT can become a valuable innovation enabler, but only if

the social aspects of innovation are recognised – just as it is the case for Web 2.0. Creating

an online suggestion box for lower level employees simply will not do the job. A technol-

ogy architecture must be created which facilitates information sharing, dialogue, and access

to the history of ideas in order to understand the way ideas have been developed. Concepts

such as blogs, wikis, chat rooms and discussion forums are examples of this way of using

technology(Skarzynski & Gibson 2008: 204-205). The future technology architecture must also

provide employees with the necessary tools to turn ideas into reality by allowing for fast imple-

mentation of new concepts. Conceptually speaking, it must be easy for anyone to combine the

nodes on the network in new ways.

ERP systems can become natural parts of such a technology architecture, but this will require

radical rethinking too. In order to support simultaneous efficiency and flexibility, ERP vendors

will have to meet a number of difficult challenges.

ERP Systems in TransitionIt is important to realise that a typical ERP system of today already meets many of the require-

ments of the future. In fact, when it comes to the efficiency requirements of the future, most of

them are already met by today’s ERP technology: As discussed in chapter 3, the wish to bring

automation to business processes has been an important driver behind the employment of ERP

systems ever since the conception of the ERP idea. ERP systems therefore deliver proven best-

practice processes in order to reduce variances and control changes.

Some of the flexibility requirements of the future technology architecture can also be met

using ERP technology of today. As described in the ERP maturity model in chapter 3, ERP II is

characterised by an external scope as opposed to the internal scope which dominates earlier

ERP implementations. This allows for easy integration internally as well as externally. If the fu-

ture of competition is going to be characterised by a globalisation of resources, as predicted by

Prahalad and Krishnan, organisations using up-to-date ERP technology will be well prepared.

On the other hand, if Prahalad and Krishnan are also right in expecting future competition

to be centred on a dynamic, individualised customer co-creation of value, ERP systems must

adapt. As documented by the case of Post Danmark, an ERP system delivers data stability and

an impressive level of detail in the data. But in the end, “SAP is a big old beast”(Appendix E:8).

84

In order to deliver the flexibility required to support new business ideas quickly, SAP and ERP

vendors in general need to create a more adaptable platform. Prahalad and Krishnan’s idea of

value co-creation must be realised externally as well as internally; just as customers must be

able to co-create personalised unique experiences, the internal user interfaces of ERP systems

must be flexible enough for employees to extract personalised information of any kind. Even if

an ERP system is only used as a back-end system with a third party user interface, it must still

be possible to adapt it quickly to new processes. In any imaginable way, flexibility must be a

future top requirement for all layers of ERP systems.

In the below adaptation of the requirements of future technology architecture, the capabili-

ties of today’s ERP systems are reflected. In this version of the table the requirements which are

met by today’s ERP systems are in bold text. The others are greyed out.

Technology Architecture

Efficiency Requirements Flexibility Requirements

Standard process templates and best-practic-

es applications are used

The ability exists to connect with multiple

devices within and in an extended enterprise

including customers and vendors

The focus is on variance reduction, to moni-

tor variance in business processes

The capability exists to facilitate collabora-

tion across the enterprise and its partners and

thus identify new opportunities for process

innovation and customer value

There are rigid controls for changes interconnections are accomplished easily

with other systems from within the enter-

prise and vendors

The database and systems are transaction

oriented

The data focus is beyond the transactions. The

capacity exists to generate insights based on

new trends and weak signalsTable 6: Characteristics of Future Technology Architecture Emphasising Today’s ERP Capabilities(Own Production Based

on Prahalad & Krishnan 2008:182-183)

A technology which promises to deliver some of the advantages required in the future is

ERP III. ERP III is based on a service-oriented architecture, and hence is born with some of the

characteristics of the future technology architecture: Each service can be perceived as a node

on a network, where each node can potentially be connected to any other node. This concept

should theoretically be able to form a foundation for continuous process innovation: Because

the first generations of ERP systems were very hard to change once configured, they often

transformed over time from core to context. According to Moore’s argument, this made them

irrelevant to competition. Once ERP III services have been configured, they can be reconfig-

ured over and over again to allow for virtually infinite new combinations of processes(Woods &

Mattern 2006:50). ERP III can therefore potentially ensure a continuous competitive contribu-

tion from ERP.

Still, whether or not ERP III presents a solution to the architectural challenges of the future

remains an unanswered question. To quote Nils Bundgaard once again:

85

there aren’t that many who have moved to a more developed service-oriented com-

ponent platform like the one they [SAP] have built around Netweaver. It is going to be

exciting to watch the development in the following years, whether they will be success-

ful in creating that flexibility.(Appendix C:2)

While it is uncertain whether or not ERP III will turn out to be successful, we do know that

the trend towards SOA is the most promising approach to matching the requirements of the

technology architecture of the future. Since ERP III is based on SOA, we will therefore assume

that ERP III is a step towards a future competitive technology architecture. However, for a lot of

reasons we will also assume that ERP III will not take us there alone.

Getting ThereSOA and with it ERP III represents an architectural paradigm which – theoretically – creates

unprecedented back-end flexibility. However, since the technology architecture of the future

must support a social architecture of learning, experimentation, and diversity, back-end flexibil-

ity will not do the trick alone. The front-end of tomorrow’s enterprise systems must be adaptable

to the ideas and wishes of each individual user. Without a flexible front-end, the technology

architecture cannot fully meet the requirements of the social architecture. Since the involve-

ment of customers in value creation will be crucial to future competition, this holds true for

both internal and external systems. The lack of a flexible user interface furthermore prevents the

full exploitation of a flexible back-end architecture.

One way of improving user interfaces is to look to Web 2.0 for inspiration once again. Web

2.0 websites are prime examples of customer co-creation, and so they demonstrate the

potential of providing a frame which allows customers to attain a truly individual experience.

iGoogle is a good example of this.

Google’s iGoogle service(Google n.d.a) allows any user to create a personalised web page

with a mash-up of personal e-mail, RSS-feeds, weather forecasts, movie showtimes, book-

marks, etc. In fact, iGoogle comes with an API(Google n.d.b) which allows anyone to de-

velop gadgets for use on an iGoogle page. It is possible for anyone to add gadgets to a global

directory(Google n.d.c) of gadgets. In that way, iGoogle demonstrates the power of the globali-

sation of resources predicted by Prahalad and Krishnan.

The improvement of user interfaces is actually something which ERP vendors such as SAP are

working on. SAP and Microsoft have cooperated to create a product called Duet, which aims

at integrating SAP applications into the Microsoft Office environment. Through Duet employees

can perform analyses in Excel or carry out scheduling tasks in Outlook and see them reflected

in SAP applications(Muir & Kimbell 2008:240).

As an example of SAP’s own experiments into user interfaces SAP CRM 2007 illustrates the

current trend quite well. The user interface in SAP CRM 2007 is inspired by Web 2.0, and SAP

representatives actually compare the product to iGoogle(Fonseca 2007). By allowing for mash-

ups, drag-and-drop functionality, and other kinds of customisation, the user interface helps

employees solve increasingly complex CRM issues. A representative of Siemens AG, an SAP

customer, stated upon the launch of the product:

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With [the new offering’s] Web user interface, it would definitely attract users as opposed

to repel them, which was the case before […] The more flexible you can make a system,

the more beneficial it is to doing your daily work.(Fonseca 2007)

Industry observers characterised the development as follows: “The Web 2.0 support in the

new SAP CRM version can help users to quickly understand customers’ tendencies and enable

application infrastructure products to support changing business processes”(Fonseca 2007).

In other words, a user interface which makes use of the strengths of Web 2.0 as exemplified

by iGoogle and SAP CRM 2007 creates a framework for experimentation and learning – cor-

nerstones in remaining competitive in the future. Therefore, if the development towards more

flexible user interfaces can contribute to creating a system, of which the potential is limited by

imagination only, that will be one of several important steps towards continuous competitive

sustainability.

All of these steps cannot be taken by ERP systems in isolation. First of all, it should be noted

that ERP systems rarely stand alone. Most often ERP systems are part of larger system land-

scapes which need an EA approach of some kind in order to ensure that they are used to their

full potential. We proved this relation in chapters 3 and 4.

Second, the use of Web 2.0 technology does not seem to imply that the importance of EA

will diminish. On the contrary, Web 2.0 technology presents new challenges which must be

integrated into an EA approach just like more well-known kinds of technology. The benefits of

employing software patterns in building social software can serve to illustrate this point.

Patterns for Social Software A software pattern is ”a named description of a problem and solution that can be applied to

new contexts”(Larman 2002:218). Patterns could be described as general principles for software

development; they reflect a desire to document proven solutions to general problems.

The purpose of this is to improve the software development process.

It is a defining characteristic of any pattern, that it describes a “repeating thing”(Larman

2002: 218). As such, patterns are not created, they are identified and decribed to allow for

reuse. This is what makes the use of software patterns for social software interesting: If software

patterns have proved to be useful for social software development, it is an indication that social

software development has requirements which are equal to those of traditional software.

“Asymmetrical follow” is an example of the way social software is built. The concept de-

notes a pronounced asymmetry between the number of people a user is linking to, and the

number of people who link to the user. Celebrity profiles on sites such as Twitter.com are

examples of radically asymmetrical follow. As Twitter has experienced, asymmetrical follow

creates scaling problems. Twitter’s architecture was not built for large scale asymmetrical follow

until it was reengineered based on a pattern called Publish and Subscribe(Governor 2008) or

Observer(Larman 2002: 372). This is an example of the potential inherent in considering pat-

terns when developing social software.

Patterns are widely used in object-oriented contexts where ideals such as high cohesion and

low coupling are considered patterns in themselves - and where increased reuse and reconfigu-

rability are the main business advantages driving the development towards better application

designs. Interestingly, high cohesion, low coupling and the derived abilities to reuse and recon-

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figure are the exact same advantages which are put forth by proponents of the service-oriented

paradigm which dominates modern ERP solutions.

That is of particular interest from an EA perspective because EA is concerned with reuse of

existing components and knowledge through standards and principles. Patterns which encour-

age reuse and reconfigurability may be considered an integral part of any EA repository and a

natural element in building solutions, which meet the competitive needs of the future. In other

words, nothing indicates that the importance of EA will diminish in the future.

EA as the MediatorIf we are to fully understand the future role of EA, it is necessary to reiterate our definition of EA

from chapter 3:

EA is a holistic approach to documenting and managing an enterprise’s current and future

states in terms of strategy, business processes and technology.

The purpose of EA is to enable enterprises to make informed decisions and to implement the

decisions as efficient as possible.

In practice, an EA programme needs to address the dynamic and political nature of enter-

prises making EA a pragmatic exercise.

As can be seen, our definition of EA is divided into three parts which help to distinguish be-

tween the nature of EA, the purpose of EA, and the challenges presented by EA in practice. We

will investigate the detailed future impact on each of these parts later. Before doing that we will

look at the relation between EA and the future of competition on a general level.

An EA programme is concerned with the current and future states of strategy, business pro-

cesses and technology from a holistic point-of-view. The future will entail important changes to

each of these areas for all enterprises across the world:

Corporate strategy will be affected by a globalisation of resources, and a shift from a tradi-

tional firm-centric view of value creation towards a paradigm of individualised customer co-

creation. The changing competitive conditions and the resulting strategy will put new demands

upon the social architecture of companies; in turn this will result in new requirements for tech-

nology architecture. Thereby the new rules of competition will affect all of the areas with which

EA is concerned. This is illustrated in figure 6 below:

Figure 6: The Impact of Future Competitive Changes upon EA(Own Production)

Strategy Business Processes Technology

EA

Global resourcesIndividual customers

New SocialArchitecture

New TechnologyArchitecture

Future

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Realising that EA will be heavily affected by the challenges lying ahead, we are inevitably led

to the conclusion that the way EA is handled is going to have a considerable impact on main-

taining competitiveness in the future. We will now discuss the foundation of this conclusion in

further detail.

The Nature of EA: The Role of MaturityTo begin with, we need to investigate the very nature of EA. As we saw in chapter 3, any EA

programme is characterised by a certain level of maturity. The degree of maturity in an EA

programme determines what the enterprise in question is capable of. In the maturity model

presented in chapter 3 we focused on areas such as standardisation and integration of data. The

model below, on the other hand, illustrates the coherence between EA maturity and flexibility.

Figure 7: Coherence between EA maturity and flexibility(Own Production Based on Ross et al. 2006:80)

As can be seen, the initial levels of EA maturity represent a trade-off between local flexibility

and global flexibility. The standardisation and governance which is required to carry out global

changes seems to limit the possibility to respond swiftly to address local problems. In the later

stages of the model the apparent trade-off is neutralised, and local flexibility is improved along-

side global flexibility. This coherence has some important implications when looked upon in

the light of future competitive challenges.

Not only is a mature EA programme a precondition to realising the full potential of an ERP

system – a tendency which will probably be reinforced as highly granular ERP III solutions

become more prevalent. A mature EA programme seems to be key in handling the flexibility

challenges of the future; without it organisations simply will not be able to respond as a whole

to the quickly changing needs of the market.

Still, the question remains if even the most mature EA programmes of today have what it will

take to handle tomorrow’s competitive demands. The intuitive answer will be negative. First

of all, the dynamic nature of strategy keeps presenting new challenges to even the best run

companies in the world. Second, figure 7 above documents that even the most mature EA pro-

Business Silos

Standardised Technology

Optimised Core

Business Modularity

Architecture Maturity

Flex

ibil

ity

GlobalFlexibility

LocalFlexibility

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grammes have not reached the perfect combination of local and global flexibility. Even though

the trade-off between these two entities has been diminished, it has not been eliminated. The

prime challenge of future enterprise architects will therefore be the attempt to come even closer

to this natural goal.

The Purpose of EA: The Importance of DocumentationIt can be argued that while it is an important challenge to facilitate flexibility by enhancing the

concept of EA even further, EA can in itself become a powerful tool in meeting this challenge.

One of the most important motives for initiating an EA programme is the desire to document as-

sets and processes in order to make informed decisions. The documentation which EA provides

not only provides a foundation for informed decisions; it can also make it easier to imagine

new ways of doing things. Knowing the present state of things and knowing how to document

changes enables new ideas, improvements to the status quo: “It’s tough to imagine something

we lack the language to describe”(Hamel 2007: 128).

The first step towards contesting dominant logic, towards challenging the current single-

minded efficiency paradigm, is therefore to articulate the current state of things. This is cru-

cial and at the same time difficult because there is a risk of ignoring problems “because

they cannot be stated in terms of the conceptual and instrumental tools which the paradigm

provides”(Hamel 2007: 12).

An EA programme may provide the descriptive tools which are necessary to think beyond

current paradigms. But it should be noted, that EA offers a solution as well as a challenge. If EA

is understood from a single-minded perspective, it will yield single-minded results only. Think-

ing beyond current paradigms and at the same time understanding the complex nature of EA

therefore presents an important future challenge.

EA in Practice: The Challenge of UnderstandingThe need to create a sense of partnership between IT organisations and business managers is

recognised in most enterprises. The challenge of the future lies in creating a shared understand-

ing and agenda between business managers and the IT organisation: “This calls for a common

framework and a business process governance structure to facilitate dialogue within the orga-

nization to close the gap between ICT and the business managers”(Prahalad & Krishnan 2008:

186-187).

An EA programme can provide these capabilities, but only if enterprise architects realise the

pragmatism which follows from the dynamic and political nature of enterprises. In this area the

role of EA will be the same in the future. This does not make things any easier though.

In order to handle the changing competitive demands of the future, senior management

involvement in IT decisions will be even more crucial than is the case today. This will require

enterprise architects to continue to put effort into communicating new and existing IT opportu-

nities to senior managers recognising that new technology may be outside senior management’s

comfort zone(Prahalad & Krishnan 2008:187).

In turn, this makes it a central requirement to communicate the complex nature of IT deci-

sions. Senior managers may believe IT procurements to be a matter of commodities, which

would be a simplification in most cases. Not only ERP procurements, but IT procurements in

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general will fail, if enterprise architects fail to make senior management understand the impor-

tance of acting with circumspection when handling IT issues.

Overall, EA’s most important competitive offering is to create an integrating match between

IT and business resources. The growing maturity of EA programmes actually suggests that the

future will entail the dissolution of the distinction between business and technology; CIO’s will

no longer be technology managers but business managers on equal terms(Prahalad & Krishnan

2008:194) with the remaining C-level executives.

This development holds the potential to make EA an integrated part of any company’s strate-

gic decisions. But only by embracing this tendency, can enterprises secure the full benefit from

the ongoing development. A foundation based on EA may actually become crucial in ensuring

competitive differentiation in the time to come: “Instead of strategies based on reacting to cus-

tomer demands and competitor initiatives, a company with a foundation will primarily base its

strategies on identifying opportunities to leverage its capabilities”(Ross et al. 2006:199).

In other words, the combination of an efficient technological platform, prudent competitive

positioning, and EA as the overall governance mechanism, can prove extremely valuable. The

alternative resembles a ship without a map nor a compass trying to navigate troubled waters.

The combination of EA and ERP systems, the subject of this thesis, therefore holds a great po-

tential in terms of ensuring sustained competitiveness in the future; but harnessing the potential

of this combination will require careful consideration of the challenges listed above.

Part Conclusion: How can the combination of Enterprise Architecture and ERP systems be used to handle the challenges of the emerging globalised marketplace?The emerging globalised marketplace presents two overall challenges: Globalisation of resources

and individualisation of customers.

The future will imply massive vertical integration as competitors strive to create the best

mix of resources which in turn can help them deliver the best products. At the same time, the

end consumers at the end of the value chain will demand new and personalised solutions as

opposed to the mass-produced goods of the past. This trend ushers in a new age of customer

co-creation as opposed to the traditional firm-centric view of value creation.

The challenges of the future require new organisational abilities. Efficiency and flexibility,

long considered contrasts, must be married in order to deliver cheap solutions to the individual

demands of customers. Furthermore, customers must be considered part of the value creation

process. Organisations must create partnerships with customers to create a unique value offer-

ing. To solve this task both the social and technological architectures of organisations must be

redefined.

Innovation within the field of management is necessary to achieve a social architecture

which meets the needs of the future. The traditional efficiency-seeking management paradigm

must be abandoned in favour of an approach to management which emphasises flat organisa-

tions, individual accountability, and experimentation. Whole Foods, Google, and W.L. Gore are

examples of companies who have already done this. The social architecture of these companies

resembles the architecture of the Internet in many ways: It is decentralised, abandons hierar-

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chies, and allows any resource to follow opportunities. The technology architecture which is to

support this new kind of human interaction must have similar properties.

The technology architecture of the future must be organised in a pervasive network, where

small nodes can potentially be connected to any other node on the network. The SOA trend is

an example of a movement towards such an architecture. However, new technology is not suf-

ficient in itself. The fundamentally social nature of innovation must be recognised in the design

of technology. If not, the social architecture is not supported.

ERP systems of today already meet many of the requirements of the technology architecture

of future. In particular, the efficiency requirements are covered well by existing technology.

However, not all of the flexibility requirements are met; SAP is still a big old beast. Even though

ERP III has yet to prove its worth in practice, its service-oriented approach may very well prove

to be an integral part of the technology architecture of the future.

Whereas ERP III is a new approach to organising the back-end of ERP systems, the front-end

must not be forgotten. Web 2.0 websites such as iGoogle with their user-driven, social approach

to interfaces may prove to be invaluable inspiration in the quest for an interface which meets the

needs of the future. In fact, SAP has already launched products with Web 2.0-inspired interfaces.

The use of EA standards in controlling the development of future social and technological

architectures may prove to be crucial. In fact, EA may prove to be a central mediator, because

future challenges will affect all areas of EA: Strategy, business processes, and technology.

Mature EA programmes will be key in ensuring the flexibility required by future market

conditions. The documentation methods inherent in EA will be useful tools in developing solu-

tions to new kinds of problems. And finally, an EA programme can provide the crowbar which

may be necessary to convince business managers of the importance of an integrated approach

to strategy, business, and technology in handling the competitive challenges of the future. The

future may prove it more true than ever before that a governing frame in the shape of an EA

programme is necessary to realise the full potential of technology.

Overall these findings can be summed up in the following recommendations.

ERP customers must realise that:

the main challenge of the future is to challenge dominant logic and embrace the para-•

digm shift which combines efficiency, flexibility, and diversity

the idea of globalised resources and customer co-creation must be integrated into all •

offerings

social and technological architectures must be aligned to handle this challenge•

sustainable competitive advantage is enabled by the foundation which EA creates. A •

mature EA programme is a precondition to achieving alignment

To support these requirements ERP vendors must

understand the paradigm of combined efficiency, flexibility, and diversity and incorpo-•

rate it in all development efforts

keep pursuing new ways of building a more flexible platform – possibly with the Internet •

as inspiration

develop customer-centred user interfaces. Web 2.0 may be valuable inspiration•

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6Chapter 6 – Closing Remarks

“in the end we retain from our studies only that which we practically apply“ (goethe n.d.)

Johann Wolfgang von Goethe

94

95

Chapter 6 – Closing RemarksThis chapter concludes the thesis. It sums up the findings of the thesis in a final conclusion. It

furthermore discusses the results of the study and their methodical validity. Finally, the perspec-

tives of the thesis are discussed.

Conclusion: How can Enterprise Architecture be used to improve upon the implementation and continuous use of ERP systems?The concept of strategy and the distinction between strategy and operational effectiveness are

crucial to the thesis. It is a central point that IT may have a strategic impact, but that this strate-

gic impact is not caused by IT in itself, but by the way IT is implemented.

An ERP system is an example of a piece of information technology; this implies that an ERP

system creates no strategic impact by itself, but that an ERP system can potentially have a strate-

gic impact depending on the way it is implemented.

In contrast to an ERP system EA is a general approach to the management of large IT systems.

A mature EA programme has a number of properties which can be considered requirements

to realising the full potential of a modern ERP system. These requirements include technology

standards, digitised core data, and reusable modules. The thesis therefore concludes that a

governing frame in the form of EA is a precondition to realising the full, strategic potential of an

ERP system. This central finding is backed by empirical studies of Carlsberg and Post Danmark.

The cases document that EA facilitates – among other things:

increased reuse of existing components / a more lean system landscape •

a more fact-based decision model which leads to a better coupling of strategy, business •

and IT

less expensive customisation of ERP systems •

The empirical data support another important conclusion as well - even though the empiri-

cal support is not as strong as for the first conclusion: The scope of ERP systems is changing

concurrently with the dynamics of competitive advantage to ensure a continuous strategic

potential.

This is why the thesis goes on to investigate the future challenges of EA and ERP systems.

The future will present two overall business challenges: A globalisation of resources and an

individualisation of customers. The concepts of EA as well as ERP systems must handle these

challenges to ensure a continuous business potential.

The two challenges will require businesses to abandon the traditional efficiency-seeking

management paradigm in favour of a new paradigm which attempts to marry efficiency and

flexibility. This will affect business strategy, business processes, and technology – three areas

which are all considered integral parts of EA. EA will therefore play a pivotal role in handling

the challenges of the future. This is expressed in several ways:

A mature EA programme is a precondition to the flexibility of technology and business pro-

cesses demanded in the future. In addition, EA’s emphasis on documentation will be a valuable

tool in creating and documenting new and innovative business solutions. Finally, EA must play

the role as mediator between senior management, business managers and technology manag-

ers in order to ensure that the strategic potential of IT is realised and recognised by all parts an

organisation.

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ERP systems can potentially play an important role in leveraging the strategic potential of IT.

A few challenges must be met before this will be reality though. When it comes to meeting the

efficiency requirements of the future, the ERP systems of today are well suited. But if flexibility

is the goal, present day ERP systems have a few shortcomings. Once configured, ERP systems

often turn out to be hard to change.

The recent development of service-oriented ERP solutions, ERP III, may prove to be a step

towards increased flexibility. However, in addition to creating a more flexible back-end, ERP

vendors will also have to develop a front-end which enables utilisation of back-end flexibility.

Web 2.0 services such as iGoogle may be useful inspiration for this; Web 2.0 is actually used as

inspiration for SAP’s latest experiments into user interfaces.

Overall, it can be concluded that EA and ERP systems in combination will have important

roles to play in the future of competition. However, this will require the recognition by both

ERP vendors and customers that the new competitive paradigm is going to affect both strategy,

business processes, and technology, and that it will require a holistic approach such as EA to

handle it.

CriticismThe findings of the thesis can be divided into two overall parts: The first part which is con-

cerned with the general relation between EA and ERP systems, and the second part which is

concerned with future challenges. The findings of the first part are generally well supported.

Validity of the First PartThe first part of the thesis concludes that the competitive scope of ERP systems is changing over

time to match the dynamic character of strategy. This conclusion is only partially supported

due to the snapshot-like character of the case study as opposed to the historical nature of the

conclusion. A study of the competitive goals underlying historical ERP implementations would

therefore be a valuable addition to the thesis.

When it comes to the other conclusions in the first part of the thesis, the combination of

theoretical and empirical data makes the central argumentation strong. However, if the argu-

mentation were to be strengthened even further, it would be a suitable starting point to expand

the methodological scope.

First of all the amount of qualitative data could be increased: More companies could be

added to the case study, and a triangulation of data collection methods could be carried out:

Methods such as observation or cultural probing* could be applied. Observations of daily work

situations can contain interesting information regarding subjects as diverse as user interfaces,

the availability of data, and the role which EA plays in daily decision making. Cultural probing

can facilitate new ideas of improvements of systems based on employees’ subjective percep-

tions.

Qualitative data could furthermore be supplemented by quantitative data. Quantitative data

could be used to investigate the correlation between – for instance – expected ERP benefit, rea-

lised ERP benefit, and EA maturity. Examples of parameters to use in this connexion could be:

* Cultural probing denotes the request for focus groups to describe their subjective perceptions of daily life processes or

technology

97

the number of business applications involved per business process•

average time elapsed from initial idea creation to fully implemented business processes•

various elements in a selected EA maturity model•

A quantitative study documenting the current empirical findings would greatly strengthen the

conclusion that mature EA is a precondition to realising the full potential of an ERP system.

Validity of the Second PartThe second part of the thesis disregards investigations of the present in favour of the future.

It follows naturally that these investigations are subject to a considerable uncertainty. In this

specific case the predictions are furthermore based on the assumption that Prahalad & Krishnan

are right in assuming that the future of competition will be based on a globalisation of resources

and customer co-creation of value. If this precondition does not hold true, the argumentation is

weakened.

Still, in evaluating the conclusions it should be noted that some companies already display

behaviour which conforms to Prahalad & Krishnan’s mentioned paradigm of competition. How-

ever, the findings should be considered probable but speculative – not absolute truths.

PerspectivesIf any immediate lesson can be drawn from this thesis, I believe it is related to the nature of strat-

egy – the conditions which determine whether or not it is possible to obtain a position which

provides sustainable competitive advantage.

When an entirely new competitive paradigm manifests itself, the competitor who under-

stands the paradigm and employs it in a favourable way will possess an incredible advantage

compared to everyone else. Hence, as a new competitive paradigm is appearing right now,

ERP vendors and companies employing ERP systems with a strategic aim must be prepared to

rethink their business strategies and technology bases entirely. The tendency to use ERP systems

in new ways is already obvious. ERP vendors have started delivering their solutions as services

across the Internet(Andersen 2008a, Andersen 2008b), while Web 2.0 sites such as Facebook

now partner up with CRM solution providers in order to create social business software(Sandal

2008). In general, technologies which are mentioned in the thesis as possible new ways of

employing ERP are on the rise. On Gartner’s list of the ten most important new technologies in

2009 we find six technologies which would be natural parts of a new approach to ERP(Bang

2008:7):

Cloud computing•

Web-oriented architecture•

Corporate mashups•

Social software/social networking•

Unified communications•

Business intelligence•

At the same time, old-fashioned user interfaces present a major challenge on the road to

fully utilising business software: Only 23 percent of employees use the tools and technologies

provided by business intelligence, ERP, and CRM software. The biggest business challenge is to

make employees use the technology to its full potential(Thomsen 2009).

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If any lesson presented by this thesis should be accentuated as a possible solution to this

challenge, it is the idea that new challenges require new solutions. If employees cannot figure

out how to utilise technology because of counter-intuitive user interfaces, then it must be cru-

cial to reconsider the way user interfaces are developed. The alternative is getting what we have

always got by doing what we have always done; reluctance to change may very well become

the single biggest organisational flaw as companies across the globe realise the need to handle

a future of new and completely different challenges.

This does not necesarily bode well for ERP. If future enterprise IT solutions may be deliv-

ered by giant mash-ups of external loosely coupled Web 2.0 services, SaaS solutions, mobile

applications, and internal core functionality, then the time of the traditional, enterprise-wide

one vendor ERP system may be long gone. Enterprise architects will be the pioneers who guide

enterprises in a technological reality where distinct, loosely coupled elements are contantly

reconfigured to match the competitive reality. This ushers in a future of radically different con-

ditions which require radically different action. To quote Hamel:

real progress demands a revolution. You can’t shuffle your way onto the next S-curve. You

have to leap. You have to vault over your preconceived notions, over everyone else’s best

practices, over the advice of all the experts, and over your own doubts.(Hamel 2007:15)

Realising the need to think differently will unquestionably characterise the competitive win-

ners of the future. Failure to realise this need will determine the losers with an almost equal

certainty.

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AppendicesAll appendices are included in pdf-format on the enclosed CD-ROM. The appendices can also

be downloaded from www.jenskeld.dk/appendices.zip

A list of appendices can be seen below.

Appendix A: Transcription of Interview with Niels Bjørn-Andersen,

Copenhagen Business School

Appendix B: Transcription of Interview with Khaliq Khan, Accenture

Appendix C: Transcription of Interview with Niels Bundgaard, Rambøll Management

Appendix d: Transcription of Interview with Anders Odgaard, Carlsberg IT

Appendix E: Transcription of Interview with Jan Svärd, Post Danmark

Appendix F: Interview Guide for Interview with Niels Bjørn-Andersen,

Copenhagen Business School

Appendix g: Interview Guide for Interview with Khaliq Khan, Accenture

Appendix H: Interview Guide for Interview with Niels Bundgaard, Rambøll Management

Appendix i: Interview Guide for Interview with Anders Odgaard, Carlsberg IT

Appendix J: Interview Guide for Interview with Jan Svärd, Post Danmark

Appendix K: Notice of Altered Research Question