Case study: ERP

On October 11, 2010, Sunil Satav, the managing director of India's VINSUN Infra Engineering Pvt. Ltd. (VINSUN), reached his home after a town hall meeting¹ at his company. The company's growth had led to challenges in terms of information overload and had made information management difficult. During the previous month when the company had been bidding for a civil electrification project, Satav had found that data related to input costs had not been readily available. Indeed, gathering all the data from different sources had required enormous effort. In addition, although the company had won the bid, Satav discovered that some of the costs included in the calculations were outdated by as much as a full year. Subsequent analysis had shown that this was going to result in a negative net present value (NPV)² for the project.

The regular occurrence of situations like this one prompted Satav to try to find a way to access accurate information more rapidly. He firmly believed that VINSUN had to become more competitive if it was going to keep growing. The company was using Microsoft (MS) Office Excel to process the information for its day-to-day activities. With the passage of time, this had led to the accumulation of a large number of Excel files across the company. Employees regularly encountered problems with a lack of data integrity, redundancy and incompleteness. Also, data backup was not being properly maintained.

Satav had always sought the opinions of all of the company's stakeholders before making important decisions. This was why he had organized a town hall meeting to discuss this specific issue. The solutions discussed in the meeting included the implementation of enterprise resource planning (ERP) on premise or on cloud (see Exhibit 1). Some employees were enthusiastic about ERP, while others expressed their reservations. The mixed reactions left Satav with a dilemma

COMPANYBACKGROUND

VINSUNhadbeenprovidingelectricalandcivilservicesacrossIndiaforadecade.Itofferedelectrificationsolutionsandservicesforavarietyofproductionandserviceindustries,telecommunication companies,commercialbuildings,institutionalcampuses,residencesandhospitals.Thecompany'sannualturnover had almost tripledin theprevious fiveyears (see Exhibit 2)

Satav was born in a small village in the Betul district of the state of Madhya Pradesh, the second largeststate in India. It has traditionally had an agrarian economy, but recently its gross domestic product (GDP)has grown rapidly to above the national average.³ Interested in becoming an entrepreneur since childhood,Satav had moved to Indore, Madhya Pradesh, to pursue a degree in electrical engineering at one of themost highly regarded institutes in India. He started working part time to gain practical experience inaddition to his studies. Working as an electrical engineer at a cold storage plant in the city helped him putaside some money so that he could start his own business. With only very humble savings, he rented anoffice in the city and started working as a consultant for the cold storage plant. He founded VINSUN in2002, and it had grown from a small start-up into a small- and medium-sized enterprise (SME) with 60employees. The organization had a mix of onsite and office employees (see Exhibit 3). Satav planned todouble the employee base over the next three years to fulfill the growing demands of his company'scustomers.

VINSUN was largely focused around Indore and serviced approximately 40 per cent of the cold storageplants in the area. With stability in its existing business and the capability to build on this, the companyhad made forays into civil engineering projects such as building mobile phone towers and undertakingexchange installation projects. More recently, VINSUN had also diversified into electrical work forcommercialcomplexes andwas planningto enterintounexploredsegments ofthe industry.

For his exemplary work, Satav received the Rashtriya Udyog Ratna Award from the National Educationand Human Resource Development Organization in 2010 and an Excellence Service Award from BhartiAirtelLtd., Tata Teleservice Ltd.and Flexituff Industries in 2008

SEARCH FOR AN IT SOLUTION

VINSUN's chief information officer (CIO), Ruchira Kulkarni, had some previous experience working with an information technology (IT) company, so Satav discussed data management issues with her. When Kulkarni told him that ERP solutions could help to resolve these issues, Satav asked her to investigate further.

Kulkarni started investigating various ERP solutions and the vendors who could implement them. She had two alternatives in mind: ERP on premises or ERP on cloud. After an extensive search, she zeroed in on and invited quotations from Bluechip Corporation (Bluechip), one of the major ERP solution providers, and a start-up called Codeautomations. She analyzed the costs of all available options, keeping in mind that there would be two laptop users and six users at workstations.

Bluechip's ERP on premise solution appeared to be very versatile and completely suited to the company's needs. At the same time, however, this product offered functions such as fixed asset management and fleet management, which VINSUN would not need at any time in the near future. Also, although Bluechip had a track record of successful implementations and had various customization options to produce a product that included only the required modules, the cost of customizing it somewhat offset the savings. Kulkarni felt that the product was quite useful but that it would put stress on the company's IT budget (see Exhibit 4).

Codeautomations provided quotations for both ERP on premise and ERP on cloud (see Exhibits 5 and 6). Network costs are provided in Exhibit 7

TOWNHALLMEETING

Satav organized a small meeting at 4 p.m. on October 11, 2010, to be held before everybodyleft forhome,andpresentedtheinformationhehadobtainedabouttheseoptions.Thefollowingareexcerptsfromthemeeting:

Satav:Asyouknow,thepastfewyearshavebeenverygoodforourcompany.Wehavegrowntremendously. However, our needs for maintaining and processing information are also growingvery rapidly. Our current information management system is dependent on individual employeessince we maintain our data on local computers and search manually when we are required toaccess it. Since our workstations are not connected to each other, we collate the information forour projects manually from a number of different sources. This approach worked well for thecompanywhenitwassmall.However,withtheincreaseinsizeandthegrowingcomplexityofthe work we will undertake in the future, we must find a way to provide greater efficiency. I haveconvenedthismeeting to discusswhat we should doabout this.

IaskedKulkarnitoproposesomeoptions,andshehasgatheredinformationregardingvariousERPsystems.Iwould liketohearyourviews after shehasexplainedthe benefitsofERP.

Kulkarni: Implementing ERP systems will help us to overcome our limitations. It will be a good strategythat will allow us to focus more on our core activities and to get real-time data. Rather thanmaintaining multiple redundant copies, data will be stored safely on a database, and we will beable to retrieve it any time that we want by using programs that are faster and more accurate thanwhat we currently have. More importantly, ERP will help us to adopt best practices within ourindustry.

Rajesh Lokhande (project manager): ERP is indeed helpful and does assist organizations in some cases.However, we have heard about too many cases where companies have invested a lot of resourcesinto ERP implementation and ended up with zero results. In some cases, it has even led to adecrease in efficiency. Many of our users are not technology savvy, and it will be very difficult totrainthemon ERP.Are wesure thatwe can implementERPsuccessfully?

Subhash Deshmukh (assistant manager): I agree that we are facing problems with our current system, butif we implement an ERP system, this will change the way we work and may ultimately render usless productive, as Lokhande has pointed out. Our business processes will be changed, and it willtake a significant amount of time to learn to use and become comfortable with the new system.Keeping these factors in mind, a customized solution would seem to be a better option. Thissolution must be exactly like our current system, but automated. Since our work practices andprocesseswill not change,this appears to bea less riskyoption.

Kanika Sharma (project manager): I realize thatall of you are comfortable with the current system andam, therefore, in favour of a customized solution. However, ERP could become a game changerfor us. Once we have become comfortable with it, we would reap greater benefits from it, just asothercompaniesworldwidehavedone.Also,mypersonalopinionisthatweshouldgoforERPoncloud.Thiswouldsaveusthehugeinitialinvestmentcost.Wewouldalsobeabletostart workingonsolutionsimmediatelyandtheentireoperationalriskwouldbetransferredtotheserviceprovider.

THE DILEMMA

After the meeting, Satav contemplated his course of action. The meeting had not gone well; this was evident from the reactions of some of the employees who had attended. Satav was able to gauge their moods, and many of them seemed strongly opposed to the proposed changes. He was about to take a major decision, and he knew that such a change could lead to failure, especially if the organization did not accept the change wholeheartedly. If he now went ahead, he would have to do the heavy lifting by convincing people of its merits. He thought about possible ways he could promote the efficacy and necessity of making this change.

His other decision concerned which solution to select. A customized solution did seem to be the easiest choice for solving the company's problem for the time being while also satisfying the employees. However, this was tantamount to sweeping dust under the carpet. This information system would not be significantly better than the existing one since it offered no interconnectivity between the functions.

After a thorough analysis, Satav determined that he could set aside a budget of around 2 to 3 per cent of the company's annual revenue for IT expansion. With respect to ERP, he was concerned that the cost of Bluechip's ERP solutions would be substantially higher than this. However, Codeautomations' lack of experience was a negative point since one small mistake could jeopardize his entire investment. Satav also had to make a choice about whether to go for ERP on premise or on cloud. Contrary to popular opinion, cloud might prove to be costlier over the long term; indeed, he was confused about why cloud was considered to be less costly. Security would be the primary concern in the case of ERP on cloud because the company's data would be stored on the service provider's database. He and his employees would have to build trust and receive assurances from the vendor regarding that important consideration. However, ERP on cloud would be accessible from anywhere through the Internet. This would provide the flexibility to work from virtually any location. Yet, if any issues arose about the speed and connectivity of the Internet, ERP on cloud would not work properly while ERP on premise would not require Internet reliability if the users accessed the software from inside the VINSUN network. Satav pondered what action he should take

EXHIBIT 1: CLOUD COMPUTING

"Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction."4 In cloud computing model, IT services are distributed. These services can be accessed over the Internet or intranet. Cloud providers, rather than the organizations, have control over services and resources in this case. Cloud has three service models: cloud software as a service (SaaS), cloud platform as a service (PaaS) and cloud infrastructure as a service (IaaS).

Though these services are adopted for different purposes, they have a common business model in which the computing resources are provided on rent. SaaS is the software application that is delivered over the Internet. PaaS provides an application development environment that facilitates developers to access the resources for application development. IaaS provides a large set of virtual computing infrastructure resources to customers via the Internet.

EXHIBIT2:ANNUALTURNOVEROFTHECOMPANY

Year	Turnover(inmillionunitsofcurrency)
2000-01	2.4
2001-02	4.5
2002-03	6.5
2003-04	8.2
2004-05	10.1
2005-06	15.9
2006-07	22.5
2007-08	31.5
2008-09	21.0
2009-10	40.0(WorkOrderInHandAndWorkInProgress)
2010-11	45.1(WorkOrderInHandAndWorkInProgress)

EXHIBIT4:COSTSFORBLUECHIPCORPORATION'SERPONPREMISESOLUTION

CostComponent	Cost (inunits ofcurrency)	Detail
InitialHardwareCostperItem
Workstations	34,950	HCL Beanstalk AD1V0028 All-in-one (six workstationsrequired)
WorkstationUPS	3,715	MICROTEK1KVA(sixworkstationUPSrequired)
Laptops	66,244	DellLatitudeE6430Premierlaptop(twolaptopsrequired)
Server	100,000	Bluechip'sERPserver
Back-upServer	100,000	Bluechip'sERPback-upserver
ServerUPSSystems	3,875	MICROTEK/LUMINUS1KVA(twoserverUPSsystemsrequired)
OngoingHardwareCost
HardwareMaintenance	Yearlyaveragemaintenancerate:10%ofinitialhardwarecost
InitialSoftwareCost
ERPApplicationSoftware	120,000	Peruserinitiallicencecost(eightlicencesrequired)
Consulting	80,000	One-timestand-aloneconsultingexpenditure(Includesbusiness process and fit, gap analysis, requirementanalysis,implementationplanningandconfiguration)
Deploymentcost	520,000
Training	180,000
OngoingSoftwareCost
SoftwareMaintenance	Yearlyaveragemaintenancerate:18%ofinitiallicencecost

EXHIBIT5:COSTSFORCODEAUTOMATIONS'ERPONPREMISESOLUTION

CostComponent	Cost (inunits ofcurrency)	Detail
InitialHardwareCostperItem
Workstations	34,950	HCL Beanstalk AD1V0028 All-in-one (six workstationsrequired)
WorkstationUPS	3,715	MICROTEK1KVA(sixworkstationUPSrequired)
Laptops	66,244	DellLatitudeE6430Premierlaptop(twolaptopsrequired)
Server	70,000	HpServerML330G6
Back-upserver	70,000	HpServerML330G6
ServerUPSSystems	3,875	MICROTEK/LUMINUS1KVA(twoserverUPSsystemsrequired)
OngoingHardwareCost
HardwareMaintenance	Yearlyaveragemaintenancerate:10%ofinitialhardwarecost
InitialSoftwareCost
ERPApplicationSoftware	30,000	Peruserlicencecost(eightlicencesrequired)
Installationcost	200,000
OngoingSoftwareCost
SoftwareMaintenance	Yearlyaveragemaintenancerate:15%ofinitiallicencecost

EXHIBIT6:COSTSFORCODEAUTOMATIONS'ERPONCLOUDSOLUTION

CostComponent	Cost (inunits ofcurrency)	Detail
InitialHardwareCost
Workstations	34,950	HCL Beanstalk AD1V0028 All-in-one (six workstationsrequired)
WorkstationUPS	3,715	MICROTEK1KVA(sixworkstationUPSrequired)
Laptops	66,244	DellLatitudeE6430Premierlaptop(twolaptopsrequired)
OngoingHardwareCost
HardwareMaintenance	Yearlyaveragemaintenancerate:10%ofinitialhardwarecost
OngoingSoftwareCost
Servicingfee	2,000	Peruserpermonth(requiredforeightusers)
StorageCosts(IaaS)
DataStorageCost	60,000	Annualcost(Itisassumedthatthiscostwillincreaseby10%everyyearasthebusinesswillgrowdynamically.)

EXHIBIT7:NETWORKCOSTS

CostComponent	Cost (inunits ofcurrency)	Detail
InitialNetworkCost
Router	15,479	RV082Model(onerouterrequired)
Network Infrastructureset-upcost	120,000
OngoingNetworkCost
RouterMaintenance	Yearlyaveragemaintenancerate:10%ofinitialequipmentcost
Network InfrastructureMaintenance	Yearlyaveragemaintenancerate:10%ofinitialinfrastructurecost
2MbpsInternetline	999	MonthlycostofsharedInternetline.

Question:

Explain the case study under each title:

Introduction

Purpose

Background/Methodology

Scope

Executive summary

Problem statement

Main findings

Recommendations

Benefits