Enterprise Resource Planning and the Importance of Transparency at UT Austin

Enterprise Resource Planning (ERP) refers to a business management software. One of the primary characteristics of the software, compared to legacy technology, is application integration. The integration of various transactional applications is said to increase efficiency through reduced procurement costs, smaller inventories, lower administration costs and reduced labor costs generally. ERPs are an outgrowth of business material/manufacturing resource planning (MRP) that began being used in the manufacturing in the 1960s in order to solve and automate complex computations involved in production (e.g. the quantities and types of materials necessary to meet a production program) [1].

ERPs are designed to be highly standardized in order to accommodate the particularities of institutions. The inbuilt options that make the ERP operate differently from its original design are referred to as “customizations”. Customizations are added before or during the implementation phase of the ERP and are one of the primary costs associated with ERP implementation [2].

There is no inherent link between an ERP and a given business model in the abstract (such as Shared Services). A given institution’s rules must be programmed into an ERP system, however, which implies a detailed understanding of the organizational structure of that institution [1].  An alternative to proliferating customizations is organizational change, so that the institution adapts to the ERP (called a “vanilla” solution by Peoplesoft) [2].

There are three main costs associated with ERP implementation. A small part of  costs are from the licensing fee. A larger portion of the cost is from service and support of programmers. Generally the more customizations that are required the more programmers will charge [2]. The other important cost come from consulting fees. Kurbel explains that the reason consultants are necessary is because most firms, which change management software every 10-20 years, do not have the requisite software expertise on hand in order to properly implement the ERP. This has a downside;

“…the company becomes dependent upon the external consultants, who do not necessarily have the same goals as the company. Wu and Cao quote an information manager who stated that consultants are primarily interested in finishing an implementation project as quickly as possible. The company, however, is interested in obtaining the best possible solution. Because the consultants only present the option they decided upon, the company is often not aware of other possible alternatives.”  [1; 159, 3]

The situation has been documented in a study on ERP implementation by Grant et al. [2]. Grant et al. compared ERP implementation in three institutions; FoodCo, Bankco and OzUni. The study concludes based on investigation into the three cases “that ERPs do not produce the beneficial organisational outcomes which vendors and consultants claim” [2; 21]. The University in their study (referred to as OzUni) rejected Peoplesoft’s ERP recommendation and built an in-house solution. The consultants argued that an in-house solution would be costly, but the Deputy Director of OzUni was not convinced, since probing the issue further revealed that the Peoplesoft solution would be incredibly expensive due to the amount of customization necessary. Administrative and academic representatives of OzUni pointed out;

“that the nature of the ERP business is such that to have sold PeopleSoft Students to OzUni would have involved a lucrative long-term contract for the consultants in conjunction with PeopleSoft to provide regular service releases and implement further customizations and upgrades as necessary” [2;21]

According to the study four years after building an inhouse ERP, “after a series of internal reviews into its performance, [OzUni] claims to be very satisfied with the way its operating.”

In stark contrast to OzUni, UT Austin is relying on an external provider (Workday), has already paid 30,000,000$ for the licensing fee, never considered an in-house solution, has embraced the organizational change advocated by the management and consulting firm, Accenture, to which they have already paid approximately 4,000,000$ in consulting fees. Part of these consulting fees included over 1,000,000$ for a study to be conducted by the same company [4], and the CFO, Mr. Hegarty had such blind-faith in the company that he never asked them to back up their Shared Services-ERP recommendations with the data Accenture claims to have gathered.

The plan has already been incredibly costly, and if the literature on ERPs is any guide, this is just the beginning. Transparency into UT administration financial decisions and conversations with external providers and consultants together with frank discussion of available alternatives is extremely important. An in-house ERP should not be off the table,it may be the most appropriate and cheapest option for UT.

[1] Karl, Kurbel. 2013. Enterprise Resource Planning and Supply Chain Management. Springer.

[2] Grant, D, Hall,R., Wailes, N., Wright, C. 2006. The False promise of Technological determinism: The Case of Enterprise Resource Planning Systems. New Technology, Work and Employment.

[3] Wu H, Cao L (2009) Community collaboration for ERP implementation. IEEE Software 26(4):48–55, cited in Kurbel [1].

[4] For the consulting fees to Accenture

http://www.utexas.edu/transforming-ut/committees/administrative-services/shared-services-committee/faculty-resolution-01-27-2014/7

For the cost of Workday

http://www.utexas.edu/transforming-ut/committees/administrative-services/administrative-systems-committee

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