Information Architecture of ERP Systems at Globalised Enterprises in a Small EU Member State

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Information Architecture of ERP Systems at Globalised Enterprises in a Small EU Member State
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  Information Architecture of ERP Systems at Globalised Enterprises in a Small EU Member State Bálint Molnár   1 , Gyula Szabó 2   1  Eötvös University of Budapest, Information Systems Department1117 Budapest, Pázmány  Péter sétány 1/C 2    Dénes Gábor College, Address:1119 Bp, Mérnök u. 39.  E-mail(s): H molnarba@inf.elte.hu H  , H bpinformatik@gmail.com H   Abstract . The competition on the market enforces companies to adapt to the changing environment. Most recently, economic and  financial crisis accelerates the alteration of both business and IT models of enterprises. The forces of globalization and internationalization motivate the restructuring the business processes then consequently IT processes. To depict the changes in a unified framework, we need the concept of enterprise architecture as a theoretical approach that deals with the various tiers, aspects and views of business processes and different layers of application, software and hardware systems. The research carried out up to now unraveled the typical structural changes, the models for internal business networking and their modification reflects the centralization, decentralization and hybrid approaches.  Based on the results achieved recently by investigation future research program are drawn up to deepen our understanding the trends within the world of ERP systems. Keywords.   Information System, ERP, Enterprise Resource Planning, Enterprise Architecture, Globalization, Centralization, Decentralization, Hybrid. 1. Introduction The competition on the market enforces companies to adapt to the changing environment. Most recently, economic and financial crisis accelerates the alteration of both business and IT models of enterprises. The forces of globalization and internationalization motivate the restructuring the business processes then consequently IT processes. To depict the changes in a unified framework, we need the concept of enterprise architecture as a theoretical approach that deals with the various tiers, aspects and views of business processes and different layers of application, software and hardware systems. The Enterprise Resources Planning systems are widely applied both at large corporations and medium and small companies. Although commercially available ERP systems have a default architecture that could be tailored and re-configured to the existing requirements the changes within the business environment triggers continually changes at the various levels and tiers of both business and information architecture. 2. Theoretical framework 2.1. Competing ERP definitions There are several competing definitions for ERP, we have selected some relevant ones: 1.   “A process by which a company (often a manufacturer) manages and integrates the important parts of its business. An ERP management information system integrates areas such as planning,  purchasing, inventory, sales, marketing, finance, human resources, etc. ERP is most frequently used in the context of software. As the methodology has  become more popular, large software applications have been developed to help companies implement ERP in their organization. Think of ERP as the glue that binds the different computer systems for a large organization. Typically each department would have their own system optimized for that division's particular tasks. With ERP, each department still has their own system, but they can communicate and share information easier with the rest of the company.[3]“ 2.   The essence of ERP is “integrating the resource of the entire ‘enterprise’ from Proceedings of the  ITI 2011 33 rd   Int. Conf. on Information Technology Interfaces,  June 27-30,2011, Cavtat,Croatia 157  an information standpoint.” The essences of ERP are information sharing (which is the same as a common central database) and process integration (the unique character of ERP systems). Several other definitions can be found in [4], [1], [2], [5], [8]. 3. Research hypotheses The internationalization, globalization, market turbulences, changing regulatory rules raises issues that lead to changes and adaptation  processes on several aspects of ERP systems: The companies typically react to the changing environment in cases as follows: 1.   Standardization of ERP and generally information system (IS). 2.   Standardization of business processes,  business services. 3.   The information systems existing at various countries are centralized. 4.   The trends for standardization can be discerned mostly at business functions where strong coupling to the market can be seen. 3.1 Benefits and problems related to ERP system The globalization, the increasing competition, the economic and financial crises enforces the streamlining not only the companies itself but the ERP systems of transnational enterprises. The application of ERP systems have become quite general and common for companies operating in several countries or all over the world on various continents. . 3.2   Enterprise Architecture and Information System Architecture The Information System Architecture  represents the structure of certain components of information processing systems, their relationships among components, those technological principles and directives of organization of which the main purpose is to support business. We can understand under Architecture  a  pragmatic, coherent and consistent structuring of a set of components that through these elements supports the vision of the “user” in an elegant, comprehensive and easily interpretable way. In the 80s, a software architecture and  Information Systems Architecture  were considered as synonyms. But in the 90s, the requirement come into sight to understand and deal with comprehensive and concise concepts that reflect the relevant and significant aspects of the overall information structure of organizations without enforcing extra burdens on the responsible persons handling a particular viewpoint. The description of how a system was internally built depicted primarily the technological components, especially the software building blocks. The Zachman Framework   [7] can be considered as the first important phenomenon that pinpointed to the fact that software architectures were not enough. While software architectures represent internal system details (using, for example, E-R and DFD diagrams)  Information System Architecture  focus on the high-level business and information system processes. We perceive Enterprise IT Architecture  as the suite of strategic and architectural disciplines that includes the Information, Business System, and Technical Architectures. An Enterprise Architecture  can be divided into several levels: -   Business  (systems) architecture  - Defines the structure and content (information and function) of all business systems in the organization (the  ERP   of an organization). -   Information Systems Architecture  (the  ERP system  of an organization) -   Information  (or Data) Architecture  – represents main data types that support  business; furthermore the structure (including interdependencies and relationships) of information required and in use by the organization; -   Application Architecture  – defines applications needed for data management and business support; the collection of relevant decisions about the organization (structure) of a software system, and the architectural style that guides this organization. -   Technical Architecture  – represents the main technologies used in application implementation and the infrastructures that  provide an environment for information system deployment. Technical architecture describes and maintains the integrity of the hardware, software, and infrastructure environment required to support the 158   Business Systems Architecture and   Information Systems Architecture.   3.3 A framework for analysis of effect on globalization and internationalization The difficulties of introducing, implementing, adapting and changing of ERP systems are multiplied by the particular characteristics of organizations procuring ERP systems thereby these peculiarities of organizations necessitate unique business and information system solutions both on  ERP   and on  ERP system . However, ERP vendors are interested in having a generic solution sold to a broad market. Such information system centered approaches require change of the organization's socio-technological system, which is intermingled of technology, task, people, structure, and culture. Gronau [6] raised an issue observing the German trans-national companies, their  ERP   and  ERP systems . The trends of globalization lead to setting up manufacturing sites in foreign countries that lack the necessary motivation, competencies and capabilities of workforce, or extremely high the fluctuation of employees (e.g. China). Gronau proposes for analysis a twofold model. One is a simple socio-technological architecture for  ERP system  as follows : a)   Centralized    ERP system  can be considered as a system with functions that can be accessed from any places of the world. The disadvantage of such a system is its high complexity as the particular country specific features should be handled centrally or some external solution should have been found.  b)   The decentralized symmetric  model contains a centrally used  ERP system  and another, different application system  that offer services for Production and Logistics locally for “all over the world”, i.e. for subsidiaries of the enterprise. The complexity of the decentralized system is less than the centralized one and the regional specialty could be incorporated easily into the system. c)   The decentralized organic  model makes use of the local selection of IT and application systems allowing the alignment to the local requirements more easily. The data interchange is implemented through a unified and standardized interface. For evaluating the alternative models, some criteria are created for assessment as the resilience and  stability for future , the costs  and satisfying the requirements  coming out from the allocation and distribution of business  processes and activities. 1.   Resilience and  stability for future means the adaptability and flexibility of  ERP system  to the future changes. 2.   Higher   costs  are acceptable only in case the resilience and stability for future can be ensured. 3.   Satisfying the requirements means the analysis of compliance to the demand of  business, covering the business tasks and activities. 3.4 Problem conceptualization In a smaller country (namely Hungary) than the investigated one by Gronau’s [6] research, the effect of globalization for ERP systems is worth analyzing. The sample has contained 20 companies. The profound difference appears in the form of the ownership and the structure of subsidiaries of international enterprises. The typical trans-national or multi-national company in the country is a subsidiary of large international enterprises, the headquarters or centers are usually outside of the country, in some cases regional centers are operated within the country. As a first rough but comprehensive approach Gronau’s evaluation schemes and taxonomy of enterprise and ERP system architectures are used. To tackle the following issues we have made use of the above outlined analysis frameworks: 1.   What is the standardization level of  ERP  systems  required by international enterprises? 2.   Which architecture models fits best to ERP systems reflecting the effect of globalization taking into account the continuum of enterprise and IT architecture? 3.   What are the business processes, functions or activities where the effect of globalization for  ERP systems  can be  perceived in the form of changing of  basic enterprise and IT architecture? As a first cut, sixteen local companies of trans-national and multi-national enterprises have  been investigated. The companies analyzed are involved in several sectors of industry as energy, software development, electronic equipment manufacturing and retail chains. 159    3.5 Research method The basic approach and methods for the research were as follows: −   In-depth interviews with CEOs of local subsidiaries of international companies (sample size 20). −   During interviews, standardized questionnaire  based on methodology were made use. −   After assessing the interviews, some clarifications of details and information were requested. −   Researcher from academia elaborated the case studies on standardized principles and guidelines. A comparative study and summary was created  by qualitative and quantitative analysis [9]. 4. Research result Several tendencies of ERP Systems’ development were discerned at international companies; however the basic trends out of qualitative analysis can be summarized as it follows: A.   The country specific features or the separate ERP systems are unified and standardized into the integrated central information  processing system. B.   Within a region some business processes, services and information processing are standardized. C.   The separate, in each country differing data or information processing units or systems are centralized (creating server farms at locations designated as central). There is an example for enterprise architecture where each single subsidiary in each country uses a country-specific  ERP system  supporting the data processing and management tasks. Naturally, there is such a case that the headquarter of a multi-national company has already taken a decision to eliminate the heterogeneity of systems and create a homogenized architecture, i.e. standardize both the application systems, services and application  platforms. Centralised ERP system used  jointly by subsidiaries Centralised ERP system communicating with standardized local application system Centralised ERP system communicating with locally different applications systems Figure 1. Gronau’s basic models of communication for enterprise architecture of ERP systems In another case study, a company for machine manufacturing that uses as marketing channel its subsidiaries established an architecture in which the financial and production modules are placed at the manufacturing sites and countries, the CRM module is deployed to the companies for sale in Asia, the financial controlling, accounting and management information modules were rolled-out in the headquarter of the company. There are examples for ERP architecture containing several layers. The typical cases are when the information processing organized into systems at regional level. The regional headquarter for Eastern Europe of software distributor company is situated in one of the capital of region. The sales data of region is collected by the regional headquarter using a most recently introduced CRM module playing central role within information processing then  processed information is transmitted to the European headquarter for further processing. The conclusion could be made that Gronau’s (Figure 1) basic models depict the essential attributes of architecture for ERP systems at international companies, i.e. the results of country level information processing is sent to some centralized systems ensuring to meet the demand for information at management level. The research concluded that the enrichment of Gronau’s basic communication structure among 160  the services of ERP and application systems is necessary. Two extra models were created for describing cases discovered during the research that more accurately reflect recent situation. During the research it was realized that there exists such enterprise architecture (Model-4) after several acquisitions of local companies when the centre has made a decision to keep the existing, country-specific systems in place and their development will have been carried out by decentralized way in the future. Within the case studies there was an enterprise out of the insurance industry. The legal environment and  jurisdiction differs overwhelmingly among countries, even between EU member states. For this reason, business services and their insurance  policies (e.g. life, asset etc. insurance) could be created only by taking into account the country specific regulations then the business services are mapped into services of local application systems. The feature of this model is that  ERPs  of local companies use some specific modules as common components of  ERP system.  The common components can be accessed by each single subsidiary within the Intranet of the multinational enterprise (Figure 2). However, the long-term plan is to implement a standardized system out of which the data can be sent to the central information processing system to support the management decision. Model-5 mirrors (Figure 3) an enterprise architecture that corresponds to one of the vision about the future of  ERP systems . The significant characteristic of such an approach is to implement one standard  ERP system (e.g. a  product of one of the market leader) and then to make it compulsory and to enforce the change-over at all member companies of the enterprise. There is a multinational company in the energy sector that will centralize all country-specific information processing of subsidiaries operating in member states of European Union. A standard, central module (SEM = Strategic Enterprise Management) will have implemented through which the centralized management function will have realized. Use of this module, the application systems of subsidiaries can be accessed and consolidated data can be generated for the modules of Management Information Systems. Figure 2. Model-4: Various application systems communicating through Intranet towards a standardized central system 5. Conclusion and summary of results During the research several tendencies are spotted that reflect the multitude of development directions considering the ERP Systems and Enterprise Architectures. The main trends can be describes as follows: 1.   The existing, separate country-specific application systems are standardized and integrated to the centralized standard information processing system. 2.   Certain business processes, business services and as consequence the services of information or application systems are standardized within a region. 3.   The legacy information processing units and systems existing at separate countries are centralized. 4.   The trends for standardization and centralization unambiguously can be highlighted at business functions and services where there is a strong coupling to the market and its volatility and these tendencies show accelerating features. 161
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