[Pick the

date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

Module 2. Systems Integration

Intended Learning Outcome

After reading this chapter, you should be able to:

1. Understand the impact of organizational structure on information systems.

2. Find out about the types of functional silos in organizations.
3. Learn about the evolution of information systems technology generations and
architectures and its influence on the silo environment.
4. Know what systems integration is and why it is important for organizations.
5. Understand the role of enterprise resource planning (ERP) systems in systems integration.

ENTERPRISE SYSTEMS IN ORGANIZATIONS

CASE 2.1
Opening Case
Air Cargo’s e-Enterprise System
Source: Adapted from Financial Executive’s News, June 2002, p. 8. [Link]; Ed
McKenna. (December 13, 2004). ACI Hits Stop Sign. Traffic World. Newark, p. 1.

Air Cargo, Inc. (ACI) is a logistics management company providing air cargo ground
services to 17+ shareholder airlines and 53 associates, including a road feeder service that
connects airports and cities in the United States and Europe, pickup and delivery of regular air
cargo shipments, small package air cargo pickup, and delivery of flight specific, time-definite
shipments. A major system crash in the late 1990s caused ACI’s revenue to drop from about
$150 million to about $145 million; this served as a wake-up alarm for management and started
their systems integration effort with their e-Enterprise system.

PROBLEMS WITH FUNCTIONAL SILOS

ACI runs various business applications for dispatching, invoicing, freight audits, and
reconciliation. Before converting to ERP, ACI’s accounting staff had to export and import text
files to communicate across accounting and business applications. This took time and made even
the most recent report slightly dated. ACI initially considered simply upgrading its existing
accounting system to a new release; however, Jack Downing, ACI’s IT director, decided this
approach was not feasible because they had developed numerous custom procedures in their
accounting and other business applications. “An upgrade wouldn’t have been economical,” he
explained, “because we had made so many custom changes to the old software.”

1|P ag e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

e-ENTERPRISE SYSTEM

ACI therefore implemented four e-Enterprise applications—its financial series,

distribution series, customization series, and integration series—and integrated them with a
database management system, Microsoft SQL Server, at the backend. In addition, ACI used the
Microsoft transformation services. The immediate effect of this implementation was the
integration of the accounting system with the line-of-business applications, thereby eliminating
manual data reentry. This occurred because Microsoft SQL Server and the Data Transformation
Services (DTS) software connected to ACI’s line-of-business applications and delivered
transaction data to the ACI e-Enterprise system. DTS software is an extract, transform, and load
(ETL) tool which consolidates data from disparate sources to single or multiple destinations.1
These data were used to update the financial records. Note that DTS runs in the background on a
regular basis without requiring manual intervention. As a result, the accounting department no
longer needs to export and import line-of-business records manually to generate its reports.

BENEFITS

The key advantage of the e-Enterprise system is that it links contracts managed in the line of-
business applications to financial records. “Once we agree on rates, terms, and hours of operation
with a contractor, they are entered into our contracts administration system,” says Sally
Hartmann, ACI’s CFO. “In the past, we had to reenter that information into the financial system
manually and hope that we remembered to adjust it if there were changes in the contract. But
now, we automatically move this information from the accounting system to the contract
management system. And we have the ability to move that information in the other direction as
well, which we didn’t have in the past.” The key benefit here is that if a contractor stops paying
its bills, the warehouse system will immediately alert the dispatch people. Hartmann adds: “We
are also completing a direct link from our human resources to our accounting system. This will
eliminate another area of manual data entry and reduce the potential for errors.”

Hartman ultimately sees three other advantages accruing to ACI from this ERP conversion.
These are as follows:

• “Based on what I have seen so far, I am estimating that we will reduce our administrative
workload by about 10 percent, primarily by reducing manual data entry.”

• “With the ERP system, we will provide more accurate, complete, and timely information to
decision makers.”

• “We are moving heavily into e-commerce, and e-Enterprise provides the building blocks that
enable two-way information flow between e-business and financial systems.”

2|P ag e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

The ACI case highlights some of the problems with heterogeneous systems and how they can
affect the various departments within the company from Accounting to Warehousing. The
systems integration at ACI has introduced some benefits and drawbacks.

The question remains whether their benefits outweigh the drawbacks. What do you think?

DISCUSSION QUESTION

1. Refer to the Air Cargo case in this chapter. Discuss the silo problem at ACI and how it was solved via
the e-Enterprise system.

2. Refer to the Air Cargo case in this chapter. Discuss both short-term and long-term benefits of the e-
Enterprise system.

3. Why do you think functional silos are not appropriate for today’s organizations? Discuss your answer
from organizational and technical perspectives.

3|P ag e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

Functional Silos

According to Webster’s dictionary, silos are an airtight pit or tower for preserving
products. Silos are basically compartmentalized operating units isolated from their environment.
Why have information systems and organizations evolved into functional silos? In order to
understand the reasons, we first need to look at the historical evolution of modern organizations
and the systems supporting their information requirements.

Horizontal silos

Management theorists Huber and McDaniel2 in their research study found that the complexity
and turbulence in the organization’s environment forces it to break complex tasks into smaller
manageable units. If we take a closer look at the evolution of a modern organization, the early emphasis
has always been on the horizontal or the functional paradigm. In the early 1900s, a management
philosopher named Henry Fayol3 was the first person to divide functionalized organization into five basic
areas: planning, organizing, coordinating, commanding, and controlling. Fayol’s classification was
extended and conceptualized in the 1930s by Luther Gulick4 into the functional model of POSDCORB
(planning, organizing, staffing, directing, coordinating, reporting, and budgeting).

The POSDCORB categorization (Figure 2-1) became very popular and led to a set of formal
organization functions such as control, management, supervision, and administration starting in late

4|P ag e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

1930s.5 Over the next 50 years the terminology of functions in organizations has changed, say from
planning to management to strategy, but the concept of categorizing complex activities into organized
functions has remained for control and coordination reasons. The current classification of organizations
into divisions or departments like Accounting, Human Resources, Marketing, Management, and others
reflects this evolution in organizations of breaking complex tasks into smaller manageable tasks that
could be assigned to a group of people who could then be held responsible.

Vertical Silos

In addition to the functional or horizontal division, organizations have also seen a vertical or hierarchical
layering of management functions. In the late 1960s, Robert Anthony,6 an organizational researcher, at
Harvard University, found that organizations also divided responsibility in hierarchical layers from
strategic planning to management control and operation control. For example, most organizations have
their top-level management like CEOs and presidents to plan the long-term strategy of organizations,
whereas midlevel management (e.g., vice presidents or general managers) focuses on tactical issues and
the execution of organizational policy to ensure that the company is accomplishing its strategic
objectives. The lower-level management (e.g., supervisors) task is to focus on the day-to-day operations
of the company. This vertical categorization, even though not discrete organizational functions, does
involve a distinctive set of activities. The functional silos typically follow the scientific model for
business and usually have hierarchical or multilayered reporting structures, formal leadership,
management positions, or both with final authority on decision making. In this traditional functional (or
silo) organization, maintaining command and control is usually critical for the overall functioning of the
business organization.

5|P ag e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

Thus, when organizations get big, and complex they tend to break functions into smaller units and assign
one or more staff the responsibility for these activities. This allows the organization to manage
complexity as well as the staff to specialize in those activities that enhance productivity and efficiency.
Work groups or teams with formal leadership or supervisors are part of this organizational structure as
well. The quality of the products and services goes up, but the organization is divided into
compartmentalized units that know very little of each other. Sharing of information occurs only at higher
levels of management.

Despite attempts to break them, functional silos are alive and doing well. According to a survey by
Purchasing magazine,7 96 percent of the respondents said their organization still maintains a functional
structure but 86 percent also said they agree with their firm’s decision to promote teamwork and
integration of the functional areas in their organization. One reason for this is that information sharing and
communications problems get worse as an organization spreads geographically and gets more virtual. The
original purpose of functional division (i.e., efficiency and effectiveness) is defeated. The lack of
information sharing at all levels of an organization often leads to problems with inventory management,
such as overproduction of goods, when the sales department is not sharing current data on projected sales
with the production department, or poor customer service, when a customer service representative does
not know the status of shipped goods. The inefficiencies can creep from operations control all the way to
the strategic planning level of the organization. With global competition and virtual organizations, the
traditional functional organizational structure must change to process-oriented structure to allow easy
integration of information and more flexibility for an organization to realign with its environment. In

6|P ag e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

order to compete in a globalized economy, companies must take a business process view and utilize IT to
integrate that business process.

Business Process and Silos

The functional silo problem was felt by many organizations in the late 1980s and early
1990s, which gave birth to business process reengineering (BPR). The functional grouping often
leads to a shortsighted view of improving the division or department rather than the entire
organization. This causes intraorganizational friction and is counterproductive toward an
organization’s overall goals. Business process focus led by such management gurus as Peter
Drucker8 and Hammer and Champy9 reoriented management on improving an organization’s
efficiency and effectiveness by focusing on business processes (e.g., product development and
order processing). The business process provides an alternative view of grouping people and
resources focusing on an organization’s activity, even if it means cutting across the traditional
functional areas (e.g., order processing), which involves interactions between sales, warehousing,
and accounting functional areas as the work progresses from initial sales order to collection of
payment from the client. The cross-functional business process can involve people and resources
from various functional departments working together, sharing information, if necessary, at any
level of the organization. This business process focus has moved management thinking away
from a functional department to business process view. The business process view flattens the
organizational structure from a hierarchy to a matrix where people and resources from multiple
functional units collaborated on such projects as new product development, procurement, or
order processing in order to serve the external entities of the organizations better and quicker.

The cross-functional organizational structure breaks the traditional functional silos of an

organization opening up the informational flows from one department to another. This opened
the doors for more organizational changes because some organizations are moving from process
orientation to customer orientation. A customer-centric organization focuses all its business
processes around improving the relationship with its customers. For example, Dell Computers
does not preassemble its computers for its customers; instead, Dell provides the configuration
options to its customers via the [Link] Web site. The customer designs the computer
configuration based on his or her needs and then transmits the order to Dell. Dell then processes

7|P ag e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

the order and ships it to the customer within two weeks. This customer-centric approach allows
Dell to communicate and interact better with its customers and let them drive the organization’s
processes.

Evolution of IS in Organizations

As described earlier, the role of information systems has been and always will be one of
supporting business activities and enhancing the workers efficiency. Over time, however, as
business changes and expands, systems need to change to keep pace. The result is sometimes a
wide variety of information systems and computer architecture configurations creating
heterogeneous or independent nonintegrated systems. These systems ultimately create
bottlenecks and interfere with productivity. These systems lack control and coordination. They
become the breeding ground for inconsistent, inaccurate, and incompatible data and ultimately
lead to mismanagement. The information systems that work independently and are grouped by
the various functions and departments, or both, are known as silos. These systems cannot share
data and therefore require users to access multiple systems to integrate the data manually. As a
result, the chance increases for data errors and inconsistencies. Silo systems focus on individual
tasks or functions, or both, rather than on a process and team. In addition, these systems make it
very difficult for organizations to be customer-centric because data cannot be assimilated from
different functional areas to address customer needs. For example, if a customer support process
requires information to be pulled from the accounting and the shipping departments, the task

8|P ag e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

requires access to two separate systems and then visually matching the shipping information with
the billing information. This can be time consuming and prone to errors, resulting in poor
customer support.

The essential problem with functional silos is that organizations design, manage, and
reward their employees and managers by functional performance, yet they deliver value to
customers via cross-functional processes. Today, many organizations reward employees on their
performance on multiple areas that includes personal performance, business unit performance,
and corporate-level performance.

Getting the right balance between functional management and process delivery is at the
heart of organizational performance. Organizations have been designed around functions for a
very long time and for good reason. The functions of an organization (e.g., sales, manufacturing,
claims assessment, HR, and warehouse) are important. They provide a structure by which an
organization function smoothly. For example, the warehouse department and the warehouse
manager are essential for maintaining control over the product inventory.

When the emphasis is strictly on functional performance, organizations tend to create

silos that optimize functional outcomes, perhaps at the expense of end-to-end process
performance. Organizational performance cannot be optimized by focusing on process tunnels at
the expense of functional operations. Replacing functional silos with process tunnels will be a
self-defeating function because it will only make the process efficient without delivering value to
the customer. In today’s organization, a silo information system creates bottlenecks for
employees, vendors, and clients. As shown in Figure 2-4, a silo environment is inefficient,
inaccurate, and expensive. Information is captured and re-entered several times and is not
available in real time. Silo environments hamper enterprise decision making and overall
effectiveness because key information never makes it out of the different pockets of the
organization in time for the decision maker. In a silo system environment only selective
employees from that department have access to information; customers, partners, and suppliers
are dependent on these employees to provide them with answers.

For example, before UPS implemented its publicly accessible package tracking system
for customers, partners, and suppliers, there were tremendous bottlenecks in finding the status of

9|P ag e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

a package in UPS’s vast distribution network. It was costing UPS millions of dollars to answer
customer queries on package status. Implementing an integrated package tracking system was a
win–win for UPS and its customers, partners, and suppliers. UPS spent less on answering
customer queries, and customers got their answers whenever they wanted to know. In an
integrated system environment, all parties have access to the same data sources from a network
in real time. The evolution of IS, when observed from its hardware and software architectures to
the various system generations, suggests that its role has generally been to support the
organizations evolving information needs. Information systems as we know them today have
been used in business since the 1960s.

The introduction of computers into business organizations by such vendors as IBM™ and
UNISYS™ started to change how computer systems were used. The IS evolution is often viewed
as a sociotechnical change process in which technologies, human factors, organizational
relationships, and tasks change continuously. This sociotechnical process, often known as the
10 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

systems life cycle for analyzing information system requirements, helps to analyze complex
sociotechnical dynamics between information systems and organizations. By conceiving system
evolution as a sequence of critical events and states within the sociotechnical system and its
elements, process researchers can narrate explanations of processes and their outcomes.

IS Architectures

Today’s IS can be configured using a wide range of system architectures depending on

the information needs of the organization. The continuing rapid advances in computer and
networking technologies, as well as changing organizational dynamics, drive the emergence of
new information system models. Today’s Web-based model will evolve and morph as business
models change to meet the demands of customers and clients. As with today’s Web-based
systems, using a distributed architecture allows sharing of applications and data resources
between the client and the server computers. It combines features from the centralized and
decentralized architectures.

In this configuration, personal computers are connected via a network to a Web server
that provides a window to an application and database server(s), which could be a mainframe or
another type of computer. The server usually houses applications and data that are shared across
the organization, whereas PCs store applications and data that do not require any sharing. This
architecture provides a highly integrated approach for updating and sharing of data in real time,
hence minimal duplication of effort and increased data consistency. Although they are very
flexible and scalable, there are some drawbacks. The architecture is very complex and requires
careful planning and design. In addition, it requires a highly trained IT support staff to manage
and coordinate a wide variety of applications, operating systems, and hardware.

IS Functionalization

In addition to serving the different management levels, IS also supports such major
business functions as manufacturing, marketing, accounting, finance, and HR. Each functional

11 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

area similarly has different information needs and report requirements. For example, an HR IS
will provide information on employee payroll and benefits, whereas a manufacturing IS will
provide reports on job shop schedules and parts inventory. To complicate these matters further,
each functional area in an organization has multiple levels of management, each requiring
different levels of analysis and details of information. Figure 2-6 shows these various
information systems by levels of management and functional areas of the organization. Beyond
the system infrastructure (e.g., operating systems, database, and networking) the lowest level of
the IS pyramid consists of office automation systems (OAS), which support the activities of
employees, and transaction processing systems (TPS), which are used to record detailed
information in all the major functional areas and to create new information. TPS are the
workhorses of the organization. They support the organization’s operations and record every
transaction, whether it is a sale, a purchase, or a payment. They are often categorized by the
functional areas in the organization (e.g., sales, purchasing, and shipping and receiving).

12 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

Management information systems (MIS) are reporting systems that categorize and
organize information as required by the midlevel managers. These reports can be sales by
product for a quarterly period, or they can be production schedules by manufacturing plants.
Decision support systems (DSS) are analytical systems that use mathematical equations to
process data from TPS to assistant managers in conducting what-if analyses, in identifying
trends, and in generally assisting in making data-driven decisions. It could be as simple as using
spreadsheet software (e.g., goal-seeking, pivot tables) or something more sophisticated such as
online analytical processing (OLAP) software.

Expert systems also assist managers in their decision making using qualitative analysis
that captures problem-solving heuristics to identify solutions. It is a very useful tool for training
novice managers in real-life situations by providing access to a knowledge base of experienced
managers. Finally, executive support systems (ESS) provide a visual dashboard of strategic
information to top-level management in real time (e.g., a snapshot of the organizational
performance). These systems are typically customized for each functional area of the
organization.

13 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

Systems Integration
Today, perhaps more than ever before, it is essential that companies be efficient and
effective with their products and services. There are many drivers in organizations for needing
integrated systems. The ability to respond quickly to market conditions is a key part of protecting
your customer base against the incursions of a global set of hungry competitors. It is also the key
to growing or retaining that customer base. In other words, the inability to meet the market
demand effectively can have unfortunate consequences. Having too much or not enough
inventory, or having the inventory at the wrong place and the wrong time, can have a disastrous
impact on a company’s profitability—and even survivability. Integrated systems allow
companies to accomplish something that has alluded most to date: the linking of demand- and
supply-side functions in a way that enables a quick and flexible response to changes in demand.
Developing processes to support integrated systems is not an easy task, but it can be done, as
evidenced by industry leaders like Dell, Amazon, and others that have already put integrated
systems in place.

LOGICAL VS. PHYSICAL SI

At the logical or human level, systems integration means developing information systems
that allow organizations to share data with all of its stakeholders based on their need and
authorization. It also means, however, allowing access to a shared data resource by people from
different functional areas of the organization. On the other hand, at the physical or technical
level, systems integration means providing seamless connectivity between heterogeneous
application systems. Most organizations today have accumulated a wide variety of applications
that come from a variety of vendors and run on different operating systems and work with many
databases. Some applications are old legacy systems that may need to work with the newer Web-
based architectures. Having seamless connectivity in this heterogeneous computing environment
is a complex task, but necessary for an organization to be efficient. This is where the term
“Middleware” started. This software provides the appearance of seamless data presentation to the
end user and maintains data integrity and synchronization within each application system
database.

14 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

In order to achieve the logical integration and fit a company business model,
organizational structures, processes, and employee roles and responsibilities need change. As
mentioned earlier, business process reengineering goes beyond integrating heterogeneous
technologies; it involves changing the mind-set of the employees in the organization,
encouraging and enabling them to do their tasks in a new way. Before approaching the
integration at the systems level, an organization has to overcome the people barrier, which
involves educating and motivating employees to put aside their turf issues (or interdepartmental
barriers) and work together as a team. Shifting the focus of employees from achieving the
departmental goals to organizational goals is an essential task for management. In addition,
changes will be required in the traditional hierarchical management structures that are purely
functionally oriented. For example, in the cross-functional structure a budget analyst may work
both for a financial manager and directly with a product manager. Thus, the product manager
will be responsible for the hiring or performance appraisal for this budget analyst, who is
reporting to the financial manager. This may sound very confusing and chaotic; however, this
relationship complexity must be maintained for a flat and fluid organizational structure that can
be easily adapted to the changing needs of the environment. Teamwork is essential if
organizations want to break-up functional silos and have workers from all levels of management
collaborate on solving organizational problems; furthermore, teamwork must be continually
reinforced by having top management stress the achievement of organizational goals, rather than
departmental goals, and team goals instead of individual goals.

Steps in Integrating Systems

In conjunction with systems integration, management has to work with the information
technology group to come up with an approach for the seamless integration of data and services
to support the new organizational structure and business processes. As mentioned before,
organizations tend to add functionality to meet organizational demands. At times, application
systems are added to the environment. These applications, while not encouraged, are developed
on different platforms. Information system organizations often have to be able to support a

15 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

variety of systems with multiple platforms and vendors. This could mean supporting multiple
operating systems, databases, or development environments.

Most IT organizations today support a Windows and flavor of UNIX. A database can be
Oracle or MS SQL and even MySQL. Most important is the support of a development
environment. This area continues to grow. At one point in time, C or C++ with SQL was the key
development tool. That has somewhat given way to Java and SOAP with SQL. Integrating and
supporting multiple platforms requires planning. System integration generally involves the eight
steps in Table 2-1 (this is not an exhaustive list).

16 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

Benefits of System Integration

If done right, systems integration can produce tremendous benefits as shown in Table 2-2. Some
of the key benefits of systems integration are as follows:

1. Increased Revenue and Growth. In general, one of the biggest benefits is reduction in
inventory and personnel costs due to integrated systems. For example, Uvex Sports, Inc., a sports
gear company, saw sales grow from $1.2 million to $5.2 million without additional costs and
with the addition of only two extra employees.

2. Leveling the Competitive Environment. Systems integration can make a small

company behave like a big player because, with the help of integrated business-to-business
(B2B) software, many of them can now compete with big companies to get orders from giant
retailers like Walmart, Target, and others because they can provide the same level of service with
enterprise systems.

3. Enhanced Information Visibility. The increased availability of information enables

managers and employees to make informed decisions in a timely manner. For example, customer
service representatives of American Express can now make credit approval decisions on the spot
while talking with their customers due to better access to customer credit profiles.

4. Increased Standardization. A side benefit of integration is that it forces organizations to

standardize on their hardware, software, and IT policy. This may initially cost some money, but
in the long run companies easily recoup those costs.

Limitations of System Integration

Systems integration does have its drawbacks, as shown in Table 2-2. These are as follows:

1. High Initial Setup Costs. The initial implementation of integrated systems is high in terms of
both hardware and software costs and human costs due to the re-engineering of business

17 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

processes. Although these cannot be avoided, their negative influence on the implementation can
be minimized by a long-term resource allocation plan and commitment from top management.

2. Power and Interdepartmental Conflicts. Systems integration often involves sharing of

information across department and interdepartmental teams. This often creates power conflicts
among the functional departments if they have not bought into the integration. Educating
employees with a good change management strategy that communicates the long-term benefits
from systems integration can minimize these conflicts.

3. Long-Term and Intangible ROIs. The return on investments (ROI) from systems integration
often do not show up until several years after the implementation, and many of these returns
come in intangible form and are therefore not recognized on the bottom line of the organization.
Financial managers get very upset with this situation and can create pressures that will ruin the
long-term impact of systems integration; therefore, top management’s understanding and support
for the long term are key ingredients for the success of systems integration.

4. Creativity Limitations. One of the drawbacks of standardization is that it restricts creativity

and independence in the functional areas; however, this can be minimized with a better
integration policy that provides flexibility and better communication from top management.

As you can see, the benefits generally outweigh the drawbacks when implementing
systems integration projects, particularly in the long run. In industries with competitive markets,
systems integration is very necessary regardless of the cost. For example, suppliers of
automobile manufacturers (e.g., Ford or GM) or retailers (e.g., Walmart) do not have a choice for
systems integration. If they skipped systems integration, they would not be able to do business
with these large companies, which moved to electronic data interchange (EDI) systems in early
2000 with electronic commerce.

18 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

.
ERP and Systems Integration

Enterprise resource planning (ERP) systems are integrated, multimodule application

software packages designed to serve and support several business functions across an
organization. An ERP system is a strategic tool that helps the organization improve its
operations and management by integrating business processes and helping to optimize the
allocation of available resources. These systems are typically commercial software packages
that facilitate collection and integration of information related to various areas of an
organization, including finance, accounting, HR, inventory, procurement, and customer
service. By becoming the central information center of the organization, ERP systems allow
the organization to better understand its business, direct resources, and plan for the future.
ERP systems enable the organization to standardize and improve its business processes to
implement best practices for its industry.

ERP’s Role in Logical Integration

ERP systems play a very crucial role in enabling systems integration at various levels
of the application architecture. At the logical level, ERP systems require organizations to
focus on business process rather than on functions. ERP systems come with built-in processes
for a wide variety of common business functions. An ERP system implements the best
practices via specific built-in steps for processing a customer order in terms of how the order
information is entered into the system, how it will be routed through various departments for
actions or decisions, and how the output from system is communicated to the various parties,
including the external customer and suppliers. While ERP systems can address data
integration, if business processes do not change, an organization will not be able to take full
advantage of the ERP capabilities. The term is business process reengineering (BPR). With
the implementation of ERP business processes, organizational structures and even roles and
responsibilities within an organization will change.

To revisit a previous example, when Dell computers receives an order from the
customer, the order is divided by its major components and transmitted to the various units of

19 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

the company, as well as to Dell’s external partners, suppliers, or both. Each department is
then regularly updated on the status of the order, as it moves through the various stages of the
order-processing cycle. When the supplier delivers the parts to the manufacturing department,
all parties will be notified of this process. When the computer is assembled and sent to the
warehouse for shipping again all parties are updated on this information. Depending on
Dell’s company policy on sharing data, some of this updated information is sent to the
customers to notify them of the progress. As the order is processed through the various stages
of the order-processing cycle, any of the functional department employees responsible for
this order can enter the ERP system and find out the current status of the order in real time.

The preceding example suggests that if a company has functional silos, either the silos
will have to go or the ERP system implementation will be a failure. With their built-in bias
for cross-functional business processes, ERP systems force organizations to abandon their
silos. In the early days of ERP implementation projects, many organizations tried to
implement ERP with their existing silos, which resulted in major ERP failures. For example,
in 1997, Hershey Food’s Nestlé division spent more than $200 million for implementing its
ERP system without breaking the functional silos, which led to a system implementation
failure.11 Hershey had to face the wrath of its customers who did not receive the products
they had ordered for Halloween. Instead of modifying their business processes, some
organizations tried to modify the ERP functionality, which also led to implementation
failures and additional costs for maintaining or upgrading the modified system. One key
lesson to take from these early ERP implementation projects is that change in business
processes and systems integration are the necessary precursors to ERP implementation. Some
modifications to the ERP systems’ built-in process functionality are fine as long as they are
done for unique business processes; however, if these process changes are done to avoid user
resistance even when they are inefficient or to support a silo organization, then ERP
implementation could result in a costly failure.

20 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

.
ERP Role in Physical Integration
In addition to the logical level, system integration is also necessary at the physical
level. Before installing the ERP system, an organization may have to upgrade or install
middleware and plan for the removal of their legacy system’s hardware and software.
Although it is possible to preserve some of the legacy systems and, if essential, integrate
them via middleware tools, current-generation ERP systems do not work well with the
centralized architecture on legacy platforms. As we will discuss later in the book, layered
systems architecture must be adopted to integrate the systems into a common enterprise
platform. Integration is also required at the data level (i.e., by transforming all the data
resources into one database), client level (i.e., by standardizing on all the client platforms),
and application level (i.e., via common user–interface design, back-end access to the system
infrastructure, and backup and recovery plans).

ERP systems have therefore become a platform application for organizations to

achieve the flexibility and fluidity to survive in the globally competitive world. A good ERP
implementation improves operational efficiency with better business processes focusing on
organizational goals rather than on individual departmental goals. Efficiency is also improved
with a paperless flow within the organization and electronic data interchange or B2B
commerce environment with its external partners. Organizations that want to implement a
B2B e-commerce (or a supply chain management system) with its partners and suppliers will
not be able to do a good job without a robust ERP system in place. More discussion on this
topic will follow later in the book, but suffice it to say that ERP systems provide a foundation
for other advanced enterprise-level applications (e.g., customer relationship management,
supply chain management, e-Business, and sales force automation).

Organizations can similarly achieve better fluidity with the help of ERP. By
embedding the best business practices and technology standards (e.g., Web-based
architectures, integrated systems platform, and distributed system access), ERP systems
enable organizations to form quick alliances and partnerships with relative ease. Such
companies as Amazon, Inc., can easily form and break alliances with other businesses (e.g.,

21 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

Toys R’ Us, Walmart, and KBToys) to sell their products through Amazon’s e-commerce
Web site. This fluidity has helped Amazon to survive the dot-com bust by scaling its products
and services with minimal costs. This would not have been feasible without an integrated
system. ERP systems process the transactions for an e-commerce system, allowing it to scale
without major bottlenecks in order fulfillment, customer service, and account administration.

Implications for Management

According to Robert Tucker,12 author of the book Driving Growth through

Innovation, one of the reasons that innovation has not become embedded as a key driver of
growth and profitability in many organizations is that it has been limited by functional and
divisional “silos” within companies. In other words, the responsibility for innovation has
been limited to the R&D department, a special innovation SWAT team, or a senior-level
strategic planning group. He points out that this is the way the innovation movement started
out (i.e., with pockets of supporters in different departments), but it succeeded in gaining
enough support that it is today a core operating value of the full organization in most
successful companies. Thus, functional silos can have many unintended consequences that
can harm an organization’s growth and long-term competitive position in the industry. Some
implications for management based on the above comment follow.

Silos do not work. Most organizations lose out in the long term when information is
not shared in real time across the functional boundaries within the company. In today’s
globally competitive environment, organizations have to compete both on lower cost and by
providing better customer service, through alliances and partnerships with competition, and
from taking other agile strategies to survive. Silos will prevent organizations to take
advantage of supply chain management and B2B e-commerce activity to introduce
efficiencies in production and procurement. Along those lines information that is not
accessible to customer service representatives when they are interacting with customers can
spoil the relationships with the clients and have a negative impact on future sales. Integrated

22 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

systems are a critical and basic foundation for such other information systems as customer
resource management or sales force automation systems.

System integration has many hidden benefits. Management needs to understand the
tangible and the intangible benefits of integrated systems. In addition to the immediate
benefits of sharing organization-wide information, systems integration allows decision
making to be cascaded to all employees in the organization. This can help the competitive
position as employees at lower levels can make better decisions while interacting with clients
or partners. This may make the employees feel more empowered and be more productive
members of the organization. Of course, the organization has to change its business processes
and policies to take advantage of better information sharing facilitated with integrated
systems, but the potential of increasing the retention of employees exists; however, this is not
a very obvious benefit when organizations decide to integrate systems.

System integration has many challenges. Most research on this topic tends to focus on
the technological challenges of systems integration. There is considerable challenge and cost
in integrating heterogeneous systems, including replacing old hardware and software with
newer systems, working with IT consultants in developing middleware to facilitate seamless
integration, or bottlenecks in data integration. The technical challenges are nothing, however,
when compared with the human challenges that organizations face when integrating systems.
The first challenge may be with people in the IT department who will have a major impact
once the systems are integrated in terms of supporting and maintaining the new system. Other
human challenges will come from the functional department heads who will lose control over
the data produced from their areas. Another challenge is curbing the rumors and fears on job
layoffs that accompany a systems integration project. Overcoming these fears and curbing the
turf battles is critical for the success of a systems integration project. Getting employee buy-
in on the systems integration project is very critical for the success of integrated systems.

Systems integration raises many new ethical issues. Systems integration raises several
ethical issues for management (e.g., what information should be shared and how it should be
shared). Integrated systems open up new ways of sharing information, but it also brings the
possibility of some employees exploiting this information for their personal advantage as
well as illegal access of information that they can easily do from their desks. To avoid the

23 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

unethical use of information, management needs to develop a policy on ethical usage of

information as well as use proper security software and hardware (like firewalls) to prevent,
track, and monitor information access and usage. In addition, organizations must allocate
resources for training and educating of employees and external partners on how to access and
use information and be aware of the ethical and security breaches possible with the integrated
systems.

Summary

a. Functional silos categorize an organization’s tasks and activities into groups to improve
efficiency and responsibility of work in the organization. They are generally represented
as such departments as accounting or HR, each having its own goals and responsibilities.
As organizations grow in size and complexity, they are divided into horizontal functions
and vertical layers. Horizontal grouping is called functional divisions, and vertical
grouping of management functions is called management hierarchy
b. Silos can improve productivity, but they often lead employees to achieve departmental
goals rather than overall organizational goals. This can create interdepartmental conflicts
and loss of competitive edge for the organization because the focus is not on the needs of
the customers. Employees are valued and rewarded based on department achievements
rather than organizational achievements.
c. Information systems (IS) have always tried to support the needs of the organization;
hence, in the early days, IS was developed to meet the needs of different functional areas
of the organization. IS over the years have been divided horizontally by functions and
vertically by hierarchical levels. This led to the development of hodgepodge systems that
could not share data across the various functional areas when organizations moved from
silos to cross-functional teams focusing on business processes. This led to the major shift
toward integrated systems.
d. Global competition and business process re-engineering led to the drive of integrated
systems since the late 1980s. In order for systems integration to be successful,
organizations have to focus both on the human or logical level and on the physical or
systems level. Focusing only on technical integration can lead to failure with high costs

24 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

and employee-user frustration. Systems integration should be done in conjunction with

business process re-engineering. There are lots of tangible and long-term benefits as well
as short-term drawbacks for integrating systems.
e. ERP systems have played a crucial role in systems integration because they have
provided organizations with a single platform for integrating all of their functional
systems. Organizations can simultaneously conduct both logical-level and physical level
integration because ERP systems come embedded with the best practices in business
process for common functions from accounting to warehousing. ERP systems thus make
the process of systems integration easier, but they are expensive and often require
organizations to start from scratch.
f. Management should not take the task of systems integration lightly or leave it for the IT
staff. System integration involves and impacts the whole organization, requiring top-
management support and resources for a long term. Human- or logical-level integration is
necessary for the physical-level systems integration to work. Management must be ready
to face the human and ethical challenges in a systems integration project.

REVIEW QUESTIONS:

1. Compare and contrast centralized, decentralized, and distributed IT architectures. Which

do you think is most appropriate for ERP and why?
2. What are the key benefits and limitations of systems integration?
3. What is the role of ERP systems in systems integration?

DISCUSSION QUESTIONS: PART 2

1. What is the relationship between the logical and physical system integration? Why is it
important for organizations to have both together?

2. Why is business process re-engineering needed for implementing an ERP?

25 | P a g e
[Pick the
date] ADVANCED SYSTEM INTEGRATION AND ARCHITECTURE

3. Discuss the role of management in systems integration in terms of the ethical and other
challenges they face during the systems integration process.

Real-World Case: Systems Integration at UPS Corp

Next case study here.

26 | P a g e