Enterprise Resource Planning systems
Many companies worldwide use Enterprise Software which integrates many different software modules and a centralized database. With this software, organizations can create an Enterprise Resource Planning (ERP) system, also simply known as an ‘Enterprise System’. Unlike applications that deal with one separate activity (for example, a payroll system) or department (for example, Sales), ERP systems combine all kinds of different business processes (like manufacturing and production, finance and accounting, sales and marketing, and human resources) into one single software system. This means that an organization that uses an ERP system has a centralized database to which all kinds of different (sub-)systems are connected. Through these smaller systems ( ‘Line of Business’ (LoB), ‘Business Areas’ or ‘modules’), management and users can perform and monitor different business activities (or ‘business processes’) that are needed for an organization to perform well and make it function as efficiently as possible.
Business Processes are the (often unique) ways in which work activities have been organized to eventually produce a valuable product or service. They are supported by material, information and knowledge flows between the participants of the business processes. Such processes belong to certain functional business areas, for example:
- Manufacturing and/or Production
- Sales and Marketing
- Supply Chain
- Finance and Accounting
- Sourcing and/or Procurement
- Asset Management
- Research and Development (Engineering)
- Human Resources
An example of a business process within ‘Sales’ could be the identification of (potential) customers and for ‘Human Resources’ it could be the evaluation of an employee’s job performance. An ERP system keeps track of all these different business processes and enables the organization to work from centralized data, instead of scattered bits of information.
There are many providers of ERP systems. A well-known provider with a large market share is SAP. Other familiar global players within this industry are Oracle, Workday, Salesforce, and Microsoft Dynamics 365. Many other ERP solutions operate on a smaller scale (in specific countries or regions). Even though this training material focuses on an SAP-context, the product goal and business process orientation of these other software products and providers are in line with one another, and skills taught in this training course are applicable to these environments as well.
ERP systems compared to other IT-solutions
The distinguishing nature of Enterprise Software (or the ERP system) is its organization-wide use and the large degree of interconnectedness of systems, applications, interfaces, and databases. The implementation, testing and eventual usage of an ERP system requires a different approach compared to other IT-solutions.
For this, five general distinctions can be made between an ERP system and different IT-solutions.
Although every form of software development has its price tag, the implementation of an ERP system is a major investment. Depending on the range of the purchased Enterprise Software, it is common for an organization to spend between fifty thousand and hundreds of millions of dollars in ERP-software. And besides the investment in ERP-software, elements like hardware, technical support, overall project management, internal team commitment, external support/consultants, and training also need to be considered. In other words, the Total Cost of Ownership (TCO) for an ERP-implementation can become quite high. A survey amongst 181 ERP users showed that 38 percent of the ERP-projects experienced cost overruns, and they averaged a 66 percent over budget. Companies are wise to complete a thorough cost-benefit analysis before investing in an ERP system, because a change towards a different supplier will be very costly afterwards. This investment should be earned back by lower operational costs and the lack of costs for development and maintenance of bespoke software.
Restricted level of customization
A second difference is the restricted level of customization and the realization that ERP systems impose processes on the organizations that implement it. Before implementation, companies need to make a selection in functionalities of the system they wish to use and then map their business processes to the predefined business processes in the software. Company-specific configurations can be made, but in general, an ERP system follows the ‘best practice’ processes as set up by the software supplier which will then be the same for all companies buying and using said software. Redesigning Enterprise Software to fit an organizations current way of working (and as such differentiating from the best practices and standards) might lead to higher expenses/ implementation/ maintenance costs. And this will have an impact on scalability and maintainability and take away the benefits of streamlined processes.
Because ERP systems can be used in practically every type of business operation, there is often a high complexity within the software landscape. The many different interfaces, shared data, connections to cloud and on-premises environments, supplier/customer websites and third-party systems that have been bought from outside the larger ERP-solution, can create a tangled and inaccessible IT-architecture. This third ERP-characteristic opposed to other IT-products demands many kinds of knowledge fields and skills. Nevertheless, this (inter-)connectedness of the ERP system will benefit the organization in the long run due to its efficiency, standardization, and real-time insights.
The fourth general distinction between ERP systems and other IT-solutions is related to the way ERP-suppliers create and sell/distribute their products. As said before, Enterprise Software is developed beforehand and is then sold to interested organizations as a largely ‘off-the-shelf’ or ‘on demand’-type of product. Because of this, the IT-development team at the organization that buys the software is less occupied with programming/coding, and more with configurations, workflows, data, and authorizations. The more technical aspects of the software have been dealt with by the developers of the ERP supplier and although customized changes are possible, any desired modifications generally go through requests back towards the system integrator or software supplier. A change request in SAP is called RICEFW.
Less conventional unit tests
Zooming in more on ERP Testing, the fifth difference connects to the previous notion of ERP systems being sold relatively ‘ready-made’. Because of this, there are less conventional ‘unit tests’ in which a developer and tester will, for example, check code and/or an initial small functionality. Testing within an ERP system is more often concerned with functionality, proper (flow) configuration and data handling. As such, testing of an ERP system deals more with process checks, interface testing, acceptance tests, output validations and end-to-end testing. This does not mean that the test variety ‘unit testing’ does not exist for ERP Testing, however, its content and aim generally differs to unit tests within other IT-product development processes.
- Laudon, Kenneth C. Management Information Systems: Managing the Digital Firm (Global Edition). Pearson Education Limited (Harlow), 2022. P. 73, 82, 372 and 388.
- Sumner, Mary. Enterprise Resource Planning (Pearson New International Edition). Pearson Education Limited (Harlow), 2014. P. 1-2 and 11.
- SAP. “SAP History: Building on a track record of innovation. The Early Years.” Accessed September 23, 2022.