Texas Instrument Case

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The case study discusses TI's implementation of an ERP system with a focus on linking it to global e-commerce. Some of the key issues faced and lessons learned during implementation are outlined.

The case study provides an overview of TI's efforts to implement an ERP system both internally and externally, with a focus on linking over 70% of transactions to global e-commerce. It discusses the various players involved and stages of implementation.

Some of the issues faced by TI included getting buy-in from internal functions not directly involved in implementation and fully integrating the engineering function into the ERP system.

Enterprise Resource PlanningGlobal Opportunities & Challenges

Chapter VIII: Implementation Management


of an E-Commerce-Enabled Enterprise
Information System: A Case Study at Texas
Instruments
OVERVIEW
R. P. Sundarraj and Joseph Sarkis
Clark University, USA
Copyright 2002, Idea Group Publishing.
This chapter presents a case study of an overview of the efforts of Texas Instruments
(TIs) internal and external ERP implementation, with a focus on linking its ERP system
in a global e-commerce setting. This linkage is especially important since it had been
stated in TIs strategic plan as an objective of this project to provide visibility of the ERP
system to external constituents via Web linkages along with the objective of
standardizing internal processes and important information technology systems to
support market needs. Thus, its ERP system is central to managing its supply chain and
B2B e-commerce linkages from both a customer and supplier perspective. Issues faced
by TI are clearly outlined with future questions also posed in the final section.

INTRODUCTION
The integration of enterprise systems and the supply chain to an organization is
becoming more critical in an ever-changing, globally competitive environment. As
markets mature and customer preferences become more diverse and specific, quick
response to those needs is required to maintain competitive advantage. This quick
response will require close relationships, especially communications and information
sharing among integrated internal functional groups, as well as the suppliers and
customers of an organization. Texas Instruments (TI), headquartered in Dallas, Texas,
is one organization that has come to realize this requirement for building and
maintaining its competitive edge. One strategic decision made by the organization was
to implement an enterprise resource planning (ERP) system with a focus on linking it
with a global electronic commerce (e-commerce) setting.
This case study provides an overview of the efforts of TIs internal and external ERP
implementation that led to over 70% of the transactions being conducted in a global ecommerce setting. TIs strategic goals include providing visibility of the ERP system to
external constituents via Web linkages and standardizing internal processes and
information technology to support market need. The e-commerce linkage is especially
important in achieving these goals. Thus, TIs ERP system is central to managing its
supply chain and Web e- commerce linkages from both a customer and supplier
perspective.
In this situation there were a number of major players, including project management
direction from Andersen Consulting Services, software vendors such as SAP and i2
Technologies, hardware vendors such as Sun Microsystems, and various suppliers and
customers of TI. Part of the process involved outsourcing some of TIs internal
information systems capabilities to these vendors, especially Andersen Consulting.

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The various stages of implementation from adoption to preparation and operation are
detailed as separate sections. At each stage of the implementation TI used performance
metrics to manage the process. We also provide an overview of how these performance
metrics played a role in the implementation.

STRATEGIC SYSTEMS IMPLEMENTATION BACKGROUND


Much research has been undertaken to develop a better understanding of IT
implementation and to assess its contribution to improving organizational efficiency. A
meta-analysis of IT implementation research (Lai & Mahapatra, 1997) indicates that
there is shift in emphasis from studying individual IT to organizational and
interorganizational systems. Since an ERP system has long-term and broad
organizational implications, strategic planning is key to the successful management of
such systems. There is an extensive body of literature related to strategic planning.
Critical antecedents to developing a successful strategic plan are (Lederer & Salmela,
1996; Lederer & Sethi, 1992):
1. external and internal environments,
2. planning resources and processes, and
3. an information plan that actually gets implemented.
These constructs provide a theory of strategic information systems planning and are
important to both researchers and practitioners involved with planning.
By borrowing from the literature on the management of advanced manufacturing
technologies (Meredith, 1987; Sarkis & Lin, 1994; Small & Yasin, 1997), a processoriented framework for ERP management is presented (see Figure 1). As indicated in
the figure, the process suggested by this framework is iterative, in the sense that it
allows for higher-level strategies and processes to be reformulated when they are
discovered to be incompatible with lower-level systems and configurations and vice
versa.

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Enterprise Resource PlanningGlobal Opportunities & Challenges

Figure 1: Time line of TIs ERP implementation


Strategy Formulation and Integration
Strategic justification frameworks should begin at the upper levels of management. The
technology selected should fit within the vision, goals and strategic objectives of the
organization. An organization should undergo a SWOTMOSP process in which it assesses
its strengths and weaknesses in the light of environmental opportunities and threats,
then develops its missions, objectives, strategies and policies. One of the results of this
step in the process is determination of an organizations core competencies that need
specific technology support.
Process Planning and Systems Design
At the next level is the initiation of process plans that support the organizational
competencies identified earlier and that in turn get supported by the chosen system
(ERP or otherwise). Also known as the reengineering phase, three studies are usually
undertaken at this stage, and they are named as-is, should-be and to-be.
The AS-IS study provides baseline measures for later justification purposes and
provides measures for post-implementation auditing. The should-be study tries to
exhibit how the current system should function after nonautomation/non-hard
technology improvements (e.g., total quality management) are instituted; a currently
disordered system will lead to a disordered ERP system as well. The to be study is used
to define the system necessary to meet the objectives set forth by the strategic units.
System Evaluation and Justification
Here, analysis focuses on the economic, technical, and operational feasibility and
justification of the system. The justification step should consider many different types of
factorstangible, intangible, financial, quantitative, and qualitative. Since the analysis of

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Enterprise Resource PlanningGlobal Opportunities & Challenges

tangible factors (e.g., financial) is well-studied using methods such as return on


investment (ROI), our focus will be on the evaluation of intangible factors.
System Configuration
An ERP system has some of the characteristics of packaged software, such as Microsoft
Excel, and some of those of custom-built ones. It certainly is not designed and
programmed for the exclusive use of one organization nor is its implementation and
management as easy as that of packaged software. Each ERP software company is
likely to have its own business model in the design of its package. As a packaged
software system, there are likely to be discrepancies (at the detailed level) between the
needs of an organization and the features of the software (Lucas, Walton, & Ginzburg,
1988). Hence, a significant amount of effort can be expected to configure the system or
the organizational processes in order to produce an alignment between them.
System Implementation

AM
FL
Y

The implementation stage can be classified into: start-up, project management and a
migration handling the switchover from the old to the new system. ERP systems force
large-scale overhaul of business processes and, therefore, their implementation needs
to be supported by appropriate change management approaches (Markus & Benjamin,
1996). Another key concern of implementation is that of systems integration, in which
multiple types of subsystems, platforms and interfaces must be integrated over diverse
and dispersed geographic locations. Systems implementation involves:

Acquisition and ProcurementActual purchase of software, hardware and


supporting equipment, and personnel.

Operational PlanningThe project plan necessary to bring up the system.

Implementation and InstallationThis is the actual implementation and startup


step.

IntegrationLinking the systems to each other and other organizational


systems.

TE

Post-Implementation Audit
This last feedback stage, although very important from a continuous improvement
perspective, is one of the more neglected steps. According to Gulliver (1987), for
example, auditing should:

encourage realistic preparation of investment proposals;

help improve the evaluation of future projects as well as the performance of


current projects that are not proceeding as planned; and

call attention to projects that should be discontinued.

As can be seen, the process suggested above can be arduous, but this necessary effort
must be anticipated for the successful integration of complex and strategic systems into
an organization.

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IMPLEMENTING A GLOBAL ERP SYSTEM AT TI


Company Background
Texas Instruments Incorporated (TI) is a global semiconductor company and the
worlds leading designer and supplier of digital signal processing (DSP) solutions and
analog technologies (semiconductors represent 84% of TIs revenue base).
Headquartered in Dallas, Texas, the companys businesses also include materials and
controls, educational and productivity solutions, and digital imaging. The company has
manufacturing or sales operations in more than 25 countries and, in 1999, derived in
excess of 67% of its revenues from sales to locations outside the United States. In the
past few years, TI has sold several non-core businesses to focus on DSP solutions and
analog technologies, where TI is the world leader. DSP and analog devices have more
than 30,000 customers in commercial, industrial and consumer markets. TI faces
intense technological and pricing competition in the markets in which it operates. TIs
expectations are that the level of this competition will increase in the future from large,
established semiconductor and related product companies, as well as from emerging
companies serving niche markets. Prior to the implementation of ERP, TI had a complex
suite of stand-alone nonintegrated marketing, sales, logistics and planning systems
consisting of thousands of programs that were based on many independent databases
and running on proprietary mainframe systems.
Overview
Since the 1980s, TI had used a highly centralized infrastructure utilizing proprietary
mainframe computers for meeting its IT requirement. As the first step toward global
business processes, certain planning processes and systems were standardized in 1989.
However, the systems were independent of one another and were, therefore,
inadequate to meet changing customer demands. Market conditions dictated that TI
must operate as a global DSP business, with greater flexibility, shorter lead times and
increased productivity to meet customer demand. The company determined the need
for dramatic changes in its technological infrastructure and its end-to-end business
processes, in order to achieve these business goals. Starting in 1996, TI underwent a
company-wide reengineering effort that led to the implementation of a 4-year, $250
million ERP system using Sun Microsystems hardware platform, SAP AGs ERP software,
i2s advanced planning tools and Andersen Consultings implementation process (see
Figure 1 for a summarized time line).
In 1998, Texas Instruments implemented the first release of the ERP system, which
primarily consisted of a prototype implementation of the i2 system running on a Sun
E10000 platform. This was the first step toward migrating the manufacturing and
planning of TIs orders. In early 1999, TI began rolling out the second release. The
initial deployment included the SAP procurement and materials management module
and the financial management and Reporting module. In the middle of 1999, TI
completed the i2 Technologies software implementation as part of the third release.
Finally, TI turned on the remaining financials and new field sales, sales and distribution
modules. Included in this release were the first Web clients to be used with SAP and a
next-generation, distributor-reseller management system, both developed in
conjunction with SAP.

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A high-level architecture of TIs pioneering ERP implementation consists of SAP and the
i2 system for advanced planning and optimization (see Figure 2). The system is a
pioneering, large-scale, global single-instance implementation of seven modules
(finance, procurement and materials management, logistics, planning, field sales, and
marketing) for all of TIs divisions, and it is in use by 10,000 TI employees to handle
45,000 semiconductor devices and 120,000 orders per month. As shown in the figure,
this solution also enabled global Web access to information for TIs 3,000 external users
at customers, distributors, and suppliers sites. In total, over 70% of the business
transactions conducted with TI by all customers and partners are now via the Web or
electronic data interchange (EDI). In summary, the implementation:

institutes standardized process to support the market trend of orderanywhere/ship-anywhere services;

provides global visibility of the system to customers and suppliers, permitting


them to conduct many activities via the Web; and

standardizes key information technology systems so as to support business


goals.

Figure 2: A conceptual model of the ERP system and linkages


The next two sections describe some of the activities involved in the substages of this
large-scale implementation.

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Enterprise Resource PlanningGlobal Opportunities & Challenges

STAGES IN MANAGING THE GLOBAL ERP SYSTEM


IMPLEMENTATION
We now describe TIs activities in each of the stages of the strategic framework that
was generally described earlier in this case.
Strategy Formulation
Traditionally, TI was primarily running what was called a commodity business,
wherein orders were received, manufactured and shipped as a batch. Throughout the
1980s and 90s markets evolved from the one-size-fits-all status to one in which
customers started demanding customized products. This mass customization
phenomenon, combined with the maturity of TIs business, caused it to reexamine its
goals and strategies. TI started its shift towards a more customized product
environment.
Within this new customized product environment, TI had a number of customer needs
that could not be met easily. For example, a customer in Taiwan wanted to place all
orders in California and then allocate a worldwide destination for the ordered products
only at the time of shipping. This was difficult for TI to coordinate because each of the
regions was on a separate system. Other customers wanted to place orders for
complete sets of devices that all worked together. Since its existing system could not
handle such orders, TI had to enter the order for each device separately. The delivery
of each of the devices was done at different times, implying that the customer will have
to carry inventory while waiting for the remainder of the set. Manual workarounds and
interventions were needed to handle these kinds of demands. Thus, the goal was to
determine the appropriate processes and information systems that had to be put in
place in order to support such agile design and manufacturing strategies (see, for
example, Peters & Saidin, 2000, who describe the use of IT for supporting mass
customization).
Another goal was a move toward supplier-managed inventory and customer-managed
orders. Going beyond EDI and extending e-commerce meant that TI decided that
leveraging the capabilities of the Internet to provide visibility of its systems to its
customers and suppliers would be necessary. Finally, standardizing systems was
another integrative corporate goal. TIs strategy was to ensure standardization of its
systems as much as possible. Specific areas such as factory automation were left to use
custom solutions, but other areas such as planning were required to be on standardized
open systems in order to support the other goals.
TI makes extensive use of metrics. Strategic goals are translated into tactical and
operational quantifiable objectives. Key metrics are developed and used as a fact-based
management approach that keep clarity in the project direction and manage the scope
of the project. The metrics include standard operationally and organizationally strategic
ones, such as time, cost, flexibility and quality. In addition, since TIs manufacturing
equipment is very expensive, its management made it clear that it was also concerned
with level of useutilizationof the organizational equipment.
Process Planning and Systems Design
TI conducted a massive reengineering effort for the whole organization with the goal of
setting standard processes globally. The major result of this effort was to declare that

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all inventory and manufacturing management be done globally. This process change
caused the practice of earmarking a production lot for specific customers to be
discontinued. There were thousands of programs in use at that time, and this
proliferation of stand-alone systems inhibited the implementation of global processes.
Thus, a proposal to implement an ERP system was made to the president and other
strategic business unit managers.
Many organizations find multiple-instance implementations more flexible and sometimes
easier to implement. Yet TI decided to implement a single-instance ERP system so as to
fully leverage the systems capabilities to support the flexibility and standardization
demanded by global processes. After site visits by major ERP vendors, TI selected SAP,
mostly because of its scalability to handle voluminous amounts of data. Yet, the actual
selection and justification included the evaluation of a number of systems by TI. These
systems were evaluated through a questionnaire that contained hundreds of detailed
questions pertaining to capabilities, ranging from user friendliness to support of major
functions. Many of these same questions were used in aiding in the system justification.
System Justification
A budget of approximately $250 million was set for the implementation. The
justification of the system was done using a combination of tangible and intangible
factors at both the enterprise and business-unit levels. Standard hard- justification
measures such as ROI and IRR were used to ensure the financial viability of the project.
In fact, if these were the only measures to be used, then the system would have been
justified. Yet, the data for these measures were still forecasts and estimates.
Strengthening the financial justification by evaluating other measures and factors
helped to provide a stronger foundation for managerial acceptance. In estimating
financial measures, global capacity utilization as a result of the ERP system was also
projected. The project managers kept in mind that such projections were only
guidelines that could get offset or boosted as a result of other continuous-improvement
activities that were ongoing in the company. These estimates ranged from 3-5% output
improvements based on current assets, which although seemingly small, amounted to
increased cost savings of several hundred million dollars. Some additional intangible
and tangible factors included:

TIs proprietary mainframe-based ordering was incompatible with the goal of


moving toward a Web-based e-commerce model.

TI had thousands of programs that incurred huge maintenance costs, such as


integration, among these software systems.

Accurate global inventory was not possible without a single-instance ERP


system.

An ERP system would facilitate in cycle-time reduction, which would help TI


compete effectively in the custom DSP market.

Through this business case justification, acceptable financial returns, along with
strategic factors, such as competing effectively within a given niche market, and
operational factors, such as global inventory management, all played a role in ERPs
justification at TI.

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Enterprise Resource PlanningGlobal Opportunities & Challenges

System Configuration
The goals and processes described above entailed a number of changes at the detailed
level. Many of the changes are difficult to manage because of drastic changes needed to
the ways of doing business (e.g., the business rules). The processes used to address
the arising conflicts range from top-management-enabled dialogue among the
participants to top-management-backed decisions that laid down the policy for TI. A few
examples follow:

All inventory is global. For example, inventory in Europe must ship, if needed,
to any part of the globe, rather than be held for European orders that can
potentially come at some time in the future.

The number of levels of approval on a purchase order was standardized at four


(there were some countries that had 15 levels).

Authorization amounts were standardized according to the level of the


concerned person in the organization.

An 18-character, globally accepted part number became an agreed upon


standard. This standardization involved a huge IS and business effort because
changes had to be made to the databases, programs supported by them, and
some manufacturing procedures, in addition to having to communicate the
changes to the customers.

All systems were mandated to be in English except for customer-specific


information such as addresses, etc., used for external communication with
them. In general, English was used when information was to be shared among
multinational facilities, while local data, specific to a facility, could be in the
local language.

Implementation
In this phase, concepts and goals are translated into tangible action, and as a result, it
is perhaps one of most difficult phases of the project. General principles such as global
processes and standard systems need to be backed up by convincing and deploying the
right people to implement the processes.
We briefly describe TIs implementation phase in the following categories, start-up,
project management, and going live. This description contains the manner by which
problems were addressed in each category.
Start-up. A number of key personnel, along with their families, were expatriated to the
US and stationed in Dallas for a few years. About 250 people were transitioned from TI
to Andersen Consulting (i.e., put on Andersens payroll), which became the main
provisioner of services with respect to the ERP system. IT outsourcing in this case
involved Andersen Consulting taking over the employment and management of former
TI people.
Project Management. Change management played a large role in this stage. The roles
of training, planning, and communicating were of equal importance. All management
levels were involved in this process, as were various vendors and suppliers. Some of
the practices included:

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Enterprise Resource PlanningGlobal Opportunities & Challenges

On-site experts were made available to new users of the system.

A help desk was set up to handle problems that could not be addressed by
these experts.

A ticketing system for managing and prioritizing problems was also established
(e.g., a system stop was a high-priority ticket that would get round-the-clock
attention).

Handling Go-Live. To get prepared for go live, the key managers who were stationed
in Dallas were sent back to their territories for educating the next level of users. Using
selected experts, user-acceptance scripts were defined and tested, with problems, if
any, being resolved as per one of the schemes outlined above. Daily conference calls
were set up for 30 days prior to go live to obtain status checks on progress and on the
tickets.
Based on the results of these checks, a risk analysis was conducted weekly to
determine the effects of various potential failures. The implementation plan was to have
a few go live dates one after another, but in relatively quick succession. Except for the
planning system, in all the other stages in this case a direct conversion was employed.
That is, with a downtime of about 2 to 3 hours during a weekend, the old system was
turned off and the new one turned on.
Post-Implementation Status
The system met most of its goals 9 months after the complete implementation.
Response time for the system has exceeded expectations, with 90% of the transactions
worldwide getting a response within 3 seconds. There are around 13,000 users (10,000
TI + 3,000 outside) on the system, with concurrent users ranging from 300 to 1,700.
The integrated system allowed TI to better manufacture and deliver its 120,000 orders
per month involving 45,000 devices.
Some of the key performance measures and parameters evaluated were:
Productivity dip. There was a period of reduced productivity. Given the voluminous
changes involved, this was to be expected. TI expected this and discussed with
Andersen methods to ameliorate this problem.
On-time delivery. TI was not hitting its goal of on-time delivery. In addition to the new
system, market conditions caused more orders than they could deliver. They were
falling short of capacity.
Single-instance global system. The single-instance, integrated global model was
successful, fundamentally transforming how business is conducted at TI.
Better response. Because of its Web capability, the system is used by TIs external
constituents as well, namely, distributors, customers, suppliers, and field salespeople
worldwide. This Web capability allowed easier-to-use order management systems for
customers. Customers no longer had to use TI-specific software applications and/or
costly point-to-point connections.
Inventory reduction. Some TI factories reported output increases of 5- 10% and up to
15% reduction in work-in-process inventory.

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Enterprise Resource PlanningGlobal Opportunities & Challenges

MANAGERIAL IMPLICATIONS
This case study of a successful ERP/e-commerce implementation offers and reiterates a
number of lessons for the management of these systems. The following lessons are
summarized:
Conduct a Thorough Strategic PlanThe case illustrated how market forces had
compelled the company to make radical shifts in its organizational environment and
culture.
Align IT Plans With Business PlansConduct reengineering studies and develop
strategic IT plans to align key IT needs with those of the business.
Get Top Management SupportThe prescription of top management support has been
made ever since early IT implementations (OToole & OToole, 1966) to the present.
Strangely enough, as stated by Jarvenpaa and Ives (1991), it also remains to be one
of the prescriptions that has been regularly ignored. In this case, TIs president and
the chairman of TIs board communicated the importance and status in their quarterly
satellite broadcasts to the company. The president sat in on quarterly meetings and
even stipulated that if anyone wished to customize aspects of the system that they
would have to personally explain it to him and show why TI would get more profit out
of this change.
Change ManagementSet realistic user expectations such as the initial productivity
dips. User involvement is critical. Andersen Consultings process helped to ensure that
such was the case. Make sure that the user is supported to help improve user
satisfaction.
Strong Champion CharacteristicsIn TIs situation, the manager of the ERP project had
over two decades of experience in various levels of the organization. This manager
had broad knowledge of corporate operations since he was in charge of the previous
business process reengineering programs that formed the foundation of the new ERP
system. Previously he was a vice president of one of TIs divisions.
Rationalize Business Models and ProcessesMake sure the business models and
processes fit within the strategic direction and goals of the organization. Time, mass
customization, and flexibility concerns led to a global model. Part of this rationalization
was also completed after the SAP system was agreed upon, since SAP required
business processes to be completed as specified by them or significant customization
of the system would be required.
Manage External EnterprisesAppropriate and well-planned involvement of consultants
is important for keeping the project on a tight schedule. Further, with the advent of ecommerce, companies are more likely to ship and order goods on the basis of Webbased inputs (Kalakota & Whinston, 1996). A training program must encompass such
constituents as well, an aspect that seems to be ignored in the research literature.
Managing external enterprise relationships (and systems) is not something that many
organizations have had experience completing. This makes the e-commerce setting
more complex, especially when organizations seek to integrate interorganizational
systems.

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Manage Using MetricsTI and Andersen Consulting have a corporate culture and policy
that requires the stringent and formal use of metrics in the management and
evaluation of projects. They attribute this policy adherence as one of the key reasons
for success of the ERP implementation.

CONCLUSION
Traditional information systems are often implemented with the goal of improving the
internal productivity of an organization. In contrast, modern enterprise and interenterprise systems have supply chain integration as an additional and an increasingly
critical goal. This makes their management and implementation a very time-consuming
and difficult task. TIs ERP implementation with an e- commerce perspective
compounded these inherent difficulties by requiring additional features.

It is a single-instance system, providing access to the same data, irrespective


of the geographic location of the user.

It provides access to 3,000 external users (customers and suppliers), thereby


enabling 70% of the transactions to be conducted electronically.

Management did see some problems in this implementation process and tried to
address the issues. Some of the major problems included:
1. The software for supply chain management (Red Pepper) that was initially
chosen did not meet expectations of TI. This system had to be scrapped;
this resulted in a multimillion dollar cost. The i2 system was then
implemented.
2. A productivity dip did occur. The implementation had to address this issue
for all managers throughout the organization who had some stake in the
performance of the system. The expectations that this would occur were
communicated through newsletters and messages. Consistent and
continuous communication helped to mitigate a situation that could have
caused a major project failure.
3. Getting buy-in from internal functions not directly associated with the
implementation process was difficult. This occurred with the marketing
function. This function needed to be on board for the e-commerce linkage
with customers to work effectively. Training and pressures from upperlevel management helped to ease the transition for the global marketing
group.
4. Engineering is still not fully integrated into the ERP system. The ecommerce linkage incorporating product design with the ERP system was
not feasible for management. For such a technology-driven organization,
the lack of engineering function integration with the ERP system may
need to be investigated.
Key questions to consider:
1. Can a large multinational organization implement a single-instance global
ERP system without the aid of an outside consultant? Could they manage
this process even after implementation? Is outsourcing the IS function for
ERP a good idea?

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2. Which functions are critical within a global ERP system? Why would
engineering not be considered a central function for e-commerce? Why
should it be?
3. What metrics could be considered for system selection, system
implementation, system auditing? Would these be the same metrics? Can
e-commerce-based metrics be used? What type of e-commerce based
metrics may exist?
4. What lessons could be learned from TIs implementation process that
could be used for future module integration? How much
interorganizational system integration is required for TI in the ERP/ecommerce system linkage?

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