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Module 3. Enterprise Systems Architecture

Intended Learning Outcome

After reading this chapter, you should be able to:

1. Examine in detail the enterprise systems modules and architecture.

2. Understand the effects of a well-designed architecture on ERP implementation.
3. Know the various types of ERP architectures and the related benefits and drawbacks of
each architecture.
4. Learn about service-oriented architecture and its impact on ERP systems.
5. Learn about cloud architecture and its impact on ERP systems.

ENTERPRISE SYSTEMS IN ORGANIZATIONS

CASE 3.1
Opening Case
Nestle’s ERP Implementation

Source: Adapted from Worthen, B. (2002). Nestlé’s ERP Odyssey. CIO Magazine. May 15; Aberdeen
Group. (November 2005). Center-Led Procurement Organizing Resources and Technology for Sustained
Supply Value; Weiss, T. (2002). Nestlé Shifts from HP to IBM in Data Center Pact. Computerworld,
March 11.

Since market leader SAP introduced R3, the first ERP system with client–server architecture in
1992, thousands of companies worldwide have implemented this software. Many have been successful,
but none has been without problems. Nestlé USA was one of them. Nestlé USA has seven business
divisions: beverage, confections and snacks, food services, foreign trade, nutrition, prepared foods, and
sales. Some of the popular brands sold in the United States by Nestlé are Alpo, Baby Ruth, Carnation
Instant Breakfast, Coffee-Mate, Nescafé, Nestlé Carnation Baby Formulas, Nestlé Toll House, PowerBar,
Stouffer’s Lean Cuisine, SweeTarts, and Taster’s Choice. Its annual revenue is around $8.1 billion with
16,000 employees.

The ERP implementation at Nestlé, code-named BEST (Business Excellence through Systems
Technology), had an estimated cost of $210 million with an IT staff (including outside consultants) of
250, began in 1997, and was due to be completed in 2003. The project’s main goal was to use common
business processes, systems, and organizational structures across the autonomous divisions within the
United States. These common systems across Nestlé USA would create savings through group buying
power and facilitate data sharing between the subsidiaries.

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Jeri Dunn, CIO of Nestlé USA, joined with executives in charge of finance, supply chain,
distribution, and purchasing to form a key stakeholder’s team for implementing the SAP. The
stakeholder team made it clear to the top management that the SAP implementation would require
business process reorganization and couldn’t be done without changing the way Nestlé USA did
business.

The stakeholder team, however, did not include any members from the groups that would be
directly affected by the new business process. This caused a rebellion in the ranks and the employees
resisted. Nobody wanted to learn the new way of doing things. Divisional executives were confused and
angry. Morale sank and employee turnover reached 77 percent. Help desk calls reached 300 per day.
The project team had overlooked the integration points between modules to account for the Y2K
deadline. By the beginning of 2000, the rollout had collapsed into chaos and the project was halted. In
its haste to unify the company’s separate brands, the project team had essentially replaced divisional
silos with process silos.

The company reconvened the stakeholder team and started the SAP implementation process
from scratch. The group members eventually decided that to finish the project, they would need to start
with the business requirements and then reach an end date, rather than trying to fit the project into a
mold shaped by the predetermined end dates. They also made sure that they had support from the key
divisional heads and that all the employees knew exactly what changes were taking place. With SAP in
place, Nestlé USA has already achieved a significant return on investment (ROI). The common databases
and business processes led to more trustworthy demand forecasts for the various Nestlé products. This
also allowed the company to reduce inventory and redistribution expenses. In 2003, Nestlé signed a
$500 million, five-year deal with IBM for server hardware, software, and IT services, and integration of
its [Link] e-Business software system, giving its workers access to [Link] via an internal
portal customized for their individual jobs.

Nestlé is attempting to solve the information management and systems challenge by

standardizing on a common ERP system globally. As part of this initiative, they are rolling out a common
e-procurement solution across its major regions and markets. Adoption of the solution, which is being
licensed from SAP, has been accelerated by Nestlé’s e-procurement rollout that does not conflict with its
global ERP and data center consolidation efforts. (Nestlé will begin transitioning e-procurement system
management to its own data centers in 2007–2008.) This approach also allows Nestlé to handle
implementation and change management issues during the initial rollout, enabling simplified system
setup and configuration when e-procurement system management moves in-house.

PREVIEW

Once ERP systems are integrated and implemented in a company, they become the
cornerstone of the organization. With a successful implementation, every single transaction will
now be processed through this system. The SAP-ERP implementation experience at Nestlé USA

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provides some very important lessons. In addition to systems integration, it is also necessary to
focus on business process architecture, business requirements, budget, project management,
commitments from top management, and continuous communication with employees informing
them about future changes. If the ERP software is installed with a focus only on the system
architecture, you may have a successful installation of software, but an unsuccessful
implementation.

An ERP implementation isn’t just about the software. It’s easy to install a new system.
The hard part is changing the business processes of the people who will use the system. Nobody
likes process change, particularly when they don’t know what is coming. It is important to
include the people in planning whose processes you are changing. Keep the communication lines
open while the project is in the works and measure the level of acceptance before, during, and
after the rollout. Remember the integration points. It isn’t enough to simply install new systems;
you need to make sure that both the system and people communicate efficiently and effectively
with each other. Update your budget projection at regular intervals to stay on target for the
project.

DISCUSSION QUESTION

1. Discuss the objective of ERP implementation at Nestlé USA. Did they achieve these
objectives?

2. Refer to the Nestlé case in this chapter. What problems were faced by Jeri Dunn, CIO, and
what do you think would be the right systems architecture for Nestlé?

3. Discuss the benefits and limitations of ERP implementation at Nestlé USA.

4. Why should ERP architecture include a discussion on organizational structure, business

processes, and people, instead of just information technology and systems?

5. Why is server-centric architecture better than client-centric architecture?

6. Discuss the benefits of service-oriented architecture over traditional three-tier architectures.

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Why Study Enterprise System Architecture?

ERP system architecture provides a foundation for both the functional and the technical
needs of the organization and adapts to future business challenges. It articulates the relationships
among the complex information technology components, which include hardware, software, and
data with such complex organization components as company structures, business rules, and
people. For example, ERP hardware can range from multimillion dollar mainframe computer
systems to complex networking and security equipment. ERP software similarly requires
operating systems, a database, and other software in place for them to function properly. As
mentioned in the Nestlé case, ERP systems require current and historical data and business rules
from all parts of the organization to be embedded into the system during the implementation
phase for a successful solution to business problems. This is a complex undertaking for any
organization because it requires a good understanding of the enterprise systems structures,
characteristics, behavior, and business operations.

Understanding the enterprise system architecture is important for several reasons. First, it
helps management and the implementation teams understand in detail the features and

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components of the enterprise system. Second, it provides a visual representation of the complex
system interfaces among the ERP application and databases, operating systems, legacy
applications, and networking. Finally, understanding the enterprise systems architecture, by
clarifying the system infrastructure requirements, training requirements, change management
requirements, and business process reengineering requirements, among others, can help
management in developing a better IT plan.

The enterprise systems architecture (Figure 3-1) can be viewed from two different angles:
(1) the functional angle that defines the ERP modules that support the various business functions
of the organization and (2) the system angle that defines the ERP architecture through the
physical components of hardware, software, and networking. In this chapter, you will learn more
about the typical ERP modules, the system architecture and components, types of ERP
architecture, and, finally, the role of architecture and its impact on the implementation stage of
the project.

ERP MODULES

The key role of an ERP system is to provide support for such business functions as
accounting, sales, inventory control, and production for the various stakeholders of the
organization. Organizations often selectively implement the ERP modules that are both
economically and technically feasible. ERP provides the same functionality to the users (e.g., the
silo systems of the past), but the data are integrated or shareable across all the ERP modules.
This means the data need to be entered into the system once, and, depending on the
organization’s business rules, they are made available to users either inside or outside the
organization. In today’s organization, teams are not limited to employees of the company; teams
can include employees from various functional areas as well as employees of business partners
and even customers. ERP systems, therefore, provide access to the data as defined by the
organizations’ business rules.

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ERP vendors, including SAP, Oracle, and Microsoft, provide modules that support the
major functional areas of the business (e.g., accounting, production, financial management,
human resources (HR), sales order processing, and procurement). These modules provide the
functionality to implement business policy and processes in accounting, production, finance,
human resources, and so on. The ERP software embeds the best business practices into the
software to allow organizations to implement their policies and procedures. ERP vendors often
claim that these business practices will help improve organizations’ productivity and
performance. For example, a procurement module includes the best practices on purchasing (e.g.,
forms, routing, and methods of integrating with e-commerce application). Although the vendor
claims are generally true, some business rules may conflict with the organization’s policy.
Customization or changes are therefore often necessary when implementing the ERP modules.
Although this issue will be debated in more detail elsewhere in the book, suffice it to say that
management needs to evaluate carefully when and how much modification is essential. ERP
software provides different level of flexibility in modifying the system during implementation.
Careful evaluation is therefore necessary when selecting the software to avoid problems later.

In general, ERP vendors provide a comprehensive range of enterprise software

applications and business solutions to empower every aspect of business-operations, identify new
business opportunities, and enable the organization to respond to changing business realities. In
addition, they include functionality to optimize business operations and resources to extend best
practices to the entire value chain. Table 3-1 provides a high-level overview of the usual modules
provided by major ERP vendors.

The functional and module list is not exhaustive and does not include all the enterprise
software applications provided by these vendors. The following is a brief overview of some of
these ERP modules.

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Production Module

The production module helps in planning and optimizing the manufacturing capacity, parts,
components, and material resources using historical production data and sales forecasting.
Production modules have evolved from manufacturing requirements planning (MRP) II into ERP
systems with the help of consulting firms who have accumulated vast knowledge of
implementing a production planning module.

Purchasing Module

The purchase module streamlines the procurement process of required raw materials and other
supplies. It automates the processes of identifying potential suppliers, negotiating price,
awarding purchase orders to the supplier, and billing processes. The purchase module is tightly
integrated with the inventory control and production planning modules. The purchasing module
is often integrated with supply chain management software and business-to-business (B2B) Web
software.

Inventory Management Module

The inventory module facilitates the processes of maintaining the appropriate level of stock in a
warehouse. Inventory control identifies inventory requirements, sets targets, provides
replenishment techniques and options, monitors item usages, reconciles the inventory balances,

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and reports inventory status. Integration of the inventory control module with sales, purchase,
and finance modules allows ERP systems to generate vigilant executive-level reports.

Sales and Marketing Module

Revenues from sales are the lifeblood for commercial organizations. The sales module
implements functions of order placement, order scheduling, shipping, and invoicing. The sales
module is closely integrated with an organization’s e-commerce Web sites. Many ERP vendors
offer an online storefront as part of the sales module. On the other hand, the marketing module
supports lead generation, direct mailing campaigns, and more.

Finance Module

The financial module benefits both for-profit organizations and nonprofit organizations. The
financial module is the core of many ERP software systems. It can gather financial data from
various functional departments and generate valuable financial reports (e.g., budgets, balance
sheet, general ledger, trail balance, and quarterly financial statements).

Human Resource Module

The human resources (HR) module is usually the first model implemented by many companies.
The HR module streamlines the management of human resources and human capital. The HR
modules routinely maintain a complete employee database, including contact information, salary
details, attendance, performance evaluation, and promotion. An advanced HR module is
integrated with knowledge management systems to optimally utilize the expertise of all
employees.

Miscellaneous Modules

Some vendors have started offering such nontraditional modules as business intelligence, self-
service, project management, and e-commerce. For example, the business intelligence module
offers tools and data warehousing capabilities to display real-time information through reports
and to monitor historical trends. Furthermore, these reports can be viewed through the enterprise
portal for decision making with executives who can be located around the globe and can
collaboratively make decisions based on the same live data. Self-service is similarly an important
module for present-day consumers because it satisfies their need for “instant gratification” in
their everyday activities. It allows them to have more control over their purchasing, tracking, and
research. Self-service also has many benefits for employees to include access to a company’s
intranet, 401Ks, leave and earnings statements, and so on. Employers are also discovering that
there is cost savings associated with letting customers and employees take ownership of their
inquiries and processing. In order for a company to take advantage of the cost savings, or for
consumers and employees to take advantage of the freedom associated with self-service, an
organization must focus on keeping the self-service capability as user-friendly as possible. This

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can be done by providing accurate information and a relatively easy method of database
interaction.

Benefits of Key ERP Modules

The following details some of the key benefits touted by such ERP vendors as SAP and Oracle
for the various application modules:

SELF-SERVICES

• Enable flexible support for employees’ business functions with views of information
tailored to their needs

• Empower employees and managers through simplified access to relevant information

for HR management, financials, operations, and analytics, while boosting motivation,
productivity, and efficiency

PERFORMANCE MANAGEMENT

• Improve business insight and productivity by delivering real-time, personalized

measurements and metrics

• Provide executives, managers, and business workers with access to such information as
business statistics and key performance measurements presented in the context of business tasks

FINANCIALS

• Ensure compliance and predictability of business performance

• Gain deeper financial insight across the enterprise and tighten control of finances

• Automate financial and managerial accounting and financial supply chain management

• Provide rigorous support for financial reporting and such corporate governance
mandates as the Sarbanes–Oxley Act and Basel II

HR MANAGEMENT

• Attract the right people, develop and leverage their talents, align their efforts with
corporate objectives, and retain top performers

• Increase efficiency and help ensure compliance with changing global and local
regulations by using standardized and automated workforce processes

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• Enable creation of project teams based on skills and availability, monitor progress on
projects, track time, and analyze results

• Manage human capital investments by analyzing business outcomes, workforce trends

and demographics, and workforce planning

PROCUREMENT AND LOGISTICS EXECUTION

• Sustain cost savings for all spending categories by automating such routine tasks as
determining sources and converting requisitions into purchase orders and by allowing employees
to use electronic catalogs to order products and services

• Reduce costs through process automation, integration of suppliers, and better

collaboration

• Improve resource utilization with support for cross-docking processes and data
collection technologies such as radio frequency identification (RFID) and bar codes

• Enhance productivity of all activities related to incoming and outgoing physical goods
movements

• Reduce transportation costs through better consolidation and collaboration

PRODUCT DEVELOPMENT AND MANUFACTURING

• Shorten time to market through streamlined new-product development and introduction

processes

• Deliver higher-quality products and ensure delivery of promised orders through optimal
planning, scheduling, and sequencing on the factory floor

• Improve visibility and transparency in real time across all shop floor processes,
including availability checking and costing.

SALES AND SERVICE

• Increase the number of sales orders processed and reduce administrative costs through
automation of sales order management and the use of such profitable Internet-based solutions as e-
commerce

• Deliver greater customer satisfaction by providing easy access to accurate, timely information
• Streamline processes that facilitate cost-effective mobile access for field employees

• Improve the management of incentives and commissions to maximize productivity and boost
sales

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• Reduce travel costs by using online functions for planning, booking, and expense accounting
while ensuring that company policies are applied to all processes

• Realize more effective real estate management, supported by tools that streamline and
manage every stage of the real estate life cycle

• Adhere to environmental, health, and safety reporting requirements.

ERP Architecture

In today’s business environment, ERP applications are most commonly deployed in a

distributed and often widely dispersed manner. While the servers may be centralized, the clients
are usually spread across multiple locations throughout the enterprise. ERP system architecture is
organized in layers or tiers to manage system complexity in order to provide scalability and
flexibility via a plug-n-play systems capability. This is highly essential in an enterprise-level
system. Three-layer architecture is the most prevalent today and includes Web, application, and
database servers. It is the most reliable, flexible, and scalable architecture. You can scale the
number of users from 10 to 100 by adding servers. This is one example of simple hardware
layering that has a significant impact on scalability. What if the layering is done at both the
hardware and software environments? The scalability would have been 20-fold instead of just
10-fold. It is important to understand, therefore, that layering is merely a model of dividing the
hardware and software in an information system. It is not limited to three tiers, but often supports
many tiers. Hence, the term “N-tier client–server architecture” is often used to describe
enterprise system architectures. In the term N-tier, N implies any number (e.g., three-tier, four-
tier, or, basically, any number of distinct tiers used in your architecture).

Layered Architecture Example

An example of a layered ERP architecture is the Info.Net1 architectures shown in Figure 3-3.
This architecture generalizes the functional layers to allow it to change with newer technologies.
This architecture provides a Web-based user interface (i.e., user can access the applications via
the Internet through a PC). The PC needs to be capable of running a Java-enabled Web browser
(e.g., Internet Explorer or Firefox). The PC is connected to both Intranet and Internet to be able
to use one of [Link]’s servers. The user interacts with the Java Virtual Machine™ Interface
layer to establish a secure connection via a secure socket layer (SSL) connection. The user is
then communicating with the server through the applications software layer (ASL).

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DATA TIER

The data tier focus is on the structure of all organizational data and its relationships with
both internal and external systems. Companies often change applications and data requirements
incrementally, making it necessary for this tier to maintain flexibility. In the ERP architecture,
this tier generally consists of the SQL Inquiry and Report Writer tools that are available for
advanced users who have the authorization to filter, process, or filter and process the data from
any table in the database. These tools allow users to develop complex SQL table joins for
exception reporting on areas not covered by standard reports. The ASL is where all the business
process logic and functionality reside for manufacturing, distribution, or service industries. This
layer also determines where data will be stored. The relational database is where this information
will be kept. This layer is what links together a sales order, items, delivery, and remarks on an
order. The database access layer (DAL) extracts the data from the database for the ERP modules.
It also includes a data dictionary that explains the different database functions for [Link]
applications.

APPLICATION TIER

This tier is where data are entered and shared with other components of the system. It
shields the business users from the inner workings of an ERP system, but still provides the
information relevant to their job and business process. The users can download the data on their
PC for any changes they may require that are relevant to their position and share information in
real time within an extended enterprise. This seamless integration will allow for strategic
decisions based on intelligence rather than on circumstance. Through an application
programming interface (API), ERP systems allow legacy and third-party applications the ability
to integrate and share information. There are two basic architectures for integration. One is
where an application will make a direct Java database connection (JDBC) and call another
application’s data tables directly. The second is the middleware-based integration. According to
Abraham Kang King, “Middleware provides generic interfaces with which integrated
applications pass messages to each other.”2 This architecture will allow for the support of
numerous integrations, will require less maintenance, and perform a more complex set of
operations. These types of integrations are common at a variety of layers such as the application
layer and portal layer.

The application layer, however, offers the richest integration, as all information is
converted to a common standard for sharing across systems. These data can be analyzed along
with information originated within the ERP system itself, allowing for reporting on both
internally and externally derived information. Although applications integrated at the portal layer
will be visible through the portal, it will not be fully integrated with the internal processes of
these systems. Around the industry, such standards as API have been developed to facilitate the
integration and sharing of information across disparate systems. SAP has developed its own
platform to facilitate the integration and sharing of information. The platform, called SAP

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Netweaver™ system, allows for easy integration of external applications through a Web services
architecture that is based on an industry standard. SAP is able to integrate with such standards as
.NET, IBM’s Web Sphere, and any Java platform, including J2EE, which it utilizes as its internal
standard.

These standards allow for a common language to communicate. SAP’s Netweaver

platform and J2EE technology allow an extensive partnership of third-party technology vendors,
system integrators, and applications providers a simple means to integrate and communicate.
SAP continues to be a leader in many of the global organizations that promote the use of a
common language such as the Organization for the Advancement of Structured Information
Standards (OASIS) and the Java Community Process (JCP). Standards have been developed to
help reduce the cost of integration and expedite the process. APIs such as SAP’s Netweaver
“cost generally between 25 and 40 percent lower than custom integration.”3 It is easy to
understand from looking at this statistic why SAP has such a vast network of alliance partners.

WEB TIER

Employees rarely interact with SAP through an application tier. A Web-based self-service portal
allows users the ability to access and analyze information through their Web browser. These

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portals allow the viewing of many independent systems (e.g., an ERP system), and external
third-party applications. Integration is common at the portal layer, but as stated earlier, it is
integrated only from the user-interface perspective, and not from a process perspective. Portals
provide the ability to customize views for every function within an enterprise. Each function of
an organization is able to see relevant data in real time and to alter and share information from
within an extended enterprise. This collaboration, enabled by the Web, truly demonstrates the
power of an ERP system. Information is shared instantaneously across oceans when a single user
enters and saves a piece of data. Through this customization and sharing of content, experience is
developed, reporting is made more strategic, and efficiencies are gained. For example, a sales
manager will only be interested in information relevant to his or her role (e.g., how to increase
sales and help project future revenue). For this reason, user roles are set up in the system to
define access rights for each and every functional user of the system. The portals allow
customization of the page such that a sales manager can monitor such information as sales
revenue, representative performance, or any elevated support issues. This helps to eliminate time
wasted sifting through useless data and facilitates the seamless transfer of information across job
functions.

INFRASTRUCTURE REQUIREMENTS

An ERP system places tremendous load on the corporate network. Users form a wide
variety of connections that access the network. According to AT&T’s Web site, users can
connect within the corporate local area network, whereas international or regional offices gain
access through the wide area network. Partners or remote users gain connection through network
cable or DSL connections to the Internet. All of these scenarios make the network and capacity
planning for the network as crucial as the planning and deployment of the ERP system. The
implementation of an ERP system has its own infrastructure requirements that includes internal
network and desktop requirements that a Web-based system requires. In addition, there are
infrastructure requirements that provide anytime, anywhere access.

This is where many implementations fail or not realize their benefits. Implementation of
such an enterprise system as SAP requires more than just supporting the infrastructure
requirements of these applications; it requires an extended enterprise that enables the sharing of
this information. This is where the network comes into play. Leading up to the production
rollout, network managers are provided with a very limited view from which they must size and
estimate the required network.

For example, there are times the implementation team is not aware that an interface on
the application layer also requires bandwidth to support the sharing of data. According to Gartner
Research, large companies in the Fortune 1000 lose on average up to $13,000 per minute every
time their ERP system is down. The cost of downtime is extremely high. An important step in
implementing an ERP is overall infrastructure planning. As is in most cases, traditional networks
require upgrading prior to the deployment of ERP systems and must be a component of the

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overall budget. It is a “pay me now or pay me later” scenario. Up-front planning will provide for
a stable and reliable environment, adding to the ERP implementations success. If the network
connection through which the end users access the application has problems, the user will
experience poor performance.

This poor performance leads to a loss of productivity; therefore, a high-availability

network is a requirement for a fully functioning ERP system, especially one that can grow as the
user population grows and support the continued expansion and integration of a supply chain.
Some network analysts have estimated that network service failures caused by old infrastructure
have increased threefold between 1998 and 2001, and this has impacted the corporate bottom
line by more than $50 billion in lost revenues.

ERP system and its third-party integrations extend the benefit of an enterprise system to
an organization’s partners and customers. Integration with partner and customer systems allows
“a company to manage important parts of the business such as order tracking, inventory
management and replenishment, supplier interaction, customer services, and HR management.”4
As discussed earlier, this integration can be done through either the application layer or the portal
layer, thereby extending the value and benefit of the deployment and these systems. Even though
it is pretty easy to understand the benefit of integration, the additional value is derived from the
business intelligence compiled through the sharing of data across partner, customer, and internal
systems.

THREE-TIER ARCHITECTURES

Most of the current ERP implementations follow a three-tiered architecture, which

consists of a Web tier, an application tier, and a data tier. The segmentation of these tiers allows
for the system as a whole to be more scalable and reduces resource utilization. It also provides
higher security due to the separation of resources.

The Web tier includes the Web servers that a client interacts with for application access.
This is where the graphical user interface (GUI) applications reside and data get inputted,
requests for information are submitted, and the data satisfying these requests are presented.
These systems can be located and accessed within the organization’s internal network or
externally on the Internet. For servers within the Web tier, it is important to accurately forecast
how many users are expected to use the system concurrently and what the peak loads will be.
The data the application sends back to the user also need to be considered, especially if video or
other multimedia components will be used.

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The network portion of the Web tier will need to be designed around these expectations.
If the system is for internal use only, it might be connected to a network with ample bandwidth
available to it. However, if the application is Internet facing, the bandwidth available externally
might be much lower. The same will be true if the application needs to be accessed across the
organization’s WAN, since bandwidth varies among these types of connections.

Network security within the Web tier is extremely important as this is the front door to an
organization’s ERP system. Whether the system lives internally or externally, there is a risk of
someone breaching the system. The first line of defense should be a firewall that is located
between the Web tier and the connection to the rest of the network. Management will need to
dictate policies for the type of traffic that is allowed to enter the Web tier. Traditionally, this
would be http and https traffic. For further granularity, the Web tier could restrict access to
specific networks within the organization, for example, the network HR or accounting utilize.
The next piece of security that should be implemented within the Web tier is an intrusion
detection device. This device will examine traffic entering the Web tier and determine if it is
malicious in nature based on predefined patterns. If the device determines there is malicious
activity, it can either take action by blocking a user’s connection or notify IT.

The application tier provides components to apply the business logic of the functional
modules. It acts as the intermediary between the client applications and the database. This tier
includes components that have function-specific logic but are not self-contained (or silo’d).
Instead, they are re-useable objects of business process rules that can be reassembled, Lego™
style, into many functional applications.

The application tier is where most of the processing for the ERP system occurs. It is
located between the Web tier and the database tier. The application tier handles users’ request,
retrieves data from the database tier, and processes data as needed. The systems that live in the
application tier are most likely more powerful than the systems in the Web tier. The network for
this tier should provide adequate bandwidth to both the Web tier and database tier. If not enough
bandwidth is provided, there will be a risk of congestion on the network. This congestion might
cause delays between the tiers, causing the end user to experience slow performance. Like the

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Web tier, system utilization needs to be forecast to properly design the network portion of this
tier. Today most servers are connected to the network via very high-speed Ethernet.

Security for the application tier should be as stringent as in the Web tier. The application
tier sits between the Web tier, which may have a high risk of being compromised, and the
database tier, which holds the organization’s most valuable data. Firewalls should be deployed
on both sides of the application tier, implementing policies for the type of traffic and systems
allowed in the application tier. Intrusion detection systems should also be deployed, and for
added safety logging and periodic auditing of all switches and routers in the environment should
be performed.

The data tier is responsible for data management. This layer provides the central
repository for all of the data that are shared between the functional modules and maintains the
integrity of data transferred to and from the clients and servers. System components at this level
include Sequel (or SQL) manager and other interface components to the database management
system of the organization. The amount of data that will traverse between this tier and the
application tier will most likely be higher than any other tier. The network should be designed to
properly handle large data transfers with minimal delay. Like the application tier, scalability for
future bandwidth needs is crucial in the database tier. Servers today should utilize gigabit or even
10 gigabit Ethernet connections within this tier.

Security in the data tier is just as important as in the other tiers. Firewalls, intrusion
detection systems, and logging all activity should be deployed. With proper security in place,
organizations should be better protected in the event there is a breach. With tiers isolated by
firewalls, the chance of more than one tier being compromised is reduced. Logging and periodic
auditing of systems help detect malicious attempts into the system that can be missed by an
intrusion detection device. Many of today’s compliance certification such as PCI and SOX
require this type of security for many different types of environments. Adding these types of
control into the design at the early planning stages will eliminate the need to return to them in the
future.

The three-tier architecture can be expensive for an organization to deploy. If not planned
and implemented properly, it can cost the business time and money. For example, when an

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application is performing slowly, the first group that is contacted is the network group. Most
often the problem is that a process on an application or database server is using up system
resources. Sometimes it can be related to network congestion due to inadequate provisioning of
network resources. If this is the case, IT must now go back to management and explain the
problem and the solution, which is often either a replacement of network switches and routers or
more bandwidth for WAN and Internet-facing connections. Proper design, planning, and fund
allocation are key to a successful ERP deployment that will be scalable for the future.

The three-tier client–server architecture, seen in Figure 3-4, has been shown to improve
performance for groups with a large number of users (in the thousands) and improves flexibility
when compared with the older and somewhat obsolete two-tier approach. One way to help
ensure scalability is to reduce some of the burden of processing and database access from the
users’ client computers. This is at the heart of the three-tier approach. With this approach, which
is sometimes also referred to as application partitioning, the bulk of the complex business
processing is performed on separate computers called application servers. Because the
application servers do the complex processing and report generation, the amount of data that
must be passed from the database server to the (many) client computers is greatly reduced, as is
the amount of computing work each client computer must perform. This processing conservation
reduces the load on the network, which is a key consideration for applications with large
numbers of users. It also reduces the hardware requirements for the client computers. For this
reason, mainframes have found their new role as servers in three-tier architectures.

BENEFITS AND LIMITATIONS

Three-tier applications provide several benefits over traditional client–server applications

including the following:

• Scalability. Three-tier architecture allows easier architecture to add, change, and

remove applications because the user interface and database are not affected by upgrades to
applications.

• Reliability. Three-tier architecture makes it easier to increase reliability of a system by

implementing multiple levels of redundancy. In addition, scheduling and prioritization of jobs
can be managed better from a central location.

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• Flexibility. By separating the business logic of an application from its presentation

logic, three-tier architecture makes the application much more flexible to changes. Flexibility in
partitioning can be as simple as “dragging and dropping” application code modules onto
different computers.

• Maintainability. Support and maintenance costs are less on a single server than it would
be to maintain each installation or upgrade on a desktop client because the middle layer adds
scheduling and prioritization for work in progress.

• Reusability. Separating the application into multiple layers makes it easier to implement
reusable components.

• Security. Three-tier architecture provides higher security because there is less software
on the client machines, which means the IT staff has more control over the ERP system. Three-
tier applications also have some limitations, including the following:

• Economics. Three-tier applications require additional hardware and software

infrastructure to support the middle layer, which can increase the overall platform costs.

• Complexity. A key limitation with three-tier architectures is that the development

environment is reportedly more difficult to use than the visually oriented development of two-
tier applications.

The benefits of three-tier architectures outweigh the limitations in the long run and are
more commonly used in many large-scale distributed systems and enterprise applications
including a large number of e-commerce solutions. Component technologies such as Enterprise
Java Beans (EJB) and CORBA Component Model (CCM) support the middle tier of three-tier
architectures. They provide frameworks for component development and deployment. Many
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Web services based on hypertext transfer protocol (HTTP) and extensible markup language
(XML) similarly make use of three-tier architectures. Even though no two three-tier systems may
be alike, they share similar requirements and consequently similar system designs.

Web Services Architectures

In the last decade, many ERP vendors have introduced Web (or Internet)-based
architecture for their systems. This is often described as a fourth tier where the Web tier is split
into services tier and browser tier.6 The ERP systems focus on the Internet to provide a powerful
new functionality for Internet-based access and integration. This architecture leverages a number
of Internet technologies and concepts to deliver simple, ubiquitous access to ERP modules and
enable the open flow of information between systems.

This functionality is primarily supported through the following Internet access technologies: •
Web server

• ERP portal

• Back-end server integration

• Browser plug-ins or applets

This next-generation architecture leverages a number of Internet technologies and

concepts to deliver simple, ubiquitous access to ERP application modules and to enable the open
flow of information between systems. Using the Internet architecture as the foundation, end users
can access ERP applications over the Web browser, as well as more easily integrate their
PeopleSoft applications with existing internal systems and external trading partner systems. The
Internet architecture can be server-centric or client-centric.

In server-centric environments, clients only need access to the Internet and a standard
browser (e.g., Internet Explorer or Firefox) with a few plug-ins (e.g., Java Virtual Machine and
others). There are no other user interface applications required on the client; therefore, the client
can be any Internet device that uses such standard Internet technologies as hypertext transport
protocol or hypertext markup language (HTML) for user access, or extensible markup language
for back-end communication between an application and a third-party system with the Internet
application server. The latter falls more under system-to-system integration and is covered in a
later section.

In client-centric environments, client devices will need installation of software

development kits (SDKs) and proper configuration and integration with client devices for the

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application to work properly. This is practically disappearing from PC-based clients due to the
advantages provided by server-centric environments as well as due to higher network bandwidth
and reliability. Client-centric platforms are popular in such other devices as personal digital
assistants (PDAs), Blackberries, and mobile phones that are increasingly used to access
information from the enterprise systems.

BENEFITS AND DRAWBACKS

The key benefit of using the Internet platform as the foundation is that organizations are
able to provide a wide range of end users with access to ERP applications over the Web as well
as more easily integrate their ERP applications with existing internal systems and external
trading partner systems.

The Internet architecture can be server-centric or client-centric. The server-centric

architecture, like the one shown in Figure 3-5, enables secure end-user access to ERP application

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modules from any Internet-enabled device (e.g., a Web browser running on a PC or a cell phone)
that uses such standard Internet technologies as HTML, XML, and HTTP(S), which can access
and execute ERP applications. The benefit of the server-centric architecture is that there is no
complex, expensive client software installation. The Internet client device accessing the Internet
architecture already has all the software and configuration it needs. No additional software need
be installed on the client for interaction with ERP applications (i.e., no Java applets, Windows
DLLs, or browser plug-ins are needed). Simple, open architecture creates easy, inexpensive
access and is a big reason why the Web has been such an enormous, fast-growing success.

On the other hand, the client-centric architecture requires the applications and data to be
downloaded from a server and executed from a client workstation. Each architecture has its
benefits and drawbacks. Although the server-centric architecture has better security and controls
because all the applications and data are on the server and clients do not need any specific
configuration, it does tend to have slower response time because all user requests are processed
on the server. The client-centric architecture similarly has better response time because user
requests are mostly processed on the client’s computer; however, they can lack security and
require all client workstations to be set up according to the standard specifications.

In addition to improving end-user access, Internet-based architectures also allow better

system-to-system integration, which is often considerably more complicated and costly. The
Web system platform fundamentally supports a better and more open flow of information
between systems. By leveraging such ubiquitous Internet technologies as extensible markup
language and hypertext transfer protocol, the ERP system is able to support better systems
integration. These integration technologies streamline integration of ERP modules with other
organizational applications, custom internal systems, e-Merchants, and customer trading partner
systems. This functionality is supported through the following Web technologies:

• Application messaging

• Component interfaces

• Business interlinks

• Application engine

SERVICE
. ORIENTED ARCHITECTURE

Service-oriented architectures represents object-oriented architectures for Web platforms.

The first service-oriented architecture for many people in the past was with the use of distributed
component object model (DCOM), an extension of the component object model that was
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introduced in 1996 on Microsoft Windows platform. A service is a function that is well defined,
self-contained, and does not depend on the context or state of other services.
A service-oriented architecture is essentially a collection of services. From an ERP
perspective SOA decomposes the business tier into smaller, distinct units of services. These
services collectively support an ERP functional module. They can individually be distributed
anywhere in the system; however, SOA encourages these services to comply with certain design
principles like existing autonomously, yet to evolve independently from each other.
SOA basically produces an application environment with unique characteristics and
benefits. Although SOA is not new, it does go beyond sharing basic data and methods to sharing
business logic and other advanced services. In addition, object-oriented architectures of the past
allowed interactions only within the corporate firewall. SOA allows message interaction between
any service consumer and service provider. It could also involve two or more services
coordinating some activity, as long as they follow SOA standards.
The SOA standard includes a description language for all functions or services that have
active programming services that are called on to perform business processes. Each interaction is
independent of each and every other interaction and the interconnect protocols of the
communicating devices with different infrastructure components. Because services are
independent of the operating system platform, a consumer from a device using any operating
system in any language can use this service. SOA is similar to Web services, but it is not the
same. Web services is an application of SOA with such Web-based technologies as SOAP and
XML. SOA is more than a set of technologies; it is a standard that runs independent of any
specific technologies.
SOA is a software development model based on a contract between a consumer (client)
and a provider (server) that specifies the following:
• Functional description of the service
• Input requirements and output specifications
• Precondition environment state before service can be invoked
• Postcondition environment state after service has been executed
• Error handling when there is a breakdown

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Figure 3-6 illustrates basic components of service-oriented architecture. It shows a

consumer sending a service request message to a provider. The service provider returns a reply
message to the consumer. The request and subsequent replies are defined in a service-level
agreement that is understandable to both the service consumer and service provider.
In short, SOA consists of several best practices that permit an organization to conceal the
complex nature of technology while supplying agile resources for the business. It rearranges the
capabilities of different business applications and turns them into business services. These
services are then converted into business processes. It can then be said that SOA permits the
business flexibility and agility.
Agility and flexibility allow an organization to do many things that will better serve their
business. These things include, but are not limited to, the following: improving business
visibility, reducing the cost of integration, increasing the business’ agility, and increasing the
reuse of services. Depending on the type of problems the organization is trying to solve with
SOA, these benefits and others not listed can provide a monumental return at several different
levels. In enterprise content management, SOA can connect dissimilar systems and integrate
enterprise content management into areas where it did not have a presence.

BENEFITS AND DRAWBACKS

The main characteristic of an SOA is that of a loosely coupled, document-oriented

interaction model. The key benefits of SOA, therefore, are scalability, reusability, and flexibility.

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SOA offers the following benefits over traditional approaches to distributed computing:
• Business-level software services across heterogeneous platforms
• Complete location independence of business logic
• Services can exist anywhere (i.e., any system and any network)
• Loose coupling across application services
• Granular authentication and authorization support at service unit level
• Dynamic search and connectivity to other services
Short-term benefits of SOA:
• Enhances reliability of the architecture
• Reduces hardware acquisition costs
• Leverages existing development skills
• Accelerates movement to standards-based server and application consolidation
• Provides a data bridge between incompatible technologies
Long-term benefits of SOA:
• Provides the ability to build composite applications
• Creates a self-healing infrastructure that reduces management costs
• Provides truly real-time decision-making applications
• Enables the compilation of a unified taxonomy of information across an enterprise and
its customers and partners
Business value benefits of SOA:
• Increases the ability to meet customer demands more quickly
• Lower costs associated with the acquisition and maintenance of technology
• Empowers the management of business functionality closer to the business units
• Leverages existing investments in technology
• Reduces reliance on expensive custom development

SOA also has its drawbacks. It brings changes in architectural style, programming models, best
practices, patterns, testing, and management approaches, and the collective learning cycle will
take some time. SOA focus is on business process with an underlying assumption that not
everything in technology can be the same, so standard methods and processes must be defined to

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enable disparate technologies to communicate, regardless of manufacturer or language. For

example, SOA requires:
• System environment consisting of numerous complex structures for integration
• SOA implementations, which are costly and time consuming
• Maintenance environment to support rapid integration capability within these structures
• Organizational culture that embraces the rapid sharing of assets and information
• Management approaches to support rapid sharing and integration
• Complex security firewalls in place to support communication between services across
applications that traverse the organization’s networks

The key limitations of SOA, therefore, are as follows:

• Performance can be inconsistent
• Requires enterprise-level focus for implementation to be successful
• Security system needs to be sophisticated
• Costs can be high because services need to be junked very often

SOA AND WEB SERVICES

. Web services play an important role in the SOA approach. That is because Web services
precede SOA. While the concepts are associated in some form, they’re also quite different. Web
services basically are interfaces that allow different software applications and components to be
operated together. Web services are necessary because different applications operate in
dissimilar ways. One special feature of Web services is that the IT industry reached a consensus
on certain standards concerning the communication of applications to other applications. These
standards are passed down from organizations like W3C and OASIS. Thanks to these standards,
different applications can interact with each other without concern for communication problems.

There are several important characteristics of Web services to consider. First, the only
method of interaction by Web services is by receiving and sending messages. Because of the
nature of Web services, the programs that activate them can simply be changed without worrying
about interference with their communication ability. Second, these services are developed using

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open standards. Such standards include, but are not limited to, WSDL (Web Services Description
Language), UDDI (Universal Description, Discovery, and Integration), and SOAP (Simple
Object Access Protocol). Finally, the protocols used in Web services are XML based. The
behavior of the respective Web services is documented in what is known as a contract. These
contracts describe the interaction between services and the applications that invoke them.

ENTERPRISE CONTENT MANAGEMENT AND SOA

Enterprise content management deals with enterprise software products. These

products usually store, preserve, manage, and deliver any documents or content that is
connected to business processes. Meanwhile, enterprise content management strategies and
tools mainly concentrate on managing any unstructured information that exists in an
organization. Nevertheless, enterprise content management is also about supporting business
goals, not just managing content itself. Until recently, enterprise content management
solutions were supplied by vertical applications.

The problem with that is it made developing new applications for content
management a process that is more expensive, longer, and more complicated. The business
would have to deal with integrations that were problematic to maintain and develop.
Integrating Web services to enterprise applications were made quite simple. However, they
lack efficiency. Now due to SOA, the software market for enterprise content management is
being overhauled. Vendors have come to an understanding that content management takes
advantage of technology and information assets across the business and is no longer
application specific. Where enterprise content management is concerned, utilizing the SOA
approach consists of extracting the features of the enterprise content management platform as
services across the life cycle of the content. This way, businesses can take advantage of
enterprise content management resources in a manner that is flexible and reusable.

As business process management and enterprise content management systems cross

over many departments and, as a result, many systems, the SOA approach works well with
them. Therefore, the point of SOA in enterprise content management involves extracting

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functionalities from legacy systems, developing applications, and incorporating enterprise

content management into areas where it didn’t exist previously.

CLOUD ARCHITECTURE

Cloud computing (CC) has recently emerged as a powerful platform to support the
growing needs of many organizations that do not want to own and maintain complex
software systems for the enterprise. There are high costs and headaches with software
purchasing, installation, and maintenance today; IT staff have to contend with networking,
technical support, security, privacy, compliance and other issues, which makes it very
expensive to own software.

The cloud computing platform provides a great alternative for these organizations as
they do not have to purchase, install, or maintain the software applications, nor do they have
to worry about security, privacy, and legal issues associated with data storage (assuming they
choose to store their data bases on the cloud environment). Of course, the cloud computing
platform is risky for organizations as it forces them to rely on cloud computing vendors for
reliability, security, and continuity of enterprise applications. However, as the cloud
computing platform settles down in near future and with large vendors like Microsoft, Oracle,
and SAP starting to integrate their applications and services on this platform, more and more
organizations will adopt this platform.

BOX 3-1 MICROSOFT AND SOA

For developers interested in creating new SOA-based applications, Microsoft

developed a new series of services that utilizes the company’s BizTalk server technology.

BizTalk Services offers a merged identity, access control, and verification, which are
all based on WS-Trust standards. BizTalk Relay Services connects physical networks,
allowing links between systems so cross-organizational messages can be sent behind

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firewalls. The Internet Service Bus offers a straightforward message bus. The BizTalk
Workflow Services allows applications to be created graphically by developing flowcharts.

Some analysts believe these BizTalk services will increase efficiency and
performance while cutting down on infrastructure and operation costs. Additionally, it is
believed that these services will reduce the production of infrastructure software within the
company. At the same time, the development team will be more capable of crafting and
developing secure services. BizTalk Services is intended to fix problems concerning low-
level infrastructure. This is something that is utilized in projects in order to expand their
capabilities. Also, the services are capable of handling complex infrastructure. A major
benefit is that they can be incorporated into Windows Communication Foundation (WCF).
As a result, it will be easier for developers to tend to their infrastructure concerns and focus
on business goals.

All in all, BizTalk Services promotes Microsoft’s maxim of providing software plus
services, which is viewed as a hybrid approach. On top of its other products, this gives
Microsoft an edge over its competition. From a technical point of view, the company’s
approach provides better performance for the end user.

Cloud computing has been defined or interpreted in many different ways. Some
define cloud computing as “on-demand access to virtualized IT resources that are housed
outside of your own data center, shared by others, simple to use, paid for via subscriptions,
and accessed over the Web.”8 Others have a much wider and fuzzier definition: “virtual
servers available over the internet”. The following is the most comprehensive definition of
cloud computing: “What makes cloud computing so powerful is that it is based on a system
of modularity. The use of virtualization and a cloud platform allows organizations to break
down services and systems into smaller components, which can function separately or across
a widely distributed network. Servers can be located almost anywhere and interfaces can be
changed and customized on the fly. These services and software are only as far away as an
Internet or mobile phone connection.”

Based on the definitions above, cloud computing is basically a software service

provided over the Internet, securely, by a service provider on a monthly or yearly lease. CC is
similar to your ISP, which for a monthly fee provides you access to the Internet. The CC

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service provider provides for a monthly fee storage space for your data and access to an
increasing number of software applications. Companies leasing CC services save money by
replacing their purchased software that requires a license fee per seat. For example, if a
company finds that it is spending too much money on Microsoft Office suite (software,
licenses, and upgrades), they can replace it with an online version of the suite or similar suite
for a fixed monthly fee without worrying about installation, maintenance, or security.
Microsoft, Google, and Zoho are three vendors who offer Office applications suites, each
with its own benefits and liabilities (Foyle, 2010).

Some cloud computing providers also let you build your own applications using their
engines and then they would host those applications for you as part of the service. For
example, Google offers the Google App Engine, which enables users to build Web apps for
their companies. The Google App Engine offers fast development and deployment and
simple administration. Google promises to deliver a 99.9 percent uptime SLA, which
eliminates concerns regarding servers performing up to standard. The cost to create your own
application using the Google App Engine is $8 per user, per month (with a maximum $1,000
a month), which means that you pay for what you use. Paying depending on the amount of
usage can save companies money, because in the traditional model, companies would have to
pay a fixed price for a system whether 5 people used it or a 100 people used it (Google App
Engine). Google is updating this engine with a new service that will be offered later this year
with a hosted SQL database service and a Secure Socket Layer (SSL) service on their client’s
platform for secure communications. But Google is not the only company out there that
allows you to do these things; there are other companies like Amazon who also offer the
flexibility of programming your own application and host it on their servers with the
subscription. In addition, Amazon offers services to creating iPhone and Facebook
applications (AWS Solutions). It seems that there is no limit on the software services that are
being offered on the cloud computing platform, and ERP systems are heading in their
direction.

There are several enterprise applications, like e-mail, customer relationship

management (CRM) software, sales automation software, accounting, procurement systems,
online meeting spaces, Web site and domain hosting, and others that are being offered on the

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CC platform. VMware, a CC vendor, offers a solution that utilizes a virtualized version of

SAP system for testing, development, Q&A, training, and production environments. The
implementation of virtualized SAP solutions allows clients of VMware to reap multiple
categories of cost savings; when calculating the total cost of ownership (TCO): savings come
from downtime (30 percent of TCO), operation (40 percent of TCO), administration (10
percent of TCO), and hardware and software (20 percent of TCO).

Similarly, Oracle is offering a CRM solution for the cloud. Oracle offers sale, service,
marketing, contact-center operations, and real-time and historical analysis and helps integrate
business processes with prebuilt Web services. Oracle calls this cloud computing service as
Oracle CRM On Demand, which offers its clients the power to break down their departmental
silos. The service is offered at a (subscription-like) per-user, per-month price. Therefore, the
companies using this service need not worry about paying maintenance and upgrade costs.

In general, the greatest attraction for cloud architecture is cost, particularly as the
services are free for the first 3–5 users and the cost is not very high for more users. Other
benefits of cloud computing include the ease of access, which means that all you need is a
computer with Internet access and an Internet browser and you will be able to access your
cloud service. Also the costs of money and resources related to owning those software and
hardware can be saved and spent in other areas of the business as the cloud service provider
takes care of the server, installation, security, and maintenance for the applications. CC
allows IT staff and management of companies to sleep at night knowing that your servers and
applications will be working the next day because of the provided reliability of the company
hosting your applications (Cusumano, 2010).

However, everything is not perfect in the world of cloud computing. Just like other
solutions, there are some risks that are associated with keeping your applications and data
outside of the company. As mentioned before, there is a great concern about data security and
vulnerability. Not having the physical control over who accesses the data and how well the
data are protected, most companies are not comfortable or ready to store information,
especially sensitive information, outside the company’s firewalls. Further, not knowing
where the data are being stored and processed discourages companies from accepting cloud
computing as a viable business option (Nicholson, 2009). Sometimes there are potential

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conflicts of interest when the company that is hosting your application also has its own
application that is similar to yours. For example, a CC vendor like Google or Amazon could
decide to create an application that is similar to yours and offer it to their clients and who
could possibly be your competitors. This would create a big conflict between Google and
their customers, as well as between two competing clients that now have access to similar
technology. These issues are a big reason why many companies are staying away from cloud
computing as an answer to the traditional expensive in-house IT solutions.

Network vendors today are realizing that most applications will be housed either
internally or externally on a CC platform. Whether they live in an organization’s data center
or off site in another vendors cloud, the network is now becoming more important than ever.
Networks need to be designed to handle larger amounts of data than ever before. They are
also expected to be highly redundant and never require any downtime. Vendors are
responding to these demands and introducing network equipment that not only fills these
requirements but also scale as requirements change while keeping costs nominal.

Cisco, for example, is one vendor who is taking steps to stay ahead of the curve and
has introduced a product line that meets the requirements for a virtualized data center. Their
Nexus product line is a data center solution, which provides the capability to combine both
network and storage traffic over a single connection, reducing the need for multiple
connections per server. The Nexus platform is a 10-gigabit platform scalable in the future to
100 gigabits. It is also capable of providing in-service upgrades which allow for the network
to stay up while the network switch is upgraded to fix bugs or add features. As more systems
are virtualized and storage network becomes more prominent, the need for higher bandwidth
becomes critical. The Nexus platform is clearly built for these requirements and the future.
ERP systems of the future can utilize this type of platform to provide users a richer
experience while reducing costs through virtualization on the back end. The initial costs of
this type of network device will be high, but the long-term benefits should help offset the
cost.

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.
Benefits and Drawbacks

Benefits of Cloud Computing:

• Pay for subscription, not for licenses and upgrades

• Reduced capital and operating expenditures for IT equipment and support personnel

• Accessed from everywhere, as long as you have an Internet connection

• No need to install anything on the user’s computer

• Dynamic scalability available on demand

• No maintenance fees for software or hardware

• Promotes green computing environment as servers in cloud run on clean energy

• Guaranteed reliability.

Drawbacks to cloud computing:

• Data security

• Vulnerability

• Possible conflict of interest, if the company who stores your applications decides to create a
similar application to what you created on their servers

• Not suited for all highly competitive industries like biotech where intellectual property
cannot be protected easily

Implications for Management

Managers implementing ERP systems should remember the following advisories.

Enterprise architecture is an important technology for the long-term functioning of the

organization. It provides the information system foundation on which all the employees and
other stakeholders of the company will depend for critical information and for the decision-
making process. Enterprise architecture identifies the main components and how these
components interact and function together to achieve defined business objectives. It is also

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important to remember that the enterprise components extend beyond technology into
organizational culture and business processes. Enterprise architecture is supposed to
communicate, inspire, and lead the company to design good systems that produce quality
information for critical business decisions.

ERP architecture decisions are complex because their impact goes beyond systems
and technology to people, organizational policy, and business processes. Management,
therefore, must not leave these decisions for the IT department, and instead work together
with IT staff in selecting the architecture. Management involvement must also be at both the
functional and physical levels of the architecture. Management’s role is to look at the
different types of ERP architectures and see what is most appropriate for their organization in
terms of people, business process, and overall fit of the architecture with their organizational
policy and culture. At this stage, managers need to stay away from specific vendor solutions
in order to avoid any bias.

ERP architecture must be flexible to support a diverse set of hardware and software
platforms. From a systems’ perspective, management first needs to be aware that in order for
diverse technologies to operate smoothly the IT group must have standards and policy for
technology decisions. Today’s organization requires real-time support from anywhere and
anytime for business processes, regardless of the management level of the user in the
organization. From CEOs to customer support personnel, people in the organization need live
access to data, anywhere and anytime. In addition, organizations today have customers,
suppliers, and other external entities accessing information from the ERP system.

Do not get carried away with ERP technology hype. With new technologies and
architectures constantly touted by vendors and consultants, it is very easy to end up with a
very sophisticated architecture and system, and yet have a major implementation failure. As
discussed earlier in the Nestlé’s case, when the people and organization’s processes are not in
tune with the architecture, then even a good system will not be able to achieve success in
improving the bottom line. Management must learn how to filter out the hyped technologies
that do not provide value to their organization. For example, SOA may not be appropriate for
a company that has a small-scale ERP used mainly for internal operations by its employees.

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On the other hand, SOA may be appropriate for a company with e-commerce applications
that has B2B relationships with several of its partners and vendors.

Summary
• System architecture provides answers to such questions as, what will the system
look like? How will the system work? How will it be developed? Do we have the required
infrastructure to support the system? Can the system be used for any business function, or
just for a specific business function like human resources? This chapter has provided answers
to these and other questions related to the enterprise systems architecture and revealed why
it’s important to have a good architecture before implementing an ERP system in an
organization.

• System architecture includes ERP modules and ERP architecture. Major vendors
provide modules to support such basic business functions as accounting, finance, marketing,
and HR to such advanced business functions as self-service, compliance management, and
business intelligence. This functionality is constantly evolving as needs of organizations
change. The focus today is on supporting enterprise-wide needs of the company. This means
ERP systems are accessible by a wide variety of people and departments, making them
complex and vulnerable from management and maintenance perspectives.

• ERP architectures are generally organized in tiers or layers. This provides

tremendous flexibility and scalability for ERP systems, which have traditionally been
organized in three tiers: data, application, and presentation. The separation of data from
application or application from presentation makes the ERP implementation very flexible
because an organization can change the presentation layer (i.e., user interface) without
affecting the business logic or database system. Changing the database similarly will not
affect the other layers. This can lower maintenance and future upgrading costs of the system.

• There are various types of layered architectures. The simplest and somewhat
obsolete is a two-tier architecture, but it has limitations (e.g., it supports only a small number
of users and is not flexible for new versions of ERP software). Three-tier architectures
separate application from the presentation layer, thereby increasing the flexibility and
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scalability of the system. ERP systems currently have expanded to Web-based architectures
to facilitate better integration with the Internet technologies.

• Another architecture that is gaining popularity is service-oriented architecture. SOA

separates the service provider from the service consumer by making them sign a service-level
agreement contract that specifies how the consumer requests the service and what
information and services will be provided by the provider. This is similar to object-oriented
system architectures with a higher degree of separation with a clear communications
agreement between the two objects. SOA benefits include faster application development and
reuse of software modules. Major ERP vendors are now supporting SOA in their newer
versions of their software.

• Management should not leave the enterprise systems architecture decisions to the IT
department. ERP architecture is quintessential to a successful integration and implementation
of an ERP system, and it has a wide and long-lasting implication on the organization. Top
management must therefore be involved in designing the architecture from the very
beginning of the ERP implementation project. ERP systems embed organizational policy and
are costly to implement, so any errors can bring down the organization.

REVIEW QUESTIONS:

1. What is necessary for the ERP implementation to be successful?

2. What is ERP system architecture?
3. Why is it important to have good enterprise system architecture?
4. What is the role of architecture in ERP implementation?
5. List five of the major functional modules of ERP.
6. What is service-oriented architecture and how is it different from Web services
architecture?
7. Discuss the different types of ERP architectures.

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EXERCISES:

1. Search the Internet for SOA support from the three major ERP vendors: SAP, Oracle, and
Microsoft Dynamics. Compare the SOA features in a table format.

Case 3-2: Real World Cases - WIPRO and MBH

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