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Original scientific paper

CONNECTIVITY OF ERP WITH LEGACY SYSTEMS)

Esichaikul Vatcharaporn, Nuankhieo Piyanan

School of Advanced Technologies, Asian Institute ofTechnology, THAILAND
[email protected]

Abstract: The purpose of this study is to propose the criteria for determining the
appropriate connectivity of enterprise resource planning (ERP) systems. The result of this
study provides a framework assisting ERP adopters in selecting integration approaches
that are appropriate to their needs. A survey was conducted to obtain information from
ERP users to learn about their opinions on factors and criteria affecting connectivity of
ERP systems. Findings from the study revealed that data-oriented approach and
application integration oriented approach are the preferred integration methodologies.
Criteria for evaluating ERP connectivity inc/ude nature of the organization 's business
process, availability of technologies and service supports, nature of the organization 's
information system, system flexibility, degree of integration, transaction volume,
implementation cost, ease of maintenance, implementation time, security, and budget.
Finally, the study proposes a framework to determine appropriate connectivity of ERP
systems.

Keywords: Enterprise resource planning, connectivity, integration, legacy system.

1. INTRODUCTION
In a highly competitive world, accurate and reliable information is crucial for an
organization to stay competitive. An organization must be able to capture the whole picture
of its own business operations. Therefore, an uninterrupted flow of information with in the
organization is required. With this in mind, companies invest millions of dollars in
developing or acquiring computing systems. However, these systems are rarely able to talk
to each other, and each business unit in an organization has its own computing system.
What companies really need is an integrated, enterprise-wide system that automates central
corporate activities such as manufacturing, human resources, finance and supply chain
management. The enterprise resource planning (ERP) system can fulfil this business
requirement.
An ERP system helps to streamline the flow of information among the business units
that are unable to perform in traditional computing systems. It ti es all business function

I A preliminary version of this paper appeared in Proceedings of the 6th International Conference on
Enterprise Information Systems, ICEIS2004, Porto, Portugal, April4 -17, 2004.

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units together. What one unit does also has an impact on the others because different
departments share the same system and operate on the same data. Therefore, an ERP
system allows business decisions to be made quickly and confidently in the knowledge that
data is accurate and up-to-the-minute.
Currently, a lot of companies turn to the ERP system to increase efficiency and
productivity, allawing companies to respond to customers' demands more accurately and
efficiently than before. Major improvement resuits from adopting an integrated informatian
system. Though the benefits of implementing ERP systems are many, the se cannot he
realized easily. The implementation of an ERP system can consume millions of dollars and
take several years before the system can be bedded down. Success ar failure depends on
many factors including technical and manageriaI matters.
Ideally, organizations hope that ERP systems will replace legacy systems. However,
complete system replacement is not practical, economical, ar even feasible. An
organizatian has to bear in mind that each organizatian is unique and no ERP application is
suitable for every organizatian. Moreover, no ERP application offers every function that is
required by every organizatian. Implementing ERP systems requires the customization of
software to suit each organizatian. The degree of connectivity and integration determines
how easily the ERP system will be integrated with other systems. The desired degree of
connectivity and integration with other systems has to be decided before customizing an
ERP application. This involves tradeoffs: a higher level of connectivity is expensive and
hard to create and maintain, whereas a lower level of integration does not support a smooth
flow of data. Though the highest level of connectivity is preferable, it does not guarantee
success. Each organizatian needs to consider which level is worthwhile and suitable. To
assist a potential organization in investigating an ERP system, and to aid in the preparatian
of an organizatian for ERP implementation, the appropriate criteria and a framework
covering connectivity issues ne ed to be developed.

2. ERP SURVEY
For this study, a survey was conducted to determine ERP driving forces and current
problems associated with connectivity, and to identify the critical facto rs of connectivity
that an organization should consider when implementing ERP. The survey is based on in-
depth interviews with selected organizations, which are all current ERP users in the
government and business sectors. The interviews were designed to cover several sectors of
businesses, such as banking and finance, telecommunications, entertainment, automotive
manufacturing, high technology and electronics, and power and energy. Interviews were
focused on personnel who were responsible for ar involved in ERP implementation
projects, ar personnel who are currently responsible for ERP systems, such as an ERP
project manager and IT manager ar IS manager.
The interviewees were limited to organizations in which ERP systems went "live" and
which are currently implementing ERP systems, not including planned users. With
information available from ERP vendors and ERP consulting firms, same current ERP
users could be identified. Interviews were conducted in twenty-two organizations: thirteen
manufacturing companies and nine service companies. Organizations were selected by
judgment sampling to make sure that the organizations contacted were the real users and
the right population.

3. ERP DRIVING FORCES AND IMPLEMENTATION

The survey resuits revealed the following ERP driving forces and ERP implementation:

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3.1. ERP DRlVING FORCES

There is a variety of reasons or driving forces for using ERP systems, but the most
important one is the need for integration of process and information. The appeal of an
integrated information system resulting from implementation of an ERP system is cIear.
For example, when the sales force enters an order on a computer, the transaction proceeds
through the entire company. Inventory lists and parts' supplies are updated automaticalIy.
Production schedules and balance sheet reflects changes. By making its information more
readily available and shortening the business cycIe, the organization can get many benefits
resuIting from increased competitiveness, reduced inventory, lower costs, and improved
customer services.
For international companies, the driving force for using ERP comes mostly from their
headquarters, which push ERP system to their branch offices. This happens because of the
success and benefits of ERP implementation they have reaIized from the practice in
headquarters and of other countries' branch offices. What is more, the standardization of
business practices of all branches is developed, so it is easier and faster to retrieve
information and analyze data globalIy. Other driving forces inc lude a desire to folIow the
trend, media influence, inefficiency of the legacy system, pressure from cIients and/or
suppliers, and the need for a program that can fulfilI business functions.

3.2. ERP IMPLEMENTATION

AIthough ERP is evolved from and developed for manufacturing, it is feasible for the
service sector to use ERP, but not all modules that come with an ERP package can be used.
Currently, ERP vendors also provide solutions for different industries such as healthcare,
banking, education, and the pubIic sector.
The study revealed that the basic or fundamental functional modules that most
organizations in manufacturing industries have implemented are financial accounting,
material management, production planning, sales and distribution, and controiling. These
modules are associated with the core activities of an organization, which are the processes
from manufacturing to distribution and to preparing financial information. Although the
nature of service industry is different from manufacturing, so me functional modules can be
used. In any type of organization, the financial module is the first module to be
implemented because it provides the basic pulse of an organization. It also affects all other
modules.
In order to implement an ERP system, business requirements must be identified and
then the requirements are mapped with the ERP package. A decision must be made about
customizing an ERP appIication to fit a business's need, or changing business practices to
suit the ERP software. According to the study, there were very few cases in which
organizations chose either of these two end approaches. Most organizations chose the
middle way, by adapting business processes that they considered would be enhanced by
folIowing the standard of ERP applications, and customizing the functional modules for
which it was not practical to change the business practice. Successful implementation
requires the knowledge of the existing system from the in-house team plus the experience
and expertise in ERP from the external consuItant. Because ERP is stilI a new concept and
so takes a lot of effort for the organization to gain expertise in ERP, ERP consultants play a
major role in the implementation ofERP systems.
Although there are many choices, such as the "big-bang" approach and the accelerated
method, for implementing ERP, many companies choose a phased roll-out as an
implementation stratcgy by first implementing the modules that are the most critical and

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that have the most links with other modules. Then the modules that are involved with the
modul es ofprevious implementation phases are implemented accordingly.

4. ERP CONNECTIVITY
Although the full benefit of an ERP system will accrue if all the ERP modules are
implemented together, many organizations implement ERP modules only in those functions
that are considered to be of strategic importance. Implementation only of functional
modules of ERP application will benefit organizations in terms of integration and
connectivity, but it is not practical to do so because sometimes the functions that are needed
by organization are not provided in ERP applications. And even when the functions are
provided in ERP applications, they may be too general or the functions are not deep or
specific enough to meet the requirement of business process. In addition, some
organizations need to interface ERP systems with legacy systems because they contain
critical business data that sometimes cannot be extracted from legacy systems and
converted for use in a new system.
Other driving forces towards interfacing ERP systems with legacy systems or third-
party applications incJude lack of analytical capability of ERP systems, the need to follow
the application used by headquarters, increased efficiency in terms of operation, no budget
to buy more ERP application user license, and the belief that the existing application is
good enough.
The study, however, found that many organizations threw away legacy systems after
ERP systems went "live". It was perceived that legacy systems were inadequate
information systems. Other reasons were that information required by management was not
available immediately; data of various systems was inconsistent; applications could not be
integrated; documentation was frequently lacking; and costs of running both ERP systems
and legacy systems were high.

4.1. OBSTACLES TO INTERFACING ERP WITH LEGACY SYSTEMS/

THIRD-PARTY APPLICATIONS

• Data structure of ERP is very complex. The ERP application is a proprietary

system and each ERP vendor has its own data structure standard. The ERP
schema contains hundreds of tables inside which users do not know when one
transaction occurs and which tables are updated. In addition, customizing a
certain table would affect many other tables that may not be known to the
user.

• Third-party application cannot directly interface with an ERP system. Since

the nature of ERP is proprietary, the degree of proprietorship differs from
application to application. Therefore, the available options for interfacing
other applications to ERP applications depend on the ERP application.
However, ERP venders provide opportunities for integration through
published integration frameworks, application program interfaces, or
middleware. Even if an integration framework is available, organizations
require understanding of ERP native and enabling technologies, which is
time-consuming. Another and easier way of interfacing third-party
applications is to use the applications that are the partners to or certified by
the ERP application. However, this limits the choices of third-party
applications because some organizations have to use applications that were
implemented before the implementation ofERP systems.

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• Lack of knowledge about ERP. From the study, it was seen that organizations
rarely have knowledge about ERP systems. They also lack computing
personnel who are experienced in ERP. Besides, the training fee of ERP is
quite expensive, and after training, personnel know only about ERP in terms
ofuses, not the technical aspects about ERP application. Therefore, they need
help from consultants. Consultants, however, are not always the solution. In
some cases, an organization wants to interface with a certain third-party
application about which ERP consultants do not have knowledge. So far most
consultants stilllack knowledge about application integration technology.

4.2. INTEGRATION TECHNOLOGIES

Current1y many ERP vendors and third-party application vendors are adopting interface
standards like COBRA, Microsoft's Component Object Model (COM), Object Linking and
Embedding (OLE), Enterprise JavaBeans, and XML. However, those methodologies those
employed for interfacing ERP systems with legacy systems/third-party applications can be
grouped into data-oriented and application integration oriented approaches.
In a data-oriented approach, information moves in and out ofERP's relational databases
to external applications or systems, which can be accomplished with database-oriented
middleware products, message brokers, data migration software packages, or even with the
replication and data !ink features in most popular relational databases.
It was found from the survey that most organizations that employ the data-orientation
approach wrote code to move data from ERP to external app!ications. Employing this
approach, programmers need to understand the details of database schema of both systems.
The databases provide the best point of integration, as long as there is no need to access the
business processes encapsulated within the application.
In an application integration oriented approach, the ERP app!ication integrates with
other applications by using well-defined application interfaces. The study revealed that
organizations employing this approach enjoyed the benefit of middleware products rather
than developing their own.
Many ERP and EAI vendors have released tools that can move data between ERP
packages, on the basis of an understanding of the APIs and data mappings that are
implemented by the ERP packages being linked together. This eliminates the need for
customized coding to integrate the packages. However, not all packages are supported, and
it is unclear who will be the eventual winners in this emerging product category.

5. CRITICAL FACTORS OF CONNECTIVITY THAT A COMPANY

SHOULD CONSIDER

5.1. CRITICAL FACTORS

Based on the .survey, the following are the critical factors of connectivity that a
company should consider when implementing ERP.

• Open/Closed System. The nature of the system being connected and the
existing system is important. If one the systems is closed, it is very difficult to
interface or connect with other systems. Therefore, an organization should
select an ERP application that is quite open and has various means of
integration with other applications. This also applies to the selection of third-
party applications.

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• Degree of Customization. Whenever the processes represented in an ERP

appiication differ significantly from the processes used by the organization,
the following options can be performed by an organization. The options are to
build the organizational process into the ERP software by customizing the
ERP appiication or changing the organizational practice to suit the process
native to the ERP application. Traditional common sense would force people
to customize the application to meet the needs of the organization. However,
too much customization will raise problems. The first problem arises out of
the fact that any customization done locally is outside the core ERP
application; then, the next release of the ERP appiication would not support
local customization, Modifications would have to be red one by the end user
for the new release. Secondly, by over-customizing, the impJementers would
lose the benefit of best practice in the industry which is embedded with ERP
applications. According to the survey, organizations try to minimize
customization by adjusting the business practices that can be changed. If an
organization wants to replace any manual work with a computerized system,
the functional modul es that are provided with the ERP application are taken
into consideration first, since the functional modules that come from the same
appiication vendor posses a high degree of connectivity and integration.

• Existing Infrastructure. If a legacy system interfaces with an ERP system, the

existing infrastructure (such as databases) plays a significant role, especially if
the data-oriented approach is the choice of integration. If a legacy system is
abandoned after an ERP system comes in, attributes of the existing system
(such as databases) determine the degree of difficulty in data extraction and
conversion. This is true ifthe database of the existing system is different from
that of the ERP system. Problems resulting from not having the right
infrastructure can result in poor system performance or unacceptable
downtime at a time when users and management tend to have the highest
expectations.

• Similarity of system infrastructures. This would result from the existing

infrastructure of legacy systems and of ERP systems. From the study, it was
found, however, that the infrastructure of the ERP system is always different
from that of the legacy system. Many databases of legacy system are in-house
developed, and the database structure was not up to standard.

• Standard of software employed. The key to enabiing different vendors'

software packages to interoperate is industry-wide standards, both business
and technical. If ERP vendors employ the same standard, it is possible and
easy for one vendor's software component to replace another vendor's with out
forcing a new round of reengineering. Besides, there are more choices for
third-party appiication selection if all ERP vendors employ the standard.
Technical standards are necessary because there has to be away for different
vendors' packages to communicate with one another. Employing standard s
lessens and eases customization requirements and redu ces implementation
time for connecting third-party appiications with the ERP system, and
improves connectivity.

• Security. Security must be present as a service across all tiers of the ERP core
infrastructure to obtain the necessary granularity expected of enterprise

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applications. It is critical that data be exposed only to applications and users

who have the pro per credentials.

• Third-party support. Since organizations lack expertise in ERP systems,

support from the vendors then is the major consideration. The level of support
from third-party vendors depends on whether they are partners of the ERP
applications or not. If they are, it reduces the problem of integration, updating
and maintenance of the software. Troubleshooting service is another issue that
should be considered when selecting third-party applications. Users need
consultants to help them solve problems in a timely manner, with minimal
interruption of their businesses. Furthermore, user training and documentation
should be provided from third-party support.

• Installation. As mentioned earlier, the success of ERP implementation

depends on more than just integrating it to other systems in the organization; it
has to mirror the business of the organization. Installing an ERP system is not
an easy task like installing Windows. The current state of the organization and
its business processes have to be mapped to the ERP system. Data is extracted
and transferred to the new system. Although it sounds simple, it is not at all
easy. Implementation time is about one year as a minimum, and for some
organizations it takes about two or three years. The way the ERP systems are
confugured will affect the way and choices ERP systems can interface with
other systems, and how effective the flow of data between interconnected
systems will be.

5.2. CRlTERJA TO DETERMINE APPROPRlATE CONNECTJVJTY

The survey showed the interviewees' opinions towards the criteria that should be used
to determine the appropriate level of connection:

• Nature of business process of organization. The most important criterion is

the nature of the business process. The success in implementing an ERP
system depends on how many of the business proces se s of the organization
can be mirrored by an ERP system. To smooth the flow of information, the
selected integration methodology should facilitate the businesses.

• Availability of technologies and service support. Before selecting the

integration approach, an organization should study what technologies and
support are available in local market and understand what is needed for the
organization. Advantages and disadvantages should be weighed thoroughly.
Organizations should choose the technology for which service support is
locally present and ensure that the support technology is not outdated, since
technology changes rapidly. Selecting a knowledgeable consultant can help
the organization solve this issue.

• Nature of information system of organization. The information system of an

ERP system includes hardware, operating system, database, and ERP
.application. The most important component when talking about integration
issues is the database, if the organization chooses the database as a point of
integration. The database of a system being integrated with ERP, like a legacy
system, can come from the same vendor or different vendors, or even be
databases that employ different data models. The solution, after weighing
costs and benefits, may be database replication and data federation.

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• System flexibility. The architecture and integration approach of an ERP

system should be selected carefully since it becomes the IT backbone of
organization. A system should be planned for future changes, such as more
applications being connected to the ERP system, or the number users of ERP
system increasing. Then, addition of more users and applications should not
affect., or have a minimal effect on, the existing system. If many different
types of applications will interface with the ERP system, the organization
should choose the approach that is efficient for interfacing many different
types of applications, such as an application integration oriented approach.

• Degree of integration. Although tight integration is an ideal solution, other

factors like cost and budget may affect the decision about degree of
integration. For example, it is cost-effective to choose a less tight integration
approach for a system that does not require tight integration, like the human
resource system. However, tight integration is appropriate for the system in
which transactions occurring have a critical effect on other systems, such as
material management and production planning.

• Transaction volume. Transaction volume determines the necessity of real-

time processing. Ifthe amount of data being transferred among ERP and other
systems is low, it may not be worth the investment. Batch processing may be
the option for this case. If the volume of information that needs to move from
one application to another is low and is moving between two databases, it is
generally easier to use so me form of data-level integration tool.

• Implementation cost. Typically, costs involved in ERP implementation

include cost of ERP application, cost of hardware (host and workstations),
training cost, consulting cost, and maintenance cost. Actually, the cost of ERP
is generally 30 percent of total cost of implementation. A user should examine
needs and available technologies to estimate costs. A user may compare costs
charged by each ERP consultant and choose the most cost-effective one.

• Ease of maintenance. Ease of maintenance should be taken into consideration

when selecting approaches to integration, since the ERP system becomes the
IT infrastructure for the organization. Although certain approaches may be
easier to implement than others, the cost and effort to maintain it must be
considered, because the system may last the life of the organization.

• Implementation time. Time to implement can range from one to five years or
more. Time to implement the integration approach should be kept at a
minimum because ERP involves the core activities of the organization.

• Access control and data security. Security must be present at all tiers of the
ERP system (presentation, application, and database server). It is critical that
data be exposed only to applications and users who have the proper
credentials. Only authorized users may gain access to data, through
identification codes and passwords. Authentication and encryption techniques
should be provided in ERP network as well; they protect transmitted data
from being disclosed and changed.

• Budget. Each integration approach has different costs and benefits. However,
the selection of the appropriate integration approach should be considered on
the basis of efficiency rather than cost. Money should not limit what is the

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best for the organization. So the management should provide support in term
sofbudget.

6. CONCLUSION
This study presents critical factors of connectivity that organizations should consider, as
well as a framework to determine appropriate connectivity of ERP systems and legacy
systems/third-party applications that will be used for making decisions on ERP
implementation. To successfully interface ERP systems with legacy systems or third-party
applications, eight important factors should be taken into consideration. These factors
include open/closed system, degree of customization, existing infrastructure, similarity of
system infrastructures, employment of standard s, security, third-party support, and
installation.
Consideration Criteria

1. Nature of Business Process

2. Availability ofTechnology &

Se rvice SUODOr!

Legacy System / 3. Nature of Information System

Third Party Legacy System /
4. System F1exibiJity Third Party
Application
Application
S. Degree ofIntegration

6. Transaction Volume

7. Implementation Cost

8. Ease ofMaintenance

ERP System 9. Implementation Time

10. Access Control & Data

Security

11. Budget

Figure I: A Framework to Determine Appropriate Connectivity ofERP Systems

Figure 1 presents the framework for an organization to determine the appropriate

connectivity of ERP systems and legacy systems/third-party applications. In the case of
organizations start their computing systems by implementing ERP systems, selecting third-
party applications that are partners of ERP vendors is the best solution for connectivity
among systems. However this may not be possible for the organizations that have long-
established computing systems in their organizations. Then, the criteria should be taken
into consideration when analyzing the appropriate connectivity approach ofERP systems.
The resuits and conclusions of the study mainly concern intra-organizational
connectivity of ERP systems. The further study of an ERP-to-ERP system, could focus on
the selection of integration methodology that can eliminate the differences in ERP systems
of business partners.

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Received: 22 May 2004

Accepted: 08 December 2004

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