Globalizing Development of ERP Applications for SMB Selected Topics Andrej DANKO i

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1 Globalizing Development of ERP Applications for SMB Selected Topics Andrej DANKO i Summary Enterprise resource planning (ERP) applications have become an integral part of companies' information systems landscape and are being implemented not only in large companies, but also in small and medium businesses (SMB) leveraging their operational effectiveness and resource utilization. Development of such ERP applications for a global market in the SMB market segment, requiring globalization, involves paying attention to many previously unseen aspects, as within the product definition, analysis, or technical implementation. This article tries to summarize the most important challenges ERP application for SMB development with globalization is facing. Keywords ERP, development, integrated business applications, globalization, small and medium businesses, SMB Introduction Development of ERP (Enterprise Resource Planning) applications for Small and Medium Businesses (SMB), including globalization as a part of the software development lifecycle, is a current topic. This is due to penetration of new markets by software vendors to sell such applications there as well as due to the increasing adoption of technologies by SMBs and increased demand for solutions enabling more effective and transparent management and increased competitiveness of firms. The environment influencing development of global business applications in the analyzed market segment is complex and topics such as conceptual aspects of development and globalization, adaptation and the ability of fast change management or the specifics of SMB are only some that need to be identified and correctly (optimally) structured early in order for a product and its acceptance to be successful in different markets globally. 1. Identification of ERP application in the context of business applications We define an application as a subset of software products that fulfil a specifically defined set of tasks within its domain area in order to automate economic functions. We define a business application as one application that fulfills tasks of similar types within different economic entities, whose domain area includes some or all tasks connected with enterprises as economic entities (referred to as standardized application software for automation of tasks in business organizations) [RU100, p. 9]. Initially, business applications were mainly heterogeneous autonomous systems legacy systems which performed individual tasks within a company and their integration with other systems was limited or non-existent. With the increasing economic production and its quality and quantity the need for integrated solutions strengthened to solve completely the management of enterprise s resources. One of the next possible categorization of business applications describes integration in the first place (functional, software- and data-centric up to the integration of enterprise s i DANKO, Andrej: Globalizacia vyvoja ERP aplikacii pre segment malych a strednych podnikov vybrane aspekty (Globalizing Development of ERP Applications for SMB Selected Topics). Proceedings of the AIESA 2006 Conference Participation of the PhD. Students on Building of Society Based on Knowledge, University of Economics in Bratislava, ISBN , 05/18/

2 business processes and functions) as well as the development of ERP applications step-bystep. ERP solutions have its roots in the development of MPR II (Manufacturing Resource Planning II MRP II), which included in a broader sense automation of tasks related to planning and control of different resources of production. These applications included material and financial planning as well as organizational planning to a certain degree and their appearance is due to the development of the traditional MRP (Material Requirement Planning MRP). The task of MRP was to create a detailed list of raw materials and components needed to produce finish goods. They were one of the first kind of integrated applications of its kind. One of the first basic definitions of ERP is that it is a software solution addressing the needs of companies from its process perspective, aligning them with its organizational goals leveraging tight coupling of all functions of the given enterprise [ERP01]. Similar is the definition according to [CAR04], which states that ERP are the core of nowadays standardized information systems of companies, because they are applications covering the whole enterprise including all important areas related to enterprise management. From the functional perspective, we can define ERP as a set of interrelated applications partially automating tasks in a certain area of the enterprises, making relevant functions available to perform those tasks. The functional perspective is emphasized in ERP definition because different tasks are performed within an enterprise and their projection are the functions of an ERP that are used to fulfill those tasks. Next, the process view to analyze ERP is relevant, because it emphasizes the need of interconnecting the processes and their support in the context of the mentioned application modules. This is suggested by the following definition: ERP systems envision business cross functionally, viewing the applications as support for core business processes with the understanding that these processes span multiple departments [CAL99 in KAC03]. Continuous development of EPR applications in the context of its horizontal expansion and due to its integration with other enterprise applications resulted in extended ERP applications (referred to as XPR). The main reasons were technological advancements and the fact that different vendors of enterprise applications were trying to bring in new functions due to requirements of their customers. Figure. 1 Horizontal expansion of ERP [GEN01, p. 12] Figure 1 shows expansion of traditional package components of ERP applications with new functional modules (see further [GEN01], [GAR04] for meaning and definitions). The requirements for supported processes within ERP are changing (and expanding) due to the shifting focus of enterprises themselves, from the internal optimization of resources only to external cooperation as well. The reasoning is in expansion of existing and future

3 possibilities of IT focused on an enterprise internally as well as externally [WHE04]. The abovementioned changes cause the need to enrich EPR applications with components that function with the external environment of the enterprises. This is how ERP II were created, which are open solutions enabling moot cooperation with the external world (see further [BON00], [FOR03]). From the need of ERP development for the global market we will consider those modules and their functions relevant, which are influenced by regional, country or other differences (from the functional and use point of views), resulting from different legislation, influencing many functions of ERP as well as from different business practices. 2. Definition of the SMB segment in the context of ERP The largest market segment is the SMB segment (from the quantitative view as well as from the view of the IT opportunities) (see further [BRO03], [BRO02]). Market segmentation is traditionally determined based on the quantitative and qualitative indicators. The most used quantitative indicators are number of employees, yearly revenues, IT budgets, number of personal computers (PC), ROI or CAGR. As for the qualitative indicators, the key ones are the managerial and ownership relationships, legal forms, the structure of a company s assets and liabilities, organizational structure and the structure of managerial levels etc. From a world-wide perspective, there is no unified definition of quantitative segmentation of SMB due to regional differences in understanding of this segment as well as due to historical aspects or business environment (for framing definitions in different regions see the references). In the following analysis, we will focus on indicators that are relevant from the EPR vendor viewpoints and mainly from the software development point of view. Within the quantitative indicators we include those that influence the architecture of the designed system, scalability, availability, and robustness: 1. Number of end users and number of users using the system in parallel; 2. Average number of daily/yearly transactions within the system, categorized by different functional areas (sales, purchasing, stock movements, production, general ledger etc.); 3. Average number of master data volume (e.g. number of warehouses, stock items, business partners etc.). The reason for introducing these additional indicators is because the listed traditional indicators do not always directly correlate with the ones abovementioned, e.g. a company with a smaller number of employees can have more end users of ERP system or a smaller company can generate multiple more daily transactions because of a lower margin but higher volume of sales of goods or services. It is important to know the threshold values of the abovementioned indicators during the architecture decision, application functional design and the development itself, because they influence the software development itself as well as the market segment for which the application is focused on. It also prevents future issues with incorrect mapping of application and the needs of a company as those values are determined ex ante. In terms of qualitative indicators relevant for the SMB segment, we select those (including those stated in [PER04] and [AND02]), which are important during ERP application development and which influence customer decision-making selection process of a particular solution: 1. Simplicity of implementation of the solution and its integration within a company; 2. Simple updates of the system in as low frequency as possible; 3. Easy migration of business and financial data from legacy system to the newly implemented system;

4 4. Ease of use of individual functions, lowering or eliminating the need to train end users; 5. Integration of functions ERP and SCM (extended ERP) and exceptional reporting. From the perspective of ERP development for the global market (by which we mean availability of the same solution in different countries), there are additional important qualitative indicators, which are equally important during the development and maintenance processes of ERP applications: 1. Timely, correct and completeness of delivery of legal changes; 2. Availability of complete and translated documentation to a local language; 3. Support in the local language and proximity of contact with the vendor of the solution, or his reseller. 3. Development globalization definition and selected topics We define development globalization as the process of implementing (design and coding) ERP application in such a way that enables at the end supply such ERP application in different countries. This aspect influences additional steps within the software lifecycle in order to fulfill this goal. Standard elements of globalization are internationalization, localization, and translation (based on [FRY03]). We define internationalization as development environment and application architectural concept creating a suitable environment enabling application localization, i.e. design of the application with the right layer of internationalization enables application localization without the need to do additional architectural changes. We define localization as the process of modification of the application in such a way, which encompasses differences of various markets. The most important areas the software development cycle must include during a globalized development are the analysis, design and implementation phases. During the analysis, the requirements gathering and continuous collection of information is influenced in the area of legislation of all countries or regions supported by the respective ERP application. This creates a significant focus on organizational and knowledge areas. Collected requirements from the individual countries serve as the input for the design phase that must synthetize individual requirements and create a model that accommodates future enhancements and adaptation to changes which occur in the future. The design phase has to create conceptual model in such a way that maximizes separation of common and different parts determined by legislation or business practice differences of individual countries and regions. In addition to that, the design phase has to produce a technological design supporting internationalization with e.g. one aspect being integrated ability to translate user interface during the software development etc. Our suggested view on such a conceptual model defines the split of the functional design of the system to functional core and functional globalization (including translation), agnostic at this moment of the means of system design (be it object-oriented or structural). Such view influences the synthesis of collected requirements and their interpretation as well as the technological design of the system itself (see Figure 2).

5 Translation Global Configured Configurable Conceptual Concrete Functional Globalization Functional Core Internalization Layer Foundation Basis Figure. 2 The split of Functional Core and Functional Globalization in the context of EPR system design The goal of this separation is to simplify the development of ERP applications for the global market, identify the boundaries between the common and different functional areas as well as ensure simple implementation of changes within the Functional Globalization layer, which is the most influenced one by the legal changes. The lowest layer is the Foundation Basis, which includes components fulfilling main internal application functions, such as control of data flow, transaction management and abstract functional components. Next is the Internationalization Layer, which enables application localization. Its content is the support of standards such as Unicode, support of translation of user interface as well as components on a higher logical level implementing the support of national currencies, display formatting etc. The following three layers of the Functional Core include design of ERP application components, which represent the business logic of the application itself. Global Components are a set that do not require changes from the perspective of functional localization and are transparent from the perspective of their usage in different countries or regions. Examples are certain functions from CRM that do not require any changes apart from their translation. Configurable Components are those that synthetize needs into a parameterized functional areas, which are given concrete parameter values in the layer of Functional Globalization, differentiating thus their behavior. Examples are different ways of rounding of calculations, different calculations of VAT etc. Conceptual (Abstract) Components can be defined as templates implementing certain ERP functions, which gain a concrete shape only during their concretization depending on an area (country, region) for which they are made concrete. Examples are functions supporting input of invoices into the system or the VAT report and its input screens. Concrete components are as well as those that do not have an abstract component within the Functional Core because they are specific for a certain country or region as such. Examples are different reports (e.g. required for the needs of European Union). Conclusion This article provides a view on selected aspects of ERP development globalization for SMBs and identifies areas important during the development of ERP applications, through the definition of ERP, SMB segment and linkage to the needs of companies. The core of the contribution is a concept of a model, separating Functional Core and Functional Globalization that should be taken into account during design and development of such applications, enabling fast implementation of changes resulting from legislation without the need to change the architecture of the application or its parts. On the other hand, it is important to mention that such changes can bring changes in definition and scope of the individual layers of the Functional Core. This is, however, natural component of software development and cyclical component reengineering.

6 References [AND02] Anderson, R.: North American SMBs Identify Enterprise Resource Planning Preferences. Gartner, October [AIK02] Aiken, P.: Enterprise Resource Planning (ERP) Considerations. VCU/Institute for Data Research, November [BON00] Bond, B. et al.: ERP Is Dead Long Live ERP II. Gartner, October [BRO02] Brown, D. Slowinski, S.: SMB software Bright lights, big business. SG Research, July [BRO03] Brown, R. Browning, J.: SMBs: The Biggest Little Outsourcing Market in the World. Gartner Research, November [CAL99] Callaway, E.: Enterprise Resource Planning: Integrating Applications and Business Processes Across the Enterprise. Computer Technology Research Corp., South Carolina, [CAR04] Čarnický, Š.: Manažérske informačné systémy podnikov. Ekonóm, Bratislava, April [ERP01] Enterprise Resource Planning (ERP) Do we need it? [online]. [cit ] Available at: < erpdefinition/erp001.html>. [FOR03] Fornadel, J.: Getting it right with ERP II. [online]. Intelligent Enterprise Magazine, august [cit ]. Available at: < intelligententerprise.com>. [FRY03] Fry, D. Lommel, A.: The Localization Industry Primer. Druhé vydanie, Localization Industry Standards Association (LISA), Dostupné z: < [GAR04] The Gartner Glossary of Information Technology Acronyms and Terms. Gartner, [cit ]. Available at: < com/6_help/glossary/gartner_it_glossary.pdf>. [GEN01] Genovese, Y. et al.: The Transition to ERP II: Meeting the Challenges. Gartner, September [KAC03] Kaczmarek, L.: Competitive comparison of business solutions for small and midsized enterprises (Master Thesis). Fachhochschule Karlsruhe University of Applied Sciences, November [PER04] Perry, R.: Delivering the Business Value of Automating Business Processes to Small and Medium Enterprise. IDC, April [RU100] Russev, S. et al.: Tvorba informačných systémov 1. č. /Metodologické aspekty./ Ekonóm, Bratislava, [WHE04] Wheller, S.: ERP II Demystified. [online]. 18 Jun [cit ]. Dostupné z: < Conteact Andrej DANKO, Ing. External PhD student Department of Applied Informatics FHI, EU Bratislava