CASE DESCRIPTION

The Acquisition Activities ERP Software

The ERP solution that Omega Airlines decided to purchase needed to meet all of the finance, payroll and human resource software requirements of the following business sectors:

• Payroll

• Pension

• Administration

• Time and Labor

• Collection

• Finance

• General Ledger

• Budgeting

• Forecasting

• Corporate Reporting

• Accounts Payable

• Accounts Receivable

Hence, the solution would need to be consistent with the vision of each of the business areas covered by the scope of this acquisition as well as that of the Technology Strategy Group. The solution would also need to support Omega Airlines's operations on an international scale. Given the strategic nature of the software, it would have to integrate well into Omega Airlines's global environment. Other objectives included the capability of the packaged ERP software to correctly handle the processing associated with Y2K and beyond, and the ability to implement it no later than December 1998. Omega Airlines ERP Objectives were:

• meet software requirements of 12 business sectors

• consistency with the vision of each business sector

• support operations on an international scale

• integrate into Omega Airlines's global environment

• handle Y2K and beyond processing needs

• to be up and running by December 1998

The Starting Point—Planning

With these objectives clearly defined, Omega Airlines began the acquisition process by planning a set of activities to select and purchase the packaged ERP software. This set of activities (plan) consisted of a series of processes that were based in part on formally defined standard purchasing procedures and routine project management protocols. The plan was also sufficiently flexible to accommodate unknown variables that would arise during the acquisition process due to the special nature and complexity of the software package being purchased. Also, because this was Omega Airlines's first time purchase of a complex software package, they did not know what to expect or how exactly to proceed.

The software acquisition planning process was part of Omega Airlines's initial planning phase, begun in 1996, and it signaled the start of the acquisition. Given the broad scope of the proposed acquisition, Omega Airlines required additional staff to gather information on the requirements of each of the areas. They also had to build a team of individuals that would not only be part of this initial phase (the acquisition), but that would, for the most part, continue on to the next phase, or implementation, of the software. Further, they had to establish the requirements that would eventually go into an RFP and that would subsequently be forwarded to vendors.

Within this planning process, Omega Airlines outlined strategies and tactics that would be used in the search for the software. They established criteria by which each of the vendors and their products would be evaluated, criteria that included, among others, architecture, functionality, market share of the vendor, and vendor's financial viability.

Also in the planning process, Omega Airlines sought out information (internal and external) on who the major players in the market place were for fully integrated software packages. They then held an information session where they invited the potential vendors to attend. As part of Omega Airlines's strategy, this information session let each vendor know who they would be competing against and also informed them of precisely what Omega Airlines was looking for. After this session, one of the major vendors, ORACLE, bowed out. Following this information session, an RFP was issued (March 1^st, 1996) and the vendors were given one month to respond.

Eliminating Prospects

After the initial review of the RFP responses, Omega Airlines realized that they had to go back to the vendors for more information due to some modifications they (Omega Airlines) had made to the initial RFP. They realized just how much each vendor's pricing of the product differed and the extreme difficulty they would have in making one-to-one or side-by-side assessments of the software package offerings. Consequently, Omega Airlines issued an addendum to each of the potential vendors that stipulated the method according to which the product was to be cost out. A one-week deadline was given following which Omega Airlines did an evaluation of the responses (early May 1996). From an initial group of approximately seven vendors, the list was brought down to three vendors—SAP, PeopleSoft and Dunn & Bradstreet.

Omega Airlines subsequently began, in June 1996, a more intensified evaluation of the each of these three vendors' products. Each vendor was invited to put together a three-day session where Omega Airlines brought in approximately 50 of their users to evaluate the functionality aspects of the software. As part of their strategy, they supplied each vendor with scripted scenarios in which specific functions needed to be demonstrated. These were the most complex and demanding requirements that Omega Airlines had. The performance of the software in each of these areas would allow Omega Airlines to differentiate each of the vendors' products one from the other. Also, as part of these three-day sessions, Omega Airlines wanted to gain a better understanding of the vendors technologies and to see how their software would perform. This also enabled Omega Airlines to evaluate and validate the information that was provided in the vendors' RFP responses with what was shown in the scripted demonstrations.

Final Choice

Based on the results of these evaluations, Omega Airlines was able to reduce their list to two vendors—PeopleSoft (primary choice) and SAP. At this point, Omega Airlines began to negotiate with their primary vendor.

In July 1996, Omega Airlines entered into general business negotiations (as opposed to contractual negotiations with the final terms and conditions) with PeopleSoft. The business negotiations process allowed Omega Airlines to agree informally on all of the terms and conditions that were critical to their business and these ranged from product support to cost, etc. (All that remained was to translate the business terms into legal terms and conditions.) The objective of this process was to produce a revised proposal, which Omega Airlines called a "business understanding document", whose purpose it was to clarify all that Omega Airlines had negotiated with their primary vendor. The other objective of this document was that it serve as a ‘letter of intent’ to the preferred vendor (PeopleSoft) of Omega Airlines's intention (commitment) to buy their (PeopleSoft's) ERP solution.

Later in July 1996, with the "business understanding document" in hand, Omega Airlines went to their Board for final approval. Once approval from the Board was given, the final contract was put together. One of the critical items that led to the successful closure of the whole negotiation process was a performance clause that Omega Airlines steadfastly insisted upon and was finally agreed to by the vendor. The final contract was then signed.

From the point shortly after the decision to buy an ERP was made, to the signing of the final contract, the ERP acquisition process that Omega Airlines went through took approximately 9 months to complete. The final choice that resulted was for PeopleSoft's packaged ERP software at a cost of US$86 million. Its subsequent implementation was completed in the scheduled timeframe and was regarded a success. According to all involved in both the ERP acquisition process and the implementation process, the PeopleSoft solution was the right choice for Omega Airlines.

In the next section, the ERP acquisition process that Omega Airlines used will be looked at more closely. Beginning with Planning, each of the processes that make up the acquisition process will be broken down and the activities that Omega Airlines undertook will be discussed.