Case Study of China Telecom: ERP Implementation

China Telecom Corporation, the world’s largest operator of fixed-line communications, was formed when the state owned China Telecommunications Corporation reorganized. China Telecom employs 350,000 workers throughout China, who attend to the company’s operations in domestic and international fixed-line networks; fixed-line voice, data, and information services; and the settlement of international telecommunications accounts. The company has maintained steady growth despite heavy competition from mobile phone services.

In 2002, the company became a public company listed on the New York Stock Exchange (NYSE). That same year, the United States (US) granted China Telecom a license to provide international telephone and Internet service between the countries. These steps were part of a transition from a traditional state-run enterprise to a modern enterprise based on larger profits and a wider customer base. However, to succeed as an international telecommunications powerhouse, China Telecom had to solve several problems. First, the company required a state-of-the-art IT infrastructure. Second, it needed to comply with international reporting regulations for publicly traded companies. Third, it needed to integrate all of its business functions and enable real-time management. Together, these initiatives would increase organizational efficiency, tighten control over internal operations, and promote better collaboration among different departments.

For a solution, China Telecom decided to invest in Enterprise Resource Planning (ERP) software. The company could have written its own software to link its different business functions and organizational units, but this would have been very costly and time-consuming. It was much easier to use an ERP software package from a recognized vendor. The software is based on best-practice business processes, which would help the company meet international reporting requirements.

According to Shiping Liang, director of the application division at China Telecom, the company chose MySAP ERP from SAP as the backbone system because of its powerful functionality and integration capabilities. Among the core business processes that MySAP ERP supports for China Telecom are engineering project management, finance, controlling, procurement, and human capital management. SAP’s ERP financials module supports local currencies, markets, and languages, including Chinese. The SAP human capital management module automates human resources processes and integrates them across global operations. The software meets regulatory requirements for more than 50 countries.

To promote data integration, China Telecom also adopted two components of SAP Netweaver: SAP Business Intelligence (SAP BI) and SAP Enterprise Portal (SAP EP). SAP Netweaver uses XML and Web services to link the enterprise system with a company’s existing systems to create new cross-functional applications. SAP Enterprise Portal provides a single point of access to data from multiple systems, integrating the data in a single view for the user. SAP Business Intelligence provides data warehousing capabilities to integrate business data from multiple sources for company-wide reporting.

After considering a number of vendors, China Telecom selected Hewlett-Packard (HP) hardware to run its ERP software because of its scalability, flexibility, low total cost of ownership, and ability to support SAP. Specifically, China Telecom chose the HP 9000 server family to run its SAP applications and HP StorageWorks XP128 Disk Array for its network storage infrastructure. Eventually, more than 30,000 employees will use the SAP and HP solution at more than 20 China Telecom subsidiaries. The deployment of the SAP software reflects the needs of each subsidiary. For example, most of China Telecom’s business comes through Guangzhou and Shanghai, so those offices will use the financial, operations, human capital management, and analytic capabilities of MySAP ERP. The headquarters in Beijing will use MySAP ERP to run human capital management functions to centralize human resources management and consolidate enterprise-wide information.

The integration of data from MySAP ERP has accelerated the flow of information among accounting, procurement, and engineering management functions and encouraged collaboration among departments. Integration of data between the human resources and accounting functions facilitates analysis of personnel costs and performance- based compensation plans, which were previously very time-consuming. The software provides users with quick and easy access to unified data and applications through a Web browser. The hardware platform has stood up to the test of making large volumes of critical data available 24/7.

Going forward, China Telecom will focus on using MySAP ERP to further integrate with other systems so the company has a complete view of all its processes with customers, employees, and supply chain partners.

Questions to Discuss:

  1. What problems did China Telecom face? How did these problems affect China Telecom’s business? How has the company chosen to solve these problems?
  2. What other solutions might the company have tried? Analyze the solution that China Telecom chose from the people, technology, and organization perspectives.
  3. Did China Telecom choose the best solution? Explain your answer.

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