Faced with mounting global competition, companies have to improve how they coordinate activity across the company so as to maximise the value they deliver to customers and minimize costs. Competitive pressures have forced the companies to consider various performance objectives such as flexibility, reliability, responsiveness, customer satisfaction etc.
ERP can be defined “as an integrated, multi-dimensional system for all functions, based on a business model for planning, control, and global (resource) optimisation of the entire supply chain, by using state if the art IS/IT technology that supplies value added services to all internal and external parties” (Jarrar, et al., 2000). Despite the fact ERP have been successfully implemented in the past, careful planning and execution becomes very important factors given their size and complexity.
Much has been written about the success of enterprise information systems. But, this success depends on several critical success factors (CSF). The most common critical success factors that are identified in the academic literature are discussed below (Bhatti, 2005).
1. Project Management
Project Management involves the use of skills and knowledge used to coordinate, schedule the defined activities so that the stated objectives of implementation projects are achieved (Bhatti, 2005). A phase wise planning of the project with effective project management skills will definitely help in overcoming such a situation (Soliman & Youssef, 1998).
2. Business Process Reengineering
It is defined as “the altering the business process through redesigning so as to achieve dramatic improvements in cost, quality, service and speed” (Bhatti, 2005). The success of ERP system implementation is characterised by changing the present business processes in accordance to the standards of best business process available (Gibson, et al., 1999). Examination of many business processes is considered as the key for the implementation of ERP system.
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3. User training and education
Lack of proper technically competent staff leads to the failure of many ERP implementation projects. The training program of ERP implementation include aspects like the concepts behind ERP, the wide range of features and implications of ERP system, and hands on training (Bhatti, 2005). Therefore training the employees plays a major role in successfully implementing the ERP projects.
4. Technological infrastructure
ERP implementation involves a complex transition from legacy information systems to a common business process throughout the organization (Bhatti, 2005). Therefore choosing the right ERP package based on the size of the firm is very essential. It is very important that the hardware configurations that should be used to run the ERP system are certified by the vendor of ERP (Bhatti, 2005). This in turn is based on the choice of the company.
5. Change management
Bhatti, (2005) emphasizes on this aspect and says that “in order to implement ERP systems successfully, the way organizations do business will need to change and ways people do their jobs will need to change as well”. Change Management is the very essential for success of implementation project and it is necessary that it starts in the early stages and continues throughout the entire project life cycle (Bhatti, 2005).
6. Management of Risk
Handling unexpected crises and ensuring that the project does not deviate from the initial plan is risk management (Bhatti, 2005). There is always a possibility that ERP project might deviate from the main objective which can possibly lead to unexpected events. Therefore, an appropriate risk management strategy helps in considerably reducing the risks of project failure.
7. Top Management Support
Management must be a part of ERP implementations and it is true mainly with software projects and their success mainly depends on top management support [Bhatti, 2005]. “Only the top management is equipped to act as the mediator between the imperatives of the technology and the imperatives of the business” (Bhatti, 2005). Every step of the implementation process demands the top management’s involvement to provide a direction for the project and to ensure that the project is successful which can be very challenging at times (Bhatti, 2005).
8. Effective Communication
Communication, “one of most essential and difficult tasks in any ERP implementation project provides the base for understanding and sharing information between the members of the project team and helps in communicating the goals in each implementation stage to the entire organisation” (Bhatti, 2005). Hence; continuous communication flow should be maintained throughout all the departments at a very early stage.
9. Team work and composition
Since an ERP involves all the departments in an organisation, it is very essential for these departments to work together. “An ERP implementation team comprises of, functional personnel and management, IT personnel and management, top management, IT consultants, ERP vendor , parent company employees, management consultants, hardware vendor” (Bhatti, 2005). A mix of hired consultants with company’s internal staff is essential in an ERP team so that the necessary technical skills required for the design and implementation can be developed by the internal staff (Bhatti, 2005).
10. User Involvement
User involvement is a very important aspect as the functions of an ERP system are designed as per the users’ requirement. When a company decides to implement an ERP system, “user involvement is required at the stage of definition of the company’s ERP system needs and also during the implementation of the ERP system” (Bhatti, 2005).
11. Use of consultants
There is a possibility that the company might lack the experts who have sound knowledge about the software. Hence the use of external consultants is very much required who can help the internal staff in installing the software. “These consultants may be involved in different stages of the ERP project implementation” (Bhatti, 2005).
12. Goals and Objectives
The goals, expectations, and deliverables should be clearly defined so to address the questions regarding the need for the implementation of the ERP system and the critical business the system would cater (Bhatti, 2005).
In this essay a case study based approach is used in order to discuss the benefits that companies have reaped by the use of enterprise wide information systems and also the difficulties that may arise in respect to the introduction and implementation of such systems.
Case study 1 discusses the benefits of the enterprise wide information system. At the same time Case study 2 throws a light on the difficulties faced by the companies in respect to the introduction and implementation of such systems.
Case study: 1- Case study of Pratt and Whitney Canada (Tchokogue, A., Bareilb, C., Claude, R. D., 2005)
Scope of the project:
The main objective of implementing an ERP system at P&WC was to establish an ent erprise wide information system (TES) such that its customers have a greater transparency and agility (Tchokogue, et al., 2005). The management wanted this information system in place as they were interested in increasing inventory turnover, reduce work in progress, improve on customer response time and increase inventory and operation cost visibility (Tchokogue, et al., 2005). Hence they decided that SAP/R3 was optimal after considering the main enterprise systems such as Oracle, BAAN, SAP, etc. (Tchokogue, et al., 2005)
Highlights of TES implementation:
The project was unevenly divided into 5 major phases over the duration of 32 months.
- Scoping and planning
- Determining the level of previous reengineering
- Process redesign
- Testing and delivery
The early stages (phases 1 and 2) of implementation took approximately 10 months. During this phase emphasis was “on defining the scope of activities and planning their implementation” ( Tchokogue, et al., 2005). Strategic objectives and requirements of P&WC customers were taken into consideration while the existing processes were accessed in order to focus on those which needed improvement in line with the targets set ( Tchokogue, et al., 2005).
The middle stages (phase 3 and phase 4) which took 17 months of implementation mainly focussed on redesigning the processes where attempts to minimize re- engineering of processes were made ( Tchokogue, et al., 2005). Moreover during the phase 4; “the configuration of the new system i.e. the main parameters of each SAP module and that the choice of parameter options related to the new system was determined” ( Tchokogue, et al., 2005). Care was taken to choose the right configuration based on the companies requirements.
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Risk management was effectively handled to prevent the uncertainties that prevail during the implementation stages to ensure that there was no deviation from the main goals and objectives. The top executives constantly monitored the progress of the implementation process and helped giving the project a proper direction. The project teams “followed the Deloitte & Touche Consulting Group- ICS FastTrack 4 SAP methodology” ( Tchokogue, et al., 2005) for the implementation of TES. “In this methodology five key factors were considered throughout the project: Project Management, Technology Architecture, Process and Systems Integrity, Change Management, and Knowledge Transfer” ( Tchokogue, et al., 2005).
The last stage (phase 5) “included three integration test cycles: An initial cycle related to master file data, a second to static data and a third to dynamic data. The successful test results were then formally accepted by the process managers” ( Tchokogue, et al., 2005).
An impressive project team of 345 employees from the most important departments of the company were divided into seven groups and were included in the project which ensured that contributions were made from all the departments directly affecting the new system ( Tchokogue, et al., 2005). This enabled the project to have an effective knowledge transfer and expertise ( Tchokogue, et al., 2005).
“Approximately 110 employees from the six most affected departments were trained to become internal trainers” ( Tchokogue, et al., 2005). The involvement of both the internal and external consultants with effective communication between the departments and training processes proved extremely beneficial for the implementation process ( Tchokogue, et al., 2005)
After its implementation the inventory turnover rate remained stable ( Tchokogue, et al., 2005) .
An increase in the inventory costs was very visible ( Tchokogue, et al., 2005) .
The TES established an information backbone supporting the ongoing business processes and change ( Tchokogue, et al., 2005) .
TES increased the productivity by 11% more than what was anticipated ( Tchokogue, et al., 2005) .
It reduced the receivable days outstanding by 6% ( Tchokogue, et al., 2005) .
30-40% return on investment was achieved ( Tchokogue, et al., 2005) .
The TES gave the organization access to real time information ( Tchokogue, et al., 2005) .
This provided fruitful for inventory management and purchasing. The production start delays were reduced drastically ( Tchokogue, et al., 2005) .
REASONS FOR ERP PROJECT FAILURES:
“Poor technical methods are only one of the causes, and this cause is relatively minor in comparison to larger issues, such as failures in communications and ineffective leadership” ( Sumner, 1999) . Table 1 summarises the possible reasons for project failures.
Increasing the efficiency was the main objective behind starting the Delta III project which took 18 months for completion ( Scott, 1999) . “Along with SAP/R3, FoxMeyer also purchased warehouse-automation from a vendor called Pinnacle, and chose Andersen Consulting to integrate and implement the two systems” ( Scott, 1999) .
Delta III was at risk for several reasons:
- The warehouse employees sensed that their jobs would be under threat if the warehouse automation software was integrated with SAP/R3 ( Scott, 1999) . This posed a huge threat for the implementation of SAP despite the support from top management as the warehouse employees opposed its implementation ( Scott, 1999) .
- The rise in the number of R/3 transactions to be processed after the start of the project put the scope of the project at great risk ( Scott, 1999) . This increased burden on the system is mainly because “FoxMeyer signed a large contract to supply University Health System Consortium (UHC)” ( Scott, 1999) .
- Another risk faced by FoxMeyer in the implementation process of SAP/R3 is the lack of skilled workers ( Scott, 1999) . “This forced the management of FoxMeyer to rely on Andersen Consulting which proved to be a greater risk as the external consultants were also inexperienced” ( Scott, 1999) .
FoxMeyer failed to gauge the risks involved in adopting SAP/R3 in the early stages of the implementation and ended up sharing the risks with the external consultant – Andersen Consulting ( Scott, 1999) . It ended up sharing the losses as they did not have any contract which strongly stated that only experienced consultants were t be used ( Scott, 1999). No attempts were made in training the in house workers which ended up in relying heavily on external consultants who hampered the knowledge transfer process within the company ( Scott, 1999). The management allowed the project to divert from its scope regularly which in-turn affected the change management process at the later phases of implementation ( Scott, 1999).
Discussion and Conclusion:
The two above mentioned case studies are representations of successful implementation of SAP R/3 ERP system in one company and a failure in implementation which caused huge losses in the other company. In the first case the success of the implementation process is mainly due to the constant and shared effort of all the parties involved with the project. Several factors such as their capacity to accept change, detailed planning, adequate financial resources and time frames contributed to the organisational transformation of P&WC.
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