Why Adopting Erp Is Essential In Large Organizations Finance Essay
In order to support the decision making, in large organizations the adoption of ERP systems will be investigated through out the research. The purpose of this dissertation is concerned with the adoption of Enterprise Resource Planning (ERP) systems in large organizations. This chapter initiates with an introduction of ERP adoption, followed by the objectives of this study which will lead to project aims and objectives with the primary key question of the research and the chapter concludes with the significance of research to support the reader and allocating each section in general research framework.
ERP is an acronym that stands for Enterprise Resource Planning. ERP is a package software solution that addresses the enterprise needs of an organization by tightly integrating the various function of an organization using a process view of the organization. It gives a company an integrated real-time view of its core business process. The term ERP in the beginning implies systems designed to plan the use of enterprise-wide resources. This dissertation focuses on ERP adoption within large organizations and proposes a framework to further explain ERP adoption.
ERP(Enterprises Resource Planning) :
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An ERP system consists with a total integrated system, the ability to stream line different processes, workflows and to easily share data across various departments in an organization. It improves the level of efficiency and productivity with better tracking and forecasting system with highly secured system.
An example of highly secured system is given below:
Figure 1.1: Highly Secured ERP system
According to Deloitte Consulting has defined ERP as follows:"An Enterprise Resource planning system is packaged business software System that allows a company to; Automate and integrate the majority of its business processes, Share common data and practices across the entire enterprise, Produce and access information in a real-time environment." (Deloitte Consulting, New York, 1999).According to Themistocleous et al. (2001), the proportion of ERP software used in the IT market has the largest of IT investments. It is predicted to reach $66 billion in 2003. More interestingly, Davenport (2000) and Sheer & Habermann (2000) claimed that the cost for implementation of ERP systems is often five to ten times greater than the cost of software licenses. Therefore, one question that should be investigated here is "why do most organizations spend a lot of money on ERP systems despite the fact that it creates a financial burden?" The answer to this question could be answered by looking at the five main dimensions of organizations suggested by Seddon and Shang (2002).
â€¢ The operational dimension focuses on day to day activities by reducing cost and manufacturing time, as well as improving productivity and customer service.
â€¢ The managerial dimension involves monitoring operations, supporting business strategic decisions, and controlling firms' resources.
â€¢ The strategic dimension is related to long term planning in terms of high levels of decision making such as business merging and acquisition, product planning, marketing competition, capital sourcing, as well as support for business growth and business alliance.
â€¢ The IT infrastructure dimension provides business flexibility for current and future changes, IT cost reduction and also increases of the IT infrastructure's capability.
â€¢ The organizational dimension offers the benefits to organization by changing work patterns, facilitating organizational learning and building empowerment and common vision.
ERP adoption in organization involves critical factors such as organizational change, cultural misfit, high investment, software customization, business and system integration, team and project management, re-engineering, GAP analysis, post implementation and Pre-evaluation screening etc. In this research, to assure the benefits of ERP systems it is considered how organizations make an effort to be prepared.
The present study was based on secondary and public data to identify the determinants in the adoption of ERP in e-government. Such data are deemed useful, and have been used in previous studies but they also have their limits. The data utilized having been compiled for purposes other than the research that attempts to exploit them, there is the risk that they do not adequately meet the expectations of the investigator.
We can note that the motives for adoption put forward by the organizations are often limited to rational factors, i.e., requirements and problems for which ERP is evidently an adequate solution. This is what Caldas and Wood (1999) call substantive factors, all the while underscoring that they are not the only considerations: there are less evident (or less acceptable) factors, such as institutional and political factors. The first are composed of the external forces present in the organizational environment that push for the adoption of ERP systems, and the others refer to the power plays between different groups inside the organization. The methodology used in the present study could not detect motives that were not the first to appear. It would then be interesting to analyze more thoroughly, beyond the rational and official motives, other institutional or political factors that push for the adoption of ERP in public organizations.
But, it is not enough that an organization be motivated to adopt ERP. In other words, motivation to adopt is a necessary but insufficient condition. There are other factors that can either favor the adoption of ERP, whether by reinforcing the organization in its decision or by facilitating its implementation, or on the contrary hinder it. If it is essential to understand the determinants in ERP adoption, it is just as important, if not more so, to understand what takes place after adoption has been decided: what is the process of selection, what are the exploitation and evaluation conditions, etc. Besides, as noted by Brown and Brudney (1998), even if during the past few years the government services have experienced a proliferation of IT, the benefits they may have derived are neither guaranteed, nor automatic. Studies on the conditions for success of ERP in the public sector are then necessary.
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According to Huin (2004), thus far, ERP projects adoption has been the domain of the larger organizations. However the needs, operating requirements, logistics fulfillment and financial capabilities of the SME manufacturers are vastly different from that of the large and medium sized manufacturers. Adoption of information technology by SMEs in managing their ERP projects is also limited. While ERP is sufficiently flexible to cope with the general manufacturing enterprises, it is necessary to take a closer look at the strategic and operational needs of SMEs (Huin, 2004, Morabito 2005). SMEs do not function as a collection of formal structured departments. Project implementation of ERP systems in SMEs is simpler in some aspects and more complicated at times. Another major characteristic of SMEs is the absence of proper and formal IS practices and skills. In the present era of globalization, it is obvious that the survival of SMEs will be determined by their ability to understand and acknowledge the importance of IS and their accessibility to the right information at the right time (Sharma and Bhagwat, 2006).
Despite the fact that there are many benefits of ERP systems such as solving Y2K problems, reducing operational and production cost, and decreasing cycle time and support management decision making, these benefits of ERP systems are not yet comprehend in all organizations. What works in one particular organization does not necessary work for other organizations. With the amount of empirical evidence related to ERP projects, however, it is clear that the majority of ERP projects can not be successfully implemented. Moreover, some ERP projects are unable to attain the project's objectives and in worst case scenario, the high investment in enterprise system could make organizations bankrupt. From a survey conducted, it was found that "42% of corporate information technology projects get terminated before completion" (Ettlie et al., 2005, 954). According to Bulkeley (1996), some organizations entirely failed in their attempt to install ERP systems. Moreover, KPMG (1998) and Stedman (1999), many organizations failed to achieve estimated financial return from their ERP investment. Marbert et al. (2001) stated that there was difficulty in predicting return of investments (ROI) throughout ERP implementation. Furthermore, the contribution of ERP systems is associated to many several factors which need to be managed properly. It is more difficult when an organization lacks preparation which is precisely why the organizational preparation phase is essential for the success of ERP adoption.
ERP systems have recently evolved to support other functionalities that, until recently, were offered separately, such as supply chain management (SCM), customer relationship management (CRM), professional service automation (PSA), data warehousing (DW) and artificial intelligence (AI). Figure 1.2 presents a historical outline of the evolution of ERP systems and traces their origins from the 1960s to the 21st century. The table outlines the focus of the application, the supported IT architecture, application users and the level of integration provided. It is observed from the table that ERP systems have evolved to include more modules, wider business focus and more users from inside as well as outside the organization. While architecture supporting ERP was mainly centralized in the early stages of ERP evolution, it is now a mix of centralized and distributed solutions, which became available and feasible during the 1990s.
Figure1.2: A historical outline of the evolution of ERP systems.F:\SEM(III)\Chapter1\2-18-2010 12-36-05 AM.png
Objectives of the Study:
Objectives of this study are separated into two segments which are project aim and objectives.
1.4.1 Project aim:
The aim of this research is to figure out the adoption of ERP systems in large organizations. To make it possible, developing a frame of references can be translated into a model to support decision making.
To achieve the project aim the following objectives should be met.
Objective 1: To recognize the past and current ERP academic knowledge and industrial context as well as the complexity faced upon ERP adoption, normative literature review will be conducted for accomplishing this purpose.
Objective 2: To present the knowledge and understanding of ERP adoption based on the literature review, the ERP adoption framework will be developed and proposed.
Objective 3: To assure the efficiency of the proposed ERP adoption framework, the proposed framework will be tested and investigation will be based on the result of data collection from selected organizations.
The key questions to be answered in this study are following below:
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Why adoption of ERP is essential in large organization?
What are the needs for adopting ERP systems instead of existing information system?
What are the risks associated with ERP adoption?
Based on the research subject, this dissertation will search for answers on adopting of ERP systems. Furthermore, a single case study and interviews technique will be used as a tool to answer key questions.
Case study research:
This research is designed to use a single case study to investigate the critical factors of ERP adoption. So, therefore, this design will take into consideration five components. These are given below:
(1) To study the focus question comprehensively.
(2) To study proposition.
(3) To clearly define unit of analysis.
(4) To link data to proposition logically and
(5) To use the criteria for interpreting the findings. In addition, to establish the quality of this research, the criteria for judging the quality of the research design will be applied in five different criteria (Yin, 1994).
Construct validity: establishing correct operational measures for the concepts being studied.
Internal validity: establishing a fundamental relationship where certain conditions are shown to lead to other conditions, in order to avoid false relationships.
External validity: establishing the domain to which the study's findings can be generalized.
Reliability: demonstrating that the operation of a study can be repeated with the same result in order to minimize the errors and biases of the case study (Yin, 1994).
1.6 The Significance of the Research:
Most organization goes for ERP systems either to solve the existing problems or to explore new opportunities. Basically these two approaches are negative and positive approach respectively. One aspect of the negative approach forces some organization to go for ERP systems to solve their Y2K problems. This is mostly true of those organizations that are profoundly dependent on legacy systems operating on old main frames. The other aspect of the negative approach is to get over the problems of islands of heterogeneous and incompatible information systems that were developed over the past few years in many organizations. Functional IS module representing areas such as Finance, Marketing, HR, and Production in these organizations would be running on diverse hardware and software platforms leading to nearly insurmountable problems of reconciling data locked up among the diverse systems. From a positive point of view many organization look at the enormous opportunity provided by ERP software that lead to approximate instant access of transactional information transversely the corporation. Such an information wealthy scenario consents organization to diminish inventory across various units/ departments/ plants; decrease cycle times from weeks to hours; and get better customer approval by orders of enormity.
ERP system integrates or coordinates the database, applications and interfaces for an organization with different departments such as inventory management, vender integration, customer relationship management (CRM), accounting, customers and sales etc.
Figure 1.3: ERP integration or coordination.
1.7 Thesis Outline Structures:
The structure of this research is based on the methodology described by Philip and Pugh
(1994).This structure of dissertation is composed of few elements:
(1) The background theory is demonstrated in Chapter 2: Literature review in the area of ERP adoption in large organizations. (2) Focal theory is discussed in Chapter 3: conceptual model design. (3) The data theory which is the justification of the research instance used and the data collection method used are explained in (4) Chapter 4: Data collection. (5) Chapter 5: Case studies and preliminary research findings. The novel contribution of this dissertation will be discussed in (6) Chapter 6: Revision of conceptual
framework for the ERP adoption in large organizations with summarizes the content of each of the chapters. Finally, all references will be mentioned in References following by the entire Appendix.
Chapter 1: Introduction
This chapter initiates the main area of research. It provides a background of the research domain and its importance, basically, the area of ERP adoption in organizations. Therefore, the aim and objectives of the research are stated, and the structure of the dissertation, along with concise overviews of each chapter is presented.
Chapter 2: Literature review/ Background theory
In this chapter, the background theory is presented by describing the literature review on ERP. Initially, this chapter begins with ERP systems in the context of the current market and its attributes and benefits. Next, The ERP motivation is also taken into account in order to understand the pattern of ERP motivation by different organization. Later, reasons for ERP adoption are discussed; it attempts to demonstrate the existing ERP adoption framework in previous studies. Thereafter, the limitations of ERP systems have been described in the real world and academic studies. This chapter also shows the research problems upon ERP adoption. In the next segment, technology innovation adoption and the implementation framework have showed to provide the process and step of technology adoption in organizations. The existing ERP adoption framework has been verified. Finally, research problems have been identified to develop ERP adoption framework in Chapter 3.
Chapter 3: Conceptual model framework/ Focal theory
The focal theory explores a conceptual model which will focus on the adoption of ERP in large organizations. The aim of this chapter is to propose a conceptual framework for the adoption of ERP. This chapter mainly focuses on the relevant issues that need to be taken into consideration by adopters when implementing ERP systems in large organizations. To avoid best possible failures of ERP implementation, this framework will be generated.
Chapter 4: Research methodology/ Data theory
This chapter discusses the research methodology that is chosen for this dissertation. Additionally, this chapter explores and investigates upon the ERP adoption. This chapter also explains methodology to test the conceptual model proposed in chapter 3, provide the general information about the research methodology and review the justification of research methodology which uses qualitative research, interpretive research and case study research.
Chapter 5: Case study and preliminary research findings
This chapter presents and analyses the empirical data collected from the interviews conducted in the SONY DADC used in the case study. The data collected are used to validate the factors of the conceptual framework proposed in Chapter 3 and to identify the causal inter relationships of these factors.
Chapter 6: Revision of the conceptual framework for ERP adoption in large organization
This Chapter discusses the results obtained from the one case study. Based on the empirical evidence collected, this Chapter revises the conceptual framework presented in Chapter 3. The revised framework of ERP adoption is influenced by these factors (1) Technology acquisition (2) Transaction cost economics, (3) Technical compatibilities, (4)
Internal characteristics, (5) External characteristics, (6) Non-IT supportive activities, (7) IT supportive activities, (8) Evaluation criteria, and (9) Barriers.
Chapter 7: Summary, Conclusions and Novel contribution
This chapter summarizes the research presented in this dissertation and the novel contribution is also acknowledged in this chapter. Last but not least, this chapter mentions appropriate suggestion and considerable potential areas for further research.
The significance of the study lies in the fact that little research attention has been devoted to measuring the impact of ERP on Sony DADC. This lacuna of knowledge is unjustifiable because the adoption of ERP is a source of increasing cost and concern to management, especially in the Sony DADC's IT sector. ERP systems will be implemented to increase effectiveness and control costs (Blick et al., 2000). Studying ERP systems of higher learning in the United Kingdom, Allen et al. (2002) found four fundamental reasons for which most organizations adopt ERP systems:
To simplify the complex environment of an organization, through a common system-interface.
To avoid fragmentation and duplication of resources and services.
To reduce confusion and waste, and
To allow these institutions to adapt more effectively and more quickly to changes in their environment.
Diminishing within the scope of the previously case studies, the present study's principal objective is essentially expressive, which is, to describe the technological, operational, strategic and performance motivations that lead large organizations to adopt ERP systems. This research first aims to present the knowledge and understanding of ERP adoption based on the literature review and the ERP adoption framework in large organization. Another aim is to recognize the past and current ERP academic knowledge and industrial context as well as the complexity faced upon ERP adoption, normative literature review will be conducted for accomplishing this purpose.
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