Effects of Enterprise Resource Planning (ERP)
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Enterprise resource planning (ERP) systems are the most ambitious, sophisticated use of information technology (IT) by businesses to date. Managers must compare the massive investments of resources and time to be committed to an ERP implementation against the significant benefits that may be derived from ERP systems in an environment in which traditional capital budgeting decision-making models may not be appropriate.
The purpose of this study is to determine if ERP implementations have brought about significant changes on large industries in India, by answering questions other studies have not answered. This study is motivated both by an appreciation of the magnitude of a company's decision to invest in an ERP system and by the fact that other research to date contains limitations of scope or method that may reduce the reliability of reported results. Accordingly, this study examines success factors of ERP implementations.
The results of this research are significantly more reliable than results of other studies because this research examines whether the ERP systems yield substantial benefits to the firms that adopt them, and that the adoption risks do not exceed the expected value, although there is some evidence (from analysis of financial leverage) that suggests that firms do definitely perceive ERP projects to be risky. There also appears to be an optimal level of functional integration in ERP with benefits declining at some level, consistent with diseconomies of scope for very large implementations, as one would typically expect.
Information systems exist in most peoples working lives. It is now generally accepted that the information system world is one where human, social and organizational factors are as important as the technological (Avison et al. 2001).The business environment is changing dramatically and in order to stay competitive in the market, organizations must improve their business practices and procedures. Organizations within all departments and functions upgrade their capability to generate and communicate accurate and timely information. During the last decades, enterprises have focused on Information Technology (IT) and implemented various applications to automate their business processes. These applications were not developed in a coordinated way but have evolved as a result of the latest technological innovations. As a result various integration problems were caused because the applications could not co-operate and disparate IT solutions could not bind together (Thermistocleous and Irani, 2000).
Prior to the concept of ERP systems, departments within an organization (for example, the human resources (HR) department, the payroll department, and the financials department) would have their own computer systems. The HR computer system would typically contain information on the department, reporting structure, and personal details of employees. The payroll department would typically calculate and store paycheck information. The financials department would typically store financial transactions for the organization. Each system would have to rely on a set of common data to communicate with each other. For the HRIS to send salary information to the payroll system, an employee number would need to be assigned and remain static between the two systems to accurately identify an employee. The financials system was not interested in the employee-level data, but only in the payouts made by the payroll systems, such as the tax payments to various authorities, payments for employee benefits to providers, and so on. This provided complications. For instance, a person could not be paid in the payroll system without an employee number. But later ERP software, among other things, combined the data of formerly separate applications. This made the worry of keeping numbers in synchronization across multiple systems disappears. It standardized and reduced the number of software specialties required within larger organizations (Slater, 1999).
1.2 Evolution of ERP
The evolution of ERP systems was after the spectacular developments in the field of computer hardware and software systems. In 1960s many organizations designed, developed and implemented centralized computing systems, which were almost like automating their inventory control systems using inventory packages (IC). These were legacy system based on their programming languages such as COBOL, ALGOL and FORTRAN. Material requirement planning (MRP) systems were developed in 1970s, which involves many planning the product or parts requirements according to the master production schedule (Okrent & Vokurka, 2004).
Following this system a new software system called manufacturing resource planning (MRP II) was introduced in 1980s with an emphasis on optimizing manufacturing process by synchronizing the materials with production requirements. Areas like shop floor and distribution management, human resource, finance, project management and engineering comes under MRP II (Okrent & Vokurka, 2004).
ERP systems first appeared in late 1980s and in the beginning of 1990s with the power of enterprise wide inter-functional co-ordination and integration. Based on the technological foundations of MRP and MRP II, ERP systems integrate business processes including manufacturing, accounting, human resource, distribution, financial, project management, service and maintenance, transportation, accessibility, visibility and consistency across the enterprise (Okrent & Vokurka, 2004).
During 1990s ERP vendors added more modules and functions as added advantage to the core modules giving birth to the ‘'Extended ERP''. These ERP extensions include advanced planning and scheduling (APS), e-business solution such as costumer relationship management (CRM) and supply chain management (SCM) (Okrent & Vokurka, 2004).
1.3 About ERP systems
During the 1990's, Enterprise Resource Planning (ERP) systems was introduced as “integrated suites” that included a wide range of software products supporting day-to-day business operations and decision-making. ERP serves many industries and numerous functional areas in an integrated fashion, attempting to automate operations from supply chain management, inventory control, manufacturing scheduling and production, sales support, customer relationship management, financial and cost accounting, human resources and almost any other data oriented management process. ERP systems have become increasingly prevalent over the last 10 years. Enterprise resource planning (ERP) systems are the most ambitious, sophisticated use of information technology (IT) by businesses to date. Managers must compare the massive investments of resources and time to be committed to an ERP implementation against the significant benefits that may be derived from ERP systems in an environment in which traditional capital budgeting decision-making models may not be appropriate. The license/maintenance revenue of ERP market was $17.2 billion dollars in 1998, it is expected to be $24.3 billion dollars in 2000, and ERP systems have been implemented in over 60% of multi-national firms. This market also cuts across industries - for example, two of the world's best-known software companies, IBM and Microsoft, now run most of their business on software neither of them makes, the SAP R/3 ERP package made by SAP AG (O'Leary, 2000).
The appeal of the ERP systems is clear. While most organizations typically had software systems that performed much of the component functions of ERP, the standardized and integrated ERP software environment provides a degree of interoperable that was difficult and expensive to achieve with stand alone, custom-built systems. For example, when a salesperson enters an order in the field, the transaction can immediately flow through to other functional areas both within and external to the firm. The order might trigger an immediate change in production plans, inventory stock levels or employees' schedules, or lead to the automated generation of invoices and credit evaluations for the customer and purchase orders from suppliers. In addition to process automation, the ability of ERP systems to disseminate timely and accurate information also enables improved managerial and worker decision-making. Managers can make decisions based on current data, while individual workers can have greater access to information, enabling increasing delegation of authority for production decisions as well as improved communications to customers (O'Leary, 2000).
1.4 Model layer of ERP
A Global Business Process Model is created which represents the whole ERP software product. This model is layered in 3 deeper levels.
- The first level is the System Configuration Level, which scopes on high-level option on the entire system. Option definition is therefore static: once a high-level option of the ERP system is chosen to be used within the organization, the choice cannot be made changed.
- One level deeper is the Object Level, which scopes on single data objects. The option on this level is more dynamic.
The lowest level is the Occurrence level, which analyses single process occurrences. Because this level elaborates on object parameters, the option is very dynamic, meaning that options can easily be altered (Garg and venkitakrishnan, 2006).
1.5 Case study
We systematically study the productivity and business performance effects of ERP using a unique dataset on firms that have purchased licenses for the SAP R/3 system, the most widely adopted ERP package. In the last 30 years, SAP has become the global leader in business software, serving more than 38,000 customers worldwide, including organizations of every size and type. Along the way, SAP has accumulated a unique knowledge base of best practices in more than 25 industries. The SAP tradition of leadership continues with a new generation of ERP software that gives the company unprecedented speed and flexibility to improve your bottom line by improving your enterprise resource planning (Web-1). Our goal is to better understand the economics of ERP implementations specifically, and more broadly, contribute to the understanding of the benefits of large-scale Industries in India.
The author has tried to find out the success of ERP (Enterprise Resource Planning) implementation and the return on investment depends, among other factors, on the active project management team. This success and return on investment is very important to the organization since implementation cost is very high and the resulting Information Technology platform needs to supply significantly to the organization's business strategy and survival. Since competitors are likely to be implementing ERP solutions at the same time, there is the added advantage to gain a benefit, a boundary. How is this achieved?
According to the research the organizations that have successfully implemented the ERP systems are gathering the benefits of having integrating working environment, standardized process and operational benefits. There have been many disgusting stories of improper ERP implementation because of which many companies have become bankrupt and in many cases organizations have decided to discard the ERP implementation projects. Not all ERP implementations have been successful. Majority of these studies have used case studies to conclude their findings and very few have used the experiential study of the ERP implementation process and its success.
The difficulties and high failure rate in implementing ERP systems have been widely cited in the literature (Davenport, 1998), but research on critical success factors in ERP implementation is rare and sectioned. Till now, only a few organizations have done a little to imagine the important predictors for initial and ongoing ERP implementation success (Brown and Vessey, 1999). This research is an effort to achieve that. It identifies the critical success factors in ERP implementation, categorizes them into the respective phases in the ERP life cycle model and discusses the importance of these factors in ERP implementation (Markus and Tanis, 2000).
1.6 Aims and objectives:
This research is an attempt to broaden the ERP implementation research by defining the theoretical areas built and operational measures specific to ERP implementation and success measure to advance ERP research.
The main aim of this research is to study and analyze the impact of implementing ERP solutions on large industries in India.
The objective of this dissertation is to:
- Study about the Enterprise Resource Planning (ERP) systems and their business aspects.
- Analysing the implementation process of ERP systems and their Life cycle.
- Analysing the success and failure factors of the implementation of ERP systems.
- Analysing the pre and post implementation strategies involved in an ERP project.
- Understanding the effect of implementing ERP solutions on Indian large industries.
- Understanding the success factors of the ERP implementation by doing the case study on SAP (Systems, Applications and Products).
This dissertation explains the importance of ERP implementation within an organization, primarily within the large industries and explains the issues related with the usability and the user's opinion on an implemented ERP system. The research project discussed in this dissertation is derived from an implemented ERP system on large industries in Bangalore. The author has chosen SAP as his case study as the SAP provides the world's best integrated solutions for the organizations. The system examined in this dissertation is the SAP implementation and the selected users for this system are the large industries in Bangalore like Bharath Heavy Electricals Limited (BHEL), Karnataka State Road Transport Commission (KSRTC), Repcol, etc.
1.7 Layout of the dissertation
Chapter 2 Literature Review - This chapter explores the literature that is relevant to the research questions on Enterprise Resource Planning systems and their implementation, Life cycle, Success factors, failure factors, the business aspects of ERP and as well as ERP solutions provided by SAP and its significance. This chapter mainly focuses on eleven critical success factors of ERP systems. This chapter will form the bases for the argument presented in proceeding chapters.
Chapter 3 Research Approach - This chapter discusses the overall review of the research approach and methods that will guide this research. This chapter also discusses about the techniques for data analysis including triangulation.
Chapter 4 Research Site - In this chapter, the site of the study and how the research was carried out (data collection) is discussed in detail. This chapter also provides the analysis of the data which was collected and an overall conclusion of the analyzed data. The particular component of the ERP system is studied and the problems being encountered.
Chapter 5 Conclusion and recommendations - This chapter outlines the conclusion of the research with the recommendations and the suggestions for future research.
According to Garg and venkitakrishnan (2006), business environment has changed more in the last five years than it was before. Enterprises are continuously trying to improve themselves in the areas quality, time to market, costumer satisfaction, performance and profitability. The Enterprise Resource Planning (ERP) software fulfils all these needs.
2.1 Definition of ERP
Enterprise resource planning has been in defined in many ways as cited by Brown (2006) they are as follows
- Sets of business software which allows an organization for complete management of operations.(Al-Mashari, et al., 2003)
- A software infrastructure fixed with “best practices,” respectively best ways to do business based on common business practices or academic theory. (Bernroider & Koch, 2001)
- An organization-wide Information System that tightly combines all aspects of a business. It promises one database, one application, and a unified interface across the entire enterprise. (Bingi, Sharma, & Godla, 1999)
- Highly integrated enterprise-wide software package that computerize core business processes such as finance, human resources, manufacturing, and supply and distribution. (Holland & Light, 1999)
- A packaged business software system that enables a company to manage the efficient and effective use of resources by providing a total, integrated solution for the organization's information-processing needs. (Nah, Lau, & Kuang, 2001)
- Business software that combines information across the organization. This integration removes inconsistencies and enables the organization to attain consolidated reports. (Shakir, 2000 cited by Brown, 2006)
- A combination of business management practice and technology, where Information Technology integrates and automates many of the business practices associated with the core business processes, operations, or production aspects of a company to achieve specific business objectives. (Web-8:www.sap.com)
2.2 Features of ERP systems
According to Garg and venkitakrishnan (2006) ERP system needs have the following features:
- Modular design comprising many distinct business modules such as distribution, accounting, manufacturing, financial, etc.
- Use centralized common database management system (DBMS)
- The modules are integrated and provide seamless data flow among the modules, increasing operational transparency through standard interface.
- They are generally complex systems involving high cost.
- They are flexible and offer best business practices.
- They are time-consuming and configuration setups for integrating with the company's business information.
- The modules work in real time with online and batch processing capabilities.
- They will soon be internet enabled (Garg and venkitakrishnan, 2006).
Different ERP vendors provide ERP systems with some degree of speciality but the core modules are almost the same for all of them. Some of the core ERP modules are Human resource management, Transportation management, Manufacturing management, Accounting management, financial management, Production management, Sales and distribution management, Costumer relation management, Supply chain management and E-Business. The modules of an ERP system can either work as stand alone units or several modules can be combined together to form an integrated system. The systems are usually designed to operate under several operating platforms. SAP AG, the largest ERP vendor provides a number of modules with its famous R/3 ERP system. New modules are introduced by SAP and other vendors in response to the market and technological demand such as the internet technology (Garg and venkitakrishnan, 2006).
Koch et al. (1999) also discusses three common approaches to ERP systems implementation in organisations. As the number of modules being implemented increases, there is a shift from a big-bang to a phased approach.
- Big bang - This approach enables organizations to cast off all their legacy systems at once and implement a single ERP system across the entire organization. This is the most ambitious and difficult of approaches to ERP implementation (Koch et al., 1999).
- Franchise Strategy - This strategy, also referred to in literature as ‘phased implementation', suits large or diverse companies that don't share many common processes across business units. Independent ERP systems are installed in each unit, while linking common processes (Koch et al., 1999). This is the most common way of implementing ERP and it allows the systems to link together only to share the information necessary for the corporation to get a performance big picture across all the business units. “Usually these implementations begin with a demonstration or “pilot” installation in a particularly open-minded and patient business unit where the core business of the corporation will not be disrupted if something goes wrong” (Koch et al. 1999 cited by Jenine, 2001).
- Slam-dunk - With this approach, ERP dictates the process design and the focus is on just a few key business processes. This implementation strategy is most appropriate for smaller organizations (Koch et al., 1999).
ERP systems are usually highly complex, expensive, and difficult to implement. Besides the traditional MRP functionality, ERP systems include applications for many other functional areas such as Customer Relationship Management, Sales and Marketing processes, Human Resources, Accounting and Finance, Supply Chain Management, and Operational and Logistical Management. Many ERP vendors are offering some or all of these functions as options within their offering. Organizations can usually pick and choose between modules, implementing only those which are applicable to their situation (Al-Mashari et al., 2000 cited by Brown, 2006).
2.4 Functions of ERP
This software tries to combine all departments and functions across a company onto a single computer system that can serve each different department's particular needs (Koch et al. 1999). ERP systems are nothing more than generic representations of the way a typical company which does business (Koch et al. 1999 cited by Jenine, 2001).
ERP is software, which collects data from various key business processes and stores in a single comprehensive data repository where they can be used by other parts of the business. Many organizations are now using ERP systems to solve their problems. ERP improves organizational co-ordination, efficiency and decision-making. It is a kind of software, which helps managers to find out the most and the least profitable jobs. This in turn, helps managers to eliminate the most unprofitable jobs (Zygmont, 1998). Pp 89-91.
ERP's allow computerising the tasks involved in performing a business process so it is important that implementers start with a clear expression of the business problems being addressed (Slater 1999 cited by Jenine, 2001).
The most common reason that companies walk away from multimillion dollar ERP projects is that they discover that the software does not support one of their important business processes (Koch et al. 1999).
Not only do the business functions need to be identified, the more delicate issues such as the company's corporate culture and management style must be examined to enable a holistic view of the implementation (Slater 1999).
ERP systems stress the importance of accountability, responsibility and communication within an organisation. They focus on optimizing the way things are done internally rather than with customers, suppliers or partners (Koch et al. 1999 cited by Jenine, 2001).
It is said that ERP is the best expression of the inseparability of business and information technology (Gupta, 2000). ERP systems highlight one specific theme: integration of all organisational processes and this has attracted many organizations to adopt ERPs in recent year (Sia, et.al. 2002 cited by Thavapragasam, 2003).
According to Gupta (2000) ERP allows companies to integrate departmental information and for many users, an ERP is a “does it all” system that performs everything from entry of sales orders to customer service. Moreover, an ERP-system enables companies to integrate data used throughout the whole organization and holds operation and logistic, procurement, sales and marketing, human resource and financial modules (Wassenaar, et al., 2002 cited by Thavapragasam, 2003).
ERPs are often known as off the shelf IT solutions that will enable organizations to achieve faster cycle fastens, reduces cost, and improved customer service (Sia, et al., 2002 cited by Thavapragasam, 2003).
Wassenaar, et al. (2002) continues to suggest that ERP-system implementation implies a much stronger organizational change that normal information system development. Problems associated with software implementations are neither new nor specific to enterprise resource planning (ERP) systems.
2.5 Impact of implementation
There is a small but growing literature on the impact of ERP systems; the majority of these studies are interviews, cases studies or a collection of case studies and industry surveys (Davenport, 1998).
McAfee (1999) studied the impact of ERP systems on self-reported company performance based on a survey of Indian implementers of SAP R/3 packages. Participating companies reported substantial performance improvement in several areas as a result of their ERP implementation, including their ability to provide information to customers, cycle times, and on-time completion rates.
ERPs are designed to help manage organizational resources in an integrated manner. The primary benefits that are expected to result from their implementation are closely related to the level of integration that is promoted across functions in an enterprise. The professional literature has been proactive in determining the types of benefits that companies might anticipate from their ERP systems and to what extent organizations had actually attained those benefits on a post-implementation basis. Expectations for improved business performance after adoption may result from both operational and strategic benefits (Irving 1999; Jenson and Johnson 1999 cited by Nicolaou, 2004).
In the Benchmarking Partners study (1998), respondent companies anticipated both tangible and intangible benefits. The most significant intangible benefits related to internal integration, improved information and processes, and improved customer service, while tangible benefits related to cost efficiencies in inventory, personnel, procurement and the time needed to close books, as well as improvements in productivity, cash/order management, and overall profitability. In assessing the extent to which they had actually attained those benefits, however, on a post-implementation basis, it was evident that they were not able to improve profitability or lower personnel, inventories, or system maintenance costs as much as they had hoped. On the other hand, respondents noted better-than-expected results in overall productivity and in order-management cycle time, as well as procurement, on-time delivery, and the ability to close financial cycles (cited by Nicolaou, 2004).
Likewise, in the Conference Board study (Peterson et al. 2001 cited by Nicolaou, 2004), responding companies reported anticipating similar types of tangible and intangible benefits, although it was evident that the realization of those benefits required more time than expected.
Where as Gattiker and Goodhue (2000) group the literature of ERP benefits into four categories:
- Improve information flow across sub-units, standardization and integration facilitates communication and better coordination;
- Enabling centralization of administrative activities such as account payable and payroll;
- Reduce IS maintenance costs and increase the ability to deploy new IS functionality;
- ERP may be instrumental in moving a firm away from inefficient business processes and toward accepted best of practice processes.
The above studies on the impact of ERP systems suggest that there are potentially substantial benefits for firms that successfully implemented ERP systems (Ragowsky and Somers, 2000). We note here the significance of ERP impact has started to attract more attention from the organizations (Sarkis and Gunasekaran, 2001 cited by Hitt et. al, 2001).
Limitations of ERP systems have also been widely documented; as identified below.
- ERP's can have a negative impact on the work practices and culture of an organization (Gefen, 2000)
- There is a need for extensive technical support prior to its actual use (Gefen, 2000).
- The need for competent consulting staff to extensively customize the ERP to increase the acceptance of a new system (Gefen 2000).
- “Lack of feature-function fit” between the company's needs and the packages available (Markus and Tanis 2000).
- It takes an average of 8 months after the new system is installed to see any benefits (Koch et al. 1999).
- The Total Cost of Ownership (TCO) of ERP, as identified by the Meta Group, includes hardware, software, professional services and internal staff costs. TCO is averaged at $15 million per system (Koch et al., 1999).
2.6 ERP lifecycle
The ERP life cycle is comprised of four phases namely analysis, installation, final preparation and go live (Robey, Ross and Boudreau, 2000). An integrative, theoretical framework was introduced which we call “integrated ERP implementation,” which is comprised of a set of theoretically important constructs. This framework has been developed based on the project life cycle approach, in which the ERP implementation project goes through different stages before it goes live.
There are number of factors that affect the ERP implementation process are termed in this study as implementation critical success factors. Upon the completion of ERP implementation project, performance is measured by a mix of outcomes (Robey, Ross and Boudreau, 2000).
Since the models are unpredictable, they cannot be measured directly, multi-item scales, each composed of a set of individual items, were needed to obtain indirect measures of each construct (Robey, Ross and Boudreau, 2000).
- Implementation planning- It is the first phase of ERP implementation in which initial implementation plan is prepared, team members are selected (which could be new or roll over from the acquisition team), project scope and initial objectives are defined. In this phase as well the implementation strategies and outcomes are identified as well.
- Installation- It is the second phase of Implementation process, activities such as hardware and network is installed according to the requirements of ERP system, configuration of ERP is conducted, system customization is performed and change management plan is executed.
- Final Preparation- In this phase data from legacy system is imported to the new system, data is converted and system testing is performed. Moreover, the users are trained on the system.
- Go Live- Going Live is the point in time in the ERP implementation, when the system is first used for actual production. In this phase, ERP system goes lives, progress is monitored and user feedback is reviewed (Robey, Ross and Boudreau, 2000).
2.7 Critical Factors of ERP implementation success
This section discusses the 11 factors that are critical to ERP implementation success (cited by Kuang, 2001).
- ERP teamwork and composition
ERP teamwork and composition is important throughout the ERP life cycle. The ERP team should consist of the best people in the organization (Bingi et al., 1999; Rosario, 2000; Wee, 2000).
Building a cross-functional team is also critical. The team should have a mix of consultants and internal staff so the internal staff can develop the necessary technical skills for design and implementation (Sumner, 1999). Both business and technical knowledge are essential for success (Bingi et al., 1999; Sumner, 1999).
The ERP project should be their top and only priority and their workload should be manageable. Team members need to be assigned full time to the implementation. As far as possible, the team should be located together at an assigned location to facilitate working together (Wee, 2000).
The team should be given compensation and incentives for successfully implementing the system on time and within the assigned budget (Wee, 2000). The team should be familiar with the business functions and products so they know what needs to be done to support major business processes (Rosario, 2000).
The sharing of information within the company, particularly between the implementation partners, and between partnering companies is vital and requires partnership trust (Stefanou, 1999). Partnerships should be managed with regularly scheduled meetings. Incentives and risk-sharing agreements will aid in working together to achieve a similar goal (Wee, 2000).
- Top management support
Top management support is needed throughout the implementation. The project must receive approval from top management (Bingi, 1999; Sumner, 1999) and align with strategic business goals (Sumner, 1999). This can be achieved by tying management bonuses to project success (Wee, 2000).
Top management needs to publicly and explicitly identify the project as a top priority (Wee, 2000). Senior management must be committed with its own involvement and willingness to allocate valuable resources to the implementation effort (Holland et al., 1999). This involves providing the needed people for the implementation and giving appropriate amount of time to get the job done (Roberts and Barrar, 1992 cited by Kuang, 2001).
Managers should legalize new goals and objectives. A shared vision of the organization and the role of the new system and structures should be communicated to employees. New organizational structures, roles and responsibilities should be established and approved. Policies should be set by top management to establish new systems in the company. In times of conflict, managers should mediate between parties (Roberts and Barrar, 1992).
- Business plan and vision
Additionally, a clear business plan and vision to steer the direction of the project is needed throughout the ERP life cycle (Buckhout et al., 1999). A business plan that outlines proposed strategic and tangible benefits, resources, costs, risks and timeline is critical (Wee, 2000). This will help keep focus on business benefits. There should be a clear business model of how the organization should operate behind the implementation effort (Holland et al., 1999).
There should be a justification for the investment based on a problem and the change tied directly to the direction of the company (Falkowski et al., 1998). Project mission should be related to business needs and should be clearly stated (Roberts and Barrar, 1992). Goals and benefits should be identified and tracked (Holland et al., 1999). The business plan would make work easier and impact on work (Rosario, 2000 cited by Kuang, 2001).
- Effective communication
Effective communication is critical to ERP implementation. Expectations at every level need to be communicated. Management of communication, education and expectations are critical throughout the organization (Wee, 2000). User input should be managed in acquiring their requirements, comments, reactions and approval (Rosario, 2000).
Communication includes the formal promotion of project teams and the advertisement of project progress to the rest of the organization (Holland et al., 1999). Middle managers need to communicate its importance (Wee, 2000). Employees should be told in advance the scope, objectives, activities and updates, and admit change will occur (Sumner, 1999).
- Project management
Good project management is essential. An individual or group of people should be given responsibility to drive success in project management (Rosario, 2000). First, scope should be established (Rosario, 2000; Holland et al., 1999) and controlled (Rosario, 2000).
The scope must be clearly defined and be limited. This includes the amount of the systems implemented, involvement of business units, and amount of business process reengineering needed. Any proposed changes should be evaluated against business benefits and, as far as possible, implemented at a later phase (Sumner, 1999; Wee, 2000). Additionally, scope expansion requests need to be assessed in terms of the additional time and cost of proposed changes (Sumner, 1999).
Then the project must be formally defined in terms of its milestones (Holland et al., 1999). The critical paths of the project should be determined. Timeliness of project and the forcing of timely decisions should be managed (Rosario, 2000). Deadlines should be met to help stay within the schedule and budget and to maintain credibility (Wee, 2000).
Project management should be disciplined with coordinated training and active human resource department involvement (Falkowski et al., 1998). Additionally, there should be planning of well-defined tasks and accurate estimation of required effort. The escalation of issues and conflicts should be managed (Rosario, 2000).
Delivering early measures of success is important (Wee, 2000). Rapid, successive and contained deliverables are critical. A focus on results and constant tracking of schedules and budgets against targets are also important (Wee, 2000).
- Project champion
Project sponsor commitment is critical to drive consensus and to oversee the entire life cycle of implementation (Rosario, 2000). Someone should be placed in charge and the project leader should ``champion'' the project throughout the organization (Sumner, 1999).
There should be a high level executive sponsor who has the power to set goals and legitimize change (Falkowski et al., 1998).
Sumner (1999) states that a business leader should be take care of a business perspective. Transformational leadership is critical to success as well. The leader must continually strive to resolve conflicts and manage resistance.
- Appropriate business and legacy systems
Appropriate business and legacy systems are important in the initial chartering phase of the project. According to Roberts and Barrar (1992), a stable and successful business setting is essential. Business and IT systems involving existing business processes, organization structure, culture, and information technology affect success. It determines the IT and organizational change required for success (Holland et al., 1999). Roberts and Barrar also argue that success in other business areas is necessary for successful MRPII implementations.
- Change management program and culture
Change management is important, starting at the project phase and continuing throughout the entire life cycle. Enterprise wide culture and structure change should be managed (Falkowski et al., 1998), which include people, organization and culture change (Rosario, 2000).
A culture with shared values and common aims is conducive to success. Organizations should have a strong corporate identity that is open to change. An emphasis on quality, a strong computing ability, and a strong willingness to accept new technology would aid in implementation efforts. Management should also have a strong commitment to use the system for achieving business aims (Roberts and Barrar, 1992 cited by Kuang, 2001).
Users must be trained, and concerns must be addressed through regular communication, working with change agents, leveraging corporate culture and identifying job aids for different users (Rosario, 2000).
As part of the change management efforts, users should be involved in design and implementation of business processes and the ERP system, and formal education and training should be provided to help them do so (Bingi et al., 1999; Holland et al., 1999).
Education should be a priority from the beginning of the project, and money and time should be spent on various forms of education and training (Roberts and Barrar, 1992).
Training, skill and professional development of the IT workforce is critical. User training should be emphasized, with heavy investment in training and skill of developers in software design and methodology (Sumner, 1999).
Employees need training to understand how the system will change business processes. There should be extra training and on-site support for staff as well as managers during implementation. A support organization (e.g. help desk, online user manual) is also critical to meet users' needs after installation (Wee, 2000).
- Business process Re-engineering and minimum customization
The most important factor that comes soon after ERP life cycle is Business process re-engineering. Technological advances, such as corporate intranets, shared databases, faster computers, etc. greatly aided in the ability of organizations to reengineer their processes. The basic concept was for organizations to examine their business processes to determine where problems might be with the process. Once a process was detailed and the problems defined, the process could be redesigned, or reengineered, to help alleviate the problems. This reengineering effort gave us the concept of Business Process Reengineering (BPR). It is inevitable that business processes are moulded to fit the new system (Bingi et al., 1999). Aligning the business process to the software implementation is critical (Holland et al., 1999; Sumner, 1999 cited by Kuang, 2001).
Organizations should be willing to change the business to fit the software with minimal customization (Holland et al., 1999; Roberts and Barrar, 1992). Software should not be modified, as far as possible (Sumner, 1999).
Modifications should be avoided to reduce errors and to take advantage of newer versions and releases (Rosario, 2000). Process modelling tools help aid customizing business processes without changing software code (Holland et al., 1999).
Broad reengineering should begin before choosing a system. In conjunction with configuration, a large amount of reengineering should take place iteratively to take advantage of improvements from the new system. Then when the system is in use reengineering should be carried out with new ideas (Wee, 2000).
Quality of business process review and redesign is important (Rosario, 2000). In choosing the package, vendor support and the number of previous implementers should be taken into account (Roberts and Barrar, 1992 cited by Kuang, 2001).
- Software development, testing and troubleshooting
Software development, testing and troubleshooting is essential, beginning in the project phase. The overall ERP architecture should be established before deployment, taking into account the most important requirements of the implementation. This prevents reconfiguration at every stage of implementation (Wee, 2000).
There is a choice to be made on the level of functionality and approach to link the system to legacy systems. In addition, to best meet business needs, companies may integrate other specialized software products with the ERP suite. Interfaces for commercial software applications or legacy systems may need to be developed in-house if they are not available in the market (Bingi et al., 1999).
Troubleshooting errors is critical (Holland et al., 1999). The organization implementing ERP should work well with vendors and consultants to resolve software problems. Quick response, patience, perseverance, problem solving and fire fighting capabilities are important (Rosario, 2000). Vigorous and sophisticated software testing eases implementation (Rosario, 2000).
Scheer and Habermann (2000) indicate that modelling methods, architecture and tools are critical. Requirements definition can be created and system requirements definition can be documented. There should be a plan for migrating and cleaning up data (Rosario, 2000). Proper tools and techniques and skill to use those tools will aid in ERP success (Rosario, 2000 cited by Kuang, 2001).
- Monitoring and evaluation of performance
Finally, monitoring and evaluation come into play at the shakedown phase. Milestones and targets are important to keep track of progress. Achievements should be measured against project goals. The progress of the project should be monitored actively through set milestones and targets (Holland et al., 1999).
Two criteria may be used Project management based criteria should be used to measure against completion dates, costs and quality. Then operational criteria should be used to measure against the production system. Monitoring and feedback include the exchange of information between the project team members and analysis of user feedback (Holland et al., 1999).
There should be an early proof of success to manage uncertainty (Rosario, 2000). Reporting should be emphasized with custom report development, report generator use and user training in reporting applications (Sumner, 1999).
Management needs information on the effect of ERP on business performance. Reports or processes for assessing data need to be designed. These reports should be produced based on established metrics. It must include effective measurable project goals that meet business needs and are reasonable. Additionally, performance should be tied to compensation (Falkowski et al., 1998 cited by Kuang, 2001).
2.8 Failure factors
The theme of ERP implementation failures has been a major topic of discussion and only one in three ERP initiatives was considered a success (Thavapragasam, 2003). Many ERP implementations fail for a variety of reasons, leading to a popular stream of academic research to attempt to explain why implementations fail and what needs to be done to prevent or reduce future failures. There are many research articles discussing the success and failure factors associated with ERP implementations (Mandal & Gunasekaran, 2003).
We also have several case studies and best practices studies which give us additional insight into how to proceed with an implementation to improve chances of success (Kumar, Maheshwari, & Kumar, 2002).
The reasons for the ERP failures definitely raise questions regarding ERP systems functionality, usability, adaptability, user satisfaction and even return on investment, which all organisations succeed for.
According to Ranganathan and Samarah (2001), the reported failures of ERP systems by companies such as FoxMeyer Drugs, Applied Materials, Hershey, Mobil Europe, and Dow Chemicals have questioned the very viability of ERP systems.
The risks involved in an ERP implementation are quite large, but the benefits continue to overtake organizations to migrate to an ERP system. Take Hershey Corp. for instance. After spending $112 million and an initial profit loss of 19%, they struggled through the implementation and now have a successful system which aided in a recent revenue increase of more than 12%, a $100 million increase (Weiss & Songini, 2000).
In addition, they have also started to realize benefits associated with the simplicity of upgrading an ERP system. Once the system is installed, upgrades can be very easy with very little impact, as long as the initial configuration did not require changes to the core code of the ERP system. These benefits, along with the disadvantages should be examined closely before any decision is made about making the plunge into an ERP implementation (Weiss & Songini, 2002).
Davenport (1999, pp171-174) explains that organizations are using ERP systems in many ways like some fast growing companies use ERP systems to inject more discipline in the organization. They want the ERP system to exert more on management control and impose more-uniform process on freewheeling and highly entrepreneurial cultures. Where as some other companies have the opposite goal. They want to use ERP to break down hierarchical structures, freeing their people to be more innovative and more flexible. Some multinational corporations use ERP to introduce more consistent operating practices across their geographically dispersed units.
Different companies will reach different decisions about the right balance between the commonality and variability. But those organizations that stress their own enterprise and not the system will gain the greatest benefits (Davenport, 1999, p-175).
It is true that failure rate among business process reengineering (BPR) and ERP is very high because it requires extensive organizational change like replacing old technologies and legacy systems which is very tough to do because it is deeply rooted in some companies (Lloyd, Dewar, and pooley, 1999).
Many studies indicate that 70% of the ERP projects fail to deliver the promised benefits because they fail to fully implement or meet the goals of their users even after 3 years of their work (Hammer and Stanton, 1995; Gillooly, 1998).
2.9 From Industry choice to positioning:
Choosing is a complex endeavour, the manager should choose at a broad generic level between the following strategies:
- Positioning the ERP and the implementation to meet the specialised standards of one segment,
- Positioning add-on products and services to meet the needs of several other segments and
- Positioning the ERP to provide general appeal across many segments (Garg and Venkateshan, 2006, p-117).
A model based on organizational information processing theory has been developed to explain the costs and benefits of ERP impact. They argue that some successfully transformed firms would enjoy these ERP benefits; however, others might not be able to benefit from such ERP implementation due to firm and site-specific differences (Gattiker and Goodhue, 2000).
Most of the industries choose SAP for building their ERP solutions and Business Process Reengineering (BPR) because SAP is the world's leading business software solution and e-business platform. SAP solutions are integrated, configurable, open and scalable. They work for all types of business, supporting and streamlining. SAP provides solution both for complex or relatively simple business process (Marchand et al, eds., 2000, pp52, 106-123, 148 and 298).
2.10 ERP solutions provided by SAP
The first ERP system was developed by two German engineers who founded SAP in the early 1970s (Okrent & Vokurka, 2004).
SAP has become the world's largest inter-enterprise software company and the world's third-largest independent software provider overall (Web-8: www.sap.com).
Since the foundation of SAP and the introduction of ERP, growth of ERP systems has been dramatic with many vendors offering ERP systems. Some of the major ERP vendors include: SAP, Oracle, and PeopleSoft (Okrent & Vokurka, 2004).
According to Davenport (1999, pp168-169), SAP solution gives the business a backbone for all the departments such as financials, manufacturing, sales, distribution and human resources. It offers the ultimate tools to enable it to play an active role within the e-business world. Investment in SAP is protected over the long term. Each initial SAP solution can be tailored to the current needs of your business, the foundation is laid for the system to be adapted and extended in line with its development through time.
SAP solutions are of 4 different types:
- SAP Business One
- mySAP All-in-One
- mySAP ERP.
- mySAP Business Suite
As shown in the figure, ABAP R/2 was the standard software that was used as the mainframe architecture. With respect to the advancing technology and the business requirement, R/3 Basis was invented which was the 3-tier Client/Server, this was found out for the integrated business processes. Now finally for the adaptive businesses SAP has invented web services like SAP NetWeaver, mySAP Business Suite and SAP xApps that are for the enterprise service architecture (Web-1)
2.10.1 SAP Business One:
SAP Business One is software, which provides integrated solution mainly for the small and mid-size market organisation. These provide the solutions for organisations that are straightforward and companies that have less number of business processes. SAP Business One offers standards, which meets the needs of the company. It helps even the smallest business to benefit from integrated operations and good relationship with third parties at low cost.
2.10.2 mySAP All-in-One:
mySAP All-in-One is a software which is again designed to small and middle market businesses but these are for sophisticated business processes which have ambitious development plans. Implementation has been increased due to pre-configured nature of the solution and the availability of templates designed for specific industries. Along with that the integral training environment of the system facilitates rapid user familiarisation in preparation for access to the productive system. This solution provides the key functions to support the business, human resources, supply chain management, financials and costumer relationship management along with a selection of e-business applications.
2.10.3 mySAP ERP:
mySAP ERP is the new generation of enterprise level software from SAP. 4.7 is the new release which is an updated version of 4.6c, this is the successor to the highly successful mySAP.com. Implementing the elements of mySAP ERP adds the benefits of functionality as the integrated tools. These helps the managers to access the areas of the business without the need of customised reports, including strategic enterprise management and finance, workforce and operations analytics. Corporate governance, financial supply chain management, employee relationship management and environmental health and safety has also been added recently to mySAP ERP recently (Web-4)
mySAP ERP is underpinned by Netweaver technology, and Web Application Server replaces BASIS. This is now SAP's entry-level global enterprise software solution, as release 4.7 is only available to existing SAP customers. Significant benefits include new efficiencies, greater integration, and lower total cost of ownership (TCO) and reduced time to return on investment (ROI).
2.10.4 mySAP Business Suite:
This is an updated version of my SAP ERP based on the same way on release 4.7 and underpinned by Netweaver, but it also includes many of the optional extras with all other SAP products. Hence it includes the solution for costumer relationship management (CRM), supply chain management (SCM), product lifecycle management (PLM), supplier relationship management (SRM), enterprise portal, business intelligence, mobile business and market place. This unbeatable combination makes MySAP Business Suite the most comprehensive ERP solution in the market place today. It is unlikely that this will be surpassed by any of SAP's rivals in the foreseeable future.
2.11 SAP solution for large industries:
In today's business climate, large enterprises are under pressure to address challenges posed by globalization, shrinking business cycles, heightened customer expectations, and demands for increased profitability. At the same time, they need the flexibility to respond to business change - without sacrificing profitability, transparency, and internal control. Given these challenges, the quality and efficiency of business processes can be the difference between success and failure. SAP software helps large enterprises in all industries improve customer relationships, enhance partner collaboration, and maximize efficiencies across their entire business operations (Web-6).
SAP for Industrial Machinery & Components (SAP for IM&C) helps your company integrate and streamline your enterprise, increase competitive advantage, and reduce costs. You can speed innovation and offer best-in-class after-sales service. SAP for IM&C - quick to implement with rapid payback - reflects SAP's 30 years of experience working with more than 1,700 customers in the IM&C industry.
From the above discussions the author has understood that ERP systems have been defined in many ways. In fact, there are probably as many definitions as there are articles and books about ERP. For the purposes of this study, ERP is an enterprise-wide combination of business management practice and technology, where Information Technology integrates and automates many of the business practices associated with the core business processes, operations, or production aspects of a company to achieve specific business objectives. It is a centralized system with a central database and application server, which all functional areas share.
Implementing an ERP requires the replacement of existing systems with the new system; there are many challenges for organizations. Users must learn to use the new system and may face bitterness about having to change. Organizations may have to restructure how they operate in order to fit into the rigid requirements of the ERP system. Business may be disrupted during the restructure or during the cutover from the old system to the new. All data migrating from the various legacy systems must be examined and normalized to reduce the possibility of data corruption or inconsistency.
The risks involved in an ERP implementation are quite large, but the benefits continue to overtake organizations to migrate to an ERP system. A total of 11 critical success factors for ERP implementation have been identified, It is interesting to observe the relative strength of the relationship between process stages and the implementation success.
The phases such as implementation planning and installation strongly influence the implementation success individually and they are found to be statistically significant. The success of ERP implementation (dependent variable) is measured in this study whether the implementation was completed within budget, within time, users were satisfied and users find it easy to use the system.
This definition is consistent with the definitions for success associated with all types of information system projects, recognizing that there is no single set of accepted measurement criteria for evaluating information system success. Success is dependent not only on the factors that influence the system implementation during the course of the implementation timeframe, but also activities that occur during the ERP implementation.
According to the research, the author has found out that even in India most of the organizations prefer SAP solutions in spite of the occurrence of other big bannered ERP providers like Oracle, Microsoft, etc. because SAP has become the world's largest inter-enterprise software company and the world's third-largest independent software provider overall. SAP solution gives the business a backbone for all the departments such as financials, manufacturing, sales, distribution and human resources.
It offers the ultimate tools to enable it to play an active role within the e-business world. Investment in SAP is protected over the long term. Each initial SAP solution can be tailored to the current needs of your business, the foundation is laid for the system to be adapted and extended in line with its development through time. Therefore most of the organizations choose SAP for their ERP solution.
This chapter highlights various methods that was used to collect information in order to meet the objectives as set in the introduction chapter of my dissertation. The most suitable approaches, strategies and methods for the project to achieve the purpose of research have been chosen. However, how to choose them as Saunders (2003) states that methodology, firstly the author must make sure what kind of research philosophy should be adopted. This chapter provides an overview about different research methodologies for conducting a research study and then, the survey was conducted.
3.2 Research Strategy
Choosing a research approach mainly depends on the researcher. There are basically two types in it; they are deductive and inductive approach. Deductive approach is making a hypothesis, which is a testable ratio between the relationship of 2 or more variables which are taken from the literature review and the main aim of the research. This refers to the collection of quantitative data which is less confusing, hard facts, with large measurements, scope of data manipulation with measurements, scope for data with statistical representation. In simple words it is testing theory. The collection of quantitative data cannot be done in this research as there are not many large industries in Bangalore which has implemented ERP systems in it. Inductive approach states the purpose to get a feel of what is going on, understand the nature of the problem, analyse the collected data and formulation of the theory. Here it mainly focuses on the production of a theory from the data, not generalised, deals with complexity, depth of understanding (Saunders et. al, 2000) and this has been done by conducting the Semi-structured interviews of the ERP implementers. The three main points in which quantitative data differs from qualitative data are: Quantitative data is based on meanings of derived from numbers, the collection results in numerical and standardised data and the analysis can be conducted by the use of diagrams and statistics (Saunders et. al, 2000). According to Saunders (2003), the strengths of quantitative method are; It helps to state the research problem in very specific and set terms, it helps to achieve high level of reliability of gathered data due to controlled observations, laboratory experiments, mass surveys and other form of research manipulations and it allows for longitudinal measures of subsequent performance of research subjects Some of these belong to deductive tradition, others to inductive approach. What really matters is not the label that has been attached to a strategy, but whether it is appropriate for the particular research and objectives. The research strategies used in this research are Survey and case study (Saunders et. al., 2003).
Reliability can be assessed by posing the following questions:
- Will the measures yield the same results on other occasions?
- Will similar observations be reached by other observers?
- Is there transparency in how sense was made from the raw data? (Easterby- Smith et al. 2002)
Reliability is one of the most critical elements in assessing the quality of the construct measures, and it is a necessary condition for scale validity. A statistically reliable scale provides consistent and stable measures of a construct. Composite reliability estimates are used to assess the inter-item reliability of the measures. Some items may be removed from the construct scales if their removal results in increases in the reliability estimate, however, care was taken to ensure that the content validity of the measures is not threatened by the removal of a key conceptual element (Robson, C. 2002).
According to Robson (2002) there are four threats to reliability:
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