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ERP Implementation and Change Management
In this research paper, we will analyse the problems and issues faced by a business / enterprise during the ERP project implementation project. And why is there a need for a proper change management as part of their ERP project implementation. As businesses are reengineering their business processes, they are expected to readjust their business methodology to suit the need or demands of market. Business will need a highly reliable management system to support their daily business processes, to reduce inefficiency and inaccuracy within the organisation business process. During the project implementation process, organization will commonly faces unwanted resist from the potential users. The study wills reveals what are the pitfalls and approach needed when organisation are facing resistance to ERP, which could lead to implementation failures.
As business getting more competitive in today world, it is not enough for business to get content with producing only better and more reliable product and services. In order to provide better customer service internal or external, minimise or reduce overhead, daily production and operation costs, they need the assistance of a better, highly reliable information system to provide a more efficient management over the business processes. ERP Systems are introduced to handle more complex transactions as a highly dependable system. (Lukman Susanto, 2003)
The enterprise resource planning (ERP) system is a set of integrated Business Applications that provides support for core business process activities such as Manufacturing Production and Logistics, Finance and Accounting, Sales and Marketing, and Human resources. An ERP system integrated and helps the different departmental units of the organization to share data and knowledge, reduce costs, and improve management of the business Processes. (Adel M. Aladwani, 2001)
Despite of having so many benefits, lot of ERP projects still fail (Stratman and Roth, 1999). Most of the ERP system implementation that fail are due to workers’ resistance. A good and careful change management strategies are requires facilitating a successful ERP implementation. (Adel M. Aladwani, 2001)
The goal of the this paper is to show how “change management” could play a significant roles, how to market the ERP within the organization and what are strategies available that are useful to overcome workers’ resistance to ERP implementation.
What is change management?
Change Management is a planned change approach within an organization. The goal of Change Management is to maximize the benefits and lower the potential risk for the organization related to changes due to ERP implementation.
In any ERP implementation undertaken by a business, Change management is one of the biggest tasks are heavily involved by the organization. Not only that this require a significant amount of funding from the organization but also require a high level of commitment throughout the whole organization. It is a deliberate approach to ensure a change in people’s expectations towards the major changes in the work process bring about by the implementation of ERP to move the business forward smoothly. (Commonwealth of Pennsylvania).
An effective change management must touches on all aspects of psychological reaction, such as resistance within an organization, which the potential users are going through. Measuring attitudinal changes are part of the key process in Change Management in the ERP implementation to record how people feel and their expectation towards the anticipated changes in the technology implementation. This will definitely help the organization to know how to manage the shift. Huge amount of communication, and training for the users are needed.
WHY IS IT CRUCIAL TO AN ERP IMPLEMENTATION?
The whole concept of change management involvement in ERP implementation is building mutual trust and understanding between the organization and its employees throughout the business component, during the implementation phase. The focus of change management in the business should be customer oriented managing expectation of the potential end user rather than technology or product oriented.
End user will not be amazed with the state-of-the-art equipment, if the new ERP system or business process failed to fulfil people’s expectation. While ERP implementation requires the business to standardise its business processes, change management will be needed to make sure the damages can be avoided / minimised that are caused by transformation.
With proper change management strategy in place, businesses can minimise costs involve due to rapid changes to bring in new system within the organization, while trying to maintain the consistency and existences of its employees. Change management can also help the company to deal with future changes with increase in the business flexibility, thus increase the business productivity as well. (Mark Schweiker & Jeff Beatty)
REASONS FOR RESISTANCE TO CHANGE
This is part of the human nature to resist. According to Bonnie Mincu “resistant to have their expectation disrupted” (Bonnie Mincu, 1999). How the top management handle and deal with the resistance is important. Resistance are unavoidable but can be manage.
The two basic reasons why people are resisting change are(Bonnie Mincu, 1999):
Ø Lack of motivation
If the employee are not well informed on the purpose of the change and how it may beneficial for them, people will not feel motivated to change and support the new system. A good communication and vision sharing are needed to resolve these issues.
Ø Lack of ability
People may understand and agree on the reasons on why there is a need for change, but if they do not have the needed ability, this will add unnecessary resistance and anxiety to all the mist of changes around them. Good proper structure job base training is needed for individual who will be operating the business on the ground within the organization.
Ø Change in Habit
People who are so used to do their daily job in a familiar business process, will find it a hesitant and hard to break out of it and need some time to adjust to the new system and business process. Majority of people by default would prefer to do their jobs in ways they used to, instead of being innovative or to find a better way to get things done. (Adel Aladwani, 2001).
If businesses fail to handle such conditions, this might upset the employees and valued employees might leave the company. Thus a good project leader must be able to carry a good change management to avoid this unfortunate scenario.
Change management Strategy
Just like other system implementation, the role of change management is to build trust and understanding throughout the organization, so that the potential users in different separate functional area, where the change will be applied, such as finance, human resources and manufacturing, will understand the benefits and are well prepared to accept the change will be applied. (Island Consulting, 2000).
Problems will surface the moment when the actual implementation of the system started, and for a successful implementation its use would require a lot of communication and collaboration within the well-established departmental organization. Although they maybe aware that the purpose of implementing the ERP system was to eliminate unnecessary double or redundant operationally work within whole organizational structure. (Kemppainen, Ilkka, 2000)
Most of the project implementation potential risks related to the company are connected with the factors like the level of acceptance or support from company personnel and the top management. Factors like working skills, knowledge, and experience will also affect the outcome of the ERP project implementation. One typical potential risk factor is the resistance to change. People who are going to run the business or potential user may not see how the benefits of the system will help in their own work and, may not be fully committed to the new business model. With the mindset of resistance to change in place, people will not be using the system in a disciplined manner. Normal daily business activities also disturbs the ERP implementation, and people working on the ground may not be willing to put time or effort to assist the development work due to busy schedule. Without strong top management support for the ERP project, the project is set for failure. Beside those factors having a good project manager is also critical for ERP project implementation success. (Päivi Iskanius, 2009)
In change management things like synchronisation or communication between management and operation level with the project team are very important. The management need to focus and prepare a proper appropriate strategies, communication channels or plan to gather feedback and market the new ERP system that is going to be implement and a proper structure training program or schedule for the potential users to ensure the daily business activities are not being disrupt and able to achieve the desire expected outcomes / results. The organization needs to make sure that the employees are carefully instructed to help them overcome all the challenges during the mist of changes during the ERP project implementation.
Effective change management strategies are (Island Consulting, 2000):
Ø Communications Strategy
Constant communication is a need between the key person in the management and those in working in the daily business operation. The organization needs to ensure a thorough approach in their project strategy such as preparing for their project plans, project costs analysis, project progress reports as well as employees training to prepare the workers for the new system. Good working collaboration will help in resulting a better outcome of the project. The purpose of communicating is not to make everyone happy and it is not possible to make everyone happy, but to deliver the message and request for possible cooperation within the organization. Constant communication can effectively help in reducing the worries and anxiety on the management and the people on the ground on the changes.
Ø Impact Analysis
Impact Analysis is a method to determine the impact on the current business system and how the business environment will be affect by the new ERP system. Data flow / work flow diagram will be included as part of those formal and informal information to show how business flows and tasks are being run and carried out within the organization. Information like job description and history are being documented will help the project team to make comparison on how the actual business processes to what has been documented (Island Consulting, 2000). With all the information gather above, the project team can analyse the impact the ERP implementation may bring, who are the personnel that will be affected by the implementation and the sort of training are required to ensure a smooth transition to the new system that is being implemented.
Ø Skill Analysis
Proper training program and schedule are very important in ERP implementation as well. With the implementation of a new system, majority of the operator / end user will need to go for specific job training to get them ready to work on the new system. In order to find who are the individuals need to be train, the project team need to work with all stake holders, usually departmental head to perform skills analysis. Those employees who might need to work with the new ERP system will be audited by their qualification, skills and experiences to allocate the most suitable and best position for each of them. And at the same time, to ensure the business process operates adequately, the company might need to hire new staff or external consultants. The analysis will produce a list of detailed results on appropriate personnel for each position, training required and the cost in training.
Case Study 1 – Marine Cargo Specialist (Kemppainen, Ilkka, 2000)
Marine Cargo Specialist is a relatively small global company, which provides marine cargo flow handling solutions and products. Their customer base mainly consists of companies like shipyards that provide services such as building of new ship, modernisation or upgrading and conversation of older ships for the ship owners or ship operators.
All the old existing operational IT systems were deliver, maintained or supported by the local IT departments and their local suppliers. No common standards were established for such systems, thus the decentralised information systems architecture made it very difficult to share information on a global basis. Global business activities are often delays due to unavailability of quality, accurate and timely information.
Due to the complexity of the new ERP system, problems started to surface gradually. The ERP project team did not place too much attention to these problems initially, as they are considered not critical. Instead, the main focus was on getting the system configuration completed and the system up as soon as possible. But to their dismay, for the potential users of the new ERP system, proper coordination and communication were fundamental. Soon frustration between the project and reference teams start to surface.
With the numbers of unsolved issues keep increasing; mistrust and frustration start to grow among the project team and reference team. And project team find it harder to get approvals from the reference teams for crucial design due to other outstanding unaddressed issues. Eventually the system configuration was not being able to be completed, due to inadequate information and resources. And there was a clear indication that the consultants hire did not had a true knowledge and understanding of the system. Majority of the external consultant were kicked out of the ERP project in the process.
The level of commitment and support for the project from the top management, started to diminish ad the project was clearly running into problems. CFO of the company as example, who used to be the true sponsor or supporter of the ERP implementation project, seem to be trying to move away from the project involvement.
In 1997, due to the result of ownership change in the company, a new board of directors together with a new company CEO was appointed. The new CEO evaluated all the projects carefully and appointed an external consultant to assist him. The new CEO clearly demonstrated and shows his commitment towards the ERP implementation. And with the CEO support, the ERP project was back on the agendas of the senior management. The new CEO even made it clear on his vision of having a more integrated business system with a common, shared values and culture. He even initiated a management development program to address all openly cultural and trust related problems. Thus after the adjustment of implementation methodology result in better match for the changed circumstances.
After so many struggles in the project, the implementation was now considered successfully amazingly, by not just the organization itself, but by other external parties from consulting companies as well as SAP.
Case Study 2 – WZM Werkzeugmaschinen GmbH (Benjamin R. Hoetzel, 2005)
WZM Wekzeugmaschinen GmbH (pseudonym name) is a German manufacturing company that specialise in producing tools for presses in the automotive sector. It has two production sites in Germany, which employs 120 people.
In 2004, driven by the fast expanding business growth and second plant being set-up. The company faced additional pressure to expand its production. But the growth also mean there was a need to redesign their business process with the implementation of a new ERP system in order improves control over the processes, and the need to reduce costs.
Resistance started to evolve as the project advanced. Especially from the key administration users, who were not willing to do their daily work with the ERP system.
Reasons for the resistance were clear:
Ø The computer experience of some of these employees who 50 years old and above were limited.
Ø Due refusal to abandon old habits, some employees are not ready to accept the change of their processes.
Due to changes in the workflow, there was strong resistance during the post-implementation phrase from the finance department, including the financial director.
Some employees for example are not willing to accept the new screen layout of the ERP software and it will be difficult to let those employees to abandon their old habits and adapt to the new system.
Without realizing the importance of this change, WZM Werkzeugmaschinen GmbH, started the project without a full time project leader to lead the project. Instead, tasks were divided to some of the employees on top of their daily operational work. Beside that, they engage the services of two consultants to assist and lead the project in the integration of the new ERP into the company workflow. To make things worse, the employees were also not convinced that the consultants were competent.
WZM Werkzeugmaschinen GmbH fail to identify what are the problems and evaluate actual needs, and be attentive to people and their social behavior before implementing and adapting a technical solution. The company also fails to provide proper support, education or training to its employees in the ERP modules. The finance department of WZM Werkzeugmaschinen GmbH for example, opposed the change heavily due the very fact that they lack the necessary skills for using the new ERP system.
In the case of WZM Werkzeugmaschinen GmbH, People focus was missing, which explain why their ERP projects fail.
This research paper has show that in order for any ERP system implementation to be successfully, good fully functional change management must be establish within the organization or company. Strong and committed support from the management, and a good change management strategy and plans are required for preparation of any existing business’s resources such as human resources and infrastructure to match ERP system needs and requirement.
There are various aspects that need to be considered when establishing change management. For example the nature or type of the business, size of the company and the geographical area of the business.
Rush implementation of ERP is not recommend as ERP itself is a complex system, which requires a lot of careful analysis or study as well as depth understanding before proceeding to implement. Without a proper change management planning in place, ERP implementation will cause disaster and big lost for the company.
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