The present business environment is changing dramatically and is mainly characterized by increasing competition, rising customer expectations, expanding markets and shorter product life cycles. This has put tremendous pressure on companies to reduce costs across the value chain and inventory, provide better customer service and reliable delivery dates, improved quality and efficiently manage the demand, production and supply across the globe. In order to remain competitive, in the light of these pressures, firms are exploring different ways of doing business and also realizing the importance to improve their internal processes and practices. It is crucial for organisations to share timely and accurate business information with their customers, suppliers and distributors and in order to meet this objective firms are aggressively using enterprise resources planning (ERP) systems.
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ERP system provides two main benefits. One, it provides a unified enterprise view of the organization. The entire information from human resources, accounting, finance, sales, inventory, logistics and supply chain management are integrated by ERP. This integration allows firms to respond rapidly to changing market and competitive forces, efficiently manage supply chain and inventory thereby realizing cost savings. Second, the ERP acts as a central information database that allows information to be stored, processed, analyzed and monitored. This prevents information and communications gaps thereby allowing better co-operation and co-ordination across the various departments and functional units in an organization (Umble et al, 2003; Bingi et al, 1999). The ERP system, by providing timely and accurate information, aids in the strategic decision making functions of the top management.
Although the ERP system can be considered as one of the strategic tools used by organisations to realize their business goals and objectives, its implementation is a cause for concern. ERP systems are highly complex systems and its implementation is usually a difficult and costly exercise fraught with risks. This essay evaluates the global ERP implementation at Tektronix, a manufacturer of electronic test equipments. The essay begins by briefly outlining the state of affairs at Tektronix prior to ERP implementation and can be considered as driving factors behind the adoption. The implementation has been analyzed in different stages – business plan and Vision, requirements analysis, software selection, implementation planning and implementation. Such an approach will provide more clarity about the adoption process, the critical success factors and risk mitigation.
NEED FOR CHANGE AT TEKTRONIX
Tektronix, in spite of being the world leader in most of the businesses that it was catering to, was limited in terms of flexibility of its operations and growth opportunities. In order to overcome these limitations the top management felt that the organization had to be restructured starting with information technology (IT) infrastructure.
The IT infrastructure at Tektronix was a complete mess. They had over 450 legacy systems only in the United States, apart from the systems used in the 60 countries in which they were operating. There was no standardization of these systems or business processes globally. Inventory tracking was a problem and sales order processing had to be carried out multiple times in different systems which resulted in increasing processing time, reduced customer service and order errors. The financial systems were not very efficient with multiple charts of accounts across the company and therefore taking weeks to close the books at the end of the month. It was also challenging to retrieve business performance information such as the profitability with regards to each product or division. It can be inferred from these business challenges that the driving forces for ERP adoption at Tektronix were the need for business process integration, common template for IT, unified enterprise view of information, operational cost savings and increased customer responsiveness.
BUSINESS PLAN, VISION, TOP MANAGEMENT SUPPORT AND COMMITMENT
One of the most critical success factors for any ERP implementation is the creation of a clear and compelling vision identifying goals and objectives along with their alignment with information systems strategy (Umble et al, 2003; Finney & Corbett, 2007). Along with this vision, the business plan should provide the justification for the investment based on reliable data and reasonable assumptions (Nah et al, 2001; Kraemmerand et al, 2003). In case of Tektronix, the vision was provided by the CFO and it stressed on three key aspects -seperablity of business, leveraging shared services and a ‘plain vanilla’ system, where possible. With regards to ERP investment justification, Tektronix did not spent time carrying out detailed return on investment (ROI) analysis. The decision to adopt ERP system was based on the judgment of few senior managers, in particular the CFO. One of the risks of such an action, and which did occur, is costly implementations. A detailed budgeting and ROI analysis would have put a control on the cash outflow for the implementation.
Top management support and commitment is another critical success factor and is required throughout the implementation by way of monitoring progress and providing direction (Murray & Coffin, 2001). They play a key role in the allocation of resources apart from legitimizing the new goals, objectives and business process changes. Their support also helps to reduce user resistance which is likely to be present in large transformational projects such as an ERP implementation (Nah et al, 2001; Sumner, 2003). In case of Tektronix there was continuous support and approval from the CFO, divisional heads and senior managers during the project life cycle.
Most of the times, the reasons cited for the abandonment of ERP projects is because firms realize, midway, that the new system does not support some of their business processes (Koch et al, 1999). One of the reasons for this is the failure to conduct a detailed requirement analysis prior to ERP adoption. As part of this analysis, functional requirements should depict the various data requirements, process linkages and work flows. In Tektronix implementation, it is clear from the case study that the management had not carried out detailed requirement analysis prior to ERP adoption. Although they managed to have a successful ERP adoption, this was a very risk approach.
The software selection process at Tektronix can be analyzed from three key aspects – ‘buy-versus-build’ decision, the software selection process and finally, the single vendor approach to enterprise systems integration.
Firms adopting an ERP system face the decision to whether build the system in-house or to purchase packaged software and this depends on a number of factors, one of which is the level of technical expertise and ERP development knowledge existing in-house (Sawyer, 2000). Firms involved in the in-house development of the ERP systems face the risk of cost and schedule overruns and in some cases the end system not meeting the user requirements (Lucas Jr et al, 1988). The decision to go for packaged system, in Tektronix, can be considered to be a wise decision because of two main reasons. Firstly, Tektronix had no experience in developing IS systems. It would not have been possible for them to develop a robust system with the same efficiency as a package software developer, who could leverage from its R&D and varied implementation experiences. Secondly, Tektronix did not have the necessary technical skills, which was also evident during the implementation stage.
With regards to software selection process, Tektronix spent very little time. The decision to implement Oracle ERP solution was based mainly on the experiences of the CFO and CIO. Very little resources were spent in evaluating the alternatives in terms of features and costs. An ERP system, by default, will impose considerable influence on a firm’s strategy, organization and culture. Some of the ERP failures can be attributed to the incompatibility that exist between the new system’s technical capabilities and needs vis-à-vis the organization’s existing business processes (Umble et al, 2003). It is therefore critical that the ERP selection process is conducted with great care.
The selection between the single vendor and best of breed approaches to systems integration is debatable. Both the approaches have risks and are considered to be complex with regards to their scale, scope and business process reengineering requirements (Shehab et al, 2004). The best of breed strategy can offer the best functionality for each module, but its implementation is complex because of the need for establishing interfaces between the disparate systems (Bingi et al, 1999; Shehab et al, 2004). The cost and the need for extensive training to maintain these interfaces is also likely to be high (Light et al, 2001). In case of single vendor strategy, it might not have all functionalities but it will easier to implement (Mabert et al, 2001). The other benefits include simplified contracting and relationship management as well as a single point of control for all software related problems (Shehab et al, 2004). Taking into consideration Tektronix growth strategy as well as the scale and complexity of the ERP implementation, it can be argued that the single vendor strategy seemed suitable. It mitigated, to a great extent, the integration, maintenance and upgrade related risks likely to be present in multiple package implementations.
IMPLEMENTATION PLANNING AND IMPLEMENTATION
An important activity, during implementation planning, which plays a crucial role in the success of an ERP implementation, is the creation of a steering committee consisting of senior management and end users (Somers & Nelson, 2004). The role of the steering committee is mainly to determine the project scope and objectives prior to implementation and to ensure adherence to it (Parr & Shanks, 2000). In case of Tektronix, the steering committee refined the company’s vision and developed the global business model along with business process change and guiding principles in order to provide clear direction for the implementation. The steering committee’s portrayal of top management support and commitment was also instrumental in overcoming resistances.
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Effective project organization and management is another critical success factor in the adoption of an ERP (Umble et al, 2003). It is also necessary to ensure that the project team is well balanced consisting of members from different divisions or functional units possessing both business and technical skills (Finney & Corbett, 2007). In case of Tektronix ERP implementation, there was an efficient project management team consisting of representatives from different functional and geographical locations. Apart from this, the members had a combination of business and technical skills which made it easy for to identify and resolve issues quickly. In this context it would be appropriate to stress the importance of a project champion; who oversees the entire implementation process, helps to achieve consensus and plays a major role in handling organizational change. This project champion should be a high level executive with transformational leadership qualities and should have the authority to set goals and legitimize change (Nah et al, 2001; Ngai et al, 2008). The CFO as a project champion can be considered one of the success factors behind Tektronix implementation.
In case of large scale ERP implementations, most companies fall into the trap of a big bang seduction. Introducing the ERP system at one strike can be extremely risky and can affect the success of the project (Vogt, 2002). The overall strategy used by Tektronix for the ERP implementation can be considered to be incremental approach. It was a single change program consisting of several waves or implementations with each implementation lead by a senior executive and addressing change in a particular division or geographic region. Although the different locations were managed independently, they were monitored by a central project team to ensure a timely and smooth change. The advantage of this was that it gave regular feedback regarding the implementation thereby allowing fast corrective measures in case of any deviations, provided vital learning’s which could be used in subsequent installations and allowed flexibility in project scheduling. Apart from this, each successful implementation acted as a “proof of concept” (Watson & Haley, 1998) for the ERP, which helped to keep the team morale high as well as to ensure continued senior management support and commitment.
In case of global rollout, again the incremental approach was followed, with the initial implementation being carried out across Europe. This allowed the project team to learn and address majority of the global implementation challenges, which proved beneficial in the subsequent implementations. Although the overall approach was incremental, it was interlaced with big bang approach where possible. The incremental approach helped to overcome the challenges arising from geographical distances and the lack of business synergies that existed between some countries. It was also instrumental in managing the language difficulties that existed in some countries.
One of the risk factors associated with an ERP implementation is the failure of adopting company to redesign the business processes to align with the new ERP system. Rather than redesigning, these companies customize the software to fit the existing inefficient business processes, leading to cost overruns, delays and project failures (Sumner, 2003; Ngai et al, 2008; Somers & Nelson, 2004; Nah et al, 2001). These risk factors were addressed to great extent in the Tektronix implementation. As part of business process redesign it carried out a number of activities. It standardized the charts-of-accounts, eliminated existing complex transfer pricing practices and changed the financial transaction processes. Apart from this, as part of organizational restructuring all European country managers were removed, English was declared as the single language for business within Tektronix and local business practices were standardized. With regards to customization, Tektronix undertook it mainly because of two reasons – the differences in business operations between the divisions necessitated it and the Oracle ERP system did not have all the functionality required; a fallout of not carrying out the software/vendor process diligently.
Change management programs are an important part of organizational transformation processes such as ERP adoption. Although it is mentioned here under planning and implementation, it is usually initiated at the start of the project and continues throughout the project lifecycle. An enterprise wide ERP implementation such as at Tektronix is likely to cause changes to the organization’s culture and structure (Nah et al, 2001). If users are not prepared for such a change, the likely consequences will be user resistance, chaos and denial. To avoid such a situation the users need to be involved during the design and implementation of the ERP system. This should be augmented with education, training and re-skilling, which will help them in understanding the need for change and the associated implications on their job (Umble et al, 2003; Al-Mashari et al, 2003; Kraemmerand et al, 2003). In case of Tektronix, there are indications from the case study that the change management was not handled effectively. One instance was the resistance to change faced during the implementation of Order Management/Accounts Receivable (OMAR) at CPID division and the project team having to reiterate the need for change. Another instance was during the implementation of OMAR at VND division. It was post implementation that VND realized the level of resources and the skill set required. Although VND managed to have a successful implementation, this could have been risky leading to user resistance and chaos.
The insufficient training of the end users is considered as one of the risk factors associated with an ERP implementation (Sumner, 2003). Based on the approach of using power or super users, it can be argued that Tektronix followed cascaded training to mitigate the risks arising from insufficient training of end users. The risk arising from the lack of internal expertise, technical and functional, was mitigated by the deployment of external consultants. In order to avoid the risks and surprises arising from the integration of complex business operations with the ERP system, Tektronix pursued a vigorous testing program simulating live work environment.
LESSONS LEARNED FROM THIS IMPLEMENTATION
There are some key learning’s, based on the above evaluation. Firstly, it is necessary to carry out a detailed requirement of analysis prior to an ERP implementation. This will ensure that a proper understanding of existing business process and benefits that can be realized from the adoption of the new system. Secondly, the ROI analysis and budgeting apart from providing the economic justification for the project will also help to control the implementation costs. Third, in case of software/vendor selection sufficient resources must be spent in comparing features and costs between the various alternatives. This can avoid customizations at a later stage. In their article, Umble and Haft (2003) recommends a selection process which includes identification of potential vendors and evaluation criteria, creating the request for proposal, evaluation of the proposals, choosing the vendor/software, negotiation of contract, pre-implementation pilot test and finally, establishing service level agreements. Fourth, the presence of a steering committee consisting of representatives from the senior management and end users along with the appointment of a project champion can have considerable impact on the success of the implementation. Fifth, the lack of business process reengineering coupled with excessive levels of customizations can lead to cost overruns, delays and project failure. Lastly, incremental approach is suitable in the case of large scale ERP implementations as it provides feedbacks and quick gains which acts as a proof of concept along with the learning which can be utilized in subsequent installations.
It is clear that although the implementation at Tektronix was expensive it was a successful implementation. This was due to the presence of a number of critical success factors along with risk mitigation approaches that were followed. The presence of executive sponsorship during the project life cycle, along with a transformation leader such as the CFO as the project champion was critical to the success of this project. In terms of global rollout, avoiding the big bang seduction and following the incremental approach was a wise decision. However, there are few areas such as the requirement analysis, software/vendor selection process and change management where the project team did not carry out detailed analysis or execution. Focus on some of these areas could have made avoided some of the problems that were faced during the implementation. In a nutshell, the successful adoption of ERP at Tektronix helped it to overcome many of the inefficiencies which were present earlier and in the process enabled it to become much more agile and flexible.
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