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Enterprise resource planning systems, also called enterprise systems (ES) are among the most important business information technologies that emerged during the last decade. While no two industries’ ERP systems are the same, the basic concept of ERP systems is focused on standardization and synchronization of information, and as a result, improved efficiency.
The benefits of ERP systems include –
Coordinating processes and information
Reducing carrying costs
Decreasing cycle time, and
Improving responsiveness to customer needs
The decision to implement an ERP system is not made lightly. It is expensive, and it usually takes eighteen to twenty-four months to implement from the start of the process to when the first function goes live. A complete suite of functions going live can take three to four years, or more.
ERP Implementation
Without successful implementation of the ERP system, the projected benefits of improved productivity and competitive advantage would not be forthcoming. This creates trade off for decision makers to find causes and to manage the consequences. Literature suggests that adoption and implementation depends upon various factors during the course of initiation to benefits realization. These factors are influential and hence their understanding is critical to success.
Critical Success Factors
The following table presents 19 CSFs extracted from the literature and their dominant perspectives that are identified as imperative for successful ERP adoption and implementation. For example, Top Management factor is related to the stakeholders; therefore, it should be implemented by focusing on the Stakeholders perspective of ERP. These factors have been arranged in order of their importance in relation to each of the perspectives.
ERP Implementation – Critical Success Factors
ERP Perspectives
Critical Success Factors
Importance
Stakeholders
Top management commitment
High
Project Champion
High
Execution Team
High
External advisory support
Medium
Vendor Partnership
Low
Total end-user involvement
Low
Process
Business Process Design
High
Customization approach
Medium
Performance measurement and control
Low
Technology
Package requirements and selection
Medium
System Testing
Low
Organisation
Change Management
High
Effective Communication
High
Business vision goals and objectives
High
Training and education
Medium
Organisational structure and culture
Low
Project
Project Management
High
Budget-cost parameters
Low
Time
Low
Critical Failure Factors
ERP has been implemented all over the world by many companies but their high failure rates suggest that understanding and implementing ERP is a challenging task. The following nine factors are found to be critical in the failure of ERP implementations (A. Momoh, R. Roy, E. Shehab, 2010) –
Excessive customization
Dilemma of internal integration
Poor understanding of business implications and requirements
Lack of change management
Poor data quality
Misalignment of IT with business
Hidden costs
Limited training
Lack of top management support
Challenges in ERP Implementation
There may be various reasons for such rejection or unsuccessful conclusion to ERP adoption as discussed below –
Management may not be clear about the needs and requirement of IT system such as ERP that why and how they are adopting it or whether such a capital investment is needed or not.
A mismatch is created because most of the times managers do not understand the integration between their core business, IT processes, and firm’s positioning; they may not know about the role that IT can play to their organisations.
Management of the firm may not know that these new IT systems can bring multiple synergies or benefits to their company.
Firms may not have resources like access, skills, capabilities or dynamic capabilities to generate any tangible output from these systems.
Globally operating organisations many times use single ERP solution for all its subsidiaries. This can lead to problems in local subsidiaries such as over budget and time resources spending, lack of technical expertise and compromises in business process.
Many firms are not able to leverage already implemented ERP systems for exploiting new business opportunities arising with latest market developments. This creates falsehood of ERP being not successful especially to the top management.
Primary focus on adoption and implementation often neglects post-implementation maintenance and support from an early stage after roll out in the life cycle.
ERP Integration
The benefits of an ERP application are limited unless it is seamlessly integrated with other information systems. Organizations face many challenges in ERP integration –
The challenges of integrating various functional ERP modules
The challenge of integration with other e-business software applications
The challenge of integration with legacy systems.
The success of ERP implementation is the success of ERP integration.
Integration of ERP Modules
Packaged ERP software consists of many functional modules (production planning, inventory control, financial and HR). Organizations tend to install modules from the same ERP vendors in the initial ERP implementation. Not all companies will purchase all ERP modules from a single ERP vendor (SAP, Oracle, PeopleSoft etc.). The implementation of ERP systems could last many years. The integration of ERP modules could be either the integration of modules from different vendors, or the different versions of the modules from the same vendor.
Integration of E-Business Applications
E-business practice is the combination of strategies, technologies and processes to electronically coordinate both internal and external business processes, and manage enterprise-wide resources. E-business software systems generally fall into four categories: Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Supply Chain Management (SCM) and Knowledge Management (KM). To get the most out of ERP systems, ERP should be tightly integrated with other e-business software – Supply Chain systems, CRM, knowledge management, B2B exchange and ecommerce storefront on the Internet.
Integration with Legacy Systems
Over the years, legacy systems have accumulated vast amount of data vital to the survival, operations, and expansion of corporations and non-profit organizations. Integration of ERP systems with legacy systems is more complex than the integration of ERP modules and Integration of e-business Applications. It routinely requires the installation of third-party interface software for the communication between ERP software systems and legacy systems. Second generation ERP systems use relational database management systems (RDBMS) to store enterprise data. Data conversion from legacy systems to RDBMS is a often a time-consuming and tedious process. While most interface software provides API for ERP to access legacy systems, some vendors offer integration module that automates or accelerates the transformation of legacy application logic and data into reusable components with XML, SOAP, J2EE and .NET interfaces.
Cost of ERP Implementation
According to any accounting method, ERP investments are among the largest single concentrated investments in dollars and human resources in most industrial organisations. An ERP implementation generally has three cost phases –
Acquisition
Implementation, and
Post-implementation
Acquisition Costs
Initial planning and acquisition costs are a real part of ERP implementation costs. Most of these initial costs fall in the area of human resource expenses (people) due to the amount of time key staff must dedicate to carefully analyzing the need for an ERP system, making a decision to pursue the implementation, and then planning for it.
Implementation Costs
Once the decision is made to implement an ERP system, the development of the implementation budget can begin in earnest. A realistically developed and funded implementation budget that covers all components and aspects of the project ensures as smooth a process as possible and lessens to some degree the stress an ERP implementation places on staff. An appropriate budget will minimize the surprises of unexpected costs and the abrupt search for funds to cover these costs.
The following are the major cost components of an ERP system implementation –
Cost of new hardware: One major cost, usually, is the cost of new hardware, including network infrastructure, database servers, application servers, Web servers, disks, load-balancing switch, and storage and disaster recovery devices.
Cost of additional hardware: The more people there are who use the system on a daily basis, the more application servers will be needed. A quick response time requires more application servers, more memory, and a faster processor speed, among other components. To avoid system downtime, redundant database servers are needed to provide automatic backup when one server malfunctions. The cost of additional hardware must be balanced with how much the organization wants the new system to improve client services and business processes.
Software licensing costs: Software licensing costs include the ERP vendor software package and any third-party software the organization decides to include as part of the initial implementation. The ERP vendor software includes the functional software for human resources and student records as well as all the software components required to run the new system, including the database, system tools, operating systems, compilers, and network and integration software. Third party software is often purchased to enhance the functionality of the system.
Software maintenance cost: The majority of ERP vendors include a software maintenance cost component in their contracts. These maintenance costs generally vary between 18 and 24 percent of the initial licensing cost, depending on the level of maintenance the organisation requires. Software maintenance fees typically cover software patches, new releases, vendor help-desk support, user mailing list servers, and the right to attend a vendor’s user conference.
Hardware maintenance fees: Hardware maintenance fees are similar to software maintenance fees and cover many of the same support services that software maintenance fees cover, for example, vendor help desk, user mailing list servers, and patches and upgrades to operating systems. In addition, organisations should build in hardware replacement costs as part of the ongoing budget. The life cycle for most hardware is three years.
Staffing costs: A third significant cost associated with implementing an ERP system is staffing. To fully staff a project an organisation must consider internal staff assigned to the project (some think of internal staff as an indirect budget cost), backfill for these staff positions, and vendor or other outside consultants. The staffing needs of the implementation must be fully understood and proactive approaches to potential staffing problems must be taken.
Training Costs: Training project implementation staff on a new system is vital if the new system is to meet the institution’s implementation objectives. Vendor consultants usually provide hands-on training for key functional users and technical support staff. The cost of this training is usually included under consultant costs in the budget.
Customisation Costs: Customization of vendor software generally adds significant cost to an ERP implementation, and it is a cost that will repeat itself every time there is a new release of the software. Organisations must carefully consider the implications of customizing vendor software.
Post Implementation Costs
Staffing costs are associated with every patch, fix, new release, or new version of the system. If any modification was made to the underlying code, the code has to be recreated every time a new release or version is installed. As mentioned previously, there are ongoing software costs (such as when a new database is released, upgrades are made to operating systems and networking systems, or new third-party software is installed). Additionally, there are ongoing hardware costs as hardware is upgraded or replaced, and there are yearly hardware and software maintenance fees. Consulting fees continue as new releases and new versions of the software are implemented.
Knowledge Management Issues
The following table outlines the Main KM issues found in various stages of ERP adoption.
Life-cycle
Stage
KM Issues
Agenda formation
When the original idea to adopt ERP is accepted, preparations were made to facilitate adoption.
Team members with different knowledge backgrounds and expertise faced a challenge to externalize the embrained knowledge within the team.
Developing strong internal team bonds during the early phase appeared critical in facilitating knowledge sharing and creation in later phases.
Broader awareness was encourages as the wider community needed to be more actively involved during the design and adoption phases.
Design
Involves understanding ERP and organizational processes and fashioning a mutual fit.
Team focused on accessing the embodied and embedded knowledge distributed in the wider organization to capture knowledge.
There was a need to build relationships between the team and other BU members to understand the processes and improve chances that the various stakeholders would view the new ERP systems positively.
The project team accessed knowledge through developing a more open network structure that facilitated wider information flow.
Accessing distributed knowledge that was embodied and embedded across the organization relied on a variety of social networking activities that involved bridging with others across the organization.
Implementation
Involves configuring the IT system and introducing changes to organizational systems and processes.
Main challenge stemmed from need to change user’s knowledge and encourage them to share knowledge with each other.
The team managed to surface and change some of the deeply embedded and encultured collective knowledge through social interactions to remove boundaries between functions.
Team integrated knowledge through mapping of information, processes and routines of the legacy systems into the ERP modules with the use of conversion templates.
Team managed to encourage users, using a participative policy, to identify tacit knowledge within their work processes through informal discussions and numerous brainstorming sessions.
Fostering social relationships among users was found to be crucial to the success of ERP implementation
Appropriation
ERP system is fully embedded within the organization so that it is accepted as a routine.
A knowledge-based hub (CSC) was formed to codify some of the knowledge about ERP system use and encourage the sharing of knowledge and experiences in facilitating the ERP process.
Knowledge-enabling structures contributed to the ERP systems in facilitating the development of organization memory and improving structural integration across the organization.
The integration of internal and external ERP processes may create new barriers that could hinder future cross-functional knowledge integration unless prior personal relationships are established.
Overcoming ERP Implementation Challenges
In order to overcome the challenges and objections to ERP implementation, first and foremost, the following aspects of the system need to be carefully considered during implementation –
Function: The functions of the ERP system should be well defined to cover the company’s necessary business functions. It is also important to choose the right software considering whether or not it can support the defined functions as well as its functionality.
Subjective norm: All the members in the company should be encouraged to use the ERP system because their use can increase the company’s business value and productivity.
Output: To make the ERP system more useful, the company should focus more on enhancing the quality of output during its implementation, especially in management and measurement reports.
Perceived ease of use: The ERP system should be easy to use. A complex system decreases usefulness, which also make users reluctant to work with. To make the system easier, many researchers recommended that it should be carefully designed to be user friendly, considering screen design, user interface, page layout, help facilities, menus, etc.
Result demonstrability: The company should clearly define what positive results can be expected from the use of the ERP system before or during ERP implementation. This action can make the system more useful, and help employers understand why they should use the ERP system.
In order to ensure a successful implementation of the ERP system, the following model is proposed –
Description of Variables in ERP Success Model
Variable
Explanation
Output
Quality of the system output including management and performance report
Job relevance
An individual’s perception regarding the degree to which the target system is applicable to his or her job
Image
The degree to which use of the system is perceived to enhance one’s image or status in one’s social system
Result demonstrability
The tangibility of the results of using the system, including their observability and communicability
Compatibility
Quality of the system in exchanging data with other systems
System reliability
The degree to which the system ensures the delivery of data to the users
Internal support
The degree of the company’s internal support for the ERP implementation project (top management support, training, and project planning)
Function
The functionality of the ERP software and its matching with the company’s necessary business functions
Consultant support
The degree to which consultant support helps to make ERP implementation successful
Subjective norm
The person’s perception that most people who are important to him think he should or should not perform the behavior in question
Perceived usefulness
The degree to which a person believes that using a particular system would enhance his or her job performance
Perceived ease of use
The degree to which a person believes that using a particular system would be free of effort
Intention to use
User behavior in intention to use and actual system use
ERP benefits
The degree of user satisfaction with the ERP system and Individual and organizational impacts from the ERP system
Project success/progress
The degree to which the implementation project was completed on time, and within the budget as initially planned
Project success/quality
The degree of the quality of the ERP system and matching the scope of the ERP system with the company’s needs
