Analysis of ERP Systems: Implementation and Critical Success Factors

Introduction

Globalization has done a lot to revolutionize businesses and organizations. The term globalization has emerged as an offshoot of the high-technology tools that are made available today due to the Internet. With just a computer with internet connection, one can connect with the rest of the world that has an internet connection as well. Rules of business have changed with the Internet in the communication, marketing, and other functional areas of business.

Globalization is the interconnectedness of our computers. Yes, it is not only in the ideas of philosophy that we usually discuss the ‘interconnectedness of the environment’, but technology has done this physically and virtually. One can enter the virtual world or the cyberworld, and there conduct business, do personal things, or just play and do what one wants to do. Distance is not anymore a problem.

Moreover, organizations have to reorganize, reevaluate and reprogram all the outdated functional programs and activities, align and realign them to the present trends, and to their external environment in order to improve and be competitive. Personnel and field people, ordinary employees, and everyone involved in the day-to-day activities have to be refocused and reoriented on the new tools of business. Organizations not updated with the latest software and technology will lag behind, and will have to close down. In a sense, the people who are involved in business have to go or abide with the times; this means go with technology or even follow rules along with the technological tool, such as the Information Technology, being applied with the rest of the other functions.

Information Technology has created new paradigm shifts in organizational processes. Technological advancement and continuous innovations have allowed organizations and businesses to react to changes in the global competition. IT applications provide easy handling in the strategic operations and other supervisory and managerial functions of the organization. But a software package has to be studied and learned, and constantly monitored for its efficiency. It has to be maintained because continuous usability can make things to malfunction. This malfunctioning may involve the entire system, the people, and other activities surrounding its implementation.

External and internal environments in organizations are becoming complex; thus they are handled with a globally-oriented brand of management, and with the aid of Information Technology tools or computer software. Corporate management is now handling a global-scale brand of management, requiring a different kind of strategy, much distinct from traditional management. While traditional management is a thing of the past, the new management handling a global organization handles the same brand of people, but with a different orientation, culture, organization rules, market, environment, and so forth.

These realities firms have to face:

  • A full 70 percent of the largest firms in 1955 are dead, literally;
  • As many as 10 percent of the 1980 Fortune 500 have disappeared;
  • Only three of the top ten companies in the world in 1972 remain in the top ten today;
  • The average life expectancy of a large industrial company is 40 years;
  • Employment and security are not in firms’ vocabulary nowadays; this is because companies downsize, cut employment, merge, etc.
  • Investors and Wall Street are demanding that companies take action by rewarding cost cutting and downsizing (Mische, 2000, p. 3).

All of the above are realities. Globalization, technologies… what about the global economic meltdown? What about collaborations, merger and acquisitions, joint ventures?

The advancement of technology is so fast; it does not only make things fast-paced but innovations are being applied almost every minute. There is what we call Web 2.0, or the application of web-enabled kind of interaction between customers and businesses or organizations. These things become so easy and handy, so to speak, that they can be inputted into the data base of companies. Thus, they become a part of the system. With ERP, activities with corresponding data/information are made available to almost every function of the organization.

Lipsey (1999, p. 6) says that new products have been invented as a result of technological advances and new ways to produce them.

The many changes in the system demand new ways to integrate the functions in the organization. System integration efforts, a function of ERP, are being performed in almost every organization as businesses and organizations have become more competitive with the onset of globalization and Information Technology. Motivations to integrate revolve around technological issues and globalization. Organizations however have limited options, and have to migrate to newer technologies (Mische, 2000, p. 3)

This paper deals on Information Technology, more specifically, the ERP systems applications, its successes and failures, and the underlying circumstances surrounding the many usages the systems have been from the time they were introduced as operational tools for businesses and organizations.

The role of IT has become much more dominant from both strategic and operational perspectives (Jenson and Johnson, 2000, p. 29). ERP systems are IT innovations or computer software that is becoming popular among business organizations.

The literature that we have accumulated and used in this paper includes a lot of studies over ERP applications, and they provide information on the successes – and failures – of ERP. We will discuss the definitions for the grounds of successes and failures that are stated here. Factual instances of these successes and failures will be discussed.

Background

The emergence of ERP can be traced to the 1960s when there were technological advances and new systems used by industries in the conduct of inventory. These were being implemented through a computer software. In the 1970s, more and more technological innovations were introduced with automation in the production and inventory, scheduling and planning.

In the 1990s, the MRP was extended to cover areas other functional areas and departments including activities on financing and human resources management, and with many aspects of project management. Later, MRPII systems became less relevant for various reasons, thus was born the ERP which differs largely from MRP (Sammon and Adam, 2004, pp. 2-3).

Since the emergence of these materials management have evolved into new software packages, there has to be studies and analyses on materials management technique in order to view the merits of using combinations of the techniques. (Grabski et al, 2003, p. 1991)

Another thing is the shift from the traditional to a new software. Oliver and Romm (2002, p. 44) state that ‘the general question of how organizations shift from one technology to another is addressed by both economic theory and the theory of innovation.’ We can consider this shift as motivated by the company’s desire to lower cost and to go forward, although such lowering of costs is really questionable.

O’Gorman (2004, p. 22) traced the development of materials management techniques from the industrial revolution to present day ERP systems, by examining the role and function of the more significant materials and inventory control techniques.

During the Industrial Revolution, there was already the need for materials control, and this need evolved through the centuries because of the complexities in businesses and organizations. O’Gorman (2004) argues that the road to ERP is a long one, stating that its origins can be traced back to the Industrial Revolution and the initial attempts at optimizing industrial activities (p. 25).

Producers in England during the Industrial Revolution made use of manufacturing and innovation – instead of exporting their wool and grain, they processed these materials to gain more. Machines and steam-powered engines soon were invented to process more and more goods. Industrialization produced a lot of commodities in substantial quantities. The market was endless with reduced prices, and commodities became more affordable to the masses. And so began inventories and the need for a systematized production and processing of these goods. (O’Gorman, 2004, p. 25)

Enterprise Resource Planning started with the integration of production systems and other functions in purchasing, financial, human resources, and many other functions (Shi and Halpin, 2003, p. 214).

It all really began with the complexities associated with production where a lot of labor resources along with underlying functions and activities were involved. They have to be integrated to simplify production and other departments.

Definitions

ERP is a comprehensive application that uses a software to provide organizational support. The tools have a data base, and from this data base, various tasks requiring different inputs from all departments and functions of the organizations are systematically arranged and allowed to function well with the personnel, including managers from top to middle- and low-level personnel, provided ready roles and functions.

Nah et al. (2003, p. 5) described ERP or Enterprise Resource Planning as a technological tool using a software to help management of a particular company to efficiently and effectively use their resources for the integration and simplification of the different functions of the industry. In other words, this is an IT tool for information processing and communication in the different functional areas of the organization.

Furthermore, an ERP system is a computer software that can be configured to make the functions or job of the different department manageable and simplified. Its implementation requires the entire organization to reengineer and change (Holsapple et al, 2005, p. 325). There is the capability to share knowledge and the role of IT alignment between ERP and e-business project (Ash and Burn, 2002, p. 33).

ERP systems integrate the various transactions that carry voluminous data and information of business all throughout the organization (Markus et al., 2000, p. 245).

We can understand that ERP is a comprehensive tool for the organizational functions. The systems involve almost all aspects, internal and external, including firm-customer functions, relations, and interactions.

The roles and functions attributable to ERP are so vast it would seem this was impossible decades ago. The areas in the industry covered by it encompasses such functions as planning, or while a product is still in the process of being manufactured, and then comes accounting and financing; human resource and the many aspects of management are also covered (Rashid et al, p. 1).

Wang and Nah (2002, p. 2) state that the ERP systems can examine and compare the inputted data and transform them into valuable information so that companies would be carefully guided in their management.

Facts about ERP

Industries now find it inevitable to apply ERP in their systems. The purchase and strategic use of ERP Systems by organizations has been offered as the solution to surviving in the emerging e-based economy (Alvarez, 2002, p. 63).

However, there are successes and failures in ERP applications. And these successes and failures are due to various circumstances.

It cannot be denied that during the early years of its implementation or introduction into the different organizations’ operations, insurmountable problems were encountered by those organizations’ management. These problems were first met during the actual implementation. Parr and Shanks (2000) reveal that most IT projects encounter problems in the course of the operation, but in the case of the ERP systems, the problems really are abnormal (p. 289). Why is this so?

We can cite examples of large firms which have abandoned or have gone bankrupt in their implementations of the ERP.

Fox Meyer Drug was a multi-billion dollar drug company when it announced its bankruptcy in 1996. The company complained in a suit that one of the causes of its bankruptcy was the failure of the ERP system to deliver the necessary benefits the company was supposed to attain. Out of this, the company sued the owner of the ERP software, SAP; thus began a multi-million lawsuit that lasted for years.

Another supposed ‘victim’ of possible wrong implementation of ERP was Mobil Europe invested millions of dollars and had to abandon it afterwards. There were many other improved and successful companies that experienced problems as a result of their ERP implementation projects (Sammon and Adam, 2004, p. 2).

Reasons for the failure of the ERP applications are thoroughly discussed in the next sections of this paper. However, it is significant to state here that one of the reasons for the failure in using ERP may be because of long use of the software package. The software becomes more unserviceable with age (Oliver and Romm, 2002, p. 47). Maintenance therefore is one of the options, or maybe direct replacement, reorientation and new functional usability features.

Some organizations report success and significant process gains. However, it is apparent that implementation of the software is really not an easy task, while others have found out that implementation of ERP can become a recipe for disaster (Grabski et al, 2003, p. 1991).

But what about the initial stages of the operation or implementation of the IT project? Advantages may surpass disadvantages, although this may be refuted by some with skeptical thoughts due probably to negative experiences. What is very relevant here is the topic on implementation.

ERP Implementations

Implementing an ERP system is a rather laborious task involving processes that begins with planning, followed by the formation and installing of a project team who will be the one to enforce the project stipulations. (Parr and Shanks, 2000, p. 290). Implementation is really problematic for many organizations, despite the software’s potential and relevance for learning and company strategies (Holland and Light, 2003, p. 1986).

Furthermore, the implementing process involves several phases that have to be followed step by step and by a trained team of qualified staff. The team has to be meticulous and must deviate from the standard settings provided by the supplier. The main business options revolve around the issue of compromise over fitting the system to the organization or vice versa (Holland and Light, 2003, p. 1987).

Industries can look to various models in the implementation process. Analyses of these implementations are provided by theorists and authors.

There are doubts and questions that have to clarified in the implementation process, more so if the company is applying it for the first time. There has to be meticulous examination or investigation of the situation if is a transition from the traditional to the new ERP systems.

The management approaches have to be distinct from the other processes as previously enforced by other MIS projects. Sumner (2003, p. 1995) raised issues that have to be answered by the supposed user:

  • What problems did they encounter in using MIS? What should be avoided and what should come out in this new program?
  • What are the major problems associated with implementing a huge industry using a computer software?

There are other questions of risk such as: What other factors that they are afraid will be encountered in this new ERP project? What about the previous project, can this be avoided in this new software? (Sumner, 2003, p. 1995)

According to Parr and Shanks (2000), the Bancroft et al (1998) model has five phases which involve terms like “focus” (to focus on a particular subject); then we have “as is” (to retain some aspects); “to be” phase; “construction and testing” and the “actual implementation” (p. 290).

To explain further these five phases, the “focus” phase is done with key activities being implemented for the selection of the committee to monitor the operation and success of the project, and development of principles and creation of the plan. This is the initial stage that can be summarized here as the preparation.

The “as is” phase includes the installation and mapping of the ERP and allowing the project team to get oriented with the new features of the project. This is preparing the team who are in charge of implementing the plans for the ERP systems.

The “to be” phase includes the different designs that are being implemented to suit to the user specification, and communication with the other functional areas.

The “construction and testing” phase involves the putting together of a configuration that can hold the interfaces, reports, and other data in the project, and testing all the installed configuration.

The phase on the “actual implementation” could cover the other complex structures including networks and desktops and possibly allowing the user to get used to the new system (Parr and Shanks, 2000, p. 290).

There is another implementation model which is similar to the Bancroft et al model, and this is the Rose (1998) model which also involves five phases, and these five phases are: “design, implementation, stabilization, continuous improvement and transformation” (Parr and Shanks, 2000, p. 290).

It was explained that the “design phase was the planning phase whereby critical guidelines and decision making for the implementation were being done, and the other phases covered some of the phases in Bancroft et al’s (1998) phases which were the ‘as is’, ‘to be’, ‘construction and testing’ and ‘actual implementation’” (Parr and Shanks, 2000, p. 290).

Furthermore, another model mentioned by Parr and Shanks (2000, p. 291) was developed by Markus and Tanis (1999, quoted in Parr and Shanks) which involved a “four-phase ERP implementation: chartering, project, shake-down, and onwards and upwards. The model’s activities include software configuration, system integration, testing, data conversion, training and roll-out” (p. 291).

The onward and upwards phase is almost similar to Ross’ (1998) continuous improvement stabilization phase.

With the difficulties of ERP applications and the high cost of implementation, organizations still insist on using them and applying them to their operations. Why this euphoria despite the many negative feedbacks? As mentioned, advantages surpass disadvantages.

We can enumerate these advantages of ERP applications (Oliver and Romm, 2002, p. 47):

  • ERP allows flexibility to users because they possess superior data retrieval capabilities due to their integrated approach and being based on a common relational data model.
  • ERP systems are primarily based on the client/server architecture which provides a modern desktop user interface.
  • ERP systems are used for Business Process Reengineering, which incorporate an increased capacity for electronic processing of data in comparison with that available in legacy systems. Other users have found the application of ERP opportunities to create new procedures that may eradicate inefficiencies. Moreover, ERP systems, it is believed, are agents of changed processes.
  • With the IT package and the Internet, customers can have easy access to the websites and air their suggestions and queries on company products and services.
  • Maintenance of this particular software package is not so difficult.
  • ERP systems have received favorable reviews from journals and publications. Larger organizations are implementing information systems that link the supply chain to other organizations’ data bases, or what we call data base sharing. More businesses are integrating processes.

Jenson and Johnson (2000, p. 30) state that there are enterprise systems integrator such as SAP AG (Waldorf Germany) with approximately 30 percent of the ERP market. Some of the major players with software products are from Oracle, PeopleSoft, Baan (now wholly owned by Invensys plc, London, England), and J.D. Edwards.

Over the past years, ERP system adoptions have become popular due to many reasons. Nah et al (2000) describe them as factors critical to successful ERP implementation.

  • Organizations and businesses apply strategies such as reengineering best practice. This is because in the ongoing globalization, they encounter pressures from respective industries and so they hurry to make changes in their core practices to meet customer demands, but also find ways to lower costs in their operational activities.
  • Globalization has really altered many of the businesses’ activities. Global or multinational operations have to be introduced and conducted. Companies have to find places or countries that offer lower costs in labor and capital. In other words, globalization has offered many challenges and even opportunities for firms. Jenson and Johnson (2000) says that ‘ERP software has been designed to multicurrency and value-added tax issues… and provides integrated, centralized database that can accommodate distributed transaction processing across multiple currencies’ (p. 30).
  • According to Michael Hammer and James Champy (Jansen and Johnson, 2000, p. 31), one of the causes of broken systems is process fragmentation, which means many of the organizational processes are spread across functional boundaries. With this scenario, employees and departments interact to complete a transaction, or that coordination is not attained. No one knows the status of a transaction, and there is duplication in the data entry and databases. Because of such a situation, some individuals and departments attempt to impose control on their portion of the transaction. ERP corrects this situation by imposing order and discipline in the system. (Jansen and Johnson, 2000, p. 31)

ERP solutions are “best practice”. This claim is based on the long development period of a dynamic program by different organizations (Jenson and Johnson, 2000, p. 35).

Additionally, with ERP solutions, integration across departments are greatly improved; this includes core business processes, proven and reliable software support, and over-all enhanced competitiveness. And upgrading to industry standards may not be that difficult because usually ERP vendors would not hesitate to help their customers (Jenson and Johnson, 2000, p. 30).

Continuous improvement can deter negative effects. Because of their being complex, “Management Information Systems (MIS) applications and ERP software usability have to be improved with consistent design, affordance, integrated search functionality and friendly interfaces” (Bueno and Salmeron, 2008, p. 515).

Case Study

Doyle and Adam (2004, pp. 47-49) have illustrated the importance of a reliable IT software in the development and success of modern businesses. They made mention of a longitudinal analysis conducted in 1995-2001 involving Topps Ireland Ltd.

Topps Ireland Ltd. is a subsidiary of a large U.S. company that has tapped the children’s segment of the European market. Topps acquired Pokemon-branded products, which made the company successful in the business.

The emphasis of the business changed substantially from a manufacturing-focused organization to importation of products from Asian countries such as China and Thailand. This was a change, due probably to globalization and outsourcing. Before, less than 20% of their products were imported. With outsourcing, their sales growth skyrocketed, and there were more increases in import/export activities.

The company Topps acquired an ERP system, and it was described as state-of-the-art ERP, the purpose of which was to accelerate the operations and aid in formulating decisions for the company’s strategies and aims. Topps then evolved into an internationally successful company as aided by the ERP system. (Doyle and Adam, 2004, pp. 47-49)

Another example of a successful business that applied full integration of ERP is Colgate Palmolive Company, a global business with a huge sale of consumer products. Colgate Palmolive has extended its branches up to North and South America, the European countries, other parts of Asia and the Pacific, and South Africa. In 1993, the company introduced the ERP systems into its many functional areas by using the SAP R/3 that helped the company simplify its operations especially in the inventory and delivery of consumer products, which was now reduced from 12 to five days.

The company then attained tremendous increase in international sales. (Wang and Nah, 2002, p. 6)

Using Critical Success Factors on ERP

Bueno and Salmeron (2008), in their paper entitled “TAM-based success modeling in ERP, voiced concern that ERP systems are complex tools thereby providing negative impacts to the users. They focused their paper on the various studies that identified the reasons why ERP was acceptable by different companies and organizations. Technology Acceptance Model (TAM) was a program to test ERP.

Bueno and Salmeron (2008) used the so-called CSF here identified as:

  1. top management support,
  2. communication,
  3. cooperation,
  4. training, and
  5. technological complexity.

CSFs, according to Bueno and Salmeron (2008), are those areas which ensure competitive performance for the organization. Using CSFs in ERP implementation, we have the following explanation for the five categories:

  1. “Top management support – this includes ERP package tools selection, management and leadership, vision and planning, cultural and structural changes management and performance evaluation” (Bueno and Salmeron (2008, p. 516). The authors hypothesized that this has a positive effect on the system. The support that comes from the top echelon of the company is a big help for CSF. But considering the management and leadership factors, we can prioritize this as the most important. Vision and planning, cultural and structural can never be given little attention, in a manner of speaking.
  2. Communication – increases good relationship between the different functional areas, thus conflicts are resolved. The authors likewise hypothesized that coordination among the different functions is beneficial on the success of the ERP systems. Different authors have agreed that communication can identify the problems among the different groups or departments, allows correcting some activities that are not in line with the planned projects (Bueno and Salmeron, 2008, p. 518).
  3. Training – As in any other application, training is very important. This has to be applied or available on the different phases of the implementation. Training reduces obstacles in the systems’ complexity. Aside from a well-qualified team to implement the project, they staff have to be trained in all aspects of the system.
  4. Cooperation – another important factor that enables links inside and outside; inside includes cooperation among the different departments or functional areas of the organization, while outside or external includes link with the ERP systems’ vendor.
  5. Technological complexity – The authors theorized that this may have a negative effect on some aspects of the systems. This is so because complexity sometimes give endemic problems, or something that really cannot be avoided.

The Technological Acceptance Model, as explained by Bueno and Salmeron (2008) tests the user’s behavior toward the applied IT system, “based on the ‘perceived usefulness (PU), ‘perceived ease of use’ (PEU), ‘attitude toward use’ (ATU) and ‘behavioral intention of use’ (BIU)” (Bueno and Salmeron, 2008, p. 516).

These factors are further explained by Bueno and Salmeron (2008), quoting Davis (1989):

PU can refer to the perceived belief of the user that he has improved his/her performance due the benefits brought about by the system, while PEU refers to the user’s belief that he/she has exerted less effort in using the system (Bueno and Salmeron, 2008, p. 516).

Bueno and Salmeron (2008) further quotes Davis et al (1989) as saying that TAM was made to improve IT applications. Moreover, there are positive effects on the user’s behaviour.

The results and findings of Bueno and Salmeron’s (2008) study revealed the applicability of TAM in relation to the user’s acceptance of ERP systems. The factors enumerated above all contribute to the success of ERP systems. The authors recommended that potential users should be actively involved in the introduction of the ERP systems. Training is another important factor for this reduces the ERP’s complexity, whilst top management support is a key factor in the ERP system’s successful implementation.

Success with ERP

Success in Information Technology often depends on people’s point of view. According to Markus et al (2003) the question of success in ERP systems often comes up again and again; they often question success because of the cost in the entire process. The definition and measurement of success are thorny matters. The people whose job is to implement ERP systems, like for example, the project managers, consultants, and other middle managers, often refer to the completion of the project plan as success itself, which is questionable. But others who are in charge of adopting ERP systems and use them to achieve business results, define success as having done a job that has made their operations easily accessible to everyone (Markus et al, 2003, p. 24).

Assessment of success in ERP systems can be measured in different dimensions, according to Markus et al (2003, p. 24):

  • There was success because a new technology had been introduced and running successfully.
  • There was success because of the benefits incurred economically, financially, and strategically.
  • There was success because the operations had been running smoothly.
  • Success was seen by the organization’s customers and stakeholders.

Furthermore, users have to accept the technology. An ERP system is being introduced to an organization; it is revolutionary, it replaces old methods, and old methods involve culture and the usual things people do in the organization.

Moreover, we can relate success to user satisfaction. A system that meets the needs of its users naturally generates system satisfaction” (Holsapple et al., 2005, p. 325). Likewise, Holsapple et al quotes Guimaraes et al (1997) who said that a system that does not generate user satisfaction cannot provide positive results and may not be used at all (p. 325).

There are also high hopes for the software and this is attributed to the many testimonies of the users. Gabble et al (2003) argue that ‘by 2003 ERP software was highly configurable, and technically went a long way towards accommodating the various needs of users across the different sectors of the economy’ (p. 220).

Conclusion

ERP’s successes and failures can be attributed to many factors, some of these can be attributed to mere perceptions or beliefs. However, it is noteworthy that these factors are for real, as described in the details and discussion described in the early stages of this paper. More specifically, failures can be attributed to the implementation and the planning process of the ERP systems. We have provided three models for implementation and they are almost similar in the implementation.

Some of the failures in ERP applications that led to negative feedback from users were due to what is called process fragmentation, whereby many of the organizational processes were spread across functional boundaries. Members of the organization interact to complete a transaction, but there is no coordination. No one knows the status of a transaction, and there is duplication. Managers or employees attempt to impose control on their portion of the transaction; thus conflict arises. As stated earlier, ERP corrects this situation by imposing order and discipline in the system.

ERP solutions are “best practice” software that has urged organizations to apply and integrate it in their system.

The Technological Assistance Model is a program to aid in the success of the ERP systems.

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