6. The Usefulness Of Erp Systems For Effective Management

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6. The Usefulness Of Erp Systems For Effective Management

  1. 1. The usefulness of ERP systems for effective management Charalambos Spathis Department of Economics, Aristotle's University of Thessaloniki, Thessaloniki, Greece Sylvia Constantinides Mediterranean ECS, University Studies, Thessaloniki, Greece Keywords necessary tool for companies to survive this Resource management, Benefits, Introduction highly competitive business environment. Problem solving, Greece In this highly automated, IT-led business The next section discusses the relevant Abstract environment, companies are forced to keep literature followed by the research questions Enterprise resource planning up-to-date with the new technologies to and the methodology adopted. Thereafter, the (ERP) systems offer distinct research findings are presented. The final advantages in this new business remain competitive (Palaniswamy and Frank, 2000; Siriginidi, 2000a; Al-Mashari, section discusses the conclusions drawn environment as they lower operating costs, reduce cycle 2001). ERP systems provide distinct from this research including potential issues times and (arguably) increase advantages to companies adopting them as for future research. customer satisfaction. This paper examines, via a questionnaire, the they can integrate business applications underlying reasons why using real-time information. Therefore, ERP companies choose to adopt ERP systems provide the means for management Previous research systems, their impact on to respond to the increasing business needs ERP systems evolved from advanced management process including implementation problems in more effective and efficient ways. The manufacturing technologies (AMT) both of encountered. The empirical main benefits of ERP systems are seen as the which were developed as a response to the evidence confirms a number of production of real-time data shared across increasingly competitive environment. In benefits derived from ERP systems particularly for management the organization and consequently the particular, their purpose has been to increase process but also, problems integration and automation of business quality, lower inventory levels and enhance encountered. Results provide the processes. This is particularly important in customer service mainly via improved basis for future research on the manufacturing flexibility (Slack, 1991; Drury, this new business environment where potential of ERP systems, for more automation, effectiveness and efficiency in 1996; Palaniswamy and Frank, 2000; effective business integration. operations and real-time data are important Siriginidi, 2000b; Huang and Palvia, 2001). factors for business success. The provision of Others report the year 2000 problem, timely information improves the currency consolidation (Euro), integration of decision-making process, planning and all business functions and processes and Internet interface as additional motives for control of ERP adopters. Consequently, ERP applications (Gupta, 2000; Scott and higher effectiveness and efficiency in Kaindl, 2000). Within an ERP environment, operations and improved customer transactions are treated as part of the satisfaction are the ultimate benefits derived inter-linked business processes (Gupta, 2000). from ERP systems (Duff and Jain, 1998; In essence, business processes are integrated Gupta, 2000). and automated whilst, data is shared across This study examines, via a questionnaire, departments and particularly, real-time the motives for companies adopting ERP information (Nah et al., 2001; Themistocleous systems, the benefits derived including the et al., 2001). Therefore, one may expect that a problems encountered. In essence, the aim is ``complete'' ERP system would incorporate to evaluate the usefulness of ERP systems in ``modules'' relating not only to the traditional meeting company needs in this demanding accounting information system but also, business environment; that is, the success of stock control, MRP, and logistics. EDI ERP systems in improving management systems and e-commerce might also be process. The evidence presented would then additional dimensions of an ERP system help to establish the best way forward in fully (Duff and Jain, 1998; Hardy and Reeve, 1999). Industrial Management & Data Systems exploiting ERP systems' potential as a Nicolaou (2002) reports on the effectiveness 103/9 [2003] 677-685 # MCB UP Limited The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at [ISSN 0263-5577] [DOI 10.1108/02635570310506098] http://www.emeraldinsight.com/researchregister http://www.emeraldinsight.com/0263-5577.htm [ 677 ]
  2. 2. Charalambos Spathis and in cost management systems of JIT and EDI ERP applications and assist management to Sylvia Constantinides systems' use. Overall, the application of ERP achieve their full potential. The usefulness of ERP In conclusion, the current study systems for effective systems leads to increased efficiency and management effectiveness in business processes determines the usefulness of ERP systems for Industrial Management & permeating management decision-making at an effective management function including Data Systems all levels (Duff and Jain, 1998; Shang and the problems encountered as an explanation 103/9 [2003] 677-685 Seddon, 2000; Hayes et al., 2001). Although of the former. As at the heart of an ERP ERP system benefits have been examined in system is the accounting module, emphasis is the past, their impact on management given on management accounting aspects. process per se has not been considered. Further, the motives for adopting ERP systems including users' evaluation of ERP Research questions systems are issues that remain unexplored. The literature review discussed the Consequently, this study examines these advantages and the limitations of ERP issues via a questionnaire. systems highlighting issues that warrant In terms of the problems encountered in further consideration. This study examines ERP implementations, researchers report on the following research questions based on technical factors (Scott and Kaindl, 2000; evidence obtained via a questionnaire send Siriginidi, 2000a; Lang et al., 2001; Light et al., to managers of companies (ERP adopters) 2001; Themistocleous et al., 2001). Others operating in Greece: report softer factors for ERP system success RQ1. Why do companies choose to adopt such as organizational culture (Al-Mashari ERP systems? and Zairi, 1999; Stefanou, 1999; Aladwani, RQ2. What are the benefits derived from 2001; Krumbholz and Maiden, 2001). Readers the adoption of ERP systems on are referred to the works of Stefanou (1999), accounting information and Bradford and Roberts (2001) and Krumbholz management process? and Maiden (2001) for ``critical success factors'' in ERP system implementations. RQ3. Why do (not) companies Substantial cost and time overruns, implementing an ERP system have organizational problems including employee received substantial benefits from it? resistance to change also appear important What were the problems encountered barriers for ERP system success (Nah et al., in introducing ERP systems? To what 2001; Themistocleous and Irani, 2001; extent did they apply? Themistocleous et al., 2001). Business process re-engineering (BPR), the appropriateness of business and IT legacy systems, management Methodology culture, top management support and Preliminary interviews with managers in communication are thought of as critical companies adopting ERP systems were success factors in implementing ERP systems conducted in order to cater for the limited (Gupta, 2000; Al-Mashari and Zairi, 2000; Nah empirical evidence available as well as, the et al., 2001). Spathis and Ananiadis (2002) lack of underlying theories in this context. examined the impact of ERP systems on Therefore, exploratory interviews were used management accounting information as a facilitator of the research process and systems at the Aristotle's University of particularly for the questionnaire design Thessaloniki. Evidence shows that, users' (Sieber, 1973). perceptions in descending order of Interviews with two major ERP providers importance are focused on the following and four companies adopting ERP systems factors: have helped establishing the relevant issues . managerial; and determining the direction of this . IT infrastructure; and research. Using open-ended questions the . operational. interviews covered the following issues: In brief, researchers have identified a . ERP system adoption motives; number of problems associated with ERP . ERP benefits; and . problems encountered in ERP system applications as well as critical success factors implementations (Spathis and in ERP implementations. However, this Constantinides, 2003). study further examines those problems in the Greek environment attempting to relate Interviews, together with the literature those problems to the managers' perceived review, have generated a list of variables success of ERP systems. This would then help relating to ERP benefits and problems to determine the best way forward in future encountered (Teo and King, 1999). The [ 678 ]
  3. 3. Charalambos Spathis and questionnaire includes multiple-choice Table I Sylvia Constantinides questions on a seven-point Likert-type. The Demographic characteristics The usefulness of ERP systems for effective latter, aims at eliciting respondents' attitudes Panel management regarding the extent of the impact of ERP Industrial Management & systems on accounting information and A: Respondents Per cent Data Systems management processes (Oppenheim, 1992; Position in the firm 103/9 [2003] 677-685 Information technology 71.1 Nachmias and Nachmias, 1996; Riley et al., Accounting 20.0 2000). Information technology and accounting 4.4 The sampling frame of this study was Administration 4.4 generated after consultation with major ERP 100.0 providers in Greece who provided us with a Gender client list. Using probability sample design, Male 96.0 systematic sampling was applied drawing a Female 4.0 sample of 98 companies. Following telephone 100.0 conversations with contact persons Mean(years) (managers of companies adopting ERP Age 35 systems in Greece) in charge of ERP-systems, Total work experience 11 45 agreed to participate in the study. The Current post 5 questionnaire forms were send via post, fax B: Companies Per cent or e-mail. All questionnaires were returned Type of industry completed (45.9 per cent). Manufacturing 60.0 The empirical evidence is solely obtained Commerce 28.9 via the questionnaire however; the Services 8.9 triangulation of research methods Other 2.2 (interviews and postal questionnaire) 100.0 enhances the reliability, validity and the Type of company generalizability of the results (Kirk and Independent 73.3 Associate 13.3 Miller, 1986; Gildchrist, 1992; Nachmias and Parent 11.1 Nachmias, 1996). Additional confirmatory Other 2.2 evidence on the validity of the scale used is 100.0 presented in the following sections on the Company size Mean factor analysis results. Further, regarding Number of employees 215 the reliability of those factors, Cronbach's Total assets (millions Euros) 37.56 alpha is estimated. Total annual sales (millions Euros) 37.27 The demographic characteristics of the respondents are presented in Table I. As shown in Table I above, the average age Results and discussion of the respondents is 35, most of them are The survey results are presented in two main male (96.0 per cent) and working in the IT sections namely: department (71.1 per cent). They have 1 ERP system benefits which, examines relatively an extensive experience and work RQ1 and RQ2; and in the manufacturing sector. The 2 ERP system implementation problems respondents work in relatively big exploring RQ3. organizations and the majority of the companies are independent (73.3 per cent). It ERP system benefits on accounting should also be noted that, the companies are information and management processes both Greek and foreign companies The most highly rated perceived benefits (associates) operating in Greece. Overall, achieved via ERP systems involve: sample details indicate its . increased flexibility in information representativeness and therefore the ability generation; to draw generalizations from the survey . improved quality of reports-financial findings with one caveat. That is, as some of statements; these companies have only recently . increased integration of applications;' and . easy maintenance of databases. introduced ERP systems (average 18.5 months), one should expect that more This clearly suggests that ERP systems have benefits are accrued in the future for those an important if not a decisive impact on companies but also, implementation legacy systems and particularly on problems to become less important. accounting ones. Further, the evidence also [ 679 ]
  4. 4. Charalambos Spathis and reinforces the argument that ERP systems information on operating modules in ERP Sylvia Constantinides have been successful in fulfilling their environment is presented in Table III. The usefulness of ERP systems for effective purpose for the business as a whole as In specific, although all companies are management discussed in the earlier sections. That is, the operating financial and management Industrial Management & integration of applications, the production of accounting modules, not all of them operate Data Systems real-time information and particularly fixed asset register, costing and 103/9 [2003] 677-685 information for decision making are clearly stock/purchases modules. It is also affecting not only company's accounting surprising that only 13 companies (29 per information systems but also, business cent) operate the payroll module. operations in general. In addition, ``increased A link between ERP system modules user-friendliness of information systems'', operated and the perceived benefits achieved time reductions for accounts closure and relates to the underlying reasons for preparation of financial statements are also adopting such systems. Increased demand for perceived as benefits derived from ERP real time information, information applications. Further, ``improved generation for decision making and decision-making process'', ``improved integration of applications are reasons for co-ordination between departments'' and adopting ERP systems indicated by the ``improved internal communication'' have majority of the respondents. This finding also been highly rated further reinforcing the reinforces the argument that ERP systems above argument. Additional information on have been successful in fulfilling adopters' the benefits achieved is summarized in needs. Additional information on reasons for Table II. adopting ERP systems is presented in Overall, the benefits achieved by ERP Table IV. adopters are strongly influencing accounting information but also, organizational Table III planning and decision making at all levels. Operating modules in the ERP environment Nonetheless, there is still room for Number Per cent improvement as individuals' perceptions are not that strong on the above benefits. Financial accounting 45 100 Further, as production and logistics modules Management accounting 45 100 are operated by half or less of the Fixed asset register 42 93 respondents (23 and 22 companies Costing 42 93 Stock ± purchases 41 91 respectively) might also provide an Production 23 51 explanation for this. That is, not all business Logistics 22 49 operations have been integrated yet, Payroll 13 29 suggesting further room for improvement Quality management 4 9 and particularly more changes in the E-commerce 1 2 accounting information. Additional Table II ERP systems benefits Mean Standard deviation Increased flexibility in information generation 5.60 0.86 Improved quality of reports ± statements 5.33 0.93 Increased integration of applications 5.31 1.06 Easy maintenance of databases 5.16 1.07 Increased user-friendliness of IS 4.89 1.23 Reduction of time for issuing of reports ± statements 4.87 1.14 Improved decision-making process 4.82 1.30 Improved co-ordination between departments 4.64 1.17 Reduction in errors in logistics 4.51 1.47 Increased internal communication 4.49 1.29 Reduction of time for transaction processing 4.40 1.18 Improved delivery times 4.27 1.42 Reduction of stock levels 3.91 1.49 Increase in stock turnover 3.78 1.29 Reduction of total operating and administration costs 3.67 1.41 Notes: 1 = not at all; 2 = very low degree; 3 = low degree; 4 = average; 5 = high degree; 6 = very high degree; 7 = perfect [ 680 ]
  5. 5. Charalambos Spathis and Table IV Sylvia Constantinides Reasons for ERP implementation The usefulness of ERP systems for effective Number Per cent management Industrial Management & Increased demand for real-time information 44 98 Data Systems Information generation for decision making 41 91 103/9 [2003] 677-685 Integration of applications 38 84 Business process re-engineering 22 49 Cost reduction 22 49 Increase sales 16 36 Taxation requirements 15 33 Introduction of EURO 10 22 Application of new business plan 9 20 Competition 8 18 Development of activities into new areas with business contacts 7 16 Internet development 6 13 Integration of information systems 4 9 Stock Exchange requirements 3 7 Year 2000 problem 3 7 Government funding ± subsidization 2 4 In essence, Table IV confirms that, ERP indicated 5.56 for 16 in total. Statistically system implementations were initiated for significant correlations exist between, the ``correct reasons'' and that, the benefits modules operated and perceived benefits but derived are in line with ERP adopters' also between the latter and reasons for expectations. Additional information on ERP adopting ERP systems. These findings system benefits, modules operated and further confirm the strong link between reasons for adopting ERP is provided in these variables in this context. However, the Table V and VI. cost of ERP systems and firms' assets are not As shown in Table V, the sum of perceived correlated with the sum of benefits. Company benefits of ERP systems is 69.64 (for a size and the cost of ERP systems are not maximum value of 89). The average number related to the number of modules that ERP adopters choose to operate. of modules operated is almost seven out of Booth et al. (2000), report on ERP users' ten and the average number of reasons perceptions of the quality of accounting Table V information systems in financial and Descriptive statistics on ERP benefits, ERP modules adopted, reasons for management accounting as ``adequate'' in ERP implementations, cost of ERP systems and company assets (n = 45) terms of reporting and decision support and ``good'' in terms of transaction reporting. Mean Standard deviation Minimum Maximum Therefore, the empirical results between the Benefits 69.64 10.95 41 89 two studies are comparable indicating that Modules 7.04 1.38 4 10 there are still benefits accrued for ERP Reasons 5.56 1.89 3 10 adopters (see also Spathis and Cost 1.26 1.43 0.10 9 Constantinides, 2003). Stefanou (2002) also Assets 37.58 92.41 3.22 585.22 reports that the integration of accounting Notes: Benefits: sum of perceived benefits scale; Modules: number of modules; applications, information exchange and Reasons: number of reasons for ERP implementation; Cost: percentage of acquisition reporting capabilities are notable and installation cost to sales; Assets: total assets in millions Euros advantages/strengths of ERP systems. The variables concerning the benefits of ERP systems were also factor analysed using Table VI principal component analysis (PCA) with Pearson correlations on ERP benefits, ERP modules adopted, reasons for varimax rotation as a commonly used ERP implementations, cost of ERP systems and company assets technique for summarizing a set of variables Variables Benefits Modules Reasons Cost Assets into independent subsets (Tabachnick and Benefits 1.000 Fidell, 1996). The results are presented in Modules 0.339* 1.000 Table VII. Reasons 0.420** 0.208 1.000 PCA revealed five dimensions involving: Cost 0.086 0.132 0.178 1.000 1 effective logistics function; Assets 0.093 0.000 0.023 ±0.121 1.000 2 effective communication function; 3 effective decision-making process; Notes: * Significant at the 0.05 level (two-tailed); ** Significant at the 0.01 level 4 efficient data processing; and (two-tailed) 5 information systems. [ 681 ]
  6. 6. Charalambos Spathis and Table VII Sylvia Constantinides Factor analysis of ERP system benefits The usefulness of ERP systems for effective Loadings Per cent of variance Cronbach's alpha management Industrial Management & Factor 1: Effective logistics 21.868 0.922 Data Systems Improved delivery times 0.884 103/9 [2003] 677-685 Increase in stock turnover 0.859 Reduction in errors in logistics 0.855 Reduction of stock levels 0.851 Factor 2: Effective communication function 19.261 0.838 Increased internal communication 0.898 Improved co-ordination between departments 0.865 Increased integration of applications 0.670 Factor 3: Effective decision-making process 14.220 0.693 Improved quality of reports ± statements 0.814 Increased flexibility in information generation 0.745 Improved decision-making process 0.633 Factor 4: Efficient data processing 12.570 0.697 Reduction of time for transaction processing 0.842 Reduction of total operating and administration costs 0.734 Reduction of time for issuing of reports ± statements 0.584 Factor 5: Effective information systems 10.394 0.646 Easy maintenance of databases 0.899 Increased user-friendliness of IS 0.667 Total variance explained (per cent) 78.313 KMO 0.655 Bartlett's test of sphericity Approx. 2 447.003 df 105 Significance 0.000 The factors are clearly reflecting the main benefits have not been fully achieved by the reasons for adopting ERP systems but also, companies concerned. It may also provide an their impact on accounting and management insight of the potential of ERP systems. processes. However, respondents rated implementation The factors explain over 78 per cent of the problems at a low or average degree not variance and the Kaiser-Meyer-Olkin raising any issues of concern. The two major measure of sampling adequacy is high problems arising relate to delays in suggesting that factor analysis is appropriate implementation and employee resistance to for this data set. Bartlett's test of sphericity is change both of which are in accord with the large and the associate significance level is literature findings (Al-Mashari and Zairi, small (zero) therefore, it is unlikely that the 1999; Aladwani, 2001). Additional information population matrix is an identity. Further, the on the ERP implementation problems are factors have high alpha values confirming presented in Table VIII. their high reliability. PCA results further It is also evident that, personnel training, confirm that the adoption of ERP systems has increased costs, adaptation and integration successfully fulfilled its purpose problems are the most prevalent ones (Nah demonstrating a significant impact on the et al., 2001; Themistocleous and Irani, 2001; accounting information and management Themistocleous et al., 2001). Implementation processes. problem variables were also factor analysed The next section examines the problems using PCA with varimax rotation resulting encountered in ERP implementations, in four factors reinforcing the above (see possibly explaining the relatively low rating Table IX). on the benefits of ERP systems. All factors have high alpha values confirming their reliability and the total ERP implementation problems variance explained is over 74 per cent. The The previous section discussed the benefits results suggest that problems in ERP derived from the application of ERP systems implementations may be classified as focusing on the accounting information and technical, financial and organizational. management processes. Examining the Therefore, a close co-operation both within problems encountered in implementing ERP the organization and between the systems may explain why ERP system organization and the ERP provider is [ 682 ]
  7. 7. Charalambos Spathis and Table VIII Sylvia Constantinides ERP system implementation problems The usefulness of ERP systems for effective Mean Standard deviation management Industrial Management Delays in implementing the ERP system 4.20 1.44 Data Systems Employee resistance to change 4.13 1.58 103/9 [2003] 677-685 Difficulties in transferring data from previous applications 3.98 1.73 Personnel training in ERP environment 3.96 1.26 Increased costs in operating the ERP systems 3.84 1.45 Difficulties in adapting applications to the ERP environment 3.80 1.59 Cost overruns in acquiring and installing the ERP system 3.76 1.61 Increased difficulties in using the new system 3.64 1.23 Difficulties in integrating existing applications with the ERP system 3.44 1.56 Difficulties in restructuring personnel 3.44 1.32 Delays in installing the system 3.36 1.57 Friction with the ERP provider 3.00 1.85 System security 3.00 1.58 Friction within the board of directors 3.00 1.78 Increased errors 2.62 1.01 Notes: 1 = not at all; 2 = very low degree; 3 = low degree; 4 = average; 5 = high degree; 6 = very high degree; 7 = perfect Table IX Factor analysis of ERP systems implementation problems Loadings Per cent of variance Cronbach's alpha Factor 1: Friction and delays 29.229 0.912 Friction with ERP provider 0.845 Friction with the board of directors 0.845 Delays in implementing 0.773 Delays in installing 0.729 Cost overruns in acquisition and installation 0.711 System security 0.643 Increased costs in operating ERP 0.630 Factor 2: Personnel 18.914 0.842 Difficulties in restructuring personnel 0.847 Employee resistance to change 0.800 Personnel training in ERP 0.708 Increased errors 0.566 Factor 3: Integration 13.395 0.801 Difficulties in transferring data from previous applications 0.851 Difficulties in integrating existing applications 0.813 Factor 4: Adaptation 12.698 0.719 Difficulties in adapting applications 0.796 Difficulties in using the new system 0.762 Total variance explained (per cent) 74.236 KMO 0.767 Bartlett's test of sphericity Approx. 2 462.248 df 105 Significance 0.000 essential in achieving a smooth ERP focusing on the latter's impact on accounting implementation (Gupta, 2000; Al-Mashari and information and management processes. Zairi, 2000; Nah et al., 2001). Although researchers have examined the benefits and the problems of ERP systems, this was done on an ad hoc basis. Further, Conclusions and recommendations studies have not adequately focused on ERP This study has presented evidence from systems' impact on accounting and Greece on companies adopting ERP systems management processes. In addition, except [ 683 ]
  8. 8. Charalambos Spathis and from the study of Stefanou (2002), this is the nowadays, need to have good IT skills in Sylvia Constantinides first evidence available on ERP systems in order to retain their role in this constantly The usefulness of ERP Greece. The survey results confirm that the systems for effective changing IT-led work environment. management benefits derived from companies adopting Therefore, examining these new skills and Industrial Management ERP systems have fulfilled individuals' abilities required by accountants to cope Data Systems expectations but not that strongly. In with this demanding role, might also be an 103/9 [2003] 677-685 specific, increased flexibility in information issue that warrants further research. generation, improved quality of reports, integration of applications and, easy References maintenance of databases appear the major Aladwani, A.M. (2001), ``Change management benefits derived from ERP systems. 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