Critical Success Factors in Implementation of ERP Systems

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Project Report published for a Masters Degree Course research on Critical Success Factors in the Implementation of ERP Systems. A literature review of journals was used to develop the research questionnaire answered by managers and executives involved in the process of selection of an ERP System.

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Critical Success Factors in Implementation of ERP Systems

  1. 1. - 1 - CRITICAL SUCCESS FACTORS FOR IMPLEMENTATION OF AN ENTERPRISE RESOURCE PLANNING SYSTEM PROJECT REPORT PREPARED BY STEPHEN COADY
  2. 2. - 2 - TABLE OF CONTENTS LIST OF FIGURES..............................................................................................................................3 LIST OF TABLES ...............................................................................................................................3 Acknowledgements ..............................................................................................................................3 Executive summary..............................................................................................................................4 Introduction......................................................................................................................................4 Literature Review.............................................................................................................................4 Critical Success Factors in ERP Implementations ...........................................................................4 Evaluation of the Critical Success Factors in the Company at ERP System Pre-implementation Stage.................................................................................................................................................5 Implementation and other factors influencing successful implementation......................................7 Conclusions......................................................................................................................................7 Recommendations ............................................................................................................................8 Introduction..........................................................................................................................................9 Overview of study organisation .......................................................................................................9 Enterprise Resource Planning Systems..........................................................................................10 Market Perspective - ERP Systems Usage, Implementation Success and Failure.........................13 Critical Success factors ..................................................................................................................14 Literature Review...............................................................................................................................15 Critical Success Factors in ERP Implementations .............................................................................19 Top Management Support..............................................................................................................21 Project team competence................................................................................................................22 Inter-departmental cooperation ......................................................................................................22 Clear goals and objectives..............................................................................................................22 Project Management.......................................................................................................................23 Inter-departmental communication ................................................................................................24 Management of expectations..........................................................................................................24 Project Champion...........................................................................................................................24 Ongoing vendor support.................................................................................................................24 Careful selection of appropriate package.......................................................................................24 Data analysis and conversion.........................................................................................................25 Dedicated Resources ......................................................................................................................25 Steering Committee........................................................................................................................25 User training and education............................................................................................................25 Education on a new business process.............................................................................................26 Business Process reengineering .....................................................................................................26 Minimal customisation...................................................................................................................26 Defining the architecture................................................................................................................27 Change Management......................................................................................................................27 Vendor / customer partnerships......................................................................................................27 Use of vendors’ development tools................................................................................................28 Use of consultants ..........................................................................................................................28 Evaluation of the Critical Success Factors in the Company at ERP System Pre-implementation Stage...................................................................................................................................................28 Method ...........................................................................................................................................28 Results............................................................................................................................................29 Discussion ......................................................................................................................................31 Conclusions of survey results.........................................................................................................35 Implementation and other factors influencing successful implementation........................................35 Implementation...............................................................................................................................36 Multi site implementations.............................................................................................................36 Business Process Reengineering....................................................................................................37 Conclusions........................................................................................................................................39
  3. 3. - 3 - Recommendations ..............................................................................................................................40 References ..........................................................................................................................................42 Appendices.........................................................................................................................................44 Appendix 1: Detailed results..........................................................................................................45 Appendix 2: Responses to Question of Company Strategy in Implementing an ERP System......55 Appendix 3: Top CSFs by ERP Implementation Stage .................................................................60 Appendix 4: ERP Critical Success Factor Questionnaire ..............................................................61 Appendix 5: Implementation..........................................................................................................68 LIST OF FIGURES Figure 1: ERP process vs Enterprise Systems....................................................................................10 Figure 2: Comparison of ERP vs MRP showing extent of ERP planning.........................................11 Figure 3: Typical ERP System...........................................................................................................12 Figure 4: ERP core process flows ......................................................................................................17 Figure 5: A suggested framework for managing change associated with ERP .................................19 Figure 6: Taxonomy for ERP critical factors.....................................................................................20 Figure 7: "The Proven Path" Implementation Program .....................................................................36 LIST OF TABLES Table 1: Summary of Reviewed Articles on Critical Success Factors of ERP Implementation........21 Table 2: Critical Success Factors – results and comparison to Somers and Nelson (2001) ..............30 Table 3: Detailed Critical Success Factors – Results and comparison to primary CSF results .........32 Acknowledgements I would like to acknowledge the following contributions to the completion of this project. 1. The “company” made the work related project possible. 2. Many colleagues and managers of the Company, whose replies to the questionnaire provided opinions of a group of knowledgeable Company managers and employees regarding the Critical Success Factors of ERP implementation, the benefits and functional requirements of the ERP system, and understanding of the Company implementation strategy. Without this contribution there would be no results. 3. XXX1, CEO of the Company, for emphasising the results were also of benefit to the Company and its ERP implementation project thereby assisting in soliciting responses to the questionnaire. 4. XXX2, Academic Director UNSW MBT program, for his useful advice, supervision of the project and patience. 5. XXX3, Executive General Manager “Company” Engineering, for his comprehensive review of the original version of this report. The comments which identified potential improvements which have been incorporated in this “business report” revision. Notes 1. All references to the company name have been removed and replaced with “Company”, including from the replies received concerning company strategy which have been included in appendix 2. 2. The discussion of the results and opinions expressed are those of the writer only, based on results of responses received and available information. It is possible that persons in possession of additional information may reach different opinions and conclusions.
  4. 4. - 4 - Executive summary The research project was undertaken for a Masters Degree course; however the selection of the course and topic was made to develop knowledge of the implementation of ERP systems prior to the expected implementation at the company. The study was predominantly a literature review to develop an understanding of the application of Critical Success Factors to the implementation of an ERP system. The project sought to evaluate, at the pre-implementation stage, the perceptions of a group of employees of the Critical Success Factors identified from the literature review. Introduction • Background information on the company and a summary of its existing information systems which introduces the requirement for an ERP system to replace the existing management information system. • A description of ERP systems. Understanding what is meant by Enterprise Resource Planning Systems can be fundamental to determining the expectations about selection, implementation and business process results of a system. The current definition of an ERP system has broad scope, for example “comprehensive package software solutions seek to integrate the complete range of a business processes and functions in order to present a holistic view of the business from a single information and IT architecture”. The description includes historical development of ERP systems to current usage and functionality. • A description of the market perspective of ERP systems; The ERP software market is one of today’s largest IT investments worldwide. The development of the market for ERP software includes a history of spectacular failures. Whilst current software is more stable and the implementations more refined, the marketing of ERP software and consequently the increasing demand from smaller organisations has created a risk. Smaller organisations are less likely than large organisations to survive a failed implementation of an expensive ERP system and may have limited resources, experience or staffing skills with which to overcome these issues. The high failure rate of ERP implementations calls for a better understanding of its critical success factors. • Defines Critical Success Factors: elements that are vital for a strategy, organization or project to be successful, and are strongly related to the mission and strategic goals. They focus on the most important areas and get to the very heart of both what is to be achieved by an organisation, strategy or project and how to achieve it. Literature Review The literature review identifies the sources which were used in the compilation of the report. These articles were selected from a wider range of sources to provide the best synthesis of information pertaining to the research topic. Through a brief description of each source article and its relevance to the topic the literature review provides a general overview of critical success factors and other related aspects which were required to their application in the implementation of an ERP system. Critical Success Factors in ERP Implementations The implementation of an ERP system is known to be a project which includes a high level of risk to an organisation. It is therefore worthwhile to examine the factors that to a great extent, determine whether the implementation will be successful. Al-Mashari et al. developed the taxonomy for ERP critical factors which shows the inter- relationship between the ERP benefits, implementation and ERP success. They stated that the link between ERP benefits and strategic goals, objectives or critical factors is a relative one rather than in absolute terms of what specifically can be expected. This defines success or failure is linked through implementation to the goals established. In the light of Lyttinen and Hirschheim’s (1987) definition of failure, success in IT projects can be seen as:
  5. 5. - 5 - • Correspondence success, where there is a match between IT systems and the specific planned objectives. • Process success, when IT project is completed within time and budget. • Interaction success, when users’ attitudes towards IT are positive. • Expectation success, where IT systems match users’ expectations. The critical success factors identified by various authors and articles were analysed and the relationships evaluated. The number of factors considered in the various articles differed, but when the factors are compared it is identified that this is merely an indication of whether the factors are narrowly or broadly defined in terms of depth and the degree of detail that the author considered appropriate for the study. The critical success factors identified by Somers and Nelson (2001) were considered to be the appropriate level of detail for this study and were therefore selected as the primary measure of the factors which were important to the successful implementation of an ERP system. Those articles which considered a greater number of factors provided more detail on particular aspects, but could be grouped together within the 22 factors defined by Somers and Nelson. The critical success factors defined by Somers and Nelson were then defined and described and their application and importance to implementation was evaluated. These descriptions provide a fundamental understanding of important requirements for successful ERP implementation and how they should be applied. Evaluation of the Critical Success Factors in the Company at ERP System Pre- implementation Stage Research was conducted with a group of employees of the Company which was at the pre- implementation stage of a project for the implementation of an ERP system. The group were all people that had been used by the Company in the process of evaluation of selected ERP software packages. The intention was to evaluate the opinions and perceptions of those employees with regard to the Critical Success Factors which were identified by the literature review. The primary aim of the study was to determine the opinions of these persons regarding the expected effect of critical success factors on the implementation process, in the current position of pre- implementation of the ERP system. The analysis of the literature review identified that many detailed factors presented in literature and previous studies could be grouped in association with the primary CSFs at the level considered in the primary section. These would provide an additional level of evaluation and therefore a deeper understanding of the expected effects of the critical success factors on the implementation. A compilation of these more detailed critical success factors from various literature sources was developed and grouped as subsets of the Somers and Nelson CSF’s and presented in a second section of the questionnaire. Further sections in the questionnaire were based on the integrated nature of strategic objectives, goals, benefits and implementation to achieve and measure successful outcomes, therefore additional sections evaluated:- • The reasons for requirement for the ERP system. • The benefits expected from the system. • The relative importance of the modules and functions expected to be available in an ERP system. • The Company strategic requirements of the ERP system; the respondent’s description of the strategic goals of implementing the ERP system which was required to determine if there was a common understanding of these strategic goals. This question was intended to test the hypothesis that there was no commonly agreed or clearly communicated strategic vision and goals for the project.
  6. 6. - 6 - The main results for the overall group, ranked in order of the mean score for each of the primary Critical Success Factors are presented in Table 2. The corresponding results achieved by Somers and Nelson are shown for comparison. The results show very strong support and agreement that each of these is a critical success factor. The average score of the overall group is 4.41 which verges on indicating that the whole group of 22 critical success factors are extremely important for success. Twelve of the twenty two factors were considered extremely important for success and the remainder were important for success. Critical Success Factor Overall Somers & Nelson (2001) Mean Stddeviation Rank Mean Stddeviation Rank Top Management Support 4.85 0.37 1 4.29 1.16 1 User training 4.81 0.40 2 3.79 1.16 14 Project Management 4.81 0.40 3 4.13 0.96 5 Project Team Competence 4.81 0.40 4 4.20 1.07 2 Project Champion 4.75 0.53 5 4.03 1.58 8 Clear goals and objectives 4.73 0.45 6 4.15 1.14 4 Change Management 4.67 0.92 7 3.43 1.34 19 Education on new business processes 4.65 0.49 8 3.76 1.18 15 Dedicated resources 4.64 0.57 9 3.81 1.25 12 Careful package selection 4.58 0.58 10 3.89 1.06 10 Steering committee 4.50 0.65 11 3.79 1.95 13 Inter-departmental Co-operation 4.50 0.76 12 4.19 1.20 3 Vendor support 4.38 0.75 13 4.03 1.60 9 Management of expectations 4.33 0.87 14 4.06 1.37 7 Inter-departmental communication 4.31 0.62 15 4.09 1.33 6 Data analysis and conversion 4.24 0.72 16 3.83 1.27 11 Minimal customization 4.08 1.09 17 3.68 1.45 17 Vendor Tools 4.04 0.77 18 3.15 1.57 21 Vendor Partnership 4.00 0.69 19 3.39 1.21 20 Business Process Re-engineering 4.00 1.00 20 3.68 1.26 16 Architecture choices 3.87 0.97 21 3.44 1.19 18 Use of Consultants 3.58 0.95 22 2.90 1.20 22 Table 2: Critical Success Factors – results and comparison to Somers and Nelson (2001) The top few critical success factors; top management support, User training, project management, project team competence, project champion and clear goals and objectives, show that there is a very strong awareness of the importance of these factors in generating a success outcome of an ERP implementation project. Apart some from minor variations the analysis detailed critical success factors shows good correlation with the primary critical success factors. The overall result does indicate that the critical success factors are also supported in the same manner at the more detailed level. The overall results for inter-departmental cooperation achieves a higher result than the primary CSF itself and is an indication that when the detailed level factors are considered directly they provide some insight into issues that have to be addressed and hence may achieve strong support at the
  7. 7. - 7 - detailed level. This is also indicative of the fact that all of the primary factors were considered to be important. The results of the detailed questions provide the implementation project team strong support to pursue the requirements of these detailed critical success factors and provide some insight into the opinions regarding the relative importance of factors. The responses on the concerning each individual’s understanding of the Company’s ERP strategy in considering the implementation are presented in appendix 2, which presented 25 different interpretations which do not present a common understanding of company ERP implementation strategy. Since the ERP implementation strategy provides the foundation upon which the goals, expectations and implementation plans of the project should be developed, it would be expected that in order to make critical decisions regarding the ERP system selection and to commence planning for implementation that an agreed strategy should have been developed and communicated to those involved. This seems to identify a crucial element of weakness in the proposed implementation. Implementation and other factors influencing successful implementation Critical Success Factors were found to have a major influence on the implementation of an ERP system, however in the process of the research two factors were identified which were considered to be significantly influential to ERP implementation by the company; Business Process Reengineering and multi-site implementations. All of these factors interact in the implementation process, therefore a section was included to provide an overview of these issues and how they influence implementation of an ERP system. This can be summarised:- • Implementation: the identification of the critical success factors raises the question of how these matters are adequately addressed in implementation. This is clearly a case of requiring an implementation plan which addresses the issues. The section provides and overview of one example of such a process and a summary of additional extracts from the book are included in Appendix 5. • Multi-site implementations: These implementations present special concerns. The manner in which these concerns are addressed may play a large role in the ultimate success of the ERP implementation. The section identifies key issues such as the desired degree of individual site autonomy, ERP fit, variation of culture between sites and the implementation cutover strategy. • Business process reengineering (BPR): This was identified as a critical success factor; however BPR is a business process in itself and is a concept which has been given new life as a result of the advent of ERP systems which define business processes, creating a critical link between ERP systems and BPR that is difficult to ignore. Al-Mashari and Zairi stated “BPR is an indispensable and core component of SAP R/3 implementation and SAP R/3 itself can be considered as the missing IT link to BPR”. It is therefore important to develop an understanding of the relationship between ERP systems and BPR. This section presents an overview of Business Process Reengineering and its inter-relationship with ERP systems. Conclusions The outcome of the study of the organisation at pre-implementation stage acknowledges the importance of the critical success factors to successful implementation. This is further supported identifying the relative importance of more detailed factors which were grouped in support some of the primary factors. The responses to both the primary and detailed factors identified that the majority of respondents understand the importance of what is required to be done to complete a successful implementation. The challenge therefore is whether the organisation is able to support this understanding with required actions in performing the implementation. The study identified top management support and the clear goals and objectives as being extremely important critical success factors. The combination of these critical success factors requires clear and strong leadership with commitment and participation by executive and top management and
  8. 8. - 8 - places with top management the responsibility to define and communicate the ERP strategy and implementation plan, which provides a clear understanding of goals and objectives, including expectations and deliverables, and an ERP implementation business plan and vision. The writer concluded that the array of perceptions on the question of Company ERP strategy and goals supported the hypothesis that of an ERP strategy and goals did not exist or had not been communicated to those involved. These are the foundation of the potential success or failure of the implementation of an ERP system and it is therefore essential that this weakness be addressed in the short term. The relationship between BPR and ERP is often not well understood. ERP systems are essentially developed as instruments for improving business processes and are designed to function around an established business process model, therefore whilst some customisation is possible, major modifications are complex, impractical, and extremely costly, therefore the business process must often be modified to fit the system. This is achieved through an exhaustive analysis of current business processes to identify potential chances of reengineering, rather than designing an application system that makes only the best of bad processes. It is therefore essential that the element of BPR is considered in the implementation planning. Multi-site, variable process implementations present additional complexity to an ERP implementation. Gatticker (2002) identified the issue of “process standardisation”; the imposition of organisational standards and ERP configuration on multiple sites without taking into account the variations in business process and culture between sites. This has led failures of some ERP system implementations; therefore it is essential that a total organisation outlook be adopted from the outset of the implementation. This should ensure that common elements support the operation of all business units whilst identifying critical success and differentiating factors of individual business units which present arguments configuration and customisation to support successful practices. Recommendations The report concludes with some recommendations which are based on the requirements established by the critical success factors which have been identified and agreed as being extremely important. These are based on the example presented by Wallace and Kremzar and are suggested as a starting point in preparation for the project launch. The order of these recommendations is important as it is not possible to properly plan the project without an adequate, ERP educated team to plan and implement the project. Refer to the example project process (p36 and in more detail Appendix 5 – p68) which meets all the requirements of the Critical Success Factors. The preparation for launch should also include consideration of the implementation timescale which should take into account the complexity of the multi-site variable process structure of the organisation.
  9. 9. - 9 - Introduction Overview of study organisation The organisation is a rapidly growing, diversified engineering company which operates business units at various locations in Australia and New Zealand. The company has grown from a business initially situated in Bunbury, Western Australia through organic growth and acquisitions. The program of growth and acquisition has developed a diversified structure based on three main pillars of Engineering workshops (including equipment manufacture), Construction and Maintenance (site projects) and Energy Systems. The nature of engineering work includes for example:- • Major construction projects, • Design and manufacture of equipment for materials handling, mineral processing and energy (boilers and associated equipment), • Processing of materials such as laser cutting and heat treatment, • Engineering jobbing work in steel fabrication, machining and rubber work (lining and conveyors), • Site maintenance and labour hire, • Equipment repair and overhaul. This diversified work presents an array of multi-site, multi-division, multiple work types and range of magnitude of work from small limited time jobbing work to major equipment manufacture and construction projects. This presents a challenging environment in which to implement an ERP system which requires some degree of standardisation. This makes multi-site and inter-departmental cooperation issues more critical than might commonly be the case. The company uses a DOS based management information system known as QARMS in which the majority of financial and job management functions are recorded and managed. This management system software has served the purpose for which it was originally intended – accounting, financial management and job costing including integrated payroll and purchasing management. Although the software does provide real time financial and job costing information, it does not offer adequate solutions for capacity planning and management and job and project resource management. Whilst the software has some import / export capacity which can be used to interface with other systems they are cumbersome and difficult to use and time consuming. The user interface and integration with other software has fallen far behind current industry standards. The QARMS software has not been developed and the growing company has now outgrown the use of this application as a core management information system. The QARMS system was initially installed at all new acquisitions; however some newer acquisitions have been allowed to continue to operate existing systems. This creates integration and legacy issues in consolidating results to the extent required of a publicly listed company and also in accessing relevant decision making information for management. The company operates a modern IT infrastructure and wide area network. A number of other systems are used in conjunction with the core QARMS management information system:- • An intranet as a repository and accessible source of current management system procedures, including safety, quality and other management policies and procedures and for distribution of current information. • Use of the Microsoft Office suite of software for e-mail, database, word processing, spreadsheet calculations, etc. Many functions such as design and cost estimating are performed in these programs and manually transferred into QARMS when required. They are also used to manipulate data from QARMS, integrate with other sources and develop usable management reports as required. • Project planning software, Microsoft Project and Primavera P3, for planning and management of projects. These do not provide the opportunity to interface or integrate with the financial and purchasing management of jobs and projects.
  10. 10. - 10 - • Use of both electronic document management systems and the windows file structure for knowledge management and record keeping relating to quotations, current projects and intellectual property. • VSAFE safety management system. • Design and drafting software (Strand FEA, Autocad, Autodesk Inventor, Microstation, Mathcad) for engineering. The company is currently investigating the investment in an ERP application. The selection process has reached the point where the IT manager and executive managers have identified a short list of potential application providers, the leading contenders have been reviewed by members of operating units, and a selection of preferred vendor has been reached. Enterprise Resource Planning Systems Understanding what is meant by Enterprise Resource Planning Systems can be fundamental to determining the expectations about selection, implementation and business process results of a system. Wallace and Kremzar (2001) make a very clear distinction at the start of their book, ERP: Making IT Happen, “This book is not about software. This is not a book about how to select software and install it on your computers. Rather, it’s a book about how to implement superior business processes in your company – processes that yield competitive advantage.” Many systems that are labelled ERP systems are Enterprise Systems – packages of computer applications that support many, even most, aspects of a company’s information needs.” This distinction is depicted in figure 1. Figure 1: ERP process vs Enterprise Systems (Reproduced from ERP: Making It Happen (Wallace & Kremzar, 2001) The definition of Enterprise Resource Planning (ERP) from APICS Dictionary is: “ERP predicts and balances demand and supply. It is an enterprise wide set of forecasting planning and scheduling tools, which: • Links customers and suppliers into a complete supply chain. • employs proven processes for decision making, and • coordinates sales, marketing operations, logistics, purchasing, finance, product development, and human resources Its goals include high levels of customer service, productivity, cost reduction, and industry turnover, and it provides the foundation for effective supply chain management and e-commerce. It
  11. 11. - 11 - does this by developing plans and schedules so that the right resources – manpower, materials, machinery and money – are available in the right amount when needed. ERP is a direct outgrowth and extension of Manufacturing Resource Planning and, as such includes all of MRP II’s capabilities. ERP is more powerful in that it: a) applies a single set of resource planning tools across the entire enterprise, b) provides real time integration of sales, operating and financial data, and c) connects resource planning approaches to the extended supply chain of customers and suppliers.” (Wallace & Kremzar, 2001) Figure 2: Comparison of ERP vs MRP showing extent of ERP planning (Reproduced from Wikipedia, 2007) MRP vs. ERP — Manufacturing management systems have evolved in stages over the past 30 years from a simple means of calculating materials requirements to the automation of an entire enterprise. Around 1980, over-frequent changes in sales forecasts, entailing continual readjustments in production, as well as the unsuitability of the parameters fixed by the system, led MRP (Material Requirement Planning) to evolve into a new concept : Manufacturing Resource Planning (or MRP2) and finally the generic concept Enterprise Resource Planning (ERP)
  12. 12. - 12 - Enterprise Resource Planning (ERP) systems integrate (or attempt to integrate) all data and processes of an organization into a unified system. A typical ERP system will use multiple components of computer software and hardware to achieve the integration. A key ingredient of most ERP systems is the use of a unified database to store data for the various system modules (Wikipedia, 2007). The term ERP originally implied systems designed to plan the use of enterprise-wide resources. Although the acronym ERP originated in the manufacturing environment, today's use of the term ERP systems has much broader scope. ERP systems typically attempt to cover all basic functions of an organization, regardless of the organization's business or charter. (Wikipedia, 2007) Figure 3: Typical ERP System (Reproduced from Shebab et al, 2004, p359 – 386) Rosemann (1999) defines ERP systems as customisable, standard application software which includes integrated business solutions for the core processes (e.g. production planning and control, warehouse management) and the main administrative functions (e.g. accounting, human resource management) of an enterprise. Slightly differently, Gable (1998), however, defines it as comprehensive package software solutions seek to integrate the complete range of a business processes and functions in order to present a holistic view of the business from a single information and IT architecture. (Al-Mashari et al., 2003, p352) However, the term is typically reserved for larger, more broadly based applications. The introduction of an ERP system to replace two or more independent applications eliminates the need
  13. 13. - 13 - for external interfaces previously required between systems, and provides additional benefits that range from standardization and lower maintenance (one system instead of two or more) to easier and/or greater reporting capabilities (as all data is typically kept in one database). An ERP system is a packages business software system that enables a company to manage the efficient and effective use of resources by providing a total, integrated solution for the organisations information processing needs. It supports a process oriented view of the business as well as business processes standardised across the enterprise. Among the most important attributes of ERP are its abilities to: • Automate and integrate an organisation’s business processes; • Share common data and practices across the entire enterprise; and • Produce and access information in real time environment. (Nah et al, 2001, pp 285 – 296) An important feature of ERP is that it is the first approach that integrally combines business management and IT concepts. Its strength stems from its ability to provide comprehensive business functionality in an integrated way using a state of the art IT infrastructure. In one example, SAP’s client / server software package R/3, offers the potential to integrate the complete range of an organisations operations in order to present a holistic view of the business functions from a single information and IT architecture perspective Indeed, enterprise systems have improved the organisational information flow through the supply chain to such a degree that they have become an effective operating standard. One significant feature of ERP software is that core corporate activities, such as manufacturing, human resources, finance and supply chain management are automated and improved considerably by incorporating best practices, so as to facilitate greater managerial control, speedy decision making and huge reduction of business operational cost. (Al- Mashari et al., 2003, p352) Market Perspective - ERP Systems Usage, Implementation Success and Failure The ERP software market has become one of today’s largest IT investments worldwide. It continues to be one of the largest, fastest growing and most influential players in the software industry in the next decade. (Shebab et al, 2004, p359 – 386) It is projected that over 70 % of Fortune 1000 companies have or will soon install ERP systems and that ERP systems are penetrating the small to medium size companies with gross revenue less than US$250m. (Ehie and Madsen, 2005, pp545 – 557) Market penetration of ERP varies considerably from industry to industry. Major ERP vendors are increasingly targeting small and medium sized enterprises to generate new sales. Vendors and users are also moving beyond core applications to extend ERP systems to support Web-based applications, e-commerce, customer-relationship management, and business planning. (Somers and Nelson, 2001) The benefits of a properly selected and implemented ERP system can be significant leading to considerable reductions in inventory cost, raw material costs, lead time for customers, production time and production costs. (Somers and Nelson, 2001) ERP packages touch many aspects of the company’s internal and external operations. Consequently successful deployment and use of ERP systems are critical to organisational performance and survival. (Shebab et al, 2004, p359 – 386) Although ERP systems have gained major prominence in corporations throughout the western world, successful implementation of ERP in business processes continues to elude many companies despite high implementation costs that run as high as 3% of annual revenue. These failures are not because the ERP software was coded incorrectly, rather companies failed to match the true organisational needs and system required to resolve the business problems (Ehie and Madsen, 2005, pp545 – 557). In seeking to explain why some firms succeed in their implementation while others fail, it is critical to understand that, although the technical capabilities of ERP systems are relatively well proven, implementing these systems is not a simple matter of purchasing and installing the technology. Muscatello, Small and Chen, 2003, pp 158 – 170) A number of prominently publicised failures have underscored the frustrations and even total meltdowns that enterprises go through implementing ERP systems . (Kim et al, 2005). The ERP
  14. 14. - 14 - implementation learning curve saw many of the early installations being unstable, several of which failed spectacularly, including Foxmeyer and Hershey Foods (Plant and Willcocks, 2007). FoxMeyer Drug, a US$5 billion pharmaceutical company, recently filed for bankruptcy. FoxMeyer argued that major problems generated by a failed ERP system, which created excess shipments resulting from incorrect orders (Muscatello et al, 2003). Hershey Food Corp. has also held SAP accountable for order processing problems that hampered its ability to ship candy and other products to retailers around the peak Halloween season (Kim et al, 2005). Dell Computer scrapped their ERP system claiming that it was not flexible enough to handle their expanding global operations. (Muscatello et al, 2003) Allied Waste industries , Inc. decided to pull the plug on a US$130 million system built around SAP R/3, while another trash hauler Waste Management, Inc., called off an SAP installation after spending about US$45 million of an expected US$250 million on the project (Kim et al, 2005). While there have been examples of successful ERP implementations e.g. Cisco, it has been estimated that 90% of all early ERP projects were either late or over budget. Organisations such as Volkswagen, Cleveland State University, Whirlpool and W.L.Gore have suffered similar problems. Failures and problems during implementation itself have been subject of extensive literature and while high visibility failure is no longer as common at large organisations as it has been in the past, application integration problems do still occur, especially when organisations attempt to customise their ERP systems. (Plant and Willcocks, 2007, pp 60 - 70) Over the past few years, however, ERP systems developers, systems integrators and consultants have consistently been turning their sights on smaller enterprises. These smaller manufacturers can be adversely affected if they fail to upgrade their information technology with systems that can communicate with their larger supply chain partners or with corporate headquarters (Muscatello et al, 2003). With increased demand for ERP systems by smaller organisations, cost overruns or failures in process design can cause significant problems as these new adopters may have limited resources, experience or staffing skills with which to overcome these issues (Plant and Willcocks, 2007). Smaller firms with their limited resources are less likely than their larger counterparts to survive or quickly overcome a failed implementation of an expensive ERP system. (Muscatello, Small and Chen, 2003, pp 158 – 170) As increasing numbers of organisations across the globe have chosen to build their IT infrastructure around this class of off the shelf applications there has been a greater appreciation for the challenges involved in implementing these complex technologies. Although ERP systems can bring competitive advantage to organisations, the high failure rate in implementing such systems is cause for concern (Kim, Lee & Gosain, 2005, pp 158 -170). According to the Gartner Group, 70 percent of ERP projects fail to be fully implemented, even after three years. Typically there is no single culprit responsible for “failed implementation”, and no individual reason to be credited for a successful one. Even the definitions of failure and success are gray areas, lending to interpretation. There are generally two levels of failure: complete failures and partial failures. (Gargeya and Brady, 2005, pp 501 -516) The high failure rate of ERP implementations calls for a better understanding of its critical success factors (Somers and Nelson, 2001). Critical Success factors Critical Success Factor (s) (CSF) is a business term for an element which is necessary for an organization or project to achieve its mission. Critical success factors are elements that are vital for a strategy to be successful (Wikipedia, 2007). For example, a CSF for a successful Information Technology (IT) project is user involvement (Rockart, 1979, pp81-93). Critical Success Factors are strongly related to the mission and strategic goals of your business or project. Whereas the mission and goals focus on the aims and what is to be achieved, Critical Success Factors focus on the most important areas and get to the very heart of both what is to be achieved and how you will achieve it. (Mindtools, 2007)
  15. 15. - 15 - The concept of "success factors" was developed by D. Ronald Daniel of McKinsey & Company in 1961 (Daniel, 1961, p111-121). The process was refined by Jack F. Rockart in 1986 and Rockart and Bullen presented five key sources of CSFs: the industry, competitive strategy and industry position, environmental factors, temporal factors, and managerial position (Wikipedia, 2007). Rockart defined CSFs as: "The limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organization. They are the few key areas where things must go right for the business to flourish. If results in these areas are not adequate, the organization's efforts for the period will be less than desired." He also concluded that CSFs are “areas of activity that should receive constant and careful attention from management.” (Mindtools, 2007) Literature Review The literature review commenced with a wide objective of seeking information relating to the proposed company ERP system implementation project with a broadly defined scope covering how a company or business unit could extract the maximum benefit from implementation of an ERP system, how the implementation of the ERP system could improve business processes and the relationship between business process re-engineering and ERP implementation. The scope was narrowed for the purpose of the project to evaluation of the critical success factors related to implementation of the ERP system. The topic has been reviewed by a large number of researchers, therefore after identifying relevant articles it was necessary to select particular articles that provided the best information and remove those that did not add anything further. Some articles were selected because extended knowledge of particular aspects which were found to be critical to the success of ERP system implementations. Critical Success Factors or Impediments to success in ERP implementation Finney and Corbett (2007, pp 329 – 347) developed a compilation of 26 critical success factors for ERP implementation supported by descriptions from analysis of 45 journal articles and categorised them as strategic or tactical factors (presented in a useful table). The intention was to identify gaps that might exist in research. The areas which were identified as a result were to study were; the identification of CSF’s from the perspective of key stakeholders and the need for more in depth research into the concept of change management. A limitation identified was the occurrences of duplication of success factors in the frequency table, which was attributed to the use of secondary research as the main methodology in a large number of articles. Shebab et al (2004, p359 – 386) conducted a comprehensive review and classification of literature related to ERP systems, providing a good overview of existing articles and an integration of descriptions of the selection and implementation phases. The article provided an overview and diagrammatic description of ERP modules, identification of the drawbacks of ERP systems, identification of ERP selection criteria and a representation of the ERP implementation critical success factors produced by comparison of the various articles reviewed. Somers and Nelson (2001) synthesised a comprehensive list of 22 critical success factors from previous research and then analysed these through research with companies that had recently completed or were in the process of completing ERP implementations. The responses of 86 organisations resulted in a ranking of the critical success factors to suggest and order of importance and also analysed the variation of importance of the CSF’s through the six identified stages of ERP implementation. Plant and Willcocks (2007, pp 60 - 70) used the critical success factors as identified by Somers and Nelson (2001) as the basis of two case studies of international ERP implementations to examine the perceptions of ERP implementation project managers and compared these perceptions pre- and post- implementation. Umble et al (2003, pp 241 – 258) analysed the interaction of implementation procedures and critical success factors to identify the success factors, software selection steps and implementation
  16. 16. - 16 - procedures critical to a successful implementation. A case study of a successful implementation is presented and discussed in terms of these key factors. Nah et al (2001, pp 285 – 296) identified 11 factors which are critical to ERP implementation success through a comprehensive literature review. The factors were classified into the respective phases in the Markus and Tanis’ ERP life cycle model and the importance of each factor was discussed. Gargeya and Brady (2005, pp 501 -516) analysed published articles on SAP implementations of ERP system in 44 companies to investigate the success and failure factors and identified six common factors that are indicative of successful or non-successful SAP implementations. The 11 factors that were identified by Nah et al (2001) as critical to ERP implementation success were used as the basis of the investigation. They also identified that ERP is not intended for every business and therefore a business case must be developed to provide an understanding of ERP and formally assess the benefits the company expects to achieve. A listing of tangible and intangible benefits of ERP systems was included. Ehie and Madsen (2005, pp545 – 557) reported the results of an empirical research study of the critical issues affecting successful ERP implementations. The study provided a good overview and identification of critical success factors used a case study approach to assess 38 factors. The study identified eight factors that attempt to explain 86% of the variances that impact ERP implementation and concluded that there was strong correlation between successfully implementing ERP and six out of the eight factors identified. Kim, Lee & Gosain (2005, pp 158 -170) studied the impediments to a successful ERP implementation process to identify 47 impediments and concluded that the most critical impediments are from functional coordination problems related to inadequate support from functional units and coordination among functional units, the project management related to the business process change and change management related to resistance of users. They used a good categorisation and description of the impediments with empirical analysis and compared the effect of impediments on more successful vs. less successful implementations. Al-Mashari et al. (2003, p352) presents ERP system implementation in a visually represented taxonomy that shows the interaction between the ERP benefits, the ERP implementation process (setting up, implementation and evaluation) and the evaluation of ERP success and includes an evaluation and description of each of thee components. ERP implementation Muscatello, Small and Chen (2003, pp 158 – 170) identified that ERP system vendors are turning their attention to small and medium-sized manufacturers, which would be more severely impacted in the event of an implementation failure. A case study approach involving four companies was used to investigate the implementation process in small and medium-sized manufacturers and compares implementation factors in groups by implementation phase. Haung et al (2004, pp 101 – 110) identified the increasing use by ERP package vendors to apply the “Best Practice” concept to transfer past successful experience to new ERP projects to make implementation more efficient and effective. The study investigated the influence of best practice in transplanting “Best Practice” from parent companies to subsidiaries and revealed positive impacts on ERP implementation through reducing cultural discrepancies, boosting project efficiency and empowering coordination of systems integration. This is true provided the same company cultures are applicable, but may not necessarily be applicable to a different company or industry. The study also verified that practical and theoretical studies gained similar CSF which verified that companies which posses the verified CSF can launch ERP successfully. Relationship of Business Process to ERP implementation Schniederjans & Kim (2003) determined that such factors as the use of Business Process Reengineering (BPR) and establishing a Total Quality Management (TQM) culture play important
  17. 17. - 17 - roles in ERP implementation. They focussed on the survey of research to identify the successful implementation sequences of BPR and TQM with ERP and found that the both the sequence of implementation and the strategies selected to initiate ERP systems can significantly impact business performance success. Chen (2001, pp 374 -386) determined that many ERP failures could be attributed to inadequate planning prior to installation therefore chose to analyse several critical planning issues including needs assessment and choosing a right ERP system, matching business process with the ERP system, understanding the organisational requirements and economic and strategic justification. Okrent & Vokurka (2004, pp 637 – 643) describes process mapping and its significance to the success of an ERP implementation, highlighting “As-Is” and “To-Be” process mapping. An excellent figure showing key business flows with a description of six core processes and supporting technology impacted by ERP. They also include discussion of the project implementation team preparations and change management. Figure 4: ERP core process flows (Reproduced from Okrent and Vokurka, 2004) Kwasi (2004, pp 171 – 183) determined that the factors determined to be important for the successful implementation of ERP systems were generally based on the perceptions of senior members within the organisations implementing the systems. The perceptions of managers and end- users on selected implementation factors were studied and differences were found between the groups. It was identified that implementers should be aware of and understand these differences in order to develop appropriate intervention mechanisms such as training and communication to ensure successful ERP implementation. Al-Mashari & Zairi (2000, pp 156 – 166) describe a proposed model of best practice for SAP implementation. The central theme argues that a fully balanced perspective has to be taken for an effective SAP R/3 implementation. A focus on technical aspects at the cost of change management elements has proved to be far from successful. The article covers the major steps and essential competencies for SAP implementation and includes descriptions of model key element roles and strategic considerations in SAP R/3 implementations. Arif et al. (2005) compared alternative approaches to the implementation of enterprise information systems to examine the questions of whether the implementation of an enterprise information system was an information systems effort performed to support the business processes or a process re-engineering effort required to implement the pre-packages software system. They reached the conclusion that at the conceptual design level the process driven document solution to an enterprise information system was smaller, less complex and more flexible.
  18. 18. - 18 - Gibson et al. (1999) identified that system development methodologies have evolved from technical approaches to an increased emphasis on Business Process Reengineering and that with the advent of Enterprise Resource Planning software packages are entering a new phase of maturity which pose different types of problems, centred on the alignment of the business processes with the standard software package and the project management of the implementation. Haung et al (2004, pp 101 – 110) identified the increasing use by ERP package vendors to apply the “Best Practice” concept to transfer past successful experience to new ERP projects to make implementation more efficient and effective. The study investigated the influence of best practice in transplanting BP from parent companies to subsidiaries and revealed positive impacts on ERP implementation through reducing cultural discrepancies, boosting project efficiency and empowering coordination of systems integration. This is true provided the same company cultures are applicable, but may not necessarily be applicable to a different company or industry. The study also verified that practical and theoretical studies gained similar CSF which verified that companies which posses the verified CSF can launch ERP successfully. Berchet &Habchi (2005, pp 588 – 605) presented a case study of the ERP implementation and deployment at Alcatel with a particular focus on the planning process in an ERP system. The article proposes a five stage deployment model, outlines the main results together with presentation of the risks and dysfunctions and the reasons for them. Includes a detailed model of the planning process that was built and used as a tool by key users at different stages of the planning process. Multi site implementation Gatticker (2002, pp 96 – 105) presents a case study of the implementation and effects of an ERP system in a manufacturing facility. The article presents the case that many of the publicised ERP related difficulties are due to the effect of ERP on business processes which is at the level of the individual manufacturing facility where the business processes actually take place. The analysis was according to a research model that attributes the effect of ERP’s on organisations to two classes of factors: implementation factors and ERP specific factors. The article presents some good insights, particularly into multi–site issues, and supports some success factors. Three important conclusions are reached: ERP implementations are business level initiatives, not IT projects, and it imperative that management view them as such, involving users has been recognised as an important factor for ensuring successful implementation of ERP and that two types of effects must be considered when thinking about ERP fit – the existence of package standards is fairly well acknowledged, but the fit between the plant and the ERP configuration which the organisation rather than the ERP software imposes on all of its plants, referred to as process standardisation and particularly relevant for multi- site, variable process organisations. Project management in ERP systems White (2005, pp 6 – 7) argued that ERP systems do not live up to claims to provide a project management solution and that projects have unique requirements that should not be compromised by the limitations of an ERP system. Knowledge Transfer Since the fit between the system and the processes in the business is critical to the implementation ERP implementation, Wang et al (2007, pp 200 – 212) proposed that knowledge about the ERP system must flow from those implementing the system to those responsible once in production. A model of knowledge transfer composed from existing theories of learning explains the effective knowledge transfer is assisted by the absorptive capacity of the learner (client) and the competence of the knowledge holder (consultant). The research findings were that a firm with greater internal knowledge stock will have a more successful ERP implementation, however it is also necessary to disseminate knowledge throughout the organisation. Management needs to foster the build up of internal knowledge stocks in order to stimulate the flow of knowledge transfer.
  19. 19. - 19 - Change Management Aladwani (2001, pp. 266 – 275) identifies that ERP implementations commonly face an unwanted resistance to change from potential users, generally arising from habits and perceived risk. This article recommends that top management should deal proactively with this problem rather than reactively confronting it. An integrated, process oriented approach, based on marketing theories, for facing the problem of workers resistance to ERP is presented. The recommended approach includes studying the structure and needs of the users and causes of potential resistance among them; deal with the situation using appropriate strategies and techniques in order to introduce ERP successfully - a framework of change management strategies in phases, awareness strategies, feelings strategies and adoption strategies is suggested; and evaluate the status of change management efforts. Figure 5: A suggested framework for managing change associated with ERP (Reproduced from Aladwani, 2001) Critical Success Factors in ERP Implementations Implementing an ERP system is not an inexpensive or risk free venture. In fact 65% of executives believe that ERP systems have at least a moderate chance of hurting their businesses because of the potential for implementation problems. It is therefore worthwhile to examine the factors that to a great extent, determine whether the implementation will be successful. (Umble et al, 2003, pp 241 – 258) Plant and Willcocks in their literature review summarised the prior research relating to critical success factors: “A key research question in examining the deployment of ERP systems is centred on determining the critical success factors that lie behind a successful implementation. In fact the subject has been subject to a significant amount of prior research. Nah, Lau and Kuang undertook a literature search of ERP implementations and identified 11 CSF’s and considered their relationship to Markus and Tanis’s process-oriented ERP life cycle model. Gulledge and Sommer examined the issues around scoping business processes when splitting SAP instances. Parr and Shanks built on their earlier research into CSFs, identifying ten enabling factors, then using further case research to construct a project phase model for ERP implementation. Meanwhile an influential study by Somers and Nelson also examined literature for CSFs and took Cooper and Zmud’s six stage IT implementation process model as a basis for ranking and to categorise them by stage. The Somers – Nelson CSF classification was extended by Akermanns and van Helden who, through the application of a longitudinal case study, showed that inter-dependencies both direct and indirect exist within the success factors and importantly that “they all influenced each other in the same
  20. 20. - 20 - direction i.e., all positive or negative, leading to a self perpetuating or cycle of good or poor performance”.” Figure 6: Taxonomy for ERP critical factors (Reproduced from Al-Mashari et al., 2003, p352) Al-Mashari et al. (2003, p352) developed the taxonomy for ERP critical factors which shows the inter-relationship between the ERP benefits, implementation and ERP success and is shown in the figure above. They stated that the link between ERP benefits and strategic goals, objectives or critical factors is therefore a relative one rather than in absolute terms of what specifically can be expected, and classified ERP benefits into five groups based on Shang and Sneddon (2000). In respect ERP success, they stated: “One of the major conditions for ERP systems to yield the desired benefits is how well they serve the delivery of the CFs. In the light of Lyttinen and Hirschheim’s (1987) definition of failure, success in IT projects can be seen as: • Correspondence success, where there is a match between IT systems and the specific planned objectives. • Process success, when IT project is completed within time and budget. • Interaction success, when users’ attitudes towards IT are positive. • Expectation success, where IT systems match users’ expectations.” The success and failure of ERP system implementations has been researched from all directions, Critical Success Factors, Impediments to success and Causes of Failures. The research has been conducted by various methods, developing lists of success and failure factors from first principles, analysis of existing literature, case study and response from implementers. Review of the results of the wide body of research indicates the factors remain the same but are viewed from different perspectives. A comprehensive analysis of the factors included in the articles detailed in the literature review determined that whether the literature reviewed success factors, causes of failure or impediments the factors considered are inherently similar. The number of factors considered in the various articles differed, as summarised in Table 1, but when the factors are compared it is identified that this is merely an indication of whether the factors are narrowly or broadly defined in terms of depth
  21. 21. - 21 - and the degree of detail that the author considered appropriate for the study. Those articles which considered a greater number of factors provided more detail on particular aspects, but could be grouped together within the 22 factors defined by Somers and Nelson (2001) and these were considered to be the appropriate level of detail for this study. Source Secondary source (where applicable) Direction of focus Number of factors considered Somers & Nelson, 2001 Critical Success Factors 22 Nah, Lau & Kuang, 2001 Critical Success Factors 11 Umble, Haft & Umble, 2003 Critical Success Factors 9 Al-Mashari, Al-Mudimigh & Zairi, 2003 Critical Success Factors Huang, Hung, Chen & Ku, 2004 Critical Success Factors 9 Fang & Patrecia,2005 Nah, Lau & Kuang, 2001 Critical Success Factors 11 Gargeya & Brady, 2005 Nah, Lau & Kuang, 2001 Success / Failure Factors 6 Kim, Lee & Gosain, 2005 Impediments to success 47 Ehie & Madsen, 2005 Critical Success Factors 38 Finney & Corbett, 2007 Critical Success Factors 26 Plant & Willcocks, 2007 Somers & Nelson, 2001 Critical Success Factors 22 Table 1: Summary of Reviewed Articles on Critical Success Factors of ERP Implementation The importance of particular CSFs also varies dependant on the phase of the implementation in progress. This was also an important element of the research by Somers and Nelson (2001) whose investigation was conducted with various organisations at different stages of the implementation process from early implementation to companies that had completed implementation a year before with similar numbers in each stage, and resulted in the identification of the top five CSFs in each of the six phases of implementation process as defined by Cooper and Zmud (1990). The comparative table of these results has been extracted from the article and is shown Appendix 2 for reference. Plant and Willcocks (2007) also considered the changes of ranking of CSFs as the implementation moves through various implementation phases in two case studies and presented the results for each case. In order to consider the effect of the critical success factors on ERP implementation and to evaluate how they should be used in the implementation process it is necessary to describe the nature and application of each of the critical success factors being used. The factors are detailed below in order of importance according to the results of Somers and Nelson (2001) Top Management Support The commitment of top management to the diffusion of innovations throughout an organisation has been well documented. In particular, early in a project’s life, no single factor is as predictive of its success as the support of top management. The roles of top management in IT implementations include developing an understanding of the capabilities and limitations of IT, establishing reasonable goals for IT systems, exhibiting strong commitment to the introduction of IT and communicating the corporate IT strategy to all employees. Research on project failures shows that project cancellations occur when senior management delegates progress monitoring and decisions at critical junctures of the project to technical experts. (Somers and Nelson, 2001) Top management support is needed throughout the implementation. The project must receive approval from top management and align with strategic business goals. Top management needs to publicly and explicitly identify the project as a top priority. Senior management must be committed with its own involvement and willingness to allocate valuable resources to the implementation effort. (Nah et al, 2001, pp 285 – 296) Successful implementations require strong leadership, commitment and participation by top management. (Umble et al, 2003, pp 241 – 258) Support from top management encourages support
  22. 22. - 22 - from others in the organisation and helps overcome resistance. Management involvement may be particularly critical for ERP success because of the massive transformations required by these systems. (Gatticker, 2002, pp 96 – 105) As in many major change efforts, objections and disagreements arise in the process of reengineering and ERP implementation can only be solved through personal intervention by top management. (Chen, 2001, pp 374 -386) Project team competence Another decisive element of ERP implementation success or failure is related to the knowledge, skills, abilities, and experience of the project manager as well as the selection of the right team members, which should not only be technologically competent but also understand the company and its business requirements. The skills and knowledge of the project team is important as is the use of consultants to provide expertise in areas where team members lack knowledge. (Somers and Nelson, 2001) Management commitment should look beyond the technical aspects of the project to the organisational requirements for a successful implementation. (Chen, 2001, pp 374 -386) The implementation team must span the organisation and possess a balance of business and IT skills. (Finney and Corbett, 2007, pp 329 – 347) The team should be cross functional and have a mix of consultants and internal staff so the internal staff can develop the necessary skills for design and implementation. The team should be familiar with the business functions and products so they know what needs to be done to support major business processes. (Nah et al, 2001, pp 285 – 296) The team should have the necessary skills to probe for details when conducting the planning phase of the implementation. Once the team has been established it might be necessary to train the individuals. (Finney and Corbett, 2007, pp 329 – 347) Top management must recognise that ERP implementations require the use of some of the best and the brightest people in the organisation for a notable period of time. Top management must identify those people, free them from present responsibilities, organise them into an interdisciplinary team, and empower then for the responsibility of the project. (Chen, 2001, pp 374 -386) These people should be entrusted with critical decision making responsibility. Management should constantly communicate with the team, but should also enable empowered rapid decision making. (Umble et al, 2003, pp 241 – 258) Inter-departmental cooperation A key factor for the successful implementation of ERP systems requires a corporate culture that emphasises the value of sharing common goals over individual pursuits and the value of trust between partners, employees, managers and corporations. As ERP systems cross functional and departmental boundaries, cooperation of all involved appears to be critical. ERP potential cannot be leveraged without strong coordination of effort and goals across business and IT personnel (Somers and Nelson, 2001). Users (rather than the IS function acting alone) having an active role in information systems projects results in communication and consideration of their business needs. Broad representation on planning and implementation teams is associated with the successful implementation of other types of advances manufacturing technologies as well. (Gatticker, 2002, pp 96 – 105) Another aspect which can be considered as an impact on inter-departmental cooperation in the implementation of an ERP system is the multi-site issues that arise. These have been considered separately. Clear goals and objectives The goals and objectives which are required are two-fold - in the short term the project implementing the ERP system and in the long term the operation of the ERP system resulting in the operating benefits to the organisation. Both aspects are critical to the management of the project and the system and to identifying the associated expectations which will have to be managed. The
  23. 23. - 23 - vision, goals, objectives and expected benefits are crucial to the success of the ERP system since it will be difficult to achieve the many interrelated critical success factors to support, manage, communicate and train without clearly stated and communicated vision, goals and objectives. The initial phase of any project should begin with a conceptualisation of the goals and possible ways to accomplish those goals. Goals should be clarified so that they are specific and operational and indicate the general directions of the project (Somers and Nelson, 2001). The organisation must carefully define why the ERP system is being implemented and what critical business needs the system will address. ERP implementations require that key people throughout the organisation create a clear, compelling vision of how the company should operate in order to satisfy customers, empower employees, and facilitate suppliers for the next three to five years (Umble et al, 2003, pp 241 – 258). Understanding corporate objectives, order qualifiers and winners, process choices and support infrastructure provides the ERP team valuable knowledge for developing business cases, performance measurements (current and future), long term strategic and tactical goals and package selection techniques (Muscatello, Small and Chen, 2003, pp 158 – 170). The vision and business knowledge must be used to develop a clear business plan and vision to steer the direction of the project throughout the ERP life cycle. A business plan that outlines proposed strategic and tangible benefits, resources, costs, risks, and timeline is critical. This will help focus on the business benefits. (Nah et al, 2001, pp 285 – 296) The short term aspect of the requirements of vision, goals and planning for installation and implementation are addressed in more detail under project management, but in short as stated by Somers and Nelson (2001): “The triple constraint of project management specifies three often competing and inter-related goals that need to be met: scope, time and cost goals. Many ERP installations face scope creep as a result of lacking a clear plan.” Project Management The importance project management in IT projects is well documented. Project management activities span the life of the project from initiating the project to closing it. Project planning and control is a function of the project’s characteristics such as project size, experience with the technology and the project structure. The vast combination of hardware and software and the myriad of organisational, human and political issues make many ERP projects huge and inherently complex. (Somers and Nelson, 2001) Successful ERP implementation requires that the organisation engage in excellent project management. This includes a clear definition of objectives, development of both a work plan and a resource plan, and careful tracking of the project progress. And the project plan should establish aggressive, but achievable schedules that instil and maintain a sense of urgency. (Umble et al, 2003, pp 241 – 258) The project must be formally defined in terms of its milestones and the critical paths determined. Timeliness of the project and the forcing of timely decisions should be managed. (Nah et al, 2001, pp 285 – 296) Clear definition of the project objectives and a clear plan will help the organisation to avoid “scope creep” which can strain the ERP budget, jeopardise project progress, and complicate the implementation. The project scope must be clearly defined at the outset of the project and should identify the modules selected for implementation as well as the affected business processes (Umble et al, 2003, pp 241 – 258). Customisation increases the scope of an ERP project and adds time and cost to an implementation. The minimal customisation strategy discussed later, which allows little if any user suggested changes and customisations, is an important approach to managing the scope of an ERP project (Somers and Nelson, 2001). Any proposed scope changes and scope expansion requests should be assessed in terms of the additional time and cost and be evaluated against business benefits and as far as possible implemented at a later stage (Nah et al, 2001, pp 285 – 296). One of the challenges with ERP implementation is that it demands multiple skills covering functional, technical and inter-personal areas. If these skills are found in a consulting firm then it becomes another challenge to manage such a consultant. (Al-Mashari et al., 2003, p352)
  24. 24. - 24 - Inter-departmental communication Effective communication is critical to ERP implementation. Expectations at every level need to be communicated. Management of communication, education and expectations are critical throughout the organisation. (Nah et al, 2001, pp 285 – 296) Communication has to cover the scope, objectives, and tasks of an ERP implementation project (Al-Mashari et al., 2003, p352) and includes the formal promotion of project teams and the advertisement of project progress to the rest of the organisation. (Nah et al, 2001, pp 285 – 296). User input should be managed in acquiring their requirements, comments, reaction and approval. Communication is one of the most challenging and difficult tasks in any ERP project. (Al-Mashari et al., 2003, p352) Slevin and Pinto identified communication as a key component across all ten factors of their Project Implementation Profile and maintained that “communication is essential within the project team, between the team and the rest of the organisation, and with the client”. (Somers and Nelson, 2001) Management of expectations Information system failure has been defined as “the inability of an IS to meet a specific stakeholder group’s expectations” and successfully managing user expectations has been found to be related to successful systems implementation. Expectations of a company may exceed the capabilities of the system. Careful deliberations of success measurement as well as management of expectations by the implementation manager are important factors (Somers and Nelson, 2001). The measures should indicate how the system is performing, but must also be designed so as to encourage the desired performance by all functions and individuals. Such measures might include on-time deliveries, gross profit margin, customer order to ship time, inventory turns, vendor performance, etc. (Umble et al, 2003, pp 241 – 258) Umble et al (2003) also identified that due to complexity of the systems, performance and productivity may decline after implementation, before improving as users become familiar with the system. This is another aspect of expectations to be managed. Project Champion The project should be spearheaded by a highly-respected executive level project champion. (Umble et al, 2003, pp 241 – 258) Somers and Nelson stated “The success of technical innovations has often been linked to a champion who performs the critical functions of transformational leadership, facilitation and marketing the project to users. Project champions should own the role of change champion for the life of the project and understand the technology as well as the business and organisational context. One advantage of positioning the champion high in the organisation is associated with the authority to move large and complicated projects through the transition.” Muscatello et al (2003) stated that executives that used a proactive approach to ERP implementation were the most successful, focussing on the longer term contributions to the system over the next three years and refuse “short term” corporate expectations by saying no when the expectations on evaluation, risked the ERP project goals. Ongoing vendor support ERP systems are a way of life and may be a lifelong commitment for many companies. There will always be new modules and versions to install and better fits to be achieved between the business and the system. Consequently, vendor support represents an important factor with any packages software including extended technical assistance, emergency maintenance, updates and special user training. (Somers and Nelson, 2001) Careful selection of appropriate package Careful selection of the appropriate package involves important decisions regarding budgets, timeframes, goals and deliverables that will shape the entire project. Choosing the right ERP packages software that best matches the organisation information needs and processes is critical to
  25. 25. - 25 - ensure minimum modification and successful implementation and use. Selecting the wrong software may mean a commitment to architecture and applications that do not fit the organisation’s strategic goal or business processes. (Somers and Nelson, 2001) Data analysis and conversion A fundamental requirement for the effectiveness of ERP systems is the availability and timeliness of accurate data. Data problems can cause serious implementation delays, and as such, the management of data entering the ERP system represents a critical issue throughout the implementation process. Within the company, the challenge lies in finding the proper data to load into the system and converting all those disparate data structures into a single, consistent format. Conversion can be an overwhelming process, especially if companies do not know what needs to be included in the new systems and what needs to be omitted. In addition, the interfaces with other internal and external systems require the ability to handle complex data sources and legacy data types. (Somers and Nelson, 2001) Dedicated Resources Dedicated resources are critical to realize the benefits associated with an ERP package. Resource requirements need to be determined early in the project and often exceed the initial estimates and the inability to secure resource commitments up front may doom project efforts. (Somers and Nelson, 2001) The successful project team is cross-functional, consisting of the most knowledgeable people in the organisation. The ERP project should be their top and only priority and their workload should be manageable, therefore team members need to be assigned full time to the implementation (Nah et al., 2001). Lockheed Martin, a leading aeronautical group, stated one of the keys to success was “assembling a team capable of making and executing” the changes required. (Gargeya and Brady, 2005, pp 501 -516) Steering Committee Since executive level input is critical when analysing and rethinking existing business processes, the implementation should have an executive level planning committee that is committed to the enterprise integration, understands ERP, fully supports the costs, demands payback and champions the project. (Umble et al, 2003, pp 241 – 258) To make ERP succeed, it is necessary to form a steering committee or group of “superusers”. A project management structure with a steering committee consisting of senior managers from across different corporate functions, project management representatives, and end users who will have daily contact with ERP, is an effective means of ensuring appropriate involvement. A steering committee enables senior management to directly monitor the project teams decision making by having ratification and approval rights on all major decisions, thereby ensuring that there are adequate controls over the team’s decision making processes. (Somers and Nelson, 2001) User training and education Education and training is probably the most widely recognised critical success factor, because user buy-in and understanding is essential (Umble et al, 2003, pp 241 – 258). The role of training to facilitate implementation is well documented in the MIS literature. Lack of user training and failure to completely understand how enterprise applications change business processes frequently appear to be responsible for problem ERP implementations and failures. At a minimum, everyone who uses ERP systems need to be trained on how they relate to the business process early on in the implementation process. (Somers and Nelson, 2001). ERP implementation requires a critical mass on knowledge to enable people to solve problems within the framework of the system. If employees do not understand how the system works, they will invent their own processes using the parts of the process they are able to manipulate. (Umble et al, 2003, pp 241 – 258) ERP training should address
  26. 26. - 26 - all aspects of the system, be continuous and based on knowledge transfer principles wherever consultants are involved (Al-Mashari et al., 2003, p352). Muscatello et al (2003) determined that training should include fundamental education on ERP systems and technical training in the usage of ERP software. Much of the learning process comes from hands on use under normal operating conditions therefore there should be ongoing contact with all system users and also post-implementation training. Periodic meetings of system users can help identify problems with the system and encourage exchange of information gained through experience and increasing familiarity with the system. (Umble et al, 2003, pp 241 – 258) Executives often underestimate the level and associated costs of education and training necessary to implement an ERP system and an adequate allowance should be made in the ERP budget. There is a suggestion that reserving 10 – 15% of the total ERP implementation budget for training will give the organisation an 80% chance of implementation success. (Umble et al, 2003, pp 241 – 258) Education on a new business process When considering implementation coupled with business process reengineering, it is imperative for managers to educate and communicate their goals and long term perspectives in order to win support of all members of the organisation affected by the changes. (Somers and Nelson, 2001) Business Process reengineering Somers and Nelson (2001) summarised the relationship of ERP and BPR: “One of the problems associated with implementing packaged software is the incompatibility of features with the organisations information needs and business processes. To achieve the greatest benefits provided by an ERP system, it is imperative that the business processes are aligned with the ERP system. Both the reengineering literature and the ERP literature suggest that an ERP system alone cannot improve organisational performance unless an organisation restructures its business processes. According to Willcocks and Sykes, the new business model and reengineering that drives technology is an enabling factor that can contribute to ERP success. In order to maximise the benefits of ERP investments, the supplementary redesign of the business processes promises the highest ROI, bust also increases the level of complexity, risks and costs.” By its very nature ERP has given rise to competing ERP software packages that serve as enterprise information systems, each with its own known list of ideal business processes. (Arif et al., 2005) Thus, buying an ERP package means much more than purchasing software, it means buying into the software vendor’s view of best practices for many of the company’s processes. A company that implements ERP must for the most part accept the vendor’s assumptions about the company and change the existing processes and procedures to conform to them. (Umble et al, 2003, pp 241 – 258) The real competitive advantage brought by the ERP systems appear to hinge on who can achieve a tighter, smoother fit between its business processes and the ERP system. (Chen, 2001, pp 374 -386) Minimal customisation Minimal customisation which involves using the vendor’s code as much as possible even if this means sacrificing functionality has been associated with successful ERP implementations. (Somers and Nelson, 2001) It has been identified that each ERP model has been developed to function around a particular integrated business model. Whilst customisation is possible, there are clear arguments for minimising customisation by re-engineering the business operation to maximise the use of the business model of the selected ERP package, which makes the fit between the package and the business an important criteria in the selection phase. This is emphasised by Somers and Nelson (2001) who quoted a survey of Fortune 1000 companies regarding ERP customisation policies which indicated that 41% of companies reengineer their business to fit the application, 37% of companies choose applications that fit their business and customise a bit and only 5% customise the application to fit their business. Gargeya and Brady (2005) stated: “Successful companies have recognised the importance of “cleaning up” their operations, which will allow them to implement “vanilla” SAP – with minimal
  27. 27. - 27 - customisation. Even though the so-called “vanilla” approach is adopted by two thirds of implementing companies, some customisation will always be required to meet individual needs. The key it appears is to know how much to customise. Colgate-Palmolive, a US$9 billion consumer products manufacturer, implemented SAP in 41 countries in 1998 and CIO Ed Toben puts the requirement in clear terms: “This is complicated stuff, you have to do everything you can to simplify it”.” The arguments for minimal customisation are predominantly based on maintaining the functionality and upgradeability of the package and minimising the scope of work and hence cost of the implementation. Somers and Nelson (2001) concluded: “Because customisations are usually associated with increased information systems costs, longer implementation time and the inability to benefit from vendor software maintenance and upgrades, customisation should only be requested when essential or when the competitive advantage derived from using non-standard processing can be clearly demonstrated. Management has the ultimate choice of changing the process to fit the system or changing the system to fit the process.” Defining the architecture Somers and Nelson (2001) stated: “While successful ERP implementation is often determined by business and organisation changes, architecture choices deserve thorough consideration through the system procurement phase. Key architectural considerations, which should occur very early in the implementation process revolve around centralisation or decentralisation, compatibility of existing tools within the enterprise with the ERP system, and the identification of bolt-ons such as data warehouses. Feeny and Willcocks identified architecture planning as a core IT capability and stressed that this cannot be cast aside to ERP suppliers.” Change Management Managing change is a primary concern of many involved in ERP implementations. It is estimated that half the ERP implementations fail to achieve expected benefits because companies “significantly under-estimate the efforts involved in change management”. (Somers and Nelson, 2001). Unfortunately, many chief executives view ERP as simply a software system and the implementation of ERP as primarily a technological challenge. They do not understand that ERP may fundamentally change the way in which the organisation operates. The ultimate goal should be to improve the business – not to implement software. (Umble et al, 2003, pp 241 – 258). ERP systems introduce large scale change that can cause resistance, confusion, redundancies and errors. Aladwani (2001, pp. 266 – 275) identifies that resistance to change from potential users, generally arises from habits and perceived risk and recommends that top management should deal proactively with this problem rather than reactively confronting it. Research has shown that effective change management is critical to successful implementations of technology and business process reengineering. (Somers and Nelson, 2001) The concept of change management refers to the need for the implementation team to formally prepare a change management program (Nah et al, 2001) and be conscious of the need to consider the implications of such a project. One key task is to build user acceptance of the project and a positive employee attitude. This might be accomplished through education about the benefits and need for an ERP system. (Finney and Corbett, 2007, pp 329 – 347). Umble et al (2003, pp 241 – 258) identified that through the use of proper change management techniques, the company should be prepared to embrace the opportunities presented by the new ERP system – and ERP will make available more information and make attainable more improvements than at first seemed possible. The organisation must be flexible enough to take full advantage of these opportunities Vendor / customer partnerships Somers and Nelson (2001) stated: “Vendor / customer partnerships are vitally important to successful ERP projects. Research has shown that a better fit between the software vendor and user organisation is positively associated with packaged software implementation success and that organisations should attempt to maximise their compatibility with their vendors. The relationship
  28. 28. - 28 - between the software buyer and the vendor should be strategic in nature with the ERP provider enhancing an organisation’s competitiveness and efficiency.” Use of vendors’ development tools Somers and Nelson (2001) stated: “There are indications that rapid implementation technologies and programs provided by the vendors can significantly reduce the time and cost of implementation of ERP systems. An additional goal of implementation tools is the transfer of knowledge with respect to using the software, understanding the business processes within the organisation, and recognising industry best practices. Accelerators provided by vendors include business-process modelling tools that link business models to the software, templates for industry specific business practices, and bundling of server hardware with ERP software, or offering combined packages of software, services and support.” Use of consultants Somers and Nelson (2001) stated: “Many organisations use consultants to facilitate the process. Consultants may have experience in specific industries, comprehensive knowledge about certain modules, and may be better able to determine which suite will work best for a given company. Consultants may be involved in various stages of the implementation: performing requirements analysis, recommending a suitable solution, and managing the implementation. While opinions vary with respect to what third parties should be able to control, the company should keep full control and accept full responsibility for all phases of the project.” Evaluation of the Critical Success Factors in the Company at ERP System Pre- implementation Stage Research was conducted with a group of employees of the Company which was at the pre- implementation stage of a project for the implementation of an ERP system. The group were all people that had been used by the Company in the process of evaluation of selected ERP software packages. The intention was to evaluate the opinions and perceptions of those employees with regard to the Critical Success Factors which were identified by the literature review. Method Following review of the literature on critical success factors and related issues a questionnaire was developed to solicit opinions regarding:- • The importance of critical success factors in the implementation of an ERP system. • The reasons for requirement for the ERP system. • The benefits expected from the system. • The relative importance of the modules and functions expected to be available in an ERP system. • The Company strategic requirements of the ERP system. The questionnaire was distributed by e-mail to a group of managers and colleagues that had been involved in evaluating the demonstrations by potential vendors ERP software packages which had been short-listed by the company. The group included executive managers, managers, IT personnel and users. The primary aim of the study was to determine the opinions of these persons regarding the expected effect of critical success factors on the implementation process, in the current position of pre- implementation of the ERP system. The selection of 22 critical success factors developed and used by Somers and Nelson (2001) in their study was considered to provide the optimum description of CSFs. These critical success factors were selected to be the basis of the primary section of the questionnaire. This also presented the opportunity to compare the results from this questionnaire to

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