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Organizations involved in manufacturing, sales, and distribution activities have been using computers for more than 30 years to increase productivity, profitability, and information flow across the company. However, due to the trend of rapidly improving computer technology and the decline in product life cycles, it is necessary for any organization to have a well-designed and managed information system, which can help it improve performance, tackle better decision making, and gain a competitive advantage.
Implementing an ERP system is for many organizations the largest project they have ever undertaken, entailing the largest potential advantages and possibly the largest potential risks. Many organizations underestimate the mass of an ERP system implementation.
In a sense, ERP systems can prove extraordinarily costly. Scholars agree that the implementation of ERP, whether it is developed by an IT department in an company or bought as a ready-made package from the market, requires major capital investments. However, it can be lower cost when bought as a ready-made package from the market.
As mentioned earlier, implementation of an ERP software package involves a variety of business process transformation and software configuration to align the software with the business processes. It has, therefore, become increasingly clear that implementing an ERP system requires considerable efforts to transform the company’s business processes. In addition, implementing ERP systems is not as much a technological problem as it is an organizational revolution.
Several approaches and methodologies of ERP project implementation identify a series of key factors that must be carefully considered ensuring successful implementation of an ERP complex project.
FACTORS IMPACTING ON THE IMPLEMENTATION AND USE OF ERP SYSTEMS IN ORGANIZATIONS
Various studies have demonstrated that there are key factors that must be carefully considered ensuring successful implementation of an ERP project. These factors are deployed on all levels of ERP project implementation: strategic, tactical, and operational. However, research by the authors highlighted that some of these factors are hypothesized to play a more pivotal role in ERP implementation. These factors are therefore termed ‘dominant’, and should be clearly visible and monitored at all stages the ERP project implementation. They include: top management commitment, a positive business case, focused change management, experienced project managers, a world class education system, and a well governed communication system.
In essences, these factors, as Figure 1 illustrated, are about people and business processes and they highly interdependent. In other words, failure in one element can affect the overall ERP project implementation.
1. Top Management Commitment/ Support
Top management support was consistently identified as the most influential and critical success factor in ERP system implementation projects. Active top management is necessary to provide enough resources, fast decisions, and support the acceptance of the project throughout the company.
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The top management must be involved at every step of the ERP implementation. Some researchers also point out that the top management support and commitment does not end with initiation and facilitation, but must extend to the full implementation of an ERP system. They should continually monitor the progress of the project and provide direction to the implementation teams.
2. Business Case
A strong business case can control a project’s scope. It considers project objective, needs, and benefits. In this respect, Wee argues that the business case is an effective tool to the ERP project implementation through its life cycle. Moreover, a business case can help to convince people of the need for change, and therefore, their commitment to it. The business case will focus on the expected business value to be achieved from the ERP project and associated business changes. The organization should go in the business case if it intends to make a better and faster decision with ERP implementation. It has also been pointed out that to ensure a business achieves specific result, the business case needs to be translated down to those who are deploying the actual systems. Moreover, they mention that, based on a global survey, the development of a strong business case was one of the key success factors.
However, the business case should be modified continually and interactive through all project stages to realize the benefits. It may be recommended to change the project scope based on an ongoing business case. For example, Owens Corning’s Company decision to back off from some aspects of ERP project implementation after it encountered some financial performance issue.
3. Project Management
As discussed, ERP implementation is difficult, costly, and risky. Consequently, to achieve the desired benefits, the ERP system implementation must be carefully managed and monitored. It is in this respect that project management becomes important, if not crucial for success. Project management deals with various aspects of the project, such as planning, organization, information system acquisition, personnel selection, and management and monitoring of software implementation. It has been suggested that the project management is a practiced system necessary to govern a project and to deliver quality products.
Other scholars argue that in order to manage a project successfully, project managers must be capable both in strategic and tactical project management activities. With the ERP system implementation factors, it has been suggested that implementation is difficult, requiring a combination of business, technical, and change management skills.
Initially, the project manager, the external face of the project, in conjunction with the steering committee, will select the project team. Owing to the wide ranging impact of ERP software, the members of the project team should ideally be from management or supervisory positions, and have the authority to make a decision regarding how a process will be completed. Norris and others point out that the project manager has to have several critical attributes.
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To begin with, the project manager should be intelligent and must possess the willingness to learn. In addition, the project manager must have good communication skills to enable them coordinate well with other members of staff. It is also important for the project manager to earn respect throughout the organization. This will give them the moral authority to formulate and implement policies, together with other members of staff. Moreover, the project manager must possess relevant and sufficient experience in the field of technology, change management and business processes. This is because ERP systems are basically driven by technology.
The project manager has a key role in the whole project, and has to manage the project within budget and time constraints. Thus, the project manager should have full authority over all elements of the project. The various tasks and responsibilities of a project manager include leading the project, managing the project and coaching other project member.
Moreover, project managers are also expected to educate and train project leaders and steering committees on the various procedures in accomplishing projects. Reporting to the steering committee and conducting quality control also fall within the jurisdiction of project managers. Thus, the project manager must have skills to govern the project successfully including being a coach, cheerleader, confidante, mentor, flexible, stress resistant, communicative, and visionary.
Solutions to the Negative Impacts
A best practice project management framework would cover the following:
a) Project Schedule and Plans.
Project schedule and plans is the detailed specification of the individual action steps required for accomplishing the project’s goals. If the project has failed, the fact that not every detail of the plan was pursued can be typically used as the rationale for the project’s failure. In essence, the dominant factor, project management, sets and monitors such schedules and plans.
b) Monitoring and Feedback
Monitoring and feedback factor refers to the timely provision of comprehensive control information at each stage in the implementation process. This is one of the project manager’s fundamental tasks. In essence, project progress must often be monitored by regular meeting and reports. The periodicity of meetings has a direct impact on the effectiveness of control. Moreover, with regular meetings, the project manager is able to see if there are any missed deadlines.
c) Risk Management
Risk management can decrease the number of unexpected crises and deviation from budget and schedule, providing advance warning as problems begin to develop. It is the competence to handle unexpected crises and deviations from the plan. Any deviation from the implementation project budget, schedule, and defined project goals must be identified and tracked carefully, with appropriate corrective action taken. Welti cites that the likely risks must be identified at an early stage, completely analyzed, and suitable process measures must be initiated to avoid the risks identified.
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Moreover, he argues that by discussing risk management, this makes project teams aware of the threats to be expected during a project. So risk management is not just an issue for the management of the project; rather, project members have to be aware of the potential risk, and must help to identify them soon. In essence, regular meetings and reports play an important role in this aspect.
Change management is a primary concern of many organization involved in ERP project implementation. Cooke and Peterson name change management, in terms of adopting an ERP system, as activities, processes, and methodologies that support employee awareness and organizational shifts during the implementation of ERP systems and reengineering initiatives.
Many ERP implementation failures have been caused by the lack of focus on ‘the soft issues’, i.e. the business process and change management. Some point out that almost half of ERP projects fail to achieve expected benefits because managers diminish the efforts involved in change management. It is also suggested that the management of change has become an increasingly urgent issue in all organizations due to the impact of new technology. Peak argues that change management gives the project manager a tool for coping with internally and externally motivated changes.
Martin and Ching suggest that to decrease resistance to change, people must be engaged in the change process and helped to see how the change profits them. Martin and Ching argue that the IT staffs are useful when they get physical IT changes, but usually overlook non-physical changes. However, embarking on a novel IT system requires users to adopt procedural changes with focusing on physical changes. In this respect, Welti suggests that the users in an enterprise could detect changes either positively or negatively.
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An ERP system package has a major impact on organizations, especially on their staff. Thus, change management is essential for preparing a company to the introduction of an ERP system, and its successful implementation. To implement an ERP system successfully, organizations will need to change the way they do business.
In adopting new information system, different approaches and methodologies of change management have been advanced by various researchers. Sieber and Nah present the recurring improvisational change methodology. It recognizes three types of changes. These are anticipated change, which is planned ahead of time and occurs as intended, emergent change, which arises from local innovation.
It can help identify problems and opportunities that need the attention of the organization. It employs a diagrammatic technique. Sieber and Nah suggest that the recurring improvisational methodology could be used by the enterprise and ERP software’s vendor management team to accomplish various goals.
First, it is important to plan for changes when implementing the ERP system. Secondly, identifying and documenting any deviations from the anticipated change is also crucial. Another is helping to identify opportunities that arise from the anticipated changes, emergent or opportunity-based changes, as well as ensuring that changes that occur are adequately taken care of. It is also important to monitor both expected and unexpected changes that may arise in the implementation process.
Martin and Ching (1999) elucidated several phases for the change process. These phases have been modified from the phases used by American Management Systems (AMS). The phases are identifying the need for change. Each specific change relates to a problem in the gap between what is needed, and what an organization has. Second is the description of the change: what, why, who, where, how, and when. Third is assessing the change environment. This involves identifying those who can accelerate, slow, or block the change initiative by asking questions.
It is also crucial to position for change in various ways. These include creating a steering committee, establishing goals and designing a measurement system. It is also important to design an effective project management system so as to meet the various goals and objectives of the project. The project manager has to establish credibility for the change team before embarking on selling the change itself. Training may be necessary to equip members with knowledge to handle the imminent change. Moving forward and performing the actual change process is the final step.
A good example is how ALVEO prepares its employees for the coming change. It does so through various ways. First, it gives management support. Secondly, the company provides information to all employees concerning the change management, such that every employee is on board and is not taken unawares. Thirdly, the intended change is communicated to all employees. Training also comes in so that all employees are capable of handling the intended change.
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ERP systems are extremely complex systems and demand rigorous training. Installing an ERP software package without adequate end-user preparation could lead to drastic consequences. Inadequate or lack of education has been one of the most significant reasons of many ERP systems’ failure.
In ERP implementation projects, despite millions of dollars and hundreds of deployment hours, many projects fail because of the lack of adequate training. Training and updating employees on ERP systems is a major challenge. Moreover, every level in the project class and the various users require different training. The steering committee members need to get a good project overview and a general idea of the system’s functionality. The project members, especially the project leaders, must have an in-depth understanding of the system’s functionality and project management. The users need to learn those system functions that related to their jobs, and they must acquire sufficient theoretical background to be able to understand the new processes and procedures. ERP training should address all aspects of the system, be continuous, and be based on knowledge transfer principles wherever consultants are involved.
However, it is difficult for trainers or consultants to deliver on the knowledge to the employees in a short period of time. It is, however, important to stress that the main goal of ERP training should be the effective understanding of the various business processes behind the ERP applications. In this regard, the costs of education are often under-estimated, and these costs could be many times greater than originally anticipated. Epson noted that the costs of training and support are greater than originally anticipated.
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Overall, enterprises should provide opportunities to improve the skills of the employees. Several authors and practitioners agree that proper training is one of the main critical success factors.
Communication is one of most exciting and complex tasks in any ERP implementation project. Communication is the provision of an appropriate network and necessary data to all key factors in the project implementation. Communication has to cover the scope, objectives, and tasks of an ERP implementation project. The way to avoid the various communication failures is for an open information policy to be maintained throughout the project. For example, a good e-mail system can help promote this policy, but serious problems need to be discussed by phone or, preferably, face-to-face.
The communication plan has to feature specific areas, including the following:
- Overview and rationale for the ERP implementation.
- Detail of the business process change management.
- Demonstration of applicable software modules.
- Briefings of change management strategies and tactics.
- Establishment of contact points.
- Periodic updates.
Summary of Factors
Overall, there are several critical success factors of any change management, mentioned by several researchers and practitioners. These factors are:
i. Top management commitment.
ii. Education and training.
This paper has discussed the role and impact of Dominant Factors of ERP software system implementation through a comprehensive scrutiny of the relevant literature, and analytical study of over 100 case studies. They include: top management commitment, a powerful business case, focused change management, experienced project management, a world class training system, and a well governed communication process. These factors should be clearly visible and monitored at all stages the ERP project implementation In other words, they are deployed on all levels of ERP project implementation and hypothesized to play a more overriding role in ERP implementation. In essences, these factors are about people and business processes and they highly interdependent. In other words, failure in one factor can affect the overall ERP project implementation.