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Information Technology has revolutionalized the way business is done around the world. The change in business models goes beyond interaction with outside players to encompass how internal processes or players interact. This research paper explores in detail what an ERP solution is. Technology comes with numerous challenges or risks that have to be borne into mind.
Therefore, this paper will further explore the risks involved in implementing an ERP solution. To make clear why, despite some risks, it is worthwhile adopting an ERP solution, this paper outlines the benefits of implementing an ERP System in an organization.
Every new technology has its own complexities and ERP solutions are not an exception. Through discussing the methodologies used in applying an ERP solution in an organization, the paper helps make clear considerations that organizations have to make when it comes to implementation.
The final considerations, in this paper, are some of the organizations that have embraced and implemented ERP solutions. From the case studies it is clear that adopting an ERP solution helps improve efficiency and effectiveness in organizational operations.
ERP system is an Industry term that denotes an Information technology solution use to integrate a broad set of activities and resources in an organization. An ERP system basically helps to shape and redefine businesses in the management of vital parts of its core business. The Structure and the information that is accrued from an ERP system facilitate optimal performance necessary for attaining organizational objectives (Betz, 2007, p.83).
ERP is an acronym for Enterprise Resource Planning. The main feature of an ERP system is capacity to integrate businesses through application of modern technology and relevant business management practices. The integration of business processes with new information technology is critical towards success in the world of today.
This integration has been transforming businesses to operate in modern information age. Necessarily to adapt to the new information age, organizations are forced to discard the traditional way of conducting business or managing organizational resources (Betz, 2007, p.90).
Advancement of information technology has been beneficial to many organizations because it has enhanced service delivery to both internal and external customers. With a touch of new technology, business processes have been made faster and easier thus improving organizational output.
The ERP system is composed of three aspects; information technology, specific business goals and business management practices (Betz, 2007, p.100). Due to its capability, the ERP is designed to provide much needed facility to geographically dispersed businesses across a multi platform with its functional units.
This functionality of the ERP system is important and advantageous to all organizations but more particularly to those whose executives have to travel a lot. Due to integrated databases facilitated by the ERP system, executives on the move have access to much needed details to support business decision making wherever they may be (Chorafas, 2001, p. 56).
ERP architecture has evolved overtime to enhance a variety of services housed in its individual unit programs. The different functional units of an ERP system have elaborate database and are interlinked as to work in unison under a single umbrella. For utmost output to accrue, the ERP system should be integrated with a facility which allows for flexibility, reliability, security and stability (Chorafas, 2001, p. 79). Apart from the mentioned, the system should also have a global focus.
ERP System Implementation Risks or Bottlenecks
Before implementing or adopting a new technology, organizations have to look into risks associated with the implementation or adoption. ERP implementation involves some major risks. Without proper risks identification and mitigation when implementing an ERP solution, a lot of time, resources and knowledge can be wasted. Early risk identification ensures that success is achieved when deploying an ERP system. A quality culture demands that risks are mitigated long before the actual implementation starts (Grant, 2003, p.39).
Some of the risks or challenges associated with the Implementation of an ERP system relate to the complexity of an application, lack of end user experience and lack of clear job definition for members handling the project. For any systems to successfully be utilized in an organization, good end user support is important.
Lack end user support poses a huge risk in implementing an ERP project in an organization (Grant, 2003, p.46). If end user’s are not properly engaged, they may tend to sabotage the project. Workers may basically refuse to use new applications or resort to vandalism in extreme cases.
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Without proper roles specification, the project team can jeopardize the implementation of the ERP system. The project team should be able to grasp and understand the technical complexity of the application they are to implement (Grant, 2003, p.56). Understanding the complexity and role one has to play helps towards better coordinated efforts in the execution of the project.
Lack of proper coordination within the project team notwithstanding, poor liaising between the organization’s top management and the project team can also result into project failure.
In most cases, ERP implementation requires an enabling organizational structure. ERP alone cannot really improve performance in an organization unless all the business functions are made responsive to market demands. Companies or organizations have to restructure their operational processes to fit the functionality of an ERP system. Top management has to believe in the value of an ERP solution i.e. the implementation should be seen as a business initiative (Somers & Nelson, 2001, p.2).
Without proper top management support and organization-wide acceptance and participation of employees, an ERP system implementation can easily be scuttled.
Based on the two foregoing paragraphs, it should be clear that top management, project team and organizational employees have a stake or a say in ERP implementation. Therefore, problems in implementation can occur in case any of the groups lost project control.
The risk is highest in case the ERP project team lost control to employees. Secondly, the risk is also highest if top management lost all project control to the project team (Somers & Nelson, 2001, p.2). Control in an organization is very important. It provides for order and delineates a chain of command thus ensuring decisions are only made by authorized individuals.
It is imperative that the implementation process is well planned and coordinated; bringing all stakeholders on board from the word go. To ensure effective decision making and enabling proper ERP implementation, information collection and dissemination with regard to the system has to be an ongoing endeavor (Stein & Hawking, 2002, p. ix).
The information collected and disseminated should help all involved understand the technical aspects of the system and developing functionality. A good reporting structure has to be established and the project team allowed enough autonomy necessary for awesome execution. The reporting mechanisms ensure that feedback on the project is shared continually; both upwards and downward communication.
Once an ERP solution has been implemented, it tends to decentralize and devolve certain functions in the organization. For example, information that was originally not easily accessible to low cadre employees becomes accessible. An ERP system reduces the power distance between top employees and lower cadre employees.
Unless, organizational structure and culture is streamlined, an ERP system may precipitate a crisis in an organization (Brown et al, 2003, 10). The ERP solution demands or leads to the empowerment of lower or middle level employees. Management has to redefine control measures and realign the organization towards a more decentralized power structure.
Costs management is another area an organization has to look into before choosing to implement an ERP system. To set up an ERP system, an organization has to spend heavily on software, hardware, consultation, implementation costs and training. If costs are not managed properly, an ERP system implementation becomes too expensive. Costs can be managed through identification of right software and using competitive implementers.
Management has to consider the time available for the implementation of the system. ERP implementation projects are known to take longer than other ordinary Information management systems. The time spent on ERP implementation may cost the company business. Therefore, contigent plans have to be instituted to deal with any possible inconveniences to business due to ERP implementation.
The final risk consideration management has to make before embarking on an ERP implementation is available house skills. If relevant knowledge and skills are lacking in the organization, the implementation team has to be sourced from outside the organization. Secondly, means that organization has to work on equipping staff with skills necessary before switching to ERP use (Booth et al, 2002, p.7). To effectively deal with these risks, management has to be well versed in change management practice.
Benefits of ERP Systems
Despite the mentioned implementation challenges or risks, an ERP system can benefit an organization in a very big way. An ERP solution integrates the functions in an organization (Accenture, 2004, p. 15). Integration of business processes in an organization is very important.
What it means is that department, sections and sectors in an organization can communicate with each other in real time. Employees can access information from other parts of the department on demand without having to follow long bureaucratic processes. How the system integrates the different functions in the organization determines how well they interrelate.
The efficiency and effectiveness of the interrelations between different units and departments in an organization is what leads to cost reduction and time management efficiency.
When time and performance is managed properly with a concern for costs, an organization operates more optimally than otherwise (Booth et al, 2002, p.5). A good ERP solution ensures different departments or divisions in an organization are connected. Interconnectivity makes it easy to share files or to access relevant information. This consequently increases production and performance in the business.
ERP solutions assist organizations to fuse business processes from all departments within the organization. Further, an ERP system helps in fusing departmental databases and consolidating then into a central database (Accenture, 2004, p. 17). This is achieved without incurring more costs or wasting much time hence making it easy for accessibility and smooth flow of work.
Merging is achieved by building a database repository that allows integration with a variety of application software. By so doing, business statistics and other information from various departments within the organization becomes accessible from a central point (Accenture, 2004, p. 18). To have an ideal ERP Solution, the system should have an ERP structure which is made up of integrated central database repository in a fused environment.
Day to day management of an organization is simplified by the use of ERP systems. Use of ERP facilitates centralized storage of data; through a process widely known as data warehousing (Ray, 2004, p.77). Data warehousing provides better data accessibility thus management has access to up to date information for better decision making (Mukherjee & Talbot, 2003, p. 12).
An ERP system plays an important role in supporting strategic planning (Bardhan, 2003, p. 8). Strategic planning is a vital process in any organization because it helps in defining goals and objectives pursued by all in an organization. The strategic planning process leads to the formulation of plans and strategies that guarantee organizational success.
ERP systems due to their integration functionality help towards better resource planning and deployment. For instance, costs are easily traced to specific tasks due to integrating financial information. It is noted by Booth et al (2002, p.17) that ERP makes it easy for organization to adopt new management accounting practices. In the human resource department, total employees and their designation is easily established due to centralized data bases. This helps eradicate ghost employee related fraud.
In large companies, where multiple departments and business units exist, the ERP solution assists in standardizing business information formats across the organization. Standardization of communication tools helps towards effective and efficient communication in an organization. Good communication, both to internal and external players, gives organizations a big edge over competition.
Methodologies for implementing ERP
A variety of methodologies are applicable when implementing an ERP system. Given the complexity of the system, some organizations spend much time agonizing on how to implement an ERP system. Before adopting an implementation methodology, management has to consider risk related to each (Shields, 2001, p.89).
One way of easily implementing the system is outsourcing implementation to vendors (Somers & Nelson, 2001, p.3).
There are organizations that specialize in the sale and implementation of ERP systems. Therefore, one easy way of implementing an ERP system is contracting such organizations. Such an option comes with related outsourcing risks e.g. security of confidential organizational information. However, the vendors are professional bodies and with close monitoring, they can do a marvelous job.
Another fact to consider in choosing an implementation strategy is related costs. Organizations have seen the need of not going it alone when implementing the ERP systems. Joint venture with sister organization or a provider of the System has been a major boost in realizing swift implementation (Shields, 2001, p.97). Joint venture ensures the spread of implementation costs and risks.
However, joint venture implementation has its own complications. Therefore, doing alone methodology has been seen to work better. Doing it alone means that the organization carries all the risks. Nonetheless, if the risks are calculated and proper mitigation plans instituted, it is the best methodology for any company (Vaman, 2007, p. 67). Doing it alone involves the company analyzing its financial capability, technical expertise and management policy necessary for the system implementation. By going alone, the company is able to have full control over the implementation procedure.
Organizations also can choose between either partial or full implementation of the ERP solution (Vaman, 2007, p.77). Depending on the needs of an organization, only certain functions, people or departments can be chosen and appropriate ERP Software used to integrate them. However, depending on resource availability, organizations are encouraged to go for full implementation (Vaman, 2007, p.109).
Steps for success
ERP implementation is financial and technical resources intensive (Williams, 2008, p.56). Therefore, for successful implementation and use of an ERP system proper planning is very crucial. ERP project planning allows an organization to identify its peculiar needs.
The organizational needs or characteristics further frame the organizations goals and business objectives. Financial estimates have to be accurately projected by help of experienced professionals. Given the project is complex and cost intensive, professional project teams have to be established to guide the process.
The first task of the team is project planning. Project planning provides an opportunity for an organization to re-evaluate project in a more detailed manner (Williams, 2008, p.69). If the project is not justified during the initial planning phase, organization should not hesitate to cancel it.
User Training and education about the ERP system has to be a continuous concern. This is important in ensuring employees understand what is going on and can thus contribute meaningful in customizing the system as necessary. Training allows users to understand the capability of the ERP software and its documentation (Somers & Nelson, 2001, p.2).
Architectural design for the system is another critical factor to consider for successful implementation of ERP system. The architectural design determines system relevancy to organizational characteristics. If the design does not respond to organizational characteristics, obviously the project would have failed (Malaga, 2005, p.49).
An ERP system requires integration with other or existing e-business software. Secondly, the system has to accommodate or conform to legal requirements or procedures. For example, if an organization is security sensitive or the laws of the country are sensitive to security of employee’s personal information, the system has to guarantee the same (Malaga, 2005, p.66).
The planning process has to give room for proper end user introduction to the system. The Success of the ERP systems is more likely when implementers adopt he phased implementation approach. The complexity of the ERP systems would be easily managed if its implementation is broken down into manageable units.
According to Accenture (2004, p. 9) most companies that have employed ERP systems are satisfied or happy to have done so. An example of a company that has implemented an ERP system and benefited immensely is NIBCO INC. This is an international company; one of the leaders in flow control (Brown et al, 2003, 5).
The company is involved in manufacturing of a variety of valves, piping products and fittings which targets; commercial, residential, irrigation and industrial markets (Brown et al, 2003, 3). NIBCO has a diverse manufacturing division. It builds its commodities using a wide material range i.e. from steel, iron and bronze. NIBCO has over the years concentrated on consolidating its distribution chain and increasing markets for its products.
A consolidation of NIBCO services led to increased service and product delivery to its customers and suppliers (Brown et al, 2003, 7). However, the consolidation of processes increased pressure in terms of information management. NIBCO has, over time, concentrated in standardizing its internal operations as well as focusing on customer issues and processes. The company realized that ERP would help it achieve this. ERP was seen as an appropriate technology to improve its operations (Brown et al, 2003, 8).
The objective for adopting the ERP was to increase customer and supplier participation while lowering the costs of operations. Before adopting the technology, NIBCO customers suffered from late shipments of their products, errors in their orders and information in invoices was inconsistent.
NIBCO’s key marketing concern was to develop a web based platform where customers would easily get market information regarding distribution and promotion of the company’s’ products. The ERP was seen as a better platform to improve its profitability by helping towards efficient delivery on what the customer needed.
The Implementation of ERP at NIBCO started with the establishment of a strategic IT team, which assessed the need of the system (Brown et al, 2003, p. 12). The team presented its recommendation on the need of the solution and they were adopted by top management. NIBCO implemented the solution a bit fast but in a comprehensive way.
The implementation of the solution followed a well choreographed strategic plan facilitated by the project team. A dedicated team comprising of IT experts, business manager and change management experts were involved. They worked cohesively and the system went live in 1997(Brown et al, 2003, p. 14).
Since the adoption of the system, many benefits have accrued NIBCO as an organization. For example, there was marked improvements recorded in the processing of sales orders, inventories, and purchases and in production processes (Brown et al, 2003, pp. 15-30). ERP solution was, therefore, able to address and correct NIBCO’s challenges once implemented (Brown et al, 2003, 31).
The second case study is TransAlta. TransAlta is a wholesale marketing and power generating company. It has 49 facilities based in Australia, Canada, USA and Mexico (TransAlta, 2010). Prior to introduction of SAP solution, the TransAlta Company was using Reliability Centered Maintenance.
This solution was localized at different locations by the use of point solution. TransAlta wanted an Enterprise-Wide System which would offer strategy development and provide understanding of vital assets, monitor overall risk in the organization and give optimized operations concerning maintenance costs.
The implementation of the SAP ERP solution involved integrating the existing Reliability Centered Maintenance (RCM) to facilitate wide accessibility (Transalta, 2010). The RCM enabled creation of a central database for the organization that can be standardized across a uniformed platform hence providing optimized maintenance.
The implementation of the solution has enhanced success in fleet management because information is dispersed to a centralized depository allowing easier communication and accessibility. The RCM solution has motivated staff to work every day in SAP. Consequently, the company can push the RCM methodology and cultivate it deeper within the organization (Bardhan, 2003, p. 7).
Advancement in information technology is a key driver of organizations’ competitive advantage in modern times. It is for this reason that organizations are embracing information technology changes as fast as they can (Accenture, 2004, p. 5). An ERP system plays an integral role in enhancing an organization’s growth. Organizations, which have endeavored to carefully and systematically implement ERP systems, have registered many benefits. One such benefit is fast delivery of services due to integrated processes.
However, because of the complexity involved in implementing ERP applications, organizations should have well choreographed plans. The implementation of the system requires closer coordination among all stakeholders. Necessarily, the project management should be left to experts. However, the participation of all employees is very vital.
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