Enterprise Resource Planning Systems - Case Study Example

Implementing ERP in SASO The Saudi Standards, Metrology, and Quality Organisation (SASO) was founded by Royal Decree in April 1972 as a GOCC under the chairmanship of H.E. the Minister of Commerce and Industry. The Organisation, which has 900 employees, strives to achieve the vision of being an internationally-distinguished body in the field of standardisation and quality assurance. SASO is tasked with developing and enforcing standards of quality, metrology, and conformity in all commodities produced or imported by the nation, with the primary objective of providing consumer protection, as well as co-ordinating metrology and quality standards with the country’s regional and trade partners. Because of the wide range and variety of SASO’s activities, the implementation of an Enterprise Resource Planning (ERP) system is indicated as a means to improve the Organisation’s efficiency, co-ordination, and management of physical and intellectual resources in accomplishing its mission. As an agency whose critical mission is to develop and maintain quality and metrology standards, SASO’s own processes must in turn meet high standards that are recognised not just by the national and regional clients it serves, but by international concerns as well. In the context of meeting these standards, an ERP system that will improve conformity to internal procedures and standards, improve communication and data management, and improve resource management will be an advantage. This report will discuss some of the general benefits, potential risks, and other considerations which must be made by SASO in determining whether or not to adopt an ERP system, and the general steps to implementation it should follow. It must be noted that the report is general in nature, and where particular characteristics of ERP systems are described, these apply to ERP as a concept rather than any particular system package, of which there are a large number; the selection of one of these packages would be the next phase of the project. Along the lines of supporting the ‘general’ decision-making process, three main recommendations for SASO going forward are made in the conclusion to this report. Enterprise Resource Planning (ERP) is a general term describing an enterprise-wide information management system that manages and co-ordinates information sharing and task planning across all the various functions of the organisation, such as personnel management, accounting, production processes, supply chain management, and so on (Charalambos & Constantinides, 2004, p. 234). ERP developed as an evolution from earlier systems such as Material Resource Planning (MRP) and Master Production Scheduling (MPS), which addressed specific functions of an organisation such as inventory and supply, or production and logistics (Gupta, 2000, p. 114). The most important general benefit of ERP is to integrate information-sharing and planning across the entire organisation, something which legacy systems such as MPS and MRP could not do (Kamhawi, 2008, pp. 310-311). MPS and MRP also did not have administrative functions such as personnel and payroll accounting, so an ERP system with these capabilities would upgrade SASO’s efficiency in this area. This is a particularly useful benefit, as SASO operates five branches across Saudi Arabia. And ERP retains the capabilities for materials and process management, benefitting other functions within SASO such as properly keeping laboratories supplied, and managing the inventory of consumer products acquired for testing. For example, for proper testing of consumer products, SASO’s testing laboratory must have a sufficient quantity of the products to be tested, and various lab materials such as chemical compounds, containers, labels, and tools needed to conduct different tests on hand. These resources all must be available in an efficient quantity, meaning that they are readily available as needed as well as being on hand in reasonable quantities for planned future testing. An MRP system can manage the materials inventory from different sources efficiently (Zarwell & Davis, 2009, p. 2), but the additional requirements of managing costs and the personnel required would have to come from different systems, which leads to a risk of a conflict. A single ERP system that manages everything avoids that risk. Another general benefit of ERP is that it can improve inter-organisation co-ordination and co-operation by improving the efficiency of information-sharing with parties outside the primary organisation (Kamhawi, 2008, p. 319; Yang & Su, 2009, p. 741). This has positive implications for SASO’s working relationship with different government agencies within Saudi Arabia, as well as its counterpart agencies in other countries, such as the Gulf States, with whom it must co-ordinate closely on standards and regulations. One way in which ERP provides this positive impact is in allowing for a significant degree of decentralisation in decision-making and empowerment of line employees (Velcu, 2007, p. 1323). Because the ERP system facilitates information-sharing across the entire organisation, management control of the information is only to a managerially pre-determined degree, rather than being a function of system location or capabilities. Management can still be centralised, but the ERP system allows for flexibility. Data management capabilities of ERP ensure that first of all, all relevant data is properly recorded and accessible by the organisational components that require it, and second of all, data management capabilities of ERP permit greater cross-referencing of information for planning purposes; for example, personnel scheduling data can be accessed quickly while planning the inspection of a group of cars, a very common activity for SASO. Vehicle inspection is a good example of an activity that has different process controls (van Roosmalen, et al., 2010, p. 5). In this case, the actual physical inspection of the cars – determining whether the mechanical equipment meets emissions and safety standards – is one process, while the legal requirements, making sure that the vehicle records and registrations are in order and that proper taxes and fees are paid and recorded, is another process. ERP can streamline and manage both of these processes simultaneously. This can greatly reduce process times, because employees can have the same access to the information required to make a decision as management does. For example, a shipment of motor vehicles arriving in Bahrain might include a number that are intended to be shipped on to Saudi Arabia, but require an exemption of one kind or another to the regularly-applied vehicle standards. Under the existing (pre-ERP) system, these vehicles would likely be cleared as a trans-shipment by Bahraini authorities then be held at a Saudi port of entry until supervisory clearance from SASO is obtained. With ERP in place, the Bahraini authorities – either directly or through the local SASO representative – would be aware of the non-conformity of the vehicles on their way to the KSA, and could alert Saudi customs before their arrival; the responsible SASO agent in the meantime could access the relevant information and determine the applicable exemption – or conversely, put a stop to the shipment before it arrives if no exemption can be given – thus saving time and effort, depending on the degree of decision-making authority and co-operation SASO’s management feels it would be prudent to delegate. Because SASO has a clearly defined set of organisational values and objectives, an approach to determining user requirements for an ERP system based on Critical Success Factors (CSFs) would be the most effective way to identify precisely what SASO needs its ERP system to do. Another method, such as Enterprise Analysis (EA), would be more helpful if SASO did not have such clearly defined objectives. EA may also be useful in determining if the present set of objectives is realistic given the current structure and activities of the organisation, but the literature reviewed strongly suggests that CSF is a more effective method (Dezdar & Sulaiman, 2009, p. 1044; Mehrjerdi, 2010, p. 313). In the context of ERP implementation Dezdar & Sulaiman (2009, p. 1044) identified a taxonomy of 17 CSFs found in the research literature over a 10-year period (1999-2008) that describe the most common concerns of organisations pursuing an ERP program. A similar study by Mehrjerdi (2010, p. 313) identified the “top 10” CSFs, which SASO should consider in designing its ERP implementation program: Top management support, project management, and a project champion – It is vital that the ERP initiative be strongly and visibly supported by the top management of SASO. The concept of a “project champion,” it seems, is to help to build enthusiasm for the project throughout the organisation by personalising the project, and can help to manage information flow by providing a single spokesperson. Project team competence – The competence of the team designated to manage the project has obvious practical benefits, but also helps in gaining organisational acceptance of the new system. It is important, however, that the criteria for ‘competence’ not be limited to IT or IS skills and experience, since functional and organisational changes will be part of the process, as discussed below. Inter-departmental co-operation and inter-departmental communication – This is a critical success factor for SASO not only because of the need to implement ERP successfully across internal boundaries within the organisation but also because of its working relationship with external agencies. Proper management support, project management, and team competence all play key roles in meeting the requirements of co-operation and communication. Clear goals and objectives and management of expectations – In the planning stage of ERP implementation, in other words, after the feasibility of implementation has been determined but before a specific system package has been selected, a business case describing the objectives of implementation must be firmly established and communicated, along with performance measures and a target timeframe for various stages of the project (Mehrjerdi, 2010, p. 311). These clear objectives provide the organisation with a realistic set of expectations – ‘this is what the system will do, and this is what we need to do in order to ensure the system fulfils that mission.’ Knowing what the expected outcome and steps to reach it are from the outset of the project eliminates uncertainty, and can help to encourage acceptance of the system within the organisation. Careful package selection and vendor support – It will be the responsibility of SASO to determine which system package meets the organisation’s requirements in terms of function, ease of interface with the workforce and existing systems, and price, as well as determining the level of vendor support during the implementation process and afterwards. The system vendor, however, should also be willing to offer support at the initial planning level. A critical consideration for the implementation of ERP at SASO is to what degree the organisation will have to undergo change to adapt to the ERP system, or what degree the system can be customised to fit SASO’s existing structure and processes. The balance of research literature suggests that business process re-engineering (BPR) is an inevitable necessity of successfully adopting ERP (Davis, 2005; McAdam & Galloway, 2005; Rothenberger & Srite, 2009; Subramoniam, et al., 2009). Without BPR, the best fit any existing ERP package can provide ‘off-the-shelf’ in an existing organisational structure is about 80% (Subramoniam, et al., 2009, p. 653). In a case study of GUDV NI, a large and successful organisation that had moved from a hierarchical structure to a more flexible cross-functional organisational structure precisely for the purpose of being more adaptable to necessary BPR changes, McAdam and Galloway found that, “Overall, the managers perceived that the implementation and effectiveness of the SAP ERP system was limited due to inadequate consideration of organisational change issues involving changes in roles, responsibilities and required skills and experience.” (McAdam and Galloway, 2005, pp. 284, 287). Clearly SASO will need to consider some degree of BPR, but possible (or unavoidable) ways in which the ERP system would be customised should not be overlooked. One of the core areas in which customisation may be helpful is in the part of the system that manages personnel and payroll accounting. In surveys of firms having undergone the ERP adoption process, these areas were found to be the most problematic or the ones where the least benefit of the new system was realised, in terms reducing the amount of labour involved in managing personnel accounts and issuing the payroll (Charalambos & Constantinides, 2004, p. 242). Customising the ERP system to match the current processes in the area of personnel and payroll accounting in SASO also has a practical, though likely unquantifiable benefit to the ERP adoption project of avoiding most if not all problems that might create delays and errors and cause harm to employee morale. Other key areas where customisation may be highly preferable to significant BPR are in the laboratory and metrology departments, whose activities are dictated by rigid scientific processes as a matter of necessity. For example, product testing requires a specific procedure and sequence of steps that cannot be altered, otherwise the results of the test would be invalid, or the testing might simply not work. Thus a change in workflow from BPR may actually be harmful to the organisation’s activities and objectives in this area. The most significant risk to the successful implementation of an ERP system is its acceptance by the people in the organisation (Saatcıoglu, 2009, p. 697). A hierarchical culture, of which SASO is a typical example, has mixed advantages in successful ERP implementation in Knowledge Management terms. Hierarchical systems have a positive effect on the externalisation of knowledge – in other words, helping people to express their ‘internal’ tacit knowledge based largely on experience into ‘external’ explicit knowledge that can be used by others. There is also a positive effect on the combination of knowledge, which is organising explicit knowledge into more complex forms and systems. Hierarchical systems have negative effects on socialisation of information – which describes the process of converting existing tacit knowledge into new tacit knowledge, in effect a form of learning – and internalisation of knowledge, which is another form of learning in taking explicit knowledge and converting it into new tacit knowledge (Tseng, 2011, pp.4-5, 17-18). Put another way, the hierarchical form of the organisation is effective for providing a framework – for example, by establishing procedures and processes – for sharing information in a useful form among people in the organisation, and for synthesising that information into new processes, but works against the workforce’s individually accepting and internalising the information as new learning. These obstacles to successful ERP adoption or implementation must be overcome from the very beginning of the initiative, because they are usually reflected in the negative attitudes of the non-ERP organisation towards the system, as illustrated by a survey of firms in Bahrain (Kamwahi, 2008, p. 323). Workflow management systems embedded in ERP do present a number of challenges in an inter-organisational setting, and can quickly become very complex in their architecture if the organisations across whose boundaries the ERP is intended to function have significantly different workforce cultures, organisations, or tasks (Grefen, et al., 2007, p. 5; Hawari & Heeks, 2010, p. 149). The problem relates to SASO in both an internal and external context; internally, the wide range of diverse activities creates a number of inter-organisational boundaries within SASO itself, while externally SASO must co-ordinate activities with other agencies, such as Customs or standards agencies of other countries, and a wide range of industrial and commercial clients. A possible solution to overcome problems of compatibility of SASO’s ERP system with its engagement with other organisations is suggested by successful ERP implementations in Oman; at the outset of project planning and implementation, the organisation’s relationships with other parties should be carefully identified and categorised, and the degree of impact of ERP implementation on the required activities between SASO and the other parties assessed. The resulting degree of involvement of other parties in SASO’s ERP implementation can then be determined; some of SASO’s client parties, such as regulated businesses and industries, may just simply be informed, while others such as Customs might need to be allowed to have more input into the system design and implementation (Maguire et al., 2010, p.86). Beyond the integration with other organisations, another considerable risk to successful ERP implementation is the improper management of BPR in relation to the integration of the ERP system. In an early case study of one Indian firm, for example, while the management recognised the need for organisational change, the project management focused too heavily on organisational problems and not enough on the actual integration and optimisation of the new system (Upadhyay, et al., 2011, p. 140). This leads to something called “scope creep,” where new requirements to the initial specifications for the system integration are added on an ad hoc basis (Al-Mashari & Al-Mudimigh, 2003, p. 29). By the same token, the opposite problem is a serious risk for public-sector organisations whose specific organisational layout is constrained by political or legal conditions; successful horizontal integration within specific departments or divisions is possible, even likely, but vertical integration can be challenging (Koch, 2001, pp. 66-67; Gulledge & Sommer, 2003, pp. 475-477). The implementation of an ERP system has potential negative impacts on SASO’s clientele as well, and these must be anticipated and mitigated as much as possible. Most problems arise during the transition period between the “old” and “new” systems; this includes not just information systems, but changes in procedures and even personnel required by BPR actions. Some problems that have been encountered by other organisations include misplacing invoices or other important customer records and delays in product or service deliveries (de Koning, 2006, p. 3). These are critical problems to avoid for SASO, because its clients would be delayed in their own businesses; for example, an automotive dealer who must wait to receive SASO clearance for his order of new cars, or a food manufacturer who cannot ship a new product to stores until it receives approval. The following recommendations, in particular the first, are intended to find a middle ground between comprehensive re-organisation and full customisation of the selected ERP system . Three primary recommendations can be offered to improve the chances of success of the implementation of an ERP system at SASO. First, the project governance must be carefully considered; it must be cross-functional with respect to the organisation and its varied parts as well as being cross-functional with respect to the co-ordination amongst the organisation, the ERP system supplier, and SASO’s clients and stakeholders. This requires forming a temporary ‘organisation within the organisation’, forming a core project group comprising three sub-groups (Dey, et al., 2010, p. 290): the project team of the ERP vendor; the ERP consultant’s project team, which interfaces with the ERP vendor and the client (SASO) representation, most likely IT management tasked to assess and make system package selection recommendations; and the organisation’s project team, which includes IT and functional representatives under the oversight of SASO’s general management. Once the organisation of the overall core project group is accomplished, the group must identify “super-users” and “trouble-shooters” outside the project group, within the functional areas of the organisation (Mehrjerdi, 2010, p. 312). These personnel would serve as the “test subjects” for components of the new system as it is implemented, and because their perspective is primarily functional rather than management-oriented, and integration and usage problems with the new system will be immediately identified by them, along with likely solutions. The third recommendation is that a sound and consistent risk management framework be adopted and used throughout the implementation process. The framework consists of five general steps: risk identification, logging of risk manifestations in implementation processes, reviewing these manifestations, developing mitigation and containment strategies, and reporting the risk management process to other parts of the project (Dey, et al., 2010, p. 288). It is not likely that all risks can be identified in the first stage, and that some problems will arise as implementation proceeds. Having a good risk management framework, however, can reduce the negative impact of these unforeseen problems in a number of ways. First, a previously-identified risk may be similar, and provide some ideas for possible solutions. Conversely, a new problem may indicate an error in the initial identification of some risk, and help to improve the applicability of risk management measures later on. Solutions to particular risks also will very likely have general characteristics that can be applied to management of other risks, even if the specific natures of the risks are somewhat different. And finally, establishing a good overall risk management program will help to empower the workforce to solve smaller problems on their own, since the identify-monitor-mitigate-report pattern can be used at any scale. This report has briefly explained the general benefits of ERP, discussed the importance of identifying and developing specifications to meet SASO’s user requirements, and examined some of the general risks that may be expected in pursuing implementation of an ERP system. 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