Pros and Cons of Implementation of Enterprise Resource Planning - Literature review Example

ERP Implementation: Change Management Name: Instructor: Course: Date: ERP Implementation: Change Management Introduction Today, enterprise resource planning (ERP) systems find wide applications to support business functions across all major industries. While ERP stands for the methods and concepts used for incorporated business management, ERP systems describe integrated computer software that supports various or all business processes and functions. Implementation of these packages, such as those from PeopleSoft, Baan, Oracle, and SAP AG, has contributed immensely to improved performance of businesses. While some organizations have ripped many benefits from use of ERP systems, many others have faced various challenges. Problems, including system complexity and resource intensiveness, as well as people resistance, have led many firms to fail in integrating the systems into business functions. Those that have succeeded show increased reliance on numerous strategies of change management to support the integration process (Aladwani 2001). The current research explores various aspects related to the systems, including associated advantages and problems, how management of change influences them, and various strategies that organizations have used to successfully adopt organizational changes, as well as case studies on effective ERP implementation. Benefits and Problems of ERP Implementation Even though companies expect variety of benefits in implementing ERP systems, they face various problems in the implementation process. Benefits Implementing an ERP system presents various benefits (both direct and indirect) to businesses. Among others, some of the direct advantages include information integration that improves the process of making decisions, improved customer care, and enhanced efficiency. Indirect benefits involve improved corporate image, enhanced satisfaction of customers, and enhanced consumer’s goodwill, among others. Integration of information from various business functions remains one of the most significant benefits that ERP system offers to an organization. As Bosilj-Vuksic & Spremic (2005) argue, ERP system integrates various business processes, implying that the system automatically renews information among related processes and functions. For instance, an organization adopting an ERP system needs only to update order status at a single business function (for example, order processing) and all information in other departments will be updated automatically. As a result, the organization always stands in a position to make effective decisions, as well as to improve the problem solving process. Other associated benefits regard increased collaboration and information exchange among project members, as well as improved overall productivity. The system assists organizations to lessen lead-time – period taken before processing an order. In normal circumstances, companies handle large number of components and raw materials, which implies that monitoring lead-times for every single material manually can be a very challenging task. According to Hamilton (2003), ERP system addresses this task by integrating processes related to order processing, including materials management, production, marketing, sales, and others. Therefore, such integration in addition to electronic technologies that support the system enables firms to minimize lead-times, making it possible for the firms to adopt just-in-time inventory management. Another benefit includes enhanced use of resources through capacity planning components that come with ERP systems. The components enable the systems to load every resource accompanied by manufacturing requirements. Thus, it becomes easier for capacity planners to identify production bottlenecks and effect improvements promptly to reduce resource wastage (Parthasarthy 2007). ERP systems also guarantee shipment of products to customers on time. They provide organizations with privilege to vary planning and production processes with changes in customer needs, without altering or re-arranging the plant layouts or work environment (Parthasarthy 2007, p.2). With ERP, firms can combine various production methods within a single process, with unrestricted suppleness to select the best method or group of techniques for every product at every phase of the product life cycle. According to Reynolds (2009), organizations implementing ERP systems have shown that they can achieve enhanced customer care that not only makes their customers satisfied, but also loyal. Such organizations have capability to produce goods or deliver services at the flexibility of make-to-order strategy without compromising on the time and cost advantages. In turn, consumers get individualized care that suitably meets their distinct needs with incurring additional costs or waiting for extended periods. In addition, emergence of internet-enabled ERP systems made it possible for consumers to place and monitor status of orders, as well as to pay for the orders at the comfort of their homes. The consumers can also get support services from online help-desks or help-lines. ERP systems guarantee these customer care benefits because they integrate the latest information technologies. Other potential benefits associated with adoption of ERP systems include enhanced performance of suppliers (due to purchasing support and vendor management services), increased flexibility, improved planning capacities, decreased cycle time, and others. Potential Problems As much as there are many benefits derived from ERP systems, businesses also face plethora of complexities and problems in ERP adoption. According to Elragal and Al-Serafi (2011), the systems take a considerable part of an organization’s workforce, capital, and time. Such complexities arise due to the many implementation requirements needed to make the system operational. ERP requires organizations to configure and customize various features in order to suit their needs effectively, as well as to consult with ERP professionals on the best way to implement the systems. Thus, it is evident that such conditions introduce increased costs and much time to effect the needed requirements, as well as increased workload for an organization’s employees. Hong and Kim (2002) attribute difficulties facing implementation of ERP systems to unwillingness of employees to accept the systems. Adoption of the systems represents some form of change because the systems change the way firms carry out their business operations and the way people do their duties. Moreover, they change work profiles of workers, as some responsibilities are phased out and new responsibilities generated. As it is human nature to reluctantly accept changes, then implementation of ERP systems will definitely face some level of resistance. Besides employees, even other people (including managers, consultants, vendors, consumers, and others) involved in the organization will still show skepticism about the change. As noted earlier, ERP is a complicated system that requires substantial amount of resources. As such, many companies experience some difficulties in handling such complicated system. They will need to train employees on how to use the system, as well as hire additional or new employees with expertise to operate the systems. Other disadvantages may include need for additional resources (for example, computers) to run the system, increased risks of data insecurity, frequent system updates to integrate emerging new functionalities, and many others. Change Management Organizations need to adopt effective management of change to make ERP implementation a success, as the system entails some kind organizational change. As Worren, Ruddle, and Moore (1999, p.277) argues, change management entails the discipline that makes sure that firms, together with their workers, meet emerging and existing performance goals successfully and rapidly. It comprises a wide range of activities, including developing and implementing appropriate organizational structures and cultures, which makes the organization capable to handle potential changes in its business operations. Among others, some of activities that organizations can apply to manage change include restructuring of job responsibilities, use of strategic human resource management, reengineering of business processes, and consultation of processes. All these aspects show the issue of managing change in firms as one of the element of the overall change plan, with the other components comprising of business functions, technology, and organizational strategy. According to perspective of individuals, the process can be referred as individual change management and organizational change management from a firm’s viewpoint. The process receives wider acceptance in business circles as one of the most effective strategy to address emerging risks and problems in implementation of changes. It provides change professional with a tool to create enabling environment for the anticipated change, monitor the adoption process, and identify bottlenecks that limit success of the change. Therefore, it can be said that change management remains an important factor for organizations to take into account while integrating ERP systems into their business functions. According to Leon (2007), change management remains crucial to success of ERP adoption because it enhances the capability of firms to handle many changes that accompany the process. Integration of the systems inevitably affects the operational and human resource aspects of the organizations. The process changes the manner in which the organization operates, as information technology replaces manual functions of majority of business processes. On the other hand, the systems integrate various business functions, including production, order processing, customer care, and others. This indicates that tasks in these functions also change to meet the communication and collaborative needs required by such integration. For workers, integration of ERP means a need to change their normal way of doing job responsibilities (Leon 2007, p.47). Particularly, the work environment changes from individual-based to team-based, as the system calls for increased collaboration among various departments and employees. There also arises a need for some workers (computer illiterate employees) to acquire information technology skills in order to stand in a position to use the new system. In addition, the management will need to change work culture, work environment, and leadership skills to fit into this new organizational system. All these individual and organizational changes imply that firms need to look for a way to manage them in order to implement ERP successfully. Change management provides this much-needed way because it provides an all-inclusive framework for dealing with changes. Failure to implement such strategies exposes companies to many challenges and problems that eventually lead to failure of the ERP implementation process. Strategies for Successful Change There are numerous evidence-based strategies used by firms to implement organizational changes, including ERP, successfully. According to Aladwani (2001, p.266), these strategies can be classified broadly into “technical, people, and organizational strategies.” Technical Approaches This category, which applies to technologically oriented changes, addresses the technical aspects that may serve as constraints to effective change integration. Among others, commonly applied strategies include sufficiency of in-house system experts, software package selection, and system testing. In case of ERP implementation, effective selection of application package remains one of the most significant strategies that organizations apply to see success in the adoption process. It involves scrutinizing the features of ERP software to ensure that it complies with the objectives of the new system. Thus, the organizations stand in a position to match qualities of the application with the objectives of the change, which are represented in some form of criteria. As Elragal and Al-Serafi (2011) argue, one of the reasons why many companies seem to face difficulties in integrating ERP into business processes regards failure by the firms to consider if the system they are implementing matches with overall project goal. Any organizational change, especially system alteration, imposes variations in the operation of the overall system. For example, adoption of ERP revolutionizes how various business functions and processes operate, implying employees need new skills to meet the operational needs of the new system. Ensuring sufficiency of in-house experts remains the only sure way to make the change successful. Such experts will provide employees with skills needed to handle the change, as well as to implement and maintain normal functionality of the new system successfully. The experts will also be useful in testing the new system, which is also another strategy used to execute a change successfully. They should test every component alone and in combination with related components to ensure that every element works out correctly before implementing the change. This remains useful to avert organizational catastrophe during the execution process. Other widely used strategies include business process reengineering and technological adjustment. Organizational Strategies This class represents strategies intended to make the overall organization responsive to the implementation process. Some of the mostly used approaches consist of project management, organizational structure and culture, communication plans, strategic planning, and planning, among many others. Implementing an organizational change forms a project that the firm needs to execute with limited resources (time, capital, personnel, and others). Therefore, these resources need to be managed effectively to ensure that the anticipated change occurs successfully, without delay and additional costs (Hellens, Nielsen, & Beekhuyzen 2005). Strategic planning and visioning entails organizational efforts to align the anticipated change with business strategies. For instance, in adopting ERP, firms need to strategize or vision on how the new system will integrate into business functions, human resources, organizational culture, and structure, among others. Communication plans present another strategy crucial to effective adoption of a change in an organization. It addresses people’s concerns to make sure that every individual involved with or affected by the change understands the need for the change (Aladwani 2001, p.270). The plan also intends to foster exchange of information regarding the change among employees and business divisions within the firm. For a change to be successful, creation of an enabling organizational structure remains important. This assists in making all involved or affected employees remain focused towards achieving the hoped-for objectives. Moreover, many firms modify their organizational structure in a bid to create new or do away with some job responsibilities. In this way, they come up with job tasks and associated skills and qualifications needed to make the change a success. People Strategies The biggest challenge facing success of any change implementation involves resistance by people to the project. Therefore, the best way to avert such resistance includes using people strategies, which may include education and training, employee involvement, and empowerment. Involving the workers in the whole change adoption process remains the most effective way to make them accept the change. This strategy gives them an opportunity to share their opinions, ideas, and concerns about the change, as well as share change information. In this way, they come to understand how the change will benefit or affect them, as well as the organization. A structure to assist people to adapt to the change also needs to be in place in order to empower the workers to show responsibility towards the new system. This can also take the form of incentives and acknowledgments to those who show increased efforts in making the change happen. In addition, education and training serves to fill the skills’ gap that usually accompanies organizational change. It empowers workers to understand how to operate or handle the change or new system. Relevant Case Studies SAP System in University of Melbourne (UM) UM presents one of the few universities that have been able to implement ERP systems successfully. It uses SAP system, version R/3 to support human resources, student administration, and financials. It implemented various change management strategies, which greatly helped the institution achieve the hoped-for change effectively. One such strategy includes a communication plan, in form of Campus Management (CM) News, which UM applied to inform all involved or affected students and staff about development of the implementation process. It also used empowerment strategy (monetary incentives) to motivate workers to expend more efforts to see success of the project. In addition, the university educated system users on how to operate the new system, even going a step further to allow system access to only those users who had undertaken training. Other training initiatives include creating of support desk to offer direct help on topics concerning use of the SAP R/3 system, and an academic users group to encourage users to discuss and share information about the new system. It did away with some levels in its organizational structure for efficiency and effectiveness. It also used software package selection to identify the SAP system as the most effective ERP to address the expected change in its campus management system. In this way, the university succeeded in implementing the ERP system without prolonged delays and much resistance from staff (Hellens, Nielsen, & Beekhuyzen 2005). SAP System in PLIVA PLIVA Company seems to have won the race to change implementation successfully, and is now ripping the many benefits associated with ERP systems. Since the system’s successful implementation 2002, the firm has expanded to become the most profitable pharmaceutical firm in Central and Eastern Europe. In comparison to UM, the firm uses SAP R/3 system to support almost every business operation and functions in its subsidiaries. The firm’s success in adopting the change relates to its use of various change management strategies effectively. First, the company used software selection criteria to select SAP system, from four alternatives, as the most effective application for its change objective. Elements of effective project management also reflect as one of the strategies. The company integrated the change through effectively planned four stages, with each stage having clearly defined goals, capital, time, and resources. The company also trained more than 600 employees on how use the new system. It encouraged aspects of teamwork during the implementation process as a means to encourage employees to exchange information about the change and its statuses. The firm carried out organizational restructuring, creating and leaving out some levels in order to make employees responsive towards the change, as well as a way to reduce work redundancy. The company also used an IT committee for visioning and strategic planning in an attempt to align SAP integration with the business objectives in every phase of the change implementation (Bosilj-Vuksic & Spremic 2005). Conclusion Implementing an ERP system presents various benefits (both direct and indirect) to businesses. Among others, some of the direct advantages include information integration that improves the process of making decisions, improved customer care, and enhanced efficiency. Indirect benefits involve improved corporate image, enhanced satisfaction of customers, and enhanced consumer’s goodwill, among others. As it is human nature to reluctantly accept changes, then implementation of ERP systems will definitely face some level of resistance. Change management comprises a wide range of activities, including developing and implementing appropriate organizational structures and cultures, which makes the organization capable to handle potential changes in its business operations. Thus, it remains crucial to success of ERP adoption because it enhances the capability of firms to handle many changes that accompany the process. Strategies for successful organizational change can be classified broadly into people, technical, and organizational strategies. The best way to avert such resistance includes using people strategies, which may include education and training, employee involvement, and empowerment. Organizational approaches represent strategies intended to make the overall organization responsive to the implementation process. Technical approaches apply to technologically oriented changes, addresses the technical aspects that may serve as constraints to effective change integration. References Aladwani, AM 2001, ‘Change management strategies for successful ERP implementation,’ Business Process Management Journal, vol. 7, no.3, pp.266-275. Bosilj-Vuksic, V & Spremic, M 2005, ‘ERP system implementation and business process change: case study of a pharmaceutical company,’ Journal of Computing and Information Technology, vol. 13, no. 1, pp.11-24. Elragal, AA & Al-Serafi, AA 2011, The effect of ERP system implementation on business performance: an exploratory case-study, Communications of the IBIMA, viewed 18 May 2011, Hamilton, S 2003, Maximizing your ERP system: a practical guide for managers, McGraw-Hill Professional, New York, NY. Hellens, LV, Nielsen, S, & Beekhuyzen, J 2005, Qualitative case studies on implementation of enterprise wide systems, Idea Group Inc (IGI), Hershey, PA. Hong, K & Kim, Y 2002, ‘The critical success factors for ERP implementation: an organizational fit perspective,’ Information & Management, vol. 40, no.1, pp.25-40. Leon, A 2007, Enterprise resource planning, 2nd edn, Tata McGraw-Hill Education, New Delhi. Pathasarthy, S 2007, Enterprise resource planning: a managerial and technical perspective, New Age International, New Delhi. Reynolds, G 2009, Information technology for managers, Cengage Learning, Florence, KY. Worren, NA, Ruddle, K, & Moore, K 1999, ‘From organizational development to change management: the emergence of a new profession,’ The Journal of Applied Behavioral Science, vol. 35, no.3, pp.273-286. Read More