The main goal of an enterprise
resource planning (ERP) system is to integrate all the primary business
processes to retain a competitive position and also to enhance the efficiency
of an organization. Achieving the benefits and improved productivity will not
be forthcoming without the successful implementation of an ERP system in the
organization. According to World Congress on Engineering and Computer Science
2011, “ERP is an enterprise-wide information system that integrates and
controls all the business processes in the entire organization. The ERP system
is an enterprise information system designed to integrate and optimize the
business processes and transactions in a corporation.” ERP systems have become
very pivotal to today’s organizations irrespective of the size. Small and medium
businesses (SMBs) have embraced ERP systems and are seeing huge benefits and
gains from the same. There is always a significant reduction in the cycle times
and the turnover times after the implementation of supply chain management.
However there are a few factors like re-engineering, project management, user
education and/or trainings, business plan and vision, etc. that can clog the
successful implementation of an ERP system.
Key words and index terms: ERP,
implementation, challenges, advantages
ERP systems have been
one of the significant technologies developed in the late 1990s and they gained
wide acceptance in the early 2000s. ERP was mainly used for large and complex
projects involving many resources and other factors. Over the years there have
been a number of instances in which the ERP implementation has failed due to
conflicting business visions and strategies, poor implementation, cost overrun,
etc. In spite of growth in the ERP market, recent research shows growing
dissatisfaction with ERP systems in that they have failed to deliver the
anticipated benefits (Ross et al., 2000). Several studies have identified the
extent of the so-called 'damage' done by ERP, critical success factors of ERP
and the possible cause for low performance and benefits realization from enterprise
systems Furthermore, it has also been identified that a high percentage of ERP
benefits are intangible which enhances the difficulties of financial evaluation
(Akkermans, H., et al., 2002; Mabert et al., 2000; Somers, T., et al., 2001).
ERP has redefined the
delivery of enterprise-wide solutions as branded products. This has, in turn,
led to vendors' ability to command premium for services. (Akkermans and Helden,
2002). According to Chung and Snyder (2000), “these systems have traditionally
been used by capital-intensive industries, such as manufacturing, construction,
aerospace and defense. Additionally, they have recently been introduced to the
finance, education, insurance, retail and telecommunications sectors. Hence,
the number of organizations going in for ERP systems is growing rapidly”.
Figure 1 illustrates the different ERP implementation stage gates and Figure 2
illustrates the different functions of ERP.
Figure 1 ERP implementation stage gates
Figure
2 Different functions of ERP (Source:
www.pivaltech.com) (Source: http://visual.ly/functions-erp)
ERP systems are mostly
standardized systems which deal with a single database or a data silo on most
implementations. This requires the companies across the organization to have
standardized data formats. ERP benefits are realized when a close relation is
formed between implementation approach and business-wide performance measures, (Kumar
et al., 2002) by studying ERP implementation in government organizations,
identifying critical management challenges in the ERP implementation activities
such as training, upgrading infrastructure and project management, and
stabilizing ERP systems. Some the critical factors are: culture, organizational
structure, project management, support activities and training issues and the interaction
between transferor and transferee.
Despite the numerous
advantages that the ERP system offers and the countless successful
implementations, organizations have faced numerous critical challenges during
the implementation in the last few years. These challenges are not due to the
way that the ERP systems are designed, but the poor or inadequate understanding
of the way that the ERP systems should be fulfilled based on the business
vision and strategies. Some of the critical factors are summarized below:
Table 1 - Five main
identified critical factors (Javad Soltanzadeh, 2012)
Culture
refers to the different types of interaction models, communication models
(formal and informal) and the assumptions that are made in an organization.
This factor also includes the behavioral attitudes and drivers such as
motivation and innovation. The successful adoption of an ERP system is not
possible without embracing it by various lines of business and a large group of
people within the organization.
Organization
structure mainly refers to the hierarchy of the organization
along with the different change management procedures, routines and processes
followed by an organization that drives and supports the implementation along
with coordinating the deployments, defining the reporting structure and
establishing the decision making levels.
Project
management refers to the way the implementation of the ERP
system is executed starting with the evaluation of the solution, identifying
milestones, formulating a strategy, preparation of an implementation plan, etc.
Training
programs and other supporting activities are needed to close the
individual gap between the capabilities and the action plan required to realize
the mission and ensure the successful implementation of the ERP.
Interaction
between the transferor and the transferee refers to the
collaboration between the client and the vendor to enable successful analysis,
development, deployment, testing, post implementation support and maintenance.
The challenges detailed in this document are based on
in-depth literature review (1997-2009) conducted on ERP implementation failures
(Momoh, 2010). The remainder of this paper is organized as follows: in the next
section, critical challenges are analyzed with a discussion of ERP failures.
Based on the review, the next section on changes explains the critical failure
factors that should be addressed in order to avoid some of the challenges
encountered in ERP implementations. The subsequent section comprises the actual
benefits of embracing and implementing an ERP system and the last section will
conclude this paper with observations.
Table 2 illustrates
the different critical challenges encountered during an ERP implementation which
leads to a failure in deployment, leading to huge losses in resources and time.
According to most researchers the challenges that has been identified are: lack
of change management, excessive customization, dilemma of internal integration,
poor understanding of business implications and requirements, poor DQ, misalignment
of IT with the business, hidden costs in ERP implementations and organizational,
management and technical challenges.
Table 2
Table 3 explains the challenges
abstractively:
Table -3
|
ERP Challenges
|
Factors driving the challenges
|
References
|
|
Excessive customization
|
-
Out of scope requirements during the later stages
of the project
-
Packaged software is incompatible with the
organization’s needs and business processes
-
Stress that if not adequately planned
-
Personalization and adaptation of tools
-
Relationship of enterprise size to the objectives
and constraints of ERP adoption
|
(Aloini et al., 2007)
(Verma, 2007)
|
|
Dilemma of internal integration
|
-
Data standardization, adoption of the underlying
business model, compressed implementation schedule and the involvement of a
large number of stakeholders
-
Integration of ERP environments with non-ERP
environments
-
Implementing organization’s business processes
which incorrectly mapped to the ERP processes
-
Customization on module integration
|
(Soh et al., 2000)
|
|
Poor understanding of ERP business implications
and requirements
|
-
Conflict of objectives within different
departments
-
Failure to reconcile the technological
imperatives of the enterprise system with the business needs of the
enterprise
-
Gaps between the ERP generic functionality and
the specific organizational requirements
|
(Soh et al., 2000)
(Kogetsidis et al., 2008)
|
|
Lack of change management
|
-
Lack of communication with the employees, and an
apparent failure to recognize the impact and complexity that the change
project can have on the business
-
Resistance to change
-
Underestimating the effort involved in change
management
-
Unplanned costs associated with new requirements
emerging after the resourcing and estimation stage
-
Poor training of customers, who need to be
provided the know-how on how to use the system
|
(Aloini et al., 2007)
|
|
Poor data quality
|
-
Integrity of the data used to operate and make
decisions
-
Inaccurate and incomplete data
-
Data misfits arise from the data format
incompatibilities between organizational requirements and ERP package
-
Data availability and accessibility at all times
|
(Hongjiang et al. 2002)
|
|
Misalignment of IT with the business
|
-
Rapidly changing business environment.
-
Technology, delivery system and performance
criteria are the three dimensions that will impact each other
-
Maturity in the application of new technology, and
evaluation and integration for legacy system
|
(Ho et al., 2004)
|
|
Hidden costs in ERP implementations
|
-
Training is the most important hidden cost to
consider.
-
Transferring data from the old system to the new
package
-
Bad project management
-
Consulting costs of third party vendors
|
(Soh et al., 2000)
|
|
Organizational, management and technical
challenges
|
-
Conflicts with external entities such as
consultants and ERP vendors, as well as internal conflicts.
-
ERP driving organization restructuring instead of
the organization objectives driving ERP
-
Unclear roles and responsibilities and thus
driving resistance
-
Ineffective management and decision making levels
-
Limited training completed by management which
leads to an inability to realize the benefits of ERP practically
|
(Huang et al., 2003)
|
According to the study
conducted by Panorama ERP study, 74.1% of ERP projects exceed budget. This
confirms the hidden cost challenges with implementing an ERP system, and
according to the same study, 61.1% of ERP implementations take longer than
expected due to bad planning and project management, implementation challenges,
etc.
Figure
3 and Figure 4 below illustrate cost overruns.
(Figure 3 Source: Panorama
consulting ERP report 2014) Figure -4
showing implementation costs
For
every five ERP implementations, one is expected to deliver complete
satisfaction to the clients and furthermore. Furthermore, there is a higher
chance of an ERP implementation failure when the complexity of the project is
higher and the project has large number of interfaces with different technology
platforms. Organizations should pay attention when modifying ERP packages and performing
additional customizations as they can impede the integration of the ERP
modules.
It
is also assumed to be beneficial when the organizations use the packaged ERP
modules rather than customizing the solutions to suit their needs thus
balancing the customization while keeping the essential business mission
intact. The end to end integration points of an ERP design need to be examined
carefully for a successful implementation of the solution. Also the
practitioners need to be educated on the intra-company integration along with
module integration techniques and the benefits from the same. It is also
beneficial if the practitioners understand the future operational challenges
they could face in case the project lacks the necessary module integrations. The
business implications needs to be understood by all the members involved and
the organization should commit to the right resources, vendors and software
depending on their business goals and budget. It is always best to intertwine
technology, tasks, people, structure and culture which will subsequently lead
to easy identification of issues and risks, and makes the process transparent.
ERP
implementation should also consider the needs of the stakeholders and the
organization culture itself to avoid conflicts. Extensive training and
workshops need to be conducted to allow the end users apply the ERP systems to
their daily needs effectively. This will help optimize the productivity and facilitate
the users’ transition from using local information systems like workbooks and
other software. Increasing the practical awareness of the ERP change drivers
will motivate the support staff and managers to effectively utilize the ERP
system and adopt to the new change process.
It
is always cheaper to engage in-house ERP practitioners to develop the ERP
system, but if that is not possible, the organization should choose a neutral
vendor with adequate experience in implementing similar solutions. According to
John Hoebler, managing director of Morgan Franklin Corp., “In our annual ERP
survey, only 46% of respondents reported having a good understanding of which
features they were using in their ERP system, considering the millions
companies invest in [their ERP systems]. Without knowing features, companies
miss opportunities to automate business processes, complete functions faster,
and meet business objectives.” Proper procedures and programming are needed to
ensure to integrity of the data considering that the ERP system is only as good
as the accuracy of the data that it is working with. One of the most important
changes organizations need to plan well in advance is decommissioning legacy
systems once the new ERP system is in place. This should be done in phases and
will help the end users adapt to the new system, and also will save the company
a few millions which would be otherwise spent on hardware and maintenance.
From
a technical standpoint it is always best to have a load testing environment to
check the performance parameters, evaluate the efficiency of the new system and
simulate the real-world scenarios. An effective maintenance strategy needs to
be put in place to keep the ERP system updated and the organization needs to
look at more than one vendor for support activities which could either be the
ERP vendor itself or a third party vendor by which the organization can cut
down costs.
ERP is very valuable
to public and private businesses and it is an important tool to have for most
organizations in this age of globalization. Companies with a bigger supply
chain management system, for example, will benefit enormously by having an ERP
system in place which could automate their processes and generate required data
at-will. Some of the main advantages of implementing an ERP system are illustrated
in Figure 5
Figure 5 (Source: 2013 ERP
Report – Panorama Consulting Services)
ERP systems bring many
values such as operational benefits, financial benefits, and benefits for
investors, user satisfaction, and standardization to the organization etc. The
general benefits are data integrity, availability, etc. There are also benefits
such as clearer and transparent business communication of business drivers,
conflict management, managed commitments, removal of redundancy, de-centralized
tasks etc. Below are some of the benefits collected from previous research.
These benefits are not limited to this list.
|
ERP Benefits
|
Description
|
|
Improved visibility
|
Since the tasks and processes are now
transparent, the organizations can monitor and audit the requirements,
inventory, strategize, etc.
|
|
Reduction in operation costs
|
This is due to lower inventory costs, maintenance
costs and production costs. The duplication of data is reduced as well which
helps in saving storage costs.
|
|
Standardized business processes
|
Obtaining a streamlined and standardized process
helps the company to have consistency across a distributed enterprise and
allows a balanced synergy between different departments. It is also easier to
drive improvements.
|
|
Compliance improvements
|
Due to the best practices and standardization, it
is easier to keep the systems compliant.
|
|
Real time analysis
|
Due to automated processes and sophisticated
information silos, companies can track and take real-time decisions.
|
|
Integrated information
|
One of the main benefits of an ERP system is the
ability to maintain one powerful database and have all the information needed
in one place which will reduce costs and is efficient.
|
|
Enhanced reporting capabilities
|
An ERP system has built-in features which can be
easily customized to generate reports at anytime, anywhere.
|
|
Increased data security
|
With ERP systems, companies can apply data
restrictions and provide enhanced security for all the integration end
points.
|
|
Improved resource handling
|
The resource handling capabilities are improved
with ERP systems due to central resource management with which the allocation
and monitoring can be performed effectively.
|
|
Cloud integration and continuous improvements
|
With the ERP solutions, the updates are available
on a regular basis with good support from the vendors and the companies have
an option of going virtual, thus reducing costs.
|
A number of conclusions in this research paper were
based on case studies conducted in different countries and journal articles.
Critical success factors are key to the success of an ERP implementation.
Additionally, training is imperative for every company installing an ERP system
because of the underlying technology and the resistance to change by employees
in the organization. Some of the main challenges that have been described in
this study are the hidden cost factors and the lack of change management. If
the features of the ERP system are not realized, the system will be sparsely
used and the end users will try to use the common information system, thus
defeating the purpose of having a transparent and centralized information
system.
However, the cost factors for a small organization may
not be the same as a big organization due to differing budgets. The failures of
ERP implementations listed in this study are mostly derived from practical implementations
and the damage caused to the company with respect to finance and human
resources. Some companies have not followed the critical success factors and
have still managed to successfully implement an ERP system. ERP solutions are
beneficial to organizations with a need for a centralized data silo with the
information needed on a demand basis and also which has multiple data end
points.
Most implementations of ERP systems are failures, due
to which there is a need to perform an in-depth study regarding the various critical
success factors, thus eliminating them, especially those which can cause budget
and timeline overruns.
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Momoh R. Roy E. Shehab, (2010),"Challenges in
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2.
Ross, le, M.R., “The ERP revolution: Surviving versus
Thriving”, Information systems frontiers, 2(2), 2000, 233 – 241
3.
Akkermans, H. and Helden, K., ”Vicious and virtuous cycles
in ERP implementation: A case study of interrelation between critical success
factors”, European Journal of Information Systems, 11(1), 2002, 35 – 46
4.
Mabert, A.M., Soni, A., and Venkataraman, M.A., “Enterprise
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Somers, T.M., and Nelson, K., “The impact of critical
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Chung, S.H. and Snyder, C.A. (2000), “ERP adoption: a
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V. Kumar, B. Maheshwari, and U. Kumar, “ERP systems
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Verma, K. (2007), “Project management challenges and best
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