ERP Implementation - CHALLENGES, CHANGES AND BENEFITS OVER LEGACY SYSTEMS, AND CRITICAL SUCCESS FACTORS FOR ACHIEVING GOALS

                                                                             Abstract

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

1.     Introduction

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.

2.     Discussion and Analysis

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:

2.1 Critical factors in ERP implementation

                        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.

2.2 Critical challenges with ERP implementation

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:

2.3 Factors driving ERP implementation challenges

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)

3.     Statistics on ERP implementation

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

4.     Changes needed for successful ERP implementation

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.

5.     Benefits of ERP implementations

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.

6.     Conclusion

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.

7.     References

1.      Momoh R. Roy E. Shehab, (2010),"Challenges in enterprise resource planning implementation: state-ofthe-art", Business Process Management Journal, Vol. 16 Iss 4 pp. 537 – 565

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 Resource Planning survey of US manufacturing firms”, Production and Inventory Management Journal, SQ, 2000

5.      Somers, T.M., and Nelson, K., “The impact of critical success factors across the stages of enterprise resource planning implementations”, in proceedings of the 34th Hawaii International Conference on system sciences, Maui, Hawaii, January 3 – 6, 2001

6.      Chung, S.H. and Snyder, C.A. (2000), “ERP adoption: a technological evolution approach”, International Journal of Agile Management Systems, Vol. 2 No. 1, pp. 24-32.

7.      V. Kumar, B. Maheshwari, and U. Kumar, “ERP systems implementation: best practices in Canadian government organizations,” Government Information Quarterly, vol. 19, no. 2, pp. 147-172, 2002.

8.      Aloini, D., Dulmin, R. and Mininno, V. (2007), “Risk management in ERP project introduction: review of the literature”, Information & Management, Vol. 44 No. 6, pp. 547-67.

9.      Verma, K. (2007), “Project management challenges and best practices for enterprise packaged applications”, PM World Today, Vol. 9 No. 8.

10.  Soh, C., Kien, S.S. and Tay-Yap, J. (2000), “Cultural fits and misfits: is ERP a universal solution?”, Communication of the ACM, Vol. 43 No. 4, pp. 47-51.

11.  Kogetsidis, H., Kokkinaki, A. and Soteriou, V. (2008), “Enterprise resource planning implementation in the retail sector: a case study on the effects of the implementation of an ERP system in Cyprus”, Journal of International Business and Entrepreneurship Development, Vol. 3 Nos 3/4, pp. 270-83.

12.  Hongjiang, X., Nord, J.N., Brown, N. and Nord, G.D. (2002), “Data quality issues in implementing an ERP”, Industrial Management & Data Systems, Vol. 102 No. 1, pp. 47-58.

13.  Ho, C., Wu, W. and Tai, Y. (2004), “Strategies for the adaptation of ERP systems”, Industrial Management & Data Systems, Vol. 104 No. 3, pp. 234-51.

14.  Huang, A., Yen, D.C., Chou, D.C. and Xu, Y. (2003), “Corporate applications integration: challenges, opportunities, and implementation strategies”, Journal of Business and Management, Vol. 9 No. 2, pp. 137-50.

15.  Javad Soltanzadeh, M. K. (2012). Challenges of ERP implementation: ERP as a Technology Transfer Project. 2012 International Conference on Economics, Business Innovation, IPEDR vol.38, 16-22. Retrieved from http://www.ipedr.com/vol38/004-ICEBI2012-A00007.pdf