Enterprise resource planning: risk and benefit analysis

Enterprise resource planning:risk and benefit analysis

Yahia Zare Mehrjerdi

1. Introduction

Enterprise resourceplanning (ERP) systemsare in fact operational information technology (IT)

systems enabling managements to have sufficient data on hand for analysis purposes. ERP

gathers information from across all of a company’s functions letting the entire enterprise to

have a broader scope. ERP is capable of having the entire organization under its control by

monitoring materials, orders, schedules, finished inventory goods, and other key information

that are important to themanagement. An ERP system is an integrated software solution, sold

by a vendor as a package that supports the seamless integration of all the information flowing

through a company (Davenport, 1998). ERP implementation is a lengthy and complex

process, and there have been many cases of unsuccessful implementations (Parr and

Shanks, 2000), which have hadmajor impacts on business performance. As ERPplays a very

important role in business, ERP implementation and its critical issues, success factors and

implementation problems needed to be investigated and it is studied to some extend by

researchersParr andShanks (2000);Majedet al. (2003);Sohet al. (2000); andSumner (2000).

The core idea in developing ERP system was catching up to the real meaning of

‘‘integration’’. The expectation was that the integration must be generated both in the data

dimension as well as the process dimension. With the Service-Oriented Architecture (SOA)

technology availability, this idea could be put into action with a greater speed and ease.

System Analysis and Product Development (SAP) suppliers have understood this fact

quickly and based their vision upon that for expansion of that technology. To reach to such

integration SAP have made a proposition to Microsoft to integrate ERP systems and

Microsoft office. Due to the fact that ERP systems are mostly good at monitoring transactions

and lacking the analytical capability they can be categorized as operational systems and

less useful for planning or strategic purposes. There are five major ERP players targeting

large companies and many smaller players that focus on small and midsize companies as

their customers. However, the larger players have also expanded their areas of services into

smaller markets expecting to be big players there as well. The ERP major players in the

market today are: SAP, Oracle, PeopleSoft, J.D. Edwards, and Baan.

Many modules are included into an ERP system such that each module can cover different

functions within a company. Modules are linked together to give users in each department

the capability of seeing what is happening in other areas of the company. The key modules

important to many companies and management are: human resources; finance; logistics;

manufacturing; order fulfillment; and supplier management. ERP systems are evolved from

materials requirements planning (MRP) and manufacturing resource planning (MRP II)

systems. These systems are designed to integrate and optimize various business processes

like financial accounting, order entry, sales and distribution, human resources, materials

management and production planning across the entire enterprise. According to various

industry reports, more than 30,000 companies worldwide have implemented ERP systems.

PAGE 308 j BUSINESS STRATEGY SERIES j VOL. 11 NO. 5 2010, pp. 308-324, Q Emerald Group Publishing Limited, ISSN 1751-5637 DOI 10.1108/17515631011080722

Yahia Zare Mehrjerdi is an

Assistant Professor at the

Department of Industrial

Engineering, Yazd

University, Yazd, Iran.

Surveys have revealed that about 65 percent of executives (e.g. Cliffe, 1999) have came to

this conclusion that ERP systems could be harmful, this perception being buttressed by

specific examples of how poorly implemented ERP systems have contributed to the

bankruptcy of companies (e.g. Appleton, 1997). On the other hand, there is also evidence

indicating the numerous tangible and intangible benefits of ERP. Texas Instruments (TI) has

implemented a large-scale global web-enabled ERP that entailed a three-and-half-year effort

and a $250 million budget for putting the entire organization in the right track. In a research

conducted by Nurmilaakso (2008) and published by the international journal of production

economic under the title of ‘‘Adoption of e-business functions and migration from EDI-based

to XML-based e-business frameworks in supply chain integration’’ it was found that: linear

regression analysis of 4,570 European companies points out that the firm scope (the number

of organizational units), enterprise information systems (ERP, Supply Chain Management

(SCM) and CRM), and exchange of standardized data (e.g. EDIFACT, RosettaNet or STEP),

influence positively the adoption of e-business functions (online sales, purchases, product

design, demand forecasting and resource management) in supply chain integration.

Akkermans et al. (2003) have defined three elements defining the ERP systems. These

elements are: technical; functional; and business perspective. From the technical and

functional perspectives, as Akkermans and his research team put, MRP, MRP II, and ERP

represent the development of methods and software tools for the planning and controlling of

resources for manufacturing companies. In the business perspective, ERP can be viewed as

a business approach integrating strategic and operational functions, e.g. procurement,

shop floor control, and financial accounting, through the entire organization (Akkermans

et al., 2003). ERP is also regarded as a driving technology in the reengineering of business

processes (Al-Mashari, 2002; Willis and Willis-Brown, 2002).

The popularity of ERP is attributed to its ability to improve the profitability potential of an

organization by reducing the time and costs of completing business activities. This system is

particularly useful in providing management with the types of information necessary for

making critical decisions. Among the users of ERP software we can point to some colleges

and universities such as the American University in Washington DC, Dominican University of

California, College of the Holy Cross of Massachusetts, and Columbia College Chicago.

They are using ERP software to allow students to register for classes and make their

payments online. In addition to that this tool is able to generate reports for administrators;

provide access to high school counselors; track faculty teaching records; check instructor

and classroom availability for course scheduling; and enforce registration rules and conduct

degree audits among others (Savarese, 2003).

As Chabrow (2004) has reported the US government plans, for the fiscal year 2009, to spend

$7.7 billion dollars on ERP products and services. Government contractors who do not have

enterprise systems and wish to stay compliant with government standards may be forced to

implement ERP systems. Songini (2000) reported that the state of Georgia’s Department of

Administrative Services had spent $52 million dollars to implement an ERP system in the

offices. This system can serve eighty agencies and 5,000 users. More interesting findings

from this ERP system are the reduction in annual contract reviews from weeks to hours; audit

preparation time that was cut by more than 50 per cent and financial information inquiries

that can be done online in real time instead of weeks (Songini, 2000).

This article provides a brief review of current literature on ERP and its implementation in

industries. The rest of this article is organized as follow. Section 2 gives some descriptions on

the analytical application players. Section 3 discusses the ERP implementation in general.

Critical success factors are discussed in section 4. Risks of ERP and benefits of ERP are the

topics of sections 5 and 6, respectively. Case studies are reviewed in section 7 while

managerial implementations is the topic of section 8. The conclusion is given in section 9.

2. The analytical application players

The main advantage of analytical applications is that they can be used for both planning and

strategic decisions. These systems are developed for analyzing information supplied to

VOL. 11 NO. 5 2010 jBUSINESS STRATEGY SERIESj PAGE 309

them by legacy or ERP systems to help management to make good decisions at the right

time for their enterprise. However, without analytical application tools the data collected by

the legacy systems and ERP software is not of too much values to the management. On the

other hand, analytical tools must be integrated with a good data collection system that

analyst be able to produce valuable forecasting, and financial analysis to mention a few.

Analytical applications have many advantages where two of the most important one of them

are:

1. They have very sophisticated analytical capabilities and generate solutions that are far

superior to what could be arrived at without them.

2. They can respond in real time to problems and emergencies (such as instance rerunning

for schedules).

The main players in this area are i2 technologies, Manugistics, and ERP players. i2 is the

market leader in the SCM realm while Manugistics is the number two players in the SCM

business. Some of the ERP players are also in the business of developing SCM capabilities.

The main difficulty with analytical application is that they do not have the broad scope that an

ERP system in reality has.

Prior to 1999 IBM was the dominating company in providing software to its customers.

Thereafter, it was the time for its competitors such as J.D. Edwards, Oracle, PeopleSoft,

Baan and SAP that controlled much of the ERP software market. The following are industry

statistics from 1999 (Jacobs and Weston, 2007):

B J.D. Edwards has more than 4,700 customers with sites in over 100 countries.

B Oracle has 41,000 customers worldwide, with 16,000 in the US.

B PeopleSoft software is used by more than 50 percent of the human resources market.

B SAP is the world’s largest inter-enterprise software company and the world’s fourth largest

independent software supplier overall. SAP employs more than 20,500 people in more

than 50 countries.

B More than 2,800 of Baan’s enterprise systems have been implemented at approximately

4,800 sites around the world.

3. ERP implementation

In regard to the motivation for implementation of ERP software in Texas Instrument Pallab

Chatterjee, the TI’s Senior Vice President and Chief Information Officer has claimed that: ‘‘In

today’s fast-paced, ever-changing internet era, Texas Instrument could no longer afford to

have information technology systems that could not be easily changed to meet customer

and business needs.’’ The transition to open systems allows us the flexibility to respond to

changing needs, capture new market opportunities, and realize our global processes and

worldwide integrated systems vision. And that the goals of the effort are to: evolve

standardized processes that support market trends; leverage e-commerce to link customers

and suppliers to TI’s system; and base the implementation on open hardware and software

systems.

Mabert et al. (2005) has showed that an ERP implementation can be analyzed by having the

implementation process broken into five phases of:

1. The feasibility study.

2. The planning phase.

3. The implementation decisions.

4. The management of the implementation itself.

5. The post-implementation phase, where a number of activities are undertaken including

evaluating the success of the project.

Most companies in their field study considered this as the primary success criteria.

PAGE 310 jBUSINESS STRATEGY SERIESj VOL. 11 NO. 5 2010

Companies that use ERP can gain a competitive advantage from the way they implement the

system and then exploit the resulting data. Many companies that have installed ERP have

claimed to be more agile within the marketplace than their competitors with hard-to-change

custom made systems (Latamore, 1999). ERP systems offer companies the following three

major benefits:

1. Business process automation.

2. Timely access to management information.

3. Improvement in the supply chain via the use of e-communication and e-commerce.

In their research, Mabert et al. (2005) have pointed that the implementation times and costs

are being impacted by a range of factors. They range from planning an implementation to

managing the process to the key decisions. The companies that stayed on track and on

budget for their ERP implementation had many common characteristics. The key variables

defining these characteristics can be grouped by the implementation phases outlined above

and are shown in Figure 1. The phases I through V are related to each other according to

Figure 1 where each phase contains elements listed in detail below:

1. Phase I: feasibility study and adoption.

2. Phase II: planning variables:

B Developed a business case.

B Defined very clear desired outcomes.

B Define performance metrics.

B Had strong executive sponsorship.

B Had strong executive involvement.

B Had an empowered ERP steering committee.

B Had an ERP implement team.

B Developed organizational change strategies.

B Developed education and training strategies.

B Communicated ERP plan to the enterprise.

B Addressed data conversion and integrity.

B Had technology infrastructure in plane.

3. Phase III: implementation decisions:

B Single ERP package versus multiple packages.

B Big-bang or mini big-bang versus a phased-in approach.

B Number of modules implemented and order of implementation.

Figure 1 The implementation process with key planning, decision and implementation

management variables


B Modifications to system.

B Major reengineering upfront versus limited reengineering.

B An accelerated implementation strategy.

4. Phase IV: implementation management variables:

B Had strong executive involvement.

B Had strong executive support.

B Communicated progress regularly.

B Benchmarked implementation progress.

B ERP committee able to make key decisions.

B Communicated with personnel impacted.

B Created super-users and trouble-shooters.

B Trained all users.

B Kept suppliers and customers informed.

5. Phase V: performance and outcomes:

B Completion time (on time vs late).

B Budget (under budget vs over budget).

B Return on investment.

ERP adopters have obtained their returns in different distribution form such that it became a

huge issue and concern for all small and large companies interested to get into the software.

In research conducted by Hendricks et al. (2006) it was determined that the distribution of

abnormal returns for ERP adopters over three years follows the data shown in Table I.

4. Critical success factors

Managers of successful projects stressed the importance of proper and detailed planning,

investigating the underlying processes, and allocating appropriate human and financial

resources. Despite the planning, the managers of successful projects had to address

many of the same hurdles as managers of unsuccessful projects, including tight

constraints on time and resources, technical glitches, and end-user training. With detailed

up-front planning, they are able to respond to the situations and complete the projects

successfully.

The reality is that ERP is a representation of a major investment but the failure rates are high.

Griffith et al. (1999) have reported that three quarters of ERP projects are judged as

unsuccessful by the implementing firms. Researchers such as Akkermans and

Van Helden (2002), Holland and Light (1999), Hong and Kim (2002), and Somers and

Nelson (2001) have conducted studies on the ERP implementations to identify the critical

success factors (CSFs). Somers and Nelson (2001) have asked US executives to rank the

Table I Observations and abnormal returns

Return (%) Observations

,250 32250 to 225 21225 to 0 350 to 25 30to 50 15.50 43

Source: Adapted from Hendricks et al. (2006)


ERP CSFs – producing the following ‘‘top ten’’ in terms of the mean score (from 114 low to 514critical):

1. Top management support 4.29.

2. Project team competence 4.20.

3. Interdepartmental co-operation 4.19.

4. Clear goals and objectives 4.15.

5. Project management 4.13.

6. Interdepartmental communication 4.09.

7. Management of expectations 4.06.

8. Project champion 4.03.

9. Vendor support 4.03.

10. Careful package selection 3.89.

Adapted from the work of Akkermans and Van Helden (2002) a model incorporating eight out

of ten CSF listed above is proposed and shown by Figure 2. The model is comprised of three

reinforcing loops (growth loops) which incorporates critical success factors together.

Sauer’s model can be used to structure the list of ten ERP CSFs presented above as follows:

1. Context: interdepartmental co-operation, interdepartmental communication.

2. Supporters: top management support, project champion, vendor support.

3. Project organization: project team competence, clear goals and objectives, project

management, management of expectations, careful package selection.

Figure 2 A causal model of ERP success/failure


5. Risks of ERP

Enterprise resource planning is widely used in the manufacturing systems as it is well

documented by the many researchers as such as Al-Mashari (2002); Mabert et al. (2003);

and Olhager and Selldin (2003). The implementation phase of ERP can face with major

problems and hence it is in need of experienced and skilled consultants who can help the

ERP team in the implementation process and learning as well. Consultants bring to the

organization specialized skills, experience, and know-how that the organization needs when

it is both time-consuming and expensive for it to build internally (Gable, 2003). After

implementation, proper use of ERP systems can further increase the competitiveness of an

organization (Al-Mashari et al., 2003; Willis and Willis-Brown, 2002; Poston and Grabski,

2001). In industrialized timber frame housing in Sweden, ERP use is not widespread. The

reasons vary, but generally IT systems are not considered compatible with the needs of the

industry. ERP can be a producer of a number of risks in any industries, in general. Some of

them are as listed below and then described in more detail:

B Initial investment on software.

B Maintenance costs.

B Skilled employee to work on.

B ERP system misfit.

B User’s resistance to change.

B Poor knowledge transfer.

B Poor top management support.

B Poor quality of testing.

B High turnover rate of project team members.

5.1 High initial investment of ERP software

ERP systems are very costly for requiring initial investments on the infrastructures. These

systems are also in needs of good IT system, good networking system, and good reporting

system. Due to the fact that ERP systems is very complicate organization needs to work with

a team of consultants to determine what can fit their organization best. So, there are some

expenses here too. The need for having skilled people to work on the system requires hiring

new employees to do so.

5.2 ERP software lack of fit

There is a possibility that the selected ERP software is not a good fit for the business

requirements. This could happen as a result of poor evaluation by consultants who help the

organization to find the best ERP software possible.

5.3 High turnover rate for team members

The amount of workload and high work stress push enormous pressure of teamwork

resulting in high turnover rate. This had happened in some organization due to short

deadline, tight schedule to finish, lack of knowledge of team members and management

inflexibility.

5.4 Heavy customization

Usually, this situation arises when software mismatch occurs. As a result of that heavy

customizations become necessary to eliminate problems in the areas of programming and

reporting.

5.5 The role of IT infrastructure

It is very important that organization have built on the excellent IT infrastructure. A poor IT

system could generate problems as such as slow processing capability of the ERP system.


5.6 Top management support

It is expected that top management and his/her supporting team provide sufficient financial

support as well as human resources needed to complete the task. In some large

organizations there always are middle managements who resist on using new software or

have their own opinion on using the one that are most familiar with. In such cases it is

necessary that top management put their political power behind the software

implementation to provide better support for the project team. However, limited financial

support can contribute to a rushed ERP implementation process and hence the project team

members get overloaded and thus high staff turnover rate, ineffective knowledge transfer,

and political problems occurred.

5.7 Risks as a result of consultant action

Prior researches have shown that conflict with consultants is one of the main managerial

problems during the implementation period of ERP system (Themistocleous et al., 2001).

Such conflicts can become a source of risks for not putting the entire effort on the task of

implementing the ERP software right, accurate, and on time. Hence, ERP implementation is

by no means a purely technical system implementation and it requires the consideration of

all possibilities and the many sides of the problem.

5.8 Risks as a result of ERP mismatch

It has been found that the mismatch between ERP and organization can have significant

impacts on organizational adoption, and this could be the main reason causing the ERP

implementation failure (Umble et al., 2003).

5.9 High ROI

Practitioners tend to discuss the impact of the failure of ERP implementation in a relative

sense, referring to the shutting down of the system, being able to use only part of the ERP

system, suffering business loss, dropping market price, losing both market share and

competitive advantage due to implementation failure, and so on (Deutsch, 1998; Diederich,

1998; Nelson and Ramstad, 1999). However, there have been various definitions of failure of

ERP implementation. Failure has been defined as an implementation that does not achieve a

sufficient return on investment (ROI) identified in the project approval phase. Using this

definition, it has been found that failure rates are in the range of 60 to 90 percent (Ptak, 2000).

6. Benefits of ERP

Many researchers as well as Al-Mashari et al. (2003), Kennerley and Neely (2001), and

Mabert et al. (2003) have discussed on the benefits that can be gained from ERP use in

industries. Other researchers pointed to the ERP disadvantages (Motwani et al., 2002;

Umble et al., 2003). In this section some of the key benefits of ERP software are briefly

discussed.

6.1 Benefits as a results of consultant action

Consultants perform the role of change facilitator and transfer knowledge in a very important

way. They use techniques such as guided learning, formal training and knowledge creation

activities to direct clients to the necessary knowledge required for a successful

implementation. This guidance saves the client considerable time and effort in knowledge

search costs (Gable, 2003).

6.2 Replaces complex systems

ERP systems replace complex and sometimes manual interfaces between different systemswith standardized, cross-functional transaction automation. Order cycle times (the time fromwhen an order is placed until the product or service is delivered) can be reduced, resulting inimproved throughput, customer response times, and delivery speeds (Cotteleer, 2002;McAfee, 1999). Similarly, automated financial transactions can reduce cash-to-cash cycletimes and the time needed to reconcile financial data at the end of the quarter or year


(Mabert et al., 2000, 2003; McAfee, 1999; Stratman, 2001). The result is a reduction inoperating capital and the headcount of the financial area.

6.3 Data collection feature

Another benefit of ERP systems is that all enterprise data are collected once during the initialtransaction, stored centrally, and updated in real time. This ensures that all levels of planningare based on the same data and that the resulting plans realistically reflect the prevailingoperating conditions of the firm. For example, a single, centrally developed forecast ensuresthat operational processes remain synchronized and allows the firm to provide consistentorder information to customers (Bancroft et al., 1998).

6.4 ERP reports

ERP reports provide managers with a clear view of the relative performance of the variousparts of the enterprise, which can be used to identify needed improvements and takeadvantage of market opportunities (A.T. Kearney, 2000; Boston Consulting Group, 2000).

6.5 Help desk support

Most of ERP software vendors stop providing technical support 12-18 months after the nextversion becomes available. Therefore, keeping pace with the upgrade of ERP vendors willguarantee the support for the system from the vendors.

6.6 Eliminating weaknesses

This is finding the solutions for outstanding ‘‘bugs’’ or design weaknesses. It is impossible toguarantee spotless and error-free ERP systems after the implementations even thoughvendors will conduct many different testing processes to eliminate the happenings of errorsin the system before the leasing time. ‘‘The majority of software bugs are resolved anddelivered either fix-by-fix, or all at-once as part of the next release version of the ERPpackage.’’ In this case, upgrades will be beneficial to the organizations in problem solving.

6.7 ERP upgrades

Newly expanded or improved features ERP software provides organizations the knowledgeand strength (i.e. best practices) from the vendors. ERP upgrades provide organizationsfuture enhancement from the vendors to give the organizations better opportunities to catchup with the current business development, improve their processes and build more efficientbusiness models with new functions, new features and new processing styles provided inthe upgraded ERP versions.

Shang and Seddon define five categories of benefits arising from ERP:

1. Operational (cost reduction, cycle time reduction, productivity improvement, qualityimprovement, customer service improvement).

2. Managerial (better resource management, improved decision making and planning,performance improvement).

3. Strategic (support for business growth, support for business alliance, building businessinnovations, building cost leadership, generating product differentiation, buildingexternal linkages).

4. IT infrastructure (building business flexibility for current and future change, IT costreduction, increased IT infrastructure capability).

5. Organizational (changing work patterns, facilitating organizational learning,empowerment, building common vision).

7. Case studies

Enterprise resource planning is regarded as a sophisticated tool for the optimization of

supply chain processes since it improves manufacturing and retail operations from

forecasting demand to planning, managing inventory, and distribution. This section is

devoted to the review of ERP cases appeared in the literature. The cases studied here are:


1. Rolls-Royce: Yusuf et al. (2004).

2. TI: Sarkis and Sundarraj (2003).

3. ERP in China: Yusuf et al. (2006).

4. Critical success factors examinations: Ngai et al. (2008).

7.1 Case 1 (Rolls Royce)

In the article entitled ‘‘Enterprise information systems project implementation: a case study

of ERP in Rolls-Royce’’ researchers Yusuf et al. (2004) have examined key dimensions of

implementation of ERP system within a large manufacturing organization and identifies core

issues to confront in successful implementation of enterprise information system. A brief

overview of the application of ERP system is presented and in particular, ERP software

package known as SAP R/3 is described to some extent. Researchers take an in-depth look

at the issues behind the process of ERP implementation and focus on business and

technical as well as cultural issues of the problem at the Rolls-Royce center. Besides that a

look at the implementation time scales is taken and benefits from the project tangible and

intangible sides are assessed.

Rolls-Royce produces a range of quality world class turbine engines, and has recognized

that they must change in order to compete effectively with their competitors. Accurate

information systems and direct communication with suppliers are vital when offering

customers a committed promise to deliver (Yusuf et al., 2004). At Rolls-Royce, the ERP

Project covers many different departments and many different topic areas, all of which have

associated risks. In order to address and take positive action to avoid failure or potential

errors the ERP implementation teammaintained and recorded in a great detail, a risk register

Yusuf et al. (2004). Every issue within the company, which involves risk has been catalogued

and continuously reviewed. The risk register is very large however. The Rolls-Royce ERP

intranet page offers a brief summary of some of the major risks considered in general:

B The possible failure or inability to align goals through conflicting directions within the

organization.

B The non-delivery or non-availability of reliable IT hardware and infrastructure both before

and during implementation.

B The resistance of change to new process methods by management and supervision.

B Management and supervision may treat the project as merely an IT implementation,

rather than change in process methods.

B Inadequately educating the workforce to operate the new system properly. Possible

failure to cut over to the new system through an inability to load data.

B Possible failure to cut over to the new system through the inappropriate systems testing of

volume, stress and data conversion.

B Possible failure to give ERP adequate priority due to the number of existing and ongoing

business improvements.

B Maintenance difficulties may occur on bridged legacy systems.

B The project may impact on company interim and end of year accounts.

B Possible changes to kitting demand during ‘‘go live’’ may stretch the new system and

those operating it on a learning curve beyond capacity.

7.2 Case 2 (Texas Instruments)

In an article entitled ‘‘Managing large-scale global enterprise resource planning systems: a

case study at Texas Instruments’’ researchers Sarkis and Sundarraj (2003) have taken a

good look at the ERP implementation at the TI case. When a great deal of companies were

embarking on ERP implementations TI multi-stakeholder ERP system offers many lessons for

the complex software future adopters. Researchers detail the management of this

implementation from a process-oriented perspective. The lessons learned from this effort


help to support and further the academic and practitioner literature especially in the area of

large-scale information systems management. At TI over 10,000 employees handle over

45,000 products with an average of 120,000 orders per month. Researchers have obtained

their information for this case study using:

B a number of structured interviews;

B several telephone and e-mail communications;

B ‘‘snowballing’’ sessions with additional interviews with Andersen Consulting (now

Accenture) personnel based on the recommendation of the senior level executive; and

B archival information supplied by TI and other, secondary, sources.

The implementation is based upon the following process oriented framework (Meredith,

1987; Sarkis and Lin, 1994; Small and Yasin, 1997) with details available in Sarkis and

Sundarraj (2001).

1. Strategy formulation, in which the visions, goals and objectives of the organization are

defined and a technology strategy is adopted to fit these goals.

2. Process planning and systems design, in which processes are reengineered to meet

business objectives.

3. System evaluation and justification, in which actual IT systems must be evaluated and

justified.

4. System configuration, in which the system or the organizational process is configured to

produce an alignment between each other.

5. System implementation, in which actual implementation of the system takes place.

6. Post-implementation audit, in which we measure whether the goals set for the system

have been accomplished.

The system was able to meet most of its goals nine months after the complete

implementation of the software although some problems were encountered immediately

after the implementation. There are around 13,000 users (10,000 TI þ 3,000 outside) on the

system, with concurrent users ranging from 300 to 1,700. The integrated systems allowed TI

to better manufacture and deliver its 120,000 orders per month involving 45,000 devices.

Some key occurrences are as follows: on time delivery; better response; and inventory

reduction. According to Phil Coup: ‘‘We are now truly operating as a global company, having

one customer backlog, one global planning system optimizing how global capacity is used

and daily access to global business information via our intranet web portal.’’

7.3 Case 3 (China)

In an article entitled ‘‘Implementation of enterprise resource planning in China’’ Yusuf et al.

(2006) have conducted a study on the ERP implementation in China. Chinese companies

invested billions of dollars in ERP software over years. China’s demand for ERP applications

has grown at a fast pace in the past decade. In the next five years, both production and

demand will continue to grow at an unpredictable speed. Xiong and Wu’s (2003) findings

direct readers to this fact that only 2.9 percent Chinese enterprises implemented ERP

system; but in these enterprises, only 30 percent enterprises accomplished to implement

ERP systems and 10 percent enterprises benefited from ERP projects. These data indicate

that most of Chinese enterprises failed to implement ERP systems for various reasons and

because of the difficulties that they are facing with. More than 1,000 Chinese sites had an

ERP system by the end of 2001. According to scenarios and forecast data provided by the

Gartner Group and IDC, nearly 300 of them deployed SAP’s R/3 software package only

(Martinsons, 2004).

Yusuf et al. (2006) intended to find some real reasons for why enterprises cannot benefit from

ERP in terms of management and technology. Due to the fact that this is a very popular topic

for a long time most researchers have discussed this topic in Western countries’ context,

and only few academicians studied this field in Chinese situation. Knowing that, researchers


have tried to study the problem in the Chinese context and environment to unveil the

difficulties in implementation of ERP as it may arise for them. Thereafter, it was decided to

suggest solutions and measurement metrics to identify their promotion after implementation.

However, researchers have tried to address three main questions not commonly addressed

in other studies on ERP implementation. These questions are:

1. What are the Chinese-specific difficulties of ERP implementation in Chinese enterprises?

2. Which solutions can solve these major difficulties effectively?

3. How to measure the enterprise performance’s promotion after ERP implementation?

Through the statistics and analysis of questionnaires and interviews from Chinese

respondents, some findings have been explored by the authors. Difficulties in ERP

implementation in order of importance: support of top management, costly and

time-consuming, cultural differences, technical complexity, lack of professional personnel,

and inner resistance. Inner resistance is less serious than other five difficulties in Chinese

context. Some difficulties are affected by enterprise’s ownership and size: Suggested

solutions to overcome these difficulties, ERP software packages selection, ERP

implementation team, BPR, training, and outsourcing-application service provider. Yusuf

et al. (2006) were able to determine a list of ERP difficulties ranging from the support of top

management down to inner resistance as given in Table II. As listed in Table II the highest

ranking difficulty of ERP is the support of top management and the least important one is the

inner resistance (Yusuf et al., 2006).

7.4 Case 4: (CSF examination)

In an article entitled ‘‘Examining the critical success factors in the adoption of enterprise

resource planning’’, Ngai et al. (2008) have examined the CSF across ten different

countries/regions. Researchers conducted a vast study with this belief that in-depth studies

into the experience of the success (failure) of ERP for both advanced and developing

regions/countries will be of great benefit to organizations. The review covers journals,

conference proceedings, doctoral dissertation, and textbooks from these ten different

countries/regions. Through a review of the literature, 18 critical success factors’ were

identified, with more than 80 sub-factors, for the successful implementation of ERP.

Researchers findings are directed to the facts that ‘‘appropriate business and IT legacy

systems’’, ‘‘business plan/vision/goals/justification’’, ‘‘business process reengineering’’,

‘‘change management culture and program’’, ‘‘communication’’, ‘‘ERP teamwork and

composition’’, ‘‘monitoring and evaluation of performance’’, ‘‘project champion’’, ‘‘project

management’’, ‘‘software/system development, testing and troubleshooting’’, ‘‘top

management support’’, ‘ ‘data management’’, ‘ ‘ERP strategy and implementation

methodology’’, ‘‘ERP vendor’’, ‘‘organizational characteristics’’, ‘‘fit between ERP and

business/process’’, ‘‘national culture’’ and ‘‘country-related functional requirement’’ were

the commonly extracted factors across these ten countries/regions (Ngai et al., 2008).

Among these 18 critical success factors identified, ‘‘top management support’’ and ‘‘training

and education’’ were the most frequently cited as the critical factors to the successful

implementation of ERP systems.

Table II ERP difficulties result by order

Rank

Support top management 1Costly and time-consuming 2Cultural differences 3Technical complexity 4Lack of professional personnel 5Inner resistance 6

Source: Adapted from Yusuf et al. (2006)


In this study, Ngai et al. (2008) have used 48 articles with the distribution given in parenthesis

from countries such as: USA (17); America (two – countries not specified); Europe (seven –

countries not specified); UK (three); Denmark (one); Australia (four); Australia and USA

(one); Australia and China (one); China (five); other Chinese and east Asia locations (four);

Middle East countries (two), Arab Gulf states and USA (one).

8. Managerial implementations

Managers should consider ERP acquisition and implementation as a capital investment

decision with the following expectations:

B The ERP system is a business solution and not another IT project.

B There is a degree of uncertainty with ERP acquisition and implementation because it is

hard to estimate the savings, and it is difficult to anticipate developments because of

constant changes.

B The ERP has a greater impact on the organization than traditional system changes.

B Intangible benefits of an ERP system are difficult to put into monetary terms.

B There is a definite emotional element in the implementation of an ERP system because of

the drastic organizational changes involved.

The results of researches appeared in the literature indicate that with a clear vision and top

management commitment the fundamentals for successful ERP implementation are in hand.

Also, the evaluation and proper monitoring of ERP system’s implementation (post-ERP

implementation stage) can make an organization more adaptable to the change programs

and therefore, help them derive maximum benefits from investing in ERP.

Table III shows the level of system performance in phases 1 and 2 as time passes. It is seen

that the performance level is at the fixed level while system is under implementation and then

during the Go-Live period decreases and finally shoot up in a fast moving upward rate.

9. Conclusion

Due to the fact that a better management of a system is related to the full understanding of

the technologies implemented and the system under consideration, sufficient background

on the enterprise resource planning is provided. The lack of research papers and

conceptual papers related to risk-benefit analysis of ERP systems is a motivation for

conducting this research. Generally speaking, ERP systems offer many potential areas for

research in both theory building and theory testing. The areas of high values to be

addressed by researchers are:

B discussion of ERP systems with systems other than SAP;

B CSF identification for each industrial field and their subsequent validation;

Table III Performance trend for ERP implementation

Phases System performance (by time)

Phase ILegacy system Low (fixed)ERP implementation Low (fixed)Go-live Low (declining)

Phase IIStabilize ERP Low (incrementing)Additional functionality, re-engineering Medium (incrementing)Extend integrate High (integrating)

Source: Adapted from Willis and Willis-Brown (2002)


B performing empirical studies to examine the approaches adopted for the evaluation,

selection and project management of ERP systems and ERP success; and

B identifying the role played by stakeholders in ERP implementation projects.

According to Waters (1996), the following are some of the benefits of using an ERP package:

B Reduced stock and inventories, lower stock levels, with saving in capital, space, and

warehousing.

B Higher stock turnover, reduced cycle-time, and increased productivity.

B Better communication with customers and suppliers.

B More reliable and faster delivery time.

B Higher utilization of facilities, as materials are always available when needed.

B Better control over business.

This article provides a good background on the ERP implementation and review four

important cases from the literature to clarify the intention of ERP software in general. To better

introduce ERP software to new users the risks and benefits of that are discussed in item lists

and each are described briefly. As the need for greater customization of ERP software

increases the risks associated with the ERP implementation will get higher (Soh et al., 2000)

and hence the cost to the organization and services for the end users. To get away from such

expenses careful selection and evaluation of ERP systems is in order to reduce the potential

risk of software selection.

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implementations’’, Production and Inventory Management Journal, Vol. 42 No. 2, pp. 36-42.

Corresponding author

Yahia Zare Mehrjerdi can be contacted at: [email protected]


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