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[020-0444] Adopting ERP with Informality in order to Foster Both Efficiency and Flexibility Operations Yucan Wang Operations & Information Management Group, Aston Business School, Aston University, B4 7ET, Birmingham, West Midlands, United Kingdom Tel: +44 07515734286, email: [email protected] Andrew Greasley Operations & Information Management Group, Aston Business School, Aston University, B4 7ET, Birmingham, West Midlands, United Kingdom Emmanuel Thanassoulis Operations & Information Management Group, Aston Business School, Aston University, B4 7ET, Birmingham, West Midlands, United Kingdom POMS 22nd Annual Conference Reno, Nevada, U.S.A. April 29 to May 2, 2011

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Page 1: FAIM2006 Paper Template  · Web viewThis paper discusses whether efficiency and flexibility can be improved simultaneously when adopting ERP based systems. ERP systems are known

[020-0444]

Adopting ERP with Informality in order to Foster Both Efficiency and Flexibility

Operations

Yucan Wang

Operations & Information Management Group, Aston Business School, AstonUniversity, B4 7ET, Birmingham, West Midlands, United Kingdom

Tel: +44 07515734286, email: [email protected]

Andrew Greasley

Operations & Information Management Group, Aston Business School, AstonUniversity, B4 7ET, Birmingham, West Midlands, United Kingdom

Emmanuel Thanassoulis

Operations & Information Management Group, Aston Business School, AstonUniversity, B4 7ET, Birmingham, West Midlands, United Kingdom

POMS 22nd Annual ConferenceReno, Nevada, U.S.A.

April 29 to May 2, 2011

Stream: Technology management

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ABSTRACT

This paper discusses whether efficiency and flexibility can be improved simultaneously when

adopting ERP based systems. ERP systems are known for their ability to achieve efficient

business performance by enabling standardized business process design, but at a cost of a

possible loss of flexibility in operations. Efficiency and flexibility may seem incompatible in that

they are different business objectives and may exist in different organizational environments.

However, based on case study research, this paper investigates the objectives and characteristics

of ERP and informality and how they can lead to improvements in both operations objectives of

efficiency and flexibility.

Keywords:

Enterprise Resource planning, efficiency, flexibility, informality, social networks

1. INTRODUCTION

Enterprise resource planning (ERP) has become a popular IT system that improves efficiency by

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integrating business processes and enables better data sharing from a centralized platform[20]

[13]. In the practical world, ERP is known for implementation failures, especially in new

markets, such as SMEs, or firms in the developing countries [25] [11]. In response to this ERP

suppliers (for example Oracle and SAP) sell tailored modules for small firms [1] and some small

system vendors provides customized in-house ERP implementation for firms in the developing

countries in order to satisfy their special requirement [27]. However, ERP is derived from

manufacturing firms’ material requirement planning (MRP) systems and was originally designed

for large organizations. This application facilitates the standardization of processes and satisfies

the needs for management control in large organisations by concentrating all information into

one system [5]. Generally it can be seen that ERP achieves an increased efficiency in business

performance, but with a possible of loss of flexibility due to conforming to a standardized

business process design [13]. However, in an effort to maintain competitive advantage, there has

been an increasing need for firms to maintain flexibility so that they can quickly response to

changes in the market. [12]

One aspect of organizational behaviour that is seen as important in achieving flexibility is the

concept of informality. Mullins (2007) [8] defines informality as a feature of organizations that

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can break exiting norms and behaviours and informal procedures exist without formal

documentation. Informality can also ‘jump start’ stalled initiatives within social networks. SMEs

typically have a mass of informal business processes. Entrepreneurs play a vital role in

supporting informality with experience and tactical knowledge [12]. However current ERP based

systems might not be able to retrieve informal business processes without formal documentation

in the existing standardized system. Moreover, according to Slack et al., (2010) [16], some of the

‘inappropriate’ informal processes will lead to non-efficiency such as high costs and long delays.

However, there is a need for a system that can eliminate the waste owing to informality. ERP

seems to be such a solution to improve the efficiency of these processes, but there is a challenge

to not lose the benefits of flexibility as well.

Thus the paper will explore what are the contradictions and complementarities between ERP and

organizational informality in related to efficiency and flexibility, and why and how adopting

ERP with informality could improve both of these objectives.

The remainder of paper is structured as follows. Section 2 critically reviews the theories of ERP,

informality, how they are related with efficient and flexible operations, and the theoretical debate

on efficiency and flexibility. Then section 3 provides the research approach and process. In

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section 4, we outline the case description and how adopting ERP along with informal business

activities can improve efficiency and flexibility complementarily. Section 5 interprets the

findings from a case study and provides a summarized matrix. Section 6 contains the discussion,

conclusion, and implications as well as further studies.

2. LITERATURE REVIEW: COMPLEMENTARY AND CONTRADICTORY OF

ADOPTION OF ERP SYSTEMS WITH INFORMALITY

2.1 CONTRADICTIONS

Traditionally there is a view that efficiency and flexibility might be contradictory. Firstly, ERP

and informality focus on different issues. ERP is focused on efficiency of business performance

with standardized business process design. [13] According to Greasley (2009), efficiency is

related to the use of resource and actual output. [1] ERP achieves efficient performance by

providing optimal resource planning and streamlined business processes. [2] In contrast,

informality highlights flexibility and connects people in a loosely structured organization [8].

The flexibility requires firms to be quick to adapt to market changes and to cope with

emergencies, such as capacity shortfalls, equipment breakdown or component shortage, etc [1].

In additional, the business achievements are pre-defined in an ERP based system,[22] while

informality depends on unplanned interactions in the social network [8].

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Furthermore, the organizational decision-making methods are different. ERP provides a formal

method to support top managements through systemic analysis, which could integrate with

business intelligence tools [22].The decision-making of informal organization is related to

experience and intuitions, and the engagement of front-line employees [10]. Moreover, there are

distinctions to be drawn between communication systems. ERP achieves effective

communication with information and knowledge sharing and business collaboration based on the

integrated information system [16]. Knowledge here is explicated such that it could be codified

into the system [21]. However, informality provides decentralized method to communicate called

the “grapevine”. It can rapidly transmit information in the social network and skip the entire

organizational chart. The knowledge and information in the informal network is tactical, and is

hard to retrieve, because it is embedded in the human’s mind and diffuse in the social

communities [6].

What is more, from a traditional perspective, efficiency and flexibility strategies fit different

organizational environments [24][7][18][14].In Morand (1995)’s research [3], informality entails

with a loosely structured, spontaneous and social interaction between organic organizations,

while Al-Mashari [13] ERP based systems is related to standardized processes and formal

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interaction that is in a tighter, deliberate, and impersonal mode of bureaucratic organization.

2.2 COMPLEMENTARITY

Although currently studies do not directly discuss complementarity between ERP based systems

and informality, they allude to the possibility of achieving mutual benefits between informality

and ERP based systems. A leagile strategy is a typical example to integrate flexibility and

efficiency in supply chain management. Based on this, ERP and informality might be able to

integrate together to achieve complementary benefits.

First of all, ERP also supports flexibility, while informality contributes to efficiency

management. As an enterprise system, ERP is able to integrate all significant resource planning

systems in an organization. It is able to provide optimal resource scheduling and better business

process management. [16] The optimal resource scheduling benefits in speeding up the supply

chain response and to flexibly adjust production and services to satisfy customer demand.

[2]Moreover, it is able to redesign business processes to streamline and speed up operation

procedures. Better process management will eliminate the waste of inappropriate flexible

procedures. [16]Informality could also improve efficiency. It could improve management

resource through frontline experts’ experience and intuition. Also informality is able to reduce

costs and simplify procedures by cutting through complex and inappropriate formal procedures,

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and benefits to increase the outcomes through improve market satisfaction. [8]

Although ERP and informality use different communication methods, both of them could

improve information and knowledge sharing, and build organizational collaboration. ERP

contributes to building cooperation based on the integrated communication platform and cross-

functional support in the organization [2]. What is more, an informal network could establish

network collaboration beyond technology [23]. Informal organization is through lateral

communication in the social network. [8] The communication combines social interactions to

build trust between participants in the network. [19] Consequently, trust could enhance the

cohesion of organizational work. Trust based social network is able to reinforce technical based

network [26].Therefore an informal network could improve the integration capability of ERP

through psychological networks.

Finally, ERP and informality could provide complementary benefits to organizational

management On the one hand, ERP enables organizational transformation to form the new

institutional arrangement with organizational dynamics [15]. The new organization will place

emphasis on decentralized management to improve competitiveness, because ERP provide a

central platform to collect different groups of interests including both internal managements,

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staffs, customers and suppliers. Informality needs an open organization environment that

motivates frontline employees to join in the business interactions to support flexibility within the

social networks [9]. Therefore ERP could enhance informality through better cooperate people to

work together on the central platform. On the other hand, informality contains never-ending

social interactions, learning and knowledge sharing [4]. It benefits to ERP based system to make

improvements continuously. The resistance of change management will be reduced, since

frontline employees’ informal interactions could be involved in. Consequently, it will benefit

ERP in aligning with business practices. Chan (2002) [2]6 also pointed out that informality

contribute to improve IS excellence with flexibility and fluidity. He introduced “socio-technical”

system, which comprises various informal structures, connections and procedures with a formal

technical system. For example, people could get their work done in social networks,

communities of practice, cross-department relationships, unofficial agreed-on processes, and

flexible divisions of work. Informal activities are not strict in predetermining responsibilities and

procedures. But they could flexible in adapting internal and external organization changes.

Moreover, informality could multiply, overlap and reinforce links through social network [26].

Therefore informality could strength the capability of ERP to integrate and align with high-

performances in both of internal and external units over time.

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To conclude, ERP and informality have tangible differences, by which ERP focuses on

efficiency while informality highlights on flexibility. The two strategies are a fit to different

organizational environments. However, there are mutual benefits between ERP and informality.

ERP as an integrated enterprise system may provide optimal resource planning to flexibly

respond to supply chain and process management, to mitigate waste due to inappropriate

informal activities, while informality supports the ERP integration capability in order to provide

multiple links between units in the social network, and reinforce the links through psychological

trust. Moreover, informality may assist ERP implementation in dynamic environment. Informal

interactions, learning, and knowledge sharing will benefits ERP in improving its’ business

process design continuously. Table 2 summarizes the contradictions and complementarities in

detail.

Contradiction Complementarity

ERP Efficiency focus: maximizing

resource capacity utilization and

actual output

Standardized business process

Also support for flexibility

Optimal scheduling benefits for speed,

flexibly adjust to customer service

based on demand and rapid response

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design

Predefined business procedures

Decision-making based on

systemic analysis

Integrated information system:

effective communication and

collaboration

Stable environment

in the supply chain

Better process management to

eliminate waste

Integrated platform enables lateral

communication

Form new institutional arrangement:

increase employees’ utilization rates

Informality Flexibility focus: quickly adapt to

market changes

Informal and loosely structured

activities

Unplanned business

interactions

Decision-making based on

intuition

Decentralized system through

grapevine

Open environment

Also support for efficiency

Effective resource management

through informal procedures based on

frontline experts’ experience

Reduce costs by simplifying business

processes

Increase outcomes by improving

market stratification

Trust based communication and social

network

Make continuous improvement of ERP

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Improve ERP integration and

alignment

Table 1. Contradictions and complementarity between ERP and informality implicated from

existing literatures

3. RESEARCH APPROCH

The research approach employs an in-depth case study to generate a theoretical model of how to

adopt ERP with informality to achieve both efficient and flexible operations. More specially,

first of all, semi-structured interviews are conducted of managers and key staff within business

activities. These focus on understanding how informal activities work in terms of flexibility.

Then data is gathered from business documentations, ERP systems implementation blueprints,

and transcripts of meetings.

4. CASE DESCRIPTION

Jinsheng has a number of furniture shopping centres in China. It has established a one-stop

“Home furnishing” shopping format to provide a range of merchandise, including building

materials, furniture, fixtures and fitting, bedroom and bathroom products and electrical

appliances. Rather than directly selling goods for customers, Jinsheng provides trading platforms

and relevant services for tenants and manufacturers.

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4.1 AS-IS MODEL (FIGURE 1)

Figure 1 shows current business activities in the company. HQ controls and manages branches’

activities. However, branches have some informal activities with green lines. Some of them are

essential for the organization to maintain business relationships and flexibility to deal with

market demand.

4.2 TO-BE MODEL (FIGURE 2)

The company here has a customized ERP system combined with an OA (office assistant) system

to examine and approve these informal activities through experts and top managers. The time for

the experts to examine and approve procedures is restricted to one day in order to maintain high-

speed services related to flexibility. The urgent issues will be approved by an Operations

Director by phone message if the relevant costs are no more 5000 RMB. If the costs range from

5000 to 10000 RMB it will be approved by the Vice-President. Otherwise all these issues needs

to direct report to the CEO. If they agree informal activities can operated, staffs will use OA

system to transfer data of informal activities into ERP system.

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Figure 1. “To-be” model: Jinsheng current business process

Figure 2. As-is model: ERP adoption with informality

5. CASE ANALYSIS

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This paper focuses on why and how adopting ERP based systems with informality could enhance

efficient and flexible operations. This section is structured on this basis to discuss: (1) objectives

and characteristics of ERP and informality, (2) complementary impacts on ERP and informality

in improving both operation objectives

5.1 The objectives and characteristics of ERP and informality

Objectives and characteristics of ERP Objectives and characteristics of informality

Improve information sharing to enhance

efficiency

Reduce the waste through systemic

redesign/streamline business process and

filter inappropriate business activities

Reduce data conflicts, so establish a

common IT infrastructure

Enhance business performance measure

with visible data flow

Assist to decision-making with systemic

intelligent tools

Improve cooperation in the integrated

environment

Maintain the flexibility with engagement

of frontline experienced employees

Make continuous improvements for ERP

based system

Add additional channel for communication

Improve internal satisfaction with trusted

based informal groups

Build long term strategic relationships with

external partners

Establish social committee with open and

harmonious culture

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Table 2 objectives and characteristics of ERP and informality

Table 2 summarises the objectives and characteristics of ERP and informality in the case study

organisation. It can be seen that the major reason the company uses an ERP based system is to

achieve efficient operations through effective management of data and information on an

integrated platform and to provide a systemic analysis of the informal activities to eliminate the

waste and measure business performance in the branch shops. For example, the data conflicts

between finance and marketing occur in the organization due to different data structures and

calculation standards. In order to deal with this problem senior management set up a group of

people to collect daily incomes and validate the mass of reports. However, there is some

information related to informal activities which is invisible and is hard to collect and verify. The

CEO always complains “ I don’t know how much I earn today.” In additional, there are huge

amounts of reports for top managers to decrease the rental fees or adjust the payment methods

from every year to every quarter in the new contract, and to request for more social fees with

certain tenants. Thus the huge amount of data conflicts and expenditure motivates management

to decide to implement enterprise management systems to improve cooperation between

departments, to share information, and provide systemic management supports.

On the other hand, the informality aims to maintain the flexibility in the organization. The

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frontline business experts can be flexible when implementing a wide range of services and can

quickly adjust rental fees and services to market changes. Then, informal groups are formed

spontaneously. They may consist of experienced frontline experts, critical business actors in

Jinsheng, and key business external partners, such as leaders in the industry committee, groups

of customers, high reputation furniture retailers. The leaders in the groups are not formally

defined by Jinsheng, but it is related to personality and prestige. Thus internal employees’

stratification will be improved. The group leaders may have social interactions to establish long

term relationships with key tenants and customers. Consequently, the social committee is trusted

based in an open and harmonious environment. Jinsheng returns more from these informal

networks. More high reputation furniture companies are willing to sign longer rental contract

with Jinsheng. Jinsheng’s reputation will increase along with these famous furniture companies.

Even more, some manufacturers are willing to set up their direct-sale branches, which are able to

pay relative stable rental fees and expand market along with Jinsheng. If there is any change in

the furniture market, the industry leaders will share their information immediately, and assist to

Jinsheng to overcome the changes. For example, they will contribute their goods and provide

huge reduction in price to assist Jinsheng to deal with commercial war. That is to say, the

informality and flexible performances are needed to maintain in the organization. It is not

feasible to provide standardized business rules for the organization.

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5.2 THE COMPLEMENTARY BENEFITS OF ERP WITH INFORMALITY IN

IMPROVING EFFICIENT AND FLEXIBLE OPERATIONS

However, the finding suggests two initiatives are not incompatible in the case. The mutual

benefits of ERP based systems and informality in the case is analyzed in the following.

ERP SUPPORTS FOR INFORMALITY AND FLEXIBLITY

Firstly, ERP benefits on optimal resource planning with increase speed and flexibility to adjust

productions and services based on the demand. In the case, ERP based systems could accurate

analyze the tenants’ sales and Jinsheng’s income. As most of tenants’ sales are increased, there

will more demands for the renting in the shopping centers. Then the new contracts’ rental and

services fees will be increased. Moreover, as the demand is increased, Jinsheng will invest on

expanding market in new locations. ERP based system also could analyze the business resources

(including assess and tenants resources) assist to report when to flexible adjust the rental fees and

services, and how to speed-up to expand market are appropriate.

Additional, ERP in particular contributes to the sharing of information between different

divisions [17]. In the case, it improves the cooperative activities between departments and

informal groups. It enables the sharing of information and provides accurate data flows between

departments. Also it contributes to connecting the interactions between the informal groups.

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Informal groups just work in their autonomies. The key tenants and customers information

sharing are limited between the groups. Each division still has their informal activities and work

occur within social groups. However the organization is horizontally linked by the integrated

ERP systems. As a result, ERP could connect all key business partners within the network. The

shared information, services, and common visions are developed based on the integrated

management infrastructure. The small-scale informal activities in each social group might

change to large-scale business informality to enhance to achieve business targets in the entire

organization. It benefits for large-scale of flexibility in the organization with common targets,

rather than in small groups.

Finally, Mattila et al., (2010) [26] coined that ERP based enterprise systems acts on

organizational de-institutionalization to increase the employee utilization rate, because they serve

for resource management process in practice. When ERP is implemented in the case,

management needs to highlight the importance of frontline employees, because the system

combines the interests of managers, staffs, and external stakeholders. The actual efforts of the

experienced staff implementing informal activities on business interactions could be reflected in

the reports. It benefits the organization to measure flexible operations to implement most

appropriate informal activities by most valuable staff.

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INFORMALITY SUPPORT FOR ERP BASED SYSTEMS AND EFFICIENCY

The effectiveness of informality in adoption with ERP based system can be summarized as:

Firstly, efficiency is referred to output of a process with low resource utilization [1]. In the case,

if most tenants’ sales are increased, the rental fees in the entire shopping mall will be increased

as well. However, it does not always happen. Some tenants with higher sales do not increase

their rental fees, because they may provide more potential values for the organization, while

some tenants with poor sales, the rental fees will be increased, because there are more valuable

furniture retailers or manufacturers wants to set up their branches in shopping centre. The system

could not take account of these situations. It needs of experienced staffs to use informal method

to treat these tenants differently. As a result, these tenants will return more to Jinsheng, such as

improving market reputation, providing leading roles to support Jinsheng business activities

(reducing prices in large-scale, providing cheap but qualitative goods for group of customers),

setting up numbers of branches in the Jinsheng, or having ability to expand market along with

Jinsheng. The outcomes of Jinsheng will be improved as these valuable tenants could promote

the development of furniture market. These informal activities break the general business rules in

order to improve satisfactions to valuable tenants. Consequently, efficiency is improved, because

the outcomes are increased, and the minimal resources are used on satisfying small-scale

valuable customers.

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Also informality benefits on make continuous improvement for system [26]. ERP system

contains lots of business process designs. [13] In the case, informality is related to the un-

documented the business process in the organization. The organization allows accepting the

informal activities. Moreover, if the activities are appropriate, the firm will change the ERP

based systems. For example, the general rule for duration for contract is one year, and it is annual

payment. The system just accepts processing the contracts that are not in the rules. However,

furthermore, they found home-furniture centres that sell with large products (including sofa, bed)

always not abide the rule, because they are new market for Jinsheng, and customers adapt to buy

these productions traditional state-own department stores with good services guarantee, rather

than in Jinsheng. Thus Jinsheng change the systems to provide special contract rules for tenants

who sell for these large goods. The tenants will pay less in one time. The duration of contract is

adjusted to be quarterly, rather than yearly. As a result, the organization will save time of

verifying the informal activity and deal with the contracts information manually. As the system

designs are continue improved to adapt with business changes, the efficiency could improved by

simplifying business processes.

Finally, according to Tsai (2002) [19], informality also contributes establish an open

environment with trusted social network. In the case, ERP provides an integrated environment

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and connect informal groups to share information and cooperate with common business targets.

The informal interactions between the groups will enhance the psychological network, and

improve cooperation in the ERP integrated platform. Also the business management is not just

relay on the system. In the case, the organization implements both of business intelligence tools

and OA communication porters to support manager to make decisions. Systemic reports and

frontline employees’ knowledge ARE integrated together to support organization development.

It enhances the efficiency from better enterprise systems management that overcome the social

resistance in an open environment, but also maintains the flexibility from experienced staffs.

6. CONCLUSION AND IMPLICATIONS FOR FURTHER RESEARCH

The paper has discussed how the combination of ERP and informality can lead to the mutual

benefits of efficiency and flexibility in operations. ERP enhances efficiency through the effective

management of operational data and a reduction in data conflicts, while informality supports

flexibility that provides a response to market demands. However, ERP based systems can also

enhance flexibility in operations by providing an accurate and systemic analysis of market

demands, while informality contributes to efficiency by implementing informal activities to

satisfy customer demands. As a result, the organization can still maintain flexibility, because it

allows staff to work in their informal groups, and ERP could provide horizontal supports for

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these informal groups with shared information and business visions. Thus the informal groups

can be cooperative as well. Also it assists to measure informal performances. Additionally, if

informal activities are appropriate and accepted in a large-scale, the system will be continuously

improved. What is more, informality has essential contributions to the development of ERP

based systems in an open and trusted based society. It is to combine system management and

knowledge supports in organization. Thus it could enhance the efficiency from better enterprise

systems management that overcome the social resistance in an open environment, but also

maintains the flexibility from experienced staffs. The paper contributes to expend ERP based

systems with flexibility by organizational informality.

However, the company just implements the combined business model in the initial stage. It needs

to long term critical studies the risks and emerged problems of adoption ERP with informality in

the future. Also it will try to explore how to balance between ERP related efficient operations

and informality related flexibility, and how to mitigate the risks.

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