FACULTY OF ECONOMICS AND BUSINESS ADMINISTRATION

Aleksi Lehtola, Jinghui L, Julius Kuutti, Veikko Kyv

ENTERPRICE RESOURCE PLANNING: THROUGH SUCCESSFUL IMPLEMENTATION TO ACHIEVE COMPETITIVE ADVANTAGES

B2B Electronics Commerce Department of Marketing 17.1.2012

CONTENTS Abstract Contents Figures and Tables

1.

INTRODUCTION............................................................................................3 1.1. Introduction to the topic ..............................................................................3

2.

Enterprise resource planning ..........................................................................3 2.1. 2.2. The evolution towards ERP .........................................................................3 Why ERP ....................................................................................................3

3.

Implementation of ERP ...................................................................................3 3.1. 3.2. 3.3. 3.4. Why the implementation process matters .....................................................3 Key factors for successful implementation...................................................3 Implementation steps ...................................................................................3 ................................................................................................................3

4.

How to save troubled ERP projects .................................................................3 4.1. 4.2. .. ..............................................................................................................4 Through.process-based performance measuresError! Bookmark not defined.

5.

Competitive advantages achieved through successful ERP projects .............6 5.1. 5.2. RBV ............................................................................................................6 Benefits brought by successful ERP projects ...............................................6

6.

DISCUSSION AND CONCLUTIONS ............................................................6 6.1. 6.2. Theoretical implications ..............................................................................6 Managerial implications ..............................................................................6

7.

REFERENCES.................................................................................................7

1.

INTRODUCTION

1.1. Introduction to the topic

2.

Enterprise resource planning

2.1. The evolution towards ERP 2.2. Why ERP Integrated supply chain Unified enterprise

3.

Implementation of ERP

3.1. Why the implementation process matters 3.2. Key factors for successful implementation 3.3. Implementation steps 3.4.

4.

How to save troubled ERP projects

The implementation of ERP system has proved to be very complex and extremely expensive in term of both financial resources and organizational costs connected with the achievement of getting control of the company through an integrated information system (Beretta, 2002). Without careful project planning, committed project management and effective performance measures, ERP projects are very likely to get into trouble and fail. An unsuccessfully implemented ERP system not only is probably over-budgeting, they can disrupt a companys culture, create extensive training

requirements, and lead to productivity drops and mishandled customer orders (Stein, 1999). In this chapter, actions that can be taken to bring trouble ERP projects back on track are discussed. 4.1. Committed project management Based on the empirical study of Motwani et al. (2002), they identified eight actions that either belong to categories of project management or resources management that can save troubled ERP projects and eventually bring the success.

The project management category is consisted of five actions: redefinition of the project, an improvement in project management, a change in project leadership, subdivision of the project into manageable portions, and resolving specific problems. Project redefinition means reducing the scope of projects and using incremental, phased approach instead of radical changes. If ERP implementation is managed in a way that first start within one or two business units and focusing on the most important features and deliverables, the possibility of success implementation will be higher. Improvement in project management means better planning and close follow-up of the implementation process. More regular meetings and reviews, more precise scheduling of delivery for system modules are needed in project management. Change in leadership involves the possible replacement of project leaders with new leadership, either from inside or from outside an organization if the project tends to fail. This means either replacing the project manager or project management responsibilities are handed over to an external consultant. Subdivision of the project into manageable portions involves identifying steps of a larger project that can be worked on step by step in the entire project. Last action in this category is resolving specific problems. More often problems involved in ERP implementation are external relationships or technical issues. External issues consist of software licensing issues or other problems with software vendors. Technical difficulties include the resolution of hardware or software problems and the difficulties while using new hardware and software.

The resource management category includes three actions: adding/removing recourses, layoff and hiring, as well as training. The first action, adding/removing resources means the additional resources are more carefully managed. Similarly, layoff and hiring involve a change in human resources (e.g. using external consultants). Training includes regular training and cross-training. Cross-training is a necessary action if personnel movement within an organization is likely to happen. In fact, the redistribution of job responsibilities is often occurred during ERP implementation when firms try to adopt a process view instead of functionality view. Adopting of a

process view of a firm is one of the key components that can bring out the integration potential of ERP system (Beretta, 2002) 4.2. Adaptation of a process view of firm Although companies have made large investment on ERP systems, they have started to admit that the real impact of ERP system on management styles and organizational integration is much below expectations. Getting control of the company through an integrated system is the promise made by ERP vendors or consultants to top managers (Beretta, 2002). Top managers expect ERP systems to help them achieve goals such as information system of the company can be integrated by a single package instead of fragmented legacy systems; truing the old functionality based management systems into process based management systems. In order to find out the performance of ERP system in relevance to large investment companies made, two types of measurement on financial returns are being used. The traditional measures are based on the calculation of the return on capital employed or on expected cash flow. According to Hirschheim et al., this type measurement has severe limitations and drawbacks. The other type measurement is focusing on the improvements that ERP systems produce in the performance of business processes. The performance of business process consists of multiple dimensions, such as quality, timeliness, efficiency and so forth. However, the improvements measure results are often quite poor. It was argued that the main reason is potentialities of ERP systems are not fully released simply after physical implantations.

In order to achieve the goal of organizational integration, the combination two key components are necessary: the use of technologies that enable integration and the adoption of a process view of business management (Beretta, 2002). As the first element has been paid a great amount of attention, second element is often being neglect or not fully understood. According to Bancroft et al., the adoption of a process view of the firm is the real conceptual keystone of the integration potentialities of ERP systems, as it has shaped the technological choices that are at the bottom of the configuration of the majority of ERP suites.

As discussed in early chapter, the implementation of ERP systems quite frequently follows a incremental, phased approach in order to limit risks. During this approach, ERP systems are implemented unit by unit in a organization. Then in the final phase of ERP implementation, companies are expecting a radical performance improvement by doing business process transformation. In this transformation, management starts a radical change in management process and systems (Venkatraman, 1994). One of the problems with this approach is implementations

preserve the functional logic of the organization and the organization is not challenged to adopt the process view.

Basically, business processes are the flow of information that connect activities and the use of resources, in order to generate values for customers (Beretta, 2002). Companies could generate sustainable competitive advantages through different activities in business processes. The adoption of business process in the implementation of ERP systems enables performance of three dimensions of integration: informational, cognitive and managerial. In order to adopt a process view in a firm, it is necessary to make processes visible to both top managers and employees, especially in those firms that are still organized by functional units. By adopting process-based performance measurement systems, processes will be more visible to people.

5.

Competitive advantages achieved through successful ERP projects

5.1. RBV 5.2. Benefits brought by successful ERP projects

6.

DISCUSSION AND CONCLUTIONS

6.1. Theoretical implications 6.2. Managerial implications

7.

REFERENCES

Bancroft, N.H., Seip, H. and Sprengel, A., Implementing SAP R/3: How to introduce a large system into a large organization, Manning, Greenwich, CT, 1997

Beretta, S., Unleashing the integration potential of ERP systems, Business Process Management Journal, Vol. 8 No.3, 2002, pp. 254-277

Hirschheim, R. and Smithson, S, (1999), evaluation of information systesm: a critical assessment, Beyond the IT productivity Paradox, Wiley, chichester.

Motwani, J., Mirchandani, D., Madan, M., Gunasekaran A., Successful implementation of ERP projects: Evedence from two case studies, Int. J. Production Economics 75 (2002) 83-96

Stein, T., Making ERP add up companies that implemented ERP systems with little regard to the return on investment are starting to look for quantifiable results, Information Week 24 (1999) 59

Venkatraman, N., IT-enabled business transformations: from automation to business scope redefinition, Sloan Management Review, 1994, Winter