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ENTERPRISE RESOURCE PLANNING SUCCESS:
A MANAGEMENT THEORY APPROACH TO CRITICAL
SUCCESS FACTORS
BY
JOSEPH BRADLEY
A Dissertation submitted to the Faculty of Claremont Graduate University inpartial fulfillment of the requirements for the degree of Doctor of Philosophy
in the Graduate Faculty of Executive Management
CLAREMONT, CALIFORNIA
2004
Approve*
PauKGray, Bab.
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UMI Number: 3139266
Copyright 2004 by
Bradley, Joseph
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Copyright by Joseph Bradley 2004All rights Reserved
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We, the undersigned, certify that we have read this dissertation of F. Joseph Bradley and
approve it as adequate in scope and quality for the degree o f Doctor of Philosophy.
Dissertation Committee:
'aul Gray, CommittepChair
7
Date
gmA, VYjQfftMdL6____________ ! 9.,
bph Mafciarello, Committee Member Date
Conrad Shayo, Committee Member Date
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Abstract Of The Dissertation
ENTERPRISE RESOURCE PLANNING SUCCESS:
A MANAGEMENT THEORY APPROACH TOCRITICAL SUCCESS FACTORS
by
JOSEPH BRADLEY
CLAREMONT GRADUATE UNIVERSITY: 2004
This study examines the critical success factors for implementing
Enterprise Resource Planning systems in the framework of classical
management theory. Sneller (1986), in an earlier study, identified critical
success factors in the implementation of materials requirements planning
systems (MRP). Since the Sneller study, software vendors have enhanced the
functionality of MRP systems, first by developing manufacturing resource
planning systems (MRP II) and subsequently by developing enterprise resource
planning systems (ERP). As a result of expanded functionality, implementation
of such systems affects a much wider portion of the business enterprise than
operations and logistics. ERP systems are complex and expensive to
implement. This study will examine critical success factors for ERP systems
implementation suggested in the Information Systems and ERP literature.
Snellers work on MRP surveyed material managers, as MRP dealt with their
functional areas of responsibilities. This study surveys a wider range of top
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functional managers to reflect wider organizational impact of the expanded
functionality of ERP. Eight implementation projects were examined. This study
uses a six dimensional view (William H. DeLone & McLean, 1992) of success
compared to the two dimensional view of success used by Sneller.
The purpose of this research is to investigate the critical success factors
for a successful ERP implementation. Additional questions that will be
investigated are:
Are the companys specific goals for embarking on an ERP project related
to project success?
- Is prior organizational experience with a major systems implementation
(such as MRP or MRP II) a critical success factor?
Does an ERP system lead to competitive advantage, or is it a competitive
necessity?
The study finds that the experience of the project manager, quantity and
quality of training and the effectiveness of a project champion lead to successful
implementations. Both successful and unsuccessful firms use practices such as
establishment of a project headed by a project manager, training, use of
consultants, and control by a steering committee. No evidence was found to
support integration of business processing and IT planning, reporting level of
project manager, involvement of general management or role of management in
reducing user resistance.
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ACKNOWLEDGMENTS
The journey to a PhD is not completed without the support, friendship and
advice of numerous people and organizations.
The College of Business at Central Washington University provided me
financial support for the production and mailing of my questionnaires and travel
to Houston to conduct three case studies.
Loren Carroll, a friend and business associate since 1965, was kind
enough to allow me to conduct case studies in the two companies he manages,
M-l Drilling Fluids and Smith International Inc. Janet Hall, Director of Information
Technology at M-l Drilling Fluid, arranged the details my case study visits at both
M-l and Smith and proof read the M-l case for accuracy. Many other Smith and
M-l employees took their time to discuss their involvement in the ERP project.
The faculty at the Drucker Graduate School of Management all contributed
to my education in management. I like to mention a few who had a special
impact.
Richard Ellsworth got me hooked on the Drucker EMBA program
with his Current Issues in Strategic Management class, my first
class in the EMBA program.
Vijay Sathe ignited my desire to continue studying management
and to pursue a doctoral degree in his course in Strategy and
Organizations.
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Peter Ring Smith (Visiting Professor from Loyola Marymount
University) provided me with the confidence that I could complete
the PhD program, treating all of us in his strategy literature review
as emerging scholars.
Robin Cooper provided me with the desire to continue my
education and the inspiration to embark on a teaching career.
Don Griesinger provided support to me along with all the doctoral
students in his EMGT 494 doctoral research seminars and literature
review class.
My dissertation committee provided immeasurable support and
encouragement. My chair, Paul Gray, provided me the guidance, help,
inspiration, and encouragement I needed to complete the dissertation.
Members of my cohort group of the entering PhD class of 1998, Marie
Tumolo and Olivia Neece, were an important source of support and
encouragement. Drucker students Bill Allison and Bennett McClellan assisted in
contacts for case studies and questionnaires.
My wife, Marilyn, endured my absence weekends and evenings and my
stress while attending classes and writing my dissertation, even though she
thought I was crazy embarking on a new career when she thought I should be
thinking about retirement and taking life easier. She also folded and stuffed
hundreds of questionnaires for me.
Thanks to all of you.
vii
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TABLE OF CONTENTS
CHAPTER 1- INTRODUCTION 1
DESCRIPTION OF ERP SYSTEMS 2
WHY DO FIRMS ADOPT ERP SYSTEMS? 7
WHY DO FIRMS NOT ADOPT ERP SYSTEMS? 11
RISKS ASSOCIATED WITH ERP IMPLEMENTATION 13
CRITICAL SUCCESS FACTORS 15
CRITICAL SUCCESS FACTORS FOUND
PREVIOUSLY
16
DEFINITION OF SUCCESS 22
IMPORTANCE OF TOPIC 24
CHANGES SINCE SNELLERS STUDY 26
CHAPTER II - LITERATURE REVIEW 28
OVERVIEW 28
MRP, MRPII AND ERPAN EVOLUTION 28
OPERATIONAL PLANNING MODEL 37
PLANNING 38
ORGANIZING 40
STAFFING 42
LEADING 47
CONTROLLING 51
MEASURES OF SUCCESS 53
viii
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CHAPTER III - RESEARCH QUESTION FRAMEWORK, ANDMETHODOLOGY
59
METHODS 65
CASE STUDIES 65
QUESTIONNAIRE 66
CHAPTER IV - CASE STUDIES 73
INTRODUCTION 73
CASE 1 - PACIFIC CLAY PRODUCTS INC 77
CASE 2 & 3 SMITH INTERNATIONAL, INC. 91
CASE 2 - SMITH BITS/SMITH SERVICES 93
CASE 3 - M-l, LLC 103
CASE 4 - PACIFIC AEROSPACE 117
CASE 5 - LITTON INDUSTRIES 125
CASE 6 - HALLIBURTON 136
CASE 7 - PACCAR / KENMEX 145
CASE 8 - NORTHROP GRUMMAN 153
SUMMARY OF CASE STUDIES 159
CHAPTER V ANALYSIS METHODS AND RESULTS 162
DEMOGRAPHIC INFORMATION 163
SUCCESSFUL VS. UNSUCCESSFUL 166
HYPOTHESES 168
OTHER FINDING 225
COMPANY GOALS 225
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COMPETITIVE ADVANTAGE 229
PRIOR MAJOR SYSTEMS IMPLEMENTATIONEXPERIENCE
231
CHAPTER VI. CONCLUSIONS 233
APPENDIX 1. ERP IMPLEMENTATION QUESTIONNAIRE 262
APPENDIX II. QUESTIONNAIRE TRANSMITTAL LETTER 274
APPENDIX III. CASE STUDY FIRM CONSENT LETTER 276
APPENDIX IV. CASE STUDY INDIVIDUAL CONSENT LETTER 278
APPENDIX V. CASE STUDY INTERVIEW QUESTIONS 280
APPENDIX VI. MRP IMPLEMENTATION QUESTIONNAIRE 288
APPENDIX VII FREQUENCY ANALYSIS OF INDEPENDENTVARIABLES
295
APPENDIX VIII GLOSSARY 309
REFERENCES 312
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Index of Tables
Table No. Description PageChapter 1
1-1 Some Functions Available in SAP R/3 6I-2 Nahs Critical Success Factors 21Chapter II
11-1 Evolution of ERP Systems 29II-2 Typical SAP Functions 35Chapter IVIV-1 Summary of Case Study Site Characteristics 76IV-2 Summary of Case Study Findings 160Chapter V
V-1 Questionnaire Mailing Summary 162V-2 Primary Products of Respondents (V57) 164V-3 Sales Volume of Respondents (V58) 164V-4 Implementation Completion Dates (V59) 164V-5 ERP Software Used by Respondents (V60) 165V-6 Implementation Method (V61) 165V-7 Functional Area of Respondent (V62) 166V-8 Variable V1 Success 166V-9 Background Information Results 168V-10 Planning Variables - V15 through V18 173
V-11 T-test for Variables V15 to V18 175V-12 Multiple Regression Results of Variables V15 to V18with V12
176
V-13 Multiple Regression Results of Variables V15 to V18with V13
177
V-14 Organizing Variables - V19 through V22 178V-15 T-test for Variables V19 to V22 179V-16 Multiple Regression Results of Variables V19 to V22 180V-17 Multiple Regression Results of Variables V19 to V22
with V12182
V-18 Multiple Regression Results of Variables V19 to V22
with V13
183
V-19 Organizational Variables - V23 through V26 184V-20 T-test for Variables V23 to V26 185V-21 Multiple Regression Results of Variables V31 to V37
with V12186
V-22 Staffing Variables - V27 through V-30 187V-23 T-test for Variables V27 to V30 188
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V-24 Multiple Regression Results of Variables V27 to V30 189
V-25 Standardized Coefficients and Correlations ofPredictor Variables V27 and V30
190
V-26 Multiple Regression Results of Variables V27 to V30
with V12
192
V-27 Standardized Coefficients and Correlations ofPredictor Variables with V12r
193
V-28 Multiple Regression Results of Variables V27 to V30with V13
194
V-29 Standardized Coefficients and Correlations ofPredictor Variables V27 to V30 with V13r
195
V-30 Staffing Variables - V31 through V37 196V-31 T-test for Variables V31 through V37 197
V-32 Multiple Regression Results of Variables V31 to V37with V12
200
V-33 Standardized Coefficients and Correlations ofPredictor Variables V31 to V37 with V12r
201
V-34 Multiple Regression Results of Variables V31through V37 with V13
202
V-35 Staffing Variables - V38 through V41 204
V-36 T-test for Variables V38 through V41 205V-37 Leading Variables - V16, V18, V42 207V-38 T-test for Variable V16, V18 and V42 208V-39 Leading Variables - V43 through V45 209V-40 T-test for Variables V43 to V45 210V-41 Multiple Regression Results of Variables V43 to V45 210V-42 Standardized Coefficients and Correlations of
Predictor Variable V43211
V-43 Multiple Regression Results of Variables V43 to V45with V12
212
V-44 Multiple Regression Results of Variables V 213V-45 Leading Variables - V46 through V49 214V-46 T-test for Variables V46 through V49 215V-47 Multiple Regression Results of Variables V46 to V49
with V12216
V-48 Leading Variables - V50 through V54 218
V-49 T-test for Variables V50 to V54 219V-50 Multiple Regression Results of Variables V50 to V54
with V12220
V-51 Multiple Regression Results of Variables V50 to V54with V13
222
V-52 Summary of Statistical Analysis of Hypotheses 224
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V-53 Company Specific Goals for ERP Implementation(V14)
225
V-54 Company Specific Goals (V14) 225V-55 Multiple Regression Results of Variables V14a1
through V14g1
228
V-56 T-test for Variable V55 229V-57 Multiple Regression Analysis Results of Variable
V55229
V-58 Standardized Coefficients and Correlations ofPredictor Variable V100
231
V-59 Prior Major Systems Experience (V56) 231Chapter VIVI-1 Levels of Business Planning and IT Planning
Integration235
Index of Figures
11-1 Evolution of ERP System 29II-2 Information Systems Success Model 56
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CHAPTER I
INTRODUCTION
Enterprise systems appear to be a dream come true. Thesecommercial software packages promise the integration of all theinformation flowing through the company - financial and accountinginformation, human resource information, supply chain information,customer information. For managers who have struggled, at greatexpense and with great frustration, with incompatible informationsystems and inconsistent operating practices, the promise of an off-the-shelf solution to the problem of business integration is
enticing.(Davenport, 1998)
In the mid-1990s, businesses around the world were spending
approximately $10 billion per year on enterprise resource planning systems
(ERP) and about the same amount on consultants to install these systems
(Davenport, 1998). An AMR study states that in 2001 firms were expected to
invest more than $47 billion on enterprise systems (ES) packages (Cotteleer,
2002). Another AMR research study indicates that ERP will remain the biggest
segment of large and mid-size companies IT application budgets through 2004
(Seewald, 2002). The magnitude of this expenditure makes knowledge of the
factors most likely to result in successful ERP systems implementation a critically
important topic for managers embarking on such projects and academics
studying such implementations. Managerial and economic resources are scarce
in all firms. Determination of the critical success factors will help management in
allocating resources appropriately. In addition, ERP can be viewed as the first
1
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wave of enterprise systems applications including customer relationship
management (CRM) and supply chain management (SCM). Lessons learned
from ERP will contribute to successful implementations of these systems (Brown
& Vessey, 2003).
In this introduction we will discuss the following:
1. The nature of enterprise resource planning systems
2. The reasons firms adopt these systems
3. The reasons firms do not adopt ERP systems
4. Risk associated with ERP implementation
5. Critical success factors found previously
6. Definitions of success for enterprise systems.
7. Importance of the topic
DESCRIPTION OF ENTERPRISE RESOURCE PLANNING SYSTEMS.
Enterprise resource planning systems (ERP), also known as enterprise
systems (ES), evolved from material requirements planning (MRP) systems.
ERP systems claim to be off-the-shelf solutions to a myriad of business
problems. These integrated ERP packages replace hard-to-maintain solutions
created by the IS departments of the firms or older off-the-shelf packages that
often offered only piecemeal solutions. These older systems are frequently
referred to as legacy systems. Legacy systems are transaction processing
systems designed to perform specific tasks. Many of these systems became
outdated as business needs changed and the hardware and software available in
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3
the marketplace improved (Applegate, McFarlan, & McKenney, 1999). However,
ERP systems are expensive and difficult to implement, often imposing their own
logic on a companys strategy and existing culture (Pozzebon, 2000). ERP
implementations are often complex and experience serious problems. The
determinants of a successful ERP system implementation are still poorly
understood. (Davenport, 1998) A recent summary of ERP literature states that
while the difficulties and failures or ERP implementations have been widely cited
in the literature, research on critical success factors (CSFs) in ERP
implementation is rare and fragmented. (Nah, Lau, & Kuang, 2001)
ERP implementations can be characterized by three distinguishing
characteristics. (Somers, Ragowsky, Nelson, & Stern, 2001)
1. These systems are profoundly complex pieces of software, and
installing them requires large investments of money, time and expertise.
(Davenport, 1998)
2. ERP systems are packages that may require changes in business
processes and procedures, may induce customization, and leave the firm
dependent on the vendor for support and updates (Lucas, Walton, & Ginsberg,
1988).
3. The adopting firm is usually required to reengineer business
processes. ERP implementations must be managed as a program of broad
organizational change rather than a software implementation (Markus & Tanis,
2000; Somers et al., 2001).
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4
MRP systems were developed in the 1960s and 1970s as the central
activity in material planning and control. The managerial objectives of MRP are
to provide the right part at the right time to meet the schedules for completed
products. (Vollmann, Berry, & Whybark, 1984) MRP systems work backwards
from the required delivery date of a product to the date raw material orders need
to be placed and the date production of the product should begin. MRP
accomplished these tasks by considering required production time, inventory on
hand, inventory on order, and work in process. Based on this analysis, the MRP
system recommends when additional material should be purchased and in what
quantities. When properly used, this technique reduces the level of inventory
necessary and still ensures raw materials will be on hand when needed for
production. Reducing the amount of inventory required to be on hand frees up
cash for other purposes and minimizes the firms exposure to inventory losses
from obsolescence. A weakness of MRP systems was that these systems use
an infinite capacity-planning model (Palaniswamy & Frank, 2000). This model
does not take into account the capacity of each work center and can suggest an
unrealistic schedule that would overload individual work centers.
An extension of MRP is manufacturing resource planning or MRP II. In
addition to planning inventory purchases, MRP II used the database to calculate
expected cash flows, machinery and equipment needs, labor needs and tooling
requirements (Schonberger, 1986). MRP II is a sequential technique that is
used for converting a master production schedule (MPS) of the end products into
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a detailed schedule for raw materials and components. It starts with sales and
operation planning and demand management and ends with a detailed schedule
for components to be made in-house as well as purchased from vendors.
(Palaniswamy & Frank, 2000)
MRP II is an automated system that makes scheduling and planning of all
of a manufacturing enterprises resources practical. (Gray, 1986) Gray points
out the MRP II solves what Oliver Wight, a pioneer in the inventory and
production control field, defined as the universal manufacturing equation; what
are we going to make? What does it take to make it? What do we have? What
do we need to get? MRP II answers the question, What do we really need, and
when do we need it? by taking a companys high level plans and breaking them
down to detailed schedules for material, capacity, cash and the like.
ERP expands the functionality of MRP and MRP II by integrating
information throughout the entire organization in a single database. A typical
ERP system offers functionality in financial information, human resources,
operations and logistics, and sales and marketing, in addition to operations and
logistics. The great appeal of ERPs is that employees enter information only
once and that information is then available to all systems companywide....This
means everyone in the company can make decisions based on accurate, real
time information (Laughlin, 1999).
Laughlin describes the typical processes involved in processing an order
using an ERP system. For example, a customer service agent receives a phone
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call from an existing customer. The agent quickly locates the customers
account, records the order details, prices the order, and checks the availability
date. The customer confirms the order details and the agent books the order.
That single entry triggers everything from the allocation of the finished product
against the order to delivery and billing. That is, based on existing demand and
allocation rules, the ERP will determine whether the product should come from
current finished goods in a warehouse, in-process goods, scheduled production,
or new production. It will set the order up for shipment based on information from
either the customer or the customer master record, and, once the order is
shipped, prepare an invoice and an accounts receivable entry (Laughlin, 1999).
TABLE 1-1. SOME FUNCTIONS AVAILABLE IN SAP R/3
Financials Operations and Loqistics
Accounts receivable and payable Inventory managementAsset accounting Material requirements planning
Cash management and forecasting Plant maintenanceCost-element and cost-center Production planningExecutive information systems Project managementFinancial consolidations PurchasingGeneral ledger Quality managementProduct-cost accounting Routing managementProfitability analysis ShippingProfit-center accounting Vendor evaluationStandard and period-related costing
Human Resources Sales and Marketina
Human-resources time accounting Order managementPayroll PricingPersonnel planning Sales managementTravel expenses Sales planning
Source: Davenport (1998)
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A list of some of the functions of SAP R/3, a popular ERP package, is
shown in Table 1-1. Companies adopting ERP can install some or all of the
functions as needed.
ERP systems contain several configuration options for each business
process based on best practices. However, this functionality may not fit the
existing business processes of the firm adopting ERP, forcing the firm to
reengineer its business processes to conform to the software package options.
The resulting organizational change may be a significant challenge to the firm.
ERP implementations usually require people to create new work relationships,
share information that was once closely guarded, and make business decisions
they never were required to make (Appleton, 1997). Laughlin describes
organizational resistance as a common but intangible foe and a frequent source
of train wrecks in ERP implementations (Laughlin, 1999).
WHY DO FIRMS ADOPT ERP?
Firms adopting ERP may have widely different goals. Markus and Tanis
(2000) identify technical reasons and business reasons for adoption. Among the
technical reasons are:
Reducing systems operating costs,
Solving specific problems such as Y2K,
Accommodating increased system capacity, and
Solving maintenance problems with legacy systems.
Business reasons may include:
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The ability to present a single face to the customer
The ability to quote realistic delivery dates based on current inventory and
shop capacity,
Accommodation of business growth,
Improvement of informal or inefficient business processes,
Standardize data,
Reduction of inventory carrying costs, and
Elimination of delays and errors in filling customer orders.
Watson and Schneider (1999) attribute the rapid growth of the commercial
market for ERP to the following factors:
Use of the popular client/server platform
Can be used as an enabler for reengineering projects
Y2K compliant
Marketed to CEOs and CFOs as strategic solutions rather than
as transaction processing software
A way to outsource a significant part of the IS function. (Watson &
Schneider, 1999)
A study of member firms of the Financial Executives Institute examined
the relationship between ERP adoption and environmental, strategic and
structural determinants. The study found that ERP adoption was more likely
under the following contingencies:
Coordination is critical to the organization
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The firm follows a low-cost or low-price strategy
The firm is centralized
The firm follows a top-down financial strategy
The firm differentiates itself based on technology rather than
marketing. (Banker, Janakiraman, Konstans, & Slaughter, 2000)
An example of a decision to adopt an ERP system is provided by Geneva
Pharmaceuticals, a manufacturer of generic drugs. Faced with eroding margins
and continuing price pressure, the existing systems were proving inadequate.
Data shared across business units had to be re-keyed resulting in frequent
errors. Data was locked in functional silos and did not support new processes.
Geneva adopted ERP to solve the following problems:
implement best practices in business processes,
integrate data across business units (hence reduce re-keying and
maintenance costs),
enforce data standardization (to reduce software maintenance
costs),
integrate well with new technologies or systems of acquired
companies,
provide scalability with growing product and customer base, and
be Y2K (year 2000) compliant (Bhattacherjee, 2000).
Rohm and Haas embarked on a major SAP implementation in the midst of
a 40-company buying spree that left the company in a state of technological
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chaos, with 64 different systems running its critical tasks. The chemical industry
was at an all time low and despite sales increases from $3.7 billion to $5.3 billion,
headcount had doubled and return on equity fell by more than half to 12%.
Rohm and Haas spent over $300 million on the project. As of 2003, 80% of the
company is using SAP. (Schoenberger, 2003) For Rohm and Haas, the huge
expenditure of ERP was a strategic necessity, not a luxury.
A further reason for the adoption of complex information technologies,
such as ERP, arises from the examination of the process of information adoption.
Social groups that have a vested interest in their promotion promote the ideas
and knowledge underlying complex information technologies. Many firms
adopted these technologies with very little real understanding about their
complexity, with a resultant high level of failure (Newell, Swan, & Galliers, 2000).
New institutional theory provides further support for the adoption of
information systems marketed aggressively to CEOs and CFOs. Top managers
may adopt new system through a process of mimetic isomorphism, that is,
organizations seek legitimacy by imitating other organizations in their institutional
fields or organizations that interact in networks- i.e., customers, suppliers,
competitors. The adoption of much of the quality movement can be attributed to
this phenomenon (DiMaggio & Powell, 1983). ERP may be another example.
The role of information technology in creating sustainable competitive
advantage may be another reason for adopting new information systems.
Information technology may have a role in creating sustained competitive
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advantage. This belief is based on the two assertions underlying a resource-
based view of the firm: 1.) that resources and capabilities are different in different
firms, 2.) and these differences can be long lasting. (Barney, 1991) Standard, off
the shelf software packages, like ERP solutions, are available to all firms that can
afford to pay for them, so ERP systems would not be the source of resource
heterogeneity. However, the capability of using packaged software system
effectively may not be homogeneous among firms. If K-Mart could imitate
WalMarts system (i.e., the hardware and software), but could not use it as
effectively as WalMart, WalMarts system could still be a source of sustained
competitive advantage (Mata, Fuerst, & Barney, 1995).
WHY FIRMS DO NOT ADOPT ERP SYSTEMS
Markus and Tanis (2000) identified three very broad categories of reasons
why firms that otherwise have all or some of the reasons to adopt ERP systems,
do not adopt it or only adopt ERP in part. These firms may adopt only certain
modules and rely on legacy systems or new custom systems for their needs.
Other firms may begin an implementation only to discontinue it for a variety of
reasons. The reason for this non-adoption or partial adoption can be categorized
as follows:
1. Lack of feature-function fit
2. Company growth, strategic flexibility and decentralized decision
making
3. Availability of alternatives to increase systems integration.
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Lack of feature-function fit may be due to the design of most ERP for
discrete manufacturing. Many companies have specialized processes common
to their industry, which may not be solved by the best practices embedded in
ERP systems. The various modules may not fully support process
manufacturing industries, such as food processing and paper manufacturing,
project industries, such as aerospace, or industries that manufacture products
with dimensionality, such as clothing or footwear.
Companies concerned with maintaining rapid growth rates, those needing
strategic flexibility and those without a top down decision making style may be
non-adopters or partial adopters of ERP systems. Dell Computer Corp. planned
full implementation of SAP R/3 but discontinued the implementation after
installing the human resource module. Dells CIO expressed concern with the
softwares ability to keep pace with Dells extraordinary growth rate. Visio, a
software company subsequently acquired by Microsoft, expressed concern with
the ability of SAP to handle the frequent changes it required to its sales analysis
and commission requirements (Markus & Tanis, 2000).
The experiences of Dell and Visio focus on the need for efficiency and
flexibility in dealing with the external environment and internal processes. In a
stable environment, mechanistic structures are appropriate consisting of high
degrees of standardization, formalization, specialization and hierarchy. In a
dynamic environment, organic structures are needed to enable organizations to
be flexible to change products, processes and structures. In these organizations
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low level of standardization, formalization, specialization and hierarchy are most
appropriate. ERP may maximize organizational efficiency at the cost of flexibility
(Newell, Huang, Galliers, & Pan, 2003).
Lean enterprises succeed as a growth strategy for increasing sales by
trimming the companys product delivery system into a competitive weapon.
Lean enterprises have difficulty using ERP systems due to the lack of flexibility.
ERP creates many nonvalue-added transactions by making companies track
every activity and material price in the factory. This is counter to Lean
philosophy, which aims at speeding up and smoothing production (Bradford &
Mayfield, 2001).
Alternatives to ERP systems include data warehousing technologies that
integrate data from source systems for query and analysis. These systems,
sometimes described as poor mans ERP, are limited by the quality of the
underlying source systems (Markus & Tanis, 2000).
RISKS ASSOCIATED WITH ERP IMPLEMENTATION
Scott (2003) identifies risks in ERP implementations in the areas of project
risks, information systems risks, organizational risks, and external risks.
Project risks stem from the customization of purchased packages and the
difficulty of interfacing with legacy systems. When firms believe their business
process are unique, they may customize ERP software instead of adopting best
practices imbedded in a standard implementation. Data conversion can also be
a problem when firms do not clean up their data before embarking on a project.
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Project leadership, limiting project scope, avoiding customization, and a phased
implementation (rollout) can minimize this risk (Scott, 2003).
Information systems risks arise from system performance problems. ERP
systems may be poorly configured or the hardware may need upgrading.
Another risk arises when the use of multiple vendors creates the need for
multiple interfaces. Multiple vendors contributed to the problems in the Hershey
Food Corporation implementation. Information systems risks can be minimized
by avoiding customization, use of data warehousing for reports and queries and
avoiding multivendor implementations (Scott, 2003).
Organizational risks of a bad ERP implementation can impact the firms
operating profits. Customer deliveries can be delayed putting customer
relationships at risk. Impacts can be with customers, financial performance, or
internal business objectives. Organizational risks can be minimized with training
and strong leadership, which assures that sufficient resources are allocated to
the project and inspires employees who may resist the implementation (Scott,
2003).
External risks center on litigation associated with the implementation.
Firms with implementation problems may sue consultants and/or ERP vendors.
Overbilling by consultants and use of incompetent trainees have been sources of
litigation (Scott, 2003). Gore-Tex claims its consultant promised expert staff and
delivered incompetent trainees. Managing consultants by specifying goals and
individual competence of consultants can minimized this risk (MacDonald, 1999).
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CRITICAL SUCCESS FACTORS.
Bullen and Rockart (1981) define critical success factors (CSFs) as the
few key areas of activity in which favorable results are absolutely necessary for a
particular manager to reach his goals. They point out that an incredible number
of things can divert a managers attention. A key to a managers success is to
focus their scarcest resource of time on those things that make a difference
between success and failure (Bullen & Rockart, 1981). Banfield refers to critical
success factors as those activities that make the difference between success
and failure - or at least the difference between incremental results and
breakthrough results (Banfield, 1999).
Drucker defines two requirements of controls. Controls must follow a
principle of economy. The fewer controls needed, the more effective they will
be. A second requirement is that controls must be meaningful. One has to
control by controlling a few developments which can have significant impact on
performance and results (Drucker, 1973). Both of Druckers requirements are
consistent with the principle of critical success factors.
Bullen and Rockart identify five prime sources of critical success factors:
1. The industrysome CSFs can be unique to the firms industry
2. Competitive strategy and industry positiona low-cost strategy will
call for different CSFs than a differentiation strategy
3. Environmental factorseconomy, political climate, population
trends, generally things over which a firm has no control
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4. Temporal factors - areas can be critical over a short period of time
5. Managerial position - managers in different functional areas may
have different CSRs, i.e., Sales vs. Finance
Bullen and Rockart demonstrated that CSFs are hierarchical in nature.
CSFs can be identified at the industry level, the corporate level, the sub-
organizational level and the individual level.
CRITICAL SUCCESS FACTORS FOUND PREVIOUSLY
Sneller (1986) examined the critical success factors in the implementation
of materials requirements planning systems (MRP). He applied classical
management theory relating to the functions of a managerplanning, organizing,
staffing, leading and controllingusing the Operational Management approach
described by Koontz, ODonnell, and Weihrich (1980). Snellers study was
conducted at the sub-organizational level, which was appropriate for MRP
systems as these systems impact primarily the manufacturing, and production
and inventory control functions of the firm. Because of the expanded
functionality of ERP systems compared to MRP systems, this dissertation
requires the examination of CSFs at the organizational level of analysis.
Sneller based his work on MRP installations on the results of
questionnaires sent to 50 personal acquaintances or referrals to the author and
100 material managers listed in the 1985 edition of the American Electronics
Association Directory. He believed that material managers would have the
highest probability of having knowledge of successful and unsuccessful MRP
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implementations. Based on sixty-one responses to his survey from these
material managers for electronics companies, Sneller identified the following
critical success factors in his study of MRP:Planning.
A detailed formal plan.
Training of management and users. Testing following training is also
significant.
Organizing
Full time project manager.The higher the reporting level of project
manager the higher the probability of success.Implementation group must
be allowed discrete amount of time.Staffing
Use of a consultant is helpful but will not guarantee success if other
factors are ignored.
Leading
Senior management must show more than token support.
Controlling
Control must originate with top management and steering committee must
meet at least monthly (Sneller, 1986).
Sneller examined but failed to find a relationship between the following
management practices and project success:
The amount of user participation in planning was not related to improved
performance and user satisfaction in the implemented system.
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The organizational reporting level of the project manager was not related to
improved performance and user satisfaction in the implemented system.
High levels of MRP systems experience and / or high levels of previous
project management experience, combined with strong motivation were not
significantly related to improved performance and user satisfaction in the
implemented system.
The use of a consultant during system implementation was not related to
improved performance and user satisfaction in the implemented system.
The use of a formal tracking system by the steering committee was not
related to improved performance and user satisfaction in the implemented
system.
Other lists of critical success factors abound in both popular and
scholarly articles, but these lists are generally based on experience or casual
observation, not controlled research.
McDonnell (2000) offered the ten critical success factors for ERP
upgrades summarized below. Although these CSFs relate to upgrading ERP
systems to a newer version I believe they may be equally applicable to new
implementations.
Spell out the strategic, tangible business and operational benefits
and find ways to measure success in achieving them. Assign
accountability and authority for those goals.
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Make sure all top management is united behind the business goals
driving you upgrade.
Because the biggest challenge is change management, retrain staff
not only with new technical skills but also with skills that often result from
upgrades and new job descriptions.
Make good decisions faster that balance schedule and cost vs.
benefits and risk. This is especially important because such projects
cross functional lines.
Implement creative incentives for your project team to reward their
hard work and increased value.
Be rigorous about project management and the implications of your
partnerships with consultants.
Look at the big picture, establishing a global architecture before
deploying locally. Too many projects begin with a small pilot or in phases
and then need to be redone when taken to other business units or
countries
Do process re-engineering before and during the project. Its a
mistake to think you can do this later or focus on installing the software
first, which also includes many decisions on process.
Pay attention to demanding training and support needs. Dont try to
save money by cutting training costs.
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Your organization needs to understand why the project is worth the
pain of change. Your project team needs full-time members, minus the
distractions of their real jobs. Your scope needs to be tightly focused to
resist the temptation of widening the scope and reworking the project plan
(McDonnell, 2000).
Another view of ERP success is provided by Laughlin (1999), who
identifies six components of a winning game plan for implementing ERP.
The six components are:
A motivating business justification,
Internal business support,
A strong internal owner,
An empowered and influential internal team,
Management driven change, and
A proven external partner (Laughlin, 1999).
Nah (2001) reviewed ten articles written by academics and
practitioners between 1998 and 2000 discussing What are the key critical
factors for ERP implementation success? These articles discussed eleven
critical success factors listed in Table I-2 together with the number of articles
discussing each of the factors. Nah did not distinguish whether empirical
research, case studies or other methods determined the factors mentioned.
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TABLE I-2
Nahs Critical Success Factors
Critical Factor No of articlesmentioning
ERP teamwork and composition
ERP project should be the teams top priority
The teams workload should be manageable
Incentives for successful implementation
8
Change management program and culture
A culture of shared values is conducive to success
7
Top management support
Align with strategic business goals
Tie management bonuses to project success
Top management priority
6
Business plan and vision
Tie project to specific business model
6
BPR and minimum customization
Willingness to change business to fit software
Software should not be modified
6
Effective communications
Management of communications, education and
expectations critical
5
Project management
Individual or group should be given respons ibility forsuccess
Plan with well-defined tasks and accurate estimation ofeffort
5
Software development, testing and trouble shooting
Appropriate choice of system functionality and links to
legacy systems
Work with vendors and consultants to resolve softwareproblems
5
Monitoring and evaluation of performance
Measurement against completion dates
Monitoring through milestones and targets
Management needs information on effect of project on
business processes
5
Project champion Oversee entire life cycle of project
High level executive sponsor
Business leader should be in charge
4
Appropriate business and IT legacy systems
Stable and successful business setting is essential
2
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Brown and Vessey (2003) identify five success factors based on case
studies of a dozen ERP implementations. The five factors are:
Top management is engaged, not just involved
Project leaders are veterans and team members are decision makers
Third parties fill gaps in expertise and transfer their knowledge
Change management goes hand-in-hand with project management
A satisficing mindset prevails.
Several other authors have investigated ERP systems and the factors
critical for successful implementation. A study based on four cases identified the
following CSFs: support of senior management, redesign of business process to
fit what the software will support, investment in user training, and use of
business analysts with knowledge of both business and technology (Sumner,
1999). One study identified factors such as commitment from top management,
selection and management of consultants and employees and training on the
new system (Bingi, Sharma, & Godla, 1999). Another study identified success
factors in software projects (Reel, 1999). An additional study developed a
framework grouping success factors into strategic and tactical factors based on
eight cases and a review of the literature (Holland & Light, 1999).
DEFINITION OF SUCCESS
Snellers study relied on two dimensions, improved performance and
user satisfaction, to define a successful MRP implementation. Snellers
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questionnaire used ten questions to operationalize these two success
dimensions.
Improved Organizational Performance.
The first dimension measures improved business performance
following an MRP implementation. White, Anderson, Schroeder and Tupy (1981)
showed that successful implementations of MRP resulted in the following
changes: increased inventory turnover, increased on-time deliveries, decreased
lead times, decreased material shortages and decreased material expediters.
User Satisfaction.
The second dimension tested by Sneller is user satisfaction. Researchers
have found functionality, equipment performance, interaction features, and office
environments provide user satisfaction in information systems. Functionality was
found to be the best predictor of user satisfaction (Bikson & Gutek, 1983; Gutek,
Bikson, & Mankin, 1984).
In addition to the above criteria, Sneller used a general question on the
return on investment of the project. The perception by the questionnaire
respondents of a positive rate of return on investment was necessary to define a
project as successful.
For purposes of this study, a six dimensional definition of success will be
used. The six dimensions measured are:
Systems quality,
Information quality,
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User satisfaction,
Individual impact and
Organizational impact.
The selection of these six dimensions is discussed more fully in Chapter II.
IMPORTANCE OF TOPIC
Despite the large sums of money spent annually by business on
implementation of ERP systems the reports of implementation failures abound.
Hershey Foods embarked on an ERP investment in mid-1996 to solve its Y2K
problem and improve its ability to perform just-in-time store deliveries to its
customers (Severance & Passino, 2002). After spending $112 million on an ERP
project, Hershey Foods Corporation was unable to fill Halloween candy orders in
October 1999, resulting in a 19% drop in third quarter profits (Stedman, 1999).
As a result of Hersheys problems its stock price fell by a third and the firm lost
market share to Mars and Nestle (Severance & Passino, 2002). Hershey
estimates it suffered a 3% permanent decrease in market share from this
experience (Sutton, 2003).
A study by the PA Consulting Group found that 92% of companies are
dissatisfied with results achieved to date from their ERP implementation and only
8% achieved a positive improvement in their performance ("ERP Implementation
Disappoints Companies," 2000).
Davenport (1998) identifies several unsuccessful implementation efforts:
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Fox-Meyer Drug claims that an ERP system led to its bankruptcy.
Mobil Europe spent hundreds of millions on ERP, but abandoned
the project when a merger partner objected.
Dell found that its ERP system did not support its new
decentralized management style.
Applied Materials gave up on its ERP implementation when it
became overwhelmed with the organizational changes it required.
Markus and Tanis identify five areas in which ERP research is important to
IS research. The areas are:
1. Financial cost and risk. ERP implementation is expensive and risky.
Several visible failures have occurred and non-academic literature is questioning
the benefits derived from such systems. Brown and Vessey (2003) observe
although failures to deliver projects on time and within budget were an old IT
story, enterprise systems held even higher risks-they could be a bet-our-
company type of failure.
2. Technical issues. Technical challenges of ERP systems include
software selection methods, software configuration techniques, systems
integration strategies, and data quality.
3. Managerial issues. ERP implementation projects involve many
different organizations (suppliers, customers, etc.) and cut across organizational
structures. ERP implementation affects how organizations structure and manage
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the information and presents challenges in personnel recruiting, training and
retention.
4. IT adoption, use and impact. ERP systems are widely adopted and
continue to proliferate. Questions remain regarding how effectively and
extensively the systems are used in organizations. Effects of these systems are
experienced at several levels of analysis including individual, process,
organization, and industry.
5. Integration. Integration issues include the relationship of ERP to
organizational restructuring around IT capabilities, structural changes in IT
resulting from the outsourcing of systems development and programming and the
increasing reliance on third parties of products and services, and the
effectiveness of ERP system compared with other alternatives, such as data
warehousing, middleware and looser integration strategies.
CHANGES SINCE SNELLERS STUDY
The 1986 study of MRP implementation by Sneller made an important
contribution to the literature, but factors changed with the development of ERP
systems.
1. The level of analysis of CSFs changed from the sub-organization
level to the organization level.
2. The very nature of ERP encompasses the entire organization
where MRP primarily affected the material management and production and
inventory management sub-organizations.
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Sneller concluded his work on MRP with the observation that, There
appears to be a lack of good old fashioned discipline in the implementation
approaches used for projects that were unsuccessful. American management
has become very undisciplined as society itself has become undisciplined.
(Sneller, 1986) As American industry has improved its global competitiveness
during the nineties, have the values of classical management been a factor?
The IT community of professionals now has over 15 years experience in
implementing complex systems since Sneller studied MRP. Why are we not
more successful in obtaining results with ERP systems? Has organizational
learning been offset by the increasing complexity of systems implementations?
Future Enterprise Systems.
Brown and Vessey (2003) view ERP as the first wave of a series of
enterprise systems projects to be followed by customer relationship management
(CRM) and supply chain management (SCM). They believe that the lessons
learned in ERP implementations will enable management to better manage risks
of the next wave of enterprise systems. The second wave of ERP is discussed
more fully in the next chapter.
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CHAPTER II
REVIEW OF LITERATURE
OVERVIEW
In this chapter the literature relating to the following topics is examined.
The evolution of ERP
The applicability of the functions of management theory to the implementation
of complex systems
Success measurement
While practitioner literature on ERP abounds, academic literature is
sparse. Practitioner literature, while rich in observations and anecdotes,
generally lacks the rigor of empirical research. Where specific ERP literature is
not available, general management information literature is examined.
MRP, MRP II AND ERPAN EVOLUTION
ERP systems evolved from material requirement systems first developed
in the 1960s.
28
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Figure 11-1 Evolution of ERP Systems
Evolution of ERP S^stems
UUOsI RP1I 1
lJOs
1y()s MRP II |
] %0 i hjvuUor^ongo^gdMBgsJ
Adapted from (Rashid, Hossain, & Patrick, 2002).
Material Requirements Planning (MRP)
Computer applications for business were first developed in the mid 1950s.
These first systems were stand-alone applications. The first applications
included payroll processing systems, general ledger systems, accounts payable
systems, and inventory management systems. Each system involved its own
logic, data and users. With these stand-alone systems it was impossible to
coordinate information systems planning across business functions (Davenport,
2000). Business systems were described as islands of automation (McKenny &
McFarlan, 1982). When new systems had something in common with existing
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systems they were often loosely coupled, usually manually, rather than tightly
integrated (Markus & Tanis, 2000).
Data was often described differently in different functional systems.
Attempts to combine data across various systems were difficult and error-prone.
Material requirement planning systems were first developed in the 1960s
to help manufacturers produce the right part at the right time with a minimum
investment in inventory. Manufacturers had used inventory as a buffer to keep
from running out of product that is needed to meet customer demand. The
combined result of buffers at all levels of production cause inventory investment
to increase dramatically. Not only did this increase in inventory put demands of
the firms cash flow to support the investment, but also made the firms more
vulnerable to write-offs resulting from inventory obsolescence.
APICS, the professional society that has promoted the adoption of MRP
and ERP systems and provided user education, describes MRP as follows.
A set of techniques that uses bill of material data, inventory data, and the
master production schedule to calculate requirements for materials. It makes
recommendations to release replenishment orders for material. Further, because
it is time-phased, it makes recommendations to reschedule open orders when
due dates and needed dates are not in phase. Time-phased MRP begins with
the items listed on the MPS and determines (1) the quantity of all components
and materials required to fabricate those items and (2) the date that the
components and material are required. Time-phased MRP is accomplished by
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exploding the bill of material, adjusting for inventory quantities on hand or on
order, and offsetting the net requirements by the appropriate lead times (Cox &
Blackstone, 1998).
MRP works backward in time from the planned quantities and due dates
for each end product as specified in the master production schedule. Using the
bills of material to determine the sub-components for each final product, MRP
systems determine planned production order release dates and quantities and
planned material requisition requirements, taking into account existing inventory
on hand and on order, and production orders in process (Sneller, 1986).
The process begins with the production plan expressed in units by product
lines. This plan is based on the overall level of manufacturing output the firm
plans to produce. Once the production plan is approved it is converted into a
master production schedule, which is a more detailed plan.
The master production schedule is based on specific end products and
takes into account the forecast, the production plan, product backlog, inventory
on-hand, material availability, plant capacity, and management policies and
goals.
The master production schedule then becomes input to the capacity
planning module. Both planned orders and orders already released for
production are used in these calculations. This module converts production in
units to production time for each work center required to build the products on the
master production schedule. The output of this process is work center job
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scheduling reports and purchasing requisitions for materials based on the time
phased production schedule.
Without MRP as a tool to time phase material requirements, materials may
either arrive earlier than needed for production resulting in higher than necessary
inventory levels or later than needed resulting in the inability to deliver the end
product as promised to the customer. A properly operating MRP system
minimizes inventory investment, while improving customer service levels.
A major limitation of MRP systems is that unlimited capacity was
assumed. The planned order release of work orders to the manufacturing floor
did not take into account the capacity limitation of the work center and their
machinery and labor availability.
Manufacturing Resource Planning (MRP II)
MRP II overcame some of the drawbacks of MRP. It provided finite
capacity planning scheduling and shop floor control capability (manufacturing
execution systems). MRP II includes more business functionality than MRP,
dealing with sales, production, inventory, schedules, and cash flows.
(Palaniswamy & Frank, 2000)
APICS describes manufacturing resource planning (MRP II) as follows. A
method for effective planning of all resources of a manufacturing company.
Ideally, it addresses operational planning in units, financial planning in dollars,
and has a simulation capability to answer what-if questions. It is made up of a
variety of functions, each linked together: business planning, sales and
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operations planning, production planning, master production scheduling, material
requirements planning, capacity requirements planning, and the execution
support systems for capacity and material. Output from these systems is
integrated with financial reports such as the business plan, purchase
commitment report, shipping budget, and inventory projections in dollars.
Manufacturing resource planning is a direct outgrowth and extension of closed-
loop MRP (Cox & Blackstone, 1998).
Enterprise Resource Planning (ERP) Systems
Changes in the manufacturing environment have made manufacturing
planning and control systems, such as MRP II, less relevant. A move toward
more customization is moving manufacturing from a make to stock environment
to a make to order environment. The basis for competition is shifting from quality
and cost to delivery, lead times, flexibility, greater integration with the customers
and suppliers, and higher levels of product differentiation (Palaniswamy & Frank,
2000). The emergence of standard hardware and software platforms coupled
with standards for business data capture and exchange in the form of enterprise
resource planning (ERP) systems have made powerful and robust business
processes affordable to companies of all sizes (Severance & Passino, 2002).
APICS describes enterprise resource planning systems as follows:
1) An accounting-oriented information system for identifying and planning
the enterprisewide information needed to take, make, ship, and account for
custom er orders. An ER P system differs from the typical M RP II system in
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technical requirements such as graphical user interface, relational database, use
of fourth-generation language, and computer-assisted software engineering tools
in development, client/server architecture, and open-systems portability. 2) More
generally, a method for effective planning and control of all resources needed to
take, make, ship, and account for customer orders in a manufacturing,
distribution, or service company (Cox & Blackstone, 1998).
Donovan describes ERP systems as quantum improvements over the
old, rigid and often illogical MRPII systems. With todays configurable and more
flexible ERP systems theres been a dramatic improvement in both the speed
and ability to conform to logical, customer-oriented business processes. MRP
processes were hard coded with rigid, predefined business processes
embedded in the software that were difficult to adapt to the real business needs.
In contrast many ERP products come pre-packaged with multiple best practice
options that management can choose from. ERP capabilities provide the
visibility and time links needed to manage the entire supply chain (ERP Systems
Promise a Quantum Leap Over MRPII Systems, 1998).
ERP software can result in a significant improvement over MRP and
MRPII in the entire order-to-delivery process. Customers can be served at a
lower cost and more predictability resulting in a competitive advantage to the
firm. Predictability means that the right inventory will be available, at the right
time, to fill customer orders (ERP Systems Promise a Quantum Leap Over MRPII
Systems, 1998). Todays more demanding customers insist on predictability.
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Technical Factors.
Davenport (2000) identifies several technical factors that distinguish ERP
systems from predecessor systems. These technical factors include modular
construction, client/server architecture, configuration, common central database,
and variable interfaces.
Modular construction. ERP systems are a collection of application
modules representing various business processes. SAP, a leading ERP systems
vendor, includes the following modules in its SAP R/3 software:
Table 11-1Typical SAP Functions
Financial Accounting Materials ManagementTreasury Plant MaintenanceControlling (financial control) Quality Management
Enterprise Controlling (managementreporting
Project Systems (project management)
Investment Management Sales and DistributionProduction Planning Fluman Resource Management
Advanced Planner and Optimizer
Companies can install all modules or only the modules they select. Client
may also substitute modules written by other software firms which fit their
functional needs better than the comparable modules of their main vendor.
Client/server Architecture. In this architecture, a server does some
processing and a desktop personal computer (the client) does the rest. Large
and complex ERP systems may require one server for application programs and
another server for the database.
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Configuration. ERP systems are based on a standard set of business
processes. Companies installing systems can configure the ERP system to meet
their own business needs. Where the configuration options do not meet the
needs of the company, the company must reengineer its processes to match the
configurations available in the ERP systems.
Common Central Database. A central database, shared by all modules,
is a feature of ERP systems. While this feature is not new, in ERP systems it has
reached the highest level of successful execution.
Variable Interfaces. As global systems, ERP systems include interfaces
that match the different countries in which firms operate. Typical ERP systems
support currencies and local human resource requirements in most industrialized
nations.
ERP II
Recently, the Gartner Group coined the term ERP II to describe a shift in
ERP from an enterprise information base to moving information across the
supply chain. ERP II systems, then, are not just the backbone of the enterprise.
They are also the information link for an enterprise in the supply chain ("Taking
the Pulse of ERP," 2001).
The challenge of ERP II is first to accurately manage information about
enterprise transactions and then to open up the system to trading partners. A
PeopleSoft executive states, Going forward, ERP is all about sharing information
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and collaboration. ERP is no longer about your business, its about your supply
chain, states a J.D. Edwards executive ("Taking the Pulse of ERP," 2001).
Brian Zrimsek, research director of the Gartner Group, identifies six key
areas of difference between ERP and ERP II ("Taking the Pulse of ERP," 2001).
Role. ERP attempts to optimize the enterprise. ERP II is concerned with
supply chain optimization by collaboration with trading partners.
Domain. ERP focuses on manufacturing and distribution. ERP II will
cross all sectors.
Function. Current ERP systems cross all industry segments and sectors.
ERP II vendors will specialize in deep functionality for specific industries.
Process. Business processes are focused within the four walls of the
organization. ERP II will go beyond the four walls to business trading partners.
Architecture. ERP systems are monolithic and closed. ERP II will be
Web-based, open to integrate and interoperate with other systems.
Data. ERP information is generated and consumed within the enterprise.
ERP II information is available across the supply chain.
Gartner does not expect to see ERP II systems fully deployed before
2005.
OPERATIONAL PLANNING MODEL
Koontz (1980) summarizes classical management theory in his systems
approach to management. Inputs to the Koontz model include human, capital,
management and technology. A managerial transformation process converts
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these inputs into outputs, such as products, services, profits, satisfaction, and
goal integration. The managerial transformation process consists of planning,
organizing, staffing, leading and controlling. The process is supported by a
communications system, which links the various elements to each other and to
outside stakeholders and the environment (Koontz, O'Donnel, & Weihrich, 1980).
Planning
Koontz describes planning as a function that precedes all other
management functions. Planning identifies the organizations objectives and
describes how the organization will attain these objectives. The other functions,
organizing, staffing, leading and controlling, support the planning function
(Koontz et al., 1980).
The implementation of an ERP system is a massive task involving to some
degree a large part of an organizations employees. For a group effort such as
this to be successful people must know what tasks they are expected to
accomplish and when the tasks need to be completed. Planning is deciding in
advance what to do, how to do it, when to do it and who is to do it. Planning
bridges the gap from where we are to where we want to go (Koontz et al., 1980).
Integration o f Information Systems Planning and Business Planning
Teo and King (1997) investigate the integration between business
planning and information systems planning. Informa tion system s planning is the
process of establishing objectives for organizational computing and identifying
potential applications that the organizations should implement (Teo & King,
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1997). The linkage of IS plans with organizational objectives has been among
the top problems reported by information systems (IS) managers and business
executives (Reich & Benbasat, 1996). Another research paper cited an A.T.
Kearney study that demonstrated that firms that integrate business plans with
information systems plans outperform those that do not (Das, Zahra, &
Warkentin, 1991). Severance and Passino (2002) state that most executives do
not understand the connection between modern business and technology and
leave technology compartmentalized within the l/T department with disastrous
effects.
King (1978) recognized the importance of business planning (BP) and
information systems planning (ISP) integration, seeing the integration as one
directional only, flowing from business planning to information systems planning
(King, 1978). King and Zmud (1981) later expanded the concept into a two-way
integration (King & Zmud, 1981). Synnott (1987) develop five levels of
integration:
1. No planning: No formal BP or ISP.
2. Stand-alone planning: Presence of either business plan or IS plan but
not both.
3. Reactive planning: IS function reacts to business plans and has no
input in the BP process.
4. Linked planning: BP is interfaced with ISP. Systems resources are
matched against business needs.
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5. Integrated planning: BP is indistinguishable from ISP. They occur
simultaneously and interactively (Teo & King, 1997).
With the high level of functional integration required in the adoption of
ERP systems it is reasonable to conclude that the higher the level of integration
of BP and ISP, the more likely the project is to succeed.
Organizing
Koontz et al. (1980) defines organizing as the establishment of an
intentional structure of roles through determination of the activities required to
achieve goals of an enterprise and each part of it, the grouping of these activities,
the assignment of such groups of activities to a manager, the delegation of
authority to carry them out, and provision for coordination of authority and
informational relationships horizontally and vertically in the organization
structure. Daft (2000) provides a simpler definition of organizing as the
deployment of organizational resources to achieve strategic goals. Organizing
encompasses such issues as organizational structure, delegation of authority,
and staff versus line functions.
The function of organizing is based in the foundations of management
literature. Organizations arise out of the need for cooperation among people.
Uncertainty in the environment reduces the level of cooperation (Barnard, 1938 &
1968). The adoption of an ERP system would cause uncertainty and thus reduce
cooperation in the organization.
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Project Management
Common organizational structures are based on functional areas,
geographic areas, divisions, strategic business units or matrix organizations.
Where tasks impact several areas of an organization the use of a project
manager is frequently used to provide lateral coordination.
Full time Project Leader
The Sneller study examined the relationship between a full-time project
leader and project success. At the time of this study, the systems literature was
divided on whether a full time project leader with MRP systems experience was
required. One view is that a user must head up the project team and that it must
be a full time job (Wight, 1974). Another perspective is that, The last thing (a
Project Manager) really needs is some systems knowledge or technical
knowledge. That is probably the least important of the skills needed in a Project
Manager (Flosi, 1980).
Level o f Project Leader
The reporting level and rank of the project manager are important factors
in project success. The project manager needs the authority to make difficult
decisions. Without decision-making authority, groups with vested interests in the
affected process will either proceed very slowly or resist the project entirely. The
project manager, with higher organizational position than personnel in the
affected groups, may be more effective. Cisco Systems overcame organizational
inertia only when its ERP project was led by the CIO and the vice president of
manufacturing, who reported directly to the board of directors (McAfee, 2003).
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Staffing
Staffing is the management function that fills the roles within an
organization with competent people who can operate the firm now and in the
future. Staffing involves effective recruitment, selection, placement, appraisal,
and development of people to occupy the role in the organizational structures
(Koontz et al., 1980).
Skills o f Project Manager
Current literature concerning the role of