It is commonly accepted by the business world that information technology should be viewed as more than just an automation of business processes. Information technology can fundamentally change the way business is done. Therefore, many organizations seek to improve their competitiveness by utilizing advanced information technologies such as enterprise resource planning (ERP) systems (Grabski, Leech & Sangster, 2009). According to O’Leary (2000), ERP systems are powerful software packages that enable businesses to integrate various disparate functions. In particular, ERP systems can provide the foundation for a wide range of e-commerce based processes, including web-based ordering and order tracking, inventory management, and customized goods (O’Leary, 2000).
Based on research findings, organizations generally do not obtain any long-lived competitive advantage through an ERP system implementation. Any benefit obtained is quickly competed away. However, this is not to say that organizations should not implement ERP systems. Those that do not implement soon find themselves losing ground to organizations that have successfully implemented these systems (Grabski et al., 2009).
To succeed in the modern competitive business environment, therefore, organizations are driven to eliminate disintegrated legacy systems by replacing them with web-enabled, integrated ERP systems. Using the ERP system, an organization will be able to connect with its suppliers and customers and improve the whole value chain. Organizations that intend to move into a net economy are beginning to emerge and focus on multi-enterprise systems integration and growth. They are forming strategic partnerships with major e-business infrastructure providers to continuously integrate their ERP systems for both internal and external performance targets.
Review of Prior Literature
In a traditional business process, after a customer order was received, the order information would flow from department to department through order entry, manufacturing, warehousing, distribution, and finance until the product is delivered to the customer and the payment is received (Nah, 2002). Generally, all the operations within an organization were managed by information systems that worked independently. Also, organizations couldn’t tell how internal business processes were related to those of collaborating partners who included distributors, suppliers, and competitors. Typically, all business operations would be carried out separately.
An ERP, on the other hand, integrates all business operations and creates value by ensuring that processes take place smoothly. Once implemented, an ERP system provides a centralized location for accessing critical information within the organization. In general, an ERP system ensures that internal business processes are streamlined. It offers a way to streamline and align business processes, increase operational efficiencies and create order out of a chaotic environment (Nah, 2002).
Although many organizations have implemented ERP systems, the degree of success greatly differs and is dependent on several factors that may be internal or external to an organization. In the late 1990s, many of these systems were implemented to eliminate the Y2K crisis (Grabski et al., 2009). Unfortunately, some of these implementations paid very little attention to the rewards associated with a well designed ERP system. The lack of integration and subsequently required upgrades has resulted in most early ERP adopting firms re-implementing their ERP environments. While some were simply upgrades, others were essentially complete, new ERP implementation projects.
The implementation and subsequent operation of an ERP system is not an easy task. Without sound management of the implementation process, and without identifying the changes an organization must undergo during operation, ERP systems can only lead to many difficulties (Leon, 2007). A good analysis will certainly demonstrate that there are several distinguishing features between traditional and ERP systems. Financially, ERP systems are far much expensive to implement and maintain, unlike traditional systems. For example, Dell Computers spent millions of dollars on an ERP system that had to be scrapped as it was too rigid for the expanding nature of the organization. In some cases, a failed implementation can destroy an organization in the FoxMeyer Drugs bankruptcy (Grabski et al., 2009).
Benefits of an ERP System
It is clear that ERP systems can be very beneficial for organizations and can increase their competitive advantage. By integrating the whole business process, an ERP optimizes the business and increases efficiency. Of course, without cost reductions and good quality control, an ERP system can not achieve its full promise. At the managerial level, by supplying the decision-makers with appropriate and real-time data, an ERP supports the decision-making process in the organization.
Probably, the most appropriate benefit an ERP system brings is its integration potential. By integrating the business processes, it helps to create a more disciplined organizational structure leading to reduced cycle times and cost of business processes. From a technical point of view, implementing a single, unified and comprehensive information system technology means that the data is standardized and accessible for everyone in the organization (Sankar & Rau, 2006).
In general, the implementation of an ERP system should increase the reliability of an organization’s information, provide full access to this information when needed, automate a variety of tasks and processes in different organizational functions, improve forecasting, planning, scheduling, and reporting, and facilitate external collaboration with customers and suppliers.
These improvements may lead to a shorter order-to-market time, lower inventory levels, more efficient and effective management of resources, and as a result, major cost savings and increased return on investments (Leon, 2007). Other benefits include; quickened information response time and increased interaction across the organization, reduced order cycle, decreased close financial cycle, improved interaction with customers, improved on-time delivery, improved interaction with suppliers, lowered inventory levels, improved cash management, and reduced direct operating costs.
Despite the benefits, ERP systems still remain the most complicated, time-consuming, and costly computer-based systems. The cost as well as the time required to implement the ERP system mostly depends on the type of ERP an organization wants and the level of planning and preparation of the implementation process. Obviously, a more complex system will require more time and resources to design and implement. Implementation is, however, only one element of the total cost of ownership (TCO) of an ERP system (Leon, 2007). In general, TCO includes software license fees, hardware cost, installation and implementation fees, and cost of maintenance and customer support.
An analysis of ERP implementation practices tends to reveal three major issues that organizations must deal with while implementing ERP systems. First, ERP is a complex and rather rigid system that may require an organization to redesign its business processes. Secondly, successful implementation is nearly impossible without thorough preparation and efficient management of the implementation process.
These require strong executive commitment and involvement in the ERP implementation process from start to finish; an empowered implementation team to define objectives, outcomes, and implementation strategy; developed education and training strategies; full communication of the ERP plans to the employees in the organization. Thirdly, ERP systems require virtually a life-changing experience for everyone involved. An organization that implements an ERP system and its employees must overcome traditional conservatism in utilizing a previously unknown computer system with new input forms, output reports, and functionality. Extensive and consistent training of all involved employees is thus a critical element of a successful ERP implementation process (Leon, 2007).
ERP software implementation is deeply intertwined with corporate business processes, and it might take a large organization a long period to fully implement all the organizational and technological changes required. Because ERP systems are integrated, it is difficult to make a change in only one part of the business without affecting other parts as well. There is also the danger that the new ERP systems might eventually prove as brittle and hard to change as the old systems they replaced, binding firms to outdated business processes and systems.
According to Sankar and Rau (2006), many ERP projects have been undermined by poor implementation and change management practices that fail to address employees’ concerns about change. Hurdles such as highly-priced systems and rapid restructuring have been identified as leading to failed implementations of ERP systems.
According to Grabski (2009), one of the benefits of a successful ERP implementation is that employees are relieved of some duties, and the extra time may be used in other things. Less successful implementation of an ERP system, on the other hand, would increase their activities on some of their existing tasks, absorbing any time saved and leaving no time for personal growth. It is also possible that an ERP system could be implemented without any change actually occurring because it does nothing different.
Given today’s information age, e-business is the solution to dictate a successful information economy. However, organizations can do little to move into this stage without an enabling ERP infrastructure in place as a foundation. Extended ERP systems with front end e-business features connect an organization’s front office and back-office operations in order to meet its global emerging market. Extending ERP means making critical information available to employees, customers, and business partners so that the various entities along the entire value chain can make better decisions.
From a technical point of view, the development and deployment of e-business models will never stop. Organizations should, therefore, constantly reinvent in order to leverage changes in e-business technology and its ERP integration or other business applications. New business models are emerging as organizations in all industries are transforming themselves to compete in the present age Internet economy.
As has been discussed in this paper, the implementation of an ERP system is a major investment and commitment for any organization. However, regardless of the type of ERP system and the methodologies used, there are critical success factors that must be followed. Strategies such as sustained management support, effective organizational change management, and good project scope management, and tactics such as dedicated staff and consultants, strong communication, and formalized project plans are some of the critical success factors in implementing ERP systems.
Grabski, S., Leech, S., & Sangster, A. (2009). Management Accounting in Enterprise Resource Planning Systems. Burlington, MA: Butterworth-Heinemann.
Leon, A. (2007). Enterprise Resource Planning. Tata McGraw-Hill Education. New Delhi, India.
Nah, F. F. (2002). Enterprise Resource Planning Solutions and Management. Hershey, PA: Idea Group Inc (IGI).
O’Leary, D. E. (2000). Enterprise Resource Planning Systems: Systems, Life Cycle, Electronic Commerce, and Risk. New York, NY: Cambridge University Press.
Sankar, C. S., & Rau, K. (2006). Implementation Strategies for Sap R/3 in a Multinational Organization: Lessons from a Real-world Case Study. Hershey, PA: Idea Group Inc (IGI).