The Implementation Imperatives and Critical Success Factors of Enterprise Systems Essay
Ever since the appearance of enterprise systems (ESs) for businesses in the 1990s, the research of this promising, highly-integrating software package for business solutions has never stopped. The first objective of implementation of ESs are focused on large organizations, e. g. companies of Fortune 500, as small and medium enterprises (SME) are considered to inappropriate for lack of resources to introduce the systems.
Yet with the saturation in the market almost every one of those large enterprises was equipped with ES, the target began to change to SME, as a result the corresponding research started to develop. The design of ES is aimed to upport, manage and integrate all the resources, activities, and information flows of organizations. By eliminating redundancy and constructing uniformity across all the functional areas, ES gives organizations a vision of improving efficiency and reducing costs simultaneously.
The definition of an enterprise system by Piccoli is “a modular, integrated software application that spans (all) organizational functions and relies on one database at the core”. However, ES is a double-edged sword which all managers should carefully ponder before starting to utilize it. The covering scope of ES may cross a number of corporations or industries.
The resulting costs and efforts for adjusting to the system before, during and after the implementation process are tremendous. Time devoted will last for years. Most importantly, the impact of the failure of ES to the company is disastrous. As Davenport (1998) illustrated, “the growing number of horror stories about failed or out-of-control projects should certainly give managers pause. ” In fact, based on a survey conducted by a consulting organization of 236 companies in which 36 percent had or were in the process of implementing ES, 51 percent of those regarded ES implementation as unsuccessful.
In other words, half of the companies failed in this decision. While the benefits of ES are praised by the service providers and those equipped and successful organizations, strategists should see through its glory and be aware of the underlying limitations and drawbacks. This paper gives a summary and synthesis of the present literature for implementation imperatives of enterprise systems; a discussion about critical success factors (CSF) is included. Through the present literature, a well-constructed overview for the implementation of enterprise systems will be introduced.
Influence of Enterprise Systems With the advent of ESs, more and more companies began to invest their resources into the installation of ESs. However, before the determination of the investment, organizations should first notice the consequences of ES implementation, including its benefits and limitations. Benefits There have been a lot of research and literature discussing the benefits and their classification of enterprise systems (Piccoli, 2008; Leon, 2007; Shang and Seddon, 2002; Murphy and Simon, 2002; Remenyi et al. , 1993).
Piccoli (2008) summarized four advantages of introducing enterprise systems, including efficiency, responsiveness, knowledge infusion and adaptability, wherein the efficiency refers to improved efficiency by saving direct and indirect cost; responsiveness is about improvement of an organization’s ability to respond to external requests; knowledge infusion refers to immediate access to state of the art and best practices in the industry which are embedded in the code of ESs; and adaptability refers to well-adjusted ability to design the best appropriate enterprise system according to different contexts of organizations.
Leon (2007) stated that investment in enterprise resource planning (ERP) systems can be classified into tangible and intangible benefits. The tangible ones include costs reduction of inventory and inventory carrying, manpower and material, improved sales and customer service, and efficient financial management.
The intangible ones include several perspectives on reducing duplicated data entry in accounting-related systems, greater control over product and process design based on product structure database, establishment of realistic schedules accessible to and commonly shared by everyone to improve production and materials management, generating accurate manufacturing and delivery report to provide a strong cornerstone to customer service, and complementary and enhanced advantages on management information system function.
Shang and Seddon (2002) listed five dimensions in an enterprise system benefits framework, which include operational, managerial, strategic, IT infrastructure, and organizational, and each of them includes several subdimensions.
As to operational benefit, there are cost reduction, cycle time reduction, productivity improvement, and customer service improvement; as to managerial benefit, ES offers the benefits of better resource management, improved decision making and planning, and performance improvement; regarding strategic benefit, ES helps in business growth, business alliance, business innovation, cost leadership establishment, product differentiation, and external linkage establishment; with respect to IT infrastructure, the benefits include establishment of flexibility, IT cost reduction, and enhancement of IT infrastructure capability; and about organizational benefit, it is demonstrated in changing work patterns, facilitating organizational learning, empowerment, and common vision establishment.
Murphy and Simon (2002) categorized the benefits into several frameworks through comparison: tangible vs. uantitative, temporal, external vs. internal, hierarchical, and based on organization factors and technology infrastructure standardization. In addition, by adopting Remenyi et al. ’s (1993) theory of intangibility and quantifiability into Shang and Seddon’s benefits framework of five dimensions, Murphy and Simon rated the degree of intangibility and quantifiablility for each subdimensions, and therefore provided an index of profitability to the organizations according to each subdimension. Limitations In contrast to the abovementioned, the implementation of enterprise systems may also bring inevitable risks and limitations to the organizations.
Piccoli (2008) considered that the critical issues of enterprise systems are trade-off between standardization and flexibility, the limitations of best practice software, the potential for strategic clash, and the high costs and risks in the implementation process. The trade-off is whether the organization should accept the standard version of the ES by taking advantage of a faster implementation process, predictable cost, and easier transition from the original version to an updated one. With respect to the promising characteristic of best practice of ES, it is impossible to have a universal design for every organization, and the best practice in one company may become an impediment to another.
For strategic clash, it is about securing a competitive advantage of the organization from the implementation of the enterprise system, which may not cover original strength of the organization, and result in a loss of superiority against competitors after the implementation. As to high costs and risks, obviously, the implementation of a large-scale system is costly and risky. It needs a lot of time and money to adopt, adapt and maintain, and a single error within the system may affect overall operation of the organization. Leon (2007) pointed three basic issues that will induce risks for the implementation of ERP systems, which are people, process and technology.
The main people issues include change management, which is to properly manage transformation brought by the implementation; internal staff dequacy, which is to have employees within the company that have sufficient skills to construct the system to prevent additional cost of hiring consultants; project team, which is to find the best-fitted people in the team as well as to prevent assigning the one who is only available at that time; training, which is to ensure employees have sufficient training in order to take full advantage of the system and to prevent occurrence of error; employee re-location and re-training, which is to deal with the change of position or new skill required for employees from the ES implementation; staffing, which is to deal with the transition phase between leaving of trained employees and entering of new ones during the implementation process; top management support, which is to gain full and sufficient resources to sustain the implementation; consultants, which are the ones who may bring potential failure for the company if they are not familiar with its culture and needs; discipline, which is to make sure all the people in the company – from management to subordinates – follow the plan; and resistance to change, which is to educate employees to adapt to the system and make them willing to use it.
For process risks, the main concerns are program management, which is the lack of program management in traditional ERP since all organizations require up-to-date information integrity and availability at the right time and in the right way, even though some of this information is included in ERP scope, the rest about program management is not; business process engineering, which stands for tremendous change to almost every aspect of the organizations. If there is no appropriate and careful response to these changes, an organization will break down. Stage transition, it is the responsibility and roles transition from person to person; and benefit realization, which is failure to realize promised benefit after constructing ES if the operational phase is not planned properly.
For technology risks, there is software functionality, which stands for proper selection of functionality and features of enterprise systems since equipment of unnecessary features could become an impediment and failure to the organization; technological obsolescence, which stands for selection of technology that will not easily become out-of-date; application portfolio management, which is to consider saving the rest and available resources in the organization for possible future projects; and enhancement/upgrade, which is to consider closing a vendors service or stopping support of upgrading the system before signing the contract. Markus and Tanis (2000) stated there are three major factors for not adopting enterprise system, or partial adoption or discontinuance of ES. The first one is lack of feature-function fit between firm’s demands and the packages available in the marketplace.
According to the type of industry and in concern with size and scale of operations of organizations, there may not be suitable off-the-shelf software for them. The second one is a set of reasons including Company growth, strategic flexibility, and decentralized decision-making style. Those organizations which have their own unique growth rate and strategy may not be appropriate to incorporate normal enterprise systems. Additionally, the spirit of ES is to integrate the processes and centralize the decision-making of organizations, it will conflict with the style of decentralized decision-making and weaken the strength of these organizations. The third one is availability of alternatives for increasing the level of systems integration.
For instance, data warehousing and re-architecting systems with middleware are alternatives for ES, both can reach an extent of integration without sacrificing as much limitations as ES has. In addition to the abovementioned factors, Markus and Tanis (2000) also pointed out other factors including cost, competitive advantage and resistance to change. From the above literature, we can find that each of them has its own emphasis on different perspectives. In terms of benefits, Piccoli (2008) listed four major advantages; he did not itemize all the related entries or functions. Instead, he stated four elementary and common results of implementing ES to synthesize all the details.
Compared to Leon (2007) and Shang and Seddon (2002), although it looks shorted and simplified, Piccoli (2008) provided a clear overview for the readers to realize in first sight what effect ES will bring to the organization by four single-worded headings which are easily understandable for those who do not have professional knowledge in this field. Leon (2007) and Shang and Seddon (2002), on the other hand, provided a relatively precise classification of ES benefits. Leon (2007) categorized them based on tangibility and intangibility, that is, whether or not it is directly related to financial perspective. Nevertheless, he pointed out that intangible benefits can still be uantified in terms of cost savings.
Generally, Leon (2007) stressed the perspective of cost. Shang and Seddon (2002) organized a sound framework which includes overall discussion of ES impact to the organizations from perspectives of human resources and elementary operational function to business strategy, infrastructure and vision. Even though classifications of the benefits in both of them may not be as readily interpretable as those in Piccoli (2008), they provided detailed, complete and in-depth analysis which may be useful as a reference for IT professionals. With regard to Murphy and Simon’s (2002) work, they combine two studies, Remenyi et al. s (1993) theory of intangibility and quantifiability and Shang and Seddon’s (2002) benefits framework, to create a further application for the management for evaluation and reference of profitability.
In this respect, they came up with an evaluation chart for the management to examine through each subdimension and know which one plays an influential role in their organizational profitability based on marked scales of intangibility and quantifiability. In terms of limitations, Piccoli (2008) pointed out four basic points of implementing ES. He introduced a macroview impact to organization when running implementation, and a general consideration that the managers need to contemplate. Leon (2007), on the other hand, divided the risks induced by ES implementation into three categories and elaborated each of them in detail.
Leon’s (2007) work analyzed the risks into three components that are an necessity to and composition of an organization. By emphasizing those risks, he gave a different point of view on where the limitations would happen. For example, in concerns of people risks, he mentioned that without top management support, the project cannot obtain sufficient resources to run ES implementation smoothly. It reversely pointed out that the implementation of the enterprise system is costly and risky. All the available resources have to be devoted accordingly. Markus and Tanis (2000), from another aspect, gave reasons for not, partial or stop adopting enterprise system.
They especially indicated that even though organizations choose not to, or are unavailable to, incorporate ES, there are still some other options for them on the market by accepting certain defects and embracing benefits that traditional ES cannot have. Although each of them focused on a distinct aspect, there are still some consistencies among all the advantages and constraints of ES implementation. For example, it is good at cost savings, process integration and service improvement, yet with high risk and complexity in determination and selection, tremendous influence to organizations, and huge cost in implementation. These criteria show that the enterprise system is not an elixir to all the problems, one who does not examine its requirements carefully before deciding to take it will definitely undergo inevitable and unbearable loss and failure.
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