Key Challenges And Risks Of Erp Systems Information Technology Essay
Historically ERP systems evolved form system integration. It is a system which is designed to mange production, inventory, and finance and order facility.ERP system integrate inventory data with finance, sells and hr data to give it a seamless integration (Stephen Harwood,2003). It allows the organization to price their products, manage the resources, people, material and money(Jatinder N. D. Gupta, Sushil K. Sharma, Mohammad Abdur Rashid – Computers – 2008 ). Implementation of ERP system is quite straightforward when it is implemented in a small size company which not diverse geographically and physically, but the real challenge of ERP systems come when it is being implemented in global basis where the company is spread in different part of the globe with different time business process, regulations and different business interests ( M. lyne Markus,Cornelis Tanis,Paul C .van Fenma april,2000).According to o’Kane (2004) attention of ERP researchers should shift from “hard” elements to “soft” elements. Soft elements mean addressing the organizational and the cultural problem. More over an appropriate ERP implementation requires good management intervention as part of the implementation process.
Key challenges and risks:–
With success full implementation of ERP an organization can reap many benefits. But first we are going to analyse what are the potential challenges involved in a global implementation of ERP. As many IS research explanation tells that the “Go live” or roll out of the project does not mean that the project is successfully implemented. We have to think beyond this part and also take into account the part of Post implementation risks. A risk can be defined as “the occurrence of an event that has consequences for, or impacts on a particular project” (Kleim and Ludin, 2000, p. 3).
Owing to the size and complexity of an ERP system, identification of risk in ERP post-adoption is a very time-consuming and complicated task. There are four kind or post implementation risk as defined by (Guo Chao Peng and Miguel Baptista Nunes,2009).
(1) Operational risk (OR). Operational staffs are daily users of ERP systems. OR refer to risks that may occur from operational staffs.
(2) Analytical risk (AR). Front-line managers use ERP systems to generate plans and forecasts (e.g. production plan, sales forecast, etc.) to predict and better manage the uncertain future. ARs refer to risks that may occur as managers use ERPs to carry out analytical tasks.
(3) Organisation-wide risk (OWR). When using and maintaining ERPs in the post-implementation stage, companies may encounter a set of risk events in relation to various internal (e.g. system users and in-house IT experts) and external factors (e.g. system vendor and system consultants). Such risks may have impacts on the entire company and therefore are referred to as OWRs.
(4) Technical risk (TR). A set of system and technical factors may result in risk events that can hinder the ERP system from meeting its intended functions and performance requirements. These risk events are identified as TRs.
To elaborate it further if operational staffs are reluctant to use the new ERP system then that causes a major risks towards the success factor of the implementation.ERP system are mainly used to automate the transactional process. As a result the operational staffs are the most frequent user of the system as a result their involvement and adoption of the project are important in terms of the success of the project (Scapens and Jazayeri, 2003). This risks can be multiplied by many other actors like psychological anxiety of the staffs (e.g. unwilling to change and fear of loss of job), initial failures in system implementation (e.g. insufficient training), system pitfalls (e.g. poor user interface and system design) and lack of confidence in the system.ERP system is involved with the transaction of high volume of data and most of the time the data that is been put into the database of the system should be very accurate. All preliminary data of ERP is inputted by operational staff. It is observed that “the integrated data flowed so quickly through the system that there was little opportunity to track down mistakes before they showed up on everybody’s screens” (Scapens and Jazayeri, 2003). To elaborate further if one input is been given wrong by any operational staffs they impact on the system can so huge that it may disturb the correct functioning of the whole organization. This happens due to insufficient training given to the staffs, lack of experience, demotivation or tiredness.
Analytical Risks:–Apart for the operational staffs front line managers are also key users of the ERP systems (Shang and Seddon, 2002) therefore are crucial factor for ERP success. This can happen due to insufficient training, reluctance to change .As a result managers cannot take appropriate decisions regarding foresting and taking analytical decision thus under utilizing the full potential of ERP system. Manager’s needs different kind of data to suit their needs .When the laid system is a part of a global implementation it becomes even more difficult for the managers to get the actual data that they want ,as it is sometimes very hard to customize the system according to the need of the manager. (Sage, 2005).
Organization wide risk: Top managers are neither IT experts nor they use IT system very much. Therefore they lack the operational expertise and technical knowledge to take important decision regarding IT implementation. Hence, decision being made by top managers without the involvement of users and IT managers is a risk that may occur in IT projects (Lientz and Larssen, 2006, p. 116).This risks occurs for global implementation as top management are not very enthusiastic about the post implementation maintenance and up gradation. Top management support is therefore frequently regarded as a crucial factor affecting the success of ERP implementation (Gargeya and Brady, 2005; Loh and Koh, 2004).
High skilled labours are very important for the system maintenance and enhancement. (Ifinedo and Nahar, 2009). It is very important for the company to hold their key resources. As ERP professionals are in high demand it is very important for the organization to hold their key knowledge workers. However, as widely acknowledged, due to high market demand for this type of professional, Companies sometimes may find it difficult to retain their highly qualified ERP experts (Sumner, 2000).
Confidential data of company must be stored in secure place carefully, if important and confidential data is accessed by unauthorised users that my cause potential lead to information leakage and business crisis. (Yosha, 1995).
Technical risk:-Different modules of ERP systems are to be seamlessly integrated. It becomes particularly a very challenging thing when the implementation is very huge and there are different legacy systems required for different country or different sister concerns. Therefore, it is not uncommon for modern companies to procure suitable software modules from different system vendors to form their own unique ERP system (Currie, 2003).
System is not properly modified to meet the business system needs. The business environment and business needs change according to situation and as a result the ERP site should be constantly modified .The implemented system should be constantly reviewed in post implementation state
After looking into the potential challenges of ERP implementation we are going analyse the challenges with a theoretical lenses and view the issues with a proper example and contextual background.
Critical success factor framework:–
We are going to analyse the issues with the theoretical framework and address the risk factors. As potential risks and challenges are already explained we are going to see a risk mitigation frame work and analyse how to set the frame work to maximise the performance of the company. According to Scott and Walker performance in general can be determined by three factors ability, motivation and working environment. Further it can be derived with the equation Performance=ability Ã- motivation Ã- environment
Uden, 2005 demonstrated that there are nine identifying factors which influence any organization in achieving high performance. They are leadership, people, policy and strategy, partnership and resource, Process, People Result, and Customer result, Society Result, Key performance result. It is the people who are main factors ,so it is necessary that the working environment are congenial and the people who are being managed give their best in the environment (Mintzberg,2004),thus improving the morale and commitment while encouraging them to manage the organization ‘s process I a way will increase the level of performance and achievement. According to (Castka, 2001) the precondition of high performance depends on the creativity, decision making, interpersonal skills, participation, decision making. Arnett et al (2002) says that emotion and pride goes for high performance it goes beyond the barrier and makes the employee work for the organization to achieve high performance.
To address the soft factors there are numerous cited in the literature. These soft factors are often referred as critical successes factors (CSF) are as Rockhart (1979) explained are “areas of activity that should receive constant and careful attention from the management” .These is classified in to three management grouping.
Soft Factor (strategy) Top management Commitment, ERP strategy, Clear goal focus and scope, Legacy systems management.
Soft Factors (People) Training and education, Employee attitude, Empowerment, Project Team, User involvement and satisfaction.
Soft Factors (Organizational ) Organizational Culture, Effective Communication ,Computer Culture, Effective Project Management, Change Management strategy, Process management.
Example and implementation of framework:–
Now we are going to look into a famous The FoxMeyer Drugs’ Bankruptcy case of ERP Implementation.( Judy E. Scott, 2009).
FoxMeyer Drugs was a $5 billion company and the nation’s fourth largest distributor of pharmaceuticals before the fiasco. FoxMeyer conducted market research and product evaluation and purchased an ERP package in December of that year. FoxMeyer also purchased warehouse-automation from a vendor, and chose a Consulting company to integrate and implement the two systems Implementation of the project took place during 1994 and 1995. The project at FoxMeyer Drugs was at risk for several reasons. Using a framework developed for identifying software project risks (Keil, Cule, Lyytinen and Schmidt 1998),(1) customer mandate, (2) scope and requirements, (3) execution and (4) environment.
Customer mandate relies on the commitment of the manager and the end user. At FoxMeyer though the management was committed towards the project the end users were not very confident about the project. In fact due to warehouse automation there was a definite moral problem among the workers as due to the automation there were a fear of job security. This we can relate to the Operational risk (OR risk) as explained above. As for OR as the end users were the most extensive user of the ERP application this was a crucial factor towards the success and failure of the project. According to Scott Walker performance equation as the moral were down the performance of the organization also was not up to the mark.
Secondly the scope of the project was risky as the FoxMeyer signed with new deals with the University Health System Consortium (UHC) after the announced the project as a result the data transaction that was pre estimated changed rapidly.
Thirdly the execution of the project was in trouble as there were not enough knowledge workers. The individual expertise of the organization was very and they were dependent on the expertise of the consulting organization as a result there were greater dependency. Although FoxMeyer must have realized the project was in trouble, its perceived dependence on consultants and vendors prevented it from seeing how it could gain control. We are going to analyze how we are going to analyse the soft organizational factor played it’s part in the implementation. The change management and process management were not in place as .The consulting company that were hired by the FoxMeyer were not putting enough expertise in project. The vendor company were also treating the entire process as a experimental background. There were no mutual trust among the entire stakeholders involved in the project as a result the project management team were not confident .As there were no trust in the process the individual stake holders were working like silo as a result there not proper communication .As explained earlier critical successes factors (CSF) (Rockhart, 1979) in terms of soft organizational factors were in trouble .As a result the project ran into trouble.
FoxMeyer CIO Robert Brown felt a high degree of personal responsibility saying, “We are betting our company on this.” (Cafasso 1994) Moreover, he expressed his emotional attachment to the project when he boasted about how an integrated multi million computer systems built on ERP would radically improve the company’s critical operations. However FoxMeyer were over budget for the project. In spite of running over budget FoxMeyer CIO was too much confident about the consultancy company and he was over whelmed about the success story of the particular system. As a result the project ran in to problem.
To conclude about the fact that there are high risks involved when adopting new technologies, especially in a unique situation where the vendor cannot identify the exact organizational culture. FoxMeyer should have realized the risk in adopting new ERP system in its early years and negotiated with the consultants to share the project risks by tying their compensation to project results. They should have gone for more knowledge workers and expertise. The top management thought that just by applying sophisticated software system into the organization will solve their problem, which was not right. As ERP projects are not for business process reengineering, it is neither only to enhance the business process nor to change it. The company should have gone for business process change before applying the software into the organization. As explained by Rockhardt the failure was due to the soft factor starting from strategy, people to organization.
ERP in present situation and future:-ERP in future is going to change with the new technology like virtualization, cloud computing, SOA service oriented architecture, SA AS software as a service. Some expects web services to to play a prominent role in future ERP (O’Brien,2002,ACW TEAM 2004 ,Abbound and vera ,2007).The capability of web services in integrating data ,application and processes across the internet (O’Brien 2002) may result in ERP systems heavily on Service oriented architecture (SOA) .However as the open source community gains more strength the popularity of open source ERP system like sugar CRM will increase more and more. This may not happen in one or two years or in a decade but as and when the service ine managers will understand the need of new technology and enhancement the ERP as it is today will change .Cloud concept and software as a service will evolve to take the place of ERP system.
The study has led to several important conclusions. Specifically, the results confirmed that
successful implementation of the system is not an on step solution . In truth, a
wide range of risks may occur in diverse business and system-related areas during
ERP post-adoption. More importantly, the findings also show that an ERP risk may
often be the cause or consequence of other risks. Because these identified risk events
seem to be interwoven and related with each other, they may be very difficult to
manage, mitigate and contain. As a consequence, in order to ensure long-term ERP
success, IS managers must become aware of these risks and take proper risk mitigation actions as early as possible. If ERP implementation is not done with soft factors and organization keeping in to mind then it may cause drift. Particularly in organization which is diverse and located in various part of the globe, successful ERP implementation has many risk and success factors to take into account.
There are several references in the study which is left unexplored fully. Future research will see the full exploration and will also explore the practitioners view on this.Order Now