The Key Characteristics Of An Erp System Information Technology Essay

Enterprise Resource Planning solutions became the replacement for disparate legacy systems for many companies of the dimension of Fortune 500 during the 1990s. The main providers were SAP, Oracle Applications, PeopleSoft, J D Edwards and Baan. The Editors provided assistance initially, and then gradually there was a tendency for larger Consulting companies as partners to take over part or all of the integration.

As ERP is a new phenomenon within the software industry, its implementation methodologies are still developing. The implementation of an ERP software package involves a mix of business process change and software configuration to align the software with the business processes (Al-Mashariet al.2000).

Many companies are radically changing their information technology strategies to gain a competitive edge, become more responsive to change markets, and deliver better service at lower cost by purchasing off-the-shelf integrated ERP software instead of developing IT systems internally(Al-Mashariet al.2000).

ERP systems offer a one size fits all solution which provides a company-wide view ofcorporate information. The central notion underpinning ERP systems is that theyencapsulate best business practice for a particular industry, integrating manufacturing,and financial and human resource operations into a single framework.

Adapting processes to the ERP may impose some rigidity on the processes which is notreflected in how work is carried out. In any eventuality an ERP package will usually notmeet all of the business goals, so it is vital that plans are put in place to ensure that the otherrequirements are also satisfied.

2.1.1-ERP Key Characteristics

The key characteristics of an ERP System are discussed below.

Integration: ERP vendors promise complete integration of the entire organisation’s information. This integration, however, requires some effort. In order to achieve integration, the system needs to be set up to match the organisation’s products, customers, accounts and business processes.

Packages: ERP software is usually a commercial package and not a solution developed in-house from scratch. Because modifying the package may result in losing key benefits from using the ERP, organisations try to fit the package, with the help of configuration tools and options, rather than the other way around.

Best practices: Through the study of businesses and academic theory, ERP vendors claim to have embedded best business practices in their solutions. This is also a solid argument against modifying their packages.

Evolving: ERP is not a constant solution; it changes over time in terms of services and architecture like any other information technology.

2.2-ERP Implementation

An ERP system is a process and not an end in itself. Perfunctory Implementing of ERP system will not boost efficiency. Reasons for failure of an ERP project such as lack of commitment from management and employees, lack of communication, knowledgeable employees not available for the project, are mostly organizational issues and have nothing to do with technical matter. Hence, to alleviate the risk of failure due to organizational issues, adoption of proper change and risk management process, plays a crucial role.

Implementing an ERP software system not only involves a great deal of expenditure, efforts and time, it also involves change in some of the complex business processes. Such changes are often disliked by the employees and are a big risk. In order to ensure success, everyone in the company, from the leadership to back-office workers should cooperate.

2.2.1-ERP Implementation Phases

The main phases in ERP implementation are discussed below

Planning and Requirements Analysis

This is the initial phase where the company takes a decision on implementing ERP. The decision could based on their need to comply with legal requirements, replace their legacy applications, for benefits of integration, reduction of inventory, reduction of operational costs, risk management, additional functionality or speeding up processes.

The team chooses an ERP system. Typically a niche player in resource planning software development is chosen instead of developing from scratch. Some of the leading vendors are: SAP, PeopleSoft, Oracle,Sage Group, MS Business Solutions, SSA Global, Lawson and Intentia.

Design

This is the phase where the ERP team re-engineers the business processes around the Best Practices wherever feasible and identifies the processes that will result in customizing the ERP software application. The IT infrastructure requirements based on ERP system architecture and vendor are prepared.

Implementation

This phase involves installation of the ERP software, migration of data from the old applications to the ERP system, configuring the ERP system for reporting, implementing security, interfaces etc. The end users are involved at this stage to test the system after being trained. The implementation consultants seek feedback, identify software bugs/corrections, performance bottlenecks and apply the fixes. A decision on switching to the new ERP system is taken.

Maintenance

This is an ongoing phase which involves patching/upgrading the software, enhancing the functionality of the applications, changes in reports etc. This is either taken care of by in-house IT department or outsourced to consulting firms.

2.2.2-ERP Life Cycle

The three main phases of an ERP Implementation are discussed below. Figure 1 depicts the amount of resources required at each stage (Aloiniet al. 2007)

”Concept” refers to the activities of ERP introduction from strategic planning of requirements top software package selection.

”Implementation” includes activities from softwaredeployment or installation to parameterization,integration, testing, and stabilization.

”Post-implementation” includes maintenance activities: upgrading, new-release management, and evolution maintenance.

Figure -ERP Life cycle

Source: (Aloini et al. 2007)

As shown in the diagram above, the resources to be deployed during the implementation and post-implementation phases are higher than at the strategic planning phase. Various risk management strategies have to be put in place at each stage. However, there is a higher risk of failure during the implementation and post implementation phase.

2.3-ERP Risk Factors

ERP projects raise new questions because they represent a new type of management challenge. The management approaches for these projects may be altogether different from the managerial approaches for traditional IT projects. ERP projects may represent new challenges and present new risk factors that have to be handled differently. Anenterprise-wide projectis of large-scale and commercial with unique challenges and is a risky exercise for any size of enterprise.

2.3.1-General Risk Factors

Business Risks

The identification of risks in information systems projects has been the subject of much research (Jiang et al., 1996; Zmud, 1980). A portfolio approach for managing software development risk was discussed by McFarlan (1981). Prior research has looked at risk from a technological perspective (Anderson and Narasumhan, 1979) or from a software development perspective (Barki, et al. 1993). Jiang and Klein (1999) examined risk as it related to a multidimensional concept of information success that included satisfaction with the development process, satisfaction with system use, satisfaction with system quality, and their impact of the information system on the organization.

2.3.2-Lack of alignment between strategy and business processes

The lack of alignment between the organization strategy, structure, and processes and the chosen ERP application is one risk that is repeatedly identified in the literature is(Davenport, 1998; 2000)). Both the business process reengineering literature (Hammer, 1990; Hammer and Champy, 1993)and the ERP literature suggests that an ERP system alone cannot improve the company performance unless an organization restructures its operational processes (Bingi et al., 1999; Davenport, 1998; Davenport, 2000). Further, theERP implementation project must be a business initiative. This requires the organization to gain strategic clarity (i.e., know the business, how it delivers value, etc.) and a constancy of purpose. Finally, an outcomes orientation is required to achieve these goals.

2.3.10-Inadequate Business Process Reengineering (BPR)

Often, packaged software is incompatible with theorganization’s needs and business processes. Theconsequence is software modification, which isexpensive and costs heavily in maintenance, or restructuring of the organization’s business processes to fit the software. According to IBM, its ”Method Blue”, a deep analysis of process business value and performances is necessary to prioritize activities to be supported by ERP.

To neglect business processes redesign is a risk in ERP project; ERP implementation and BPR activities. ERP packages offer many business practices that might be included as part of a BPR, but there is still likely to be a need for continuous process improvement.

2.3.11- Ineffective project management techniques

The inadequate use of project management techniques significantly affects ERP project success. Project management activities span the first four stagesof the ERP life cycle from initiating the project to its closing. Project planning and control are a function of the project characteristics, including its size, experience with the technology, and the stability and experience of the IT development group. Risk management in particular is a vital procedure of advanced (goal directed) project management. Some ERP vendors, such as SAP and Baan, provide methodologies and applications to help conduct successful risk management. These tools can be used to drive change management; the system calculates the risks and provides mitigation strategies for the project manager.

2.3.12-Data Migration

The problem of data migration begins when organisations overlook the challenge of populating it with legacy data and the data migration activity is left to the last minute and end up dropping data from the legacy system straight into the new system.

 A lot of planning has to go into it even before you actually start preparing the Migration scripts.Lot of organizations complain that they have migrated the data which probably would not go along with the new ERP they have implemented. This happens when Data Mapping is not done with the new ERP and the other sources. Another problem which pulls down the Data Migration Project is Lack of Methodology. The Organizations do not have the concrete Methodology like they do have for the ERP Implementation.

2.3.9. Low key user involvement

User involvement is important in meeting expectations. Key users should be convinced of the system utility; moreover they must be confident and expert so that they can aid future users in training sessions. Usercommitment and a ”project champion” (who has the vision to get the project going and pushes for the project to be accepted where there are competing priorities) are useful in the early stages of the project and during the implementation phase.

2.3.3-Project Complexity/System Design

Another major risk is project complexity (see, for example, Barki, et al. 1993). An ERP system implementation involves relatively large expenditures for the acquisition of the hardware, software, implementation costs, consulting fees and training costs (Davenport, 2000; Mckie, 1998), and can last for an extended period of time. Also, an ERP system implementation project has a wider scope compared to most other information system implementations, and may cause a significant number of changes within an organization (Davenport, 2000). The scope and the complexity of the project are a source of significant business risk

2.3.13-Planning and Requirements Analysis

Top management involvement is critical, while only top managers are equipped to act as the mediator between the imperative of the technology and the imperative of the organization”. One of the tasks of top management is to assist in project review meetings. According to the purpose of project review meetings is “to assess progress and identify areas of deviations from the plan so that corrective action can be taken”.

The author also states that project review meetings provide visibility to plans and progress and create opportunities for obtaining and enforcing commitments from the participants.

ERP solutions, when implemented properly, take a long time to get off the ground. ERP has to be properly selected, evaluated and tested, implemented and then used for a period of time before any clear positive results may be seen. It can become a very risky situation if the company isn’t fully committed to seeing the entire process through.

2.3.15 -Security Risks

The continued integration of enterprise resource planning software only increases the risk of both hackers who break through perimeter security and insiders who abuse system privileges to misappropriate assets – namely cash – through acts of fraud.

Security in the e-business, integrated enterprise resource planning (ERP) world requires a new way of thinking about security – not just about the bits and bytes of network traffic, but about business transactions that inflict financial losses from systems-based fraud, abuse and errors.

The ERP market has matured to a point where heightened competition has brought declining sales. As a result, ERP vendors are committed to bundling new functionality, such as CRM and Web services-based architecture, to provide more value to their customers. Unfortunately, security remains an afterthought.

2.4-Critical Success Factors in ERP Implementation (CSF)

There are various issues that need to be catered for during the pre-implementation, implementation and post-implementation phase of an ERP system. The idea of critical success factors is one that is well established in the field of enterprise systems for many aspects of development and management.

2.4.1-Top Management Support

It is important that there is clear, executive level support for the project, and that this support continues throughout the project. Top management is expected to provide support in the areas of committing to the ERP project, sufficient financial and human resource and the resolution of the political problems if necessary. Limited support in terms of financing can contribute to a rushed ERP implementation process, project team members being overloaded and a high staff turnover. Insufficient commitment could lead to political problems which can hinder the implementation progress, thus causing poor Business Process Re-engineering.

2.4.2-Project Management

ERP implementation is challenging, costly, and risky. Consequently, to achieve the desired benefits, the ERP system implementation must be carefully managed and monitored. It is in this respect that project management becomes crucial for success.

Project management deals with various aspects of the project, such as planning, organization, information system acquisition, personnel selection, and management and monitoring of software implementation suggested that the project management is a practiced system necessary to govern a project and to deliver quality products.

2.4.3-Change Management

Change management is a critical success factor, in terms of adopting an ERP system, as activities, processes, and methodologies that support employee understanding and organisational shifts during the implementation of ERP systems and reengineering initiatives. Many ERP implementation failures have been caused by the lack of focus on ‘the soft issues’, pointed out that almost half of ERP projects fail to achieve expected benefits because managers underestimate the efforts involved in change management. The management of change has become an increasingly urgent issue in all organisations due to the impact of new technology.

2.4.4-Education and Training

ERP systems are extremely complex systems and demand rigorous training. Installing an ERP software package without adequate end-user preparation could yield to drastic consequences. Inadequate or lack of training has been one of the most significant reasons of many ERP systems failure (Kelley, et al., 1999; Gupta, 2000).

In ERP implementation process many projects fail in the end despite of millions of dollars and hundreds of hours due to lack of proper training. Usually the end-user can get used to the ERP system within one year. One of the earlier researchers, Ang, et al. (1994) found that lack of training led to difficulties in MRP systems implementation. A thorough training program is necessary to make the user comfortable with the system.

This factor is too often ignored. It is a challenge for a company implementing such a system to find an appropriate plan for the training and education of the end-user. In most cases, consultants are included during implementation process, and while all the aspects of the system should be explained and transferred the end-users, the main goal of ERP training is that the users understand the various business processes behind the ERP application (Majed Al-Mashari, et al 2003).

2.4.5-User Involvement

User involvement refers to the participation of the user during the process of an ERPimplementation. The functions of the ERP system rely on the user to use the systemafter going live, but the user is also a significant factor in the implementation. (Zhang, et al. 2002)

Resistance to new ERP system may be involving the user early on while the project isstill being defined, since the user has then also contributed to this decision. Byparticipating in the ERP implementation, the user can understand the new system soonerand give feedback from his or her own point of view. This method can shorten the gapbetween the old and new systems and make easier for the user to cope with the newsystem. Since the user understands some of the ideas sooner, the training is more easilyaccepted. The experienced users who take part in implementation can also communicatewith the newcomers. Another benefit of involving some users early on is that itfacilitates in-house expert training. In the long-run the company may not be willing orable to rely on consultants or vendors because of the expensive consulting cost. Earlyusers are a good resource if it becomes necessary to train experts in the future.

2.5- Risk Management in ERP Implementation

To minimize the risk of the ERP project, the application of a risk management plan at different ERP implementation project stages, selection, implementation, and usage is crucial. A planned and systematically adopted risk management procedure throughout the ERP project reduces the possibility to risks occurring.

2.5.2-Enterprise Risk Management

Enterprise risk management (ERM) in business includes the methods and processes used by organizations to manage risks and seize opportunities related to the achievement of their objectives. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organization’s objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring progress.

Enterprise risk management enables management to effectively deal with uncertainty and associated risk and opportunity, enhancing the capacity to build value. ERM encompasses the below elements:

Aligning risk appetite and strategy – Management considers the entity’s risk appetitein evaluating strategic alternatives, setting related objectives, and developingmechanisms to manage related risks.

Enhancing risk response decisions – Enterprise risk management provides the rigor toidentify and select among alternative risk responses – risk avoidance, reduction, sharing, and acceptance.

Reducing operational surprises and losses – Entities gain enhanced capability to identify potential events and establish responses, reducing surprises and associated costs or losses.

Identifying and managing multiple and cross-enterprise risks – Every enterprise faces a myriad of risks affecting different parts of the organization, and enterprise risk management facilitates effective response to the interrelated impacts, and integrated responses to multiple risks.

Seizing opportunities – By considering a full range of potential events, management ispositioned to identify and proactively realize opportunities.

Improving deployment of capital – Obtaining robust risk information allows management to effectively assess overall capital needs and enhance capital allocation.