Gearbox (China) Ltd
Gearbox (China) Ltd is part of the globally operating family owned German headquartered Gearbox Group. Its main business is Manufacturing, distribution and servicing of gear units and motors that drive a diverse set of machinery (Reimers, 2004). Gearbox introduced an Electronic Resource Planning (ERP) system which was deemed to be a failure. ERP systems can be considered as an IT infrastructure able to facilitate the flow of information between all business processes in an organisation (Martin, 1998). The aim of an ERP package is to integrate all key business activities through improved relationships at all levels to achieve a competitive advantage (Al-Mudmigh et al, 2001).
This research discusses how cultural differences, overseas vendor selection and the lack of Business Process Reengineering (BPR) have affected the company and hindered the likelihood of future success. Success or failure of an organizations introduction of an Information Systems (IS) depends on the understanding of internal and external organizational environments, the IS itself and the implementation process (Kwon & Zmud, 1987).
East vs. West
Understanding culture is an important critical success factor when carrying out an implementation in countries like China; Western ERP vendors tend to overlook the cultural requirements of Chinese firms. Foreign ERP vendors mostly European and American take up to 90% of China's ERP market share. This suggests that Western ERP vendors need to adapt their ERP packages to fit with the Chinese organisational culture (Avison and Malaurent, 2007). Table 1 outlines some fundamental differences observed between organisational culture of Eastern and Western companies:
Specific differences directly affected Gearbox, while some affected them indirectly. Some managers at Gearbox were situation-accepting orientated rather than problem-solving orientated, and a prime example is shown by the purchasing manager. The manager decided to abandon the reporting function provided by the system and revert back to manual paper-based methods rather than thinking of ways to fix the problem he faced. Power was directly attributed to a person rather than the position. Managers would base their decisions such as product purchasing quantities, lot sizes and lead times on intuition and experience over data provided by the system; this meant that there was a reduced need for data collection and analysis.
Domestic vs. Overseas Vendors
SAP emerged as the dominant leader in ERP systems, and is now one of the most used tools to optimize and re-engineer business processes (Cooke & Peterson, 1998). SAP have gained the largest market share in China in comparison to domestic and other vendors, as evidenced in table 3. Gearbox Group chose to invest in SAP over domestic vendors and apply their expertise of SAP/R2 directly to SAP/R3. This proves difficult as the complexity of each version differs greatly, and some information attributable to SAP/R2 is not directly transferable to SAP/R3, as experienced by Dow Corning (Ross, 1999).
Foreign ERP vendors suffer from a need to reduce costs since they are in a competitive environment with many local Chinese ERP vendors who sell at lower prices (Xue et al, 2005). One of the Chinese ERP vendors in table 1 has a significant market share of 16.2%, this shows that competition in the Chinese ERP market is high and that a constant change in price to in a bid to gain a higher market share is common.
Perhaps Gearbox should have considered using local vendors who understand the Chinese culture; which would have alleviated the issues Gearbox faced with incompatible reports in relation to financial standards, and avoided the need to bring in consultants to fix it causing additional expense.
The use of a Chinese ERP vendor would have been a lot more cost effective than using western ERP vendors; a SAP or an Oracle application usually costs more than five million RMB Yuan, while domestic ERP systems cost as little as 700,000 RMB Yuan (Liang -et al, 2004). Gearbox could have used the money they saved on incentivising their staff.
Business Process Reengineering - Strategy For The Future
Business Process Reengineering (BPR) is defined as the radical rethinking of an organisation and its cross functional end-to-end processes (Hammer & Champy, 2003). Essentially there a two concepts of BPR, the first being that organisations must view themselves in terms of "processes" instead of functions, divisions or products (Davenport,1993). The second concept is that organisations must think inductively instead of deductively (Hammer & Champy, 2003) as means for dealing with disruptions (i.e. introduction of a new IS system as is the case with Gearbox). There was little or no evidence of any BPR taking place at Gearbox and they kept their current functional structure in place. The company implemented an ERP system independently although academic literature advocates that in order to realize the 'best practices' of ERP's, business processes should be reengineered to match the processes embedded in the ERP system (Markus & Tanis, 2000). In essence Gearbox were 'paving the cow paths' and embedding their own outdated practices when they should have obliterated them and start over (Hammer, 1990). An example of how BPR could help is outlined below:
As BPR involves radically redesigning a business, change must be managed effectively to reduce the risk of resistance from users. As evidenced at Gearbox, some staff felt the system was untrustworthy and resisted the use of it. For example, the purchasing manager discusses his mistrust in the system and ends up abandoning it and returning to manual work. This implies that the system was not particularly accepted and the purchasing department showed no patience to work out the kinks and decided to abandon it. The finance manager stated that it was hard for people to get rid of the concept of manual work and that they are very focused on paper-based work. It is apparent that change was not adequately managed nor was there any motivation for change which consequently led to low user involvement. There is a popular formula in the management change literature that "user" involvement is a sine qua non of successful implementation (Newman & Robey, 1992). Success without user involvement is impossible to achieve (Newman, 2008). It is apparent that motivating change is absolutely vital to turn the tides on an IS failure. Adopting the philosophy of Lewin-Schein's change model will help motivate change:
Lewin-Schein Change Model
The first step of the process is 'unfreezing' which involves motivating change. Change requires adding new forces for change or removal of some of the existing factors that are at play in perpetuating the behaviour (Wirth, 2004). Managers at Gearbox could convey the potential benefits to staff that the ERP can provide in order to inspire change. The second step consists of making changes that are required to move towards a new state. The final 'refreeze' step is where training is provided for the new system until the actions expected of staff become habitual. Gearbox would need to place emphasis on this refreeze stage as it is evident that some staff has not been adequately trained.
Although BPR can provide huge benefits for Gearbox, it also has inherent risks involved with it. Failure rates of BPR initiatives have an estimated 70% likeliness to fail (Hammer & Champy, 1994). BPR must come from the top management and down the organisational hierarchy, which means the executives must be ready to promote the changes as an example of the whole company (Cartland, 1998). This will be difficult to promote as certain managers (such as purchasing) do not trust the system. Fundamental differences in culture will raise issues in the BPR process. In Chinese culture, there is an emphasis placed on harmonious equilibrium, therefore, Chinese companies will be inclined not to undertake BPR (Newman & Zhao, 2008). In the interest of system recovery Gearbox has limited options; Gearbox can conduct radical change which would be against culture assuming that 'all Chinese companies are the same', which could cause redundancies. Consultants would be required to control the BPR effort. On the other hand, Gearbox could opt to reengineer the company in small increments to avoid redundancies and align with the national culture; though it means that there would need to be constant application of the unfreezing-change-refreezing model causing increased training costs.
If we reconsider the variables of 'success' discussed by Kwon and Zmud, it is dependent upon the understanding of the internal and external organisational environment, the IS itself and the implementation process. Gearbox management do not have sufficient knowledge of how BPR can alter their processes to be more efficient; nor did they take part in change management to smoothen the implementation process. With staff continuously resisting change and maintaining legacy system usage, the ERP investment is deemed worthless due to low usage. Overhauling an organisation's structure and culture would be a very difficult task and coupled with high staff turnover; the future looks bleak.
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