impact of change from ERP

Answer to the question no: 1

The impact of change from ERP deployment on Shell Canada and its employees:

Changes are essential in any ERP implementation because an ERP system that fits a business completely does not exist in the first instance. Hence, change management, business process re-engineering (BPR) and customization are important parts of ERP implementation. (Koh et al. 2006). Vathanophas (2007) suggested that, organization need to very careful during the changing process because successful implementation of ERP system largely depends on change management. However, ERP implementation affected the Shell Canada's business process, operations, and strategies. From the case study we can see that, ERP system, by providing an integrated web-based interface, business activities can be done by single mouse click. ERP saved the valuable time by reducing the effect of time consuming manual data entry and accelerated overall business activities.

However, the changes resulted from ERP deployment not only affected business operations of Shell Canada, but, created an impact on the people who work within organization. We know that, laudon & laudon (2006) identified organizational management as three levels:

a) Operational level: supports operational managers, keeping track elementary activities & transactions

b) Management level: serve the monitoring, controlling, decision-making and administrative activities of mid-level managers

c) Strategic level: help senior manager address & tackle strategic issues

On the following sections I will try to identify how changes caused from ERP implementation affect the employees on each organizational level and find the ways to minimize the impact of change.

People do not like change. They think that changes cause problems. Deloittle CIO Survey (as cited in Kuzma, 2009, p. 23) reveals that, 82% change program of an organization fails due to resistance of its employees. So, the top management of Shell Canada must understand the signs of resistance by employees before taking any necessary steps:

Signs of resistance:

  • Confusion
  • Immediate criticism
  • Denial
  • Malicious compliance
  • Sabotage
  • Easy agreement
  • Deflection
  • Silence
  • In- your- face criticism (Maurer's work as cited in Kuzma, 2009, p. 26)

Those signs can be reflected from the any level of management employees of Shell Canada. Besides, top management could be found those signs from an individual's or group of people. For example, Middle managers of Shell Canada could deny ERP system if they think that, the system can be threat for their jobs. Also, senior manager can criticise the ERP system because it force them to change the business strategies. Also, confusion arises among operational managers, if they find the system difficult to operate.

Sources of user resistance:

When implementing an ERP system, top management commonly faces an unwanted attitude from potential users- for one reason or another, they resist the implementation process. The work of Aladwani (2001) shows that, the user resistance to innovation like an ERP is basically two types: perceived risk and habit. Perceived risk refers to one's perception of the risk associated with the decision to adopt the innovation, i.e. the decision to accept an ERP system, where habit refers to current practices that one is routinely doing.

Reasons of resistance to change at different levels of management:

Aldwani (2001) also emphasised that, employee-raised facts, beliefs, and values are good indicators of what may cause their resistance to change. This could well be applied to the context of implementing an ERP system. For example, In Shell Canada some employees at operational level my raise issues about their computer illiteracy, or may say that they have spent many years doing an excellent job without help from an ERP system. At management levels the situation could be worst if the users develop the belief that their jobs will be threaten by new system. Yet, senior managers may stress values such as the importance of existing power and authority structures, which may be jeopardized by the new ERP system. ERP enables a free flow of information access around the organization so; the upper level managers may feel the privacy problem. Koh et al. (2006) argued that, inadequacies of training and unfamiliar with computers can cause errors in data entry, poor use of system which led to employee resistance.

The possible ways which can minimise the impact of changes resulted from ERP deployment:

A positive response to the resistance is always important for reducing the impact of change. It can change the mind of people who resist. So, the top management of Shell Canada should, therefore, proactively deal with this resistance instead of reactively confronting it.

However, Maurer (1996) suggested five distinctive way of responding to resistance, top management of Shell Canada can try to use these to reduce the impact of resistance:

  1. Maintain clear focus about the subject matter. For example, talk about the benefit of ERP system at different levels of management.
  2. Embrace resistance means showing proper dignity to the resistance and to sort out the problem as soon as possible.
  3. iii. Respect those who resist by listen with interest, suggest alternative propose.
  4. Relax and try to understand the intentions of resist.
  5. Join with the resistance is applicable when top management also think that the change may create unrest among all employees and try to find best alternatives.

To assist top management with the complex organizational problem of workers' resistance to ERP implementation, Aladwani (2001) suggested an integrated, process- oriented conceptual framework consisting of three phases which top management of Shell Canada may use to reduce the impact. They are:

i. Knowledge formulation phase:

This step refers to identify and evaluate the attitudes of individual users and influential groups regarding the change introduced by ERP. The survey can be formulated to find the answers of some fundamental questions such as; a) who are the resisting individuals and/ or groups? b) what are their needs? c) what beliefs and value do they have? d) what are their interest? Etc.

ii. Strategy implementation phase:

In this step management can use previous stage results to set up strategies that can overcome users' resistance to the ERP system.

In an attempt to change the attitudes of potential users of ERP, management of Shell Canada first try to affect the cognitive component of users' attitude. Communication could be a major strategy to achieve the goal. Top management can create more effective awareness for the ERP system by communicating its benefit to the workers. Training could be a good strategy to overcome users' resistance to ERP system. Vathanophas (2007) argued that, ERP implementations can be more successful if training is structured and standard are specified. He also states that, training help to transform organizations by allowing a smoother transition for the employees to accept the new system. From the case study we can see that, for successful implementation and operation Shell Canada trained their end users to learn how to utilize the system and gave them a clear idea about the functions and abilities of the ERP system. Computer illiteracy is always a great drawback for ERP implementation. Koh et al. (2006) emphasises to offer game console to enthusiast employees about computer. So, Shell Canada, by offering games consoles can help its employees become employees become familiar with computers. Cost minimization strategy can be also a good one. For example, if the worker of Shell Canada can realize that the ERP system is an opportunity for enhancing his or her job with minimum cost then (s)he most likely will develop an interest in the ERP system. Every department has a leader. Shell Canada can reduce the impact of change if they can convince the group leader to effectively participate in the implementation process and make them feel that they are key players will ensure their valuable commitment. Because of their commitment, leaders of the groups will try to convince their colleagues that the ERP system is to their benefit. Another strategy is carefully timing the introduction of the new ERP system. For example, Shell Canada should not introduce an ERP system when a critical mass of its employees feels threatened by the system of feel forced to accept new system. Shell Canada need to solve these problems before introducing the ERP. Top management attitude and commitment is critical for the success of the whole ERP implementation process. From the case study we can see that, the executive of Shell Canada are pleased and optimistic about the advantage of the ERP system which influenced the employees across the company.

iii. Status evaluation phase:

This step provides feedback information to top management in a dynamic manner. Based on this step's outcome, top management takes appropriate action. If the feedback coming from the evaluation phase positive, it means the counter resistance efforts maintained (at least). Alternatively, if it is negative then top management should make every effort to understand what went wrong. Then, top management of Shell Canada to re-identify users' need and re-evaluate the execution of adopted change management strategies (Aladwani 2001).

Answer to the question no: 2

ERP system to improve Shell Canada's competitive position (using Porter's value chain model)

Porter introduced value chain as a systematic way of examining all the activities a firm performs and the way of interactions to determine the sources of competitive advantage. 'A firm gains competitive advantage by performing it's strategically important activities (such as low-cost distribution system, efficient assembly process etc.) more cheaply or better that its competitors'. (Porter, 1985 p.33). ERP system of Shell Canada improves its competitive position by reducing the wastes of time and labour and ensures operational excellence by automation of business process and integrating various components of value chain model. However, the sustainability of competitive advantage by ERP system cannot be assured for infinite longevity due to its availability to all. So, in the following sections I will try to analyse and describe the porter value chain model and its components, the impact of ERP on these components which help to improve competitive position and the sustainability of competitive advantage led by ERP system for Shell Canada. I also show how the activities in Shell Canada's value chain are linked to each other and to the activities of its suppliers and buyers and how these linkages affect competitive advantage.

The value chain model and ERP:

The value chain model highlights specific activities in the business where competitive strategies can best be applied and where information systems like ERP have a strategic impact (porter, 1985). According to laudon & laudon (2010), value chain model identifies specific, critical leverage points where a firm like Shell Canada can use ERP system to enhance its competitive position. The activities of value chain model can be classified under two main categories as primary and support activities.

Primary activities:

There are five generic categories of primary activities that directly related to business operations of any firm like Shell Canada, which create value for the customers. Primary activities include inbound logistics, operations, outbound logistics, sales and marketing and service. Inbound logistics are activities that associated with receiving, storing, and disseminating inputs to the product. For example: well and mines to process plant, invoices from contractor for Shell Canada. Operations transform inputs into finished products, such as raw natural gas, bitumen into refined products. Outbound logistics associated with collecting storing and distributing finished products. For example, oil and natural gases to trucks and gas pumps. Sales and marketing includes promoting and selling the firms products such as advertising, promotion, customer relations and pricing. Service associated with providing service to maintain or enhance value of the products, such as helping to install new pump for customers, repairing, parts supply and product adjustment. Each of the categories may be vital to competitive advantage depending on the industry. For a distributor or marketer like Shell Canada, inbound and outbound logistics are the most important than sales or service. However, all the categories of primary activities will be present to some degree and play some role in competitive advantage.

Source: adapted from 'advancing to the virtual value chain: learning from the Dell model' by Lawton, T.C. amd Michaels, K.P. (2001), Irish Journal of Management, 22(1), 91-112.

Figure: the value chain model of a firm and the value chain models of its suppliers and channel & buyer constitute the value system. ERP system plays an important role to establishing linkages among them to ensure competitive advantage.

Support activities:

Support activities assist primary activities which can be divided into four generic categories. Those are firm infrastructure, human resource management, technology development and procurement. Procurement refers to the function of purchasing inputs used in the firm's value chain such as purchasing inputs associated with primary activities (oil, gas for Shell Canada) and also inputs for support activities (purchasing ERP system for technology development). Human resource management consists of activities involved in the employee recruiting, hiring and training such as training end users of Shell Canada to learn how to utilize ERP system. Technology development involves the activities of improving products and the production process, such as R&D function of Shell Canada. Firm infrastructure consists of a number of activities including management, planning, finance, accounting, legal, government affairs and quality management. The ERP system can cover all the activities of organization infrastructure.

However, the burning question is that, 'how ERP system can deal with value chain model to improve competitive position of Shell Canada?' The answer of this question should be creating linkages within the value chain and also outside of value chain. By the term 'linkages within the value chain' we can easily understand that coordinating nine generic activities of value chain model. However, Porter (1985) argued that, linkages do not exist only within a firm's value chain but a firm's chain and the value chains of suppliers and buyers which he termed as 'vertical linkages'. Now I am going to show that, how ERP system establishes linkages within and outside firm and how it helps to achieve competitive advantage. We know that the main function of an ERP system is to integrate various business functions of a firm. Lawton & Michaels (2001) referred ERP as 'electronic nervous system' which links all the primary and supportive functions together of a firm like Shell and improves decision making and productivity. From the case study we can see that, prior to ERP the key functions of value chain such as inbound logistics, operations, outbound logistics and marketing did not easily share information with each other. Shell was highly depended on time consuming manual system which caused huge wastes such as time waste, higher labour hour and cost, errors on data entry, insufficient and obsolete information etc. As a result, Production cost has been increased, net production has been decreased, price of the product/service also increased which gradually deteriorating the competitive position of Shell Canada. The high volume of invoices from third party contractors were handled by data entry clerks manually to enter into payment system needed huge time and if errors occur in any single invoice them it would deter payment of the whole invoice. At the same time, due to manual data-entry system, contractors could not enter detailed information about the work they did. And if it were entered, the information was not timely. As a result, Shell was not able to collect sufficient information about the progress the contractors made. So, the system forced Shell and contractors to a unfriendly relationship status. Fortunately, ERP system resolved all those problems and reduced the amount of manual data processing in every level of management significantly. Now, contractors can enter service orders directly into Shell's ERP system via the web and enter detailed information about the work at a minimal time. Besides, timely payment can be ensured while an issue or concern persists with one invoice of them. According to porter (1985) value activities are interdependence to each other and related by linkages within the value chain. 'Linkages are relationships between the way one value activity is performed and the cost or performance of another' (porter 1985, p. 48). For example: purchasing high quality raw materials can simplify manufacturing and reduce scrap. An ERP system ensures competitive advantage by optimizing and coordinating linkages. Supporting activities helps a firm to optimize overall business activities to achieve competitive advantage. For example: the more costly product design (technology & development), more stringent materials specifications (procurement), or greater in- process inspection (administration) may reduce service costs. As previously noted, ERP system integrate/coordinate business activities, on time delivery, for example, may require coordination of activities in operations, outbound logistics, and service (e.g., installation). According to porter (1985), ability to coordinate linkages often reduces cost or enhances differentiation where I think ERP system simply the best. Better coordination, for example, can reduce the need for inventory throughout the firm. ERP system may provide an interactive order entry system which can reduce time to place order for a suppliers or buyers. Vertical linkage plays always an important role to ensure competitive position of a firm. A firm's procurement and inbound logistics activities interact with a supplier's order entry system. For example: if Shell Canada purchases of raw materials not only affect its inbound logistics and procurement but its supplier's outbound logistics. With the help supply chain management ERP can assists to build up linkage between suppliers' value chains and Shell's value chain to enhance its competitive advantage. For example: frequent supplier shipments can reduce a firm's inventory needs, appropriate packaging of supplier products can lower handling cost, and supplier inspection can remove the need for incoming inspection by a firm. Linkages with buyers' value chain are important to ensure ultimate satisfaction of customers. Marketing and service activities are mainly related to buyers value chain. Every generic ERP system has marketing modules which manages customer relationship management that coordinate a firm's sales and support employees with customers. For example: Shell can offer promotional package to its customer or offer maintenance service to hold the customers for future transactions where advertising can influence new potential customers.

Sustainability of competitive advantage led by ERP:

A proverb goes that, 'It is always difficult to sustain the benefit than achieve'. This proverb applies best for ERP. It is true that, ERP improves the competitive position of a firm by providing automation, coordination and optimization of business process and activities. However, this lead does not last long because any firm can purchase ERP system from the ERP vendor. Monney (2007) argued that a firm's competitive advantage is the capability or resource that is difficult to imitate and valuable in helping the firm outperforms its competitors. An ERP system could not met first condition due to its availability to all. Second condition depends on the various factors like understand the organizational need, correct implementation, responses of users etc.

However, porter (1985) argued that sustainability of a technological lead like ERP is a function of four factors:

  • The source of technological change which refers to whether technology is being developed inside the industry or is coming from outside. It is very difficult to sustain lead if the technology comes from outside because of its availability to all.
  • The presence of absence of a sustainable cost or differentiation advantage in technological development activity means whether this leads outperforms its competitor in comparison of lower cost and better service.
  • Relative technological skills &
  • Rate of technological diffusion.

However, Shell can gain first mover advantage if it adopts ERP system before its competitor. I strongly agree with laudon & laudon (2010)'s argument that, ' by making improvements in your own business value chain that your competitor might miss, you can achieve competitive advantage by attaining operational excellence, lowering costs, improving profit margins, and forging a closer relationship with customers and suppliers. If you competitors are making similar improvements, then at least you will not be at a competitive disadvantage- the worst of all cases!' (p. 131).

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