Critical Success Factors of ERP implementation

Critical Success Factors of ERP implementation

Introduction:

We often see change constantly happening in organisations in one form or the other. As the world is changing rapidly and new technologies are emerging, organisations must change quickly too. Organisations that can handle change will thrive, whilst others will struggle to survive.

Many organisations have invested vastly in Enterprise Resource Planning (ERP) systems, and most of them have benefited from this new IT innovation.

As the internet evolved throughout the years, the surfacing of customer demands, pressures to speed up business process and the need to establish collaborative relationships between key suppliers and business partners are all pushing towards Enterprise Resource Planning solution.

Many organisations have successfully implemented a change and likewise, have also failed (Partington, 1996) has brought upon the question “What are the successful factors to implement EPR system?” There have been lots of research and several critical success factors have being identified. For example, Kuang et al (2001) and Wagner & Poon (2001) have identified some major factors which involve Top Management support, Project Management, Vendor support and business process reengineering.

Literature Review

Many reasons lie as to why companies might decide to buy and implement new business system. The decision is not made over night and is carefully planned and scheduled in advance. This process is sometimes forced by customer demands, external pressures or by corporate change.

If organisations want to continue surviving, they must change in order to survive (Partington, 1996).

Many companies fail to utilize ERP systems find themselves using variety of different software packages that does not function well with one another. Having said this then makes the company less efficient than it should be.

Large companies have different systems such as planning, manufacturing, distribution, shipping and accounting. ERP also known as Enterprise resource planning is a system that incorporates and integrates all of these functions into a single system, ERP is designed to serve the needs of different department within the cooperation.

An important part of an ERP system is the integration of data and processes from different areas within an organisation thus making it an easy access of work flow.

In order for an ERP system to accomplish its integration, it does this by using a single database that employs multiple software modules providing to different areas of the organisation with an assortment of business functions.

(Nah and Lau (2001)) stated that most ERP systems now have the functionality and the capability to facilitate the flow of information across all business processes internally and externally. Furthermore, ERP systems have the capability to “reach beyond their own corporate walls to better connect with suppliers, distributors and customers to engage in e-business”.

2.1. Lewin's model of change

Kurt Lewin theorized a three-stage model of change that has come to be known as the unfreezing-change-refreeze model that requires prior learning to be rejected and replaced. Edgar Schein provided further detail for a more comprehensive model of change calling this approach “cognitive redefinition.”( Lewin/Schein's Change Theory) Kurt Lewin identifies the model of change into three stage processes which are unfreezing, changing and refreezing.

Unfreeze:

The unfreeze stage involves the organization to accept change is necessary in order for the business to move forth. This is the breakdown of existing quo before you can build a new way of operating.

This being the first stage of the change process it is usually the most difficult and stressful part as you put everyone and everything off balance because you are cutting down “the ways things are done”. This then evokes strong reactions in people, and that's exactly what needs to be done. (Lewins change management model)

This stage brings dissatisfaction within the organisations by staff. As this is a difficult task for members to accept the change. (Miller, 1982).

Individuals are said to resist change because of habit and inertia, fear of the unknown, absence of the skills they will need after the change, and fear of losing power.(Tichy, 1983, pp. 344-360)

Change:

It takes a long time for people to accept the change and it is the top management responsibility to explain to employees the need for the change and its benefits to the organisation.

The unfreeze stage when people begin to resolve their uncertainty and often look for other new ways to do things.

Refreezing:

Refreezing is the final stage where new behaviour becomes habitual, which includes developing a new self-concept & identity and establishing new interpersonal relationships.

When these changes are moulding into shape and employees have embraced these new ways of working the organisation is then ready to refreeze.

With a new sense of stability, employees feel confident and comfortable with the new ways of working. (Lewins change management model)

3.1 Kolb-Frohman 7 stage normative model

1. Scouting - user and designer assess each other to see if there is a match.

2. Entry - user and designer develop a statement of goals and commit to the project.

3. Diagnosis - user and designer gather data to refine the problem definition.

4. Planning - user and designer define specific objectives and examine ways to meet them.

5. Action - the “best” alternative is put into practice.

6. Evaluation - user and designer assess how well goals and objectives have been met.

7. Termination - user and designer ensure that ownership of the system rests in the hands of users.

The 7-stage model is a useful heuristic to illustrate the complex nature of organizational change. However, such neat linear models are prone to oversimplify situations. The pace of organizational change in today's rapidly developing economic climate can result in the 'refreezing' stage never being reached or completed. This means that organizational systems often undergo a continuous series of change interventions and rarely revert to a stabilized state of equilibrium. In other words, change is often so rapid and recurrent that the system fails to restabilize itself before the next change initiative is conducted.(Organizational Change in Today's Economy)

3.1.2 Comparing the 2 models

Top Management Support

Top Management Support is an important factor for a successful ERP project to work, as the role entails, developing and understanding of limitations and capabilities of a proposed system, having set goals, and communicating with the corporate IT strategy to all employees. (Somers T.M., and Nelson K. (2001)).

Al-Mashari et al. (2003) argued that top management support does not end with initiation and facilitation, but must extend to the full implementation of an ERP system. Furthermore, top management support should provide direction to the implementation teams and monitor the progress of the project.

Project Management

Another important success factor for an ERP is to have a project manager. The project manager will be in charge of managing the project life cycle from initiating to the closing phase. The sole responsibility the project manager will endure is the planning, controlling and the project scope to meet the deliverables in the given time frame and budget.

The project manager must also attempt to manage resistance towards positive change in the old system (Loh and Koh, 2004).

Selection of the appropriate package:

In order for the organisation to optimize and function properly it is important that the appropriate software package is chosen as it is the managerial decision. The organisation needs to ask itself why they need this software package and needs to evaluate the needs and process in picking the right choice that best suits the business environment. By choosing the right package the results are due in course as minimum modification is required and marks a successful implementation. On the other hand, selecting the wrong software may mean a commitment to architecture and application that do not fit the organizational strategic goal or business process. ( Somers T.M., and Nelson K. (2001).

User training and education:

Poorly trained employees can derail a quality implementation of the system as they do not know how to operate the EPR system. It is important that companies should consult to run training sessions on how the system works, so they relate to the business process.

Business Process Re-engineering:

Business Process Reengineering is a pre-requisite for going ahead with implementing ERP system. An in depth BPR study has to be done before taking up ERP. Business Process Reengineering brings out deficiencies of the existing system and attempts to maximize productivity through restructuring and re-organizing the human resources as well as divisions and departments in the organisation.

Ongoing Vendor Support:

An important factor is the ongoing vendor support as it represents any software package because an ERP system requires ongoing vendor support to keep organisation up to date with the latest modules and version. Furthermore vendor support provides technical assistance and maintenance.

Clear goals and objectives:

Setting clear goals and Identifying the Objectives of the ERP Project is the third most critical success factor. The initial phase of any project should begin with a conceptualization of the goals and possible ways to accomplish these goals. It is important to set the goals of the project before even seeking top management support. ( Somers T.M., and Nelson K. (2001).

Teamwork and Composition

A key element of a successful ERP is related to knowledge, skills, abilities and experience of the project manager and team members. If these criteria are not met then the project will fail. The project team should work in coordinated ways to achieve one goal. Members of the project team should have technical and business skills to complement their work

The sharing of information between the implementation partners is essential and requires partnership trust (Loh and Koh 2004). Moreover, the team should be familiar with the business functions and products so that they know what needs to be improved to the current system (Rosario 2000).

3. Case Study Analysis (Turtle Wax case study)

Turtle Wax Ltd is a manufacturer of automotive appearance products. Turtle Wax has a primary line of products and these include cleaning and polishing products for cars including glass, painted surfaces, uncoated metals, leather, wheels, and tires, for both the consumer and professional detailer markets.

Turtle Wax has its headquarters in Chicago. Turtle wax manufacturing and distribution is based in Skelmersdale England. The company has distribution in over 60 countries and goes as far away as Scandinavia and controls over 60 percent of the car wax market in the U.S. The company has a distinctive logo which needs no translation as it has been for almost 50 years.

The company has a wide range of products and are retailed through a wide range of outlets, such as Halfords in UK and appointed distributors overseas.

Turtle Wax Ltd's connection with the retailers has been reduced by one step; the company had maintained a 30 year relationship with a distributor. This partner managed all of the Turtle Wax UK forecasting and sales order processing, as well as dealing with distribution meaning that the manufacturer had very limited requirements for business IT systems. (Turtle Wax case study)

In order to optimize capital and performance the company opted for an ERP system. The process in some way was forced by customer demands, external pressures and corporate change.

Turtle Wax required a hybrid ERP software that handles the company's supply chain, and purchases of raw material, distribution, shipping and invoicing.

However, when the decision was made to sell directly, not only did the company need to develop its own direct sales channels, but also the back office infrastructure to support the change. A search of the market for ERP systems saw Turtle Wax Ltd shortlist five vendors, and after evaluating those vendors' systems against specific needs, selected the TROPOS fast-response ERP system developed and marketed by Basingstoke-based SSI. (Turtle Wax case study)

Tim wood who is the planning manager explains that, “on one level, this simplifies operations having one single source for the vast majority of orders are obviously more straightforward than having hundreds”. Tim also states “We are trying to become more demand-driven, and that really means improving our forecast accuracy”. (Turtle Wax case study)

Lewins Model of change:

Lewins model of change will be used for this case study and are listed below:

Unfreeze

Turtle Wax had many connections with retailers and had a long term relationship that lasted nearly 30 years with a distributor. This partner managed all of Turtle wax UK forecasting from sales order processing as well as distributing.

A decision was then made to sell directly to retailers and the company needs to develop its own direct sales channels, and also back office infrastructure to support the change.

Buying raw materials and then packaging them then keeping track of the relevant purchase orders and bonding them to their invoices are lengthy and can sometimes be challenging.

Change

Turtle Wax previously outsourced much of its UK product order processing to its distributors. Implementation of Tropos was considerably challenged.

An MRP operation was made which separates stock, order and forecast processing, and all is automated.

Management reversed previous decision to sell direct and went back to the use of distributor to deal with company's customers.

Refreeze

Turtle wax reversed back to the old idea of selling to retailers and sold directly to distributors. This simplifies operations on having one single source for the vast majority of orders and this is obviously a more straightforward than having to sell to hundreds of different retailers.

The new ERP system automates links between orders and invoices and checks data against goods received before authorising payment.

Critical Success Factor

Top Management Support

In order to improve the company's sales and supply chain the company appointed management team to run various part of the organisation.

Turtle Wax had problems dealing with large orders during late spring as seasonality is a major issue. The manufacturing plant is not running near full capacity as this puts a strain on staff as overtime is needed at this stage of the year. Tim Wood goes to say “The overtime bill is huge and needs to be reduced, but the biggest problems are that we just don't have two sets of supervisory staff”. (Turtle Wax case study)

The Top Management showed a great support as staff had to do long hours to get the job done.

The Top Management showed great commitment and support for the Tropos project by assigning the task to different individuals as they had to work together it was under staffed.

Project Management

Selection of the appropriate package:

Turtle Wax hired a new management team shortly after the completion of phase two of the Tropos project. The new management team that were appointed reversed the idea of selling to retailers to sell back to direct to its distributor to deal with the company's customers.

Turtle Wax uses Solarsofts Tropos incoming Generic interface to link direct to its logistics partner Excel.

The installation of Tropos had massive effect on Turtles wax's business as it saw dramatic improvement of sales order.

Victoria Atherton managed a manual operation using stock separate stock, order and forecast reports.

Jacqueline Smith says that “So, in phase two, we made sure that we involved more people - and made those individuals, in supply chain management and planning, for example, responsible for their own data.” (Turtle Wax case study)

Business Process Re-engineering

Turtle Wax solution is to manufacture products early in the year, as it needs to send it to its distributors in time for summer. This builds up stock levels thus enabling the company to for fill orders even at busy periods. Tim Woods says “this extra stockholding incurs extra costs, but says that analysis has shown it to be a better solution than even more overtime”. (Turtle Wax case study)

As the company was

Ongoing Vendor Support:

The ERP system that was implemented for Turtle wax was cross platform as it ran on a variety of hardware platforms this including Microsoft Windows technology based servers. Turtle wax had a handful of potential software vendors.

Although Turtle Wax dealing with external vendors this caused problems and some employees were finding it difficult to adapt to the new change. They had to appreciate the new change and everybody had to play a part, along with other operations so everybody was effectively working together.

Jacqueline Smith who is European IT Manager says “We had some significant time pressures during the project, and had we not been so well supported by SSI, we might not have achieved a successful implementation”. (Turtle Wax case study Solarsoft)

Clear goals and objectives:

The company is trying to become more demand driven so an improvement of early production is vital as the product sells more during summer. Retailers request large orders during late spring.

Tim Woods says “ We are trying to become more demand-driven, and that really means improving our forecast accuracy”. (Turtle Wax case study)

Teamwork and Composition

Turtle Wax solution is to manufacture products early in the year, as it needs to send it to its distributors in time for summer. This builds up stock levels thus enabling the company to for fill orders even at busy periods. Tim Woods says “this extra stockholding incurs extra costs, but says that analysis has shown it to be a better solution than even more overtime”. (Turtle Wax case study)

Conclusion:

In conclusion ERP implementation could become a complex and risky process depending on the scope of the project and if it's not managed properly.

In order to see a successful project work the company needs to follow the set of factors which are having Top Management Support, project management, business process reengineering, Ongoing Vendor Support, Clear goals and objectives Teamwork and composition; if these are followed it will help the company not going bust.

Commitment and support is needed from top management in order for the new change to work. Failure to do this will see the project of the ERP to fail.

As this was the first time an ERP project was being developed for Turtle Wax ltd, the company wasn't sure if it was going to work or not, as many organisations that try to implement systems of this kind run into difficulties as different department may not be communicating and may have their own agendas and objectives as this can conflict with each other.

REFRENCES:

Rosario, J. G., 2000, ‘On the leading edge: critical success factors in ERP implementation projects'. Business World, 17: 15-29.

Somers T.M., and Nelson K. (2001), The Impact of Critical Success Factors across the Stages of Enterprise Resource Planning Implementations, published in 34th Hawaii International Conference on System Sciences 2001, Hawaii

Tichy, N: 1983, Managing strategic change: Technical Political and cultural Dynamics (pp. 344-360)

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Mukherjee, D and D'Souza, D, (2003) “Think Phased Implementation For Successful Data Warehousing”, Information Systems Management, 20(2), 82-90.

Organizational Change in Today's Economy Models of Change and Overcoming Employee Resistance by Rafe Harwood URL: http://www.unfortu.net/~rafe/links/change.htm (accessed 12/12/09)

Loh T. C. and Koh S. C. 2004. ‘Critical elements for a successful enterprise resource planning implementation in small- and medium-sized enterprises', International Journal of Production Research, 42(17) 3433-3455.

Al-Mashari M, Ghani S,W Al-Rashid W. 2006. ‘A study of the Critical Success Factors of ERP implementation in developing countries'. Internet and Enterprise Management, 4(1): 68-95.

Nah, F. and Lau, J. 2001. ‘Critical factors for successful implementation of enterprise systems'. Business Process Management Journal, 7 (3): 285-296.

Somers T.M., and Nelson K. (2001), The Impact of Critical Success Factors across the Stages of Enterprise Resource Planning Implementations, published in 34th Hawaii International Conference on System Sciences 2001, Hawaii

Loh T. C. and Koh S. C. 2004. ‘Critical elements for a successful enterprise resource planning implementation in small- and medium-sized enterprises', International Journal of Production Research, 42(17) 3433-3455. http://www.fundinguniverse.com/company-histories/Turtle-Wax-Inc-Company-History.html (Accessed 10/12/2009).

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Kuang J., Lau L. J., Nah F. F. (2001) Critical Factors for successful implementation of enterprise system, Journal of business process management, 7, 3, 285 -296.

Critique

n Too many projects fail because not enough effort was expended in the unfreezing state to prepare those affected for the change (Schein, 1995).

n If change agents practice these steps (or those in other widely accepted change models) change management should become more effective, if no less complex.

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