CSF of ERP in Australia

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1 CSF of ERP in Australia Joseph Deghar, Monash University, Australia, Joze Kuzic, Monash University, Melbourne, Australia, Abstract. This research investigates the Critical Success Factors and the impact they have on Enterprise Resource Planning implementations in Australia. This research uses qualitative data and specifically the case study methodology to examine the effects that these factors have on Enterprise Resource Planning implementations and ultimately how this affects the success and failure of an implementation. Data collected from interviews were analysed and a number of findings were drawn. The findings of this research will form a basis for future studies in this field, and will highlight areas where Enterprise Resource Planning implementations can be improved to ensure success. Keywords. Enterprise Resources Planning, Implementations, Australia. 1. Background The need for valid, accurate and real time information to help organisations achieve their business strategies and goals, has increased the necessity for more superior information systems ( IS ) such as Enterprise Resource Planning ( ERP ) applications. ERP applications are company-wide, fully integrated and comprehensive systems that facilitate the management of cross functional business operations. Despite the growth in ERP popularity and market presence, ERP implementations remain complex compared to other information technology ( IT ) projects. Successful implementations of ERP systems are affected by a number of organisational, technical and human factors. These factors have been defined in literature as critical success factors ( CSFs ). 2. Literature Review An ERP system is a multi-module business software application that encompasses various organisational data, information, databases and processes in the one system and used widely by organisations operating in various industries and sectors. Markus et al, 2000 [1] state that ERP systems offer many benefits to organisations, however their implementations are complex and require a high level of coordination within functional hierarchies. A core benefit is the level of integration and information flow ERP systems provide to an organisation in many business areas (Davenport 1998 [2]). For any ERP system implementation to succeed, organisations need to understand and address all functions, processes and activities during the life of the project. ERP implementation projects involve a large number of activities. These start from original understanding of business requirements, issues and concerns, as well as addressing business directions and selection of a particular ERP system. Project success entails understanding, addressing and resolving organisational and technical factors raised at all levels of the implementation process (Bagchi et al 2003 [3] and Kawalek 2002 [4]). Research on ERP adoption and implementation has been divided into two major categories: organisational and technological factors (Bagchi et al 2003 [3]). Organisational factors affect the determination of adoption issues and can further be split into two sets of factors: business and personnel issues. Technological factors affect the infrastructural issues to adoption, and link between human and operational sub systems which affect the outcome of ERP implementation. Somers and Nelson, 2001 [5] developed a list of 22 CSFs, that affect and impact on ERP implementations, following their review of 110 ERP implementation cases. Some of the CSFs are elaborated as follows: Top management support - successful project implementation can best be achieved when senior managers rally behind the project and demonstrate strong commitment to the project 435 Proceedings of the ITI nd Int. Conf. on Information Technology Interfaces, June 21-24, 2010, Cavtat, Croatia

2 (Davenport 2000 [6]). Senior executives attitudes have a distinct influence on staff acceptance and rejection of IS projects. For any project to succeed it needs unconditional support from senior management and that support needs to be unequivocally presented in the form of management involvement, a willingness to provide valuable resources when and where they are needed (Wee 2000 [7], Summer 1999 [8], Holland et al 1999 [9]). Minimal Customisation - A successful ERP implementation is about bridging the gap between organisational processes and system processes. However many ERP projects have failed on this point because of this factor. Customisation tends to inflate the cost of implementation; it increases the implementation time and restricts the ability to implement future upgrades and updates easily and efficiently (Janson et al 1996 in Somers et al 2001 [10]). In order to maintain low level customization in an ERP implementation, companies need to reengineer their processes in order to align these processes with those of the system they are implementing [11], [19], [20]. Clear Goals and Objectives - Goals should be defined at the start of the project and should encompass the three primary objectives of project management, namely scope, time and cost (Somers et al 2001 [5]). However as ERP projects are more complex than average IT projects it is often very difficult to determine them (goals and objectives) in a clear-cut manner (Akkermans et al 2002, p36 [12]). ERP implementations have a tendency for their scope to change throughout the project as they lack specific project plans and are likely to exceed the time frame [13], [14], [18]). Project Champion - According to Beath (1991) (in Somers et al 2001 [5]) project champions are transformational leaders who have the power and ability to facilitate and promote the project to the rest of their organisation. Project champions are ultimately accountable and responsible for the project outcome. Therefore the project champion s direct involvement in project meetings and activities allows senior management to have an increased influence and control over the implementation project and will ensure that obstacles and issues facing the project team are quickly resolved (Clemens 1998 in Somers et al 2001 [15]). Dedicated Resources - Zhang et al (2002, p6 [16]) argued that every person and department is responsible and accountable for the overall system, and key users from different departments need to commit to the project implementation without being called back to their prior functional job. The project team, as stated above, needs to include external consultants and employees from cross functional departments who are dedicated to the ERP implementation. The ERP team should also be given compensation and incentives (Gargeya et al 2005 [11]). Failing to commit the necessary resources can cause difficulty in implementation efforts and may affect the final outcome of the project. Use of Consultants - The aim of hiring external consultants is to facilitate the transfer of knowledge and to support the development of the new system s skills and expertise to internal staff (Somers et al 2001 [5]). Consultants can provide various specialised skills such as ERP functionality, implementation process (especially during the going live step), system maintenance, system architecture, database management, end user training and business process reengineering. User Training - Every staff member within the organisation who uses the new ERP system needs to be trained during the early stages of the implementation to ensure a smooth transition towards the end (Davenport 1998 [2] and Summer 1999 [8]). According to Zhang et al (2002, p6 [16]), training should cover the following three aspects: logic and concepts of ERP, features of the ERP system, and hands on training. 3. Research Methodology The objectives of this research were to determine what critical success factors affect ERP implementations in Australian organisations and in what order of importance, by employing the accredited list of 22 CSFs compiled and tested by Somers and Nelson in 2001 in the United States. This research comprises a total of two companies who implemented ERP systems in recent years. These companies have implemented ERP applications where it can be noted that the vendors of these applications operate within the same sphere as the other ERP vendors in this study. Therefore each of the two cases in this study could theoretically implement one of the other ERP systems discussed in this study (without taking into consideration issues 436

3 such as cost, customisation, process alignment and level of system fit etc). In essence, none of the ERP systems in this study are promoted to a particular niche market (i.e. industry, customer size, market or operations). The research used the case study methodology, as the most significant source of data, according to Yin (2003, p89 [17]). This research was guided with following research question: To what extent some of the 22 CSFs compiled and tested by Somers and Nelson in 2001 affect the success and failures of ERP implementations in Australia? 4. Case Studies The research involved two senior managers one from each of the two case companies. These managers had direct involvement in their company s implementation projects. Both interviewees were with their respective employers for more than three years and were involved in all facets and phases of their company s implementation projects. Each of the interviewees had a direct influence on their project s final outcome and was involved in different roles within their project teams. Company A is a leading international company specialising in the home healthcare products and solutions. Company A is a sales distribution company, established in Australia in September 2006 when the parent company acquired its Australian distributor to have a more direct influence on their strategic direction, distribution channels, branding, and competitive presence and to align the Australian operations with their global operations. While the parent company is a United States multibillion dollar company, the Australian subsidiary is a much smaller operation. With a head office in Sydney and offices in all Australian capital cities, the company currently employs 40 staff and has an annual turnover under $50M. For Company A, the main functionality of the ERP system is to manage stock, sales, purchasing, warehousing and finance. The project was budgeted at $500K and was intended to run for three months. While the system went live in January 2007, the project was officially completed in September 2007 when the final sign off took place. The project took just under twelve months to complete with a final cost of $1M. The project was expected to consist of a standard implementation with minimum or no customisation given the absence of legacy data, processes and applications. The project turned out to be more complex than expected and the final system was highly customised. The implementation team consisted of Company A new management remote IT staff in the US and a group of local external consultants outnumbering the company s own representation. The team faced a number of challenges during the implementation phase of the project. One of these challenges was the absence of staff involvement and interaction during the early phases of the project. Another challenge was the presence of service centres in the distributor s business which the company acquired. These consisted of retail and rental branches, a type of operation that the company had never operated directly anywhere in the world. The scope of the project had to change to accommodate the new requirements. A standard SAP Business One (''SBO'') does not have any retail or rental application in its suite of modules, third party applications had to be acquired and interfaced with SBO. As a result the final project did not adopt the standard straight forward process of SBO that the company had hoped for and the system was highly customised. The project budget doubled as a result of these complexities. The project however was considered a failure and the interviewee rated it 4/10. The overall level of satisfaction was low and the project did not meet all of its original expectations. Company B is a national icon and a household brand specialising in domestic, commercial and professional cleaning products in Australia and New Zealand. The family owned business since 1930 was fully acquired by a publicly listed Australian company in The company has an annual turnover of $50-100M and currently employs 130 staff in Melbourne and other Australian capital cities. In late 2006 and early 2007, the company completed a shutdown of all its manufacturing plants in Melbourne and Perth and began importing and distributing its own branded products. Company B completed its latest ERP implementation in November The project took around six months and was completed on time and within budget, at a cost of just under $100K. The aim of the project was to implement advanced warehousing systems in Pronto, which the previous releases did not have. The new implementation was deemed necessary in order 437

4 to keep up with technology and market needs and to comply with major customer requirements. Changes such as bar-coding, cross docking shipments, scan packing and higher Delivery In Full and On Time ( DIFOT ). The project was implemented by the vendor themselves. In fact, Company B has been used as a beta site for Pronto. This meant that many modules are built specifically for Company B and then they are released commercially to the market. A big challenge for the organisation in addition to reacting to all market and customer needs was to reduce and minimise, as much as possible, the amount of modifications and customisation that existed in the previous Pronto version. As a result the company managed to keep customisation very low and currently the system standard process is the adopted process. The implementation was considered a success and a rating of 9/10 indicates the result was highly satisfactory. The project met its original expectations and was completed on time and within budget. 5. Findings In this section we present to what extent some of the 22 CSFs compiled and tested by Somers and Nelson in 2001 affect the success and failures of ERP implementations in Australia. Top Management Support, in company A, it was revealed that as the business was being setup at the same time the ERP system was being implemented, there were too many distracting issues that kept top management preoccupied at the time. According to the Managing Director the one thing that suffered the most was the implementation of the ERP system and many decisions regarding the SAP implementation were left to the external consultants. On the other hand, the senior management team of Company B, was explicitly involved right from the start and regularly attended steering committee meetings and assisted with system module testing. They were also present in general staff meetings where project information and updates were shared with the rest of the organisation. Minimal Customisation, in company A, the project was highly customised (approximately 30%) as the project team faced a number of challenges throughout the implementation. According to the Managing Director the presence of retail and rental arms of the business added various layers of complexity and forced us to heavily customise SBO. As a result of not adopting SAP s standard vanilla approach, the added customisation ended up doubling the cost of the project to $1M. Company B, on the other hand, managed to maintain minimum customisation of their ERP systems (5%). The company completed its project on time and within budget. It identified high customisation as a business risk and successfully re-engineered its processes to align with its system processes. Clear Goals and Objectives, company A incorrectly considered their goals and objectives at the start of their implementation efforts. It discovered during the implementation that retail and rental operations were core elements of the new operations in Australia, and as such these functionalities were needed in the new ERP system. It was, however, observed that company B had clear goals and objectives when they originally set their plans to implement their new ERP systems. This company intended its new ERP system to complement strategic changes they were undertaking in their business operations. The company was strongly focused on aligning their internal processes to their systems processes in order to improve efficiency, reduce costs (current and future upgrades) and to avoid the expensive recurrence of previous implementations. Project Champion, in company A, the role of project champion was not very obvious throughout the implementation phases and during the early stages post implementation. As the company was preparing to launch its presence in Australia, the role of the project champion started with the company s Operations Director (who was assigned the role of negotiating the acquisition and setting up the business and was the only company representative at the start of the project). The role was then handed over to the IT Director (based in the US who was liaising via the phone and ) and towards the end the role was resumed by the Managing Director (when he moved permanently to Australia). While best intentions prevailed, other operational distractions (before and post implementation) hindered these top managers from performing their project champion roles and limited their influence on the final outcome. Company B had their CEOs as project champion in selling the project to the rest of the organisation and in facilitating necessary changes. 438

5 Dedicated Resources, company A did not have dedicated employees and external consultants were assigned to their implementation tasks from the start of the project. While company B had key staff representation on the project team, the company did not move staff permanently to the implementation teams away from their main roles. It relates to the size of organization and it was impractical to relocate key functional staff or departmental managers from their positions for a period of six to twelve months. Use of Consultants, both companies used external consultants and considered them to have been an integral part of the implementations. While company A, had external consultants engaged on a full time basis, company B had to work around the consultants availability as they were assigned to other projects. The engagement ratio of the consultants also varied. Company A had more consultants than internal staff within the team and therefore there was more reliance on them. Company B noted less reliance on consultants. Both companies provided positive feedback about the consultants involvements from the start to the end. The consultants in these companies worked with the internal teams to complete the actual implementation process including system roll out, modifications, data conversions, and system configuration and testing. User Training, in company B, the training was conducted by the IT department. While there were many one-on-one sessions, the majority of the training was conducted in a class room setup where boardrooms, meeting rooms and staff rooms were used to train staff. Both companies reported general satisfaction with the training contents, time and delivery. Training materials in both companies varied from general process and system knowledge to hands on functional in modular testing environments. 6. Conclusion ERP implementations are complex IT projects that require cross functional cooperation and involvement from staff company-wide. While the literature discussed a number of studies on the effects of CSFs in ERP implementations in general, this research focused on the impact CSFs have on ERP implementations in Australia. The research was conducted using the case study approach; data was collected by interviewing senior managers in Australian organisations, analysing the data collected, and presenting the findings and conclusions. This research analyzed two Australian companies who recently implemented ERP systems. It aimed to further knowledge the literature in this area by understanding the importance of ERP systems, the complexity of their implementations and the challenges that arise during that process. Throughout this research, many conclusions and findings relating to the research objectives became apparent. It can be said that every one of the 22 CSFs findings could be considered as a critical factor. However the focus will be on major findings. The research established that Somers and Nelson s list of 22 CSFs are relevant to Australian organisations when implementing ERP systems. This list appears to be comprehensive and conclusive. While there were no additional CSFs added to the list from this study some of the terms used may need to be redefined to suit Australian business conditions. The other interesting finding was that while it was interesting to note that Top Management Support maintained its significance, it was fascinating to observe the importance Australian organisations place on customisation when it comes to ERP systems. This is definitely a trend that would be interesting to keep monitoring. The increased attention in further aligning business processes to system processes, is a shift in commercial mentality that was not present ten years ago. 7. Future Research The findings from this research have several implications for future research. Firstly this study included two organisations who have similar business models but who do not operate in the same industry, nor are they competitors. Future research may replicate this study using specific industries and evaluating trends that are specific to these industries or sectors. Additionally, this research examined implementations of two different ERP systems. Future studies may consider a vertical approach where customers of one ERP vendor are analysed and studied. Finally, this research used the case study strategy approach. Future research may consider either quantitative or triangulation approach in order to enhance reliability of the results. 439

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