Path Selection of China s Small and Medium-Sized Enterprises to Avoid ERP Black Hole

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1 Path Selection of China s Small and Medium-Sized Enterprises to Avoid ERP Black Hole Dong Li-min College of Economy, Huazhong Normal University, Wuhan Hubei, Abstract:In the information era, China s small and medium-sized enterprises carry out informatization management actively or passively. But as to ERP (Enterprise Resource Planning) which represents the latest management notions and techniques, China s small and medium-sized enterprises must go their own way. The essay explores the causes of China s small and medium-sized enterprises ERP black hole and suggests preventive measures for China s small and medium-sized enterprises to avoid ERP black hole. Key words: Small and Medium-Sized Enterprises; ERP; ERP Black Hole; Path Selection 1. Introduction ERP(Enterprise Resource Planning),the integrator of modern management notions and techniques and a kind of modern enterprise administrative mode which is based on modern information technology, is committed to make full use of modern information technology in every aspect of the enterprise management by establishing information web system and integrating the enterprise material flow, information flow, capital flow, business flow to optimize the allocation of enterprise resource, quicken its response to the market and promote the management level and performance, and finally improve the enterprise economic benefit and competence. [1] ERP develops from MRP, MRPⅡ, whose idea dates back to 1950s; however, the mature ERP concept was proposed by Gartner Group Inc. at the beginning of 1990s. It has been 25 years since China s enterprises introduced ERP to reorganize the management in During these 25 years, only 10% to 20% ERP projects have been succeeded, and approximately 30% to 40% ERP projects have been achieved partial integration, and almost half enterprises have been failed, even the successful 10% to 20% enterprises are mostly joint ventures with foreigners. [2] Most enterprises fall into ERP black hole. The so-called ERP black hole refers to the phenomenon that the enterprise makes great investment into the ERP project which cannot gain the expected benefit and the enterprise management performance cannot be improved greatly, and the enterprises even has to input more and more resources endlessly into the useless ERP project just to maintain it. How could the ERP project, integrating the latest management ideas, modern information technology and excellent business flow, introduced by the academy and thought highly by business circle, push so many enterprises into ERP black hole? The scholars have carried out some research on the critical factors affecting the successful implementation of ERP [3-4]. 2. Causes of China s Small and Medium-Sized Enterprises ERP Black Hole The critical factors affecting the successful implementation of ERP in China s small and medium-sized enterprises, or the causes of ERP black hole are as follows: (1) ERP orientation is unclear. In theory, ERP is shown as some modern management notion, which, assisted by information technology, focuses on promoting the enterprise business flow, pays attention to the integral resource utilization and aims to greatly improve the enterprise performance. In practice, ERP is specified as a kind of integrated or professional software for different firms, and is just a piece of operative software installed in different computers. Actually, ERP is just a management tool, not management theory or medicine for all. Many Chinese small and medium-sized enterprises consider ERP system as the magic power to improve management, and think that just with ERP the business flow will run smoothly and the organization behavior and the employee behavior will change greatly. In fact, it represents the unclear orientation of ERP project and the misunderstanding of the management concept contained in ERP and of its effect on enterprises, as well as the unreasonable expected benefit of 343

2 ERP. The enterprises think that ERP will help it cope with any management problems. The unclear orientation of ERP makes the enterprises just circle round in ERP black hole. [5] (2) Wrong selection of ERP. The selection of software plays an important role in the success of ERP project [6]. There are many ERP suppliers, such as foreign SAP Oracle Bann and so on, and the domestic UFsoft, Kingdee, Langchao and the like, as well as the unknown firms consisted of several personnel, all of which form an expanding group of ERP suppliers. Although all software suppliers boost themselves as the real ERP suppliers, with complete ERP modules and able to satisfy most demand of enterprises, in fact they are specified, for example, German SAP specializes in large client, and UFsoft focuses on medium market with specified industrial ERP. China s enterprises will establish ERP promotion team when selecting ERP system, but limited by knowledge structure, the enterprises haven t clear demand for ERP, thus can t select the most suitable software. In addition, a set of ERP software is composed of several alternative modules, from which China s enterprises can select according to their actual demand, but some enterprises can t make comprehensive consideration of every function modules well and hope to achieve just with one attempt, thus some abundant modules are introduced, capital is wasted, ERP project implementation is delayed, its schedule is affected, and ERP cost and possibility of failure are increased. (3) Lack of superior support. ERP project is always called as leader project, president project, because it needs full support and cooperation from the superior leaders of China s enterprises. [7-8] In order to run ERP project smoothly, the original enterprise flow should be reorganized and changed and the necessary manpower, material and capital resource need be supplied. The implementation of ERP is also a process of rearranging the benefits inside the enterprise, which will change the original benefit arrangement and surely will meet resistance, even protest. The clear reform plan of the superior leader, their sharp voice for reform, the success coordination of the concerned, all are the essential preconditions for the successful implementation of ERP. If the superior leaders of China s enterprises think the ERP projects are just software installed in computers, pay little attention to the problem arising in the process of ERP implementation, and do not adjust the unreasonable business flow in time or coordinate the benefit relation within the enterprise, ERP will just become a set of software in computer for inspection instead of use and without the expected effect. (4) ERP conflicts with the original management mode. The successful implementation of ERP is firstly represented as the innovation of management ideas, management measures, organization function and operation system and so on, that is, the innovation of management mode. For example, ERP stresses on information sharing, eliminating information isolation, quickening information delivery efficiency, shortening information delivery chains, reducing information delivery time, in order to win more time for enterprise to react to outer market change. But the change of information delivery mode totally deprives the original information owner of their controlling power gained by their exclusive possession of the information of, such as, the latest quality criteria, project change, order change and so on, and surely they will set barriers in the implementation of ERP because of their disappointment. [9]. Conflicts exist not only in the middle-level management, but also in some superior leaders inevitably. At the beginning of the implementation of ERP, there are surely conflicts between the new and the old modes, and the ability to deal with the conflicts is also a factor determining whether ERP can be carried out successfully. (5) Too much specification of ERP. Product specification is the new demand for product in present fast consumption times. Moreover, the competence of product specification is the representative of the enterprise s core competency. It is necessary for China s enterprises to further adjust and re-develop the ERP software for the actual performance no matter how integrated and good the software suppliers boost and combine the excellent management procedure and management ideas included in the ERP software with the actual business flow, so as to form the specified ERP for their own use. However, in the actual operation, ERP suppliers often specify the mature ERP without any principles but just to meet the enterprises management need. Generally speaking, when the specification surpasses 20%, the original system and integration of ERP will be lost greatly, and the integrated system will be divided into individual modules with sole function, thus the enterprises can not learn from the standard flow, which 344

3 affects the system s ability of integrating enterprise resource, that is, prevents ERP from playing its original role. 3. Path Selection of China s Small and Medium-Sized Enterprises to Avoid ERP Black Hole With the above study, it is necessary for China s small and medium-sized enterprises to make following choices in order to avoid ERP black hole: (1) Strengthening market research and make accurate orientation of the demand of the enterprise. Before the implementation of ERP, China s enterprises should study the market carefully, including present management status, the state of the management technique development of industry supply chain, client s demand, will of self-reform, as well as the necessary technicians and the amount of resource that enterprises can input for implementing ERP, and answer accurately about what ERP is, what ERP will bring to the enterprise, which ERP the enterprise needs, whether the implemented ERP needs upgrading in the future or its function needs expanding, that is, making an exact orientation of the demand of the enterprise. Then the enterprise should contact with all ERP suppliers and their systems and do a preparatory assessment to limit the selection range. Then the enterprises should make full communication with the relevant ERP suppliers to establish the clear implementation scheme that can satisfy both sides, in which the real demand of the enterprises should be oriented accurately. (2) Using the agency to establish the ERP team. ERP is an integrated management system, integrating modern management theories, managing practice and information technique. But the fact is that managers in China s small and medium-sized enterprises do not understand ERP and ERP suppliers do not understand management practice of specified enterprise and the ERP software is developed by some computer experts and sold by some marketing personnel. Although some software companies absorb managers to participate in the ERP software development, the degree is totally inadequate. Even the original manager elites will break away from practice and the fast developing management theory and practice after taking part in the ERP software development. As a result, China s small and medium-sized enterprises should actively turn to the agents when selecting and implementing the ERP software. There are different kinds of evaluation about the effect of these agents participating in the ERP implementation [10], but these agents have more practice experience compared with the small and medium-sized enterprises own experts. Thus the ERP team includes an independent third party besides the traditional ERP demand party and supply party, which will be helpful for the settlement of the communication quality and problems in the course of the implementation of ERP. With the agents experience of success and failure, the team will set more specified schemes and shorten the exploring process, keeping the enterprises from falling into the information black hole and making the ERP scheme be carried out carefully, stably and successfully. (3) Utilizing the opportunity of implementing ERP to reorganize the enterprise flow. The first motive of China s enterprises selecting ERP is to promote management level and improve the performance of business flow. So we can regard it as that those selecting ERP that haven t reach the expectation need reorganizing and rearranging its business flow, some people even regard ERP as BPR. [11] It is necessary for China s enterprises to promote and reorganize the present business flow to meet the basic need of carrying out ERP project with the aim of ERP successful implementation. On the other hand, China s enterprises should reorganize the business flow from the original function-oriented to the orientation of product value creation and customer value creation by the information integration, resource sharing and systemic management of the ERP, together with the reorganization of the structure of the enterprise. The improvement and reorganization of the business flow will create a much better internal environment for the ERP and promote its implementation. (4) Designing the most suitable ERP scheme. For China s small and medium-sized enterprises, the implementation of ERP is a great project, concerning all parts of the enterprise. Unlike the purchase of a machine, which just involves installation, ERP project is a systematic project which involves huge capital, long time and nearly everyone, from the general manager to the ordinary employee, who will change his original behavior mode and operation rule actively or passively. For such a critical project, ERP team has to study carefully and make a suitable implementation scheme, which should follow these 345

4 principles: overall consideration, integrated plan, step by step implementation, stable promotion. Overall consideration means all restrictive factors should be considered in the implementation scheme, such as present industry feature, product specification, management mode, the state of human resource, enterprise environment, purchase and access of the ERP function modules and so on. Integrated plan means a comprehensive plan about the ERP implementing schedule, content, ERP team members, budget, concerned departments, procedure, implementing quality and so on should be made, and the plan should be discussed among ERP suppliers, agents, and internal personnel and be settled finally by the superior leaders. Step and step implementation and stable promotion means that a whole set of ERP system consists of several alternative function modules, and enterprise should not fix all modules at the beginning, but start with the easiest and the simplest, then try the difficult and the complex, promoting all modules according to the plan and step by step. For example, China s enterprises can firstly fix the manufacture module, then after its smooth running advance to quality control module, finance management module, and finally the client relation management module. Thus the enterprises will find and solve the problems arising in the ERP implementation more easily and in time, reducing coordination and increasing the possibility of success. (5) Strengthening training and propaganda. It is required for the personnel to promote the overall management level, renew their knowledge and adapt to the new management idea, management mode and new skills in the new ERP project to make it in good operation, so the overall training and propaganda is necessary. The training and propaganda is not just to post several banners in the firm or hold several meetings, but to make a careful and detailed training plan to be performed along with the schedule of ERP project. A complete training plan should at least include the following: objects, time, instructor, content, effect examination and check and the like. ERP is a comprehensive project, but it does not mean everyone should take part in every step of the project, or all personnel should learn all ERP knowledge. On the contrary, different training plans should be designed for personnel who participate in different business flow and take different duty, which will save training cost and quickening ERP promotion. 4. Conclusion It is a tendency for China s small and medium-sized enterprises to carry out informatization, and ERP is the first choice. Although ERP involves huge investment, long time and great risks, it is natural and rational for China s small and medium-sized enterprises to promote the ERP in order to survive, develop and grasp the market opportunity. Understanding ERP, learning ERP, selecting ERP, constructing ERP is the only way for every China s small and medium-sized enterprises. Enterprises should learn to treat ERP rationally and orient itself and ERP well, set up a good team for the implementation of ERP, plan carefully, rely on agents and ERP suppliers expertise knowledge and experience to set a suitable scheme to avoid ERP black hole, integrate enterprise resource, utilize the advantages of ERP, really run an integrated management of material flow, capital flow, and information flow and create and enjoy the great economic effect and society effect brought by ERP. References: [1] Kernet, J., V. Sridharan, The Value of Using Scheduling Information in Planning Materials Requirements [J]. Decision Sciences. 1998, 29(2):67-70 [2] Kong Changdong. Analysis of ERP Management Idea and Implementation Risk [J]. Management World, 2002(8): (in Chinese) [3] Bingi,Prasad; Sharma,ManeeshK.; Godla,JayanthK., Critical Issues Affecting An ERP Implementation[J], Information Systems Management. 1999, 16(3):7 [4] Zhong Qiuyan, Min Qingfei, Wu Liwen. The Empirical Study of Critical Success Factors of ERP Implementation in China [ J], China Soft Science, 2004(2):73-78(in Chinese) [5] Lin Jirong, Zhu jin. The Implementation of ERP in Enterprise and Its Case Study [J]. Industrial Engineering and Management, 2000(2):54-58(in Chinese) [6] Elisabeth J, Umble, Ronald R, Michael Umble. Enterprise resource Planning: Implementation problems and Critical Success Factor [J]. European Journal of Operation Research, 2003, 346

5 146(2): [7] Davenport,T.H., Putting the Enterprise into the Enterprise System [J]. Harvard Business Review.1998, Jul-Aug, [8] Yang Wansu, Yan Honghe. Analysis of Main Factors Affecting the Successful Implementation of ERP in China s Enterprise [J]. Scientific Management Research, 2001(1):46-49(in Chinese) [9] Cooper, R. Markus, M. Human Reengineering [J]. Sloan Management Review, 1995, summer, [10] Wei wei, Li fei. Consulting obstacles and reasons of International Famous Consulting Companies in China. [J]. Management World, 2002(1): (in Chinese) [11] Chen Bocheng, Ye Weixiong. Organization Structure in ERP and Analysis of BPR Realization [J]. Computer Integrated Manufacturing Systems, 2005(5): (in Chinese) 347

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