SEPTEMBER 2011 VOL 3, NO 5. Department of Industrial Management, Rasht Branch, Islamic Azad University, Rasht, Iran 5 Naser Hamidi

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1 Localizing model evaluation and selection of ERP in Pars Khazar company based on Hakim model 4 Mohammad Taleghani (Corresponding Author) Department of Industrial Management, Rasht Branch, Islamic Azad University, Rasht, Iran 5 Naser Hamidi Department of Industrial Management, Qazvin Branch, Islamic Azad University, Qazvin, Iran Fatemeh Ostadseraei 6 Department of Industrial Management, Qazvin Branch, Islamic Azad University, Qazvin, Iran Abstract Today many organizations are interested in establishing organizational resources programming systems. Implementing these systems requires making wide and profound changes and is always accompanied by spending much money and time. Many of ERP projects fail due to various reasons and impose great price and time upon organization. Considering lack of success in implementing ERP in Iran house equipment industry, making decisions towards these systems establishment has confronted difficulties. This research, considering practical model offered by gentlemen Amin and Hamid Hakim in the field of controlling ERP implementation risks, plan to examine this model applicability by localizing the model in Pars Khazar Company. The company plans to facilitate decision making about adoption or rejection of ERP system by modifying this model. Key words: Hakim model, ERP, Pars Khazar Company, Risk management 1. Introduction Taking a closer look at the inception process of many companies in Europe and the United States, it becomes apparent that setting up a seamless IT infrastructure has always taken precedence before any other manufacturing or operational activities such as deployment of machineries, production line, and or any other related industrial or service activities. This strategy will allow the companies to define their internal and external operational processes based on a solid foundation, resulting in optimal efficiency and effectiveness in line with their strategic policies (Stewart et al.,2000). IT as a new industry in Iran has not found its rightful place within the organizations, as mangers are still adamant and adhere to the traditional management systems, and show resistance to the required organizational and infrastructural changes. Cultural and human resource complexities within an organization are the two main factors impacting the development of IT systems, which need to be addressed with a new perspective (Olson,2003). Cultural changes are not apart from the people who have created, so the starting point for the changes must come from within the management system, the people who are involved in defining and implementing corporate policies, whose behavior and decisions have direct impact on the performance and attitude of the employees, and also their supply chain partners (Markus et al.,2000). Therefore, corporate culture not only forms and impacts the internal operation but also constitutes the type of relationship and services received from the external partners. The IT system, specifically the ERP systems, provides the right foundation for organizations to control and 4. Associate professor(corresponding author) 5. Assistant professor 6. Master COPY RIGHT 2011 Institute of Interdisciplinary Business Research 182

2 exploit their internal and external operation and resources in an effective and efficient manner (Laudon,1998) According to above cases, this study aims to facilitate decision making about acceptance or rejection of ERP system by modifying the model offered by gentlemen Amin and Hamid Hakim and to remove problems around using this model by managers and decision makers. 2. Research methodology and objects About the research approach we follow a more qualitative and scientific research approach. This kind of research provides the understanding of a problem through research instruments that are oriented towards searching/ determining/finding/analyzing the fact and giving significance to the context and usage. The manner of the research method chosen for this research project is of a qualitative nature through an interpretive case study (Galliers,1992 ; Klein&Myers,1999), where data collection techniques (Ja rvinen,1999) consist of a thorough literature review, secondary data review of documentation regarding the ERP Implementation Risks, observations and interviews. In order to carry out the abovementioned tasks, we used a multichannel survey combining various tools to examine the hypothesized factors and research framework and the questionnaire is adapted from prior literature. 3. Literature review and Framework Limited study has been conducted in the ERP Implementation Risk area, with most research consisting of Implementation case studies in individual organizations (such as Motwani et al. (2002), and Chatfield and Bjørn Andersen 1997). A major problem with such ERP implementation studies is that very few threat and risk of implementation failures are recorded in the literature, perhaps because few companies wish to publicize their implementation failures. As we know, Enterprise Resource Planning systems automate and integrate the core functionality of an organization. ERP facilitates the flow of information among the different functions of an enterprise, while also permitting information sharing across organizational unit sand geographical locations (Markus,2000). According to Kalakota and Robinson (Kalakota& Robinson,2001), the evolution of ERP systems can be dividedinto4phases: Manufacturing Integration, Enterprise Integration, Customer-centric Integration, and Inter- enterprise Integration. Even though ERP system has been introduced for some time, due to its implementation complexities and surrounding risks, it has not found its place among many organizations around the world. There is still much hesitation among top-level managers and decision-ma- kers to commit their organization to deployment of the system (Bingi,1999). Majority of the local companies in Iran are still unfamiliar with the notion and concept of ERP systems, which has been the hindering factor behind the implementation of the system. Lack of awareness of top-level managers and decision-makers itself is a major barrier preventing any successful implementation of ERP systems. This has not been an exception among the auto industries of Iran, as there has not been any successful implementation among the Auto companies in Iran. 4. Research Model Analysis According to ERP selection and assessment model that is shown in figure 1, it has been tried that each of main factors effective in decision making towards ERP be presented in the order of sequence and risk importance during four stages (phase) that after each phase analysis, considered research method and its stages are explained: Stages pointed in aforesaid model are as the following: Phase 1: ERP as an organizational goal Is ERP system establishment considered in organizational programs inventory? COPY RIGHT 2011 Institute of Interdisciplinary Business Research 183

3 Phase 2: Examination of ERP effectiveness in organization Is ERP application in organization useful? Phase 3: Organization capabilities Is organization prepared to accept ERP? Phase 4: Evaluation of ERP success extent, considering various risks involved in it. Fig 1. Modeling plan for evaluation and selection of ERP (Hakim, 2010) COPY RIGHT 2011 Institute of Interdisciplinary Business Research 184

4 4.1 Phase 1: ERP as the organizational objective In this stage it should somehow be explained whether orientation to move towards ERP in organization is accepted or not? That considering Hakim model, in the case of this question being positive, the trend should be continued regardless of phases 2 and 3 and we should enter phase 4 that is examination of existent risks to implement ERP. In order to find the answer to the above question, the following documents with regard to organization strategy and planning need to be examined: Corporate Mission, Strategy, Objectives, and Planning documents IT Master Plan Business Plan Strategic Plan Corporate policies Other related documents 4.2 Phase 1 in pars khazar According to Hakim model in this stage organizational programs should be analyzed to examine whether in Pars Khazar company, establishment of ERP has been considered as a goal or not? In this stage of model, researcher has dealt with question in two library and field methods. The only collected document that may specify policy of movement towards ERP systems in this company is the document of macro goals and guidelines and except this document there is no other document such as BP and ICTMP for reference and reliance. By examining this document it is known that Pars Khazar Company has used the title of ERP implementing in a clear manner and according to the model, the answer to phase 1 (whether ERP implementation is part of the company strategic programs?) is positive and to examine ERP implementation risks we should enter phase 4. Has orientation towards ERP taken place in Pars Khazar Company? Is organization sure about ERP usefulness? Is organization prepared to accept ERP? And finally does organization introduce ERP as its strategic program? After consultation and interview with organization superior managers and IT managers and specialists it was made known that the organization, without any pre studies, under the influence of the company implementing ERP and also some seminars and conferences about ERP virtues, started ERP implementation in the year 1386 and after expending nearly three milliard Tomans and almost three years had to discontinue the system. In this study, phase 1 answer has been assumed negative so that by advancing in to phases 2 and 3 for determining organization effectiveness and preparation to accept ERP, above designed questions can be answered. 5. Phase II: evaluating the effectiveness of ERP in the organization After diagnosing and examining organization programs and goals about ERP that took place in the first phase, now it should be examined whether ERP establishment in organization has the capability to remove the problems and what advantages it can bring about for organization. Key question to solve aforesaid problems is as the following: Is ERP implementation useful for the company? COPY RIGHT 2011 Institute of Interdisciplinary Business Research 185

5 Second stage executive trend can be explained like below diagram. Identifying Organization Problems Prioritizing the problems Matching problems with ERP capabilities Degree of problem resolution by ERP Implementation Reasons for moving towards ERP ( 2010 شکل (8-3) روند اجرايی فاز 2 (منبع: حكيم Identifying Organization major problems Fig 2. Implementation steps of Phase II (Hakim, 2010) ERP Capabilities for removing problems This trend output are reasons for moving towards ERP that assists managers and decision makers to make better and more appropriate decisions. 5.1 Phase 2 in pars khazar First, considering phase 2 executive trend organization problems were identified using questionnaire and were prioritized using scoring technique and also reasons for moving towards ERP were identified according to experts view and were prioritized using scoring techniques. Table 1. Matching problems with ERP capabilities to its preference Virtues priority virtues Island systems elimination Geographical distance elimination Empowerment in electronic business Requirement of Precise, complete and rapid information Problems Lack of opportune and true information from organization whole sections Lack of efficient systems Lack of cohesive systems Organization weak presence in market Freight high price damages due to inappropriate freight and arrangement Inability in supplying customers with services Organization weak presence in market Lack of preparation to enter global markets Inability in supplying customers with services Inadequate responsibility to customers Lack of knowledge about customers and their needs Lack of knowledge about market and rivals Non attaining true and opportune information from organization whole sections Lack of real knowledge about final consumers and received information feedback from final consumers Problems priority COPY RIGHT 2011 Institute of Interdisciplinary Business Research 186

6 Fears from problems and falling behind rivals Control improvement/effective control Efficiency improvement Lack of knowledge about providers Lack of effective control Double work being high Human force low efficiency High waste and lack of material consumption control Human force low efficiency High waste and lack of material consumption control Products quality improvement Resources appropriate allocation Promotion, improvement and standardization of organization activities Preparation to enter global markets Improvement in making delivery up to date Delivering better service to customers and final consumers Organization structure improvement Better knowledge3 about supplier Decrease in freight and deals expenditures Better knowledge about final customers and consumers Repeated engineering of processes market status/rivals movement style Organization weak presence in market Lack of ability in supplying customers with services and their growth Resources inappropriate allocation Lack of efficient systems Large damages due to inappropriate freight and arrangement High double work Human force low efficiency Inadequate responsibility to customers Organization weak presence in market Lack of preparation to enter global market Lack of required responsibility Inability in delivering services to final customers and consumers Inadequate responsibility to customers Organization structure being inappropriate Lack of knowledge about supplier Freight high prices Large damages due to inappropriate freight and material and segments arrangement Lack of knowledge about customers and their needs Lack of knowledge about real consumers and information feedback from consumers Divergent and nonstandard work processes Need for repeated engineering Complex processes Lack of knowledge about customers and their needs Lack of knowledge about market and COPY RIGHT 2011 Institute of Interdisciplinary Business Research 187

7 rivals status Fear from problems and falling behind 16 rivals 15 Making technology up to Organization weak presence in market 3 date in systems Lack of preparation to enter world 7 market Freight high price Shortage of capital Large damages due to inappropriate 11 transportation and arrangement of material and segments High amount of material and segments 13 in warehouse 17 Decrease of double work High double work 14 Human force low efficiency 15 Organization structure inappropriateness 5 Lack of preparation to enter global Flexibility increase markets Fear from problems and falling behind 16 rivals Inadequate responsibility to customers Personal decrease Human force low efficiency 15 According to chosen technique to cover this stage activities and also selected statistical society and based on obtained results it seems that this stage outputs enjoys special validity in Pars khasar company and by complete reliance upon these data we can pursue ERP systems implementation and establishment trend in the company quite logically. According to stated issues, extracted data and introduced reasons, ERP usefulness in Pars khasar is apparent. This fact guides researcher in to third phase that is evaluation of this organization readiness to accept ERP that is discussed in third phase. To identify problems, prohibitive reasons and factors in achieving the goals are explained: 1. Fear from problems and falling behind rivals. 2. Organization inappropriate structure 3. Lack of efficient systems 4. Not obtaining opportune and true information from organization whole sections 5. Lack of knowledge about suppliers 6. High storage of segments and materials between stages and store 7. Freight high price 8. Large damages due to inappropriate transportation and segments arrangement 9. High amount of waste and lack of control over material consumption 10. human force low efficiency 11.high double work 12.lack of knowledge about customers and their needs 13.lack of knowledge about final consumers and received information feedback from consumers 14. Lack of knowledge about market and rivals status 15. Inability in supplying customers with services COPY RIGHT 2011 Institute of Interdisciplinary Business Research 188

8 16. Organization weak presence in market 17. Inadequate responsibility towards customers 18. Lack of cohesive systems 19. Lack of preparation to enter world market 20. Divergent and nonstandard work processes 21. Need for repeated engineering 22. Inappropriate allocation of resources 23. Complex processes 24. Nonexsistance of effective control Some factors of organizations inclination towards accepting ERP are divided in to three groups according to experts views and existent documents such as organization, business and technological factors. Organizational factors: 1. The need for accurate, precise, and quick information for management decision-making 2. Improving standards of activities within the organization 3.Improving control systems and its effectiveness 4.Reducing costs 5. Correct allocation of resources 6.Increasing organizational flexibility 7.Increasing productivity 8.Organizational Strategic Plan 9.Improving organizational structure 10.Re-Engineering organizational processes Business factors: 1-Market status/rivals movement type 2- Better knowledge about final customers and consumers needs 3-Improvement in making delivery up to date 4-Better knowledge about suppliers 5-Supplying customers with better services 6-Preparation to enter world market Technological factors: 1.Eliminatin glegacy systems 2. Improving internet services 3. Up-to-date IT Systems 4.Ecommerce capability 5. Up-to-date information in the organization 6. Eliminating physical distances After being reassured about ERP system usefulness in organization according to second phase now, by recognizing necessity of ERP implementation and its being useful, it must be known whether organization has required capabilities to accept ERP or not? Key question stated in this phase is as the following: 6. Phase III: Is the company ready to accept ERP? The answer to this question is a guide to enter forth stage that is evaluation of existent risks in implementing ERP. Here, the meaning of readiness/adoption capability, is a kind of evaluation in which organization ability to pay required expense to execute ERP is examined considering its size, existent substructures for implementation and evaluation of design management with respect to execution capability and also existence of specialist staff in organization and their capabilities in accepting responsibilities according to organization strength and weak points are the other important issues in this phase. COPY RIGHT 2011 Institute of Interdisciplinary Business Research 189

9 6.1 Phase 3 in pars khazar Considering this fact that almost all of the indexes related to this phase are presented in phase four as factors producing risks of ERP implementation, the researcher after financially assessing the company and with regard to this fact that Pars Khazar Company with stable capital higher than one hundred milliard toman is one of the enormous organizations in Iran, to answer this question, has identified six main indexes ( budgetmanagement support and commitment- executive ability of specialist staff- existent substructures capabilities-organization structure-organization culture) and regarding them has introduced some questions by interviewing five selected experts and it was known that organization except culture, in other fields has required readiness to adopt ERP. In this stage, considering this fact that main load is related to organization financial ability, Pars khasar company should provide necessary condition to implement ERP by spending essential money to set up instructional classes and some programs to increase organization incentives and cultural change. So according to this phase acquired result, the answer to this model phase 2 is positive. 7. Evaluation of risk and success factor In these stage major risks in implementing ERP systems which are related to organization are distinguished and evaluated, due to enormous investment volume required for these systems establishment, we should try to minimize risks in different stages to prevent financial and time waste of resources. These risks are identified in 6 parts by various field and library studies : Organizational risks: 1. Sufficient Resources 2. The degree of required Changes 3. Capabilities in Process Re- Engineering 4.The degree of Office Automation 5.The stability of corporate objectives 6.The stability of project objectives and scopes. Technical skills risks: 1-ability to absorb, organize and maintain specialists 2- existence and employing of specialists with required experience 3- ability to make an appropriate use of organization inner forces 4- existence of analyzers with business and technology knowledge 5-good cooperation between inner and external groups to adopt and transfer technology 6- making company IT experts knowledge up to date 7- technical and business knowledge about ERP. Project management risks: 1-consensus upon goal 2- superior manager support and commitment 3- combination of project members and groups 4- effective method of project management 5- existence of project hero 6- changes management 6- giving incentives by rewards based on performance 7- control and evaluation of performance 8- test and problem finding. Software System risks: 1. Identifying and understanding the changes required 2. Effective project management method 3.Suitable hardware and software 4. Legal Software systems 5. Adopting standards supported by ERP. User risks: 1. System comprehension by the users 2.Coordination among departments 3.Obtaining user supports 4.Providing sufficient training to power users 5. Low resistance to changes by the users COPY RIGHT 2011 Institute of Interdisciplinary Business Research 190

10 Technology risks: 1-required technical substructures capabilities 2- appropriate business and existent IT system 3- using new and untested technology 4- readiness to make change in existent system 5- adequate knowledge about ERP providers and sellers choice 6- implementation methods This stage is the last step in stages of making decision to move towards ERP from this stage on, work trend changes from management and decision taking state in to executive state, in figure 3 next steps after this stage are shown. Evaluation of ERP design success according to ERP risks Decision making Executive and technical applicability of ERP in organization Executive and technical applicability ERP Requirement Planning in organization Infrastructure Providing RFI and recognizing vendors Selrction Selecting or choosing RFP and venders Implementation ERP implementation establishment Fig 3. Implementation steps of Hakim model 7.1 Phase 4 in pars khazar One can say that project main goal is this stage and all of discussed introductions are designed to achieve this goal. In order to cover this stage goals and activities in Pars Khasar Company, researcher should determine the extent of each factor influence in ERP implementation by means of questionnaire or experts opinion and should design some questions using these factors to examine and evaluate existent risks in Pars Khasar Company at the time of ERP implementation. COPY RIGHT 2011 Institute of Interdisciplinary Business Research 191

11 According to selected method and also statistical society, this stage outputs which are main goal and pivotal principle of the study have been extracted by complete validity, and will be discussed in next chapter. 8. Conclusion As it was explained, in phase 1 based on Hakim model we should answer this question whether ERP establishment in organization is considered a goal or not? According to the model two events occur 1- company defines ERP as a part of its strategic program. 2- There is no direct reference to ERP in company goals. In event 1, regardless of this model phases 2 and 3, that is determination of organization effectiveness and readiness we should move in to phase 4, that is examination of ERP implementation risks and in event 2 we should follow the trend by passing respectively phases 2 and 3. But researcher, examining Pars khasar existent documents and consulting superior managers found out that the company, without any pre studies, under the influence of the company implementing ERP advertisements, has defined ERP implementation and establishment as parts of its strategic program. In fact the company without being sure about ERP usefulness and without complete awareness and recognition define ERP as parts of its strategic program. To remove this problem two sub branches are suggested for event 1 1-with knowledge 2- without knowledge If organization, with complete knowledge, defines ERP establishment as part of its strategic program, it can regardless of phases 2 and 3 enter in to phase 4 that is examination of ERP success according to ERP risks. Otherwise, the model should be followed by executing phases 2 and 3. In phase 2 (is ERP useful for organization?) its executive trend is followed by figure 2-3, researcher managed to reach to answer by identifying problems, prioritizing them and also identifying ERP capabilities and prioritizing them and finally by contrasting ERP capabilities with organization problems and also showed that at the present time, ERP implementation can be useful for Pars khasar company. In phase 3 (is organization prepared to adopt ERP?) by an organization readiness we mean examination of company capabilities with respect to budget, resources and management for implementing ERP according to organization and projects size. That is in this phase we should examine the studied organization in terms of ability to pay required expenses to implement ERP according to organization size and also existent substructures for implementation and also the design management evaluation with regard to executive capability and existence of qualified experts in organization and their ability to accept responsibilities. After examining indexes relevant to this phase, researcher found out that many of related indexes, will be analyzed in next phase as factors enforcing risks, to answer the question researcher based on six indexes (budget, management support and commitment, professional executive power, existent technical substructures, organizational structure and organization culture) asked some questions from organization five selected experts and after analysis of answers to interview questions, assumed answer to phase 3 as positive. COPY RIGHT 2011 Institute of Interdisciplinary Business Research 192

12 Fig 4. Suggested modified model COPY RIGHT 2011 Institute of Interdisciplinary Business Research 193

13 And also according to about explanation suggested modified model is shown in 5 and 6 Fig 5. Original model Fig 6. Original model suggested changes COPY RIGHT 2011 Institute of Interdisciplinary Business Research 194

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