Dr. Manas Kumar Sanyal Sajal Kanti Bhadra Sudhangsu Das

Transcription

1 IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: ERP implementation issues and challenges: A FISHBONE analysis in context to Indian industries Dr. Manas Kumar Sanyal Sajal Kanti Bhadra Sudhangsu Das Associate Professor Research Scholar Research Scholar Department of Business Department of Business Department of Business Administration Administration Administration Abstract: Enterprise Resource Planning (ERP) systems are the well accepted solutions among Indian industries for improving their supply chains and overall business performance to face the strong global challenges. ERP provides competitive advantages in business operations and strengthens cohesiveness among the different wings of an organization with quick response and low transaction cost. But the implementations of ERP involve added complexity and sometime it ends with total failure and loss of huge investment. This paper is aimed to explore and identify critical issues in ERP implementation in context to Indian industries. Fishbone (Ishikawa) analysis has been applied to identify the critical issues for Indian industries as they experienced during implementation of ERP in their organizations. A stratified sampling method has been adopted for capturing primary data from Indian industries. Our findings show that certain factors, like improper system implementation strategies, lack of well-defined scope of implementation procedures, improper project planning and huge customization of the system selected for implementation etc, have significant influences on the successful ERP implementations. disruptions in the supply chain, hence to grasp the competitive advantage over the other industry players and to strive for its better performance. ERP systems offer tremendous opportunities to more consistently provide IS to the organizations in a standardized, centralized and cost-efficient manner and highlights the wide scope of applications on different functional areas and multiple business units comprise accounting and financials, human resources, supply chain, operations and logistics, sales and marketing [5]. Fig. 1 shows the typical ERP system is fully integrated solution to handle all the different wings of an enterprise like production, procurement, manufacturing, accounting, sales, marketing, distribution, customer service, etc. Key Words: Enterprise Resource Planning (ERP), Small and Medium Scale Industries (SMIs), Fishbone Analysis, Information systems (IS). 1. INTRODUCTION: With the globalizations and development of technologies, the Indian firms are facing a multitude of forces pertaining to the growth of fierce competition, market expansion, and rising customer expectations in the dynamic business environment. The global and domestic competitors in any business domain are continuously upgrading their internal infrastructure and capabilities to stay competitive in the current dynamic business environment. To keep up the pace with this dynamic environment, Indian enterprises are developing strategies on Information Systems (IS) which root out the difficulties and Fig. 1 ERP System Back in the 1960 s, Information Systems come into picture when the focus of the systems was mainly towards inventory control to handle inventory of an enterprise [11]. In 1970 s the focus was on MRP (Material Requirement Planning) which was designed for raw material planning and procurement. Then, the new concept came in 1980 s, which is MRP-II, involved primarily in optimizing the entire plant production process [11]. 220

2 Though MRP-II, in the beginning was an extension of MRP to include shop floor and distribution management activities, during later years, MRP-II was further extended to include areas like Finance, Human Resource, Marketing, Planning, Engineering, Project Management etc. [3]. With further refinement of MRP-II, ERP came into market, which covered the cross-functional coordination and integration in support of the production process. The ERP as compared to its ancestors included the entire range of a company s activities [10]. Fig. 2 shows the ERP systems evolution history over the years. Period ERP Evolution Extended ERP System (ERP II) Enterprise Resource Planning 1990s (ERP) Manufacturing Resources 1980s Planning (MRP II) Manufacturing Resources 1970s Planning (MRP) 1960s Inventory Control Packages Source: Adapted from Huang et al. (2003) Fig. 2 ERP System Evolution Broadly speaking, ERP is one of key IS applications that are used to capture, store, and transmit information so as to enhance efficiency and visibility in handling physical goods moving within the firm [12]. ERP brings the two significant advantages that do not occur in non-integrated departmental systems: (1) encompasses all functions and departments within the firm; (2) enhance the interdepartmental cooperation and coordination because of the firm database in which all business transactions are entered, recorded, processed, monitored, and reported. Overall, it can facilitate the firms to accomplish their objectives of enhanced communication and responsiveness to all stakeholders [1]. Unfortunately, ERP systems have a reputation for costing a lot of money and providing meager results, because the people who are expected to use the application do not know what it is or how it works [17]. According to Panorama s study, 35.5% of ERP implementations take longer than expected, ERP implementation cost is 6.9% of the enterprise s revenue and 51.4% ERP systems implementations costs exceeds it initial budget [24]. Also they mentioned in 2010 ERP report, 67.5% of companies surveyed fail to realize at least half of the business benefits they expected from their ERP systems. In addition, over one in three companies surveyed (40%) realized major operational disruptions after implementation go-live, such as the inability to ship products or to close the books [24]. According to Research firm Standish Group, 31.1% of ERP projects being canceled before completion. The results also illustrate 52.7% of ERP projects cost 189% of their original estimates [8]. However, recognizing the repeated causes of failure permits understanding, preventative occurrence and proactive risk mitigation strategies. In this paper, we are aiming in identifying critical issues for the failure of ERP Implementation and then developing causal IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: analysis using fishbone analysis which in turn, will highlight major action plans for Indian SMIs and large Organization to implement EPR systems successfully to avail competitive advantages among its competitors. 2. LITERATURE REVIEW: There has been lot of work done over the world to identify the critical success factors for ERP implementations. We have mentioned some of them in this section. ERP systems have been widely used in developed countries all over the world. With the opening up of Indian market to the global market, there is a significant expansion in the Indian market segments both in large enterprises and small and medium enterprise (SMIs) segments. Indian enterprises have implemented ERP systems or they are in the process of implementing ERP systems. It has been found that factors like limited capital, lack of proper infrastructure, lack of skilled resources, absence of ERP awareness and poor implementation planning are seriously affecting the implementation of ERP systems in India and other developing countries as compared to the developed countries. There are similar needs that are responsible for implementing ERP systems in SMIs as compared to large enterprises [19]. There are more or less similar factors that are affecting ERP implementations both in SMIs and large enterprises. Parijat Upadhyay et al (2008) mentioned in his research work that some critical issues, like selection of big ERP vendors and implementers, availability of proper infrastructures and availability of skilled ERP resources, affecting the implementations and impact of such enterprise systems are different depending on the volume of organization as the business strategy and policy taken by Small and Medium scale enterprises (SMIs) are not the same as large organizations. Sometimes SMIs in India are limited by low IT budgets, insufficient infrastructure, unclear line of control and improper work culture as compared to large enterprises [15]. M.N. Vijaya kumar and team (2010), in their research work, prioritized the critical factors affecting ERP system implementation in fertilizer industry in and the factors were identified: inadequate and in-consistent data, improper user acceptance testing and training, never run parallel system, conference room pilot, employee retention, customization, and clarity in management objective and external consultant dependency [21]. N. Venkateswaran and Dr. V. Mahalakshmi (2010) outlined the six major challenges faced by Indian enterprises which are data maintenance and integration problems, involvement of consultants in respective projects, vendor selection, little implementation experience, weak IT infrastructure and access knowledge and human resource etc [14]. ERP implementations face lots of resistances in Indian organizations, mainly from SMIs, due to huge investments and more failures associated with it. The study of ERP implementation issues is necessary to encourage Indian 221

3 enterprises to go for ERP implementation as ERP is vital in their future growth. The study conducted by Parijat Upadhyay and team (2008), in their research work, on Indian SMIs, revealed that for ensuring successful ERP implementation, the six major factors like on clarity in goals and objectives behind the implementation, adequacy of user training, competency of the project implementation team, acceptance of changes brought about by the implementation and adequate vendor support and external consultant participation had a key role to play [15]. According to Ravi Seethamraju, and Seethamraju, J.(2008) another barrier for ERP implementation is related to the IT maturity in both national and organizational levels. In developing countries like India, IT infrastructure has many weak issues related to the IT penetration such as internet and computer penetration in organizations and social levels. This is in addition to the lack of number of computer and internet users on both national and organizational levels. Other factors which lead to lack of adoption are related to cultural factors and lack of knowledge of ERP systems [18]. Hany Abdelghaffar and Reem Hamdy Abdel Azim (2010), in their study conducted among Egyptian enterprises, showed that 90% of international organizations obtained their competitive edge over their competitors in their respective fields of business stems from 'National factors', namely; 1) ICT infrastructure, 2) Government regulatory, 3) Economic growth, and 4) Regional location of Egypt. Whereas the 'Manufacturing' factor is a common factor for all companies working in Egypt and has no significant role in the success of ERP implementation in this context. Additionally, we examined the 'Organizational factors', to find some of them are of significance, namely; 1) Business size, 2) IT maturity, and 3) Computer culture. Whereas the Management commitment and Business Process Reengineering are common in all organizations and do not play a differential role in the ERP success implementation in Egypt [7]. In another study by Ali Noudoostbeni (2009), it has been found that companies spent large money in developing ERP systems that are not utilized. In a study conducted in Malaysia by studying ERP Implementations have identified 10 success factors like implementing team s teamwork and composition, effective training of users, clear and direct communication, group structure, other department s participation, reasonable expectation with definite targets, top management involvement, cooperation between enterprise & ERP implementers, project management, effective decision - making [2]. Yuanqiang Xia et al (2009), based on the analysis of conditions of SMEs of China, suggested the 6 critical factors for ERP implementation: top management support, great competence project team, right implementation scope, management program change, data accuracy, education and training in another study [23]. Doom and Milis (2008) grouped the critical success factors in five categories in order to test their importance for ERP implementation and included: (1) vision, scope and goals (2) culture, communication and support (3) infrastructure (4) IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: approach and (5) project management. These group factors and their sub-factors were considered as a core part of any successful ERP implementation in organizations (Raymond et al., 2005) [4]. Another study discussing the case of three companies is provided by Poon P.-L., Yu, Y.T.(2006). Their study suggests that, at least in the considered companies, the ERP procurement process had been less systematic and comprehensive than in Western companies with probably less organized project planning, reluctance to hire external consultants and less comprehensive selection criteria [16]. Wenhong Luo and Diane M. Strong (2004) identified the major hurdle in ERP implementation is to find out the exact match and gap between the ERP system and an organization s existing business processes by appropriately customizing the ERP system and changing the organization process to fill up the gaps. Framework for supporting management decision-making about Customization choices and the capabilities required to accomplish the match has been provided by various customization possibilities for ERP systems in a study [22]. According to Markus et al. (2000), three main factors that can be held responsible for failure of ERP system are: poor planning or poor management; change in business goals during project; and lack of business management support [13]. 3. ERP BENEFITS: The benefits of ERP in any organization are beyond doubt. Some of the key benefits are listed below [6]: Reduced manufacturing cycle time Reduced Production Cost Reduced inventory overheads Reduced requirement of manpower Increased transparency in procurements Reduced delay in supply chain Enables faster response to changing market situations Better utilization of resources Increased customer satisfaction Enables global outreach Indian enterprises have adapted ERP systems or in the process of adapting ERP systems to avail the multi-dimensional benefits of ERP systems, though ERP systems in India are in early stages as compared to developed countries like USA, Europe. It started from the late 1990s when MRP II, ERP and SCM became more and more popular in Indian market and many industrial enterprises have commissioned new ERP systems, such as SAP/R3, Oracle, and BAAN IV/V. Government of India also continues to support the ERP system s adaptations in Government owned enterprises. Above mentioned benefits can be availed from ERP system, once the ERP systems implemented successfully. One of the factors for successful ERP Implementation is the ERP vendor selections. There are a number of ERP vendors like SAP, Oracle, Tally, Microsoft, Ramco etc. There are the two largest 222

4 ERP players, SAP and Oracle, and their combined market shares in India reached close to 60% of the overall market; no windfall, however, awaited other vendors who struggled to enhance their market shares. Indian ERP vendors like Tally, 3i InfoTech, and Ramco have their niches, but were squeezed hard by the biggies. Fig. 3 shows the ERP players market shares in India. Intentia 1% QAD 2% SSA Global 3% 3i InfoTech 3% Ramco 5% Microsoft 6% Tally 9% Cognos 1% Others 13% Fig. 3 ERP Market shares in India** Oracle 18% **Source: DQ estimates Cyber Media Research SAP 39% 3.1 ERP & Indian SMIs and Large Enterprises We can divide Indian organizations into three major categories depending on their volume in terms of annual revenue, man power: i) Small and Medium scale Industries & ii) Large Scale or Multinational Enterprises. ERP systems adaptation for Indian SMIs can be done either for all the departments or for specific departments depending on mainly three factors i) Cost effectiveness of the implementation ii) Absolute necessity for implementation and iii) whether the investment would yield a profitable return. So all the factors are related with cost where as Indian large organization can afford to adopt an ERP in its entirety only because it would have the money power to do so. Thus we can say that ERP implementation in SMIs is done in stages. The initial hurdle in ERP implementations faced by Indian SMIs and large enterprises is the awareness of the ERP concepts. A survey conducted by IDC stated that the awareness of the ERP concept among SMI is less than 35%, compared to over 80% in large [20]. The next hurdle is the selection of ERP vendors and ERP implementers. Huge investments in associated with big ERP players like SAP, Oracle and big ERP implementer like TCS, Wipro, Infosys etc. Another critical hurdle is the implementation strategy, involves strong and quick decisions, required for implementation ERP IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: system. There are two strategic approaches to ERP system implementation. The first approach is where a company goes for the plain vanilla version of ERP. Here the enterprise has to reengineer the business process to fit the functionality of the ERP system which brings with it major changes in the working of the enterprise. This approach will take advantage of future upgrades, and allow enterprises to benefit from best standardized business processes. The second approach is where the ERP system is customized to fit the business processes of the enterprise. This will not only slow down the implementation but also will introduce new bugs into the system and make upgrades difficult and costly. Instead of the hurdles, Indian enterprises both in Private and Public sector have adopted ERP systems successfully and getting the competitive advantages. Some of them are HLL, ONGC, IOCL, SAIL, Godrej Soaps, BHEL, HAL, Cadburys, BASF, Telco, TISCO, Tata Motors, Tata Steel, HPCL, Maruti Udyog Ltd., Century Rayon, ACC, Blue Star, Mahindra & Mahindra, Rallis India, Sony India Pvt. Ltd., Ceat Ltd., Jindal, Indal, Ford Motors, Kirloskar, Knoll Pharmaceuticals, Glaxo etc. 4. METHODOLOGY: In this research we have used stratified survey method to collect data from Indian enterprises, both SMIs and large enterprises, who have implemented ERP systems or in the process of adopting ERP systems. We have categorized the critical issues and challenges in adopting ERP systems from the survey data and then we have done causal analysis using fishbone model. This will help Indian enterprises to formulate their strategies prior to adaptation of ERP systems so that they can implement EPR systems successfully and get the competitive advantages among their competitors. 4.1 DATA CAPTURE The objective of this research is to identify the critical challenges and issues which can crop up during ERP implementation in Indian Enterprises. Consequently, we try to understand how these significant factors can be mitigated to help these organizations in achieving their competitive advantage. In order to achieve this, both qualitative and quantitative approaches were considered. The survey method was selected to collect data from wide number of organizations operating in various verticals like Banking and Finance, Manufacturing, Retail, Telecom, and Utilities etc. The survey was conducted on both private and public sector enterprises and on large organization as well as small and medium scaled enterprises. Enterprises selection is based on the fact that these large-size companies are implementing and relying on ERP systems as their backbone infrastructure for their functionalities. The sample was collected from both the enterprises implementing ERP and the ERP implementers in India. A total of 117 samples were collected from both large enterprises and SMIs, out of which 26 were large enterprises and 91 were SMIs. The questionnaire was pilot tested with first 223

5 IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: seventeen firms for content validity and instrument reliability. Implementation played role of critical success factor for 16 Based upon the modification the final questionnaire was sent to large enterprises and 73 SMIs i.e. total 89 Indian enterprises. key informants within each firm. Fig. 4 shows the Indian Fig. 6 shows the survey data which shows the occurrences of enterprises distributions depending on the Industry verticals. different critical issues in the Indian enterprises during ERP system implementations. Fig. 4 Enterprises by Industry Verticals During survey on Indian enterprises we found different implementation stages in different organizations. Fig. 5 shows ERP systems implementation stages distributions. Fig. 6 Critical issues in different enterprises Fig. 5 ERP Systems Implementation Stages 4.2 FISHBONE ANALYSIS Fig. 7 shows the distribution of different critical issues in the form of pie-chart where we can see that there are two prominent critical factors, i.e. Proper Implementation Strategy and Project Management, which being together contributes nearly 40% of total success factor of ERP systems implementations among Indian enterprises. Fishbone Analysis (also called Ishikawa diagrams as created by Kaoru Ishikawa (1990), Causal Analysis or Fishikawa) are analysis that show the causes of a certain event [9]. We will draw fishbone diagram with the identified critical factors, triggering delays or failure in implementing ERP systems for Indian enterprises. 5. FINDINGS & DISCUSSIONS: From the our extensive survey conducted on 117 Indian enterprises for last 7 months, we have identified the following critical issues which may triggers failure of ERP implementations. i. Clear scope of Implementations ii. Top management commitment iii. Proper implementation strategy iv. Vendor Selections v. Project management vi. User training and education vii. Change Management Based upon the modification the final questionnaire in our survey, we have seen that some of the above critical issues are in some enterprises, other factors played vital role for other enterprises. For instance, critical factor Clear scope of Fig. 7 Critical factors distribution Pie-Chart Fig. 8 in next page depicts the causal analysis having critical factors and the sub factors using fishbone model based on the above critical issues. i. Clear scope of Implementations: Both the ERP Implementers and the enterprises should know the scope of ERP implementation before the adaptation of ERP Systems. Identify Critical Business Areas: The enterprises, adopting ERP systems, should identify the critical business areas where they need to implement ERP systems urgently. This will help ERP implementer to align the best practice with the enterprise s existing business processes. Identify the Modules: With the increase of the number of modules to be implemented, it will increase the investments also. So enterprises should identify the modules depending on 224

6 their budget and the return on investment before going for ERP system. Study Internal Weakness: Enterprises should minutely study their internal weakness before deciding to implement ERP system. In our survey, we had seen that most of the enterprises were not aware of their requirement at all, causing huge investments without any return on investment. ii. Top Management Commitment: It is the Top Management who takes the decision for adapting ERP systems in any enterprises and need supports throughout the implementation phases. Strong & Quick Decisions: There might be several occasions when the top managements need to take strong and quick decisions for smooth implantations of ERP systems. Strong Leaderships: Top management should show their strong leaderships and they should act as infrastructure facilitator for ERP implementers and project team. Motivate & Encourage Manpower: ERP systems implementations have always faced strong resistance from the employees which delayed most of the ERP implementations in IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: India where employees have fair to loose jobs due to ERP implementations. iii. Proper Implementation Strategy: This is another critical factor causing delays and failure of ERP implementations. There should have proper implantation strategies for successful ERP adaptations. Type of Implementations: There are two approaches of ERP Implementations: Vanilla implementations and Customized ERP implementation. Vanilla Implementations: Enterprises should take strategic decisions whether to go vanilla implantations where they the standardized business processes as embedded in the ERP systems. Minimal Customizations: Customizations in ERP systems are required when the existing business processes can not be fit or mapped with the standardized processes provided by ERP systems. Government enterprises, irrespective of their sizes, are more resistant to change their years old business processes. These cause huge customizations which in turn increase investments and reduce stabilities and quickness of the ERP systems. Fig. 8 Fishbone Analysis for Successful ERP implementations in the context of Indian Enterprises Proper Planning: Proper planning is required for successful ERP implementations otherwise it causes delays and sometimes failure in spite of huge investments. Clear Communications: There should have clear communications between ERP implementers, EPR vendors and the enterprises for successful EPR Implementations. iv. Vendor Selections: Vendors selections are another critical factor for successful implementations of ERP systems. ERP systems Market Surveys: Enterprises should do market surveys before choosing ERP vendors. Internal & ERP Capabilities: Enterprise should study their business process minutely and the ERP capabilities before going for ERP implementations. Analysis Cost-Effectiveness: Cost is the critical factors for choosing ERP vendors. Enterprises should analyze competitive costeffectiveness of the ERP systems and finally choose the best one. v. Project Management: There should have proper project management for successful ERP 225

7 IRACST- International Journal of Research in Management & Technology (IJRMT), ISSN: implementations. Project team members are the actual implementers of ERP system. Specific Milestones: There should have specific milestones in place for successful ERP adaptation. Without any milestones, ERP implementation got delayed for a long time and sometime causing total failure. Skilled Project Team: ERP systems implementations are complex and lengthy process in nature. It requires skilled IT professionals with strong technology and domain knowledge. Timely UAT, SIT and Feedback: Specific milestones like User acceptance testing (UAT), System integration testing (SIT), phase-wise go-live dates should be set after extensive discussions between enterprise s management and the ERP implementers team. It will reduce delay in implementations and feedback should be taken during UAT and SIT sessions so that ERP systems can be implemented to integrate the enterprise s existing business process successfully with out any gap. vi. User Training & Educations: As ERP systems are new to the enterprises, users trainings and educations are necessary to make its users aware of the through business processes in the ERP systems. Skilled Manpower: Skilled ERP resources are required to run ERP systems. It is management discretion either to use their existing resources after detailed trainings and educations or hire skilled professionals. ERP Systems Training: System trainings are required for increasing awareness of the users about the ERP systems and ERP business processes. It will take sometimes for the users to cope up with the new ERP systems. Hired skilled professionals: If the enterprises do not have sufficient ERP professionals, they need to hire experts by conducting recruitment processes. vii. Change Management: The implementations of EPR systems bring a change in the enterprises in terms of business processes and enterprise culture. It is crucial that changes should be appropriately managed on two levels. First, there are the changes to the organization. Second there are the changes that are made to the business processes by the use of the ERP system. Change Business Culture: ERP systems bring business culture change at the organizational level. Management has to take prompt step to cope up with the new changing business environment. Standardize Internal Processes: With the implementations of ERP systems, enterprises adapt standardized processes that are used by enterprises across the globe. It make easy to grow business in global markets. Any organizations implementing ERP systems or in the process of implementing ERP packages should consider all these critical issues and should take necessary steps to reduce or mitigate these critical issues during ERP implementations, which, in turn, cause successful ERP implementations. 6. CONCLUSION: The findings of this paper are purely survey based. We tried to combine both the quantitative and qualitative approaches to find out the critical factors affecting ERP implementations in context of Indian enterprises. The causal analysis using Fishbone model will be helpful for Indian enterprises to focus on the critical issues like vendor selection, user training and education, proper implementation strategy, clearly defined scope of implementation procedure, proper project planning and minimal customization. The managers and users can be benefited from this study by identifying those key issues to make the implementation procedure smooth without any disruption. Further ERP vendors can take inputs from this study to change their implementation approach while targeting small scale enterprises. A well-designed and properly integrated ERP system allows the most updated information to be shared among various business functions, thereby resulting in tremendous cost savings and increased efficiency and provide competitive advantages. REFERENCE: [1] A. Al-Mudimigh, M. Zairi, M. Al-Mashari, ERP software implementation: an integrative framework, European Journal of Information Systems 10 (4) (2001) 216 [2] Ali Noudoostbeni, To investigate the Success and Failure Factors of ERP implementation within Malaysian Small and Medium Enterprises, /09 $ IEEE, 2009, pp [3] Correll, J. G. (1995), Reengineering the MRP II environment: The key is successfully implementing change, IIE Solutions; Norcross, Vol. 27 No. 7, pp [4] Doom, C. and Milis, K Critical Success Factors of ERP implementation in Belgian 2nd Workshop on 3rd Generation Enterprise Resource Planning Systems SME, Denmark, (2008). [5] F. Jacobs, E. Bendoly, Enterprise resource planning: developments and directions for operations management research, European Journal of Operational Research 146 (2) (2003)

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