IRC S INTERNATIONAL JOURNAL OF MULTIDISCIPLINARY RESEARCH IN SOCIAL & MANAGEMENT SCIENCES ISSN:2320-8236 VOLUME:2,ISSUE:2 APRIL-JUNE2014 www.ircjournals.org Critical Success Factors of ERP Implementations An Analysis R. Saravanan Project Manager Computer Sciences Corporation India Private Limited. Chennai, TamilNandu. Abstract Enterprise Resource Planning (ERP) systems are information systems that integrate Organizational activities across geographical and functional divisions. They are used within and outside Organizations in order to standardize its data and streamline its business processes. However, the envisaged benefits of implementing an ERP system, such as better control over the company s operations and seamless integration and data exchange, often fail to materialize. Much has been written about implementation and the critical success factors for ERP implementation projects. An attempt is being made through this study to analyse the available research papers across the geography and provide an overview to the industry benefits. Key words: ERP Implementation, Critical Success Factors, CSF, ERP INTRODUCTION The organizations which have successfully implemented ERP systems are reaping the benefits of having integrating working environment, standardized process and operational benefits to the organization. Not all ERP implementations have been successful. There have been negative cases of ERP implementation and improper implementation has taken the companies to bankruptcy and in several cases organizations decided to abandon the ERP implementation projects. The questions many academicians and researchers have asked what are the reasons of success and failure of ERP implementations. Methodology This study is to review of Literature exclusively about Critical Success Factors (CSF) in ERP Implementations. All the articles selected were published in prestige journals. I have used the terms ERP, Enterprise Resource Planning, ERP success factors. I have limited the search date to be between (1999 and 2013) in order to get relatively new articles. Benefits of ERP ERP systems are designed to improve competitiveness, flexibility, productivity and responsiveness to customer needs in a global economy (Otto Korhonen, 2013). Several research studies have identified various important benefits the ERP systems bring to organizations. ERP system integrates the majority of the business processes and allows access to the data in real time. Furthermore, ERP improves the performance level of a supply chain by helping to reduce cycle times. There are also some intangible benefits that an organization may enjoy by implementing an ERP system including, better customer satisfaction, improved vendor performance, increased flexibility, reduced quality costs, improved resource utility, improved information accuracy and improved decision-making capability. Drawbacks of ERP Despite ERP s promises to benefit companies and a substantial capital investment, not all ERP implementations have successful outcomes. (Goeun Seo, 2013). For example, most ERP systems tend to be large, complicated, and expensive. Moreover, ERP implementation requires an enormous time commitment from an organization s information technology department or outside professionals. In addition, because ERP systems affected most major departments in a company, they tended to create changes in many b usiness processes. Much of the research reported that the failure of ERP implementations was not caused by the ERP software itself, but rather by a high degree of complexity from the massive changes ERP causes in organizations (Goeun Seo, 2013) Model Development Several Studies have dealt with different models of evaluation of CSF measurement of ERP Implementations. The following model is the common model proposed from various studies. (T.R. Bhatti, 2005). IRC S INTERNATIONAL JOURNAL OF MULTIDISCIPLINARY RESEARCH IN SOCIAL & MANAGEMENT SCIENCES ISSN: 2320-8236 WWW.IRCJOURNALS.ORG 111
ERP Implementation Process Implementation of CSFs Implementation Success Project Outcomes Business Outcomes According to G. Shanks, A Parr, B. Hu and B. Corbitt (2000) the notion of success changes as the implementation project unfolds, considering 4 Stages Process Model: 1. Planning 2. Implementation 3. Stabilization 4. Improvement Planning Implementation Stabilization Improvement From the above 4 stage process steps, for the first two stages (Planning & Implementation), success is mainly concerned with completion of the project, to acceptable standards, on time and within budget. For the last two stages (Stabilization & Improvement), success is more concerned with the perceived contribution of the system to organizational performance. Throughout, the success would be assessed from the point of view of senior management. Critical Success Factors Analysis I have taken 23 Research Papers / Journals for analysis as indicated in the table below, which are exclusively conducted towards Critical Success Factors of ERP Implementations. These authors have mentioned and discussed in detail on CSF-s through their studies among various organizations. Our main approach was to derive the frequency of each CSF among these research studies and then to discuss about the top 12 ranked CSF-s for the benefit of the Industry. 112
Christopher P. Holland and Ben Light (1999) G. Shanks*, A Parr**, B. Hu*, B. Corbitt* (2000) Liang Zhang, Matthew K.O. Lee, Zhe Zhang1, Probir Banerjee (2002) Ada Wong, Harry Scarbrough (2003) Meg Fryling (2004) T.R. Bhatti (2005) Princely Emili Ifinedo (2006) BooYoung Chung, Ph.D., (2007) Houman Kalbasi (2007) Shih-Wen Chien, Shu-Ming Tsaur b (2007) E.W.T. Ngai, C.C.H. Law*, F.K.T. Wat (2007) Shih-Wen Chien, Shu-Ming Tsaur (2007) Oyana Velcu (2008) Khaled Al-Fawaz, Zahran Al-Salti, Tillal Eldabi, (2008) Stephan A. Kronbichler & Herwig Ostermann and Roland Staudinger (2009) Miguel Maldonado (2009) Kwang Su Wei and Dr. Alain ChongYee Loong; (2009) Gordon Baxter (2010) Majid Aarabi 1, 2*, Muhamad Zameri Mat Saman (2011) San Luis Obispo (2012) YEHOSHUA ITZHAIK (2012) Otto Korhonen (2013) Goeun Seo (2013) Frequency CRITICAL SUCCESS FACTORS OF ERP IMPLEMENTATIONS AN ANALYSIS Research Authours & Year Critical Success Factors 1 Top management support 13 2 The implementation team 12 3 Project Management 12 4 Business plan/vision/goals 11 Architecture choices, technical implementation, technological 5 infrastructure 11 6 Training 10 Legacy systems knowledge 7 (data analysis & conversion) 7 8 Re-engineering Business Process 7 9 Organizational Culture 7 Change management 10 programme 6 11 Communication 6 12 Partnership / Vendor Support 3 13 Testing Effectiveness 2 14 Employees general IT skills 2 15 Company-Wide Commitment 1 16 Management of Risk 1 17 Organization s or firm size 1 18 Organizational structure 1 19 Data Management 1 Discussion on Top 12 Critical Success Factors of ERP Implementations 1 Top management support The organization should have a top management and steering committee of the ERP Implementation project that is highly committed to the implementation and is comprised of individuals with differentiated views of the implementation. According to Otto Korhonen (2013) the earlier researchers define top management concerns in the ERP context with 4 dimensions which must be supported by top management. Change Management Dimension Process Dimension People Dimension Project Dimension Top Management has to support the whole implementation process and the project needs to be authorized by top Management. According to Christopher P. Holland and Ben Light (1999), Top management support is required 113
because implementing an ERP system demands creation of organisation wide commitment. Top management support in ERP implementation has two main facets: (1) providing leadership; and (2) providing the necessary resources. To implement ERP system successfully, management should monitor the implementation progress and provide clear direction of the project. (T.R. Bhatti, 2005) 2 The implementation team Team composition and Teamwork is very important for successful ERP implementation. An ERP project involves all of the functional departments in an enterprise. It needs the cooperation of technical, business experts and external consultants as well as the involvement of end-users in different project-phases. The ERP project team comprises of functional personnel and management, IT personnel and management, top management, ERP vendor, parent company employees, management consultants and the hardware member. The success of ERP projects is related to the knowledge, the skills, the abilities and the experiences of the project team members but externals should be used as true consultants and not as long-term additions to internal staff. External knowledge is often needed to facilitate successful implementation with the new technology. Team composition & teamwork includes the CSFs Project Team competence, dedicated resources, use of consultants, ERP teamwork and composition, ERP team composition, skills and compensation, team work, personnel, appropriate usage of consultants, balanced team, release of business- experts and setup a team that is qualified and represents the various functional areas. (Stephan A. Kronbichler & Herwig Ostermann and Roland Staudinger, 2009). The ERP team should be balanced, or cross functional and comprise a mix of external consultants and internal staff so the internal staff can develop the necessary technical skills for design and ERP implementation. Further, the members of the project team(s) must be empowered to make quick decisions. (T.R. Bhatti, 2005) 3 Project Management ERP systems implementation is a set of complex activities thus organizations should have an effective project management strategy to control the implementation process. (Khaled Al-Fawaz, Zahran Al-Salti, Tillal Eldabi, 2008). Project Management coordinates the use of skills and knowledge. Furthermore it monitors the progress and the achievement of objectives of the according ERP project. The formal project implementation plan defines milestones like project activities, personnel planning on activities and organizes the ERP project process. The implementation of an ERP system is a complex project which involves a possibility of occurrence of unexpected events. Therefore the management of risk is needed to minimize the impact of unplanned incidents by identify ing potential risks before negative consequences occur. Project management consists of the following CSF: good project scope management, formalized project plan / schedule, definition of scope and goals, risk management, alignment of people, process and technology and agree on different project steps. (Stephan A. Kronbichler & Herwig Ostermann and Roland Staudinger, 2009). 4 Business plan/vision/goals Clear goals and objectives are essential to guide an ongoing organizational effort for ERP implementation as it usually exceeds the time frame for a typical business project. (T.R. Bhatti, 2005). A clear business plan and vision should be behind the implementation strategy to know in which direction the project must be steered. In project management three often competing and interrelated goals that need to be met are mentioned: scope, time, and cost goals. There must be a clear business plan how the goals can be achieved. (Stephan A. Kronbichler & Herwig Ostermann and Roland Staudinger, 2009). In fact, Deloitte Consulting (2000) attributed the high failure rates of ERP projects to poorly defined goals and mission, and it has been suggested that there is a need to have strategic clarity before embarking on its adoption. (Princely Emili Ifinedo, 2006). The business plan should outline the anticipated strategic and tangible benefits, resources required, and risks and costs involved in the adoption of ERP. Business goals should be tracked. It is recommended that the goals of the project be set before the support of top management is sought. (E.W.T. Ngai, C.C.H. Law, F.K.T. Wat, 2007) 5 Architecture choices, technical implementation, technological infrastructure The selection of the adapted ERP software is difficult because there several ERP packages available on the ma rket and every product have its own strengths and weaknesses, both from products site and ease of implementation. It is necessary to continuously measure the performance of the ERP implementation to assess the developments and the problems occurring. This CSF covers the following CSFs mentioned in the literature: Careful package selection, architecture choices, system analysis, selection and technical implementation, technological infrastructure, adequate 114
ERP version, adequate software configuration, ERP software package selection / careful selection of the appropriate package, suitability of software and hardware, defining the architecture and monitoring and evaluation of performance. (Stephan A. Kronbichler & Herwig Ostermann and Roland Staudinger, 2009). Due to the lack of professional expertise and experience on developing ERP systems in-house, many companies prefer to buy off-theshelf systems to shorten the ERP implementation cycle. ERP packages provide generic off-the-shelf business and software solutions to customers. More or less they can t fully meet the company s needs, especially when the business processes of the company are unique. Thus, to increase the chance of success, management must choose software that most closely fits its requirements. (Liang Zhang, Matthew K.O. Lee, Zhe Zhang1, Probir Banerjee (2002). 6 Training End user training has been recognized as a critical factor for ERP implementation. Due to the complexity of the integrated ERP system, end user training is essential for a robust understanding of how the system works and how to use it. Consequently, appropriate end user education and training will maximize ERP benefits and increase user satisfaction. (Goeun Seo, 2013). The complexity of ERP systems results in enormous learning curves and behavioural changes for users. ERP projects require significant amount of involvement and dedication to the project. If there is no training program this results in low acceptance and curbs the progress of the project. This means reskilling users in new technologies and training in the use of specific application modules. Key users of a company should not only be experts in the company s processes but also be aware of the knowledge of information systems in the specific branch. Involving users can decrease their resistance to the potential ERP system, if users have feelings that they are the people who choose and make the decision. This CSF summarizes the CSFs user training, extensive education and training, education on new business processes, user involvement, scope of user training and adequate training program. (Stephan A. Kronbichler & Herwig Ostermann and Roland Staudinger, 2009). ERP systems are not simple to use even for experienced IT managers. It is identified that there are generally three trainee groups and respective strategies: users, steering committee members and project members. (Otto Korhonen, 2013). 7 Legacy systems knowledge To manage the complexity of legacy systems is an important part of a successful ERP implementation or ERP alternating project. In the early days of an ERP project it is often hard to know how many and which legacy systems will have to be retained. According to and the majority of difficulties experienced during ERP implementations were the costly developments of additional software as an interface to the legacy systems for master data as well as for transaction data. In the literature there are the three CSFs appropriate business and IT legacy systems, adequate legacy systems knowledge and data analysis and conversion mentioned. (Stephan A. Kronbichler & Herwig Ostermann and Roland Staudinger, 2009). Taking into consideration all the risk factors included in dirty data, all data to be migrated into the ERP system should be cleaned before the operation. The workload may be tremendous and therefore should be started well before the migration takes place. (Otto Korhonen, 2013). It is necessary to evaluate the current legacy system, as greater and more complex legacy systems require more technological and organizational changes during the transitional period of ERP implementation. (E.W.T. Ngai, C.C.H. Law, F.K.T. Wat, 2007). 8 Business Process Re-engineering Modern information technology or systems, such as ERP systems, allow or even force implementing organizations to rethink the way business is done, by for example automating processes or getting rid of the non -value adding activities. (Otto Korhonen, 2013). ERP systems are built on best practices for the specific industry, and to successfully install ERP, all the processes in a company have to conform to the ERP model. The higher the degree of customisation, the lower will be the performance of ERP projects. This is one of the reasons why many consulting firms deliver standard systems which are called Vanilla ERP. (Stephan A. Kronbichler & Herwig Ostermann and Roland Staudinger, 2009). Hammer and Champy (2001) defined Business process re-engineering (BPR) as the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed. Organizations should be willing to change their businesses to fit the software in order to reduce the degree of customizations. Many organizations have made unnecessary, complex customizations to ERP software because the people making the changes do not fully understand the organization s business practices. New business model and reengineering that drives technology 115
choice is an enabling factor that can give to ERP success. (Khaled Al-Fawaz, Zahran Al-Salti, Tillal Eldabi, 2008). The cost and the possibility of error will be increased if more customization for the software was undertaken. (E.W.T. Ngai, C.C.H. Law, F.K.T. Wat, 2007) 9 Organizational Culture Organizational culture is a way things are done in the business, and shared perceptions, beliefs, symbols, rites and rituals, and myths may be taken for granted in an organization. Thus, the existing culture in a company may have a bearing on the way people within it work, deal with others, and adopt and use technology. Many researchers have suggested that the core values in the corporate culture of adopting firms can cause mis match problems during the ERP implementation process and adversely affect benefit realization from such systems. Essentially, organizational culture is related to how the overall success of an ERP system is perceived in adopting organizations. This is because employees who are used to doing things certain ways due to shared and enforced beliefs may have to accommodate the change that ERP imposes to enhance success with their software. (Princely Emili Ifinedo, 2006). 10 Change management programme Change management is a primary concern of many organizations involved in ERP project implementation. Many ERP implementations fail to achieve expected benefits, possibly because companies underestimate the efforts involved in change management identify organizational change is the body of knowledge that is used to ensure that a complex change, like that associated with a new big information system, gets the right results, in the right timeframe, at the right costs. Generally, one of the main obstacles facing ERP implementation is resistance to change. The resistance to change is one of the main hurdles faced by most compan ies. (T.R. Bhatti, 2005). The effective implementation of an ERP system requires change management strategies and an understanding of organizational culture. Change management involves the effective balancing of forces in favour of a change over forces of resistance. Training and education is an important process in change management. Many previous studies conducted in various regions/countries have indicated that training and education should be provided to employees or users. This allows the users to understand the overall concepts of the ERP system and ensures their acceptance and readiness to use the new system. (E.W.T. Ngai, C.C.H. Law, F.K.T. Wat, 2007). There are 3 levels of change management: At the most straightforward level companies act directly, at the next level employees may need to adjust their practices or adopt new ones and at the deepest level it s a cultural change which is necessary. There are different change management strategies which are necessary to change the attitudes of potential u sers. (Stephan A. Kronbichler & Herwig Ostermann and Roland Staudinger, 2009) 11 Communication Communication is one of most challenging and difficult tasks in any ERP implementation project. It is considered a critical success factors for the implementation of ERP systems by many authors. It is essential for creating an understanding, an approval of the implementation and sharing information between the project team and communicating to the whole organization the results and the goals in each implementation s tage. In addition to gaining approval and user acceptance, the communication will allow the implementation to initiate the necessary final acceptance. The communication should start early in the ERP implementation project and can include overview of the system and the reason for implementing it be consistent and continuous. (T.R. Bhatti, 2005). Clear and effective communication at all levels of an organization is necessary before and during the implementation of ERP. Communication includes the formal promotion of ERP project teams and advertisements on the project s progress to the rest of the organization. The effective communication is one of the success factors that influence the acceptance of technology in an ERP implementation environment. (E.W.T. Ngai, C.C.H. Law, F.K.T. Wat, 2007). The organization should have a detailed communication plan and strategy that ensures the successful communication of project plan and progress to all relevant stakeholders. Communication and cooperation should be of two kind s: inwards the project team and outwards to the whole organization. It is necessary to create an understanding and an approval of the implementation. Sharing information between the project team and communicating the results and the defined goals to the rest of the organization in each project stage is as important too. This CSF consists of communication, interdepartmental co-operation, interdepartmental communication and effective communication. 12 Partnership During different phases of ERP projects there are usually three major parties involved. That means the organization implementing the system, the organization that developed the ERP system and an organization aiding the 116
implementation. A good commercial partnership will ease achievement of the goals defined. External perspectives and knowledge can contribute much to the ERP project because suppliers can be utilized as resources brought in, to work under in-house direction and control. The affecting CSFs are trust between partners and ERP Consultants/ vendor/ customer partnership. Three dimensions of vendor support are classified: (1) Service response time of the software vendor; (2) Qualified consultants with knowledge-ability in both enterprises business processes and information technology including vendors ERP systems; and (3) Participation of vendor in ERP implementation. It s important for the vendor s staffs to be knowledge-ability in both business processes and ERP system functions. Also, the consultants should possess good interpersonal skills and be able to work with people. Software vendors should be carefully selected since they play a crucial part in shaping the ultimate outcome of the implementation. (Liang Zhang, Matthew K.O. Lee, Zhe Zhang1, Probir Banerjee, 2002). Every enterprise has its own ideas how to implement and adopt a system. Ideas of the ERP-vendor can contrast with the customer s wishes. Synthesising these differences is essential for the success of ERP Implementations. (Stephan A. Kronbichler & Herwig Ostermann and Roland Staudinger, 2009). Conclusion For the benefit of the Industry, these top 12 Critical Success Factors are listed and discussed in detail. These can be considered before initiating any ERP Implementation project by the Organisations, critically validated and necessary attention provided to ensure these factors are in place in the ERP Implementation strategy. There are many possibilities that this CSF-s can be validated for the applicability of each Project, based on the Industry, Geography, Technology, Application, Business Processes, Organisations, and Data. Also the measurement of the Critical Success Factors are also to be mentioned and agreed with the stake holders of the ERP Implementation Project in advance, so that this can be measured during the course of the project and necessary action can be taken towards improvement. References 1. Christopher P. Holland and Ben Light (1999) A Critical Success Factors Model For Enterprise Resource Planning Implementation 2. G. Shanks, A Parr, B. Hu, B. Corbitt (2000) Differences in Critical Success Factors in ERP Systems Implementation 3. Liang Zhang, Matthew K.O. Lee, Zhe Zhang1, Probir Banerjee (2002), Critical Success Factors of Enterprise Resource Planning 4. Ada Wong, Harry Scarbrough (2003), Critical Failure Factors in ERP Implementation. 5. Meg Fryling (2004), The Dynamics of ERP Success. 6. T.R. Bhatti (2005), Critical Success Factors For The Implementation Of Enterprise Resource Planning (ERP). 7. Princely Emili Ifinedo (2006), Enterprise Resource Planning Systems Success Assessment. 8. BooYoung Chung, Ph.D., (2007), An Analysis Of Success And Failure Factors For ERP Systems In Engineering And Construction Firms 9. Houman Kalbasi (2007), Assessing ERP Implementation Critical Success Factors. 10. Shih-Wen Chien, Shu-Ming Tsaur, (2007), investigating the success of ERP systems. 11. E.W.T. Ngai, C.C.H. Law*, F.K.T. Wat (2007), Examining the critical success factors in the adoption of enterprise resource planning 12. Shih-Wen Chien, Shu-Ming Tsaur (2007), Investigating the success of ERP systems 13. Oyana Velcu (2008), Drivers of ERP Systems Business Value 14. Khaled Al-Fawaz, Zahran Al-Salti, Tillal Eldabi (2008), Critical Success Factors In ERP Implementation. 15. Stephan A. Kronbichler & Herwig Ostermann and Roland Staudinger (2009), A Review of Critical Success Factors for ERP-Projects 16. Miguel Maldonado (2009), Factors impacting the Success of ERP Implementations. 17. Kwang Su Wei and Dr. Alain ChongYee Loong; Ying-Mei Leong and Keng-Boon Ooi (2009), Measuring ERP System Success: A Respecification Of The Delone And Mclean s Is Success Model. 18. Gordon Baxter (2010), Key issues in ERP system implementation. 19. Majid Aarabi, Muhamad Zameri Mat Saman (2011), Critical Success Factors of Enterprise Resource Planning Implementation in Small and Medium. 20. San Luis Obispo (2012), Comparative Analysis of ERP Emerging Technologies. 21. Yehoshua Itzhaik, (2012), Success Factors Of Selective Information Technology Outsourcing ERP Projects. 22. Otto Korhonen (2013), Successful Management of ERP Implementations: A Case Study. 23. Goeun Seo (2013), Challenges in Implementing Enterprise Resource Planning (ERP). 24. www.google.co.in 117